UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Principal Executive Offices)(Zip Code) Telephone Number, Including Area Code) Title of each class Name of each exchange on which registered NONE $1,663,285,508. the resolution of Merger-related issues. also has a wholly-owned subsidiary, Financial Pacific Leasing Inc., a commercial equipment leasing company. quality” program rewards both individual sales associates and store teams with financial incentives. Through such programs, we are able to measure the quality of service provided to our customers and maintain employee focus on quality customer service. package that includes relationship pricing for deposit and loan products, and invitation to “Business Therapy” seminars. The stores host a variety of after-hours events, from poetry readings to 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. Umpqua’s “Innovation Lab” is a one-of-a-kind location, showcasing emerging and existing technologies that foster community and redefine what consumers can expect from a banking experience. As a testing ground for new initiatives, the Lab will change regularly to feature new technology, products, services and community events. 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 fiscal condition of state and local governments does not improve, there could be an adverse effect on business conditions in the affected state that would negatively impact the prospects for the Benton Clackamas Coos Curry Deschutes Douglas Jackson Josephine Lane Lincoln Linn Marion Multnomah Washington Amador Butte Calaveras Colusa Contra Costa El Dorado Glenn Humboldt Lake Mendocino Napa Placer Sacramento San Joaquin Shasta Solano Sonoma Stanislaus Sutter Tehama Trinity Tuolumne Yolo Yuba Clark King Pierce Snohomish Washoe amount. ALLL. The TAGP expired as of December 31, 2012 and the FDIC will no longer provide separate, unlimited deposit insurance under that program. 2013 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. 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 prohibits banks from providing correspondent accounts directly to foreign shell banks; imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals; requires financial institutions to establish an anti-money-laundering (“AML”) compliance program; and generally eliminates civil liability for persons who file suspicious activity reports. prohibition on personal loans by Umpqua to its directors and executive officers except loans made by the Bank in accordance with federal banking regulations; independence requirements for Board audit committee members and our auditors; certification of reports under the Securities Exchange Act disclosure of off-balance sheet transactions; expedited reporting of stock transactions by insiders; and increased criminal penalties for violations of securities laws. management to establish, maintain, and evaluate disclosure controls and procedures; management to report on its annual assessment of the effectiveness of internal controls over financial reporting; our external auditor to attest to the effectiveness of internal controls over financial reporting. the Capital Purchase Program allocated $250 billion to the United States Treasury ("Treasury") to purchase senior preferred shares and warrants to purchase commons stock from approved financial institutions; the the Commercial Paper and Money Market Investor Funding Facilities authorized the Federal Reserve Bank of New York to purchase rated commercial paper from U.S. companies and to purchase money market instruments from U.S. money market mutual funds. Permanently WASHINGTON,United States Securities and Exchange Commission Washington, D.C. 20549FORM 10-K[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended: December 31, 2011[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to .[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended: December 31, 2013 [ ] 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:001-34624UMPQUA HOLDINGS CORPORATIONUmpqua Holdings Corporation (Exact name (Exact Name of Registrant as specifiedSpecified in its charter)Its Charter)OREGON 93-1261319 (State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number) of Incorporation or Organization) ONEOne SW COLUMBIA STREET, SUITEColumbia Street, Suite 1200 PORTLAND, OREGONPortland, 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: Securities registered pursuant to Section 12(g) of the Act: Common Stock Securities registered pursuant to Section 12(g) of the Act: Common StockIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.[ X] Yes [ x ] No [ ]Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. Yes [ ] Yes [X] No [ x ]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 [ x ] 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 ]X] Yes [ ] NoIndicate 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’sregistrant'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. [ ]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitiondefinitions of “accelerated filer”, “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:[X] Large Acceleratedaccelerated filer [ x ] 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 [ ] Yes [X] No [ x ]The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2011,2013, based on the closing price on that date of $11.57$15.01 per share, and 113,403,414110,811,826 shares held was $1,312,077,500.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’sRegistrant's common stock (no par value) outstanding as of January 31, 20122014 was 112,193,401.112,185,772.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the 20122014 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 INDEX2PART IITEM 1. BUSINESS.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 “anticipates,” “expects,” “believes,” “estimates” and “intends” and words or phrases of similar meaning. We make forward-looking statements regarding projected sources of funds, use of proceeds, 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 and subsequent chargeoffs.chargeoffs, our covered loan portfolio and the Federal Deposit Insurance Corporation ("FDIC") indemnification asset, the benefits of the Financial Pacific leasing, Inc. ("FinPac") acquisition, and the proposed merger ("Merger") with Sterling Financial Corporation ("Sterling"). 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 SEC,Securities and Exchange Commission ("SEC"), Item 1A of this Annual Report on Form 10-K, and the following:our ability to attract new deposits and loans and leases; demand for financial services in our market areas; competitive market pricing factors; deterioration in economic conditions that could result in increased loan and lease losses; risks associated with concentrations in real estate related loans; market interest rate volatility; 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 restrict growth; our ability to recruit and retain key management and staff; availability of, and competition for acquisition opportunities; risks associated with merger and acquisition integration; significant decline in the market value of the Company that could result in an impairment of goodwill; our ability to raise capital or incur debt on reasonable terms; 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 related rules and regulations on the Company’s business operations and competitiveness, including the impact of executive compensation restrictions, which may affect the Company’s ability to retain and recruit executives in competition with firms in other industries who do not operate under those restrictions;the impact of the Dodd-Frank Act on the Company’s interest expense, FDIC deposit insuranceassessments, regulatory compliance expenses, and interchange fee revenue, which includes a maximum permissible interchange fee that an issuer may receive for an electronic debit transaction, resulting in a decrease in interchange revenue on an average transaction; andthe impact of the new “Basel III” capital rules issued by federal banking regulators in July 2013 ("Basel III Rules") that could require the Company to adjust the fair value, including the acceleration of losses, of the trust preferred securities.the possibility that the proposed Merger with Sterling does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;the effect on the trading price of our stock if the Merger with Sterling is not completed; 3benefits from the Merger may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which we operate;Sterling’s business may not be integrated into Umpqua’s successfully, or such integration may take longer to accomplish than expected;the anticipated growth opportunities and cost savings from the Merger may not be fully realized or may take longer to realize than expected;operating costs, customer losses and business disruption following factors that might cause actual resultsthe Merger, including adverse developments in relationships with employees, may be greater than expected; andmanagement time and effort will be diverted to differ materially from those presented:•our ability to attract new deposits and loans and leases;•demand for financial services in our market areas;•competitive market pricing factors;•deterioration in economic conditions that could result in increased loan and lease losses;•risks associated with concentrations in real estate related loans;•market interest rate volatility;•stability of funding sources and continued availability of borrowings;•changes in legal or regulatory requirements or the results of regulatory examinations that could restrict growth;•our ability to recruit and retain key management and staff;•availability of, and competition for, FDIC-assisted and other acquisition opportunities;•risks associated with merger and acquisition integration;•significant decline in the market value of the Company that could result in an impairment of goodwill;•our ability to raise capital or incur debt on reasonable terms;•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 related rules and regulations on the Company’s business operations and competitiveness, including the impact of executive compensation restrictions, which may affect the Company’s ability to retain and recruit executives in competition with firms in other industries who do not operate under those restrictions;•the impact of the Dodd-Frank Act on the Company’s interchange fee revenue, interest expense, FDIC deposit insurance assessments and regulatory compliance expenses, which includes a maximum permissible interchange fee that an issuer may receive for an electronic debit transaction, resulting in an approximate 50% decrease in interchange revenue on an average transaction.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.Umpqua Holdings CorporationIntroductionUmpqua Holdings Corporation (referred to in this report as “we,” “our,” “Umpqua,” and “the Company”), 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.Act of 1999 ("GLB Act"). Umpqua has two principal operating subsidiaries, Umpqua Bank (the “Bank”) and Umpqua Investments, Inc. (“Umpqua Investments”). Prior to July 2009, Umpqua Investments was known as Strand, Atkinson, Williams and York, Inc. (“Strand”).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 Securities and Exchange Commission (“SEC”).SEC. You may obtain these reports, and any amendments, from the SEC’sSEC's website atwww.sec.gov. You may obtain copies of these reports, and any amendments, through our website atwww.umpquaholdingscorp.com. These reports are available through our website as soon as reasonably practicable after they are filed electronically with the SEC. All of our SEC filings since November 14, 2002 have been made available on our website within two days of filing with the SEC.General BackgroundHeadquartered in Portland,Roseburg, Oregon, Umpqua Bank is considered one of the most innovative community banks in the United States combiningand has implemented a variety of retail marketing strategies to increase revenue and differentiate the itself from its competition. The Bank combines a high touch customer experience with the sophisticated products and expertise of a commercial bank. The Bank has implemented a variety of retail marketing strategies to increase revenue and differentiate the company from its competition. The Bank provides a wide range of banking, wealth management, mortgage banking and other financial services to corporate, institutional, and individual customers. Along with its subsidiaries, theThe Bank is subject to the regulations of state and federal agencies and undergoes periodic examinations by these regulatory agencies. See “Supervision and Regulation” below for additional information.Umpqua Investments is a registered broker-dealer and registered investment advisor with offices in Portland, Lake Oswego, and Medford, Oregon, and Santa Rosa, California, and also offers products and services offered 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, money management services and life insurance.Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes periodic examinations by these regulatory agencies. Business StrategyUmpqua Bank’s principal objective is to become the leading community-oriented financial services retailer throughout the Pacific Northwest and Northern California. WeWestern United States. With the proposed Sterling merger, we plan to continue the expansion of our market from Seattle to San Francisco, primarily along the I-5 corridor.into Southern California, Eastern Washington, Eastern Oregon, and Idaho. We intend to continue to grow our assets and increase profitability and shareholder value by differentiating ourselves from competitors through the following strategies:4Capitalize Onon Innovative Product Delivery System. Our philosophy has been to develop an environment for the customer that makes the banking experience relevant and enjoyable. With this approach in mind, we have developed a unique store concept that offers “one-stop” shopping and includes distinct physical areas or boutiques, such as a “serious about service center,” an “investment opportunity center” and a “computer café,” which make the Bank’sBank's products and services more tangible and accessible. In 2006, we introduced our “Neighborhood Stores” and in 2007, we introduced the Umpqua “Innovation Lab.” In 2010, we introduced the next generation version of our Neighborhood Store in the Capitol Hill area of Seattle, Washington. In 2013, we introduced the next generation of our flagship store in San Francisco. We are continuing to remodel existing and acquired stores in metropolitan locations to further our retail vision and have a consistent brand experience.Deliver Superior Quality Service. We insist on quality service as an integral part of our culture, from the Board of Directors to our new salesnewest associates, and believe we are among the first banks to introduce a measurable quality service program. Under our “return on quality” program, the performance of each sales associate and store is evaluated monthly based on specific measurable factors such as the “sales effectiveness ratio” that totals the average number of banking products purchased by each new customer. The evaluations also encompass factors such as the number of new loan and deposit accounts generated in each store, reports by incognito “mystery shoppers” and customer surveys. Based on scores achieved, Umpqua’s “return onEstablish Strong Brand Awareness. As a financial services retailer, we devote considerable resources to developing the “Umpqua Bank” brand. This is done through design strategy, marketing, merchandising, community based events, and delivery through our customer facing channels. From Bank branded bags of custom roasted coffee beans and chocolate coins with each transaction, to educational seminars and three Umpqua-branded ice cream trucks, Umpqua’s goal is to engage our customer with the brand in a whole new way. The unique look and feel of our stores and interactive displays help position us as an innovative, customer-friendly retailer of financial products and services. We build consumer preference for our products and services through strong brand awareness.Use Technology to Expand Customer Base. Although our strategy continues to emphasize superior personal service, as consumer preferences evolve we continue to expand user-friendly, technology-based systems to attract customers who want to interact with their financial institution electronically. 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 a robust internet web site. We believe the availability of both traditional bank services 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 and strong brand awareness, we believe that there is significant potential to increase business with current customers, to attract new customers in our existing markets and to enter new markets.Pursue Strategic Acquisitions. A part of our strategy in this economic environment is to pursue the acquisition of banks within orand financial services companies in proximity to our geographic footprint that may be operating under capital constraints, regulatory pressure or other competitive disadvantages. We also consider the acquisition of certain failing banks that the FDIC makes available for bid, and that meet our strategic objectives. Failed bank transactions are attractive opportunities becausemarkets where we can acquire loans subject to a loss share agreement with the FDIC, or at a significant discount, that limits our downside risk on the purchased loan portfolio and, apart from our assumption of deposit liabilities, we have significant discretion as to the non-deposit liabilities that we assume. Assets purchased from the FDIC are marked to their fair value. We have completed four FDIC-assisted transactions since January 1, 2009.see growth potential.Marketing and SalesOur goal of increasing our share of financial services in our market areas is driven by a marketing and sales strategy with the following key components:Media Advertising. Our comprehensive marketing campaigns aim to strengthen the Umpqua Bank brand and heighten public awareness about our innovative delivery of financial products and services. The Bank has been recognized nationally for its use of new media and unique approach. From programs like Umpqua’sthe Bank's Discover Local Music Project and ice cream trucks, to campaigns like “SaveSave Hard Spend Smart”Smart and the “Lemonaire,”Lemonaire, Umpqua is utilizing nontraditional media channels and leveraging mass market media in new ways. In 2005 Umpqua dubbed the term “hand-shake marketing”"hand-shake marketing" to describe the Company’sBank's fresh approach to localized marketing.5Retail Store Concept. As a financial services provider, we believe that the store environment is critical to successfully market and sell products and services. Retailers traditionally have displayed merchandise within their stores in a manner designed to encourage customers to purchase their products. Purchases are made on the spur of the moment due to the products’products' availability and attractiveness. Umpqua Bank believes this same concept can be applied to financial institutions and accordingly displays financial services and products through tactile merchandising within our stores. Unlike many financial institutions whose strategy is to discourage customers from visiting their facilities in favor of ATMs or other forms of electronic banking, we encourage customers to visit our stores, where they are greeted by well-trained sales associates and encouraged to browse and to make “impulse purchases.” Our “Next Generation” store model includes features like free wireless, free use of laptop computers, opening rooms with refrigerated beverages and innovative products packaging like MainStreet for businesses –- aUmpqua Holdings CorporationService Culture. Umpqua believes We believe strongly that if we lead with a service culture, we will have more opportunity to sell 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 service environment and a well-trained sales team are critical to selling our products and services. We believe that our service culture has become well established throughout the organization due to our unique facility designs and ongoing training of our associates on all aspects of sales and service. We provide training at our in-house training facility, known as “The World’sWorld's Greatest Bank University,” to recognize and celebrate exceptional service, and pay commissions for the sale of the Bank’sBank's products and services. This service culture has helped transform us from a traditional community bank to a nationally recognized marketing company focused on selling financial products and services.Products and ServicesWe offer a full array of 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. To make it easy for new prospective customers to bank with us and access our products, we offer a “Switch Kit,” which allows a customer to open a primary checking account with Umpqua Bank in less than ten minutes. Other avenues through which customers can access our products include our web site equipped with an e-switchkit which includes internet banking through “umpqua.online,” mobile banking, 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’smanagement'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 addsis designed to add value for the customer, increasesincrease products per household and producesproduce higher service fee income. We also offer a senior checking product which is augmented by Club Carefree, a group that enjoys travel, purchase discounts, and topical seminars.During the economic downturn, Umpqua opted to increase FDIC insurance coverage for our customers, providing greater peace of mind during these difficult times. In addition, the Company has an agreement with Promontory Interfinancial Network that makes it possible to offer FDIC insurance to depositors in excess of the current deposit limits. This Certificate of Deposit Account Registry Service (“CDARS”) uses a deposit-matching program to distribute excess deposit balances across other participating banks. This product is designed to enhance our ability to attract and retain customers and increase deposits, by providing additional FDIC coverage to customers. Due to the nature of the placement of the funds, CDARS deposits are classified as “brokered deposits” by regulatory agencies.Private Bank. Umpqua Private Bank serves high net worth individuals with liquid investable assets by providing customized financial solutions and offerings. The private bank is designed to augment Umpqua’s existing high-touch customer experience, and works collaboratively with the Bank’s affiliate retail brokerage Umpqua Investments and with the independent capitalinvestment management firm Ferguson Wellman Capital Management, Inc. ("Ferguson Wellman") to offer a comprehensive, integrated approach that meets clients’ financial goals, including financial planning, trust services, and investments.Retail Brokerage Services. Umpqua Investments provides a full range of brokerage services including equity and fixed income products, mutual funds, annuities, options, retirement planning and money management services. Additionally, UmpquaInvestments offers life insurance. At December 31, 2011, Umpqua Investments had 41 Series 7-licensed financial advisors serving clients at three stand-alone retail brokerage offices, one location located within a retirement facility, and “Investment Opportunity Centers” located in many Bank stores.Asset Management Services. Umpqua entered into a strategic alliance with Ferguson Wellman in the fall of 2009 to further enhance our offerings to individuals, unions and corporate retirement plans, endowments and foundations.Retail Brokerage Services and Investment Advisory Services. Umpqua Investments in its combined role as a broker/dealer and a registered investment advisor may provide comprehensive financial planning advice to its clients as well as standard broker/dealer services for traditional brokerage accounts. This advice can include cash management, risk management (insurance planning/sales), investment planning (including investment advice, supervisory services and/or portfolio checkups), retirement planning (for employees and employers), and/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, 2013, Umpqua Investments had 41 Series 7-licensed financial advisors serving clients at four stand-alone retail brokerage offices, one location located within a retirement facility, and “Investment Opportunity Centers” located in many Bank stores.6Commercial Loans and Leases and Commercial Real Estate Loans. We offer specialized loans for business and commercial customers, including accounts receivable and inventory financing, equipment loans, commercial equipment leases, international trade, real estate construction loans and permanent financing and SBASmall 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 recently introduced a new 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 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.Market Area and CompetitionThe 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, Western Washington, Northern California, 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 dependent on and oriented toward technology-driven delivery systems, permitting transactions to be conducted by telephone, computer and the internet, 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 we 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 relationships, providing superior service and offering a wide variety of commercial banking products, that do not compete directly with products and services typically offered by the credit unions, such as commercial real estate loans, inventory and accounts receivable financing, and SBA program loans for qualified businesses.Many of our stores are located in markets that have historically experienced growth below statewide averages. During the past several years, the States of Oregon, California, Washington, and Nevada have experienced economic difficulties. To the extentUmpqua Holdings CorporationBank’sBank's operations located there.The current adverse economic conditions, driven by the U.S. recession, the housing market downturn, and declining real estate values in our markets, have negatively impacted aspects of our loan portfolio and the markets we serve. Continued deterioration in the real estate market or other segments of our loan portfolio could further negatively impact our operations in these markets, financial condition and results of operations.The following table presents the Bank’s market share percentage for total deposits as of June 30, 2011,2013, 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 of Charlottesville, Virginia, which compiles deposit data published by the FDIC as of June 30, 20112013 and updates the information for any bank mergers and acquisitions completed subsequent to the reporting date.Oregon County Market
Share Market
Rank Number
of Stores 7.3% 7 1 4.6% 7 5 39.6% 1 5 27.6% 2 1 4.7% 8 5 60.2% 1 9 16.7% 1 9 18.3% 1 5 17.8% 1 9 12.1% 4 2 12.7% 4 3 8.4% 5 3 3.3% 6 16 4.1% 9 4 California County Market
Share Market
Rank Number
of Stores 5.6 % 7 1 3.3 % 8 2 23.7 % 2 4 35.7 % 1 2 0.2 % 24 2 7.9 % 4 5 27.7 % 3 2 25.1 % 1 7 16.4 % 3 2 3.3 % 7 1 12.4 % 3 7 6.7 % 3 9 1.1 % 15 6 0.6 % 20 1 2.8 % 8 1 4.0 % 9 4 0.1 % 20 1 0.9 % 15 2 15.7 % 2 2 16.9 % 1 2 26.1 % 2 1 18.7 % 3 5 2.8 % 10 1 24.4 % 2 2 Washington County Market
Share Market
Rank Number
of Stores 8.4 % 7 5 0.5 % 21 10 4.2 % 7 11 0.8 % 21 1 Nevada County Market
Share Market
Rank Number
of Stores 0.6 % 7 4 7Oregon Market Market Number County Share Rank of Stores Benton 5.3 % 7 1 Clackamas 2.8 % 7 5 Coos 36.4 % 1 5 Curry 19.3 % 3 1 Deschutes 4.5 % 8 5 Douglas 62.5 % 1 9 Jackson 14.5 % 2 9 Josephine 15.6 % 2 5 Lane 15.5 % 2 9 Lincoln 7.8 % 7 2 Linn 12.2 % 5 3 Marion 7.2 % 6 3 Multnomah 4.3 % 6 16 Washington 3.9 % 7 5 8California Market Market Number County Share Rank of Stores Amador 4.9 % 7 1 Butte 2.8 % 10 2 Calaveras 24.0 % 2 4 Colusa 39.5 % 1 2 Contra Costa 0.3 % 22 2 El Dorado 6.9 % 4 5 Glenn 29.7 % 2 2 Humboldt 24.0 % 1 7 Lake 17.6 % 2 2 Marin 1.7 % 12 3 Mendocino 3.3 % 7 1 Napa 10.8 % 3 7 Placer 4.1 % 6 9 Sacramento 0.8 % 17 6 San Francisco 0.0 % 40 1 San Joaquin 0.6 % 18 1 San Luis Obispo 0.1 % 13 1 Santa Clara 0.0 % 47 1 Shasta 1.8 % 9 1 Solano 3.3 % 9 4 Sonoma 0.4 % 19 3 Stanislaus 0.9 % 15 2 Sutter 13.8 % 2 2 Tehama 16.8 % 1 2 Trinity 26.4 % 2 1 Tuolumne 15.7 % 3 5 Yolo 2.6 % 11 1 Yuba 25.9 % 2 2 Washington Market Market Number County Share Rank of Stores Clark 6.7 % 7 5 King 0.7 % 18 15 Pierce 3.5 % 8 11 Snohomish 0.8 % 22 1 Nevada Market Market Number County Share Rank of Stores Washoe 0.3 % 8 4 9Lending and Credit FunctionsThe Bank makes both secured and unsecured loans to individuals and businesses. At December 31, 2011,2013, commercial real estate, commercial, residential, and consumer and other represented approximately 64%58.8%, 25%28.8%, 10%11.7%, and 1%0.7%, respectively, of the total non-covered loan and lease portfolio.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.Umpqua Holdings CorporationAllowance for Loan and Lease Losses (“ALLL”) MethodologyThe 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 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’sBank'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’smanagement'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 10%5% of the allowance, but may be maintained at higher levels during times of deteriorating 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, 2011, the2013, there was no unallocated allowance amount represented 5% of the allowance.Management believes that the ALLL was adequate as of December 31, 2011.2013. 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. Approximately 80%74% of our total loan portfolio is secured by real estate, and aany future significant decline in real estate market values may require an increase in the allowance for loan and lease losses. The U.S. recession, the housing market downturn, and declining real estate values in our markets have negatively impacted aspects of our residential development, commercial real estate, commercial construction and commercial loan portfolios, and have led to an increase in non-performing loans and the allowance for loan and lease losses. A continued deterioration or a prolonged delay in economic recovery in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan and lease losses.EmployeesAs of December 31, 2011,2013, we had a total of 2,2552,490 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. For the eighth year in a row, Umpqua Bank was named #69 onto Fortune magazine’s 2012 list of “100 Best Companies to Work For”, #25For," ranked #71 on the 2011 list, #23 on the 2010 list, and #34 on the 20092014 list. 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 20122014 annual meeting of shareholders.10Government PoliciesThe operations of our subsidiaries are affected by state and federal legislative changes and by policies of various regulatory authorities. These policies include, for example, statutory maximum legal lending rates, 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. Congress enacted theEmergency Economic Stabilization Act of 2008 (“EESA”), which granted significant authority to the U.S. Department of the Treasury (the “Treasury”) to invest in financial institutions, guarantee debt, buy troubled assets and take other action designed to stabilize financial markets. In November 2008, the Company closed a transaction under the Capital Purchase Program (“CPP”) in which the Company issued 214,181 shares of cumulative preferred stock to the Treasury and issued a warrant to purchase 2,221,795 (reduced in 2009 to 1,110,898) shares of common stock at $14.46 per share in exchange for $214,181,000. Agreements executed in connection with the CPP transaction placed restrictions on compensation payable to senior executive officers and provided that the Company may not declare dividends that exceed $0.19 per common share per quarter without Treasury’s prior written consent. Federal and state governments have been actively responding to the financial market crisis that unfolded in 2008 and legislative and regulatory initiatives are expected to continue for the foreseeable future. In connection with the Company’s public offering in February 2010, Umpqua repurchased the preferred stock from the Treasury and the warrant in March 2010. See Note 22 of theNotes to the Consolidated Financial Statement in Item 8 below.Supervision and RegulationGeneral.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. Our operations may be affected by legislative changes and by the policies of various regulatory authorities. 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 may have in the future. Umpqua is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the Securities and Exchange Commission. As a listed company on NASDAQ, Umpqua is subject to NASDAQ rules for listed companies.Holding Company Regulation. We are a registered financial holding company under the Gramm-Leach-BlileyGLB Act, of 1999 (the “GLB Act”), and are subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (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 Finance ("DCBS") and Corporate Securities, the Washington Department of Financial Institutions ("DFI"), the California Department of Financial Institutions,Business Oversight ("DBO"), the Nevada Division of Financial Institutions, , the FDIC and the Consumer Financial Protection Bureau (CFPB)("CFPB"). These agencies may prohibit the Bank from engaging in what they believe constitute unsafe or unsound banking practices. Our primary state regulator, (the State of Oregon)DCBS, regularly examines the Bank or participates in joint examinations with the FDIC.Umpqua Holdings CorporationThe Community Reinvestment Act (“CRA”)CRA requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or new facility. A less than “Satisfactory” rating would result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved. As of the most recent CRA examination in April 2010,July 2013, the Bank’sBank's CRA rating was “Satisfactory.”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 as, 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.11The Federal Reserve and the FDIC have adopted non-capital safety and soundness standards for 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. We believe that the Bank is in compliance with these standards.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. The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a bank’s capital level and supervisory ratings. The base assessment rates under the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”), enacted in February 2006, ranged from $0.02 to $0.40 per $100 of deposits annually. The FDIC could increase or decrease the assessment rate schedule five basis points (annualized) higher or lower than the base rates in order to manage the DIF to prescribed statutory target levels. For 2007 the effective assessment amounts were $0.03 above the base rate amounts. Assessment rates for well managed, well capitalized institutions ranged from $0.05 to $0.07 per $100 of deposits annually. The Bank’s assessment rate for 2008 fell within this range. In 2007, the FDIC issued one-time assessment credits that could be used to offset this expense. The Bank’s credit was fully utilized in 2007 and covered the majority of that year’s assessment. The Bank did not have any remaining credit to offset assessments in 2008.In December 2008, the FDIC adopted a rule that amended the system for risk-based assessments and changed assessment rates in attempt to restore targeted reserve ratios in the DIF. Effective January 1, 2009, the risk-based assessment rates were uniformly raised by seven basis points (annualized). On February 27, 2009, the FDIC further modified the risk-based assessment system, effective April 1, 2009, to effectively require larger risk institutions to pay a larger share of the assessment. Characteristics of larger risk institutions include a significant reliance on secured liabilities or brokered deposits, particularly when combined with rapid asset growth. The rule also provided incentives for institutions to hold long-term unsecured debtand, for smaller institutions, high levels of Tier 1 capital. The initial base assessment rates range from $0.12 to $0.45 per $100 of deposits annually. After potential adjustments related to unsecured debt, secured liabilities and brokered deposit balances, the final total assessment rates range from $0.07 to $0.775 per $100 of deposits annually. Initial base assessment rates for well managed, well capitalized institutions ranged from $0.12 to $0.16 per $100 of deposits annually. The Bank’s assessment rate for 2010 fell within this range.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. Under the new restoration plan, the FDIC will forego the uniform three-basis point increase in initial assessment rates schedules for January 1, 2011 and maintain the current schedule of assessment rates. 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. Effective asAs 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 five5 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 five to 35 basis points. The Bank’s assessment rate for 20112013 fell at the low end of this range. Further increases in the assessment rate could have a material adverse effect on our earnings, depending upon the amount of the increase.In 2006, the Federal Deposit Insurance Reform Act ("Reform Act") increased the deposit insurance limit for certain retirement plan deposit accounts from $100,000 to $250,000. The basic insurance limit for other deposits, including individuals, joint account holders, businesses, government entities, and trusts, remained at $100,000. The Reform Act also provided for the merger of the two deposit insurance funds administered by the FDIC, the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund, (“SAIF”), into the DIF. On October 3, 2008, the EESAEmergency Economic Stabilization Act of 2008 ("EESA") temporarily raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The basic deposit insurance limit would have returned to $100,000 after December 31, 2009. On May 20, 2009, the Helping Families Save Their Homes Act extended the temporary increase in the standard maximum deposit insurance amount to $250,000 per depositor through December 31, 2013. The standard maximum deposit insurance amount would returnhave returned to $100,000 on January 1, 2014. The Dodd-Frank Act permanently raises the current standard maximum federal deposit insurance amount from $100,000 to $250,000 per qualified account.In November 2008, the FDIC approved the final rulingrule establishing the Transaction Account Guarantee Program (“TAGP”) as part of the Temporary Liquidity Guarantee Program (“TLGP”). Under this program, effective immediately and through December 31, 2009, all non-interest bearing transaction accounts became fully guaranteed by the FDIC for the entire amount in the account. This unlimited coverage also extended to NOW (interest bearing deposit accounts) earning an interest rate no greater than 0.50% and all IOLTAs (lawyers’ trust accounts). Coverage under the TAGP, funded through insurance premiums paid by participating financial institutions, was in addition to and separate from the additional coverage announced under EESA. In August 2009, the FDIC extended the TAGP portion of the TLGP through June 30, 2010. In June 2010, the FDIC extended the TAGP portion of the TLGP for an additional six months, from July 1, 2010 to December 31, 2010. The rule required that interest rates on qualifying NOW accounts offered by banks participating in the program be reduced to 0.25% from 0.50%. The rule provided for an additional extension of the program, without further rulemaking, for a period of time not to exceed December 31, 2011. Umpqua elected to participate in the TAGP program through the extended period. In July 2010, the Dodd-Frank Act was enacted, which provides for unlimited deposit insurance for noninterest bearing transactions accounts (excluding NOW, but including IOLTAs) beginning December 31, 2010 for a period of two years.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 could have a material adverse effect on our financial condition and results of operations due to the fact that the Bank’sBank's liquidity position would likely be affected by deposit withdrawal activity.Umpqua Holdings Corporation12Dividends. 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 weights. 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.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 revise the regulatory capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework ("Basel III"). The Federal Deposit Insurance Corporation Improvement Actphase-in period for the final rules will begin 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 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 1991 (“FDICIA”)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%.Also, under the final rules, if an institution grows above $15 billion as a result of an acquisition, or organically grows above $15 billion and then makes an acquisition, the combined trust preferred security debt issuances would be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016). 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 following the proposed merger 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 current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded; however, non-advanced approaches banking organizations, including the Company and the Bank, may make a one-time permanent election to continue to exclude these items. The Company and Bank expect to make this election 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, 2011.13Federal and State Regulation of Broker-Dealers. Umpqua Investments Inc. is a fully disclosed introducing broker-dealer clearing through First Clearing LLC. Umpqua Investments is regulated by the Financial Industry Regulatory Authority (“FINRA”) and has deposits insured through the Securities Investors Protection Corp (“SIPC”) as well as third party insurers. FINRA performs regular examinations of the firmUmpqua 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 First Clearing 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 this regulatoryFINRA oversight review include compliance with trading rules, financial reporting, investment suitability, for clients, 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 ReserveRegulatory Structure of the Financial Services Industry. Federal laws and regulations governing banking and financial services underwent significant changes in recent years and are subject to 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’snation'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 variously 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 Community Reinvestment Act.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’sprovider's privacy policy.Legislation enacted by CongressThe 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 ifupon receipt of approval from the Director of the Oregon bank, or in the caseDepartment of a bank holding company, the subsidiary bank, has been in existence for a minimum of three years,Consumer and the law of the state in which the acquiring bank is located permits such merger.Business Services. The Bank now has the ability to open additional de novo branches in the states of Oregon, California, Washington, and Nevada.14Section 613 of the Dodd-Frank Act eliminates interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking and Branching Efficiency Act, of 1994, and removes many restrictions on de novo interstate branching by national and state-chartered banks. The FDIC and the OCCOffice of the Comptroller of the Currency now have authority to approve applications by insured stateUmpqua Holdings CorporationsectionSection 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: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’sBank'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:reportsof 1994 ("Exchange Act") by the chief executive officer, chief financial officer and principal accounting officer;The Sarbanes-Oxley Act also requires: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. In 2004, the Sarbanes-Oxley Act substantially increased our reporting and compliance expenses.Emergency Economic Stabilization Act of 2008 (EESA). This act granted broad powers to the U.S. Treasury, the FDIC, and the Federal Reserve to stabilize the financial markets under the following programs:15the Troubled Asset Purchase Program allocated $250 billion to the Treasury to purchase troubled assets from financial institutions, with Treasury to also receive securities issued by participating institutions;Temporary Liquidity Guaranty Program (“TLGP”)TLGP authorized the FDIC to insure newly issued senior unsecured debt and insure the total balance in non-interest bearing transactional deposit accounts of those institutions who elect to participate;The Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21, 2010, President Barack Obama signed the Dodd-Frank Act, which iswas a sweeping overhaul of financial industry regulation. In general, the Act:CreatesCreated a systemic-risk council of top regulators, the Financial Stability Oversight Council (FSOC), 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;GivesGave 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”"repayment plan" in place. Regulators wouldwill recoup any losses incurred from the wind-down afterwards by assessing fees on financial firms with more than $50 billion in assets;DirectsDirected 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 (DIF)Fund's ("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;ExtendsExtended the FDIC’sFDIC's Transaction Account Guarantee (TAG) program to December 31, 2012. There iswas no “opt-out” from the extension;increasesincreased FDIC deposit-insurance coverage to $250,000, retroactive to January 1, 2008. The Act eliminatesact also eliminated the 1.5% cap on the DIF reserve ratio and automatic dividends when the ratio exceeds 1.35%. Under the agreement, theThe FDIC would havealso has discretion on whether to provide dividends to DIF members;AuthorizesAuthorized banks to pay interest on business checking accounts, which is likely to significantly increase our interest expense;Creates a new Consumer Financial Protection Bureau (CFPB),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 will be transferred to this agency and each existing regulatory agency will contribute their respective consumer regulatory and exam staffs to the CFPB;Grants toGave 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 like Umpqua, with greater than $10 billion in assets;AuthorizesAuthorized 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 it isdoing so “in the public interest”;Umpqua Holdings Corporation
DirectsDirected the Federal Reserve to set interchange fees for debit card transactions charged by banks with more than $10 billion in assets. ItThe Federal Reserve must establish what it determines are reasonable fees by factoring in their transaction costs compared to those for checks;
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;
Excludes the proceeds of trust preferred securities from Tier 1 capital except for trust preferred securities issued before May 19, 2010 by bank holding companies, like the Company, with less than $15 billion in assets at December 31, 2009;
AdoptsAdopted additional various mortgage lending and predatory lending provisions;
RequiresRequired 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;benefits, or could lead to material financial loss to the institution;
Imposes
EstablishesEstablished 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 itsthe bank's Tier 1 capital. A bank’sbank's interest in any single hedge fund or private equity fund may not exceed 3% of the assets of that fund.
We face increased regulation of our industry, including as a result of the EESA, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) andregulations promulgated under the Dodd-Frank Act. Compliance with such regulation will increase our costs, reduce existing sources of revenue and may limit our ability to pursue business opportunities.
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.
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.
We may be required to pay significantly higher Federal Deposit Insurance Corporation premiums in the future if losses further deplete the FDIC deposit insurance fund.
There may be downward pressure on our stock price.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions and government sponsored entities.
We may face increased competition due to intensified consolidation of the financial services industry.
Umpqua Holdings Corporation
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. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—”AllowanceOperations- “Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments”, “Provision for Loan and Lease Losses” and “Asset Quality and Non-Performing Assets”.
Continued deterioration
a non-accrual loan.
that include loss-sharing agreements, we record a loss-sharing asset that reflects our estimate of the timing and amount of future losses that are anticipated to occur in and used to value the acquired loan portfolio. In determining the size of the loss-sharing asset, we analyze the loan portfolio based on historical loss experience, volume and classification of loans, volume and trends in delinquencies and nonaccruals, local economic conditions, and other pertinent information.
Company's total assets.
Acquisition opportunities may not become available
Our near-term business strategy includes pursue the acquisition of banks within orand our ability to engage in proximity to our geographic footprint that may be operating under capital constraints, regulatory pressure or other competitive disadvantages as well as analyzing and bidding on failing banks that the FDIC plans to place in receivership. Traditionaltraditional merger and acquisition transactions have been infrequent inwill be constrained over the past few years, but we expect that the volume may be increasing as banks work through their problem loan portfolios. However, many target banks may be valued at a discount to their book value, making transactions difficult to conclude. In addition, the FDIC may not place banks that meet our strategic objectives into receivership and the bidding process for failing banks has become very competitive. We may not be able to match or beat the bids of other acquirers unless we bid aggressively by increasing the premium paid on assumed deposits or reducing the discount bid on assets purchased, which could make the acquisition less beneficial to the financial performance of the Bank.
near term.
Umpqua Holdings Corporation
higher interest rates generally reduce loan demand and may result in slower loan growth than previously experienced. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—”Operations-“Quantitative and Qualitative Disclosures about Market Risk”.
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. Further the new capital requirements of the Basel III Rules will become applicable to us beginning January 1, 2015.
these sources, which include Federal Home Loan Bank advances, proceeds from the sale of loans and liquidity 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.
Umpqua Holdings Corporation
Company.
Recently,our goodwill
Umpqua Holdings Corporation
competitive with respect to deposits, loans and products.
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. This can reduce net interest income and non-interest income from fee-based products and services. In addition, new technology-driven products and services are often introduced and adopted, which could require us 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. As a result, our business, financial condition or results of operations may be adversely affected.
Our banking and brokerage operations are subject to extensive government regulation that is expected to become more burdensome, increase our costs and make us less competitive compared to financial services firms that are not subject to the same regulation.
We and our subsidiaries are subject to extensive regulation under federal and state laws. These laws and regulations are primarily intended to protect customers, depositors and the deposit insurance fund, rather than shareholders. The Bank is an Oregon state-chartered commercial bank whose primary regulator is the Oregon Division of Finance and Corporate Securities. The Bank is also subject to the supervision by and the regulations of the Washington Department of Financial Institutions, the California Department of Financial Institutions, the Nevada Division of Financial Institutions, the Federal Deposit Insurance Corporation (“FDIC”), which insures bank deposits and the Consumer Financial Protection Bureau. Umpqua Investments is subject to extensive regulation by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority. Umpqua is subject to regulation and supervision by the Board of Governors of the Federal Reserve System, the SEC and NASDAQ. Federal and state regulations may place banks and brokerage firms at a competitive disadvantage compared to less regulated competitors such as finance companies, credit unions, mortgage banking companies and leasing companies. There is also the possibility that laws could be enacted that would prohibit a company from controlling both an FDIC-insured bank and a broker dealer, or restrict their activities if under common ownership. If we receive less than satisfactory results on regulatory examinations, we could be 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.
Umpqua Holdings Corporation
In our Form 10-Q for the period ending June 30, 2011, we initially reported on a putative stockholders derivative action filed in the U.S. District Court for the District of Oregon by Plumbers Local No. 137 Pension Fund and Laborers’ Local #231 Pension Fund naming Umpqua’s present directors, certain executive officers and PricewaterhouseCoopers LLP (PwC) as defendants and Umpqua as nominal party. On January 11, 2012, District Court Magistrate Judge, John V. Acosta, ruled on a motion to dismiss filed by Umpqua’s present directors and certain executive officers and issued findings and a recommendation that the case be dismissed without prejudice. Plaintiffs filed an Objection to those findings and recommendations and the case is pending resolution of those Objections.
On December 29, 2011, in the United States District Court for the Northern District of California-San Francisco Division (case no. 11-6700), Amber Hawthorne filed a class action lawsuit against Umpqua Bank on behalf of herself and a national class, including a sub-class of California residents seeking in excess of $5 million, plus punitive damages, alleging that Umpqua Bank engaged in unfair and deceptive practices by posting debit items in a high to low order to maximize overdraft fees, automatically enrolling customers in debit Overdraft Protection (“ODP”) programs before the Regulation E revisions, failing to adequately disclose posting order, manipulating posting to maximize ODP fees and failing to advise customers how to minimize fees. Plaintiff alleges claims for breach of contract, breach of the covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment, and a violation of California Business & Professions Code 17200 (for the California subclass). The
claims are in the initial stage of investigation but Umpqua believes that the claims are not supportable and are overstated and the Company intends to vigorously defend the case.
our ability to close the proposed Sterling merger.
Umpqua Holdings Corporation
| Quarter Ended | High | Low | Cash Dividend Per Share | |||||||||
December 31, 2011 | $ | 12.83 | $ | 8.35 | $ | 0.07 | ||||||
September 30, 2011 | $ | 12.07 | $ | 8.10 | $ | 0.07 | ||||||
June 30, 2011 | $ | 12.10 | $ | 10.83 | $ | 0.05 | ||||||
March 31, 2011 | $ | 12.81 | $ | 10.40 | $ | 0.05 | ||||||
December 31, 2010 | $ | 12.59 | $ | 10.42 | $ | 0.05 | ||||||
September 30, 2010 | $ | 13.15 | $ | 10.20 | $ | 0.05 | ||||||
June 30, 2010 | $ | 15.90 | $ | 11.34 | $ | 0.05 | ||||||
March 31, 2010 | $ | 14.24 | $ | 10.87 | $ | 0.05 | ||||||
| Quarter Ended | High | Low | Cash Dividend Per Share | ||||||||
| December 31, 2013 | $ | 19.65 | $ | 16.09 | $ | 0.15 | |||||
| September 30, 2013 | $ | 17.48 | $ | 15.08 | $ | 0.15 | |||||
| June 30, 2013 | $ | 15.29 | $ | 11.45 | $ | 0.20 | |||||
| March 31, 2013 | $ | 13.54 | $ | 12.00 | $ | 0.10 | |||||
| December 31, 2012 | $ | 13.03 | $ | 11.17 | $ | 0.09 | |||||
| September 30, 2012 | $ | 13.88 | $ | 11.84 | $ | 0.09 | |||||
| June 30, 2012 | $ | 13.72 | $ | 11.84 | $ | 0.09 | |||||
| March 31, 2012 | $ | 13.86 | $ | 11.72 | $ | 0.07 | |||||
(shares in thousands)
| Equity Compensation Plan Information | ||||||||||||
| (A) | (B) | (C) | ||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights(4) | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (A) | |||||||||
Equity compensation plans approved by security holders | ||||||||||||
2003 Stock Incentive Plan(1) | 1,773 | $ | 15.09 | 1,378 | ||||||||
2007 Long Term Incentive Plan(2) | 219 | — | 679 | |||||||||
Other(3) | 416 | $ | 11.95 | — | ||||||||
|
|
|
| |||||||||
Total | 2,408 | $ | 14.48 | 2,057 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
|
|
|
| |||||||||
Total | 2,408 | $ | 14.48 | 2,057 | ||||||||
|
|
|
| |||||||||
| (shares in thousands) | ||||||||||
| Equity Compensation Plan Information | ||||||||||
| (A) | (B) | (C) | ||||||||
| Number of securities | Number of securities | |||||||||
| to be issued | Weighted average | remaining available for future | ||||||||
| upon exercise of | exercise price of | issuance under equity | ||||||||
| outstanding options | outstanding options, | compensation plans excluding | ||||||||
| Plan category | warrants and rights | warrants and rights (4) | securities reflected in column (A) | |||||||
| Equity compensation plans | ||||||||||
| approved by security holders | ||||||||||
| 2013 Stock Incentive Plan (1) | — | $ | — | 3,831 | ||||||
| 2003 Stock Incentive Plan (1) | 981 | $ | 16.58 | — | ||||||
| 2007 Long Term Incentive Plan (1),(2) | 95 | $ | — | — | ||||||
| Other (3) | 38 | $ | 15.87 | — | ||||||
| Total | 1,114 | $ | 16.17 | 3,831 | ||||||
| Equity compensation plans | ||||||||||
| not approved by security holders | — | $ | — | — | ||||||
| Total | 1,114 | $ | 16.17 | 3,831 | ||||||
| (1) | At |
| (2) | At Umpqua’s 2007 Annual Meeting, shareholders approved a 2007 Long Term Incentive Plan. The plan authorized the issuance of one million shares of stock through awards of performance-based restricted stock unit grants to executive officers. |
| (3) | Includes other Umpqua stock plans and stock plans assumed through previous mergers. |
| (4) | Weighted average exercise price is based solely on securities with an exercise price. |
| Period | 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 | |||||||||
| 10/1/13 - 10/31/13 | 200 | $ | 16.40 | — | 12,013,429 | ||||||||
| 11/1/13 - 11/30/13 | 228,282 | $ | 17.32 | — | 12,013,429 | ||||||||
| 12/1/13 - 12/31/13 | 37,031 | $ | 18.88 | — | 12,013,429 | ||||||||
| Total for quarter | 265,513 | $ | 17.54 | — | |||||||||
Umpqua Holdings Corporation
| Period | Total number of Shares Purchased(1) | Average Price Paid per 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 | ||||||||||||
10/1/11 - 10/31/11 | 231 | $ | 8.73 | 251,194 | 14,748,806 | |||||||||||
11/1/11 - 11/30/11 | 70 | $ | 12.14 | 2,120,769 | 12,628,037 | |||||||||||
12/1/11 - 12/31/11 | — | $ | — | 4,301 | 12,623,736 | |||||||||||
|
|
|
| |||||||||||||
Total for quarter | 301 | $ | 9.52 | 2,376,264 | ||||||||||||
| (1) | Shares repurchased by the Company during the quarter consist of cancellation of |
| (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 |
During the year ended December 31, 2011, there
2013
2012, respectively.
| Period Ending | ||||||||||||||||||||||||
| 12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | |||||||||||||||||||
Umpqua Holdings Corporation | $ | 100.00 | $ | 54.01 | $ | 53.19 | $ | 50.28 | $ | 46.42 | $ | 48.33 | ||||||||||||
Nasdaq Bank Stocks | $ | 100.00 | $ | 80.09 | $ | 62.84 | $ | 52.60 | $ | 60.04 | $ | 53.74 | ||||||||||||
Nasdaq U.S. | $ | 100.00 | $ | 110.66 | $ | 66.42 | $ | 96.54 | $ | 114.06 | $ | 113.16 | ||||||||||||
S&P 500 | $ | 100.00 | $ | 105.49 | $ | 66.46 | $ | 84.05 | $ | 96.71 | $ | 98.76 | ||||||||||||
Umpqua Holdings Corporation
| Period Ending | ||||||
| 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | 12/31/2012 | 12/31/2013 | |
| Umpqua Holdings Corporation | $100.00 | $93.10 | $85.95 | $89.49 | $87.45 | $149.79 |
| Nasdaq Bank Stocks | $100.00 | $65.67 | $74.97 | $67.10 | $79.64 | $143.84 |
| Nasdaq U.S. | $100.00 | $87.24 | $103.08 | $102.26 | $120.42 | $281.22 |
| S&P 500 | $100.00 | $79.68 | $91.68 | $93.61 | $108.59 | $228.19 |
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Interest income | $ | 501,753 | $ | 488,596 | $ | 423,732 | $ | 442,546 | $ | 488,392 | ||||||||||
Interest expense | 73,301 | 93,812 | 103,024 | 152,239 | 202,438 | |||||||||||||||
|
| |||||||||||||||||||
Net interest income | 428,452 | 394,784 | 320,708 | 290,307 | 285,954 | |||||||||||||||
Provision for non-covered loan and lease losses | 46,220 | 113,668 | 209,124 | 107,678 | 41,730 | |||||||||||||||
Provision for covered loan and lease losses | 16,141 | 5,151 | — | — | — | |||||||||||||||
Non-interest income | 84,118 | 75,904 | 73,516 | 107,118 | 64,829 | |||||||||||||||
Non-interest expense | 338,611 | 311,063 | 267,178 | 215,588 | 210,804 | |||||||||||||||
Goodwill impairment | — | — | 111,952 | 982 | — | |||||||||||||||
Merger related expenses | 360 | 6,675 | 273 | — | 3,318 | |||||||||||||||
|
| |||||||||||||||||||
Income (loss) before provision for (benefit from) income taxes | 111,238 | 34,131 | (194,303 | ) | 73,177 | 94,931 | ||||||||||||||
Provision for (benefit from) income taxes | 36,742 | 5,805 | (40,937 | ) | 22,133 | 31,663 | ||||||||||||||
|
| |||||||||||||||||||
Net income (loss) | 74,496 | 28,326 | (153,366 | ) | 51,044 | 63,268 | ||||||||||||||
Preferred stock dividends | — | 12,192 | 12,866 | 1,620 | — | |||||||||||||||
Dividends and undistributed earnings allocated to participating securities | 356 | 67 | 30 | 154 | 187 | |||||||||||||||
|
| |||||||||||||||||||
Net earnings (loss) available to common shareholders | $ | 74,140 | $ | 16,067 | $ | (166,262 | ) | $ | 49,270 | $ | 63,081 | |||||||||
|
| |||||||||||||||||||
YEAR END | ||||||||||||||||||||
Assets | $ | 11,563,355 | $ | 11,668,710 | $ | 9,381,372 | $ | 8,597,550 | $ | 8,340,053 | ||||||||||
Earning assets | 10,263,923 | 10,374,131 | 8,344,203 | 7,491,498 | 7,146,841 | |||||||||||||||
Non-covered loans and leases(1) | 5,888,098 | 5,658,987 | 5,999,267 | 6,131,374 | 6,055,635 | |||||||||||||||
Covered loans and leases | 622,451 | 785,898 | — | — | — | |||||||||||||||
Deposits | 9,236,690 | 9,433,805 | 7,440,434 | 6,588,935 | 6,589,326 | |||||||||||||||
Term debt | 255,676 | 262,760 | 76,274 | 206,531 | 73,927 | |||||||||||||||
Junior subordinated debentures, at fair value | 82,905 | 80,688 | 85,666 | 92,520 | 131,686 | |||||||||||||||
Junior subordinated debentures, at amortized cost | 102,544 | 102,866 | 103,188 | 103,655 | 104,680 | |||||||||||||||
Common shareholders’ equity | 1,672,413 | 1,642,574 | 1,362,182 | 1,284,830 | 1,239,938 | |||||||||||||||
Total shareholders’ equity | 1,672,413 | 1,642,574 | 1,566,517 | 1,487,008 | 1,239,938 | |||||||||||||||
Common shares outstanding | 112,165 | 114,537 | 86,786 | 60,146 | 59,980 | |||||||||||||||
AVERAGE | ||||||||||||||||||||
Assets | $ | 11,600,435 | $ | 10,830,486 | $ | 8,975,178 | $ | 8,342,005 | $ | 7,897,568 | ||||||||||
Earning assets | 10,332,242 | 9,567,341 | 7,925,014 | 7,215,001 | 6,797,834 | |||||||||||||||
Non-covered loans and leases(1) | 5,723,771 | 5,783,452 | 6,103,666 | 6,118,540 | 5,822,907 | |||||||||||||||
Covered loans and leases | 707,026 | 681,569 | — | — | — | |||||||||||||||
Deposits | 9,301,978 | 8,607,980 | 7,010,739 | 6,459,576 | 6,250,521 | |||||||||||||||
Term debt | 257,496 | 261,170 | 129,814 | 194,312 | 57,479 | |||||||||||||||
Junior subordinated debentures | 184,115 | 184,134 | 190,491 | 226,349 | 221,833 | |||||||||||||||
Common shareholders’ equity | 1,671,893 | 1,589,393 | 1,315,953 | 1,254,730 | 1,222,628 | |||||||||||||||
Total shareholders’ equity | 1,671,893 | 1,657,544 | 1,519,119 | 1,281,220 | 1,222,628 | |||||||||||||||
Basic common shares outstanding | 114,220 | 107,922 | 70,399 | 60,084 | 59,828 | |||||||||||||||
Diluted common shares outstanding | 114,409 | 108,153 | 70,399 | 60,424 | 60,404 | |||||||||||||||
PER COMMON SHARE DATA | ||||||||||||||||||||
Basic earnings (loss) | $ | 0.65 | $ | 0.15 | $ | (2.36 | ) | $ | 0.82 | $ | 1.05 | |||||||||
Diluted earnings (loss) | 0.65 | 0.15 | (2.36 | ) | 0.82 | 1.04 | ||||||||||||||
Book value | 14.91 | 14.34 | 15.70 | 21.36 | 20.67 | |||||||||||||||
Tangible book value(2) | 8.87 | 8.39 | 8.33 | 8.76 | 7.92 | |||||||||||||||
Cash dividends declared | 0.24 | 0.20 | 0.20 | 0.62 | 0.74 | |||||||||||||||
(dollars in thousands)
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
PERFORMANCE RATIOS | ||||||||||||||||||||
Return on average assets(3) | 0.64% | 0.15% | -1.85% | 0.59% | 0.80% | |||||||||||||||
Return on average common shareholders’ equity(4) | 4.43% | 1.01% | -12.63% | 3.93% | 5.16% | |||||||||||||||
Return on average tangible common shareholders’ equity(5) | 7.47% | 1.76% | -26.91% | 9.99% | 13.05% | |||||||||||||||
Efficiency ratio(6), (7) | 65.58% | 66.90% | 95.34% | 54.08% | 60.62% | |||||||||||||||
Average common shareholders’ equity to average assets | 14.41% | 14.68% | 14.66% | 15.04% | 15.48% | |||||||||||||||
Leverage ratio(8) | 10.91% | 10.56% | 12.79% | 12.38% | 9.24% | |||||||||||||||
Net interest margin (fully tax equivalent)(9) | 4.19% | 4.17% | 4.09% | 4.07% | 4.24% | |||||||||||||||
Non-interest revenue to total net revenue(10) | 16.41% | 16.13% | 18.65% | 26.95% | 18.48% | |||||||||||||||
Dividend payout ratio(11) | 36.92% | 133.33% | -8.47% | 75.61% | 70.48% | |||||||||||||||
ASSET QUALITY | ||||||||||||||||||||
Non-covered, non-performing loans | $ | 91,383 | $ | 145,248 | $ | 199,027 | $ | 133,366 | $ | 91,099 | ||||||||||
Non-covered, non-performing assets | 125,558 | 178,039 | 223,593 | 161,264 | 98,042 | |||||||||||||||
Allowance for non-covered loan and lease losses | 92,968 | 101,921 | 107,657 | 95,865 | 84,904 | |||||||||||||||
Net non-covered charge-offs | 55,173 | 119,404 | 197,332 | 96,717 | 21,994 | |||||||||||||||
Non-covered, non-performing loans to non-covered loans and leases | 1.55% | 2.57% | 3.32% | 2.18% | 1.50% | |||||||||||||||
Non-covered, non-performing assets to total assets | 1.09% | 1.53% | 2.38% | 1.88% | 1.18% | |||||||||||||||
Allowance for non-covered loan and lease losses to total non-covered loans and leases | 1.58% | 1.80% | 1.79% | 1.56% | 1.40% | |||||||||||||||
Allowance for non-covered credit losses to non-covered loans and leases | 1.59% | 1.82% | 1.81% | 1.58% | 1.42% | |||||||||||||||
Net charge-offs to average non-covered loans and leases | 0.96% | 2.06% | 3.23% | 1.58% | 0.38% | |||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||
| Interest income | $ | 442,846 | $ | 456,085 | $ | 501,753 | $ | 488,596 | $ | 423,732 | |||||
| Interest expense | 37,881 | 48,849 | 73,301 | 93,812 | 103,024 | ||||||||||
| Net interest income | 404,965 | 407,236 | 428,452 | 394,784 | 320,708 | ||||||||||
| Provision for non-covered loan and lease losses | 16,829 | 21,796 | 46,220 | 113,668 | 209,124 | ||||||||||
| (Recapture of) provision for covered loan and lease losses | (6,113 | ) | 7,405 | 16,141 | 5,151 | — | |||||||||
| Non-interest income | 121,441 | 136,829 | 84,118 | 75,904 | 73,516 | ||||||||||
| Non-interest expense | 355,825 | 357,314 | 338,611 | 311,063 | 267,178 | ||||||||||
| Goodwill impairment | — | — | — | — | 111,952 | ||||||||||
| Merger related expenses | 8,836 | 2,338 | 360 | 6,675 | 273 | ||||||||||
| Income (loss) before provision for (benefit from) income taxes | 151,029 | 155,212 | 111,238 | 34,131 | (194,303 | ) | |||||||||
| Provision for (benefit from) income taxes | 52,668 | 53,321 | 36,742 | 5,805 | (40,937 | ) | |||||||||
| Net income (loss) | 98,361 | 101,891 | 74,496 | 28,326 | (153,366 | ) | |||||||||
| Preferred stock dividends | — | — | — | 12,192 | 12,866 | ||||||||||
| Dividends and undistributed earnings allocated to participating securities | 788 | 682 | 356 | 67 | 30 | ||||||||||
| Net earnings (loss) available to common shareholders | $ | 97,573 | $ | 101,209 | $ | 74,140 | $ | 16,067 | $ | (166,262 | ) | ||||
| YEAR END | |||||||||||||||
| Assets | $ | 11,636,112 | $ | 11,795,443 | $ | 11,562,858 | $ | 11,668,710 | $ | 9,381,372 | |||||
| Earning assets | 10,267,981 | 10,465,505 | 10,263,923 | 10,374,131 | 8,344,203 | ||||||||||
Non-covered loans and leases (1) | 7,354,403 | 6,681,080 | 5,888,098 | 5,658,987 | 5,999,267 | ||||||||||
| Covered loans and leases, net | 363,992 | 477,078 | 622,451 | 785,898 | — | ||||||||||
| Deposits | 9,117,660 | 9,379,275 | 9,236,690 | 9,433,805 | 7,440,434 | ||||||||||
| Term debt | 251,494 | 253,605 | 255,676 | 262,760 | 76,274 | ||||||||||
| Junior subordinated debentures, at fair value | 87,274 | 85,081 | 82,905 | 80,688 | 85,666 | ||||||||||
| Junior subordinated debentures, at amortized cost | 101,899 | 110,985 | 102,544 | 102,866 | 103,188 | ||||||||||
| Common shareholders' equity | 1,727,426 | 1,724,039 | 1,672,413 | 1,642,574 | 1,362,182 | ||||||||||
| Total shareholders' equity | 1,727,426 | 1,724,039 | 1,672,413 | 1,642,574 | 1,566,517 | ||||||||||
| Common shares outstanding | 111,973 | 111,890 | 112,165 | 114,537 | 86,786 | ||||||||||
| AVERAGE | |||||||||||||||
| Assets | $ | 11,507,688 | $ | 11,499,499 | $ | 11,600,435 | $ | 10,830,486 | $ | 8,975,178 | |||||
| Earning assets | 10,224,606 | 10,252,167 | 10,332,242 | 9,567,341 | 7,925,014 | ||||||||||
Non-covered loans and leases (1) | 6,950,740 | 6,153,116 | 5,723,771 | 5,783,452 | 6,103,666 | ||||||||||
| Covered loans and leases, net | 416,862 | 554,078 | 707,026 | 681,569 | — | ||||||||||
| Deposits | 9,057,673 | 9,124,619 | 9,301,978 | 8,607,980 | 7,010,739 | ||||||||||
| Term debt | 252,546 | 254,601 | 257,496 | 261,170 | 129,814 | ||||||||||
| Junior subordinated debentures | 189,237 | 187,139 | 184,115 | 184,134 | 190,491 | ||||||||||
| Common shareholders' equity | 1,729,083 | 1,701,403 | 1,671,893 | 1,589,393 | 1,315,953 | ||||||||||
| Total shareholders' equity | 1,729,083 | 1,701,403 | 1,671,893 | 1,657,544 | 1,519,119 | ||||||||||
| Basic common shares outstanding | 111,938 | 111,935 | 114,220 | 107,922 | 70,399 | ||||||||||
| Diluted common shares outstanding | 112,176 | 112,151 | 114,409 | 108,153 | 70,399 | ||||||||||
| PER COMMON SHARE DATA | |||||||||||||||
| Basic earnings (loss) | $ | 0.87 | $ | 0.90 | $ | 0.65 | $ | 0.15 | $ | (2.36 | ) | ||||
| Diluted earnings (loss) | 0.87 | 0.90 | 0.65 | 0.15 | (2.36 | ) | |||||||||
| Book value | 15.43 | 15.41 | 14.91 | 14.34 | 15.70 | ||||||||||
Tangible book value (2) | 8.49 | 9.28 | 8.87 | 8.39 | 8.33 | ||||||||||
| Cash dividends declared | 0.60 | 0.34 | 0.24 | 0.20 | 0.20 | ||||||||||
| (dollars in thousands) | |||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||
| PERFORMANCE RATIOS | |||||||||||||||
Return on average assets (3) | 0.85 | % | 0.88 | % | 0.64 | % | 0.15 | % | (1.85 | )% | |||||
Return on average common shareholders' equity (4) | 5.64 | % | 5.95 | % | 4.43 | % | 1.01 | % | (12.63 | )% | |||||
Return on average tangible common shareholders' equity (5) | 9.78 | % | 9.87 | % | 7.47 | % | 1.76 | % | (26.91 | )% | |||||
Efficiency ratio (6), (7) | 68.68 | % | 65.54 | % | 65.58 | % | 66.90 | % | 95.34 | % | |||||
| Average common shareholders' equity to average assets | 15.03 | % | 14.80 | % | 14.41 | % | 14.68 | % | 14.66 | % | |||||
Leverage ratio (8) | 10.90 | % | 11.44 | % | 10.91 | % | 10.56 | % | 12.79 | % | |||||
Net interest margin (fully tax equivalent) (9) | 4.01 | % | 4.02 | % | 4.19 | % | 4.17 | % | 4.09 | % | |||||
Non-interest revenue to total net revenue (10) | 23.07 | % | 25.15 | % | 16.41 | % | 16.13 | % | 18.65 | % | |||||
Dividend payout ratio (11) | 68.97 | % | 37.78 | % | 36.92 | % | 133.33 | % | (8.47 | )% | |||||
| ASSET QUALITY | |||||||||||||||
| Non-covered, non-performing loans and leases | $ | 35,321 | $ | 70,968 | $ | 91,383 | $ | 145,248 | $ | 199,027 | |||||
| Non-covered, non-performing assets | 57,154 | 88,106 | 125,558 | 178,039 | 223,593 | ||||||||||
| Allowance for non-covered loan and lease losses | 85,314 | 85,391 | 92,968 | 101,921 | 107,657 | ||||||||||
| Net non-covered charge-offs | 16,906 | 29,373 | 55,173 | 119,404 | 197,332 | ||||||||||
| Non-covered, non-performing loans and leases to non-covered loans and leases | 0.48 | % | 1.06 | % | 1.55 | % | 2.57 | % | 3.32 | % | |||||
| Non-covered, non-performing assets to total assets | 0.49 | % | 0.75 | % | 1.09 | % | 1.53 | % | 2.38 | % | |||||
| Allowance for non-covered loan and lease | |||||||||||||||
| losses to total non-covered loans and leases | 1.16 | % | 1.28 | % | 1.58 | % | 1.80 | % | 1.79 | % | |||||
| Allowance for non-covered credit losses to non-covered loans and leases | 1.18 | % | 1.30 | % | 1.59 | % | 1.82 | % | 1.81 | % | |||||
| Net charge-offs to average non-covered loans and leases | 0.24 | % | 0.48 | % | 0.96 | % | 2.06 | % | 3.23 | % | |||||
| (1) | Excludes loans held for sale |
| (2) | Average common |
| (3) | Net earnings (loss) available to common shareholders divided by average assets. |
| (4) | Net earnings (loss) available to common shareholders divided by average common |
| (5) | Net earnings (loss) available to common shareholders divided by average common |
| (6) | Non-interest expense divided by the sum of net interest income (fully tax equivalent) and non-interest income. |
| (7) | The efficiency ratio calculation includes goodwill impairment charges of $112.0 million |
| (8) | 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. |
| (9) | Net interest margin (fully tax equivalent) is calculated by dividing net interest income (fully tax equivalent) by average interest earnings assets. |
| (10) | Non-interest revenue divided by the sum of non-interest revenue and net interest income |
| (11) | Dividends declared per common share divided by basic earnings per common share. |
Umpqua Holdings Corporation
$0.87 for the year ended December 31, 2013, as compared to $0.90 for the year ended December 31, 2012. Operating earnings per diluted common share, defined as earnings available to common shareholders before net gains or losses on junior subordinated debentures carried at fair value, net of tax and merger related expenses, net of tax, divided by the same diluted share total used in determining diluted earnings per common share, were $0.94 for the year ended December 31, 2013, as compared to operating income per diluted common share of $0.93 for the year ended December 31, 2012. Operating income per diluted share is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the heading Results of Operations - Overview below. Mortgage banking revenue was amount. 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 OPERATIONS--OVERVIEW 2011: Net earnings (loss) available to common shareholders Net loss (gain) on junior subordinated debentures carried at fair value, net of tax (1) Bargain purchase gain on acquisitions, net of tax(1) Goodwill impairment Merger-related expenses, net of tax(1) Operating earnings (loss) Per diluted common share: Net earnings (loss) available to common shareholders Net loss (gain) on junior subordinated debentures carried at fair value, net of tax Bargain purchase gain on acquisitions, net of tax Goodwill impairment Merger-related expenses, net of tax Operating earnings (loss) 2011: Net interest income—tax equivalent basis(1) Adjustments: Interest and fee reversals on non-accrual loans Covered loan disposal gains Core net interest income—tax equivalent basis(1) Average interest earning assets Net interest margin—consolidated(1) Core net interest margin—consolidated(1) RETURNS ON AVERAGE ASSETS: Net earnings (loss) available to common shareholders Operating earnings (loss) RETURNS ON AVERAGE COMMON SHAREHOLDERS’ EQUITY: Net earnings (loss) available to common shareholders Operating earnings (loss) RETURNS ON AVERAGE TANGIBLE COMMON SHAREHOLDERS’ EQUITY: Net earnings (loss) available to common shareholders Operating earnings (loss) CALCULATION OF AVERAGE TANGIBLE COMMON SHAREHOLDERS’ EQUITY: Average common shareholders’ equity Less: average goodwill and other intangible assets, net Average tangible common shareholders’ equity 2012 Total shareholders’ equity Subtract: Goodwill and other intangible assets, net Tangible common shareholders’ equity Total assets Subtract: Goodwill and other intangible assets, net Tangible assets Tangible common equity ratio net interest margin, partially offset by an increase in average non-covered loans and leases and a decrease in average interest-bearing liabilities. interest-bearing liabilities. average interest-bearing liabilities. 2011: Average Balance Interest Income Expense Average or Rates Average Balance Interest Income Expense Average Yields or Rates Average Balance Interest Income or Expense Average Yields or Rates INTEREST EARNING ASSETS: Non-covered loans and Covered loans and leases Taxable securities Non-taxable securities(2) Temporary investments and interest bearing deposits Total interest earning assets Allowance for non-covered loan and lease losses Other assets Total assets INTEREST BEARING LIABILITIES: Interest bearing checking and savings accounts Time deposits Securities sold under agreements to repurchase and federal funds purchased Term debt Junior subordinated debentures Total interest bearing liabilities Noninterest bearing deposits Other liabilities Total liabilities Preferred equity Common equity Total shareholders’ equity Total liabilities and shareholders’ equity NET INTEREST INCOME(2) 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) INTEREST EARNING ASSETS: Non-covered loans and leases Covered loans and leases Taxable securities Non-taxable securities(1) Temporary investments and interest bearing deposits Total(1) INTEREST BEARING LIABILITIES: Interest bearing checking and savings accounts Time deposits Securities sold under agreements to repurchase and federal funds purchased Term debt Junior subordinated debentures Total Net increase in net interest income(1) 2011. classified assets, partially offset by non-covered loan growth. 2011: 2011 2010 Change Amount Change Percent 2010 2009 Change Amount Change Percent Service charges on deposit accounts Brokerage commissions and fees Mortgage banking revenue, net Gain (loss) on investment securities, net (Loss) gain on junior subordinated debentures carried at fair value Bargain purchase gain on acquisition Change in FDIC indemnification asset Other income Total became effective October 1, 2011. connection with the termination of a definitive agreement between the Company and American Perspective Bank, the Company received a termination fee of $1.6 million. 2011. 2011 2010 Change Amount Change Percent 2010 2009 Change Amount Change Percent Salaries and employee benefits Net occupancy and equipment Communications Marketing Services Supplies FDIC assessments Net loss on non-covered other real estate owned Net loss (gain) on covered other real estate owned Intangible amortization and impairment Goodwill impairment Merger related expenses Other expenses Total FinPac acquisition (since the July 1, 2013 acquisition date). Of the Circle acquisition. existing OREO properties. We incur significant expenses in connection with the completion and integration of bank acquisitions that are not capitalizable. The merger-related expense incurred in 2011 related primarily to FDIC-assisted acquisitions, while those incurred in 2012 relate to the acquisition of Circle and in 2013, primarily relate to the acquisition of FinPac and the proposed merger with Sterling. Classification of expenses as merger-related is done in accordance with the provisions of a Board-approved policy. The following table presents the merger-related expenses by major category for the 2011. Professional fees Compensation and relocation Communications Premises and equipment Travel Other Total owned. investments. securities. AVAILABLE FOR SALE: U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Investments in mutual funds and other equity securities HELD TO MATURITY: Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations 2013. 2013 Fair Value U.S. TREASURY AND AGENCIES One year or less One to five years Five to ten years OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS One year or less One to five years Five to ten years Over ten years OTHER DEBT SECURITIES Over ten years Serial maturities Other investment securities Total securities Total other-than-temporary impairment losses Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income(1) Net impairment losses recognized in earnings(2) Constant prepayment rate Collateral default rate Loss severity . Francisco. The remaining restricted equity securities represent investments in Pacific Coast Bankers’ Bancshares stock. 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. 2013. Leases, net Commercial real estate Commercial Residential Consumer & other Deferred loan fees, net Total loans and leases 2012 Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Deferred loan fees, net Total rates: Commercial real estate Commercial(1) Non-owner occupied: Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Owner occupied: Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Total Total non-owner occupied Total owner occupied Total Non-owner occupied: Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Owner occupied: Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Total Non-owner Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Owner occupied: Commercial building Medical office Professional office Storage Multi-family Resort Retail Residential Farmland & agricultural Apartments Assisted living Hotel & motel Industrial RV park Warehouse Other Total Total Non-owner occupied: Commercial building Medical office Professional office Storage Multi-family Retail Residential Apartments Assisted living Hotel & motel Industrial Other Total Owner occupied: Commercial building Medical office Professional office Storage Multi-family Retail Residential Apartments Assisted living Hotel & motel Industrial Other Total Total Total non-owner occupied Total owner occupied Total Commercial line of credit Asset-based line of credit Term loans Agricultural Municipal SBA Small business lending Total Total the last four years. Commercial real estate Commercial Residential Consumer & other Total Allowance for covered loans Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Allowance for covered loans Total . primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, broker price opinions, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed and approved on a quarterly basis at or near the end of each reporting period. Appraisals or other alternative sources of value received subsequent to the reporting period, but prior to our filing of periodic reports, are considered and evaluated to ensure our periodic filings are materially correct and not misleading. Based on these processes, we do not believe there are significant time lapses for the recognition of additional loan loss provisions or charge-offs from the date they become known. and restructured loans: Non-covered loans on non-accrual status Non-covered loans past due 90 days or more and accruing Total non-covered non-performing loans Non-covered other real estate owned Total non-covered non-performing assets Restructured loans(1) Allowance for non-covered loan and lease losses Reserve for unfunded commitments Allowance for credit losses Asset quality ratios: Non-covered non-performing assets to total assets Non-covered non-performing loans to total non-covered loans Allowance for non-covered loan losses to total non-covered loans Allowance for non-covered credit losses to total non-covered loans Allowance for non-covered credit losses to total non-covered non-performing loans 2012 Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Loans on non-accrual status: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Loans past due 90 days or more and accruing: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Total non-performing loans Other real estate owned: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total other real estate owned Total non-performing assets Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Loans on non-accrual status: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Loans past due 90 days or more and accruing: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Total non-performing loans Other real estate owned: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total other real estate owned Total non-performing assets Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total 2013 2012 Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Northwest Oregon Central Oregon Southern Oregon Washington Greater Sacramento Northern California Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total 2013 2012 2013 2014 2015 2016 Thereafter Total Rate . Covered other real estate owned: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Covered other real estate owned: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total 2012 Loans on non-accrual status Loans past due 90 days or more and accruing Total non-performing loans Other real estate owned Total non-performing assets Asset quality ratios: Total non-performing assets to total assets Total non-performing loans to total loans Balance at beginning of year Loans charged off: Commercial real estate Commercial Residential Consumer & other Total loans charged off Recoveries: Commercial real estate Commercial Residential Consumer & other Total recoveries Net charge-offs Addition incident to mergers Provision charged to operations Balance at end of year Ratio of net charge-offs to average non-covered loans Ratio of provision to average non-covered loans Recoveries as a percentage of charge-offs fees, as of December 31: Commercial real estate Commercial Residential Consumer & other Unallocated Allowance for non-covered loan and lease losses 2012 Balance at beginning of period Net change to other expense: Commercial real estate Commercial Residential Consumer & other Total change to other expense Balance at end of period 31: Balance at beginning of period Loans charged off: Commercial real estate Commercial Residential Consumer & other Total loans charged off Recoveries: Commercial real estate Commercial Residential Consumer & other Total recoveries Net charge-offs Covered provision charged to operations Balance at end of period As a percentage of average covered loans and leases: Net charge-offs Provision for covered loan and lease losses 31: Commercial real estate Commercial Residential Consumer & other Allowance for covered loan and lease losses 2011: Balance, beginning of year Additions for new mortgage servicing rights capitalized Acquired mortgage servicing rights Changes in fair value: Due to changes in model inputs or assumptions(1) Other(2) Balance, end of year Balance of loans serviced for others MSR as a percentage of serviced loans periodically tested for impairment. Management evaluates The Company the periods presented. 31, 2013 Noninterest bearing Interest bearing demand Money market Savings Time, $100,000 and over Time less than $100,000 Total Non-interest bearing Interest bearing demand Money market Savings Time Total 2013: Three months or less Over three months through six months Over six months through twelve months Over twelve months Time, $100,000 and over relates to companies comparable to our size and condition, in either the primary or secondary markets. Relating to the interest rate environment, we considered the change in slope and shape of the forward LIBOR swap curve in the current period, the affects of which did not result in a significant change in the fair value of these liabilities. 2012. . . 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 . 2013: Deposits (1) Term debt Junior subordinated debentures(2) Operating leases Other long-term liabilities(3) Total contractual obligations in Item 8 below. 2011: Dividend declared per common share Dividend payout ratio 2013 0-3 Months 4-12 1-5 Years Over 5 Non-Rate- Sensitive ASSETS Interest bearing deposits Temporary Investments Trading account assets Securities held to maturity Securities available for sale Loans held for sale Non-covered loans and leases Covered loans and leases Non-interest earning assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing demand deposits Savings and money market 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 Total liabilities and shareholders’ equity 6,012,259 962,993 880,002 68,516 3,639,585 $ 11,563,355 Interest rate sensitivity gap Cumulative interest rate sensitivity gap Cumulative gap as a % of earning assets -30.0% -18.6% 16.3% 20.4% 2013 Increase (Decrease) in Net Interest Income from Base Scenario Percentage Change Increase (Decrease) in Net Interest Income from Base Scenario Percentage Change Decrease in Net Interest Income from Base Scenario Percentage Change Up 300 basis points Up 200 basis points Up 100 basis points Down 100 basis points Down 200 basis points Down 300 basis points rates. Decrease Value of Equity Percentage Change Increase (Decrease) Value of Equity Percentage Change Up 300 basis points Up 200 basis points Up 100 basis points Down 100 basis points Down 200 basis points Down 300 basis points Commission. 14, 2014 ASSETS Cash and due from banks Interest bearing deposits 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 Non-covered loans and leases Allowance for non-covered loan and lease losses Non-covered loans and leases, net Covered loans and leases, net of allowance of $14,320 and $2,721 Restricted equity securities Premises and equipment, net Goodwill and other intangible assets, net Mortgage servicing rights, at fair value Non-covered other real estate owned Covered other real estate owned FDIC indemnification asset Other assets Total assets 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 20) SHAREHOLDERS’ EQUITY Common stock, no par value, 200,000,000 shares authorized; issued and outstanding: 112,164,891 in 2011 and 114,536,814 in 2010 Retained earnings Accumulated other comprehensive income Total shareholders’ equity Total liabilities and shareholders’ equity INCOME INTEREST INCOME Interest and fees on non-covered loans Interest and fees on covered loans 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 agreements to repurchase and federal funds purchased Interest on term debt Interest on junior subordinated debentures Total interest expense Net interest income PROVISION FOR NON-COVERED LOAN AND LEASE LOSSES PROVISION FOR COVERED LOAN AND LEASE LOSSES Net interest income after provision for loan and lease losses NON-INTEREST INCOME Service charges on deposit accounts Brokerage commissions and fees Mortgage banking revenue, net Gain (loss) on investment securities, net Gain on sale of investment securities, net Total other-than-temporary impairment losses Portion of other-than-temporary impairment losses (transferred from) recognized in other comprehensive income Total gain (loss) on investment securities, net (Loss) gain on junior subordinated debentures carried at fair value Bargain purchase gain on acquisition Change in FDIC indemnification asset Other income Total non-interest income NON-INTEREST EXPENSE Salaries and employee benefits Net occupancy and equipment Communications Marketing Services Supplies FDIC assessments Net loss on non-covered other real estate owned Net loss (gain) on covered other real estate owned Intangible amortization and impairment Goodwill impairment Merger related expenses Other expenses Total non-interest expense Income (loss) before provision for (benefit from) income taxes Provison for (benefit from) income taxes Net income (loss) Net income (loss) Preferred stock dividends Dividends and undistributed earnings allocated to participating securities Net earnings (loss) available to common shareholders Earnings (loss) per common share: Basic Diluted Weighted average number of common shares outstanding: Basic Diluted COMPREHENSIVE INCOME Accumulated Comprehensive BALANCE AT JANUARY 1, 2009 Net loss Other comprehensive income, net of tax Comprehensive loss Issuance of common stock Stock-based compensation Stock repurchased and retired Issuances of common stock under stock plans and related net tax deficiencies Amortization of discount on preferred stock Dividends declared on preferred stock Cash dividends on common stock ($0.20 per share) Balance at December 31, 2009 BALANCE AT JANUARY 1, 2010 Net income Other comprehensive (loss) income, net of tax Comprehensive income Issuance of common stock Stock-based compensation Stock repurchased and retired Issuances of common stock under stock plans and related net tax benefit Redemption of preferred stock issued to U.S. Treasury Issuance of preferred stock Conversion of preferred stock to common stock Amortization of discount on preferred stock Dividends declared on preferred stock Repurchase of warrants issued to U.S. Treasury Cash dividends on common stock ($0.20 per share) Balance at December 31, 2010 BALANCE AT JANUARY 1, 2011 Net income Other comprehensive income, net of tax Comprehensive income Stock-based compensation Stock repurchased and retired Issuances of common stock under stock plans and related net tax deficiencies Cash dividends on common stock ($0.24 per share) Balance at December 31, 2011 thousands) CHANGES IN SHAREHOLDERS' EQUITY Net income (loss) Available for sale securities: Unrealized gains arising during the year Reclassification adjustment for gains realized in net income (net of tax expense of $3,094, $930, and $3,431 in 2011, 2010, and 2009, respectively) Income tax expense related to unrealized gains Net change in unrealized gains Held to maturity securities: Reclassification adjustment for impairments realized in net income (net of tax benefit of $1,716 in 2009) Amortization of unrealized losses on investment securities transferred to held to maturity (net of tax benefit of $70 in 2009) Net change in unrealized losses on investment securities transferred to held to maturity Unrealized (losses) gain related to factors other than credit (net of tax expense of $34 and $1,080 in 2011 and 2009, respectively and tax benefit of $150 in 2010) Reclassification adjustment for impairments realized in net income (net of tax benefit of $108, $137 and $307 in 2011, 2010 and 2009, respectively) Accretion of unrealized losses related to factors other than credit to investment securities held to maturity (net of tax benefit of $66, $115 and $120 in 2011, 2010 and 2009, respectively) Net change in unrealized losses related to factors other than credit Other comprehensive income (loss), net of tax Comprehensive income (loss) thousands, except shares) FLOW CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income tax expense (benefit) Amortization of investment premiums, net Gain on sale of investment securities, net Other-than-temporary impairment on investment securities available for sale Other-than-temporary impairment on investment securities held to maturity Loss on sale of non-covered other real estate owned Gain on sale of covered other real estate owned Valuation adjustment on non-covered other real estate owned Valuation adjustment on covered other real estate owned Provision for non-covered loan and lease losses Provision for covered loan and lease losses Bargain purchase gain on acquisition Change in FDIC indemnification asset Depreciation, amortization and accretion Goodwill impairment Increase in mortgage servicing rights Change in mortgage servicing rights carried at fair value Change in junior subordinated debentures carried at fair value Stock-based compensation Net decrease (increase) in trading account assets Gain on sale of loans Origination of loans held for sale Proceeds from sales of loans held for sale Excess tax benefits from the exercise of stock options Change in other assets and liabilities Net (increase) decrease in other assets Net increase (decrease) in other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities available for sale Purchases of investment securities held to maturity Proceeds from investment securities available for sale Proceeds from investment securities held to maturity Redemption of restricted equity securities Net non-covered loan and lease (originations) paydowns Net covered loan and lease paydowns Proceeds from sales of loans Proceeds from disposals of furniture and equipment Purchases of premises and equipment Net proceeds from FDIC indemnification asset Proceeds from sales of non-covered other real estate owned Proceeds from sales of covered other real estate owned Proceeds from sale of acquired insurance portfolio Cash acquired in merger, net of cash consideration paid Net cash used by investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposit liabilities Net increase (decrease) in securities sold under agreements to repurchase Repayment of term debt Proceeds from issuance of preferred stock Redemption of preferred stock Repurchase of warrants issued to U.S. Treasury Net proceeds from issuance of common stock Dividends paid on preferred stock Dividends paid on common stock Excess tax benefits from the exercise of stock options Proceeds from stock options exercised Retirement of common stock Net cash (used) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest Income taxes SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Change in unrealized gains on investment securities available for sale, net of taxes Change in unrealized loss on investment securities transferred to held to maturity, 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 and preferred stock and payable after period-end Transfer of non-covered loans to non-covered other real estate owned Transfer of covered loans to covered other real estate owned Transfer from FDIC indemnification asset to due from FDIC and other Transfer of covered loans to non-covered loans Receivable from sales of noncovered other real estate owned and loans Receivable from sales of covered other real estate owned Conversion of preferred stock to common stock Acquisitions: Assets acquired Liabilities assumed Nature of Operations for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. The Company aggregated FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset are recorded as adjustments to non-interest income. The resulting carrying value of the indemnification asset represents the present value of amounts recoverable from the FDIC for future expected losses and the amounts due from the FDIC for claims related to covered losses. 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 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. Federal Home Loan Banks of Seattle 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 this 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. 2013 assets, as if the Company had been acquired in a business combination and the estimated fair value of the reporting unit is the price paid to acquire it. The allocation process is performed only for purposes of determining the amount of goodwill impairment. No assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets recorded as a part of this process. Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss would be recognized as a charge to earnings in an amount equal to that excess. Constant prepayment rate Discount rate Weighted average life (years) retained does not carry an SBA or USDA guarantee, part of the gain recognized on the sold portion of the loan Under the terms of the 2013 Plan, 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. Dividend yield Expected life (years) Expected volatility Risk-free rate Weighted average grant date fair value of options granted common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares. clarifies that increase profitability. There is no tax deductible goodwill or other intangibles. thousands) Income Cost basis net assets (liabilities) Cash payment received from (paid to) the FDIC Fair value adjustments: Loans Other real estate owned Other intangible assets FDIC indemnification asset Deposits Term debt Other Bargain purchase gain (goodwill) Assets Acquired: Cash and equivalents Investment securities Covered loans Premises and equipment Restricted equity securities Goodwill Other intangible assets Mortgage servicing rights Covered other real estate owned FDIC indemnification asset Other assets Total assets acquired Liabilities Assumed: Deposits Term debt Other liabilities Total liabilities assumed Net assets acquired/bargain purchase gain included. The following table presents the key components of merger-related expense for years ended December 31, Security Bank. Professional fees Compensation and relocation Communications Premises and equipment Travel Other Total Security. 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, – Investment Securities AVAILABLE FOR SALE: U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Investments in mutual funds and other equity securities HELD TO MATURITY: Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations 2012: AVAILABLE FOR SALE: U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Investments in mutual funds and other equity securities HELD TO MATURITY: Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations collateral. AVAILABLE FOR SALE: U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Total temporarily impaired securities HELD TO MATURITY: Residential mortgage-backed securities and collateralized mortgage obligations Total temporarily impaired securities AVAILABLE FOR SALE: U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Total temporarily impaired securities HELD TO MATURITY: Residential mortgage-backed securities and collateralized mortgage obligations Total temporarily impaired securities 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 (“OCI”). 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 Total other-than-temporary impairment losses Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income(1) Net impairment losses recognized in earnings(2) Constant prepayment rate Collateral default rate Loss severity Balance, beginning of period Additions: Subsequent OTTI credit losses Reductions: Securities sold, matured or paid-off Balance, end of period $359,000, respectively. 2013 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 U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations To Federal Home Loan Bank to secure borrowings To state and local governments to secure public deposits Other securities pledged Total pledged securities Leases The following table presents the major types of non-covered loans and leases, net of deferred fees and costs of $495,000 and $12.1 million, recorded in the balance sheets as of December 31, 2012: Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Deferred loan fees, net Total December 31, 2013, non-covered loans accounted for under ASC 310-30 were $21.9 million. At December 31, 2012, non-covered loans accounted for under ASC 310-30 were $19.3 million. leases. • Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; • Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; • Changes in the nature and volume of the portfolio and in the terms of • Changes in the experience and ability of lending management and other relevant staff; • Changes in the volume and severity of past due loans, the volume of nonaccrual loans and leases, and the volume and severity of adversely classified or graded loans; • Changes in the quality of the institution’s loan and lease review system; • Changes in the value of underlying collateral for collateral-depending loans; • The existence and effect of any concentrations of credit, and changes in the level of such concentrations; • The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institutions’ existing portfolio. factors. This information is then incorporated into our understanding of the reasonableness of the formula factors and our evaluation of the unallocated portion of the ALLL. • The quality of the current loan and lease portfolio; • The trend in the loan • Current economic conditions; • Loan and lease concentrations; • Loan and lease growth rates; • Past-due and non-performing trends; • Evaluation of specific loss estimates for all significant problem loans; • Historical short (one year), medium (three year), and long-term charge-off rates; • Recovery experience; • Peer comparison loss rates. Balance, beginning of period Charge-offs Recoveries Provision Balance, end of period Balance, beginning of period Charge-offs Recoveries Provision Balance, end of period Allowance for non-covered loans and leases: Collectively evaluated for impairment Individually evaluated for impairment Total Non-covered loans and leases: Collectively evaluated for impairment Individually evaluated for impairment Total Allowance for non-covered loans and leases: Collectively evaluated for impairment Individually evaluated for impairment Total Non-covered loans and leases: Collectively evaluated for impairment Individually evaluated for impairment Total Balance, beginning of period Net change to other expense Balance, end of period Balance, beginning of period Net change to other expense Balance, end of period Unfunded commitments: December 31, 2011 December 31, 2010 31, 2013 Commercial Real Estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Total and Leases loans 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 is generally limited to performing restructured loans. 2012 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days and Accruing Total Past Due Nonaccrual Current Total Non- Loans and Leases Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Deferred loan fees, net Total 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days and Accruing Total Past Due Nonaccrual Current Total Non- Loans and Leases Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Deferred loan fees, net Total With no related allowance recorded Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other With an allowance recorded Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial Real Estate Commercial Residential Consumer & Other Total Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other With an allowance recorded Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial Real Estate Commercial Residential Consumer & Other Total loans and leases: Borrower may be experiencing declining operating trends, strained cash flows or less-than anticipated performance. Cash flow should still be adequate to cover debt service, and the negative trends should be identified as being of a short-term or temporary nature. The borrower may have experienced a minor, unexpected covenant violation. Companies who may be experiencing tight working capital or have a cash cushion deficiency. Delinquent payments, increasing and material overdraft activity, request for bulge and/or out-of-formula advances may be an indicator of inadequate working capital and may suggest a lower rating. Failure of the intended repayment source to materialize as expected, or renewal of a loan (other than cash/marketable security secured or lines of credit) without reduction are possible indicators of a Performance is poor or significantly less than expected. There may be a temporary debt-servicing deficiency or inadequate working capital as evidenced by a cash cushion deficiency, but not to the extent that repayment is compromised. Material violation of financial covenants is common. Loans or leases with unresolved material issues that significantly cloud the debt service outlook, even though a debt servicing deficiency does not currently exist. Modest underperformance or deviation from plan for real estate loans where absorption of rental/sales units is necessary to properly service the debt as structured. Depth of support for interest carry provided by owner/guarantors may mitigate and provide for improved rating. This rating may be assigned when a loan officer is unable to supervise the credit properly, an inadequate loan agreement, an inability to control collateral, failure to obtain proper documentation, or any other deviation from prudent lending practices. Unlike a Cash flow deficiencies or trends are of a magnitude to jeopardize current and future payments with no immediate relief. A loss is not presently expected, however the outlook is sufficiently uncertain to preclude ruling out the possibility. • Material underperformance or deviation from plan for real estate loans where absorption of rental/sales units is necessary to properly service the debt and risk is not mitigated by willingness and capacity of owner/guarantor to support interest payments. • Management character or honesty has become suspect. This includes instances where the borrower has become uncooperative. • Due to unprofitable or unsuccessful business operations, some form of restructuring of the business, including liquidation of assets, has become the primary source of loan repayment. Cash flow has deteriorated, or been • The borrower is bankrupt, or for any other reason, future repayment is dependent on court action. • There is material, uncorrectable faulty documentation or materially suspect financial information. loans and leases: 2013 Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Deferred loan fees, net Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Deferred loan fees, net Total 2013 Impaired restructured loans carry a specific allowance 31, 2012 Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Rate Modifications Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Indemnification Asset Net The following table presents the Evergreen, Rainier, and Nevada Security, respectively, as compared to Performing loans (“Analogized ASC 310-30”): Number of Pools Number of Loans Acquired Unpaid Principal Balance Non-performing loans (“Classic ASC 310-30”): Number of Pools Number of Loans Acquired Unpaid Principal Balance Total Portfolio Number of Pools Number of Loans Acquired Unpaid Principal Balance Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total December 31, 2012. Undiscounted contractual cash flows Undiscounted cash flows not expected to be collected (nonaccretable difference) Undiscounted cash flows expected to be collected Accretable yield at acquisition Estimated fair value of loans acquired at acquisition Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Allowance for covered loans Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Allowance for covered loans Total The following table presents the changes in the accretable yield for the years ended December 31, Balance, beginning of period Accretion to interest income Disposals Reclassifications from nonaccretable difference Balance, end of period Balance, beginning of period Additions resulting from acquisitions Accretion to interest income Disposals Reclassifications (to)/from nonaccretable difference Balance, end of period Balance, beginning of period Charge-offs Recoveries Provision Balance, end of period Balance, beginning of period Charge-offs Recoveries Provision Balance, end of period Allowance for covered loans and leases: Loans acquired with deteriorated credit quality(1) Collectively evaluated for impairment(2) Total Covered loans and leases: Loans acquired with deteriorated credit quality(1) Collectively evaluated for impairment(2) Total Allowance for covered loans and leases: Loans acquired with deteriorated credit quality(1) Collectively evaluated for impairment Total Covered loans and leases: Loans acquired with deteriorated credit quality(1) Collectively evaluated for impairment Total acquisition on covered loans. Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Commercial real estate Term & multifamily Construction & development Residential development Commercial Term LOC & other Residential Mortgage Home equity loans & lines Consumer & other Total Balance, beginning of period Acquisition Additions to covered OREO Dispositions of covered OREO Valuation adjustments in the period Balance, end of period in cash flow of the covered assets over Balance, beginning of period Change in FDIC indemnification asset Transfers to due from FDIC Balance, end of period Balance, beginning of period Acquisitions Change in FDIC indemnification asset Transfers to due from FDIC Balance, end of period The following table presents the major components of premises and equipment at December 31, 2012: Land Buildings and improvements Furniture, fixtures and equipment Construction in progress Total premises and equipment Less: Accumulated depreciation and amortization Premises and equipment, net Other Intangible Assets Balance, December 31, 2008 Reductions Impairment Balance, December 31, 2009 Net additions Reductions Balance, December 31, 2010 Net additions Reductions Balance, December 31, 2011 Balance, December 31, 2008 Impairment Amortization Balance, December 31, 2009 Net additions Reductions Amortization Balance, December 31, 2010 Net additions Amortization Balance, December 31, 2011 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. No impairment losses separate from the scheduled amortization have been recognized in the periods presented. test two-step process. The between if certain events or circumstances indicate goodwill may be impaired. 2012 2013 2014 2015 2016 Thereafter – Mortgage Servicing Rights 2011: Balance, beginning of year Additions for new mortgage servicing rights capitalized Acquired mortgage servicing rights Changes in fair value: Due to changes in model inputs or assumptions(1) Other(2) Balance, end of year Balance of loans serviced for others MSR as a percentage of serviced loans December 31, 2013 and December 31, 2012 is as follows: 2011: Balance, beginning of period Additions to OREO Dispositions of OREO Valuation adjustments in the period Balance, end of period Cash surrender value of life insurance policies Accrued interest receivable Due from FDIC Prepaid FDIC deposit assessment Income taxes receivable Equity method investments Derivative assets Investment in unconsolidated Trusts Deferred tax assets, net Other Total – Income Taxes YEAR ENDED DECEMBER 31, 2011: Federal State YEAR ENDED DECEMBER 31, 2010: Federal State YEAR ENDED DECEMBER 31, 2009: Federal State Statutory Federal income tax rate Goodwill impairment State tax, net of Federal income tax Tax-exempt income Tax credits Other Effective income tax rate DEFERRED TAX ASSETS: Covered loans Allowance for loan and lease losses Accrued severance and deferred compensation Tax credits Non-covered other real estate owned Covered other real estate owned Non-covered loans Discount on trust preferred securities Basis differences of stock and securities Net operating loss carryforwards Other Total gross deferred tax assets DEFERRED TAX LIABILITIES: FDIC indemnification asset Unrealized gain on investment securities Fair market value adjustment on junior subordinated debentures Premises and equipment depreciation Mortgage servicing rights Deferred loan fees Intangibles Leased assets Other Total gross deferred tax liabilities Net deferred tax (liabilities) assets 2012. Balance, beginning of period Changes based on tax positions related to prior years Reductions for tax positions of prior years Balance, end of period – Interest Bearing Deposits Interest bearing demand Money market Savings Time, $100,000 and over Time less than $100,000 Total interest bearing deposits 2011: Interest bearing demand Money market Savings Time, $100,000 and over Other time less than $100,000 Total interest on deposits 2013 2012 2013 2014 2015 2016 Thereafter Total time deposits 2013 Three months or less Over three months through six months Over six months through twelve months Over twelve months Time, $100,000 and over – Securities Sold Under Agreements To Repurchase December 31, 2011 December 31, 2010 – Federal Funds Purchased – Term Debt 2013 2012 2013 2014 2015 2016 Thereafter Total borrowed funds 2013 AT FAIR VALUE: Umpqua Statutory Trust II Umpqua Statutory Trust III Umpqua Statutory Trust IV Umpqua Statutory Trust V Umpqua Master Trust I Umpqua Master Trust IB AT AMORTIZED COST: HB Capital Trust I Humboldt Bancorp Statutory Trust I Humboldt Bancorp Statutory Trust II Humboldt Bancorp Staututory Trust III CIB Capital Trust Western Sierra Statutory Trust I Western Sierra Statutory Trust II Western Sierra Statutory Trust III Western Sierra Statutory Trust IV – Employee Benefit Plans Lease Commitments—The 2012 2013 2014 2015 2016 Thereafter Total Commitments to extend credit Commitments to extend overdrafts Forward sales commitments Commitments to originate loans held for sale Standby letters of credit utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each 2013 policies, tightening credit or refinancing markets, or a decline in real estate values in the – Derivatives 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 Company's financial statements. December 31, 2012: Derivatives not designated as hedging instrument Balance Sheet Location December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010 Interest rate lock commitments Interest rate forward sales commitments Interest rate swaps Total December 31, 2012: Derivatives not designated as hedging instrument Income Statement Location 2011 Interest rate lock commitments Interest rate forward sales commitments Interest rate swaps Total plan. Added performance vesting conditions linking total shareholder return, compared to the return of a regional bank stock total return index; Awards will cliff vest after three years instead of time vest over a four year period, but only to the extent that the performance conditions are met; and The modified grants will vest in whole or in part only if total shareholder return achieves specified targets, subject to prorated vesting upon death, disability, qualifying retirement, termination for good reason or a change of control. Options Outstanding Weighted Avg. Exercise Price Options Outstanding Weighted Avg. Exercise Price Options Outstanding Weighted Avg. Exercise Price Balance, beginning of year Granted Exercised Forfeited/expired Balance, end of year Options exercisable,end of year 2013 Range of Exercise Prices Options Outstanding Weighted Avg. Remaining Contractual Life (Years) Weighted Avg. Exercise Price Options Exercisable Weighted Avg. Exercise Price $4.58 to $10.97 $11.26 to $12.87 $13.34 to $19.31 $20.03 to $28.43 31, 2013 Restricted Shares Outstanding Average Grant Date Fair Value Restricted Shares Outstanding Average Grant Date Fair Value Restricted Shares Outstanding Average Grant Date Fair Value Balance, beginning of year Granted Released Forfeited/expired Balance, end of year Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Balance, beginning of year Granted Released Forfeited/expired Balance, end of year 2012. – Regulatory Capital AS OF DECEMBER 31, 2011: Total Capital (to Risk Weighted Assets) Consolidated Umpqua Bank Tier I Capital (to Risk Weighted Assets) Consolidated Umpqua Bank Tier I Capital (to Average Assets) Consolidated Umpqua Bank AS OF DECEMBER 31, 2010: Total Capital (to Risk Weighted Assets) Consolidated Umpqua Bank Tier I Capital (to Risk Weighted Assets) Consolidated Umpqua Bank Tier I Capital (to Average Assets) Consolidated Umpqua Bank then makes an acquisition, the combined trust preferred security debt issuances would be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016). 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 following the proposed merger in order to support regulatory total capital levels. – Fair Value Measurement FINANCIAL ASSETS: Cash and cash equivalents Trading securities Securities available for sale Securities held to maturity Loans held for sale Non-covered loans and leases, net Covered loans and leases Restricted equity securities Mortgage servicing rights Bank owned life insurance assets FDIC indemnification asset Derivatives Visa Class B common stock FINANCIAL LIABILITIES: Deposits Securities sold under agreement to repurchase Term debt Junior subordinated debentures, at fair value Junior subordinated debentures, at amortized cost Derivatives Trading securities Obligations of states and political subdivisions Equity securities Other investments securities(1) Available for sale securities U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Investments in mutual funds and other equity securities Mortgage servicing rights, at fair value Derivatives Total assets measured at fair value Junior subordinated debentures, at fair value Derivatives Total liabilities measured at fair value Trading securities Obligations of states and political subdivisions Equity securities Other investments securities(1) Available for sale securities U.S. Treasury and agencies Obligations of states and political subdivisions Residential mortgage-backed securities and collateralized mortgage obligations Other debt securities Investments in mutual funds and other equity securities Mortgage servicing rights, at fair value Derivatives Total assets measured at fair value Junior subordinated debentures, at fair value Derivatives Total liabilities measured at fair value above: 2011 Mortgage servicing rights Junior subordinated debentures 2010 Mortgage servicing rights Junior subordinated debentures Investment securities, held to maturity Residential mortgage-backed securities and collateralized mortgage obligations Non-covered loans and leases Non-covered other real estate owned Covered other real estate owned Investment securities, held to maturity Residential mortgage-backed securities and collateralized mortgage obligations Non-covered loans and leases Non-covered other real estate owned Covered other real estate owned Investment securities, held to maturity Residential mortgage-backed securities and collateralized mortgage obligations Non-covered loans and leases Goodwill Other intangible assets, net Non-covered other real estate owned Covered other real estate owned Total loss from nonrecurring measurements loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as loan interest rates, geographic location, borrower characteristics and vintage, and historical experience. We then use a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows are then discounted at the interest rate used to recognize interest income on each security. 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 non-covered other real estate owned for fair value adjustments based on the fair value of the real estate. December 31, 2013 and December 31, 2012: NUMERATORS: Net income (loss) Preferred stock dividends Dividends and undistributed earnings allocated to participating securities(1) Net earnings (loss) available to common shareholders DENOMINATORS: Weighted average number of common shares outstanding—basic Effect of potentially dilutive common shares(2) Weighted average number of common shares outstanding—diluted EARNINGS (LOSS) PER COMMON SHARE: Basic Diluted Stock options CPP warrant Non-participating, nonvested restricted shares Restricted stock units – Segment Information Interest income Interest expense Net interest income Provision for non-covered loan and lease losses Provision for covered 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 Net earnings available to common shareholders Total assets Total loans (covered and non-covered) Total deposits Interest income Interest expense Net interest income Provision for non-covered loan and lease losses Provision for covered loan and lease losses Non-interest income Non-interest expense Income before (benefit from) provision for income taxes (Benefit from) provision for income taxes Net income Preferred stock dividends Dividends and undistributed earnings allocated to participating securities Net earnings available to common shareholders Total assets Total loans (covered and non-covered) Total deposits Interest income Interest expense Net interest income Provision for loan and lease losses Non-interest income Non-interest expense (Loss) income before (benefit from) provision for income taxes (Benefit from) provision for income taxes Net (loss) income Preferred stock dividends Dividends and undistributed earnings allocated to participating securities Net (loss) earnings available to common shareholders Total assets Total loans (covered and non-covered) Total deposits Loans outstanding at beginning of year New loans and advances Less loan repayments Reclassification(1) Loans outstanding at end of year – Parent Company Financial Statements ASSETS Non-interest bearing deposits with subsidiary banks Investments in: Bank subsidiary Nonbank subsidiaries Receivable from nonbank subsidiary 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 Income INCOME Dividends from subsidiaries Other income Total income EXPENSES Management fees paid to subsidiaries Other expenses Total expenses Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries Income tax benefit Net income (loss) before equity in undistributed earnings of subsidiaries Equity in (distributions in excess) undistributed earnings of subsidiaries Net income (loss) Preferred stock dividends Dividends and undistributed earnings allocated to participating securities Net earnings (loss) available to common shareholders OPERATING ACTIVITIES: Net income (loss) Adjustment to reconcile net income (loss) to net cash provided by operating activities: (Distributions in excess) equity in undistributed earnings of subsidiaries Gain on sale of investment securities Depreciation, amortization and accretion Change in fair value of junior subordinated debentures Net (increase) decrease in other assets Net increase (decrease) in other liabilities Net cash provided (used) by operating activities INVESTING ACTIVITIES: Investment in subsidiaries Proceeds from investment securities held to maturity Net decrease (increase) in receivables from nonbank subsidiaries Net cash used by investing activities FINANCING ACTIVITIES: Net increase (decrease) in payables to subsidiaries Proceeds from issuance of preferred stock Redemption of preferred stock Redemption of warrants Net proceeds from issuance of common stock Dividends paid on preferred stock Dividends paid on common stock Stock repurchased Proceeds from exercise of stock options Net cash (used) provided by financing activities Change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 2013: Four Quarters Interest income Interest expense Net interest income Provision for non-covered loan and lease losses Provision for covered 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 Four Quarters Interest income Interest expense Net interest income Provision for non-covered loan and lease losses Provision for covered loan and lease losses Non-interest income Non-interest expense Income before provision for (benefit from) income taxes Provision for (benefit from) income taxes Net income Preferred stock dividends Dividends and undistributed earnings allocated to participating securities Net earnings (loss) available to common shareholders Basic earnings (loss) per common share Diluted earnings (loss) per common share Cash dividends declared per common share Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 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 Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the 2013 14, 2014 " " 14, 2014 ITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSFORWARD LOOKING STATEMENTS AND RISK FACTORSSee the discussion of forward-looking statements and risk factors in Part I Item 1 and Item 1A of this report.EXECUTIVE OVERVIEW33Significant items for the year ended December 31, 20112013 were as follows:Financial PerformanceNet earnings available to common shareholders per diluted common share were •Net interest margin, on a tax equivalent basis, was 4.01% for the year ended December 31, 2013, compared to 4.02% for the year ended December 31, 2012. The decrease in net interest margin resulted from the decline in non-covered loan and lease yields, the decline in investment yields, an increase in interest bearing cash, the decrease in average investment balances and in average covered loan balances, partially offset by the increase in average non-covered loans and leases outstanding, the increase in non-interest bearing deposits, and the decrease in the cost of interest bearing deposits. Excluding the impact of loan disposal gains from the covered loan portfolio and interest and fee reversals on non-accrual loans, our adjusted net interest margin was 3.89% for the year ended December 31, 2013, as compared to adjusted net interest margin of 3.86% for the year ended December 31, 2012. Adjusted net interest margin is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the heading Results of Operations - Overview below. Net earnings per diluted common share was $0.65 in 2011, as compared to net earnings of $0.15 per diluted common share earned in 2010. The increase in net earnings per diluted common share is principally attributed to reduced provision for loan and lease losses. Operating earnings per diluted common share, defined as earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, bargain purchase gains on acquisitions, net of tax, merger related expenses, net of tax, and goodwill impairment divided by the same diluted share total used in determining diluted earnings per common share, was $0.66 in 2011, as compared to operating earnings per diluted common share of $0.12 in 2010. Operating earnings per diluted common share is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the headingResults of Operations—Overviewbelow.•Net interest margin, on a tax equivalent basis, increased to 4.19% in 2011 from 4.17% in 2010. The increase in net interest margin resulted from the increase in average covered loans and investment balances, increased covered loan yields, and declining costs of interest bearing deposits, partially offset by lower average non-covered loan balances, lower non-covered loan yields, and decreased investment yields. Excluding the impact of loan disposal gains and interest and fee reversals on non-accrual loans, our core net interest margin was 3.95% for 2011, as compared to core net interest margin of 3.92% for 2010. Core net interest margin is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the headingResults of Operations—Overviewbelow.$26.6$78.9 million in 2011,for 2013, compared to $21.2$84.2 million in 2010.for 2012. Closed mortgage volume increased 27%decreased 12% in the current year-to-date over the prior year to a record $994.5 millionsame period due to anlower refinancing activity attributable to the increase in purchase and refinancing activity, resulting from historically low mortgage interest rates.We recorded lossrates, partially offset by increased purchase activity driven by continued improvement of $2.2 million in the income statement representing the change in fair value on our junior subordinated debentures measured at fair value in 2011, compared to gains of $5.0 million in 2010.Total gross non-covered loans and leases increased to $5.9were $7.4 billion as of December 31, 2011,2013, an increase of $229.1$673.3 million, or 4.0%10.1%, as compared to December 31, 2010.2012. This increase is principally attributable to net loan originations of $336.9 millionincreased commercial real estate, commercial, and residential mortgage production during the year offset by charge-offs of $65.1 million, transfers to non-covered other real estate owned of $47.4 million, and sales of non-covered loans of $11.2 million.as well as the acquired FinPac lease portfolio.Total deposits were $9.2$9.1 billion as of December 31, 2011,2013, a decrease of $197.1$261.6 million, or 2.1%2.8%, as compared to December 31, 2010, resulting2012. The decline resulted primarily from thecustomer transfers of balances to securities sold under agreements to repurchase and from anticipated run-off of higher priced money market and time deposits.Total consolidated assets were $11.6$11.6 billion as of December 31, 2011,2013, as compared to $11.7$11.8 billion as of at December 31, 2010, representing a decrease of $105.4 million or 0.9%2012.Credit QualityNon-covered, non-performing assets decreased to $125.6$57.2 million, or 1.09%0.49% of total assets, as of December 31, 2011,2013, as compared to $178.0$88.1 million, or 1.53%0.75% of total assets, as of December 31, 2010.2012. Non-covered, non-performing loans and leases decreased to $91.4$35.3 million, or 1.55%0.48% of total non-covered total loans and leases, as ofDecember 31, 2013, as compared to $71.0 million, or 1.06% of total non-covered loans and leases as of December 31, 2012. Non-accrual loans have been written-down to their estimated net realizable values. December 31, 2011, compared to $145.2 million, or 2.57% of total non-covered loans as of December 31, 2010. Non-covered, non-accrual loans have been written-down to their estimated net realizable values.Net charge-offs on non-covered loans were $55.2$16.9 million in 2011,for the year ended December 31, 2013, or 0.96%0.24% of average non-covered loans and leases, as compared to net charge-offs of $119.4$29.4 million, or 2.06%0.48% of average non-covered loans and leases, in 2010. for the year ended December 31, 2012. The decrease in net charge-offs in the current year is consistent with the overall improving trends in credit quality indicators.Provisionprovision for non-covered loan and lease losses in 2011 was $46.2$16.8 million for 2013, as compared to $113.7$21.8 million recognized for 2012. This change resulted primarily from a decrease in 2010. The decrease reflectsnet charge-offs as a result of continued improvement and stabilization of credit quality and the declinereduction of non-performing loans outstanding.Capital and Growth Initiatives34Total risk based capital ratio was 17.2%decreased to 14.7% as of December 31, 2011,2013, compared to 17.6%16.5% as of December 31, 2010,2012, due to anthe increase in risk weightedgoodwill and risk-weighted assets primarily relatedas compared to non-covered loansDecember 31, 2012, as a result of the FinPac acquisition and $29.8 million of common stock repurchased.organic loan growth.Declared cash dividends of $0.05$0.60 per common share for the first and second quarters of the year and $0.072013 compared to $0.34 per common share for 2012.Completed the thirdacquisition of FinPac in July 2013 and fourth quarters of 2011. In determiningannounced in September 2013, the amount of dividends to be paid, we consider capital preservation, expected asset growth, projected earningsproposed merger with Sterling.Opened four new Home Lending offices and our overall dividend pay-out ratio.Opened afour new Commercial Banking Center in San Jose, California, and ten Community Banking stores in Portland, Oregon, Seattle, Washington, and northern California.Launched our new Business Banking Division and expanded offerings from our Debt Capital Markets Group to provide additional products and services to our business and commercial customers.SUMMARY OF CRITICAL ACCOUNTING POLICIESThe SEC defines “critical accounting policies” as those that require application of management’smanagement'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 theNotes to Consolidated Financial Statements in Item 8 of this report. Not all of these criticalsignificant 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’sSEC's definition.Allowance for Non-Covered Loan and Lease Losses and Reserve for Unfunded CommitmentsThe 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. Consumer and residential loan portfolios are reviewed monthly for their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. In contrast, the monitoring process for the commercial and commercial real estate portfolios includes periodic reviews of individual loans with risk ratings assigned to each loan and performance judged on a loan by loan basis. The Company’sBank’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’sBank's Audit and Compliance Committee provides board oversight of the ALLL process and reviews and approves the ALLL methodology on a quarterly basis.Umpqua Holdings CorporationEach 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’smanagement'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 for collateral dependent loans. A loan is considered collateral dependent if repayment of the loan is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.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 10%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, 2011, the2013, there was no unallocated allowance amount represented 5% of the allowance.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’smanagement's evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio’sportfolio'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, 2011.2013. 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 the35provision for loan and lease losses in future periods if warranted as a result of their review. Approximately 80%74% of our loan portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the allowance for loan and lease losses.Covered Loans and FDIC Indemnification AssetLoans acquired in ana FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our statements of financial condition. Acquired loans were 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 with the assistance of a third party valuation specialist. These cash flows were input into a FASB ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), compliant 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 theThe Company has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC 805,Business Combinations (“ASC 805”). The FDIC indemnification asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement. The difference between the carrying value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted or amortized into non-interest income over the life of the FDIC indemnification asset, which is maintained at the loan pool level.Mortgage Servicing RightsIn accordance with FASB ASC 860, Transfers and Servicing (“ASC 860”MSR”). theThe 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 elected to measuremeasures its residential mortgage servicing assets at fair value and to reportreports 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 mortgage banking revenue in the period in which the change occurs.Retained mortgage servicing rights are measured at fair valuevalues as of the date of 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.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’smanagement's estimates due to prepayments by borrowers, especially when rates fall. Prepayments in excess of management’smanagement's estimates would negatively impact the recorded value of the mortgage servicing rights. The value of the mortgage servicing rights is also dependent upon the discount rate used in the model, which we base on current market rates. Management reviews this rate on an ongoing basis based on current market rates. A significant increase in the discount rate would reduce the value of mortgage servicing rights. Additional information is included in Note 10 of theNotes to Consolidated Financial Statements.Valuation of Goodwill and Intangible AssetsAt December 31, 2011,2013, we had $677.2$776.7 million in goodwill and other intangible assets as a result of business combinations. 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 circumstance indicate impairment potentially exists. Company performed a goodwill impairment analysis ofrequires management to make subjective judgments. Events and factors that may significantly affect the Community Banking reporting segment as of June 30, 2009, due to a declineestimates include, among others, competitive forces, customer behaviors and attrition, changes in the Company’s market capitalization below the book value of equityrevenue growth trends, cost structures, technology, changes in discount rates and continued weakness in the banking industry. The Company engaged an independent valuation consultant to assist us in determining whether our goodwill asset was impaired. The valuation of the reporting unit was determined using discounted cash flows of forecasted earnings, estimated sales price multiples based on recent observable market transactionsspecific industry and market capitalization based on current stock price. The resultsconditions. There can be no assurance that changes in circumstances, estimates or assumption may result in additional impairment of the Company’s and valuation specialist’s step one test indicated that the reporting unit’s fair value was less than its carrying value, and therefore the Company performed a step two analysis. In the step two analysis, we calculated the fair value for the reporting unit’s assets and liabilities, as well as its unrecognized identifiable intangible assets, such as the core deposit intangible and trade name, in order to determine the implied fair valueall, or some portion of, goodwill. Fair value adjustments to items on the balance sheet primarily related to investment securities held to maturity, loans, other real estate owned, Visa Class B common stock, deferred taxes, deposits, term debt, and junior subordinated debentures. Based on theUmpqua Holdings Corporationresults36The Company performed its annual goodwill impairment analysis of the Community Banking reporting segment as of December 31, 2011.2013. In the first step of the goodwill impairment test the Company determined that the fair value of the Community Banking reporting unit exceeded its carrying amount. This determination is consistent with the events occurring after the Company recognized the $112.0 million impairment of goodwill in the second quarter of 2009. First, the market capitalization and estimated fair value of the Company increased significantly subsequent to the recognition of the impairment charge as the fair value of the Company’s stock increased 60% from June 30, 2009 to December 31, 2011. Secondly, the Company’s successful public common stock offerings in the third quarter of 2009 and first quarter of 2010 diluted the carrying value of the reporting unit’s book equity on a per share basis. 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 assumption will not result in additional impairment of all, or some portion of, goodwill. Additional information is included in Note 9 of theNotes to Consolidated Financial Statements.Stock-based CompensationConsistentIn accordance with the provisions of FASB ASC 718,Stock Compensation(“ASC 718”), we recognize expense in the income statement for the grant-date fair value of 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 each option grant is estimated as of the grant date using the Black-Scholes option-pricing model.model or a Monte Carlo simulation pricing model, as required by the features of the grants. Management assumptions utilized at the time of grant impact the fair value of the option calculated under the Black-Scholes methodology,pricing model, and ultimately, the expense that will be recognized over the life of theexpected service period related to each option. Additional information is included in Note 1 of theNotes to Consolidated Financial Statements.Fair ValueFASB ASC 820,Fair Value Measurements and Disclosures, establishes a hierarchical disclosure framework associated with the level of pricing observability 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. See Note 24 of theNotes to Consolidated Financial Statements for additional information about the level of pricing transparency associated with financial instruments carried at fair value.RECENT ACCOUNTING PRONOUNCEMENTSIn April 2011,July 2012, the FASB issued ASU No. 2011-02,A Creditor’s Determination2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. With the Update, a company testing indefinite-lived intangibles for impairment now has the option to assess qualitative factors to determine whether the existence of Whether a Restructuringevents and circumstances indicates that it is a Troubled Debt Restructuring. The Update provides additional guidance relatingmore likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to when creditors should classify loan modifications as troubled debt restructurings. The ASU also endstake further action. However, if an entity concludes otherwise, then it is required to determine the deferral issued in January 2010fair value of the disclosures about troubled debt restructurings requiredindefinite-lived intangible asset and perform the quantitative impairment test by ASU No. 2010-20.comparing the fair value with the carrying amount in accordance with current guidance. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The provisions of ASU No. 2011-02 and the disclosure requirements of ASU No. 2010-20amendments are effective for the Company’sannual and interim reporting period endinggoodwill impairment tests performed for fiscal years beginning after September 30, 2011. The guidance applies retrospectively to restructurings occurring on or after January 1, 2011.15, 2012. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.In April 2011,October 2012, the FASB issued ASUASU. No. 2011-03,Reconsideration2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of Effective Control for Repurchase Agreementsa Government-Assisted Acquisition of a Financial Institution. The Update amends existing guidance to remove from the assessmentclarifies that when an entity recognizes an indemnification asset as a result of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem thea government-assisted acquisition of a financial assets on substantially the agreed terms, eveninstitution and subsequently, a change in the eventcash flows expected to be collected on the indemnification asset occurs, as a result of default bya change in cash flows expected to be collected on the transferee and,assets subject to indemnification, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as well, the collateral maintenance implementation guidance relatedchange in the assets subject to that criterion. ASU No. 2011-03 isindemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement. The amendments are effective for the Company’sannual and interim reporting periodperiods beginning on or after December 15, 2011. The guidance applies prospectively to transactions or modification of existing transactions that occur on or after the effective date and early adoption is not permitted.2012. The adoption of this ASU willdid not have a material impact on the Company’s consolidated financial statements.37In April 2011,January 2013, the FASB issued ASU No. 2011-04,Amendments to Achieve Common Fair Value Measurement2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Disclosure Requirements in U.S. GAAP and IFRSsLiabilities. The Update amends existing guidance regarding the highest and best use and valuation premise by clarifying these concepts are only applicable to measuring the fair value of nonfinancial assets. The Update also clarifies that the fair value measurementASU. No. 2011-11 applies only to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. Entities with other types of financial assets and financial liabilities which have offsetting market riskssubject to a master netting arrangement or counterparty credit risks thatsimilar agreement are managed on a portfolio basis, when several criteria are met, can be measured at the net risk position. Additional disclosures about Level 3 fair value measurements are required including a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and discussion of the sensitivity of fair value changes in unobservable inputs and interrelationships about those inputs as well disclosure of the level of the fair value of items that are not measured at fair value in the financial statements but disclosure of fair value is required. The provisions of ASU No. 2011-04 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied prospectively. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.In June 2011, the FASB issued ASU No. 2011-05,Presentation of Comprehensive Income. The Update amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions do not change the items that must be reported in other comprehensive income or when an item of other comprehensive must to reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) relatedno longer subject to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU No. 2011-05 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted and there are no required transition disclosures. In December 2011, the FASB issued ASU No. 2011-12,Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Incomedisclosure requirements in Accounting Standards Update No. 2011-05. The ASU defers indefinitely the requirement to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. The Company is currently in the process of evaluating the Updates but does not expect either will have a material impact on the Company’s consolidated financial statements.In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. With the Update, a company testing goodwill for impairment now has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (the first step of goodwill impairment test). If, on the basis of qualitative factors, the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Additionally, new examples of events and circumstances that an entity should consider in performing its qualitative assessment about whether to proceed to the first step of the goodwill impairment have been made to the guidance and replace the previous guidance for triggering events for interim impairment assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.Umpqua Holdings CorporationIn December 2011, the FASB issued ASU No. 2011-11,Disclosures about Offsetting Assets and Liabilities. The update requires an entity to offset, and present as a single net amount, a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.ASU. 2011-11. The amendments are effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently in the processadoption of evaluating thethis ASU but doesdid not expect it will have a material impact on the Company’s consolidated financial statements.In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The adoption of ASU No. 2013-02 did not have a material impact on the Company's consolidated financial statements.In July 2013, the FASB issued ASU No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or redesiginated hedging relationships entered into on or after July 17, 2013. The adoption of ASU No. 2013-10 did not have a material impact on the Company's consolidated financial statements.In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. No new recurring disclosures are required. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2013 and are to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's consolidated financial statements.In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. ASU 2014-04 permit an entity to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and should be applied prospectively. The Company is currently reviewing the requirements of ASU No. 2014-01, but does not expect the ASU to have a material impact on the Company's consolidated financial statements.In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's consolidated financial statements.RESULTS OF OPERATIONS—OVERVIEWFor the year ended December 31, 2011,2013, net earnings available to common shareholders was $74.1were $97.6 million, or $0.65$0.87 per diluted common share, as compared to net earnings available to common shareholders of $16.1$101.2 million, or $0.90 per diluted common share for the year ended December 31, 2012. The decrease in net earnings available to common shareholders in 2013 is principally38attributable to decreased net interest income, decreased non-interest income increased non-interest expense, partially offset by decreased provision for covered loan and lease losses and recapture of provision for covered loan losses.For the year ended December 31, 2012, net earnings available to common shareholders were $101.2 million, or $0.90 per diluted common share, as compared to net earnings available to common shareholders of $74.1 million, or $0.15$0.65 per diluted common share for the year ended December 31, 2010.2011. The increase in net earnings available to common shareholders in 20112012 is principally attributable to increased net interest income, increased non-interest income and decreased provision for loan losses, partially offset by increased non-interest expense.For the year ended December 31, 2010, net earnings available to common shareholders was $16.1 million, or $0.15 per diluted common share, as compared to net loss available to common shareholders of $166.3 million, or $2.36 per diluted common share for the year ended December 31, 2009. The increase in net earnings available to common shareholders in 2010, as compared to 2009, is principally attributable to increaseddecreased net interest income and increased non-interest income, decreased provision for loan losses, and decreased non-interest expense. Non-interest income for 2010 includes a bargain purchase gain on acquisition of $6.4 million relating to the acquisition of Evergreen. We assumed certain assets and liabilities of Evergreen, Rainier, and Nevada Security on January 22, 2010, February 26, 2010, and June 18, 2010, respectively, and the results of the acquired operations are included in our financial results starting on January 23, 2010, February 27, 2010, and June 19, 2010, respectively.We recognizeUmpqua recognizes gains or losses on our junior subordinated debentures carried at fair value resulting from the estimated market credit risk adjusted spread and changes in interest rates that do not directly correlate with the Company’s operating performance. Also, we incurUmpqua incurs significant expenses related to the completion and integration of mergers and acquisitions. Additionally, we 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. Lastly, weUmpqua may recognize one-time bargain purchase gains on certain FDIC-assisted acquisitions that are not reflective of Umpqua’s on-going earnings power. Accordingly, management believes that our operating results are best measured on a comparative basis excluding the impact of gains or losses on junior subordinated debentures measured at fair value, net of tax, merger-related expenses, net of tax, and other charges related to business combinations such as goodwill impairment charges or bargain purchase gains, net of tax. We defineoperating earnings as earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, bargain purchase gains on acquisitions, net of tax, merger related expenses, net of tax, and goodwill impairment, and we calculateoperating earnings per diluted share by dividing operating earnings by the same diluted share total used in determining diluted earnings per common share (see Note 25 of theNotes to Consolidated Financial Statementsin Item 8 below). 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 theFinancial Statements and Supplementary Datain Item 8 below.The following table presents aprovides the reconciliation of earnings available to common shareholders (GAAP) to operating earnings (loss)(non-GAAP), and operating earnings (loss) per diluted share to net earnings (loss) and net earnings (loss) per diluted common share (GAAP) to operating earnings per diluted share (non-GAAP) for the years ended December 31, 2011, 20102013, 2012, and 2009:Reconciliation of Operating Earnings (Loss) to Net (Loss) Earnings Available to Common Shareholders to Operating EarningsYears Ended December 31,(in thousands, except per share data) 2011 2010 2009 $ 74,140 $ 16,067 $ (166,262 ) 1,318 (2,988 ) (3,889 ) — (3,862 ) — — — 111,952 216 4,005 164 $ 75,674 $ 13,222 $ (58,035 ) $ 0.65 $ 0.15 $ (2.36 ) 0.01 (0.03 ) (0.06 ) — (0.04 ) — — — 1.59 — 0.04 0.01 $ 0.66 $ 0.12 $ (0.82 ) (1)Adjusted for income tax effect of pro forma operating earnings at 40%. 2013 2012 2011 Net earnings available to common shareholders $ 97,573 $ 101,209 $ 74,140 Adjustments: Net loss on junior subordinated debentures carried at fair value, net of tax (1) 1,318 1,322 1,318 Merger-related expenses, net of tax (1) 6,820 1,403 216 Operating earnings $ 105,711 $ 103,934 $ 75,674 Per diluted share: Net earnings available to common shareholders $ 0.87 $ 0.90 $ 0.65 Adjustments: Net loss on junior subordinated debentures carried at fair value, net of tax (1) 0.01 0.01 0.01 Merger-related expenses, net of tax (1) 0.06 0.02 — Operating earnings $ 0.94 $ 0.93 $ 0.66 (1) Adjusted for income tax effect of pro forma operating earnings of 40% for tax-deductible items.39Management believes coreadjusted net interest income and coreadjusted net interest margin are useful financial measures because they enable investors to evaluate the underlying growth or compression in these values excluding interest income adjustments related to credit quality. Management uses these measures to evaluate coreadjusted net interest income operating results exclusive of credit costs, in order to monitor our effectiveness in growing higher interest yielding assets and managing our cost of interest bearing liabilities over time. CoreAdjusted net interest income is calculated as net interest income, adjusting tax exempt interest income to its taxable equivalent, adding back interest and fee reversals related to new non-accrual loans during the period, and deducting the interest income gains recognized from loan disposition activities within covered loan pools. CoreAdjusted net interest margin is calculated by dividing annualized coreadjusted net interest income by a period’s average interest earning assets. CoreAdjusted net interest income and coreadjusted net interest margin 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 theFinancial Statements and Supplementary Datain Item 8 below.Umpqua Holdings CorporationThe following table presents a reconciliation of net interest income to coreadjusted net interest income and net interest margin to coreadjusted net interest margin for the years ended December 31, 2011, 20102013, 2012, and 2009:Reconciliation ofNet Interest Income to CoreAdjusted Net Interest Income and Net Interest Margin to Adjusted Net Core Interest MarginYears Ended December 31,(dollars in thousands) 2011 2010 2009 $ 432,748 $ 399,054 $ 324,436 1,751 3,259 4,432 (26,327 ) (26,945 ) — $ 408,172 $ 375,368 $ 328,868 $ 10,332,242 $ 9,567,341 $ 7,925,014 4.19% 4.17% 4.09% 3.95% 3.92% 4.15% 2013 2012 2011 Net interest income - tax equivalent basis (1) $ 409,544 $ 411,886 $ 432,748 Adjustments: Interest and fee reversals on non-accrual loans 922 1,498 1,751 Covered loan disposal gains (13,135 ) (17,829 ) (26,327 ) Adjusted net interest income - tax equivalent basis (1) $ 397,331 $ 395,555 $ 408,172 Average interest earning assets $ 10,224,606 $ 10,252,167 $ 10,332,242 Net interest margin - consolidated (1) 4.01 % 4.02 % 4.19 % Adjusted net interest margin - consolidated (1) 3.89 % 3.86 % 3.95 % (1) 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 $4.3$4.6 million, $4.3$4.7 million, and $3.7$4.3 million for the years ended 2013, 2012, and 2011 2010 and 2009, respectively.The following table presents the returns on average assets, average common shareholders’shareholders' equity and average tangible common shareholders’shareholders' equity for the years ended December 31, 2011, 20102013, 2012, and 2009.2011. For each of the yearsperiods presented, the table includes the calculated ratios based on reported net earnings (loss) available to common shareholders and operating earnings (loss)income as shown in the table above. Our return on average common shareholders’shareholders' equity is negatively impacted as athe 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-relatedmerger and acquisition-related intangible assets, we believe it beneficial to also consider the return on average tangible common tangible shareholders’shareholders' equity. The return on average tangible common tangible shareholders’shareholders' equity is calculated by dividing net earnings (loss) available to common shareholders by average common shareholders’shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders’shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders’shareholders' equity.ReturnsReturn on Average Assets, Common Shareholders’Shareholders' Equity and Tangible Common Shareholders’Shareholders' EquityFor the Years Ended December 31,40(dollars in thousands) 2011 2010 2009 0.64% 0.15% -1.85% 0.65% 0.12% -0.65% 4.43% 1.01% -12.63% 4.53% 0.83% -4.41% 7.47% 1.76% -26.91% 7.63% 1.45% -9.39% $ 1,671,893 $ 1,589,393 $ 1,315,953 (679,588 ) (674,597 ) (698,223 ) $ 992,305 $ 914,796 $ 617,730 2013 2012 2011 Returns on average assets: Net earnings available to common shareholders 0.85 % 0.88 % 0.64 % Operating earnings 0.92 % 0.90 % 0.65 % Returns on average common shareholders' equity: Net earnings available to common shareholders 5.64 % 5.95 % 4.43 % Operating earnings 6.11 % 6.11 % 4.53 % Returns on average tangible common shareholders' equity: Net earnings available to common shareholders 9.78 % 9.87 % 7.47 % Operating earnings 10.60 % 10.14 % 7.63 % Calculation of average common tangible shareholders' equity: Average common shareholders' equity $ 1,729,083 $ 1,701,403 $ 1,671,893 Less: average goodwill and other intangible assets, net (731,525 ) (676,354 ) (679,588 ) Average tangible common shareholders' equity $ 997,558 $ 1,025,049 $ 992,305 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’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.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, 20112013 and December 31, 2010:Reconciliations of Total Shareholders’Shareholders' Equity to Tangible Common Shareholders’Shareholders' Equity and Total Assets to Tangible Assets(dollars in thousands) 2011 2010 $ 1,672,413 $ 1,642,574 677,224 681,969 $ 995,189 $ 960,605 $ 11,563,355 $ 11,668,710 677,224 681,969 $ 10,886,131 $ 10,986,741 9.14% 8.74% December 31, December 31, 2013 2012 Total shareholders' equity $ 1,727,426 $ 1,724,039 Subtract: Goodwill and other intangible assets, net 776,683 685,331 Tangible common shareholders' equity $ 950,743 $ 1,038,708 Total assets $ 11,636,112 $ 11,795,443 Subtract: Goodwill and other intangible assets, net 776,683 685,331 Tangible assets $ 10,859,429 $ 11,110,112 Tangible common equity ratio 8.75 % 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 INCOME41Net interest income is the largest source of our operating income. Net interest income for 20112013 was $428.5$405.0 million, an increasea decrease of $33.7$2.3 million or 9% over 2010. Net interest income for 2010 was $394.8 million, an increase of $74.1 million, or 23% over 2009.0.6% compared to the same period in 2012. The negative impact to net interest income of the reversal of interest income and fees on loans during the year was $1.7 million in 2011 and $3.3 million and $4.4 million in 2010 and 2009, respectively. The increasedecrease in net interest income in 20112013 as compared to 20102012 is attributable to growth in outstanding average interest-earning assets, primarily average covered loans and average investment securities, increased covered loan yields, decreased cost of deposits and investing excess interest earning cash into the investment portfolio, partially offset by a decline in average non-covered loans outstanding, lower non-covered loan yields, lower investment yields, and increased average interest bearing deposit balances.The increase in net interest income in 2010 as compared to 2009 is attributable to growthdecrease in outstanding average interest-earning assets, primarily covered loans, and investment securities, and a decrease in net interest margin, partially offset by a decline in non-covered loans outstanding. In addition to organic growth, the FDIC-assisted purchase and assumption of certain assets and liabilities of Evergreen, Rainier, and Nevada Security, which were completed on January 22, 2010, February 26, 2010, and June 18, 2010, respectively, contributed to an increase in average non-covered loans and leases and a decrease in interest-bearing liabilities. Net interest earningincome for 2012 was $407.2 million, a decrease of $21.2 million or 5.0% compared to the same period in 2011. The decrease in net interest income in 2012 as compared to 2011 is attributable to a decrease in outstanding average interest-earning assets, primarily covered loans, investment securities and interest bearing liabilitiescash, and a decrease in 2010 over 2009.Umpqua Holdings CorporationThe net interest margin (net interest income as a percentage of average interest earningsinterest-earning assets) on a fully tax-equivalenttax equivalent basis was 4.19%4.01% for 2011, an increasethe 2013, a decrease of 21 basis points as compared to the same period in 2010.2012. The increasedecrease in net interest margin primarily resulted from the decline in non-covered loan yields, the decrease in average covered loans outstanding, a decline in investment yields, a decrease in loan disposal gains from the covered loan portfolio, and an increase in average coveredinterest bearing cash, offset by an increase in average non-covered loans and investment balances,leases outstanding, a decreasedecline in interest bearing cash,the cost of interest-bearing deposits, and a decrease in our interest expense to earning assets of 27 basis points due to declining costs of interest bearing deposits, partially offset by a decrease in average non-covered loan balances, and decline in investment yields.Loan disposal related activities within the covered loan portfolio, either through loans being paid off in full or transferred to other real estate owned (“OREO”), result in gains within covered loan interest income to the extent assets received in satisfaction of debt (such as cash or the net realizable value of OREO received) exceeds the allocated carrying value of the loan disposed of from the pool. Loan disposal activities contributed $13.1 million of interest income for 2013 compared to $17.8 million of interest income for 2012 and $26.3 million of interest income for 2011, compared to $26.9 million of loan disposal gains recognized during 2010.2011. While dispositions of covered loans positively impact net interest margin, we recognize a corresponding decrease to the change in FDIC indemnification asset at the incremental loss-sharing rate within other non-interest income that partially offsets the impact to net income.Net interest income for 2013 was negatively impacted by $0.9 million reversal of interest and fee income on non-covered, non-accrual loans, as compared to the $1.5 million for 2012 and $1.8 million for 2011. Excluding the impact of covered loan disposal gains and interest and fee income reversals on non-covered, non-accrual loans, tax equivalent net interest margin would have been 3.89%, 3.86%, and 3.95% for 2013, 2012, and 2011 respectively.Partially offsetting the decrease in earning asset yields in 2013, as compared to 2012, is the continued reduction of the cost of interest-bearing liabilities, specifically interest-bearing deposits. The total cost of interest-bearing deposits for 2013 was 0.31%, representing a decrease of 13 basis points compared 2012. The net interest margin on a fully tax-equivalent basis was 4.17%4.02% for 2010, an increase2012, a decrease of 817 basis points as compared to the same period in 2009.2011. The increasedecrease in net interest margin primarily resulted from an increasea decline in non-covered loan yields, decrease in average covered loans outstanding, increased yield ona decrease in loan disposal gains from the covered loan portfolio, asand a resultdecline in investment yields, partially offset by a decrease in average interest bearing cash, an increase in average non-covered loans outstanding, a decrease in the cost of payoffs ahead of expectations,interest-bearing deposits, and a decrease in our interest expense to earning assets of 32 basis points due to declining costs of interest bearing deposits, partially offset by the interest reversals of new non-accrual loans (contributing to a 4 basis point decline), a decline in non-covered loans outstanding, and the impact of holding much higher levels of interest bearing cash with the Federal Reserve Bank (at 25 basis points). The increase in net interest margin related to covered loan yields was offset by a corresponding decrease to the change in FDIC indemnification asset in other non-interest income.Our net interest income is affected by changes in the amount and mix of interest earningsinterest-earning assets and interest bearinginterest-bearing liabilities, as well as changes in the yields earned on interest earningsinterest-earning assets and rates paid on deposits and borrowed funds. The following table presentstables present condensed average balance sheet information, together with interest income and yields on average interest earningsinterest-earning assets, and interest expense and rates paid on average interest bearinginterest-bearing liabilities for the years ended December 31, 2011, 20102013, 2012 and 2009:42Average Rates and Balances(dollars in thousands) 2011 2010 2009
or
Yields
or
leases(1) $ 5,794,106 $ 319,702 5.52% $ 5,828,637 $ 336,320 5.77% $ 6,145,927 $ 355,195 5.78% 707,026 86,011 12.17% 681,569 73,812 10.83% — — NA 2,968,501 85,797 2.89% 1,946,222 67,402 3.46% 1,386,960 60,217 4.34% 224,085 12,949 5.78% 227,589 13,109 5.76% 198,641 11,522 5.80% 638,524 1,590 0.25% 883,324 2,223 0.25% 193,486 526 0.27% 10,332,242 506,049 4.90% 9,567,341 492,866 5.15% 7,925,014 427,460 5.39% (96,748 ) (102,016 ) (96,916 ) 1,364,941 1,365,161 1,147,080 $ 11,600,435 $ 10,830,486 $ 8,975,178 $ 4,765,091 $ 20,647 0.43% $ 4,203,109 $ 31,632 0.75% $ 3,333,088 $ 32,341 0.97% 2,754,533 35,096 1.27% 2,875,706 44,609 1.55% 2,358,697 56,401 2.39% 113,129 539 0.48% 54,696 517 0.95% 60,722 680 1.12% 257,496 9,255 3.59% 261,170 9,229 3.53% 129,814 4,576 3.53% 184,115 7,764 4.22% 184,134 7,825 4.25% 190,491 9,026 4.74% 8,074,364 73,301 0.91% 7,578,815 93,812 1.24% 6,072,812 103,024 1.70% 1,782,354 1,529,165 1,318,954 71,824 64,962 64,293 9,928,542 9,172,942 7,456,059 — 68,151 203,166 1,671,893 1,589,393 1,315,953 1,671,893 1,657,544 1,519,119 $ 11,600,435 $ 10,830,486 $ 8,975,178 $ 432,748 $ 399,054 $ 324,436 3.99% 3.91% 3.69% 4.90% 5.15% 5.39% 0.71% 0.98% 1.30% 4.19% 4.17% 4.09% Umpqua Holdings Corporation 2013 2012 2011 Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Expense Rates INTEREST-EARNING ASSETS: Non-covered loans and leases (1) $ 7,089,123 $ 343,717 4.85 % $ 6,331,519 $ 313,294 4.95 % $ 5,794,106 $ 319,702 5.52 % Covered loans, net 416,862 54,497 13.07 % 554,078 73,518 13.27 % 707,026 86,011 12.17 % Taxable securities 1,952,611 34,398 1.76 % 2,743,672 59,161 2.16 % 2,968,501 85,797 2.89 % Non-taxable securities (2) 247,010 13,477 5.46 % 258,816 13,834 5.34 % 224,085 12,949 5.78 % Temporary investments and interest-bearing deposits 519,000 1,336 0.26 % 364,082 928 0.25 % 638,524 1,590 0.25 % Total interest earning assets 10,224,606 447,425 4.38 % 10,252,167 460,735 4.49 % 10,332,242 506,049 4.90 % Allowance for non-covered loan and lease losses (86,227 ) (86,656 ) (96,748 ) Other assets 1,369,309 1,333,988 1,364,941 Total assets $ 11,507,688 $ 11,499,499 $ 11,600,435 INTEREST-BEARING LIABILITIES: Interest-bearing checking and savings accounts $ 4,976,008 $ 4,784 0.10 % $ 4,987,873 $ 9,463 0.19 % $ 4,765,091 $ 20,647 0.43 % Time deposits 1,796,669 15,971 0.89 % 2,102,711 21,670 1.03 % 2,754,533 35,096 1.27 % Federal funds purchased and repurchase agreements 177,888 141 0.08 % 142,363 288 0.20 % 113,129 539 0.48 % Term debt 252,546 9,248 3.66 % 254,601 9,279 3.64 % 257,496 9,255 3.59 % Junior subordinated debentures 189,237 7,737 4.09 % 187,139 8,149 4.35 % 184,115 7,764 4.22 % Total interest-bearing liabilities 7,392,348 37,881 0.51 % 7,674,687 48,849 0.64 % 8,074,364 73,301 0.91 % Non-interest-bearing deposits 2,284,996 2,034,035 1,782,354 Other liabilities 101,261 89,373 71,824 Total liabilities 9,778,605 9,798,095 9,928,542 Common equity 1,729,083 1,701,403 1,671,893 Total liabilities and shareholders' equity $ 11,507,688 $ 11,499,498 $ 11,600,435 NET INTEREST INCOME $ 409,544 $ 411,886 $ 432,748 NET INTEREST SPREAD 3.87 % 3.85 % 3.99 % AVERAGE YIELD ON EARNING ASSETS (1), (2) 4.38 % 4.49 % 4.90 % INTEREST EXPENSE TO EARNING ASSETS 0.37 % 0.47 % 0.71 % NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) 4.01 % 4.02 % 4.19 % (1) Non-covered non-accrual loans, leases, and mortgage loans held for sale are included in the average balance. (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 $4.3$4.6 million, $4.3$4.7 million, and $3.7$4.3 million for the years ended 2013, 2012, and 2011, 2010 and 2009, 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 20112013 as compared to 20102012 and 20102012 compared to 2009.2011. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances.Rate/Volume Analysis43(in thousands) 2011 COMPARED TO 2010 2010 COMPARED TO 2009 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 $ (1,983 ) $ (14,635 ) $ (16,618 ) $ (18,309 ) $ (566 ) $ (18,875 ) 2,836 9,363 12,199 73,812 — 73,812 30,950 (12,555 ) 18,395 21,009 (13,824 ) 7,185 (203 ) 43 (160 ) 1,668 (81 ) 1,587 (610 ) (23 ) (633 ) 1,739 (42 ) 1,697 30,990 (17,807 ) 13,183 79,919 (14,513 ) 65,406 3,799 (14,784 ) (10,985 ) 7,424 (8,133 ) (709 ) (1,816 ) (7,697 ) (9,513 ) 10,694 (22,486 ) (11,792 ) 365 (343 ) 22 (64 ) (99 ) (163 ) (131 ) 157 26 4,642 11 4,653 (1 ) (60 ) (61 ) (293 ) (908 ) (1,201 ) 2,216 (22,727 ) (20,511 ) 22,403 (31,615 ) (9,212 ) $ 28,774 $ 4,920 $ 33,694 $ 57,516 $ 17,102 $ 74,618 2013 compared to 2012 2012 compared to 2011 Increase (decrease) in interest income Increase (decrease) in interest income and expense due to changes in and expense due to changes in Volume Rate Total Volume Rate Total INTEREST-EARNING ASSETS: Non-covered loans and leases $ 36,842 $ (6,419 ) $ 30,423 $ 28,204 $ (34,612 ) $ (6,408 ) Covered loans, net (17,953 ) (1,068 ) (19,021 ) (19,795 ) 7,302 (12,493 ) Taxable securities (15,148 ) (9,615 ) (24,763 ) (6,119 ) (20,517 ) (26,636 ) Non-taxable securities (1) (640 ) 283 (357 ) 1,905 (1,020 ) 885 Temporary investments and interest bearing deposits 399 9 408 (698 ) 36 (662 ) Total (1) 3,500 (16,810 ) (13,310 ) 3,497 (48,811 ) (45,314 ) INTEREST-BEARING LIABILITIES: Interest bearing checking and savings accounts (22 ) (4,657 ) (4,679 ) 923 (12,107 ) (11,184 ) Time deposits (2,931 ) (2,768 ) (5,699 ) (7,427 ) (5,999 ) (13,426 ) Repurchase agreements and federal funds 59 (206 ) (147 ) 114 (365 ) (251 ) Term debt (75 ) 44 (31 ) (105 ) 129 24 Junior subordinated debentures 91 (503 ) (412 ) 129 256 385 Total (2,878 ) (8,090 ) (10,968 ) (6,366 ) (18,086 ) (24,452 ) Net increase (decrease) in net interest income (1) $ 6,378 $ (8,720 ) $ (2,342 ) $ 9,863 $ (30,725 ) $ (20,862 ) (1) Tax exempt income has been adjusted to a tax equivalent basis at a 35% tax rate.PROVISION FOR LOAN AND LEASE LOSSESThe provision for non-covered loan and lease losses was $16.8 million for 2013, as compared to $21.8 million for 2012, and $46.2 million for 2011, compared to $113.7 million for 2010 and $209.1 million for 2009.2011. As a percentage of average outstanding non-covered loans and leases, the provision for loan and lease losses recorded for 20112013 was 0.81%0.24%, a decrease of 11611 basis points from 20102012 and a decrease of 26257 basis points from 2009, respectively.The decrease in the provision for loan and lease losses in 20112013 as compared to 20102012 and 20102012 compared to 20092011 is principally attributable to a decrease in net charge-offs as a result of the declining levelscontinued resolution of non-performing loans and the decreases in net charge-offs during the periods. The decrease in the provision for loan and lease losses is also attributable to a reduction in downgrades within the portfolio, an easing in the velocity of declining real estate values in our markets and the resulting impact on our commercial real estate and commercial construction portfolio and reflects continued improvement and stabilization of credit quality.The Company recognizes the charge-off of impairment reserves on impaired loans in the period they arise for collateral dependent loans. Therefore, the non-covered, non-accrual loans of $80.6$31.9 million as of December 31, 20112013 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. Depending on the characteristics of a loan, the fair value of collateral is estimated by obtaining external appraisals.The provision for non-covered loan and lease losses is based on management’smanagement's evaluation of inherent risks in the loan portfolio and a corresponding analysis of the allowance for non-covered loan and lease losses. Additional discussion on loan quality and the allowance for non-covered loan and lease losses is provided under the headingAsset Quality and Non-Performing Assetsbelow.The recapture of covered loan and lease losses was $6.1 million for 2013, as compared to provision for covered loan and lease losses of $7.4 million for the year ended December 31, 2011 was2012 and $16.1 million for 2011. Recapture of provision results from improvements in the amount and the timing of expected cash flows on the acquired loans compared to $5.2 million for 2010.those previously estimated and charge-offs of unpaid principal balance against previously established allowance, as measured on a pool basis. Provisions for covered loan and leasesloans are recognized subsequent to acquisition to the extent it is probable we will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition, considering both the timing and amount of those expected cash flows. Provisions may be required when determined losses of unpaid principal incurred exceed previous loss expectations to-date, or future cash flows previously expected to be collectible are no longer probable of collection. Provisions for covered loan and lease losses, including amounts advanced subsequent to acquisition, are not reflected in the allowance for non-covered loan and lease losses, rather as a valuation allowance netted against the carrying value of the covered loan and lease balance accounted for under ASC 310-30, in accordance with theapplicable guidance.44NON-INTEREST INCOMENon-interest income for the 2013 was $121.4 million, a decrease of $15.4 million, or 11.2%, as compared to the same period in 20112012. Non-interest income for 2012 was $84.1$136.8 million, an increase of $8.2$52.7 million, or 11%62.7%, as compared to 2010. Non-interest income in 2010 was $75.9 million, an increase of $2.4 million, or 3%, compared to 2009.2011. The following table presents the key components of non-interest income for years ended December 31, 2011, 20102013, 2012 and 2009:Non-Interest IncomeYears Ended December 31,(dollars in thousands) 2011 compared to 2010 2010 compared to 2009 $ 33,096 $ 34,874 $ (1,778 ) -5% $ 34,874 $ 32,957 $ 1,917 6% 12,787 11,661 1,126 10% 11,661 7,597 4,064 53% 26,550 21,214 5,336 25% 21,214 18,688 2,526 14% 7,376 1,912 5,464 286% 1,912 (1,677 ) 3,589 -214% (2,197 ) 4,980 (7,177 ) -144% 4,980 6,482 (1,502 ) -23% — 6,437 (6,437 ) -100% 6,437 — 6,437 100% (6,168 ) (16,445 ) 10,277 -62% (16,445 ) — (16,445 ) 100% 12,674 11,271 1,403 12% 11,271 9,469 1,802 19% $ 84,118 $ 75,904 $ 8,214 11% $ 75,904 $ 73,516 $ 2,388 3% 2013 compared to 2012 2012 compared to 2011 Change Change Change Change 2013 2012 Amount Percent 2012 2011 Amount Percent Service charges on deposit accounts $ 30,952 $ 28,299 $ 2,653 9 % $ 28,299 $ 33,096 $ (4,797 ) (14 )% Brokerage commissions and fees 14,736 12,967 1,769 14 % 12,967 12,787 180 1 % Mortgage banking revenue, net 78,885 84,216 (5,331 ) (6 )% 84,216 26,550 57,666 217 % Gain on investment securities, net 209 3,868 (3,659 ) (95 )% 3,868 7,376 (3,508 ) (48 )% Loss on junior subordinated debentures carried at fair value (2,197 ) (2,203 ) 6 0 % (2,203 ) (2,197 ) (6 ) 0 % Change in FDIC indemnification asset (25,549 ) (15,234 ) (10,315 ) 68 % (15,234 ) (6,168 ) (9,066 ) 147 % Other income 24,405 24,916 (511 ) (2 )% 24,916 12,674 12,242 97 % Total $ 121,441 $ 136,829 $ (15,388 ) (11 )% $ 136,829 $ 84,118 $ 52,711 63 % The increase in deposit service charges in 2013 compared to 2012 is primarily the result of the acquisition of Circle Bank ("Circle") in the fourth quarter of 2012 and related to our newly expanded business and consumer checking account options. The decrease in deposit service charges in 20112012 compared to 20102011 is principally attributable to reductionsthe result of a reduction in non-sufficient funds and overdraftinterchange fee income from regulatory reform changes, which took place in the third quarter of 2010, offset by increases in ATM income and increased other deposit account service charges. The increase in deposit service charges in 2010 compared to 2009 is principally attributable to increased non-sufficient funds and overdraft fee income due to higher average overdraft balances and due to increased deposit service charges relatedrevenue relating to the deposits acquired inDurbin Amendment, part of the Rainier, Evergreen and Nevada Security acquisitions, offset by reductions in non-sufficient funds and overdraft fee income from regulatory reform changes,Dodd-Frank Act, which took place in the third quarter of 2010.Umpqua Holdings CorporationBrokerage commissions and fees in 20112013 increased 10%, primarily due to the increase in managed account fees and new balances at Umpqua Investments. In 2011,2013, assets under management at Umpqua Investments, a part of the Wealth Management segment, increased to $2.09$2.60 billion as compared to $2.06$2.28 billion at December 31, 2010.2012. Brokerage commissions and fees in 20102012 increased 53%due to the increase in managed account fees at Umpqua Investments. In 2012, assets under management at Umpqua Investments increased to $2.28 billion as compared to 2009 as a result of$2.09 billion at December 31, 2011.Mortgage banking revenue for the year ended December 31, 2013 decreased due to lower refinancing activity attributable to the increase in assets under management duemortgage interest rates, partially offset by increased purchase activity driven by continued improvement of the housing market compared to the new leadership’s ability to recruit new brokers in 2009.Mortgage banking revenue in 2011 increased due to an increase in purchase and refinancing activity, compared to 2010.same period of the prior year. Closed mortgage volume for 20112013 was $994.5 million,$1.9 billion, representing a 27% increase over 201012% decrease compared to 20102012 was $785.4 million,$2.2 billion, representing a 4%121% increase over 20092011 production. The continuing lowIncreased mortgage interest rate environmentrates compared to the same period of the prior year has led to elevated levels of refinance activity, contributingcontributed to a $3.0$2.4 million declineincrease in fair value on the mortgage servicing right (“MSR”)MSR asset in 2011,2013, compared to a $3.9$8.5 million decline in fair value recognized in 2010.2012. As of December 31, 2011,2013, the Company serviced $2.0$4.4 billion of mortgage loans for others, and the related mortgage servicing right asset is valued at $18.2$47.8 million, or 0.90%1.09% of the total serviced portfolio principal balance.The net gain onIn connection with the sale of investment securities, we recognized in 2011 represents the realizeda gain on sale of investment securities of$209,000 in 2013, compared to $4.0 million for 2012 and $7.7 million offset by an other-than-temporary impairment (“OTTI”) charge of $359,000.for 2011. During the year,2012, the Company sold longer duration investment securities in orderto fund non-covered loan growth as well as to reduce the price risk of the securities portfolio and hedge the potential future adverse effects of rising interest rates on accumulated other comprehensive income if interest rates were to significantly increase in future periods. The net gain on investment securities recognized in 2010 represents the realized gain on sale of investment securities of $2.3 million offset by an OTTI charge of $414,000. The net gain on investment securities recognized in 2009 represents an OTTI charge of $10.6 million, partially offset by the realized gain on sale of investment securities of $8.9 million. The OTTI charge recognized in earnings for all periods primarily related to held to maturity non-agency collateralized mortgage obligations, and the amount recognized in earnings represents our estimate of the credit loss component of the total impairments. Additional discussion on the OTTI charges and gain on sale of investment securities are provided in Note 4 of theNotes to Consolidated Financial Statements and under the headingInvestment Securities.significantly.A loss of $2.2 million was recognized in 2013, 2012, and 2011 as compared to a gain of $5.0 million in 2010respectively, which represents the change of fair value on the junior subordinated debentures recorded at fair value. Absent future changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these instruments, the cumulative discount for each junior subordinated debenture will reverse over time, ultimately returning the carrying values of these instruments to their notional value at their expected redemption dates. This will result in recognizing losses on junior subordinated debentures carried at fair value on a quarterly basis within non-interest income. The decrease in the gain recognized from 2010 to the loss recognized in 2011 and the decrease in the gain recognized from 2009 to 2010 primarily resulted from the widening of the credit risk adjusted spread over the contractual rate of each junior subordinated debenture measured at fair value. Additional information on the junior subordinated debentures carried at fair value is included in Note 18 of theNotes to Consolidated Financial Statementsand under the headingJunior Subordinated Debentures.A bargain purchase gain45The 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 the Evergreen, Rainier, and Nevada Security FDIC-assisted acquisitions. Additional information on the FDIC indemnification asset is included in Note 7 of theNotes to Consolidated Financial Statementsand under the headingCovered Assetsbelow.Other income in 2013 compared to 2012 decreased primarily due to a $2.8 million reduction in debt capital market revenue from $9.9 million in 2012 to $7.1 million in 2013, partially offset by income from FinPac operations of $1.1 million. Other income in 2012 as compared to 2011 increased in 2011 over 2010 by $1.4 million, primarily attributabledue to the debt capital market revenue of $9.9 million related to initiation of anthis interest rate swap program in the second half of 2011 with commercial banking customers to facilitate their risk management strategies, offset by various non-recurring sundry recoveries recognizedstrategies. Additionally, in 2010. Other income increased2012, in 2010 over 2009 by $1.8 million, primarily attributable to various non-recurring sundry recoveries.NON-INTEREST EXPENSENon-interest expense for 20112013 was $339.0$364.7 million, an increase of $5.0 million, or 1.4%, as compared to 2012. Non-interest expense for 2012 was $359.7 million, an increase of $21.2$20.7 million, or 7%6.1%, as compared to 2010. Non-interest expense for 2010 was $317.7 million, a decrease of $61.7 million or 16% compared to 2009.2011. The following table presents the key elements of non-interest expense for the years ended December 31, 2011, 20102013, 2012 and 2009.Non-Interest ExpenseYears Ended December 31,(dollars in thousands) 2011 compared to 2010 2010 compared to 2009 $ 179,480 $ 162,875 $ 16,605 10% $ 162,875 $ 126,850 $ 36,025 28% 51,284 45,940 5,344 12% 45,940 39,673 6,267 16% 11,214 10,464 750 7% 10,464 7,671 2,793 36% 6,138 6,225 (87 ) -1% 6,225 4,529 1,696 37% 24,170 22,576 1,594 7% 22,576 21,918 658 3% 2,824 3,998 (1,174 ) -29% 3,998 3,257 741 23% 10,768 15,095 (4,327 ) -29% 15,095 15,825 (730 ) -5% 10,690 8,097 2,593 32% 8,097 23,204 (15,107 ) -65% 7,481 (2,172 ) 9,653 -444% (2,172 ) — (2,172 ) NM 4,948 5,389 (441 ) -8% 5,389 6,165 (776 ) -13% — — — — — 111,952 (111,952 ) NM 360 6,675 (6,315 ) NM 6,675 273 6,402 NM 29,614 32,576 (2,962 ) -9% 32,576 18,086 14,490 80% $ 338,971 $ 317,738 $ 21,233 7% $ 317,738 $ 379,403 $ (61,665 ) -16% NM – Not meaningfulManagement believes there are several categories 2013 compared to 2012 2012 compared to 2011 Change Change Change Change 2013 2012 Amount Percent 2012 2011 Amount Percent Salaries and employee benefits $ 209,991 $ 200,946 $ 9,045 5 % $ 200,946 $ 179,480 $ 21,466 12 % Net occupancy and equipment 62,067 55,081 6,986 13 % 55,081 51,284 3,797 7 % Communications 11,974 11,573 401 3 % 11,573 11,214 359 3 % Marketing 6,062 5,064 998 20 % 5,064 6,138 (1,074 ) (17 )% Services 25,483 25,823 (340 ) (1 )% 25,823 24,170 1,653 7 % Supplies 2,843 2,506 337 13 % 2,506 2,824 (318 ) (11 )% FDIC assessments 6,954 7,308 (354 ) (5 )% 7,308 10,768 (3,460 ) (32 )% Net loss on non-covered other real estate owned 1,113 9,245 (8,132 ) (88 )% 9,245 10,690 (1,445 ) (14 )% Net loss on covered other real estate owned 135 3,410 (3,275 ) (96 )% 3,410 7,481 (4,071 ) (54 )% Intangible amortization 4,781 4,816 (35 ) (1 )% 4,816 4,948 (132 ) (3 )% Merger related expenses 8,836 2,338 6,498 278 % 2,338 360 1,978 549 % Other expenses 24,422 31,542 (7,120 ) (23 )% 31,542 29,614 1,928 7 % Total $ 364,661 $ 359,652 $ 5,009 1 % $ 359,652 $ 338,971 $ 20,681 6 % Salaries and employee benefits costs increased $9.0 million as compared to the same period prior year primarily as a result of non-interest expensean increase of full-time equivalent employees, which are outside of the control of the Company or depend on changes in market values, including FDIC deposit insurance assessments, gain or loss on other real estate owned, as well as infrequently occurring expenses such as merger related costs and goodwill impairments. Excluding the impact of these non-controllable, valuation related or infrequently occurring items, non-interest expense increased $19.6 million, or 7%, in 2011 over 2010. The increase primarily relates to increased salary and benefits expense related to mortgage and commercial banking loan production and the phase in costs related to ten new stores opened in the second half of 2011. Excluding the impact of these non-controllable or infrequently occurring items, non-interest expense increased $61.9 million, or 27%, in 2010 over 2009, in lineincludes 39 employees associated with the 24% growthCircle acquisition in assets in 2010November 2012 and reflecting125 employees associated with the additional costs of acquired institutions during that year.$16.6$21.5 million increase in total salaries and employee benefits expense in 20112012 compared to 2010,2011, approximately $8.4$17.7 million of the increase is due to mortgage and commercial banking production in 2012, $2.6 million relates to ongoing growth initiatives in our technology group and the current year. The remainder primarily results from the increase in by 70 full-time equivalent employees throughout the Company to support growth initiatives. Of the $36.0 million increase in total salaries and employee benefits expense in 2010 compared to 2009, approximately $13.8 million of the increase is the result of the FDIC-assisted acquisition of Rainier, Evergreen, and Nevada Security, respectively, $1.2 million is the result of variable mortgage compensation based on increased volume and revenue, $724,000 is a result of reduced loan origination activity related to lower customer demand, resulting in a reduced offset to compensation expense for deferred loan costs. The remainder primarily results from the increase in employees (not through acquisition) by 108 in full-time equivalents in 2010.Umpqua Holdings CorporationNet occupancy and equipment expense continuesincreased in 2013 as compared to increase primarilythe prior year as a result of the growthaddition of 4 stores, full phase in of the numbersix locations from the Circle acquisition, and $857,000 in occupancy and equipment expense related to FinPac subsequent to acquisition. Net occupancy and equipment expense increased in 2012 a result of our Company’s locations. The growth in 2011 is the resultaddition of the cost of three new Home Lending Centers in Oregon, the additionoperation of a full year of 2011 additions, and the six locations now operating from the acquisition of Circle. The 2011 additions included ten de novo Community Banking locations, one Mortgage Office and an administrative facility in Hillsboro, Oregon. The growth in 2010 is the result46Communications costs increased in 20112013 compared to 20102012, and in 2012 compared to 2011, primarily due to increased data processing cost as a result of the Company’s continued growth and expansion. Marketing and supplies expenses decreased asincreased in 2013 compared to 20102012 due to costs associated with branding initiatives and decreased in 2012 compared to 2011, due to cost containment efforts and a reduced spend associated with FDIC assumptionsacquisitions and expansion into new markets in 2010.2011. Services expense increased asdecreased in 2013 compared to 20102012 and increased in 2012 compared to 2011 primarily due to increasedfluctuations related to legal and professional fees. Communications, marketing and supplies fluctuatedFDIC assessments decreased in 2010 as2013, compared to 20092012, and in 2012, compared to 2011, as a result of normal operations and the FDIC assumptions.The decrease in FDIC assessments in 2011 as compared to 2010 resulted from the adoption by the FDIC of a final rule whichthat changed the assessment rate and the assessment base (from a domestic deposit base to a scorecard based assessment system for banks with more than $10 billion in assets), effective in the second quarter of 2011. The decrease2011, resulting in FDIC assessments in 2010a lower assessment rate and base and decreased assessment to the Company.In the year ended December 31, 2013, the Company recognized a net loss (which includes loss on sale and valuation adjustments) on non-covered OREO properties of $1.1 million, as compared to 2009 resulted from the one-time $4.0a net loss on non-covered OREO properties of $9.2 million special assessment incurredand $10.7 million in the second quarter of 2009, partially offset byyears ended December 31, 2012 and 2011, respectively. In the industry wide increase in the assessment rate, organic deposit growth, and deposit growth resulting from the FDIC-assisted acquisitions. Additional discussion on FDIC insurance assessments is provided in Item 1Business above, under the headingFederal Deposit Insurance.year ended The economic downturn and depressed real estate values continued to detrimentally affect our loan portfolio and has led to a continued elevated level of foreclosures on related properties and movement of the properties into other real estate owned (“OREO”). In 2011, declines in the market values of these properties after foreclosure have resulted in additional losses on the sale of the properties or by valuation adjustments. As a result, during 2011,December 31, 2013, the Company recognized lossesa net loss (which includes loss on sale of non-covered OREO of $1.7 million and non-covered valuation adjustments of $8.9 million and net gainsadjustments) on sale of covered OREO properties of $1.2 million and valuation adjustments of$135,000, as compared to net losses on covered OREO properties of $8.7 million. During 2010, the Company recognized losses on sale of non-covered OREO of $4.0$3.4 million and non-covered valuation adjustments$7.5 million in the year ended December 31, 2012 and 2011, respectively. This is primarily the result of $4.1 million and net gains on sale of covered OREO properties of $4.1 million and valuation adjustments of covered OREO properties of $1.9 million. During 2009, the Company recognized losses on sale of non-covered OREO of $11.0 million and non-covered valuation adjustments of $12.2 million. Gains on sale of covered OREO represents proceeds received in excess of their estimated acquisition date fair values. As the estimated credit losses realized on these properties were less than originally anticipated at acquisition date, there is a corresponding decrease in non-interest income within the Change in FDIC indemnification asset line item representing the reduction of anticipated covered credit losses. Additional discussion regarding our procedures to determine and recognize valuation adjustments on otherimproving real estate owned is provided under the headingAsset Quality and Non-Performing Assetsbelow.The decrease in intangible amortization in 2011 as compared to 2010 results primarily from the run-offvalues, allowing for better realization of intangible assets from prior years completing their scheduled amortization. The decrease in intangible amortization in 2010 as compared to 2009 results primarily from an $804,000 impairment recognized in the fourth quartermarket values of 2009 related to the merchant servicing portfolio obtained through a prior acquisition, partially offset by the run-off of intangible assets in 2009 that were amortized on an accelerated basis.The goodwill impairment charge incurred in 2009 relates to the Community Banking operating segment. This charge primarily resulted from a decline in the fair value of the Community Banking reporting unit, which corresponded to the decline in the Company’s market capitalization and the banking industry in general, and its effect on the implied fair value of the goodwill. Discussion related to the goodwill impairment charge is provided in Note 9 of theNotes to Consolidated Financial Statements and under the headingGoodwill and Other Intangible Assetsbelow.yearyears ended December 31, 2011, 20102013, 2012 and 2009. The merger-related expenses incurred in 2010 and 2011 relate to the FDIC-assisted acquisitions of Evergreen, Rainier, and Nevada Security. The merger-related expenses incurred in 2009 relate to the FDIC-assisted purchase and assumption of certain assets and liabilities of the Bank of Clark County. We do not expect to incur any additional significant merger-related expenses in connection with the Evergreen, Rainier, Nevada Security, Bank of Clark County or any other previous acquisition.Merger-Related ExpenseYears Ended December 31,(in thousands) 2011 2010 2009 $ 173 $ 2,984 $ 143 — 962 39 — 330 61 82 630 2 11 710 — 94 1,059 28 $ 360 $ 6,675 $ 273 2013 2012 2011 Professional fees $ 7,755 $ 1,145 $ 173 Compensation and relocation 158 856 — Communications 49 66 — Premises and equipment 44 29 82 Travel 140 98 11 Other 690 144 94 Total $ 8,836 $ 2,338 $ 360 Other non-interest expense decreased in 2011 over 2010 primarily2013 as compared to 2012 as a result of non-recurring settlementas a result of a decrease in loan and OREO workout related costs, recognized in 2010 partially offset by an increase due to FinPac operations and an FDIC loss sharing claw back liability expense recorded due to better than expected performance of the Evergreen Bank FDIC assisted acquisition. Other non-interest expense increased in 2012 over 2011 as a result of increased professional fees and increased local taxes, partially offset by decreased expenses related to problem covered and non-covered loans and covered and non-covered other real estate owned as well as various other growth initiatives underway. Other non-interest expense increased in 2010 over 2009 primarily as a result of expenses related to problem covered and non-covered loans and covered and non-covered other real estate owned as well as various other growth initiatives underway.INCOME TAXESOur consolidated effective tax rate as a percentage of pre-tax income for 20112013 was 33.0%34.9%, compared to 17.0%34.4% for 20102012 and 21.0%33.0% for 2009.2011. The effective tax rates were belowdiffered from the federal statutory rate of 35% and the apportioned state rate of 4.1%7.1% (net of the federal tax benefit) principally because of the non-deductible impairment loss on goodwill (for 2009),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, Business Energy tax credits and exemptions related to loans and hiring in designated enterprise zones. The income tax expense from income taxes in 2011 is a result of the operating income recognized in the period.Additional information on income taxes is provided in Note 13 of theNotes to Consolidated Financial Statementsin Item 8 below.FINANCIAL CONDITIONINVESTMENT SECURITIES47The composition of our investment securities portfolio reflects management’smanagement'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 $2.3$6.0 million at December 31, 2011,2013, as compared to $3.0$3.7 million at December 31, 2010. The decrease2012. This increase is principally attributable to a decrease of $985,000an increase in Umpqua Investments’ inventory of trading securities, offset by increases in the fair market value of investments securities invested for the benefit of former employees and contributions made to supplemental retirement plans for the benefit of certain executives of $271,000.Umpqua Holdings CorporationInvestment securities available for sale increased $249.4 million to $3.2were $1.8 billion as of December 31, 2011, as2013 compared to $2.6 billion at December 31, 2010. This increase is principally attributable to purchases2012. Paydowns of $1.2 billion of investment securities available for sale, which were partially offset by paydowns of $927.3$803.9 million and, amortization of net purchase price premiums of $36.1 million.$32.7 million and a decrease in fair value of investments securities available for sale of $49.0 million were partially offset by purchases of $51.2 million of investment securities available for sale. Investment securities held to maturity were $4.7$5.6 million as of December 31, 2011,2013 as compared to $4.8holdings of $4.5 million at December 31, 2010. This decrease is principally attributable2012. The change primarily relates to purchases of $2.1 million, partially offset by paydowns and maturities of investment securities held to maturity of $1.7 million, offset by purchases of $1.6$1.4 million.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 SecuritiesAs of December 31,(dollars in thousands) December 31, 2011 2010 2009 $ 118,465 $ 118,789 $ 11,794 253,553 216,726 211,825 2,794,355 2,581,504 1,569,849 134 152 159 2,071 2,009 1,989 $ 3,168,578 $ 2,919,180 $ 1,795,616 $ 1,335 $ 2,370 $ 3,216 3,379 2,392 2,845 $ 4,714 $ 4,762 $ 6,061 December 31, 2013 2012 2011 AVAILABLE FOR SALE U.S. Treasury and agencies $ 268 $ 45,820 $ 118,465 Obligations of states and political subdivisions 235,205 263,725 253,553 Residential mortgage-backed securities and collateralized mortgage obligations 1,553,541 2,313,376 2,794,355 Other debt securities — 222 134 Investments in mutual funds and other equity securities 1,964 2,086 2,071 $ 1,790,978 $ 2,625,229 $ 3,168,578 HELD TO MATURITY Obligations of states and political subdivisions $ — $ 595 $ 1,335 Residential mortgage-backed securities and collateralized mortgage obligations 5,563 3,946 3,379 $ 5,565 $ 4,543 $ 4,714 The following table presents information regarding the amortized cost, fair value, average yield and maturity structure of the investment portfolio at December 31, 2011.Investment Securities Composition*December 31, 2011(dollars in thousands) Amortized
Cost Average
Yield $ 71,668 $ 72,083 1.14% 45,347 46,134 1.56% 217 248 3.68% 117,232 118,465 1.31% 21,276 21,514 5.45% 75,980 80,535 5.62% 138,081 149,221 5.71% 3,300 3,620 7.96% 238,637 254,890 5.69% 151 134 6.29% 2,758,532 2,797,777 2.67% 1,959 2,071 3.67% $ 3,116,511 $ 3,173,337 2.86% 48 Amortized Fair Average Cost Value Yield U.S. TREASURY AND AGENCIES One year or less $ 34 $ 34 2.56 % One to five years 215 234 3.68 % 249 268 3.54 % OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS One year or less 26,276 26,598 5.72 % One to five years 89,020 93,325 6.03 % Five to ten years 78,196 80,461 5.30 % Over ten years 36,477 34,821 4.74 % 229,969 235,205 5.55 % OTHER DEBT SECURITIES Serial maturities 1,572,564 1,559,415 2.23 % Other investment securities 1,959 1,964 2.40 % Total securities $ 1,804,741 $ 1,796,852 2.67 % *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 “Serial maturities” in the table above include both pooled mortgage-backed issues and high-quality collaterized mortgage obligation structures, with an average duration of 2.74.0 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, 20112013 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 likely 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.Prior to the second quarter of 2009, the Company would assess an OTTI or permanent impairment based on the nature of the decline and whether the Company had the ability and intent to hold the investments until a market price recovery. If the Company determined a security to be other-than-temporarily or permanently impaired, the full amount of impairment would be recognized through earnings in its entirety. New guidance related to the recognition and presentation of OTTI of debt securities became effective in the second quarter of 2009. Rather than asserting whether a company has the ability and intent toUmpqua Holdings Corporationhold an investment until a market price recovery, a company must consider whether they intend to sell a security or if it is likely that they would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity.For debt securities, if we intend to sell the security or it is likely 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 likely 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 (“OCI”). 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 increaseswill increase the carrying value of the investment, and doeswould not affect earnings. If there is an indication of additional credit losses the security is reevaluated accordinglyaccording to the procedures described above.Prior to the Company’s adoption of the new guidance related to the recognition and presentation of OTTI of debt securities which became effective in the second quarter of 2009, the Company recorded a $2.1 million OTTI charge in the three months ended March 31, 2009. This charge related to three non-agency collateralized mortgage obligations carried as held to maturity for which the default rates and loss severities of the underlying collateral and credit coverage ratios of the security indicated that it was probable that credit losses were expected to occur. Upon adoption of the new OTTI guidance in the second quarter of 2009, the Company analyzed these securities as well as other securities where OTTI had been previously recognized, and determined that as of the adoption date such losses were credit related. As such, there was no cumulative effect adjustment to the opening balance of retained earnings or a corresponding adjustment to accumulated OCI.The following table presents the OTTI losses for the years ended December 31, 2011, 2010, and 2009. 2011 2010 2009 Held To
Maturity Available
For Sale Held To
Maturity Available
For Sale Held To
Maturity Available
For Sale $ 190 $ — $ 93 $ — $ 12,317 $ 239 169 — 321 — (1,983 ) — $ 359 $ — $ 414 $ — $ 10,334 $ 239 (1)Represents other-than-temporary impairment losses related to all other factors.(2)Represents other-than-temporary impairment losses related to credit losses.The OTTI recognized on investment securities held to maturity primarily relates to 29 non-agency collateralized mortgage obligations for all periods presented. Each of these securities holds various levels of credit subordination. The underlying mortgage loans of these securities were originated from 2003 through 2007. At origination, the weighted average loan-to-value of the underlying mortgages was 69%; the underlying borrowers had weighted average FICO scores of 731, and 59% were limited documentation loans. These securities were valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimated the cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as loan interest rates, geographic location, borrower characteristics and vintage, and historical experience. We then used a third party to obtain information about the structure of each security, includingsubordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows were then discounted at the interest rate used to recognize interest income on each security. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows.The following table presents a summary of the significant inputs utilized to measure management’s estimate of the credit loss component on these non-agency residential collateralized mortgage obligations as of December 31, 2011 and 2010: 2011 2010 Range Weighted
Average Range Weighted
Average Minimum Maximum Minimum Maximum 10.0% 20.0% 14.0% 5.0% 20.0% 14.9% 5.0% 60.0% 22.6% 5.0% 15.0% 10.6% 27.5% 50.0% 32.5% 25.0% 55.0% 37.9% Gross unrealized losses in the available for sale investment portfolio was $4.0$31.4 million at December 31, 2011.2013. This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of $4.0 million.$28.8 million. The49unrealized 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. Additional information about the investment securities portfolio is provided in Note 43 of theNotes to Consolidated Financial Statements in Item 8 below.RESTRICTED EQUITY SECURITIESRestricted equity securities were $32.6$30.7 million at December 31, 20112013 and $34.5$33.4 million at December 31, 2010.2012. The decrease of $1.9$2.7 million is attributable to stock redemptionredemptions by the Federal Home Loan Bank (“FHLB”) of San Francisco. Of the $32.6 million at December 31, 2011, $28.6 million and $2.7 million represent the Bank’s investment in the Federal Home Loan Banks (“FHLB”) of San Francisco and Seattle during the period. Of the $30.7 million at December 31, 2013, $29.4 million represent the Bank’s investment in the FHLBs of Seattle and San Francisco, respectively.The remaining restricted equity securities primarily represent investments in Pacific Coast Bankers’ Bancshares stock.Although as of December 31, 2011,In September 2012, the FHLB of Seattle complies with all of its regulatory requirements (including the risk-based capital requirement), it remains classified as “undercapitalized”was notified by the Federal Housing Finance Agency (“Finance Agency”). that it is now classified as “adequately capitalized” as compared to the prior classification of “undercapitalized.” Under Finance Agency regulations, a FHLB that fails to meet any regulatory capital requirement may not declare a dividend or redeem or repurchase capital stock in excess of what is required for members’ current loans.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 the 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 of the FHLB and the length of time this situation has persisted, (2) the compliance with the minimum financial metrics required as part of the Consent Arrangement the bank has with the Finance Agency, (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.Moody’s Investors Services rating of the FHLB of Seattle as Aaa was confirmed in August 2011, butmay repurchase excess capital stock under certain conditions; however it may not redeem stock or pay a negative outlook was assigned as Moody’s revised the rating outlook to negative for U.S. government debt and all issuers Moody’s considers directly-linked to the U.S. government. Standard and Poors’ rating is AA+, but it also issued a negative outlook with the action reflecting the downgrade of the long-term sovereign credit rating of the U.S. in 2011.dividend without Finance Agency approval. Based on the above, the Company has determined there is not an other-than-temporary impairment on the FHLB stock investment as of December 31, 2011.Umpqua Holdings CorporationLOANS AND LEASESNon-CoveredNon-covered loansLoans and leasesTotal non-covered loans and leases outstanding at December 31, 20112013 were $5.9$7.4 billion, an increase of $229.1$673.3 million or 4.0%, from as compared to year-end 2010.2012. This increase is principally attributable to non-covered net loan and lease originations of $336.9$484.9 million during, loans and leases acquired in the periodFinPac acquisition of $264.3 million, and covered loans transferred to non-covered loans and leases of $12.3$14.8 million, partially offset by charge-offs of $65.1$31.0 million, transfers to other real estate owned of $47.4$21.6 million, and sales of non-covered loans sold of $11.2 million.$60.3 million during the period.The Bank provides a wide variety of credit services to its customers, including construction loans, commercial lines of credit, secured and unsecured commercial loans, commercial real estate loans, residential mortgage loans, home equity credit lines, consumer loans and commercial leases. Loans are principally made on a secured basis to customers who reside, own property or operate businesses within the Bank’sBank's principal market area.The following table presents the composition of the non-covered loan and lease portfolio, net of deferred fees and costs, as of December 31 for each of the last five years.Non-covered Loan and Lease Portfolio CompositionAs of December 31,(dollars in thousands) 2011 2010 2009 2008 2007 Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage $ 3,813,434 64.8% $ 3,879,102 68.5% $ 4,115,593 68.6% $ 4,139,289 67.5% $ 4,187,819 69.2% 1,458,765 24.8% 1,256,872 22.2% 1,390,491 23.2% 1,503,400 24.5% 1,438,505 23.8% 588,119 10.0% 501,001 8.9% 468,486 7.8% 465,361 7.6% 404,900 6.6% 38,860 0.6% 33,043 0.6% 36,098 0.6% 34,774 0.6% 35,700 0.6% (11,080 ) -0.2% (11,031 ) -0.2% (11,401 ) -0.2% (11,450 ) -0.2% (11,289 ) -0.2% $ 5,888,098 100.0% $ 5,658,987 100.0% $ 5,999,267 100.0% $ 6,131,374 100.0% $ 6,055,635 100.0% 2013 2012 2011 2010 2009 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Commercial real estate, net $ 4,325,024 58.8 % $ 4,183,254 62.7 % $ 3,802,252 64.6 % $ 3,868,396 68.3 % $ 4,104,308 68.4 % Commercial, net 2,119,796 28.8 % 1,719,139 25.7 % 1,456,329 24.8 % 1,255,142 22.2 % 1,388,325 23.2 % Residential, net 861,470 11.7 % 741,100 11.0 % 590,467 10.0 % 502,170 8.9 % 470,315 7.8 % Consumer & other, net 48,113 0.7 % 37,587 0.6 % 39,050 0.6 % 33,279 0.6 % 36,319 0.6 % Total loans and leases, net $ 7,354,403 100.0 % $ 6,681,080 100.0 % $ 5,888,098 100.0 % $ 5,658,987 100.0 % $ 5,999,267 100.0 % The following table presents the concentration distribution of our non-covered loan and lease portfolio by major type:Non-Covered Loan and Lease ConcentrationsAs of December 31, 20112013 and 201050(dollars in thousands) 2011 2010 Amount Percentage Amount Percentage $ 3,558,295 60.5% $ 3,483,475 61.6% 165,066 2.8% 247,814 4.4% 90,073 1.5% 147,813 2.6% 625,766 10.6% 509,453 9.0% 832,999 14.1% 747,419 13.2% 315,927 5.4% 222,416 3.9% 272,192 4.6% 278,585 4.9% 38,860 0.7% 33,043 0.6% (11,080 ) -0.2% (11,031 ) -0.2% $ 5,888,098 100.0% $ 5,658,987 100.0% December 31, 2013 December 31, 2012 Amount Percentage Amount Percentage Commercial real estate Non-owner occupied term, net $ 2,328,260 31.7 % $ 2,316,909 34.5 % Owner occupied term, net 1,259,583 17.1 % 1,276,840 19.2 % Multifamily, net 403,537 5.5 % 331,735 5.1 % Construction & development, net 245,231 3.3 % 200,631 3.0 % Residential development, net 88,413 1.2 % 57,139 0.9 % Commercial Term, net 770,845 10.5 % 797,061 11.9 % LOC & other, net 987,360 13.4 % 890,808 13.3 % Leases and equipment finance, net 361,591 4.9 % 31,270 0.5 % Residential Mortgage, net 597,201 8.1 % 478,463 7.1 % Home equity loans & lines, net 264,269 3.6 % 262,637 3.9 % Consumer & other, net 48,113 0.7 % 37,587 0.6 % Total, net of deferred fees and costs $ 7,354,403 100.0 % $ 6,681,080 100.0 % The following table presents the maturity distribution of our non-covered loan portfolios and the sensitivity of these loans to changes in interest rates as of December 31, 2011:Maturities and Sensitivities of Non-covered Loans to Changes in Interest Ratesas of December 31, 2013(in thousands) By Maturity Loans Over One Year
by Rate Sensitivity One Year
or Less One Through
Five Years Over Five
Years Total Fixed
Rate Floating
Rate $ 406,360 $ 1,388,399 $ 2,018,675 $ 3,813,434 $ 707,080 $ 2,699,994 $ 702,814 $ 468,393 $ 257,945 $ 1,429,152 $ 439,414 $ 286,924 Loans Over One Year By Maturity by Rate Sensitivity One Year One Through Over Five Fixed Floating or Less Five Years Years Total Rate Rate Commercial real estate $ 531,755 $ 1,384,831 $ 2,408,438 $ 4,325,024 $ 830,941 $ 2,962,328 Commercial (1) $ 905,562 $ 453,797 $ 398,846 $ 1,758,205 $ 360,324 $ 492,319 (1) Excludes the lease and equipment finance portfolio. In order to assist with understanding the concentrations and risks associated with our portfolio, we are providing several additional tables to provide details of the most significant classes of the Company’s non-covered loan portfolio. The classification of non-covered loan balances are presented in accordance with how management monitors and manages the risks of the non-covered loan portfolio, including how the Company applies its allowance for non-covered loan and lease losses methodology.Umpqua Holdings CorporationThe following table presents a distribution of the non-covered commercial real estate term & multifamily portfolio by type and region as of December 31, 2011 and December 31, 2010.Non-Covered Commercial Real Estate Term & Multifamily Portfolio by Type and Region(in thousands) December 31, 2011 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total December 31,
2010 $ 137,362 $ 4,938 $ 29,425 $ 51,557 $ 56,891 $ 127,825 $ 407,998 $ 390,783 87,420 217 8,991 — 8,683 15,614 120,925 112,856 152,048 4,980 51,580 19,961 105,690 59,489 393,748 417,969 40,786 144 15,899 4,044 11,261 45,352 117,486 127,285 69,555 485 13,477 9,721 17,978 40,599 151,815 116,591 124 — 666 — — 392 1,182 6,111 180,805 6,040 30,990 12,309 167,227 64,638 462,009 468,482 28,773 96 7,711 4,225 4,534 20,377 65,716 74,400 2,228 11 — — — 16,324 18,563 23,966 67,575 — 9,134 15,557 17,857 15,833 125,956 114,797 111,688 — 56,978 190 10,310 22,359 201,525 211,191 60,842 — 817 690 17,294 41,804 121,447 129,593 42,674 2,301 4,717 5,339 29,804 22,006 106,841 92,237 33,425 — 18,934 — 3,023 6,073 61,455 56,654 10,107 — — — 617 2,196 12,920 13,115 18,591 245 1,057 302 1,517 4,621 26,333 43,635 $ 1,044,003 $ 19,457 $ 250,376 $ 123,895 $ 452,686 $ 505,502 $ 2,395,919 $ 2,399,665 $ 198,831 $ 2,925 $ 36,580 $ 21,835 $ 63,927 $ 130,793 $ 454,891 $ 389,809 95,204 3,593 24,664 930 8,872 26,623 159,886 149,151 73,623 2,190 10,351 2,197 19,953 21,008 129,322 115,673 — — — — — — — — 758 — 42 3,740 — 134 4,674 4,143 8,730 — 4,201 — 2,771 780 16,482 13,930 42,710 620 12,280 3,568 42,739 49,647 151,564 159,941 3,709 142 2,146 — 771 2,917 9,685 12,481 7,002 — 1,252 1,825 — 51,936 62,015 58,347 418 — 694 — — 29 1,141 2,405 — — — — — — — — — — — — — — — — 53,584 637 11,744 7,280 11,097 35,361 119,703 122,584 663 — 951 — — 1,812 3,426 4,606 9,857 — 607 — — 6,489 16,953 17,956 29,617 — 130 943 — 1,944 32,634 32,784 $ 524,706 $ 10,107 $ 105,642 $ 42,318 $ 150,130 $ 329,473 $ 1,162,376 $ 1,083,810 $ 1,568,709 $ 29,564 $ 356,018 $ 166,213 $ 602,816 $ 834,975 $ 3,558,295 $ 3,483,475 December 31, 2010 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total $ 1,047,254 $ 22,688 $ 276,514 $ 110,451 $ 490,052 $ 452,706 $ 2,399,665 477,752 13,117 96,299 33,451 161,894 301,297 1,083,810 $ 1,525,006 $ 35,805 $ 372,813 $ 143,902 $ 651,946 $ 754,003 $ 3,483,475 The following table presents a distribution of the non-covered term commercial real estate portfolio by type and year of origination as of December 31, 2011:Non-Covered Commercial Real Estate Term & Multifamily Portfolio by Type and Year of Origination(in thousands) Prior to
2001 2001 -
2005 2006 -
2007 2008 -
2009 2010 -
2011 Total $ 8,000 $ 89,342 $ 80,574 $ 136,106 $ 93,976 $ 407,998 2,516 53,002 12,393 32,832 20,182 120,925 11,909 179,541 57,218 72,878 72,202 393,748 2,401 44,234 28,801 18,754 23,296 117,486 2,701 30,432 24,269 31,551 62,862 151,815 392 124 — 666 — 1,182 12,269 212,146 110,638 74,826 52,130 462,009 1,099 10,953 16,753 16,574 20,337 65,716 1,310 3,240 1,304 10,099 2,610 18,563 911 21,443 20,694 35,808 47,100 125,956 12,539 70,761 45,015 41,645 31,565 201,525 16,235 51,303 12,200 37,788 3,921 121,447 2,510 58,166 11,396 6,251 28,518 106,841 3,043 19,540 13,000 11,087 14,785 61,455 987 8,406 3,527 — — 12,920 67 8,550 10,046 5,504 2,166 26,333 $ 78,889 $ 861,183 $ 447,828 $ 532,369 $ 475,650 $ 2,395,919 $ 14,206 $ 84,620 $ 112,144 $ 141,000 $ 102,921 $ 454,891 3,474 21,532 25,308 88,381 21,191 159,886 3,914 46,627 30,724 21,054 27,003 129,322 — — — — — — 158 1,457 — — 3,059 4,674 690 9,603 — 2,841 3,348 16,482 7,391 44,487 69,090 22,099 8,497 151,564 448 4,500 2,971 1,033 733 9,685 2,555 3,502 11,441 20,473 24,044 62,015 29 — 694 — 418 1,141 — — — — — — — — — — — — 3,597 47,526 14,767 24,907 28,906 119,703 788 1,190 299 144 1,005 3,426 103 8,248 3,193 4,888 521 16,953 — 4,975 25,690 1,019 950 32,634 $ 37,353 $ 278,267 $ 296,321 $ 327,839 $ 222,596 $ 1,162,376 $ 116,242 $ 1,139,450 $ 744,149 $ 860,208 $ 698,246 $ 3,558,295 Umpqua Holdings CorporationThe following table presents a distribution of the non-covered term commercial real estate portfolio by type and year of maturity as of December 31, 2011:Non-Covered Commercial Real Estate Term & Multifamily Portfolio by Type and Year of Maturity(in thousands) December 31, 2011 2012 2013 2014 -
2015 2016 -
2017 2018 -
2022 2023 &
Later Total $ 31,552 $ 33,706 $ 65,672 $ 87,428 $ 174,157 $ 15,483 $ 407,998 10,510 5,940 10,610 20,702 62,425 10,738 120,925 26,415 54,669 84,886 92,952 122,141 12,685 393,748 481 17,367 21,487 22,705 53,867 1,579 117,486 4,175 6,733 28,182 22,799 82,717 7,209 151,815 — 666 516 — — — 1,182 23,093 38,843 134,311 132,076 127,023 6,663 462,009 15,402 7,411 7,987 10,649 18,076 6,191 65,716 459 1,172 6,726 2,123 4,459 3,624 18,563 4,456 5,902 22,338 15,113 76,330 1,817 125,956 27,420 4,464 31,014 60,355 76,167 2,105 201,525 7,399 8,084 37,476 15,548 40,438 12,502 121,447 5,633 6,529 25,597 31,537 28,366 9,179 106,841 638 4,202 13,463 10,057 30,327 2,768 61,455 1,008 4,352 2,082 1,188 3,273 1,017 12,920 3,964 1,691 4,349 9,549 3,143 3,637 26,333 $ 162,605 $ 201,731 $ 496,696 $ 534,781 $ 902,909 $ 97,197 $ 2,395,919 $ 16,781 $ 26,134 $ 46,190 $ 78,576 $ 230,720 $ 56,490 $ 454,891 1,837 363 8,651 14,648 115,961 18,426 159,886 3,122 10,220 18,919 35,003 55,337 6,721 129,322 — — — — — — — — 566 891 42 3,175 — 4,674 — 102 3,461 3,963 4,856 4,100 16,482 9,829 12,432 29,313 45,353 47,035 7,602 151,564 1,025 782 4,314 493 1,236 1,835 9,685 3,568 3,115 11,435 9,440 27,824 6,633 62,015 — — 29 694 418 — 1,141 — — — — — — — — — — — — — — 5,847 4,348 21,116 25,660 56,738 5,994 119,703 82 774 1,123 299 299 849 3,426 874 — 6,876 4,362 4,673 168 16,953 3,194 754 661 3,514 24,243 268 32,634 $ 46,159 $ 59,590 $ 152,979 $ 222,047 $ 572,515 $ 109,086 $ 1,162,376 $ 208,764 $ 261,321 $ 649,675 $ 756,828 $ 1,475,424 $ 206,283 $ 3,558,295 The following table presents a distribution of the non-covered commercial real estate construction portfolio by type and region as of December 31, 2011 and December 31, 2010.Non-Covered Commercial Real Estate Construction and Development Portfolio by Type and Region(in thousands) December 31, 2011 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total December 31,
2010 $ 7,408 $ — $ 2,705 $ 562 $ 11,166 $ 836 $ 22,677 $ 25,877 — — — — — — — 13,888 — — — — — 1,897 1,897 23,077 5,387 — — — — — 5,387 8,447 4,990 — — 6,072 — — 11,062 10,705 13,743 — — — 2,030 — 15,773 13,498 18,958 — 5,154 3,950 19,853 5,007 52,922 62,058 24,637 — — — — — 24,637 13,324 — — — — 5,854 — 5,854 20,389 — — — — — — — 5,447 — — — — — — — — 87 — — — — 5,783 5,870 3,104 $ 75,210 $ — $ 7,859 $ 10,584 $ 38,903 $ 13,523 $ 146,079 $ 199,814 $ 5,443 $ — $ 1,087 $ — $ 575 $ 4,645 $ 11,750 $ 25,379 430 — — — — — 430 14,479 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,455 — — — — 578 2,033 5,944 — — — — — — — — — — — — — — — — — — — — — — — — 2,521 — 71 — — — 2,592 2,198 — — — — — 2,182 2,182 — $ 9,849 $ — $ 1,158 $ — $ 575 $ 7,405 $ 18,987 $ 48,000 $ 85,059 $ — $ 9,017 $ 10,584 $ 39,478 $ 20,928 $ 165,066 $ 247,814 December 31, 2010 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total $ 99,309 $ 310 $ 8,357 $ 4,921 $ 61,897 $ 25,020 $ 199,814 34,592 — 243 — 584 12,581 48,000 $ 133,901 $ 310 $ 8,600 $ 4,921 $ 62,481 $ 37,601 $ 247,814 Umpqua Holdings CorporationThe following table presents a distribution of the non-covered commercial loan portfolio (excluding leases) by type and region as of December 31, 2011 and December 31, 2010.Commercial Loan Portfolio by Type and Region(in thousands) December 31, 2011 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total December 31,
2010 $ 184,047 $ 530 $ 15,990 $ 12,377 $ 146,643 $ 112,920 $ 472,507 $ 372,319 143,684 1,857 15,941 23,262 11,123 52,220 248,087 206,185 154,282 2,310 20,640 28,561 79,406 87,773 372,972 343,967 21,027 148 1,087 1,917 336 67,363 91,878 83,332 16,923 — 16,274 — 36,765 3,585 73,547 71,994 — — — — — 84,221 84,221 57,529 25,569 1,246 14,903 5,452 11,979 25,504 84,653 89,090 $ 545,532 $ 6,091 $ 84,835 $ 71,569 $ 286,252 $ 433,586 $ 1,427,865 $ 1,224,416 December 31, 2010 Northwest
Oregon Central
Oregon Southern
Oregon Washington Greater
Sacramento Northern
California Total $ 448,158 $ 5,004 $ 77,343 $ 50,369 $ 293,369 $ 350,173 $ 1,224,416 CoveredLoans, and Leases, NetTotal covered loans and leases outstanding at December 31, 20112013 were $622.5$364.0 million, a decrease of $163.4$113.1 million as compared to year-end 2010.2012. This decrease is principally attributable to net covered loan paydowns and maturities of $119.8$101.9 million and transfers to covered other real estate owned of $15.3 million, and covered loans transferred to non-covered loans and leases of $12.3 million.$14.8 million.The following table presents the composition of the covered loan portfolio asfor each of December 31 for 2011 and 2010.Covered Loan Portfolio CompositionAs of December 31,(dollars in thousands) 2011 2010 Amount Percentage Amount Percentage $ 506,637 79.4% $ 619,248 78.5% 57,576 9.1% 78,003 9.9% 64,588 10.2% 80,504 10.2% 7,970 1.3% 10,864 1.4% 636,771 100.0% 788,619 100.0% (14,320 ) (2,721 ) $ 622,451 $ 785,898 51 2013 2012 2011 2010 Amount Percent Amount Percent Amount Percent Amount Percent Commercial real estate, net $ 305,131 81.6 % $ 399,514 80.8 % $ 506,637 79.4 % $ 619,248 78.5 % Commercial, net 22,417 6.0 % 38,521 7.7 % 57,576 9.1 % 78,003 9.9 % Residential, net 41,953 11.3 % 51,267 10.3 % 64,588 10.2 % 80,504 10.2 % Consumer & other, net 4,262 1.1 % 6,051 1.2 % 7,970 1.3 % 10,864 1.4 % Total, net of deferred fees and costs 373,763 100.0 % 495,353 100.0 % 636,771 100.0 % 788,619 100.0 % Allowance for covered loans (9,771 ) (18,275 ) (14,320 ) (2,721 ) Total $ 363,992 $ 477,078 $ 622,451 $ 785,898 The following table presents the concentration distribution of our covered loan portfolio atby major type:Covered Loan ConcentrationsAs of December 31, 2011 and December 31, 2010.Covered Loan and Leases Concentrations(dollars in thousands) 2011 2010 Amount Percentage Amount Percentage $ 474,054 74.3% $ 569,642 72.2% 14,820 2.3% 24,713 3.1% 17,763 2.8% 24,893 3.2% 34,150 5.4% 42,776 5.4% 23,426 3.7% 35,227 4.5% 35,503 5.6% 44,824 5.7% 29,085 4.6% 35,680 4.5% 7,970 1.3% 10,864 1.4% 636,771 100.0% 788,619 100.0% (14,320 ) (2,721 ) $ 622,451 $ 785,898 December 31, 2013 December 31, 2012 Amount Percentage Amount Percentage Commercial real estate Non-owner occupied term, net $ 206,902 55.4 % $ 264,481 53.4 % Owner occupied term, net 49,817 13.3 % 68,650 13.9 % Multifamily, net 37,671 10.1 % 44,878 9.1 % Construction & development, net 3,455 0.9 % 11,711 2.4 % Residential development, net 7,286 1.9 % 9,794 2.0 % Commercial Term, net 15,719 4.2 % 23,524 4.7 % LOC & other, net 6,698 1.8 % 14,997 3.0 % Residential Mortgage, net 22,316 6.0 % 27,825 5.6 % Home equity loans & lines, net 19,637 5.3 % 23,442 4.7 % Consumer & other, net 4,262 1.1 % 6,051 1.2 % Total, net of deferred fees and costs 373,763 100.0 % 495,353 100.0 % Allowance for covered loans (9,771 ) (18,275 ) Total $ 363,992 $ 477,078 The covered loans are subject to loss-sharing agreements with the FDIC. Under the terms of the Evergreen Bank acquisition loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, other real estate owned (“OREO”)OREO and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $90.0 million on covered assets for Evergreen and absorb 95% of losses and share in 95% of loss recoveries exceeding $90.0 million, except for the Bank will incur losses up to $30.2 million before the loss-sharing will commence. As of December 31, 2013, losses have exceeded $30.2 million. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates.Under the terms of the Rainier Pacific Bank loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREO and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $95.0 million of losses on covered assets and absorb 95% of losses and share in 95% of loss recoveries exceeding $95.0 million. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates.Under the terms of the Nevada Security Bank loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREO and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on all covered assets. The loss-sharing arrangements for non-single family residential and52single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates.Discussion of and tables related to the covered loan segment is provided under the headingAsset Quality and Non-Performing Assets.Umpqua Holdings CorporationASSET QUALITY AND NON-PERFORMING ASSETSNon-Covered Loans andLeasesWe manage asset quality and control credit risk through diversification of the non-covered loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank’sBank'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 non-covered loan and lease losses charged to earnings is based upon management’smanagement's judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable incurred losses. The amount of provision charge is dependent upon many factors, including loan and lease growth, net charge-offs, changes in the composition of the non-covered loan and lease portfolio, delinquencies, management’smanagement'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 non-covered 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. Additional information regarding the methodology used in determining the adequacy of the allowance for loan and lease losses is contained in Part I Item 1 of this report in the section titledLending and Credit Functions.FunctionsNon-covered, non-performing loans and leases, which include non-covered, non-accrual loans and leases and non-covered accruing loans and leases past due over 90 days, totaled $91.4$35.3 million or 1.55%0.48% of total non-covered loans and leases as of December 31, 2011,2013, as compared to $145.2$71.0 million, or 2.57%1.06% of total non-covered loans and leases, at December 31, 2010.2012. Non-covered, non-performing assets, which include non-covered, non-performing loans and leases and non-covered, foreclosed real estate (“other real estate owned”)i.e. OREO, totaled $57.2 million, totaled $125.6 million, or 1.09%0.49% of total assets as of December 31, 20112013 compared with $178.0$88.1 million, or 1.53%0.75% of total assets as of December 31, 2010.2012. The decrease in non-performing assets in 20112013 is attributable to the improving economic environment, an easingincrease in the velocity of declining real estate values in our markets and the resulting impact on our commercial real estate and commercial construction portfolio.A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Generally, when non-covered loans are identified as impaired they are moved to our Special Assets Division.Department. When we identify a loan as impaired, we measure the loan for potential impairment using discount cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we will use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every six to nine12 months. We obtain appraisals from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is: (a) currently licensed in the state in which the property is located, (b) is experienced in the appraisal of properties similar to the property being appraised, (c) is actively engaged in the appraisal work, (d) has knowledge of current real estate market conditions and financing trends, (e) is reputable, and (f) is not on Freddie Mac’s noror the Bank’s Exclusionary List of appraisers and brokers. In certain cases appraisals will be reviewed by our Real Estate Valuation Services groupGroup to ensure the quality of the appraisal and the expertise and independence of the appraiser. Upon receipt and review, an external appraisal is utilized to measure a loan for potential impairment. Our impairment analysis documents the date of the appraisal used in the analysis, whether the officer preparing the report deems it current, and, if not, allows for internal valuation adjustments with justification. Typical justified adjustments might include discounts for continued market deterioration subsequent to appraisal date, adjustments for the release of collateral contemplated in the appraisal, or the value of other collateral or consideration not contemplated in the appraisal. An appraisal over one year old in most cases will be considered stale dated and an updated or new appraisal will be required. Any adjustments from appraised value to net realizable value are detailed and justified in the impairment analysis, which is reviewed and approved by senior credit quality officers and the Company’s Allowance for Loan and Lease Losses (“ALLL”)Bank's ALLL Committee. Although an external appraisal is the53Non-covered loans and leases are classified as non-accrual when collection of principal or interest is doubtful—generally if they are past due as to maturity or payment of principal or interest by 90 days or more—unless such non-covered loans and leases are well-secured and in the process of collection. Additionally, all loans that are impaired are considered for non-accrual status. Non-covered loans and leases placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan or lease agreement appear relatively certain.Upon acquisition of real estate collateral, typically through the foreclosure process, we promptly begin to market the property for sale. If we do not begin to receive offers or indications of interest we will analyze the price and review market conditions to assess whether a lower price reflects the market value of the property and would enable us to sell the property. In addition, we update appraisals on other real estate owned property six to nine12 months after the most recent appraisal. Increases in valuation adjustments recorded in a period are primarily based on a) updated appraisals received during the period, or b) management’smanagement's authorization to reduce the selling price of the property during the period. Unless a current appraisal is available, an appraisal will be ordered prior to a loan moving to other real estate owned. Foreclosed properties held as other real estate owned are recorded at the lower of the recorded investment in the loan (prior to foreclosure) or the fair market value of the property less expected selling costs. Non-covered other real estate owned at December 31, 20112013 totaled $34.2$21.8 million and consisted of 6319 properties.Non-covered loans are reported as restructured 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 a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) 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 Company has written down impaired, non-covered non-accrual loans as of December 31, 20112013 to their estimated net realizable value, based on disposition value and expects resolution with no additional material loss, absent further decline in market prices.Umpqua Holdings CorporationThe following table summarizes our non-covered non-performing assets as of December 31 for each of the last five years.Non-Covered Non-Performing AssetsAs of December 31,(dollars in thousands) 2011 2010 2009 2008 2007 $ 80,562 $ 138,177 $ 193,118 $ 127,914 $ 81,317 10,821 7,071 5,909 5,452 9,782 91,383 145,248 199,027 133,366 91,099 34,175 32,791 24,566 27,898 6,943 $ 125,558 $ 178,039 $ 223,593 $ 161,264 $ 98,042 $ 80,563 $ 84,441 $ 134,439 $ 23,540 $ — $ 92,968 $ 101,921 $ 107,657 $ 95,865 $ 84,904 940 818 731 983 1,182 $ 93,908 $ 102,739 $ 108,388 $ 96,848 $ 86,086 1.09% 1.53% 2.38% 1.88% 1.18% 1.55% 2.57% 3.32% 2.18% 1.50% 1.58% 1.80% 1.79% 1.56% 1.40% 1.59% 1.82% 1.81% 1.58% 1.42% 103% 71% 54% 73% 94% 2013 2012 2011 2010 2009 Non-covered loans and leases on non-accrual status $ 31,891 $ 66,736 $ 80,562 $ 138,177 $ 193,118 Non-covered loans and leases past due 90 days or more and accruing 3,430 4,232 10,821 7,071 5,909 Total non-covered non-performing loans and leases 35,321 70,968 91,383 145,248 199,027 Non-covered other real estate owned 21,833 17,138 34,175 32,791 24,566 Total non-covered non-performing assets $ 57,154 $ 88,106 $ 125,558 $ 178,039 $ 223,593 Restructured loans (1)$ 68,791 $ 70,602 $ 80,563 $ 84,441 $ 134,439 Allowance for non-covered loan and lease losses $ 85,314 $ 85,391 $ 92,968 $ 101,921 $ 107,657 Reserve for unfunded commitments 1,436 1,223 940 818 731 Allowance for non-covered credit losses $ 86,750 $ 86,614 $ 93,908 $ 102,739 $ 108,388 Asset quality ratios: Non-covered non-performing assets to total assets 0.49 % 0.75 % 1.09 % 1.53 % 2.38 % Non-covered non-performing loans and leases to total non-covered loans and leases 0.48 % 1.06 % 1.55 % 2.57 % 3.32 % Allowance for non-covered loan and lease losses to total non-covered loans and leases 1.16 % 1.28 % 1.58 % 1.80 % 1.79 % Allowance for non-covered credit losses to total non-covered loans and leases 1.18 % 1.30 % 1.59 % 1.82 % 1.81 % Allowance for non-covered credit losses to total non-covered non-performing loans and leases 246 % 122 % 103 % 71 % 54 % 54(1) Represents accruing restructured non-covered loans performing according to their restructured terms. The following tables summarize our non-covered non-performing assets by loan type and region as of December 31, 20112013 and December 31, 2010:Non-Covered Non-Performing Assets by Type and Region(in thousands) December 31, 2011 $ 27,183 $ 617 $ 2,286 $ 1,159 $ 7,494 $ 5,747 $ 44,486 921 — 568 — 1,859 — 3,348 9,226 — — 4,172 63 2,375 15,836 724 1,814 239 157 1,462 3,724 8,120 5,457 147 95 1,114 — 1,959 8,772 — — — — — — — — — — — — — — — — — — — — — 43,511 2,578 3,188 6,602 10,878 13,805 80,562 $ — $ — $ — $ — $ — $ — $ — — — — — 575 — 575 — — — — — — — — — — — — 1,179 1,179 — — — — 47 1,350 1,397 4,342 — — — — — 4,342 773 200 294 — 572 810 2,649 475 — 155 2 6 41 679 5,590 200 449 2 1,200 3,380 10,821 49,101 2,778 3,637 6,604 12,078 17,185 91,383 $ 4,673 $ 140 $ 786 $ — $ 7,618 $ 2,700 $ 15,917 2,383 400 — — 3,166 — 5,949 1,487 944 1,457 589 3,494 784 8,755 — — — — — — — 50 306 — 521 — — 877 2,099 — — — — — 2,099 — — 212 — 366 — 578 — — — — — — — 10,692 1,790 2,455 1,110 14,644 3,484 34,175 $ 59,793 $ 4,568 $ 6,092 $ 7,714 $ 26,722 $ 20,669 $ 125,558 Umpqua Holdings Corporation December 31, 2010 $ 24,180 $ 4,816 $ 537 $ 1,898 $ 9,010 $ 8,721 $ 49,162 12,726 — 472 — 6,817 109 20,124 10,191 110 2,122 3,033 10,761 8,369 34,586 710 1,679 320 373 98 3,092 6,272 7,586 878 768 6,830 8,628 3,343 28,033 — — — — — — — — — — — — — — — — — — — — — 55,393 7,483 4,219 12,134 35,314 23,634 138,177 $ 79 $ — $ — $ 176 $ 2,753 $ — $ 3,008 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 2,925 — — — — — 2,925 73 — — — 159 — 232 880 — — — 26 — 906 3,957 — — 176 2,938 — 7,071 59,350 7,483 4,219 12,310 38,252 23,634 145,248 $ 5,396 $ — $ 1,656 $ — $ 3,091 $ 5,686 $ 15,829 3,443 539 — 313 4,392 — 8,687 674 1,844 1,368 112 — 1,118 5,116 — — — — — — — — — — — — — — 954 — — — — — 954 — — — — — — — — — — — 481 1,724 2,205 10,467 2,383 3,024 425 7,964 8,528 32,791 $ 69,817 $ 9,866 $ 7,243 $ 12,735 $ 46,216 $ 32,162 $ 178,039 December 31, 2013 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Loans and leases on non-accrual status: Commercial real estate Non-owner occupied term, net $ — $ 1,065 $ 3,484 $ 389 $ 1,599 $ 2,656 $ 9,193 Owner occupied term, net — 509 — 2,093 — 3,602 6,204 Multifamily, net — — — — 580 355 935 Construction & development, net — — — — — — — Residential development, net — 2,801 — — — — 2,801 Commercial Term, net — 1,040 — 182 — — 1,222 LOC & other, net — 4,620 207 3,615 171 110 8,723 Leases and equipment finance, net 2,813 — — — — — 2,813 Residential Mortgage, net — — — — — — — Home equity loans & lines, net — — — — — — — Consumer & other, net — — — — — — — Total 2,813 10,035 3,691 6,279 2,350 6,723 31,891 Loans and leases past due 90 days or more and accruing: Commercial real estate Non-owner occupied term, net $ — $ — $ — $ — $ — $ — $ — Owner occupied term, net — — — 437 — 173 610 Multifamily, net — — — — — — — Construction & development, net — — — — — — — Residential development, net — — — — — — — Commercial Term, net — — — — — — — LOC & other, net — — — — — — — Leases and equipment finance, net 517 — — — — — 517 Residential Mortgage, net — — 35 100 25 — 160 Home equity loans & lines, net — 2,070 — — — — 2,070 Consumer & other, net 14 20 25 8 5 1 73 Total 531 2,090 60 545 30 174 3,430 Total non-performing loans and leases 3,344 12,125 3,751 6,824 2,380 6,897 35,321 Other real estate owned: Commercial real estate Non-owner occupied term $ — $ 11,428 $ — $ 155 $ 64 $ — $ 11,647 Owner occupied term — 311 562 219 1,905 — 2,997 Multifamily — — — — — — — 55Construction & development 662 5,130 — — 163 — 5,955 Residential development — 373 — — — — 373 Commercial Term — — — — 460 — 460 LOC & other — — — — — — — Leases and equipment finance — — — — — — — Residential Mortgage — — 45 — — — 45 Home equity loans & lines — 356 — — — — 356 Consumer & other — — — — — — — Total 662 17,598 607 374 2,592 — 21,833 Total non-performing assets $ 4,006 $ 29,723 $ 4,358 $ 7,198 $ 4,972 $ 6,897 $ 57,154 (in thousands) December 31, 2012 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Loans and leases on non-accrual status: Commercial real estate Non-owner occupied term, net $ 139 $ 21,165 $ 3,543 $ 2,259 $ 2,506 $ 4,183 $ 33,795 Owner occupied term, net — 1,199 — 255 6,995 — 8,449 Multifamily, net — 319 — — 727 — 1,046 Construction & development, net 662 — — — 3,515 — 4,177 Residential development, net — 5,132 — — — — 5,132 Commercial Term, net 114 2,602 239 2,987 921 177 7,040 LOC & other, net — 1,180 172 — 2,922 2,753 7,027 Leases and equipment finance, net — — — — — — — Residential Mortgage, net — — — — — — — Home equity loans & lines, net — — — — — 49 49 Consumer & other, net — — — — — 21 21 Total 915 31,597 3,954 5,501 17,586 7,183 66,736 Loans and leases past due 90 days or more and accruing: Commercial real estate Non-owner occupied term, net $ — $ — $ — $ — $ — $ — $ — Owner occupied term, net — — — — — — — Multifamily, net — — — — — — — Construction & development, net — — — — — — — Residential development, net — — — — — — — Commercial Term, net — 81 — — — — 81 LOC & other, net — — — — — — — Leases and equipment finance, net — — — — — — — Residential Mortgage, net — 3,303 — — — — 3,303 Home equity loans & lines, net — 355 50 215 — 138 758 Consumer & other, net 2 5 20 8 25 30 90 56Total 2 3,744 70 223 25 168 4,232 Total non-performing loans and leases 917 35,341 4,024 5,724 17,611 7,351 70,968 Other real estate owned: Commercial real estate Non-owner occupied term $ — $ 4,092 $ — $ 366 $ — $ — $ 4,458 Owner occupied term — 1,730 — 381 — — 2,111 Multifamily — — — — — — — Construction & development — — — — 984 1,440 2,424 Residential development 1,693 312 655 — 886 — 3,546 Commercial Term — 1,656 — — — — 1,656 LOC & other, net 907 63 — — — — 970 Leases and equipment finance — — — — — — — Residential Mortgage — 964 — — — — 964 Home equity loans & lines — 656 — — 191 162 1,009 Consumer & other — — — — — — — Total 2,600 9,473 655 747 2,061 1,602 17,138 Total non-performing assets $ 3,517 $ 44,814 $ 4,679 $ 6,471 $ 19,672 $ 8,953 $ 88,106 As of December 31, 2011,2013, the non-covered non-performing assets of $125.6$57.2 million have been written down by 38%29%, or $76.3$22.9 million, from their current paroriginal balance of $201.9 million.$80.1 million. The Company is continually performing extensive reviews of our permanent commercial real estate portfolio, including stress testing. These reviews are beingwere performed on both our non-owner and owner occupied credits. These reviews are beingwere completed to verify leasing status, to ensure the accuracy of risk ratings, and to develop proactive action plans with borrowers on projects.projects where debt service coverage has dropped below the Bank’s benchmark. The stress testing has been performed to determine the effect of rising cap rates, interest rates and vacancy rates, on this portfolio. Based on our analysis, the CompanyBank believes our lending teams are effectively managing the risks in this portfolio. There can be no assurance that any further declines in economic conditions, such as potential increases in retail or office vacancy rates, will exceed the projected assumptions utilized in the stress testing and may result in additional non-covered, non-performing loans in the future.The following table summarizes our non-covered loans and leases past due 30-89 days by loan type and by region as of December 31, 20112013 and December 31, 2010.2012. Loans and leases past due 30-89 days have decreased 27%36% between the two periods.Non-Covered Loans and Leases Past Due 30-89 Days by Type and Region(in thousands) December 31, 2011 $ 1,721 $ — $ 1,029 $ — $ 6,867 $ 8,886 $ 18,503 — — — 662 — — 662 — — — — 4,171 — 4,171 760 — 166 — 461 1,426 2,813 141 — 98 — 5,616 699 6,554 1,180 — — — — — 1,180 22 — 94 — — 567 683 578 — 36 10 4 33 661 $ 4,402 $ — $ 1,423 $ 672 $ 17,119 $ 11,611 $ 35,227 December 31, 2010 �� $ 6,636 $ 1,719 $ — $ — $ 5,524 $ 9,045 $ 22,924 373 — — — 8,525 — 8,898 — — — — 480 160 640 354 — — 64 868 1,655 2,941 1,542 — 17 1,670 1,291 1,961 6,481 2,414 — — — — — 2,414 469 — — 200 1,778 — 2,447 1,339 — — 100 32 1 1,472 $ 13,127 $ 1,719 $ 17 $ 2,034 $ 18,498 $ 12,822 $ 48,217 Umpqua Holdings CorporationNon-covered57 December 31, 2013 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Commercial real estate Non-owner occupied term, net $ — $ 400 $ 287 $ — $ 2,554 $ 729 $ 3,970 Owner occupied term, net — 502 340 — 67 751 1,660 Multifamily, net — — — — — — — Construction & development, net — — — — — — — Residential development, net — — — — — — — Commercial Term, net 6 15 — 5 218 599 843 LOC & other, net — 63 111 1,800 281 83 2,338 Leases and equipment finance, net 3,896 12 — — — — 3,908 Residential Mortgage, net — 225 346 113 10 341 1,035 Home equity loans & lines, net — 1,392 — — — — 1,392 Consumer & other, net 20 52 29 4 7 32 144 Total, net of deferred fees and costs $ 3,922 $ 2,661 $ 1,113 $ 1,922 $ 3,137 $ 2,535 $ 15,290 (in thousands) December 31, 2012 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Commercial real estate Non-owner occupied term, net $ 317 $ 899 $ 138 $ — $ 3,462 $ 1,413 $ 6,229 Owner occupied term, net — 511 645 1,799 — 1,347 4,302 Multifamily, net — — — — — — — Construction & development, net — 283 — — — — 283 Residential development, net — — — — 479 — 479 Commercial Term, net — 413 164 1,214 22 1,878 3,691 LOC & other, net 24 1,446 74 104 1,383 183 3,214 Leases and equipment finance, net — — — — — — — Residential Mortgage, net — 3,508 — — — — 3,508 Home equity loans & lines, net — 250 221 266 161 714 1,612 Consumer & other, net — 329 20 61 63 — 473 Total, net of deferred fees and costs $ 341 $ 7,639 $ 1,262 $ 3,444 $ 5,570 $ 5,535 $ 23,791 Non-Covered Restructured LoansAt December 31, 20112013 and December 31, 2010,2012, non-covered impaired loans of $80.6$68.8 million and $84.4$70.6 million were classified as non-covered performing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporaryby providing modification of loan repayment terms. The non-covered performing restructured loans on accrual status and two loans included in loans past due 30+ days and accruing represent principally the only impaired loans accruing interest at each respective date.December 31, 2013. 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 ismust 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. The Company had obligations of $205,000no obligation to lend additional funds on the restructured loans as of December 31, 2011.58Residential Modification ProgramThe Bank’s modification program is designed to enable the Bank to work with its customers experiencing financial difficulty to maximize repayment. While the Bank has designed guidelines similar to the government sponsored Home Affordable Refinance Program (“HARP”) and Home Affordable Modification Program, (“HAMP”), the bankBank participates in the programs only in the capacity as servicer on behalf of investor loans that have been sold.A and B Note Workout StructuresThe Bank performs A note/B note workout structures as a subset of the Bank’s troubled debt restructuring strategy. The amount of loans restructured using this structure was $21.4$3.8 million and $20.5$12.6 million as of December 31, 20112013 and December 31, 2010,2012, respectively.Under an A note/B note workout structure, thea new A note is underwritten in accordance with customary troubled debt restructuring underwriting standards and is reasonably assured of full repayment while the corresponding B note is not. The B note is immediately charged offcharged-off upon restructuring.If the loan was on accrual prior to the troubled debt restructuring being documented with the loan legally bifurcated into an A note fully supporting accrual status and a B note or amount fully contractually forgiven and charged off,charged-off, the A note may remain on accrual status. If the loan was on nonaccrual at the time the troubled debt restructuring was documented with the loan legally bifurcated into an A note fully supporting accrual status and a B note or amount contractually forgiven and fully charged off,charged-off, the A note may be returned to accrual status, and risk rated accordingly, after a reasonable period of performance under the troubled debt restructuring terms. Six months of payment performance is generally required to return these loans to accrual status.The A note will continue to be classified as a troubled debt restructuring and only may be removed from impaired status in years after the restructuring if (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that the Bank was willing to accept at the time of the restructuring for a new loan with comparable risk and (b) the loan is not impaired based on the terms specified by the restructuring agreement.The following tables summarize our performing non-covered performing restructured loans by loan type and region as of December 31, 20112013 and December 31, 2010:Non-Covered Restructured Loans by Type and Region(in thousands) December 31, 2011 $ 10,148 $ — $ 5,243 $ — $ 4,618 $ 2,602 $ 22,611 8,967 — — — 8,171 2,858 19,996 14,195 943 — — 18,826 — 33,964 — — — — 3,191 672 3,863 — — — — — — — — — — — — — — — — — — — 129 129 — — — — — — — $ 33,310 $ 943 $ 5,243 $ — $ 34,806 $ 6,261 $ 80,563 December 31, 2010 $ 9,446 $ — $ 3,888 $ — $ 11,820 $ 3,543 $ 28,697 — — — — 5,434 — 5,434 22,277 — — 5,330 21,322 — 48,929 — — — — — 904 904 — — — — — 298 298 179 — — — — — 179 — — — — — — — — — — — — — — $ 31,902 $ — $ 3,888 $ 5,330 $ 38,576 $ 4,745 $ 84,441 December 31, 2013 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Commercial real estate Non-owner occupied term, net $ 13,188 $ 13,492 $ 3,865 $ — $ 6,821 $ — $ 37,366 Owner occupied term, net — 650 — 608 3,944 — 5,202 Multifamily, net — — — — — — — Construction & development, net — 8,498 — — 1,092 — 9,590 Residential development, net — 6,987 — — 7,915 — 14,902 Commercial Term, net — — — — 1,258 — 1,258 LOC & other, net — — — — — — — Leases and equipment finance, net — — — — — — — Residential Mortgage, net — 473 — — — — 473 Home equity loans & lines, net — — — — — — — Consumer & other, net — — — — — — — Total, net of deferred fees and costs $ 13,188 $ 30,100 $ 3,865 $ 608 $ 21,030 $ — $ 68,791 59(in thousands) December 31, 2012 Northwest Southern Northern Central Greater Bay Washington Oregon Oregon California California California Total Commercial real estate Non-owner occupied term, net $ 13,482 $ 10,055 $ 3,870 $ — $ 6,922 $ — $ 34,329 Owner occupied term, net — 670 — 654 3,960 — 5,284 Multifamily, net — — — — — — — Construction & development, net — 8,739 — — 3,813 — 12,552 Residential development, net — 8,455 — — 8,686 — 17,141 Commercial Term, net — — — 350 — — 350 LOC & other, net — — — — 820 — 820 Leases and equipment finance, net — — — — — — — Residential Mortgage, net — — — — — — — Home equity loans & lines, net — — — — — 126 126 Consumer & other, net — — — — — — — Total, net of deferred fees and costs $ 13,482 $ 27,919 $ 3,870 $ 1,004 $ 24,201 $ 126 $ 70,602 The following table presents a distribution of our performing non-covered performing restructured loans by year of maturity, according to the restructured terms, as of December 31, 2011:(in thousands)Year Amount $ 57,555 4,134 �� 2,949 4,517 10,736 672 $ 80,563 Umpqua Holdings CorporationYear Amount 2014 $ 43,710 2015 9,691 2016 8,498 2017 2,475 2018 3,944 Thereafter 473 Total $ 68,791 The Bank has had a varying degreedegrees of success with different types of concessions. The following table presents the percentage of troubled debt restructurings, by type of concession, at December 31, 20112013 that have performed and are expected to perform according to the troubled debt restructuring agreement: December 31, 2011 2013 99% Interest Only 100% Payment 100% Term100%Interest Only—Payment86%Combination80%90% A further decline in the economic conditions in our general market areas or other factors could adversely impact individual borrowers or the loan portfolio in general. Accordingly, there can be no assurance that loans will not become 90 days or more past due, become impaired or placed on non-accrual status, restructured or transferred to other real estate owned in the future. Additional information about the loan portfolio is provided in Note 5 of theNotes to Consolidated Financial Statementsin Item 8 below.Covered Non-Performing Assets60Covered non-performing assets totaled $19.5$2.1 million, or 0.17%0.02% of total assets at December 31, 20112013 as compared to $29.9$10.4 million, or 0.26%0.09% of total assets at December 31, 2010.2012. These covered non-performingnonperforming assets are subject to shared-loss agreements with the FDIC. The following tables summarize our covered non-performing assets by loan type as of December 31, 20112013 and December 31, 2010: December 31, 2011 Evergreen Rainier Nevada
Security Total $ 914 $ 1,827 $ 8,525 $ 11,266 36 1,053 2,621 3,710 351 2,359 1,301 4,011 — — 188 188 — — — — 69 247 — 316 — — — — — — — — $ 1,370 $ 5,486 $ 12,635 $ 19,491 December 31, 2010 Evergreen Rainier Nevada
Security Total $ 3,557 $ 210 $ 8,153 $ 11,920 596 — 2,161 2,757 2,421 7,252 5,198 14,871 315 — — 315 — — — — — — — — — — — — — — — — $ 6,889 $ 7,462 $ 15,512 $ 29,863 (in thousands) December 31, 2013 Evergreen Rainier Nevada Security Total Covered other real estate owned: Commercial real estate Non-owner occupied term $ 234 $ 55 $ 72 $ 361 Owner occupied term — — — — Multifamily — — — — Construction & development 417 — 1,048 1,465 Residential development — — 97 97 Commercial Term — — 179 179 LOC & other — — — — Residential Mortgage — — — — Home equity loans & lines — — — — Consumer & other — — — — Total $ 651 $ 55 $ 1,396 $ 2,102 (in thousands) December 31, 2012 Evergreen Rainier Nevada Security Total Covered other real estate owned: Commercial real estate Non-owner occupied term $ 958 $ 1,415 $ 2,015 $ 4,388 Owner occupied term — 125 356 481 Multifamily — — — — Construction & development 319 482 3,286 4,087 Residential development 347 — 243 590 Commercial Term — 332 — 332 LOC & other — — — — Residential Mortgage 421 75 — 496 Home equity loans & lines — — — — Consumer & other — — — — Total $ 2,045 $ 2,429 $ 5,900 $ 10,374 TotalNon-PerformingAssetsThe following tables summarize our total (including covered and non-covered) nonperforming assets at December 31: 2011 2010 2009 2008 2007 $ 80,562 $ 138,177 $ 193,118 $ 127,914 $ 81,317 10,821 7,071 5,909 5,452 9,782 91,383 145,248 199,027 133,366 91,099 53,666 62,654 24,566 27,898 6,943 $ 145,049 $ 207,902 $ 223,593 $ 161,264 $ 98,042 1.25% 1.78% 2.38% 1.88% 1.18% 1.40% 2.25% 3.32% 2.18% 1.50% 61(dollars in thousands) 2013 2012 2011 2010 2009 Loans and leases on non-accrual status $ 31,891 $ 66,736 $ 80,562 $ 138,177 $ 193,118 Loans and leases past due 90 days or more and accruing 3,430 4,232 10,821 7,071 5,909 Total non-performing loans and leases 35,321 70,968 91,383 145,248 199,027 Other real estate owned 23,935 27,512 53,666 62,654 24,566 Total non-performing assets $ 59,256 $ 98,480 $ 145,049 $ 207,902 $ 223,593 Asset quality ratios: Total non-performing assets to total assets 0.51 % 0.83 % 1.25 % 1.78 % 2.38 % Total non-performing loans and leases to total loans and leases 0.46 % 0.99 % 1.40 % 2.25 % 3.32 % ALLOWANCE FOR NON-COVERED LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED COMMITMENTSThe allowance for non-covered loan and lease losses (“ALLL”) totaled $93.0 million and $101.9$85.3 million at December 31, 2011 and 2010, respectively.2013, a decrease of $77,000 from the $85.4 million at December 31, 2012. The decrease in the ALLL from the prior year-end results is principally attributable to a decrease in provision forresult of improving credit quality characteristics of the non-covered lease and loan portfolio, partially offset by non-covered loan and lease losses of a level below net charge-offs for the year and declining non-performing loans, as a result of the improving conditions in the non-covered loan portfolios.growth. Additional discussion on the change in provision for loan and lease losses is provided under the headingProvision for Loan and Lease Lossesabove.The following table provides a summary of activity in the ALLL by major loan type for each of the five years ended December 31:Allowance forNon-CoveredLoan and Lease Losses (in thousands) 2013 2012 2011 2010 2009 Balance, beginning of period $ 85,391 $ 92,968 $ 101,921 $ 107,657 $ 95,865 Loans charged-off: Commercial real estate, net (7,445 ) (22,349 ) (36,011 ) (71,030 ) (136,382 ) Commercial, net (19,266 ) (12,209 ) (21,071 ) (50,242 ) (57,932 ) Residential, net (3,458 ) (5,282 ) (6,333 ) (5,168 ) (4,331 ) Consumer & other, net (826 ) (1,499 ) (1,636 ) (2,061 ) (2,222 ) Total loans charged-off (30,995 ) (41,339 ) (65,051 ) (128,501 ) (200,867 ) Recoveries: Commercial real estate, net 3,322 5,409 5,906 6,980 1,334 Commercial, net 9,914 5,356 3,348 1,318 1,549 Residential, net 351 762 239 334 126 Consumer & other, net 502 439 385 465 526 Total recoveries 14,089 11,966 9,878 9,097 3,535 Net charge-offs (16,906 ) (29,373 ) (55,173 ) (119,404 ) (197,332 ) Provision charged to operations 16,829 21,796 46,220 113,668 209,124 Balance, end of period $ 85,314 $ 85,391 $ 92,968 $ 101,921 $ 107,657 As a percentage of average non-covered loans and leases: Net charge-offs 0.24 % 0.48 % 0.96 % 2.06 % 3.23 % Provision for non-covered loan and lease losses 0.24 % 0.35 % 0.81 % 1.97 % 3.43 % Recoveries as a percentage of charge-offs 45.46 % 28.95 % 15.19 % 7.08 % 1.76 % 62The 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. As of At both December 31, 2011, the2013 and December 31, 2012, there was no unallocated allowance amount represented 5% of the allowance for loan and lease losses, compared to 8% at December 31, 2010.losses. The level in unallocated ALLL in the current year reflects management’s evaluation of the existing general business and economic conditions, and improving credit quality and collateral values of real estate in our markets as compared to 2010.markets. The ALLL composition should not be interpreted as an indication of specific amounts or loan categories in which future charge-offs may occur.Umpqua Holdings CorporationThe following table provides a summary of activity in the ALLL by major loan type for each of the five years ended December 31:Allowance for Non-covered Loan and Lease LossesYears Ended December 31,(dollars in thousands) 2011 2010 2009 2008 2007 $ 101,921 $ 107,657 $ 95,865 $ 84,904 $ 60,090 (36,011 ) (71,030 ) (136,382 ) (82,919 ) (20,632 ) (21,071 ) (50,242 ) (57,932 ) (14,614 ) (2,208 ) (6,333 ) (5,168 ) (4,331 ) (1,597 ) (547 ) (1,636 ) (2,061 ) (2,222 ) (1,922 ) (1,343 ) (65,051 ) (128,501 ) (200,867 ) (101,052 ) (24,730 ) 5,906 6,980 1,334 2,571 1,022 3,348 1,318 1,549 1,021 819 239 334 126 148 241 385 465 526 595 654 9,878 9,097 3,535 4,335 2,736 (55,173 ) (119,404 ) (197,332 ) (96,717 ) (21,994 ) — — — — 5,078 46,220 113,668 209,124 107,678 41,730 $ 92,968 $ 101,921 $ 107,657 $ 95,865 $ 84,904 0.96% 2.06% 3.23% 1.58% 0.38% 0.81% 1.97% 3.43% 1.76% 0.72% 15.19% 7.08% 1.76% 4.29% 11.06% The following table sets forth the allocation of the allowance for non-covered loan and lease losses and percent of loans and leases in each category to total non-covered loans (excludingand leases, net of deferred loan fees):Allowance for Non-covered Loan and Lease Losses CompositionAs of December 31,(dollars in thousands) 2011 2010 2009 2008 2007 Amount % Amount % Amount % Amount % Amount % $ 59,574 64.8% $ 64,405 68.5% $ 67,281 68.6% $ 57,907 67.5% $ 57,433 69.2% 20,485 24.8% 22,146 22.2% 24,583 23.2% 23,104 24.5% 19,514 23.8% 7,625 10.0% 5,926 8.9% 5,811 7.8% 5,778 7.6% 3,406 6.6% 867 0.6% 803 0.6% 455 0.6% 484 0.6% 504 0.6% 4,417 8,641 9,527 8,592 4,047 $ 92,968 $ 101,921 $ 107,657 $ 95,865 $ 84,904 2013 2012 2011 2010 2009 Amount % Amount % Amount % Amount % Amount % Commercial real estate, net $ 53,433 58.8 % $ 54,909 62.7 % $ 59,574 64.6 % $ 64,405 68.3 % $ 67,281 68.4 % Commercial, net 24,191 28.8 % 22,925 25.7 % 20,485 24.8 % 22,146 22.2 % 24,583 23.2 % Residential, net 6,827 11.7 % 6,925 11.0 % 7,625 10.0 % 5,926 8.9 % 5,811 7.8 % Consumer & other, net 863 0.7 % 632 0.6 % 867 0.6 % 803 0.6 % 455 0.6 % Unallocated — — 4,417 8,641 9,527 Allowance for non-covered loan and lease losses $ 85,314 $ 85,391 $ 92,968 $ 101,921 $ 107,657 All impaired loans are individually evaluated for impairment. If the measurement of each impaired loans’loans' 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 within the allowance for loan and lease losses. If in management’s assessment the sources of repayment will not result in a reasonable probability that the carrying value of a loan can be recovered, the amount of a loan’s specific impairment is charged-off against the allowance for loan and lease losses. Prior to the second quarter of 2008, theThe Company established specific reserves within the allowance for loan and leases losses for loan impairments and recognized the charge-off of the impairment reserve when the loan was resolved, sold, or foreclosed and transferred to other real estate owned. Due to declining real estate values in our markets and the deterioration of the U.S. economy in general, it became increasingly likely that impairment reserves on collateral dependent loans, particularly those relating to real estate, would not be recoverable and represented a confirmed loss. As a result, beginning in the second quarter of 2008, the Company began recognizingrecognizes the charge-off of impairment reserves on impaired loans in the period they arise for collateral dependent loans. This process has effectively accelerated the recognition of charge-offs recognized since the second quarter of 2008. The change in our assessment of the possible recoverability of our collateral dependent impaired loans’ carrying values has ultimately had no impact on our impairment valuation procedures or the amount of provision for loan and leases losses included within theConsolidated Statements of Operations. 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.At December 31, 2011,2013, the recorded investment in non-covered loans classified as impaired totaled $166.3$100.8 million, with a corresponding valuation allowance (included in the allowance for loan and lease losses) of $3.8 million.$1.8 million. The valuation allowance on impaired loans represents the impairment reserves on performing current and former non-covered restructured loans and nonaccrual loans and two loans included in loans past due 30+ days and accruing at loans. At December 31, 2011. At December 31, 2010,2012, the total recorded investment in non-covered impaired loans was $222.6$142.4 million, with a corresponding valuation allowance (included in the allowance for loan and lease losses) of $5.2 million.$1.4 million. The valuation allowance on impaired loans represents the impairment reserves on performing current and former non-covered restructured loans and nonaccrual loans represent the only impaired loans accruing interest at December 31, 2010.The majority of loan charge-offs in the current year relate to real estate related credits. In the current year we experienced decreased charge-offs in all categories except for residential. These charge-offs were largely driven by economic conditions coupled with falling real estate values in our markets. The majority of all charge-offs taken in the current year relate to borrowers that were directly affected by the housing market downturn or indirectly impacted from the contraction of real estate dependent businesses.The following table presents a summary of activity in the reserve for unfunded commitments (“RUC”):Summary of Reserve for Unfunded Commitments ActivityYears Ended December 31,63(in thousands) 2011 2010 2009 $ 818 $ 731 $ 983 26 (24 ) (94 ) 58 91 (141 ) 27 14 (17 ) 11 6 — 122 87 (252 ) $ 940 $ 818 $ 731 Umpqua Holdings Corporation 2013 2012 2011 Balance, beginning of period $ 1,223 $ 940 $ 818 Net change to other expense: Commercial real estate, net 48 113 26 Commercial, net 93 174 58 Residential, net 59 (12 ) 27 Consumer & other, net 13 8 11 Total change to other expense 213 283 122 Balance, end of period $ 1,436 $ 1,223 $ 940 We believe that the ALLL and RUC at December 31, 20112013 are sufficient to absorb losses inherent in the loan and lease portfolio and credit commitments outstanding as of that date respectively, 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.ALLOWANCE FOR COVERED LOAN AND LEASE LOSSESThe allowance for covered loan and lease losses (“ALLL”) totaled $14.3$9.8 million at December 31, 2011, an increase2013, a decrease of $11.6$8.5 million from the $2.7$18.3 million at December 31, 2010.2012. The increasedecrease in the covered ALLL from the prior year end results from decreasesimprovements in the amount and changes in the timing of expected cash flows attributable to credit deterioration on the acquired loans compared to those previously estimated and charge-offs of unpaid principal balance against previously established allowance, as measured on a pool basis. The following table summarizes activity related to the allowance for covered loan and lease losses by covered loan portfolio segment for each of the yearfour years ended December 31, 2011 and 2010, respectively:Allowance forCoveredLoan and Lease Losses(dollars in thousands) December 31,
2011 December 31,
2010 $ 2,721 $ — (3,177 ) (2,439 ) (660 ) (266 ) (1,657 ) — (1,192 ) — (6,686 ) (2,705 ) 1,348 11 512 263 142 — 142 1 2,144 275 (4,542 ) (2,430 ) 16,141 5,151 $ 14,320 $ 2,721 0.64% 0.36% 2.28% 0.76% 64 2013 2012 2011 2010 Balance, beginning of period $ 18,275 $ 14,320 $ 2,721 $ — Loans charged-off: Commercial real estate, net (2,303 ) (2,921 ) (3,177 ) (2,439 ) Commercial, net (1,544 ) (1,613 ) (660 ) (266 ) Residential, net (197 ) (596 ) (1,657 ) — Consumer & other, net (459 ) (659 ) (1,192 ) — Total loans charged-off (4,503 ) (5,789 ) (6,686 ) (2,705 ) Recoveries: Commercial real estate, net 1,114 1,264 1,348 11 Commercial, net 531 733 512 263 Residential, net 218 237 142 — Consumer & other, net 249 105 142 1 Total recoveries 2,112 2,339 2,144 275 Net charge-offs (2,391 ) (3,450 ) (4,542 ) (2,430 ) Covered (recapture of) provision charged to operations (6,113 ) 7,405 16,141 5,151 Balance, end of period $ 9,771 $ 18,275 $ 14,320 $ 2,721 As a percentage of average covered loans: Net charge-offs 0.57 % 0.62 % 0.64 % 0.36 % (Recapture of) provision for covered loan losses (1.47 )% 1.34 % 2.28 % 0.76 % The following table sets forth the allocation of the allowance for covered loan and lease losses and percent of covered loans in each category to total loans, net of deferred fees as of December 31, 2011 and December 31, 2010:Allowance for Covered Loan and Lease Losses CompositionAs of December 31,(dollars in thousands) 2011 2010 Amount % Amount % $ 8,939 79.4% $ 2,465 78.5% 3,964 9.1% 176 9.9% 991 10.2% 56 10.2% 426 1.3% 24 1.4% $ 14,320 100% $ 2,721 100% 2013 2012 2011 2010 Amount % Amount % Amount % Amount % Commercial real estate, net $ 6,105 81.6 % $ 12,129 80.7 % $ 8,939 79.4 % $ 2,465 78.5 % Commercial, net 2,837 6.0 % 4,980 7.8 % 3,964 9.1 % 176 9.9 % Residential, net 660 11.3 % 804 10.3 % 991 10.2 % 56 10.2 % Consumer & other, net 169 1.1 % 362 1.2 % 426 1.3 % 24 1.4 % Allowance for covered loan losses $ 9,771 $ 18,275 $ 14,320 $ 2,721 MORTGAGE SERVICING RIGHTSThe following table presents the key elements of our mortgage servicing rights asset as of December 31, 2011, 20102013, 2012, and 2009:Summary of Mortgage Servicing RightsYears Ended December 31,(in thousands)65 2013 2012 2011 Balance, beginning of period $ 27,428 $ 18,184 $ 14,454 Additions for new mortgage servicing rights capitalized 17,963 17,710 6,720 Changes in fair value: Due to changes in model inputs or assumptions(1) 5,688 (4,651 ) (858 ) Other(2) (3,314 ) (3,815 ) (2,132 ) Balance, end of period $ 47,765 $ 27,428 $ 18,184 (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, 2013, 2012, and 2011 was as follows: (dollars in thousands) 2011 2010 2009 $ 14,454 $ 12,625 $ 8,205 6,720 5,645 7,570 — 62 — (858 ) (1,598 ) (3,469 ) (2,132 ) (2,280 ) 319 $ 18,184 $ 14,454 $ 12,625 $ 2,009,849 $ 1,603,414 $ 1,277,832 0.90% 0.90% 0.99% (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. December 31, 2013 December 31, 2012 December 31, 2011 Balance of loans serviced for others $ 4,362,499 $ 3,162,080 $ 2,009,849 MSR as a percentage of serviced loans 1.09 % 0.87 % 0.90 % Mortgage servicing rights are adjusted to fair value quarterly with the change recorded in mortgage banking revenue. The value of 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 mortgage servicing rights assets may decrease in value. Generally, the fair value of our mortgage servicing rights will increase as market rates for mortgage loans rise and decrease if market rates fall.Additional information about the Company’s mortgage servicing rights is provided in Note 10 of theNotes to Consolidated Financial Statementsin Item 8 below.GOODWILL AND OTHER INTANGIBLE ASSETSAt December 31, 2011,2013, we had recognized goodwill and other intangible assets of $656.1$776.7 million, as compared to $655.9$685.3 million at December 31, 2010. The goodwill2012. Goodwill is recorded in connection with acquisitionsbusiness combinations and represents the excess of the purchase price over the estimated fair value of the net assets acquired. Goodwill increased in 2013 over 2012 as a result of the FinPac acquisition.At December 31, 2013, we had recorded goodwill of $764.3 million, as compared to $668.2 million at December 31, 2012. Goodwill and other intangible assets with indefinite lives are not amortized but instead areUmpqua Holdings Corporation goodwill and intangible assets with indefinite lives on an annual basis as of December 31. Additionally, we perform impairment evaluations 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.The Company has the option to perform a qualitative assessment before completing the goodwill impairment test involves a two-step process. The first step compares the fair value of a reporting unit (e.g. Wealth Management and Community Banking) to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to proceed to the second step. In the second step the Company calculates the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The estimated fair value of the Company is allocated to all of the Company’s assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination and the estimated fair value of the reporting unit is the price paid to acquire it. The allocation process is performed only for purposes of determining the amount of goodwill impairment. No assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets recorded as a part of this process. Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss would be recognized as a charge to earnings in an amount equal to that excess.Substantially all of the Company’s goodwill is associated with our community banking operations. Due to a decline in the Company’s market capitalization below book value of equity and continued weakness in the banking industry, the Company performed a goodwill impairment evaluation of the Community Banking operating segment as of June 30, 2009. The Company engagedperforms the first step on an independent valuation consultant to assist usannual basis and in determining whether and to what extent ourbetween if certain events or circumstances indicate goodwill asset wasmay be impaired. We utilized a variety66Other significant fair value adjustments utilized in this goodwill impairment analysis included the value of the core deposit intangible asset which was calculated as 0.53% of core deposits, and includes all deposits except certificates of deposit. The carrying value of other real estate owned was discounted by 25%, representing a liquidity adjustment given the current market conditions. The fair value of our trade name, which represents the competitive advantage associated with our brand recognition and ability to attract and retain relationships, was estimated to be $19.3 million. The fair value of our junior subordinated debentures carried at amortized cost was determined in a manner and utilized inputs, primarily the credit risk adjusted spread, consistent with our methodology for determining the fair value of junior subordinated debentures recorded at fair value. Information relating to our methodologies for estimating the fair value of financial instruments that were adjusted to fair value as part of this analysis, including the Visa Class B common stock, deposits, term debt, and junior subordinated debentures, is included in Note 24 of theNotes to Consolidated Financial Statements.Based on the results of the step two analysis, the Company determined that the implied fair value of the goodwill was less than its carrying amount on the Company’s balance sheet, and as a result, we recognized a goodwill impairment loss of $112.0 million in the second quarter of 2009. This write-down of goodwill is a non-cash charge that does not affect the Company’s or the Bank’s liquidity or operations. In addition, because goodwill is excluded in the calculation of regulatory capital, the Company’s “well-capitalized” regulatory capital ratios are not affected by this charge. also conducted its annual evaluation of goodwill for impairment as of December 31, 2011.2013 for both the Community Banking and Wealth Management segments. In the first step of the goodwill impairment test, the Company determined for both segments that the fair value of the Community Banking reporting unit exceeded its carrying amount. This determination is consistent with the events occurring after the Company recognized the $112.0 million impairment of goodwill second quarter of 2009. First, the market capitalization and estimated fair value of the Company increased significantly subsequent to the recognition of the impairment charge as the fair value of the Company’s stock increased 60% from June 30, 2009 to December 31, 2011. Secondly, the Company’s successful public common stock offerings in the third quarter of 2009 and first quarter of 2010 diluted the carrying value of the reporting book equity on a per share basis, against which the fair value of the reporting unit is measured. The significant assumptions and methodology utilized to test for goodwill impairment as of December 31, 2011 were consistent with these used at December 31, 2010.If the Company’s common stock price should significantly decline or continues to trade below book value per common share, or should general economic conditions deteriorate further or remain depressed for a prolonged period of time, particularly in the financial industry, the Company may be required to recognize additional impairment of all, or some portion of, its goodwill. It is possible that changes in circumstances, existing at the measurement date or at other times in the future, or changes in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, such as valuation multiples, discount rates, or projected earnings, could result in an impairment charge in future periods. Additional impairment charges, if any, may be material to the Company’s results of operations and financial position. However, any potential future impairment charge will have no effect on the Company’s or the Bank’s cash balances, liquidity, or regulatory capital ratios.The inputs management utilizes to estimate the fair value of a reporting unit in step one of the goodwill impairment test, and estimating the fair values of the underlying assets and liabilities of a reporting unit in the second step of the goodwill impairment test, require management to make significant judgments, assumptions and estimates where observable market may not readily exist. Such inputs include, but are not limited to, trading multiples from comparable transactions, control premiums, the value that may arise from synergies and other benefits that would accrue from control over an entity, and the appropriateUmpqua Holdings Corporationrates to discount projected cash flows. Additionally, there may be limited current market inputs to value certain assets or liabilities, particularly loans and junior subordinated debentures. These valuation inputs are considered to be Level 3 inputs.Management will continue to monitor the relationship of the Company’s market capitalization to both its book value and tangible book value, which management attributes to both financial services industry-wide and Company specific factors, and to evaluate the carrying value of goodwill and other intangible assets.The Company evaluated the Wealth Management reporting segment’s goodwill for impairment as of December 31, 2011. The first step of the goodwill impairment test indicated that the reporting unit’s fair value exceeded its carrying value. As of No goodwill impairment losses have been recognized in the periods presented. At December 31, 2011, the ending carrying value of the Wealth Management segment’s goodwill was $2.7 million.At December 31, 2011,2013$21.1$12.4 million, as compared to $26.1$17.1 million at December 31, 2010.2012. As part of a business acquisition, a portion of the purchase price is allocated to the other value of intangible assets such as the merchant servicing portfolio or core deposits, which includes all deposits except certificates of deposit. The value of these other intangible assets werewas determined bywith the assistance of a third party based on the net present value of future cash flows for the merchant servicing portfolio and an analysis of the cost differential between the core deposits and alternative funding sources for the core deposit intangible. 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. In the fourth quarter of 2009, the Company recognized an $804,000 impairment related to the merchant servicing portfolio obtained through a prior acquisition. The remaining decrease in otherOther intangible assets resulted from scheduleddecreased in 2013 over 2012 as a result of intangible asset amortization. No other impairment losses wereseparate from the scheduled amortization have been recognized in connection with other intangible assets since their initial recognition.Additional information regarding our accounting for goodwill and other intangible assets is included in Notes 1, 2 and 9 of theNotes to Consolidated Financial Statementsin Item 8 below.DEPOSITSTotal deposits were $9.2$9.1 billion at December 31, 2011,2013, a decrease of $197.1$261.6 million, or 2.1%2.8%, as compared to year-end 2010. Of the total change in deposit balances during the current year, deposits from consumers and businesses decreased $231.6 million, and deposits from public entities increased $34.5 million. Although deposits have declined2012 due to the transfer of balances to securities sold under agreements to repurchase and from anticipated run-off of higher priced money market, time deposits, management attributes the ability to reduce our cost of deposits while maintaining our overall deposit base and grow certain lines of business to ongoing business development and marketing efforts in our service markets.public deposits. Additional information regarding interest bearing deposits is included in Note 14 of theNotes to Consolidated Financial Statementsin Item 8 below.The following table presents the deposit balances by major category as of December 31:DepositsAs of December 31,(dollars in thousands) 2011 2010 Amount Percentage Amount Percentage $ 1,913,121 21% $ 1,616,687 17% 993,579 11% 927,224 10% 3,661,785 39% 3,467,549 37% 386,528 4% 349,696 4% 1,629,505 18% 2,191,055 23% 652,172 7% 881,594 9% $ 9,236,690 100% $ 9,433,805 100% December 31, 2013 December 31, 2012 Amount Percentage Amount Percentage Non-interest bearing $ 2,436,477 26 % $ 2,278,914 24 % Interest bearing demand 1,233,070 14 % 1,215,002 13 % Money market 3,349,946 37 % 3,407,047 37 % Savings 560,699 6 % 475,325 5 % Time, $100,000 or greater 1,065,380 12 % 1,429,153 15 % Time, less than $100,000 472,088 5 % 573,834 6 % Total $ 9,117,660 100 % $ 9,379,275 100 % The following table presents the average amount of and average rate paid by major category as of December 31: 2011 2010 2009 Average Average Average Average Average Average Deposits Rate Deposits Rate Deposits Rate $ 1,782,354 0.00% $ 1,529,165 0.00% $ 1,318,954 0.00% 903,721 0.34% 941,637 0.50% 798,760 0.61% 3,487,624 0.49% 2,932,136 0.90% 2,232,911 1.20% 373,746 0.10% 329,336 0.16% 301,417 0.19% 2,754,533 1.27% 2,875,706 1.55% 2,358,697 2.39% $ 9,301,978 $ 8,607,980 $ 7,010,739 (dollars in thousands) 2013 2012 2011 Average Average Average Average Average Average Deposits Rate Deposits Rate Deposits Rate Non-interest bearing $ 2,284,996 — $ 2,034,035 — $ 1,782,354 — Interest bearing demand 1,176,841 0.08% 1,112,394 0.18% 903,721 0.34% Money market 3,276,179 0.11% 3,447,806 0.21% 3,487,624 0.49% Savings 521,387 0.06% 427,673 0.07% 373,746 0.10% Time 1,796,669 0.89% 2,102,711 1.03% 2,754,533 1.27% Total $ 9,056,072 $ 9,124,619 $ 9,301,978 The following table presents the scheduled maturities of time deposits of $100,000 and greater as of December 31, 2011:67Maturities of Time Deposits of $100,000 and Greater(in thousands) $ 493,587 192,775 463,446 479,697 $ 1,629,505 Amount Three months or less $ 226,849 Over three months through six months 211,268 Over six months through twelve months 253,595 Over twelve months 373,668 Time, $100,000 and over $ 1,065,380 The Company has an agreement with Promontory Interfinancial Network LLC (“Promontory”) that makes it possible to provide FDIC deposit insurance to balances in excess of current deposit insurance limits. Promontory’s Certificate of Deposit Account Registry Service (“CDARS”) uses a deposit-matching program to exchange Bank deposits in excess of the current deposit insurance limits for excess balances at other participating banks, on a dollar-for-dollar basis, that would be fully insured at the Bank. This product is designed to enhance our ability to attract and retain customers and increase deposits, by providing additional FDIC coverage to customers. CDARS deposits can be reciprocal or one-way. All of the Bank’s CDARS deposits are reciprocal.reciprocal and are considered brokered deposits under regulatory guidelines. At December 31, 20112013 and December 31, 2010,2012, the Company’s CDARS balances totaled $274.6$66.9 million and $323.2$154.1 million, respectively. Of these totals, at December 31, 20112013 and December 31, 2010, $258.32012, $62.2 million and $300.6$146.1 million, respectively, represented time deposits equal to or greater than $100,000 but were fully insured under current deposit insurance limits.The Dodd-Frank Act providesprovided for unlimited deposit insurance for noninterestnon-interest bearing transactions accounts, excluding NOW (interest bearing deposit accounts) and including all IOLTA (lawyers’IOLTAs (lawyers' trust accounts), beginning December 31, 2010 for a period of two years. Also, theThe program expired December 31, 2012. The Dodd-Frank Act permanently raisesraised the current standard maximum federal deposit insurance amount from $100,000 to $250,000 per qualified account.BORROWINGSAt December 31, 2011,2013, the Bank had outstanding $124.6$224.9 million of securities sold under agreements to repurchase and no outstanding federal funds purchased balances. Additional information regarding securities sold under agreements to repurchase and federal funds purchased is provided in Notes 15 and 16 ofNotes to Consolidated Financial Statementsin Item 8 below.At December 31, 2011, theThe Bank had outstanding term debt with a carrying value of $255.7$251.5 million at December 31, 2013, primarily with the Federal Home Loan Bank (“FHLB”). Term debt outstanding as of December 31, 20112013 decreased $7.1$2.1 million since December 31, 2010 primarily2012 as a result of repaymentaccretion of FHLB borrowings. Management expects continued usepurchase accounting adjustments. Term debt assumed in the FinPac acquisition of FHLB advances as a source of short and long-term funding.$211.2 million was paid upon acquisition. Advances from the FHLB amounted to $245.0$245.0 million of the total term debt and are secured by investment securities and residential mortgage loans.loans secured by real estate. The FHLB advances have fixed contractual interest rates ranging from 4.46% to 4.72% and mature in 2016 and 2017.Umpqua Holdings CorporationJUNIOR SUBORDINATED DEBENTURESWe had junior subordinated debentures with carrying values of $185.4$189.2 million and $183.6$196.1 million respectively, at December 31, 20112013 and 2010.At 2011,2012, respectively. The decrease is primarily due to the redemption of $8.8 million in junior subordinated debentures during the first quarter of 2013 which were assumed in the Circle acquisition in November 2012.At December 31, 2013, approximately $219.6 million, or 95% of the total issued amount, had interest rates that are adjustable on a quarterly basis based on a spread over three month LIBOR. Interest expense for junior subordinated debentures decreased in 20112013 as compared to 20102012 and in 2010 as compared to 2009,2011, primarily resulting from decreases in short-term market interest rates andthree month LIBOR. Although increases in short-term market interest ratesthree month LIBOR will increase the interest expense for junior subordinated debentures, we believe that other attributes of our balance sheet will serve to mitigate the impact to net interest income on a consolidated basis.On January 1, 2007, the Company elected the fair value measurement option for certain pre-existing junior subordinated debentures of $97.9 million (the Umpqua Statutory Trusts). The remaining junior subordinated debentures as of the adoption date were acquired through business combinations and were measured at fair value at the time of acquisition. In 2007, the Company issued two series of trust preferred securities and elected to measure each instrument at fair value. Accounting for junior subordinated debentures originally issued by the Company at fair value enables us to more closely align our financial performance with the economic value of68those 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 have been 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.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. Generally, an increase in the credit risk adjusted spread and/or a decrease in the three month LIBOR will result in positive fair value adjustments. Conversely, a decrease in the credit risk adjusted spread and/or an increase in the three month LIBOR will result in negative fair value adjustments.Through the first quarter of 2010 we obtained valuations from a third-party pricing service to assist with the estimation and determination of fair value of these liabilities. In these valuations, the credit risk adjusted interest spread for potential new issuances through the primary market and implied spreads of these instruments when traded as assets on the secondary market, were estimated to be significantly higher than the contractual spread of our junior subordinated debentures measured at fair value. The difference between these spreads has resulted in the cumulative gain in fair value, reducing the carrying value of these instruments as reported on our Condensed Consolidated Balance Sheets.Sheets. In July 2010, the Dodd-Frank Act was signed into law which, among other things, limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law may require many banks to raise new Tier 1 capital and is expected to effectively closeclosed the trust-preferred securities markets from offering new issuances in the future. As a result of this legislation, our third-party pricing service noted that they were no longer to able to provide reliable fair value estimates related to these liabilities given the absence of observable or comparable transactions in the market place in recent history or as anticipated into the future.Due to inactivity in the junior subordinated debenture market and the inability to obtain 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, 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. Regarding the activity in and condition of the junior subordinated debt market, we noted no observable changes in the current period as itThe Company’s specific credit risk is implicit in the credit risk adjusted spread used to determine the fair value of our junior subordinated debentures. As our Company is not specifically rated by any credit agency, it is difficult to specifically attribute changes in our estimate of the applicable credit risk adjusted spread to specific changes in our own creditworthiness versus changes in the market’s required return from similar companies. As a result, these considerations must be largely based off of qualitative considerations as we do not have a credit rating and we do not regularly issue senior or subordinated debt that would provide us an independent measure of the changes in how the market quantifies our perceived default risk.On a quarterly basis we assess entity-specific qualitative considerations that if not mitigated or represents a material change from the prior reporting period may result in a change to the perceived creditworthiness and ultimately the estimated credit risk adjusted spread utilized to value these liabilities. Entity-specific considerations that positively impact our creditworthiness include: our strong capital position resulting from our successful public stock offerings in 2009 and 2010, that offers us flexibility to pursue business opportunities such as mergers and acquisitions, or expand our footprint and product offerings; having significant levels of on and off-balance sheet liquidity; being profitable (after excluding the one-time goodwill impairment charge recognized in 2009);profitable; and, having an experienced management team. However, these positive considerations are mitigated by significant risks and uncertainties that impact our creditworthiness and ability to maintain capital adequacy in the future. Specific risks and concerns include: given our concentration of loans secured by real estate in our loan portfolio, a continued and sustained deterioration of the real estate market may result in declines in the value of the underlying collateral and increased delinquencies that could result in an increased of charge-offs; despite recent improvement, our credit quality metrics remain negatively elevated since 2007 relative to historical standards; the continuation of current economic downturn that has been particularly severe in our primary markets could adversely affect our business; recent increased regulation facing our industry, such as the ESAA, ARRA and the Dodd-Frank Act, will increase the cost of compliance and restrict our ability to conduct business consistent with historical practices, and could negatively impact profitability; we have a significant amount of goodwill and other intangible assets that dilute our available tangible common equity; and the carrying value of certain material, recently recorded assets on our balance sheet, such as the FDIC loss-sharing indemnification asset, are highly reliant on management estimates, such as the timing or amount of losses that are estimated to be covered, and the assumed continued compliance with the provisions of the loss-share agreement. To the extent assumptions69ultimately prove incorrect or should we consciously forego or unknowingly violate the guidelines of the agreement, an impairment of the asset may result which would reduce capital.Additionally, the Company periodically utilizes an external valuation firm to determine or validate the reasonableness of the assessments of inputs and factors that ultimately determines the estimate fair value of these liabilities. The extent we involve or engage these external third parties correlates to management’s assessment of the current subordinate debt market, how the current environment and market compares to the preceding quarter, and perceived changes in the Company’s own creditworthiness during the quarter. In periods of potential significant valuation changes and at year-end reporting periods we typically engage third parties to perform a full independent valuation of these liabilities. For periods where management has assessed the market and other factors impacting the underlying valuation assumptions of these liabilities, and has determined significant changes to the valuation of these liabilities in the current period are remote, the scope of the valuation specialist’s review is limited to a review the reasonableness of Management’smanagement’s assessment of inputs. In the fourth quarter of 2011,2013, the Company engaged an external valuation firm to prepare an independent valuation of our junior subordinated debentures measured at fair value and the results were consistent with the Company’s valuation.Absent changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these instruments at each reporting period, the cumulative discount for each junior subordinated debenture will reverse over time, ultimately returning the carrying values of these instruments to their notional values at their expected redemption dates, in a manner similar to the effective yield method as if these instruments were accounted for under the amortized cost method. For the yearyears ended December 31, 2013, 2012, and 2011, 2010, 2009, we recorded a losslosses of $2.2$2.2 million a gain of $5.0 million, and a gain of $6.5Umpqua Holdings Corporationmillion,As noted above,On July 2, 2013, the Dodd-Frank Act limitsfederal banking regulators approved the ability offinal proposed rules that revise the regulatory capital rules to incorporate certain bank holding companiesrevisions by the Basel Committee on Banking Supervision to treatthe Basel capital framework ("Basel III"). Under the original proposed rule, trust preferred security debt issuances aswould have been phased out of Tier 1 capital. Ascapital into Tier 2 capital over a 10 year period. Under the Company hadfinal rule, consistent with Section 171 of the Dodd-Frank Act, bank holding companies with less than $15 billion in assets atas of December 31, 2009 under the Dodd-Frank Act, the Company will be able tograndfathered and may continue to include its existing trust preferred securities, less the common stock of the Trusts,these instruments in Tier 1 capital.capital, subject to certain restrictions. However, if an institution grows above $15 billion as a result of an acquisition, or organically grows above $15 billion and then makes an acquisition, the combined trust preferred security debt issuances would be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016). If the Company exceeds $15 billion in consolidated assets other than in an organic manner and these instruments no longer qualify as Tier 1 capital, 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 following the proposed merger in order to support regulatory total capital levels. At December 31, 2011,2013, the Company’sCompany's restricted core capital elements were 18.4%18.6% of total core capital, net of goodwill and any associated deferred tax liability.The contractual interest expense on junior subordinated debentures continues to be recorded on an accrual basis and is reported in interest expense. The junior subordinated debentures recorded at fair value of $82.9$87.3 million had contractual unpaid principal amounts of $134.0 million outstanding as of December 31, 2013. The junior subordinated debentures recorded at fair value of $85.1 million had contractual unpaid principal amounts of $134.0 million outstanding as of December 31, 2011. The junior subordinated debentures recorded at fair value of $80.7 million had contractual unpaid principal amounts of $134.0 million outstanding as of December 31, 2010.Additional information regarding junior subordinated debentures measured at fair value is included in Note 2418 of theNotes to Consolidated Financial Statements in Item 8 below.All of the debentures issued to the Trusts, less the common stock of the Trusts, qualified as Tier 1 capital as of December 31, 2011,2013, under guidance issued by the Board of Governors of the Federal Reserve System. Additional information regarding the terms of the junior subordinated debentures, including maturity/redemption dates, interest rates and the fair value election, is included in Note 18 of theNotes to Consolidated Financial Statements in Item 8 below.LIQUIDITY AND CASH FLOWThe principal objective of our liquidity management program is to maintain the Bank’sBank'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 deposit70balance in excess of FDIC insurance. Public deposits represent 10.9%11.0% and 10.6% of total deposits at December 31, 20112013 and 10.3% at December 31, 2010.2012, 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 $1.8$2.2 billion at December 31, 20112013 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 $448.5$391.7 million subject to certain collateral requirements, namely the amount of certain pledged loans at December 31, 2011.loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $135.0$185.0 million at December 31, 2011.2013. Availability of the 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 the consecutive day usage.The Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Company’sCompany's revenues are obtained from dividends declared and paid by the Bank. In 2011, thereThere were $17.5$62.0 million of dividends paid by the Bank to the Company.Company in 2013. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends when approved, and meet its ongoing cash obligations, which consist principally of debt service on the $230.1 million (issued amount) of outstanding junior subordinated debentures. As of 2011,2013, the Company did not have any borrowing arrangements of its own.Additional discussion related to liquidity related risks given the current economic climate is provided in Item 1ARisk Factors above.As disclosed in theConsolidatedStatements of Cash Flows in Item 8 of this report,, net cash provided by operating activities was $182.4$413.1 million during 2011. The2013, with the difference between cash provided by operating activities and net income largely consistedconsisting of non-cash items including a $46.2proceeds from the sale of loans held for sale of $1.9 billion, offset by originations of loans held for sale of $1.6 billion. This compares to net cash provided by operating activities of $26.5 million provisionduring 2012, with the difference between cash provided by operating activities and net income largely consisting of originations of loans held for non-covered loan and lease losses and a $16.1 million provisionsale of $2.0 billion, offset by proceeds from the sale of loans held for covered loan and lease losses. sale of $1.9 billion.Net cash of $382.7$281.1 million usedprovided by investing activities during the 2013 consisted principally of $1.2 billionproceeds from investment securities available for sale of $803.9 million, net covered loan paydowns of $101.9 million, and proceeds from sale of non-covered loans and leases of $60.3 million, partially offset by $484.9 million of net non-covered loan originations, net cash paid in acquisition of $149.7 million, $51.2 million of purchases of investment securities available for sale, net non-covered loan originations of $327.0 million, $34.0 million ofand purchases of premises and equipment partially offsetof $34.0 million. This compares to net cash of $121.5 million used by investing activities during 2012, which consisted principally of proceeds from investment securities available for sale of $1.5 billion, net covered loan paydowns of $114.8 million, net cash acquired in acquisition of $39.3 million, net proceeds from the FDIC indemnification asset of $54.9$29.5 million, and proceeds from investment securities available for sale of $927.3 million, net covered loan paydowns of $119.8 million, proceeds from the sale of non-covered other real estate owned of $35.3$27.1 million, proceeds from thepartially offset by purchases of investment securities available for sale of covered other real estate owned$994.6 million, net non-covered loan originations of $17.6$587.4 million and proceeds from the salepurchases of loanspremises and equipment of $11.2 million. The $205.0$22.8 million,Net cash of cash$447.5 million used by financing activities during 2013 primarily consisted of $196.1$261.2 million decrease in net deposits, $29.8repayment of FinPac term debt of $211.7 million, dividends paid on common stock of retirement$50.8 million, $9.4 million of common stock $25.3repurchased, and $8.8 million of repayment of junior subordinated debentures, partially offset by $87.8 million increase in securities sold under agreements to repurchase. This compares to net cash of $203.0 million used by financing activities during 2012, which consisted primarily of $107.4 million decrease in net deposits, repayment of term debt of $55.4 million, $46.2 million of dividends paid on common stock, and $5.0$7.4 million repayment of term debt,common stock repurchased, partially offset by $50.8$12.5 million increase in net securities sold under agreements to repurchase.Although we expect the Bank’sBank's and the Company’sCompany's liquidity positions to remain satisfactory during 2012,2014, it is possible that our deposit growthbalances for 20122014 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 ARRANGEMENTSOFF-BALANCE-SHEET-ARRANGEMENTSInformation regarding Off-Balance-Sheet Arrangements is included in Note 20 and Note 21 of theNotes to Consolidated Financial Statements in Item 8 below.belowThe following table presents a summary of significant contractual obligations extending beyond one year as of December 31, 20112013 and maturing as indicated:71Future Contractual ObligationsAs of December 31, 2011:(in thousands) Less than 1
Year 1 to 3
Years 3 to 5
Years More
than 5
Years Total $ 8,544,824 $ 514,983 $ 174,178 $ 2,705 $ 9,236,690 — — 190,016 55,519 245,535 — — — 230,061 230,061 15,695 25,300 17,726 21,386 80,107 1,933 3,359 3,196 34,112 42,600 $ 8,562,452 $ 543,642 $ 385,116 $ 343,783 $ 9,834,993 (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 19 of theNotes to Consolidated Financial Statements in Item 8 below.Umpqua Holdings Corporation Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years Total Deposits (1) $ 8,589,729 $ 422,107 $ 103,729 $ 2,555 $ 9,118,120 Term debt — — 245,016 495 245,511 Junior subordinated debentures (2) — — — 230,061 230,061 Operating leases 17,757 29,711 17,396 22,938 87,802 Other long-term liabilities (3) 1,740 3,880 4,503 30,991 41,114 Total contractual obligations $ 8,609,226 $ 455,698 $ 370,644 $ 287,040 $ 9,722,608 (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 19 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, 2011,2013, the Company has a liability for unrecognized tax benefits relating to California tax incentives and temporary differences in the amount of $717,000,$795,000, which includes accrued interest of $167,000.$193,000. 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 RISKInformation regarding Concentrations of Credit Risk is included in NotesNote 3, 5, and 20 of theNotes to Consolidated Financial Statements.Statements CAPITAL RESOURCESShareholders’Shareholders' equity at December 31, 20112013 was $1.7$1.7 billion, an increase of $29.8$3.4 million or 2%, from December 31, 2010.2012. The increase in shareholders’shareholders' equity during 2011the year ended was principally due to net income of $74.5$98.4 million, offset by stock repurchasesother comprehensive loss, net of $29.8tax, of $29.3 million and common stock dividends declared of $27.5 million.$67.7 million.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. Under the guidelines, capital strength is measured in two 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 4% must be Tier I1 capital. Our consolidated Tier I1 capital, which consists of shareholders’shareholders' equity and qualifying trust-preferred securities, less other comprehensive income, goodwill, other intangible assets, disallowed servicing assets and disallowed deferred tax assets, totaled $1.2 billion at December 31, 2011.2013. Tier II2 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 I1 statutory limits. The total of Tier I1 capital plus Tier II2 capital components is referred to as Total Risk-Based Capital, and was $1.3 billion at December 31, 2011.2013. The percentage ratios, as calculated under the guidelines, were 15.91%13.56% and 17.16%14.66% for Tier I1 and Total Risk-Based Capital, respectively, at December 31, 2011.2013. The Tier 1 and Total Risk-Based Capital ratios at December 31, 20102012 were 16.36%15.27% and 17.62%16.52%, respectively.72A minimum leverage ratio is required in addition to the risk-based capital standards and is defined as period-end shareholders’shareholders' equity and qualifying trust preferred securities, less 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, 20112013 and 20102012 were 10.91%10.90% and 10.56%11.44%, respectively. As of December 31, 2011,2013, 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’sBank'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 phase-in period for the final rules will begin 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 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%.Also, under the final rules, if an institution grows above $15 billion as a result of an acquisition, or organically grows above $15 billion and then makes an acquisition, the combined trust preferred security debt issuances would be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016). 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 following the proposed merger 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 current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded; however, non-advanced approaches banking organizations, including the Company and the Bank, may make a one-time permanent election to continue to exclude these items. The Company and Bank expect to make this election 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. The Company and the Bank are currently evaluating the provisions of the final rules and expected impact.During the year ended December 31, 2011,2013, the Company made no contributions to the Bank. At December 31, 2011,2013, all three 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. Further information regarding the actual and required capital ratios is provided in Note 23 of theNotes to Consolidated Financial Statements in Item 8 below.On February 3, 2010, the Company raised $303.6 million through a public offering by issuing 8,625,000 shares of the Company’s common stock, including 1,125,000 shares pursuant to the underwriters’ over-allotment option, at a share price of $11.00 per share and 18,975,000 depository shares, including 2,475,000 depository shares pursuant to the underwriter’s over-allotment option, also at a price of $11.00 per share. Fractional interests (1/100th) in each share of the Series B Common StockEquivalent were represented by the 18,975,000 depositary shares; as a result, each depositary share would convert into one share of common stock. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were $288.1 million. The net proceeds from the offering were used to redeem the preferred stock issued to the United States Department of the Treasury (“U.S. Treasury”) under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”), to fund FDIC-assisted acquisition opportunities and for general corporate purposes.On February 17, 2010, the Company redeemed all of the outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Treasury under the TARP CPP for an aggregate purchase price of $214.2 million. As a result of the repurchase of the Series A preferred stock, the Company incurred a one-time deemed dividend of $9.7 million due to the accelerated amortization of the remaining issuance discount on the preferred stock.On March 31, 2010, the Company repurchased the common stock warrant issued to the U.S. Treasury pursuant to the TARP CPP, for $4.5 million. The warrant repurchase, together with the Company’s redemption in February 2010 of the entire amount of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Treasury, represents full repayment of all TARP obligations and cancellation of all equity interests in the Company held by the U.S. Treasury.On April 20, 2010, shareholders of the Company approved an amendment to the Company’s Restated Articles of Incorporation. The amendment, which became effective on April 21, 2010, increased the number of authorized shares of common stock to 200,000,000 (from 100,000,000). As a result of the effectiveness of the amendment, as of the close of business on April 21, 2010, the Company’s Series B Common Stock Equivalent preferred stock automatically converted into newly issued shares of common stock at a conversion rate of 100 shares of common stock for each share of Series B Common Stock Equivalent preferred stock. All shares of Series B Common Stock Equivalent preferred stock and representative depositary shares ceased to exist upon the conversion. Trading in the depositary shares on NASDAQ (ticker symbol “UMPQP”) ceased and the UMPQP symbol voluntarily delisted effective as of the close of business on April 21, 2010.During 2011, Umpqua’s2013, Umpqua's Board of Directors declaredapproved a quarterly cash dividend of $0.05 per common share$0.10 for the first quarter, $0.20 for the second quarter, and second quarters and $0.07 per common share$0.15 for the third and fourth quarters.quarter, respectively. 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. The payment of cash dividends is subject to regulatory limitations as described under theSupervision and Regulationsection of Part I of this report.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, 2011, 20102013, 2012 and 2009:Cash Dividends and Payout Ratios per Common Share 2011 2010 2009 $ 0.24 $ 0.20 $ 0.20 37% 133% -8% 2013 2012 2011 Dividend declared per common share $ 0.60 $ 0.34 $ 0.24 Dividend payout ratio 69 % 38 % 37 % 73The 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. TheIn April 2013, the repurchase program willwas extended to run through June 2013.2015. As of December 31, 2011,2013, a total of 12.612.0 million shares remained available for repurchase. The Company repurchased 2.5 million98,027 shares under the repurchase plan in 2011.2013. 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.Umpqua Holdings CorporationITEM 7A.QUANTITATIVE AND QUALITATIVEQUALITIATIVE DISCLOSURES ABOUT MARKET RISKOur 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 Bank’s Enterprise Risk and Credit Committee (formerly the Loan and Investment CommitteeCommittee) provides board oversight over the Company’s loan and investment portfolio 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’Directors' Enterprise Risk and Credit Committee (formerly the Loan and Investment CommitteeCommittee) 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 (ii)(iii) economic value of equity (fair value of financial instruments) modeling. The results of these analyses are reviewed by ALCO and the Loan and Investment 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 pre-established internal limits, we may adjust ourthe asset and liability size or mix in ouran effort to bring our interest rate risk exposure within our established limits.Gap AnalysisA 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. InterestGap analysis measures interest rate sensitivity is measuredat a point in time as the difference between the estimated volumes of assetsasset and liabilities at a point in time that are subject toliability cash flows or repricing atcharacteristics 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, 2011.Interest Sensitivity GapDecember 31, 2011(in thousands) By Repricing Interval
Months
Years Total $ 445,954 $ — $ — $ — $ — $ 445,954 547 — — — — 547 2,309 — — — — 2,309 332,435 843,002 1,578,389 254,941 159,811 3,168,578 1,304 177 908 2,906 (581 ) 4,714 1,642 5,927 26,979 64,143 — 98,691 2,019,503 1,104,417 2,537,232 142,991 83,955 5,888,098 140,916 170,263 313,985 20,737 (23,450 ) 622,451 — — — — 1,332,013 1,332,013 2,944,610 2,123,786 4,457,493 485,718 1,551,748 $ 11,563,355 993,579 — — — — $ 993,579 4,048,313 — — — — 4,048,313 626,157 962,967 689,848 2,705 — 2,281,677 124,605 — — — — 124,605 9 26 190,154 55,346 10,141 255,676 134,024 (51,119 ) 82,905 85,572 — — 10,465 6,507 102,544 — — — — 3,674,056 3,674,056 (3,067,649 ) 1,160,793 3,577,491 417,202 (2,087,837 ) $ (3,067,649 ) $ (1,906,856 ) $ 1,670,635 $ 2,087,837 $ — Umpqua Holdings Corporation74 By Estimated Cash Flow or Repricing Interval 0-3 4-12 1-5 Over 5 Non-Rate- Months Months Years Years Sensitive Total ASSETS Interest bearing deposits $ 611,224 $ — $ — $ — $ — $ 611,224 Temporary investments 514 — — — — 514 Trading account assets 5,958 — — — — 5,958 Securities held to maturity 2,679 228 335 5,964 (3,643 ) 5,563 Securities available for sale 111,647 270,462 830,048 524,012 54,809 1,790,978 Loans held for sale 101,795 — — — 2,869 104,664 Non-covered loans and leases 2,921,007 1,318,340 2,676,756 402,282 36,018 7,354,403 Covered loans and leases 109,697 128,982 130,095 10,233 (15,015 ) 363,992 Non-interest earning assets — — — — 1,398,816 1,398,816 Total assets 3,864,521 1,718,012 3,637,234 942,491 1,473,854 $ 11,636,112 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing demand deposits $ 1,233,070 $ — $ — $ — $ — $ 1,233,070 Money market deposits 3,349,946 — — — — 3,349,946 Savings deposits 560,699 — — — — 560,699 Time deposits 337,104 675,008 522,875 2,481 — 1,537,468 Securities sold under agreements to repurchase 224,882 — — — — 224,882 Term debt 8 25 245,148 330 5,983 251,494 Junior subordinated debentures, at fair value 134,024 (46,750 ) 87,274 Junior subordinated debentures, at amortized cost 85,572 — — 10,465 5,862 101,899 Non-interest bearing liabilities and shareholders' equity — — — — 4,289,380 4,289,380 Total liabilities and shareholders' equity 5,925,305 675,033 768,023 13,276 4,254,475 11,636,112 Interest rate sensitivity gap (2,060,784 ) 1,042,979 2,869,211 929,215 (2,780,621 ) Cumulative interest rate sensitivity gap $ (2,060,784 ) $ (1,017,805 ) $ 1,851,406 $ 2,780,621 $ — Cumulative gap as a % of earning assets (20 )% (10 )% 18 % 27 % 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 3three 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 changeincrease 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.75Because 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 marketeconomic value of equity simulations.Net Interest Income SimulationInterest rate sensitivity is a function of the repricing characteristics of our interest earnings 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. Additionally, 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 covered 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 willmay 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.The estimated impact on our net interest income over a time horizon of one year as of December 31, 2013, 2012, and 2011 isare 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 IncomeAs of December 31,(dollars in thousands) 2011 2010 2009 $ 6,383 1.6% $ 7,495 2.0% $ (1,203 ) -0.4% $ 5,031 1.3% $ 9,115 2.4% $ (2,118 ) -0.6% $ 2,021 0.5% $ 6,464 1.7% $ (3,033 ) -0.9% $ (6,153 ) -1.5% $ (12,478 ) -3.3% $ (290 ) -0.1% $ (15,460 ) -3.9% $ (21,512 ) -5.7% $ (7,609 ) -2.2% $ (24,236 ) -6.1% $ (30,172 ) -8.0% $ (14,928 ) -4.4% 2013 2012 2011 Increase Increase Increase (Decrease) (Decrease) (Decrease) in Net Interest in Net Interest in Net Interest Income from Percentage Income from Percentage Income from Percentage Base Scenario Change Base Scenario Change Base Scenario Change Up 300 basis points $ 3,248 0.8 % $ 10,665 3.0 % $ 6,383 1.6 % Up 200 basis points $ 3,186 0.8 % $ 11,116 3.1 % $ 5,031 1.3 % Up 100 basis points $ 2,370 0.6 % $ 7,545 2.1 % $ 2,021 0.5 % Down 100 basis points $ (12,052 ) (2.9 )% $ (11,500 ) (3.2 )% $ (6,153 ) (1.5 )% Down 200 basis points $ (28,023 ) (6.8 )% $ (20,273 ) (5.6 )% $ (15,460 ) (3.9 )% Down 300 basis points $ (41,488 ) (10.1 )% $ (28,521 ) (7.9 )% $ (24,236 ) (6.1 )% 76Asset sensitivity indicates that in a rising interest rate environment athe Company’s net interest margin would increase and in decreasing interest rate environment a 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 a Company’s net interest margin would increase. For both December 31, 2011 and December 31, 2010,all years presented, we were “asset-sensitive” in both increased and decreased market interest rate scenarios, although thescenarios. The relative level of asset sensitivity as of December 31, 2013 has decreased in increasing interest rate environments compared to December 31, 2012 and December 31, 2011. The relative level of asset sensitivity in 2011 declined from the prior year. Atdecreasing interest rate environments as of December 31, 2009, we were “liability-sensitive” in an increased market2013 is slightly less sensitive as compared to 2012 and more sensitive as compared to 2011. It should be noted that although net interest income simulation results are presented through the down 300 basis points interest rate scenario,environments, we do not believe the down 200 and “asset-sensitive” in a decreased market300 basis point scenarios are plausible given the current level of interest rate scenario.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.Economic Value of EquityAnother interest rate sensitivity measure we utilize is the quantification of marketeconomic 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.Umpqua Holdings CorporationThe 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 LiabilitiesAs of December 31,(dollars in thousands) 2011 2010
in Estimated Fair
in Estimated Fair $ (115,995 ) -6.0% $ (214,740 ) -9.3% $ (48,051 ) -2.5% $ (114,667 ) -5.0% $ (14,229 ) -0.7% $ (59,857 ) -2.6% $ (17,857 ) 0.0% $ (55,141 ) -2.4% $ 24,283 1.3% $ (126,830 ) -5.5% $ 160,635 8.3% $ (179,198 ) -7.8% As of December 31, 2011,2013(dollars in thousands) 2013 2012 Increase in Increase in Estimated Fair Percentage Estimated Fair Percentage Value of Equity Change Value of Equity Change Up 300 basis points $ 24,660 1.3 % $ 30,222 1.7 % Up 200 basis points $ 20,446 1.1 % $ 67,259 3.7 % Up 100 basis points $ 11,123 0.6 % $ 66,930 3.7 % Down 100 basis points $ 8,311 0.4 % $ 13,471 0.7 % Down 200 basis points $ 32,714 1.8 % $ 64,763 3.6 % Down 300 basis points $ 64,519 3.5 % $ 101,963 5.6 % As of December 31, 2013, our economic value of equity model indicates an asset sensitive profile in increasing interest rate environments and a liability sensitive profile, suggestingin decreasing interest rate environments. This suggests a sudden or sustained increase in ratesincreasing or decreasing interest rate scenarios would result in a decreasean increase in our estimated marketeconomic value of equity. Consistent with the results in the interest rate simulation impact on net interest income, ourOur overall sensitivity to market interest rate changes as of December 31, 20112013 has decreased as compared to December 31, 2010.2012. As of December 31, 2011,2013, 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 significant value placed on the Company’s significant amount of noninterest bearing and low cost interest bearing deposits and fixed rates or floors characteristics included in the Company’s loan portfolio. While noninterest bearing deposits do not impact the net interest income simulation, the value of these deposits havehas a significant impact on the economic value of equity model, particularly when market rates are assumed to rise.IMPACT OF INFLATION AND CHANGING PRICESA financial institution’sinstitution'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’smanagement'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.77Our 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’smanagement'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.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and ShareholdersUmpqua Holdings Corporation and SubsidiariesWe have audited the accompanying consolidated balance sheets of Umpqua Holdings Corporation and Subsidiaries (the Company) as of December 31, 20112013 and 2010,2012, and the related consolidated statements of operations,income, comprehensive income, changes in shareholders’shareholders' equity, comprehensive income (loss), and cash flows for each of the three years in the three-year period ended December 31, 2011.2013. We also have audited the Company’s internal control over financial reporting as of December 31, 2011,2013, based on criteria established in Internal Control—Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).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 effectiveness of the Company’sCompany's internal control over financial reporting based on our audits.We conducted our audits in accordance with auditingthe 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 as well asand 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 risks.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’scompany'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’scompany'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 Subsidiariessubsidiaries as of December 31, 20112013 and 2010,2012, and the consolidated results of their operations and their cash flows for each of the three years in the three-year period ended December 31, 2011,2013, in conformity with generally accepted accounting principles generally accepted in the United States of America. Also in our opinion, Umpqua Holdings Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2013, based on criteria established in Internal Control—Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).78/s/ Moss Adams LLPPortland, OregonFebruary 17, 2012Umpqua Holdings Corporation79UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 20112013 and 20102012(in thousands, except shares) December 31,
2011 December 31,
2010 $ 152,265 $ 111,946 445,954 891,634 547 545 598,766 1,004,125 2,309 3,024 3,168,578 2,919,180 4,714 4,762 98,691 75,626 5,888,098 5,658,987 (92,968 ) (101,921 ) 5,795,130 5,557,066 622,451 785,898 32,581 34,475 152,366 136,599 677,224 681,969 18,184 14,454 34,175 32,791 19,491 29,863 91,089 146,413 247,606 242,465 $ 11,563,355 $ 11,668,710 $ 1,913,121 $ 1,616,687 7,323,569 7,817,118 9,236,690 9,433,805 124,605 73,759 255,676 262,760 82,905 80,688 102,544 102,866 88,522 72,258 9,890,942 10,026,136 1,514,913 1,540,928 123,726 76,701 33,774 24,945 1,672,413 1,642,574 $ 11,563,355 $ 11,668,710 December 31, December 31, 2013 2012 ASSETS Cash and due from banks $ 178,685 $ 223,532 Interest bearing deposits 611,224 315,053 Temporary investments 514 5,202 Total cash and cash equivalents 790,423 543,787 Investment securities Trading, at fair value 5,958 3,747 Available for sale, at fair value 1,790,978 2,625,229 Held to maturity, at amortized cost 5,563 4,541 Loans held for sale, at fair value 104,664 320,132 Non-covered loans and leases 7,354,403 6,681,080 Allowance for non-covered loan and lease losses (85,314 ) (85,391 ) Net non-covered loans and leases 7,269,089 6,595,689 Covered loans, net of allowance of $9,771 and $18,275 363,992 477,078 Restricted equity securities 30,685 33,443 Premises and equipment, net 177,680 162,667 Goodwill and other intangible assets, net 776,683 685,331 Mortgage servicing rights, at fair value 47,765 27,428 Non-covered other real estate owned 21,833 17,138 Covered other real estate owned 2,102 10,374 FDIC indemnification asset 23,174 52,798 Bank owned life insurance 96,938 93,831 Deferred tax asset, net 16,627 3,528 Other assets 111,958 138,702 Total assets $ 11,636,112 $ 11,795,443 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 2,436,477 $ 2,278,914 Interest bearing 6,681,183 7,100,361 Total deposits 9,117,660 9,379,275 Securities sold under agreements to repurchase 224,882 137,075 Term debt 251,494 253,605 Junior subordinated debentures, at fair value 87,274 85,081 Junior subordinated debentures, at amortized cost 101,899 110,985 Other liabilities 125,477 105,383 Total liabilities 9,908,686 10,071,404 COMMITMENTS AND CONTINGENCIES (NOTE 20) SHAREHOLDERS' EQUITY Common stock, no par value, 200,000,000 shares authorized; issued and outstanding: 111,973,203 in 2013 and 111,889,959 in 2012 1,514,485 1,512,400 Retained earnings 217,917 187,293 Accumulated other comprehensive (loss) income (4,976 ) 24,346 Total shareholders' equity 1,727,426 1,724,039 Total liabilities and shareholders' equity $ 11,636,112 $ 11,795,443 See notes to consolidated financial statements80UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFor the Years Ended December 31, 2011, 20102013, 2012 and 20092011(in thousands, except per share amounts) 2011 2010 2009 $ 319,702 $ 336,320 $ 355,195 86,011 73,812 — 85,785 67,388 60,195 8,653 8,839 7,794 12 14 22 1,590 2,223 526 501,753 488,596 423,732 55,743 76,241 88,742 539 517 680 9,255 9,229 4,576 7,764 7,825 9,026 73,301 93,812 103,024 428,452 394,784 320,708 46,220 113,668 209,124 16,141 5,151 — 366,091 275,965 111,584 33,096 34,874 32,957 12,787 11,661 7,597 26,550 21,214 18,688 7,735 2,326 8,896 (190 ) (93 ) (12,556 ) (169 ) (321 ) 1,983 7,376 1,912 (1,677 ) (2,197 ) 4,980 6,482 — 6,437 — (6,168 ) (16,445 ) — 12,674 11,271 9,469 84,118 75,904 73,516 179,480 162,875 126,850 51,284 45,940 39,673 11,214 10,464 7,671 6,138 6,225 4,529 24,170 22,576 21,918 2,824 3,998 3,257 10,768 15,095 15,825 10,690 8,097 23,204 7,481 (2,172 ) — 4,948 5,389 6,165 — — 111,952 360 6,675 273 29,614 32,576 18,086 338,971 317,738 379,403 111,238 34,131 (194,303 ) 36,742 5,805 (40,937 ) $ 74,496 $ 28,326 $ (153,366 ) Umpqua Holdings Corporation 2013 2012 2011 INTEREST INCOME Interest and fees on non-covered loans and leases $ 343,717 $ 313,294 $ 319,702 Interest and fees on covered loans and leases 54,497 73,518 86,011 Interest and dividends on investment securities: Taxable 34,146 59,078 85,785 Exempt from federal income tax 8,898 9,184 8,653 Dividends 252 83 12 Interest on temporary investments and interest bearing deposits 1,336 928 1,590 Total interest income 442,846 456,085 501,753 INTEREST EXPENSE Interest on deposits 20,755 31,133 55,743 Interest on securities sold under agreement to repurchase and federal funds purchased 141 288 539 Interest on term debt 9,248 9,279 9,255 Interest on junior subordinated debentures 7,737 8,149 7,764 Total interest expense 37,881 48,849 73,301 Net interest income 404,965 407,236 428,452 PROVISION FOR NON-COVERED LOAN AND LEASE LOSSES 16,829 21,796 46,220 (RECAPTURE OF) PROVISION FOR COVERED LOAN LOSSES (6,113 ) 7,405 16,141 Net interest income after provision for (recapture of) loan and lease losses 394,249 378,035 366,091 NON-INTEREST INCOME Service charges on deposit accounts 30,952 28,299 33,096 Brokerage commissions and fees 14,736 12,967 12,787 Mortgage banking revenue, net 78,885 84,216 26,550 Gain on investment securities, net 209 3,868 7,376 Loss on junior subordinated debentures carried at fair value (2,197 ) (2,203 ) (2,197 ) Change in FDIC indemnification asset (25,549 ) (15,234 ) (6,168 ) Other income 24,405 24,916 12,674 Total non-interest income 121,441 136,829 84,118 NON-INTEREST EXPENSE Salaries and employee benefits 209,991 200,946 179,480 Net occupancy and equipment 62,067 55,081 51,284 Communications 11,974 11,573 11,214 Marketing 6,062 5,064 6,138 Services 25,483 25,823 24,170 Supplies 2,843 2,506 2,824 FDIC assessments 6,954 7,308 10,768 Net loss on non-covered other real estate owned 1,113 9,245 10,690 Net loss on covered other real estate owned 135 3,410 7,481 Intangible amortization 4,781 4,816 4,948 Merger related expenses 8,836 2,338 360 Other expenses 24,422 31,542 29,614 Total non-interest expense 364,661 359,652 338,971 Income before provision for income taxes 151,029 155,212 111,238 Provision for income taxes 52,668 53,321 36,742 Net income $ 98,361 $ 101,891 $ 74,496 81UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSINCOME (Continued)For the Years Ended December 31, 2011, 20102013, 2012 and 20092011(in thousands, except per share amounts) 2011 2010 2009 $ 74,496 $ 28,326 $ (153,366 ) — 12,192 12,866 356 67 30 $ 74,140 $ 16,067 $ (166,262 ) $ 0.65 $ 0.15 $ (2.36 ) $ 0.65 $ 0.15 $ (2.36 ) 114,220 107,922 70,399 114,409 108,153 70,399 2013 2012 2011 Net income $ 98,361 $ 101,891 $ 74,496 Dividends and undistributed earnings allocated to participating securities 788 682 356 Net earnings available to common shareholders $ 97,573 $ 101,209 $ 74,140 Earnings per common share: Basic $0.87 $0.90 $0.65 Diluted $0.87 $0.90 $0.65 Weighted average number of common shares outstanding: Basic 111,938 111,935 114,220 Diluted 112,176 112,151 114,409 See notes to consolidated financial statements82UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYFor the Years Ended December 31, 2011, 20102013, 2012 and 20092011(in thousands, except shares) Common Stock Preferred
Stock Shares Amount Retained
Earnings
Other
Income Total $ 202,178 60,146,400 $ 1,005,820 $ 264,938 $ 14,072 $ 1,487,008 (153,366 ) (153,366 ) 10,883 10,883 $ (142,483 ) 26,538,461 245,697 245,697 2,188 2,188 (19,516 ) (174 ) (174 ) 120,243 (243 ) (243 ) 2,157 (2,157 ) — (10,739 ) (10,739 ) (14,737 ) (14,737 ) $ 204,335 86,785,588 $ 1,253,288 $ 83,939 $ 24,955 $ 1,566,517 $ 204,335 86,785,588 $ 1,253,288 $ 83,939 $ 24,955 $ 1,566,517 28,326 28,326 (10 ) (10 ) $ 28,316 8,625,000 89,786 89,786 3,505 3,505 (22,541 ) (284 ) (284 ) 173,767 844 844 (214,181 ) (214,181 ) 198,289 198,289 (198,289 ) 18,975,000 198,289 — 9,846 (9,846 ) — (3,686 ) (3,686 ) (4,500 ) (4,500 ) (22,032 ) (22,032 ) $ — 114,536,814 $ 1,540,928 $ 76,701 $ 24,945 $ 1,642,574 $ — 114,536,814 $ 1,540,928 $ 76,701 $ 24,945 $ 1,642,574 74,496 74,496 8,829 8,829 $ 83,325 3,785 3,785 (2,557,056 ) (29,754 ) (29,754 ) 185,133 (46 ) (46 ) (27,471 ) (27,471 ) $ — 112,164,891 $ 1,514,913 $ 123,726 $ 33,774 $ 1,672,413 2013 2012 2011 Net income $ 98,361 $ 101,891 $ 74,496 Available for sale securities: Unrealized (losses) gains arising during the period (48,755 ) (12,004 ) 22,101 Reclassification adjustment for net gains realized in earnings (net of tax expense $84, $1,609, and $3,094 in 2013, 2012, and 2011, respectively) (125 ) (2,414 ) (4,641 ) Income tax benefit (expense) related to unrealized (losses) gains 19,502 4,802 (8,840 ) Net change in unrealized (losses) gains (29,378 ) (9,616 ) 8,620 Held to maturity securities: Unrealized losses related to factors other than credit (net of tax benefit of $34 in 2011) — — (52 ) Reclassification adjustment for impairments realized in net income (net of tax benefit of $42 and $108 in 2012 and 2011, respectively) — 62 161 Accretion of unrealized losses related to factors other than credit to investment securities held to maturity (net of tax benefit of $37, $84, and $66 in 2013, 2012, and 2011, respectively) 56 126 100 Net change in unrealized losses related to factors other than credit 56 188 209 Other comprehensive (loss) income, net of tax (29,322 ) (9,428 ) 8,829 Comprehensive income $ 69,039 $ 92,463 $ 83,325 See notes to consolidated financial statementsUmpqua Holdings Corporation83UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)For the Years Ended December 31, 2011, 20102013, 2012 and 20092011(in thousands) 2011 2010 2009 $ 74,496 $ 28,326 $ (153,366 ) 22,101 1,305 23,888 (4,641 ) (1,396 ) (5,147 ) (8,840 ) (522 ) (9,555 ) 8,620 (613 ) 9,186 — — 2,574 — — 103 — — 2,677 (52 ) 225 (1,620 ) 161 205 460 100 173 180 209 603 (980 ) 8,829 (10 ) 10,883 $ 83,325 $ 28,316 $ (142,483 ) Accumulated Other Common Stock Retained Comprehensive Shares Amount Earnings Income (Loss) Total BALANCE AT JANUARY 1, 2011 114,536,814 $ 1,540,928 $ 76,701 $ 24,945 $ 1,642,574 Net income 74,496 74,496 Other comprehensive income, net of tax 8,829 8,829 Comprehensive income $ 83,325 Stock-based compensation 3,785 3,785 Stock repurchased and retired (2,557,056 ) (29,754 ) (29,754 ) Issuances of common stock under stock plans and related net tax deficiencies 185,133 (46 ) (46 ) Cash dividends on common stock ($0.24 per share) (27,471 ) (27,471 ) Balance at December 31, 2011 112,164,891 $ 1,514,913 $ 123,726 $ 33,774 $ 1,672,413 BALANCE AT JANUARY 1, 2012 112,164,891 $ 1,514,913 $ 123,726 $ 33,774 $ 1,672,413 Net income 101,891 101,891 Other comprehensive loss, net of tax (9,428 ) (9,428 ) Comprehensive income $ 92,463 Stock-based compensation 4,041 4,041 Stock repurchased and retired (596,000 ) (7,436 ) (7,436 ) Issuances of common stock under stock plans and related net tax benefit 321,068 882 882 Cash dividends on common stock ($0.34 per share) (38,324 ) (38,324 ) Balance at December 31, 2012 111,889,959 $ 1,512,400 $ 187,293 $ 24,346 $ 1,724,039 BALANCE AT JANUARY 1, 2013 111,889,959 $ 1,512,400 $ 187,293 $ 24,346 $ 1,724,039 Net income 98,361 98,361 Other comprehensive loss, net of tax (29,322 ) (29,322 ) Comprehensive income $ 69,039 Stock-based compensation 5,017 5,017 Stock repurchased and retired (584,677 ) (9,360 ) (9,360 ) Issuances of common stock under stock plans and related net tax benefit 667,921 6,428 6,428 Cash dividends on common stock ($0.60 per share) (67,737 ) (67,737 ) Balance at December 31, 2013 111,973,203 $ 1,514,485 $ 217,917 $ (4,976 ) $ 1,727,426 See notes to consolidated financial statements84UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2011, 20102013, 2012 and 20092011(in thousands) 2011 2010 2009 $ 74,496 $ 28,326 $ (153,366 ) 2,000 4,393 (18,360 ) 36,086 20,464 9,301 (7,735 ) (2,326 ) (8,896 ) — — 239 359 414 10,334 1,743 4,023 10,957 (1,228 ) (4,113 ) — 8,947 4,074 12,247 8,709 1,941 — 46,220 113,668 209,124 16,141 5,151 — — (6,437 ) — 6,168 16,445 — 13,151 9,199 11,649 — — 111,952 (6,720 ) (5,645 ) (7,570 ) 2,990 3,878 3,150 2,217 (4,978 ) (6,854 ) 3,785 3,505 2,188 715 (751 ) (286 ) (10,676 ) (10,923 ) (6,649 ) (821,744 ) (702,449 ) (682,535 ) 809,355 670,872 677,598 (6 ) (7 ) (1 ) (17,798 ) 47,011 (72,570 ) 15,177 2,914 (8,426 ) 182,352 198,649 93,226 (1,190,686 ) (1,498,224 ) (1,002,490 ) (1,573 ) — — 927,276 408,670 464,376 1,637 1,675 2,282 1,894 472 1,280 (327,032 ) 146,252 (121,257 ) 119,772 119,941 — 11,185 38,744 12,519 921 1,237 270 (33,974 ) (47,559 ) (11,239 ) 54,881 48,443 — 35,340 25,124 26,167 17,615 14,598 — — 5,150 — — 179,046 178,905 (382,744 ) (556,431 ) (449,187 ) Umpqua Holdings CorporationUMPQUA HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)For the Years Ended December 31, 2011, 2010 and 2009(in thousands) 2011 2010 2009 $ (196,063 ) $ 847,895 $ 667,610 50,846 28,579 (2,408 ) (4,993 ) (165,789 ) (130,191 ) — 198,289 — — (214,181 ) — — (4,500 ) — — 89,786 245,697 — (3,686 ) (10,739 ) (25,317 ) (20,626 ) (13,399 ) 6 7 1 308 1,004 301 (29,754 ) (284 ) (174 ) (204,967 ) 756,494 756,698 (405,359 ) 398,712 400,737 1,004,125 605,413 204,676 $ 598,766 $ 1,004,125 $ 605,413 $ 78,690 $ 99,556 $ 106,541 $ 47,608 $ 285 $ 48 $ 8,620 $ (613 ) $ 9,186 $ — $ — $ 2,677 $ 209 $ 603 $ (980 ) $ 7,890 $ 5,745 $ 4,346 $ 47,414 $ 41,491 $ 50,914 $ 15,271 $ 15,350 $ — $ 49,156 $ 84,660 $ — $ 12,263 $ — $ — $ 1,100 $ 45 $ 4,875 $ 547 $ — $ — $ — $ 198,289 $ — $ — $ 1,512,048 $ 4,978 $ — $ 1,505,611 $ 183,883 2013 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 98,361 $ 101,891 $ 74,496 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax expense 7,748 6,421 2,000 Amortization of investment premiums, net 32,663 45,082 36,086 Gain on sale of investment securities, net (209 ) (4,023 ) (7,735 ) Other-than-temporary impairment on investment securities held to maturity — 155 359 (Gain) loss on sale of non-covered other real estate owned (335 ) 2,349 1,743 Gain on sale of covered other real estate owned (577 ) (1,236 ) (1,228 ) Valuation adjustment on non-covered other real estate owned 1,448 6,896 8,947 Valuation adjustment on covered other real estate owned 712 4,646 8,709 Provision for non-covered loan and lease losses 16,829 21,796 46,220 (Recapture of) provision for covered loan losses (6,113 ) 7,405 16,141 Proceeds from bank owned life insurance 1,173 1,870 818 Change in cash surrender value of bank owned life insurance (4,280 ) (3,145 ) (3,212 ) Change in FDIC indemnification asset 25,549 15,234 6,168 Depreciation, amortization and accretion 18,267 16,040 13,151 Increase in mortgage servicing rights (17,963 ) (17,710 ) (6,720 ) Change in mortgage servicing rights carried at fair value (2,374 ) 8,466 2,990 Change in junior subordinated debentures carried at fair value 2,193 2,175 2,217 Stock-based compensation 5,017 4,041 3,785 Net (increase) decrease in trading account assets (2,211 ) (1,438 ) 715 Gain on sale of loans (65,644 ) (91,945 ) (26,838 ) Change in loans held for sale carried at fair value 14,503 (13,965 ) (3,435 ) Origination of loans held for sale (1,649,911 ) (2,022,195 ) (821,744 ) Proceeds from sales of loans held for sale 1,913,776 1,910,071 828,952 Excess tax benefits from the exercise of stock options (65 ) (52 ) (6 ) Change in other assets and liabilities: Net decrease (increase) in other assets 32,129 5,401 (15,404 ) Net (decrease) increase in other liabilities (7,589 ) 22,255 15,177 Net cash provided by operating activities 413,097 26,485 182,352 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities available for sale (51,191 ) (994,574 ) (1,190,686 ) Purchases of investment securities held to maturity (2,126 ) (931 ) (1,573 ) Proceeds from investment securities available for sale 803,866 1,481,600 927,276 Proceeds from investment securities held to maturity 1,353 1,304 1,637 Redemption of restricted equity securities 2,758 1,629 1,894 Net non-covered loan and lease originations (484,933 ) (587,396 ) (327,032 ) Net covered loan paydowns 101,861 114,815 119,772 Proceeds from sales of non-covered loans 60,298 14,242 11,185 Proceeds from insurance settlement on loss of property 575 1,425 — Proceeds from fee on termination of merger transaction — 1,600 — Proceeds from disposals of furniture and equipment 410 2,029 921 Purchases of premises and equipment (33,995 ) (22,817 ) (33,974 ) Net proceeds from FDIC indemnification asset 5,332 29,478 54,881 Proceeds from sales of non-covered other real estate owned 15,830 27,093 35,340 Proceeds from sales of covered other real estate owned 10,692 12,694 17,615 Net cash (paid) acquired in acquisition (149,658 ) 39,328 — Net cash provided (used) by investing activities 281,072 121,519 (382,744 ) 85 UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)For the Years Ended December 31, 2013, 2012 and 2011(in thousands) 2013 2012 2011 CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in deposit liabilities (261,184 ) (107,445 ) (196,063 ) Net increase in securities sold under agreements to repurchase 87,807 12,470 50,846 Repayment of term debt (211,727 ) (55,404 ) (4,993 ) Repayment of junior subordinated debentures (8,764 ) — — Dividends paid on common stock (50,768 ) (46,201 ) (25,317 ) Excess tax benefits from stock based compensation 65 52 6 Proceeds from stock options exercised 6,398 981 308 Repurchases and retirement of common stock (9,360 ) (7,436 ) (29,754 ) Net cash used by financing activities (447,533 ) (202,983 ) (204,967 ) Net increase (decrease) in cash and cash equivalents 246,636 (54,979 ) (405,359 ) Cash and cash equivalents, beginning of period 543,787 598,766 1,004,125 Cash and cash equivalents, end of period $ 790,423 $ 543,787 $ 598,766 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 40,826 $ 52,198 $ 78,690 Income taxes $ 41,993 $ 44,350 $ 47,608 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Change in unrealized losses on investment securities available for sale, net of taxes $ (29,378 ) $ (9,616 ) $ 8,620 Change in unrealized losses on investment securities held to maturity related to factors other than credit, net of taxes $ 56 $ 188 $ 209 Cash dividend declared on common stock and payable after period-end $ 16,936 $ — $ 7,890 Transfer of non-covered loans to non-covered other real estate owned $ 21,638 $ 17,699 $ 47,414 Transfer of covered loans to covered other real estate owned $ 2,555 $ 6,987 $ 15,271 Transfer of covered loans to non-covered loans $ 14,783 $ 16,166 $ 12,263 Transfer from FDIC indemnification asset to due from FDIC and other $ 4,075 $ 23,057 $ 49,156 Receivable from sales of noncovered other real estate owned and loans $ — $ — $ 1,100 Receivable from sales of covered other real estate owned $ — $ — $ 547 Acquisitions: Assets acquired $ 376,071 $ 317,751 $ — Liabilities assumed $ 219,961 $ 317,751 $ — See notes to consolidated financial statements86NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1 – Significant Accounting Policies Years Ended December 31, 2011, 2010 and 2009NOTE 1. SIGNIFICANT ACCOUNTING POLICIES—Umpqua-Umpqua Holdings Corporation (the “Company”) is a financial holding company headquartered 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, assetwealth management, mortgage banking 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. 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-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, the valuation of covered loans and the FDIC indemnification asset, and the valuation of goodwill and other intangible assets.Consolidation—The-The accompanying consolidated financial statements include the accounts of the Company, the Bank and Umpqua Investments. All significant intercompany balances and transactions have been eliminated in consolidation. As of December 31, 2011,2013, the Company had 1415 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 in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ASC 810, Consolidation (“ASC 810”). 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-The Company has evaluated events and transactions subsequent to December 31, 20112013 for potential recognition or disclosure.Cash and Cash Equivalents—Cash-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-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-Debt securities are classified asheld to maturityif 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 premium and accretion of discount, computed by the effective interest method over their contractual lives.Securities are classified asavailable for saleif 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 as a separate component of shareholders’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.Umpqua Holdings Corporation and SubsidiariesPrior to the second quarter of 2009, the Company would assess an other-than-temporary impairment (“OTTI”) or permanent impairment based on the nature of the decline and whether the Company has the ability and intent to hold the investments until a market price recovery. If the Company determined a security to be other-than-temporarily or permanently impaired, the full amount of impairment would be recognized through earnings in its entirety. New guidance related to the recognition and presentation of OTTI of debt securities became effective in the second quarter of 2009. Rather than asserting whether a Company has the ability and intent to hold an investment until a market price recovery, a Company must consider whether it intends to sell a security or if it is likely that they would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. For debt securities, if we intend to sell the security or it is likely 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 likely 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 (“OCI”). 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 amount recorded in OCI increases the carrying value of the investment and does not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. OTTI losses totaling $359,000, $414,000, and $10.6 million were recognized through earnings in the years ended December 31, 2011, 2010 and 2009, respectively, within total gain (loss) on investment securities, net.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.87Loans Held for Sale—Loans-The Company has elected to account for loans held for sale, which includes mortgage loans, and are reported at fair value in accordance with FASB ASC 825 Financial Instruments. Fair value is determined based on quoted secondary market prices for similar loans, including the lowerimplicit fair value of cost or market value. Cost generally approximates marketembedded servicing rights. The change in fair value given the short duration of these assets. Gains or losses on the sale of loans that are held for sale are recognized atis primarily driven by changes in interest rates subsequent to loan funding and changes in the time of the sale and determined by the difference between net sale proceeds and the net book value of the loans less the estimated fair value of any retained mortgagerelated servicing rights.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 in accordance with the fair value option accounting requirements. Interest income on loans held for sale is included in interest income in theNon-Covered Loans— Consolidated Statements of Income and recognized when earned. Loans are statedplaced on nonaccrual in a manner consistent with non-covered loans.Acquired Loans and Leases-Purchased loans and leases are recorded at their fair value at the amountacquisition date. Credit discounts are included in the determination of unpaid principal, net of unearned incomefair value; therefore, an allowance for loan and any deferred feeslease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased impaired or costs. All discounts and premiums are recognized over the estimated life of the loan as yield adjustments. This estimated life is adjusted for prepayments.Loans are classified aspurchased non-impaired. Purchased impairedwhen, based on current information and events, loans reflect credit deterioration since origination such that it is probable at acquisition that the BankCompany 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 ofall contractually required payments.Purchased impaired loans is based on the present value of expected future cash flows (discounted at each loan’s effective interest rate) or, for collateral dependent loans, at fair value of the collateral, less selling costs. If the measurement of each impaired loans’ 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.Covered Loans—Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our consolidated balance sheets. Covered loans are reported exclusive of the expected cash flow reimbursements expected from the FDIC. Acquired 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 accountedall of the purchased impaired loans acquired in the FDIC-assisted acquisitions into different pools based on common risk characteristics such as risk rating, underlying collateral, type of interest rate (fixed or adjustable), types of amortization, 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. Loans originally placed into a performing pool are not reported individually as 30-89 days past due, non-performing (90+ days past due or nonaccrual), or accounted for as a troubled debt restructuring as the pool is the unit of accounting. Rather, these metrics related to the underlying loans within a performing pool will be considered in our ongoing assessment and estimates of future cash flows. 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, accrual of income is inappropriate.The cash flows expected to be received over the life of the pool were estimated by management with the assistance of a third party valuation specialist.management. These cash flows were input into a FASB ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) compliant 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 speeds 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 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.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 an increase 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 covered loan losses.The coveredpurchased impaired loans acquired are and will continue to be subject to the Company’s internal and external credit review and monitoring. If credit deterioration is experienced subsequent to the initial acquisition fair value amount, such deterioration will be measured, and a provision for credit losses will be charged to earnings. These provisions will be mostly offset by an increase to the FDIC indemnification asset, and will be recognized in non-interest income.The coveredpurchased impaired loan portfolio also includes revolving lines of credit with funded and unfunded commitments. Balances outstanding at the time of acquisition are accounted for under ASC 310-30. Any additional advances on these loans subsequent to the acquisition date are not accounted for under ASC 310-30.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 over the estimated life of the loans.Based on the characteristics of loans acquired in a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction and the impact of associated loss-sharing arrangements, the Company determined that it was appropriate to apply the expected cash flows approach described above to all loans acquired in such transactions. Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our consolidated balance sheets. Covered loans are reported exclusive of the expected cash flow reimbursements expected from the FDIC. 88For 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 estimated 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 their 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) or, for collateral dependent loans, at fair value of the collateral, less selling costs. If the measurement of each impaired loans' 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.FDIC Indemnification Asset—-The Company has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC 805,Business Combinations. The FDIC indemnification asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into non-interest income over the life of the FDIC indemnification asset.Subsequent to initial recognition, the FDIC indemnification asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans, at a pool level, and covered other real estate owned. Generally, any increases in cash flow of the covered assets over those previously expected will result in prospective increases in the loan pool yield and amortization of the FDIC indemnification asset. Any decreases in cash flow of the covered assets under those previously expected will trigger impairments on the underlying loan pools and will result in a corresponding gain of theUmpqua Holdings Corporation and SubsidiariesIncome Recognition on Non-Covered, Non-Accrual and Impaired Loans—Non-covered-Non-covered loans, including impaired non-covered loans, are classified as non-accrual if the collection of principal and interest is doubtful. Generally, this occurs when a non-covered loan is past due as to maturity or payment of principal or interest by 90 days or more, unless such non-covered loans are well-secured and in the process of collection. Generally, if a non-covered loan or portion thereof is partially charged-off, the non-covered loan is considered impaired and classified as non-accrual. Non-covered 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.When a non-covered 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 basis. A non-covered loan may be restored to accrual status when the borrower’sborrower's financial condition improves so that full collection of future contractual payments is considered likely. For those non-covered loans placed on non-accrual status due to payment delinquency, thisreturn to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.Non-covered loans are reported as restructured 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.89The decision to classify a non-covered loan as impaired is made by the Bank’sBank'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 the full 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’sBank'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’smanagement'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 impairmentThe 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 10%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 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’smanagement's evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio’sportfolio'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, 2011.2013. 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. Approximately 80%74% of our loan portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the allowance for loan and lease losses. The U.S. recession, the housing market downturn, and declining real estate values in our markets have negatively impacted aspects of our loan portfolio, and have led in recent past years to an increase in non-performing loans, charge-offs, and the allowance for loan and lease losses. A continuedrenewed deterioration or prolonged delay in economic recovery in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan and lease losses.90Reserve for Unfunded Commitments—A-A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with the Bank’sBank'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.allowance for loan and lease losses. Provisions for unfunded commitment losses and recoveries on loans commitments previously charged-off, are added to the reserve for unfunded commitments, which is included in theOther Liabilities section of the consolidated balance sheets.Loan Fees and Direct Loan Origination Costs—Loan-Loans held for investment origination and commitment fees and direct loan origination costs are deferred and recognized as an adjustment to the yield over the life of the relatedportfolio loans.Restricted Equity Securities—Restricted-Restricted equity securities were $32.6$30.7 million and $34.5$33.4 million at December 31, 20112013 and 2010,2012, respectively. Federal Home Loan Bank stock amounted to $31.3$29.4 million and $33.2$32.2 million of the total restricted securities as of December 31, 20112013 and 2010,2012, respectively. Federal Home Loan Bank stock represents the Bank’sBank's investment in theUmpqua Holdings Corporation and SubsidiariesMoody’s Investors Services rating ofIn September 2012, the FHLB of Seattle was notified by the Federal Housing Finance Agency (“Finance Agency”) that it is now classified as Aaa was confirmed in August 2011, but a negative outlook was assigned“adequately capitalized” as Moody’s revised the rating outlook to negative for U.S. government debt and all issuers Moody’s considers directly-linkedcompared to the U.S. government. Standard and Poors’ rating is AA+, butprior classification of “undercapitalized.” Under Finance Agency regulations, the FHLB of Seattle may repurchase excess capital stock under certain conditions; however it also issuedmay not redeem stock or pay a negative outlook with the action reflecting the downgrade of the long-term sovereign credit rating of the U.S. in 2011.dividend without Finance Agency approval. Based on the above, the Company has determined there is not an other-than-temporary impairment on the FHLB stock investment as of December 31, 2011.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, 2011,2013, the Bank’sBank's minimum required investment in FHLB stock was $10.5 million.$13.5 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-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 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’sCompany's premises and equipment are capitalized.Management reviews long-lived and intangible 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-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 other non-interest expense in theConsolidated Statements of OperationsIncome.The Company performs a goodwill impairment analysis on an annual basis as of December 31. 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.91On at least an annual basis, we assess the qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The goodwillquantitative impairment test involves a two-step process. The first step compares the fair value of a reporting unit to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to proceed to the second step. In the second step the Company calculates the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The estimated fair value of the Company is allocated to all of the Company’s assets and liabilities, including any unrecognized identifiable intangibleMortgage 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 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 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 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 net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income.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. Key assumptions used in measuring the fair value of MSR as of December 31 were as follows: 2011 2010 2009 20.39% 18.54% 18.35% 8.60% 8.62% 8.70% 4.5 4.5 4.5 2013 2012 2011 Constant prepayment rate 12.74 % 21.39 % 20.39 % Discount rate 8.69 % 8.65 % 8.60 % Weighted average life (years) 6.0 4.7 4.5 The expected life of the loan can vary from management’smanagement's estimates due to prepayments by borrowers, especially when rates fall. Prepayments in excess of management’smanagement's estimates would negatively impact the recorded value of the mortgage servicing rights. The value of the mortgage servicing rights is also dependent upon the discount rate used in the model, which we base on current market rates. Management reviews this rate on an ongoing basis based on current market rates. A significant increase in the discount rate would reduce the value of mortgage servicing rights.SBA/USDA Loans Sales and Servicing—The-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 based upon the current market rates. The Bank records ana servicing asset representing the right to service loans for others when it sells a loan and retains the servicing rights. The carryingservicing asset is recorded at fair value of loans is allocated between the loanupon sale, and the servicing rights, based on their relative fair values. The fair value of servicing rights is estimated by discounting estimated net future cash flows from servicing using discount rates that approximate current market rates and using estimated prepayment rates. TheSubsequent to initial recognition, the servicing rights are carried at the lower of amortized cost or fair market value, and are amortized in proportion to, and over the period of, the estimated net servicing income, assuming prepayments.income.For purposes of evaluating and measuring impairment, the fair value of servicing rights are based onmeasured using a discounted estimated net future cash flow methodology, current prepayment speeds and market discount rates.model as described above. Any impairment is measured as the amount by which the carrying value of servicing rights for a stratuman interest rate-stratum exceeds its fair value. The carrying value of SBA/USDA servicing rights at December 31, 20112013 and 20102012 were $666,000$610,000 and $721,000,$498,000, respectively. No impairment charges were recorded for the years ended December 31, 2013, 2012 and 2011 2010 or 2009, related to SBA/USDA servicing assets.92A premium over the adjusted carrying value is received upon the sale of the guaranteed portion of an SBA or USDA loan. The Bank’sBank'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 portionUmpqua Holdings Corporation and Subsidiariesmay beis deferred and amortized as a yield enhancement on the retained portion in order to obtain a market equivalent yield.Non-Covered Other Real Estate Owned—Non-covered-Non-covered other real estate owned (“non-covered OREO”) 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 the property, which becomes the property’sproperty's new basis. Any write-downs based on the asset’sasset'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. Subsequent valuation adjustments are recognized within net loss on non-covered OREO. Revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other non-interest expense in theConsolidated Statements of OperationsIncome.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 for compliance with sales treatment under provisions established within FASB ASC 360-20,Real Estate Sales. 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.Covered Other Real Estate Owned— - All OREO acquired in FDIC-assisted acquisitions that are subject to a FDIC loss-share agreement are referred to as “covered OREO” and reported separately in our statementsConsolidated Statements of financial position.Financial Position. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s net realizable value, less selling costs.Covered OREO was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to non-interest expense, and will be mostly offset by non-interest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.Income Taxes—Income-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’sCompany'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.Derivative Loan Commitments—TheDerivatives-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. Effective in the second quarter of 2011, theThe Bank began executingalso executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. The Company recognizes all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate.earnings. None of the Company’s derivatives are designated as hedging instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, and the Company reports changes in fair values of its derivatives in current period net income.The fair value of the derivative 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, 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 a complete set of financial statements to shareholders. They are also required to report certain enterprise-wide information about the Company’sCompany's products and services, its activities in different geographic areas, and its reliance on major customers. The basis for determining the Company’sCompany's operating segments is the manner in which management operates the business. Management has identified three primary business segments, Community Banking, Mortgage Banking,Home Lending, and Wealth Management. Prior to January 1, 2011, the Company reported Retail Brokerage, consisting93Share-Based Payment—The Company has two active stock-based compensation plans that provide for the granting of stock options and restricted stock to eligible employees and directors. In-In accordance with FASB ASC 718,Stock Compensation,we recognize in the income statement the grant-date fair value of 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 Company’s 2003 StockAt the annual meeting on April 16, 2013, shareholders approved the Company's 2013 Incentive Plan provides(the “2013 Plan”), which, among other things, authorizes the issuance of equity awards to directors and employees and reserves 4,000,000 shares of the Company's common stock for grantingissuance under the plan. With the adoption of stock optionsthe 2013 Plan, no additional grants can be issued under the previous plans. The Company also assumed various plans in connection with mergers and restricted stock awards.acquisitions but does not make grants under those plans. Stock options and restricted stock awards generally vest ratably over 5three to five years and are recognized as expense over that same period of time.The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model using assumptions noted in the following table.table or a Monte Carlo simulation pricing model. Expected volatility is based on the historical volatility of the price of the Company’sCompany's common stock. The Company uses historical data to estimate option exercise and stock option forfeiture rates within the valuation model. The expected term of options granted is determined based on historical experience with similar options, giving consideration to the contractual terms and vesting schedules, and represents the period of time that options granted are expected to be outstanding. The expected dividend yield is based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant corresponding to the estimated expected term of the options granted. There were no stock options granted in 2013. The following weighted average assumptions were used to determine the fair value of stock option grants as of the grant date to determine compensation cost for the years ended December 31, 2011, 20102012 and 2009: 2011 2010 2009 2.79% 2.72% 2.23% 7.1 7.1 7.3 52% 52% 46% 2.71% 2.69% 2.18% $ 4.65 $ 5.24 $ 3.65 The Company’s 2007 Long Term Incentive Plan provides for granting of restricted stock units for the benefit of certain executive officers. 2012 2011 Dividend yield 3.90 % 2.79 % Expected life (years) 7.4 7.1 Expected volatility 53 % 52 % Risk-free rate 1.27 % 2.71 % Weighted average fair value of options on date of grant $ 4.39 $ 4.65 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. The current restricted stock units outstandingconditions and cliff vest after three years based on performance and servicethose conditions. Compensation expense is recognized over the service period to the extent restricted stock units are expected to vest.Earnings per Share—According-According to the provisions of FASB ASC 260,Earnings Per Share, 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 less any preferred dividends accumulated for the period (whether or not declared), 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 toUmpqua Holdings Corporation and SubsidiariesDiluted 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, warrants, stock options, certain restricted stock awards and restricted stock units are the only 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.Advertising expenses—Advertising-Advertising costs are generally expensed as incurred.94Fair Value Measurements—- FASB ASC 820,Fair Value Measurements and Disclosure, (“ASC 820”), defines fair value 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. ASC 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded 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 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.Recently Issued Accounting Pronouncements—- In April 2011,July 2012, the FASB issued ASU No. 2011-02,A Creditor’s Determination2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. With the Update, a company testing indefinite-lived intangibles for impairment now has the option to assess qualitative factors to determine whether the existence of Whether a Restructuringevents and circumstances indicates that it is a Troubled Debt Restructuring. The Update provides additional guidance relatingmore likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to when creditors should classify loan modifications as troubled debt restructurings. The ASU also endstake further action. However, if an entity concludes otherwise, then it is required to determine the deferral issued in January 2010fair value of the disclosures about troubled debt restructurings requiredindefinite-lived intangible asset and perform the quantitative impairment test by ASU No. 2010-20.comparing the fair value with the carrying amount in accordance with current guidance. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The provisions of ASU No. 2011-02 and the disclosure requirements of ASU No. 2010-20amendments are effective for the Company’sannual and interim reporting period endinggoodwill impairment tests performed for fiscal years beginning after September 30, 2011. The guidance applies retrospectively to restructurings occurring on or after January 1, 2011.15, 2012. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.In April 2011,October 2012, the FASB issued ASU No. 2011-03,ReconsiderationASU. 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of Effective Control for Repurchase Agreementsa Government-Assisted Acquisition of a Financial Institution. The Update amends existing guidance to remove from the assessmentclarifies that when an entity recognizes an indemnification asset as a result of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem thea government-assisted acquisition of a financial assets on substantially the agreed terms, eveninstitution and subsequently, a change in the eventcash flows expected to be collected on the indemnification asset occurs, as a result of default bya change in cash flows expected to be collected on the transferee and,assets subject to indemnification, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as well, the collateral maintenance implementation guidance relatedchange in the assets subject to that criterion. ASU No. 2011-03 isindemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement. The amendments are effective for the Company’sannual and interim reporting periodperiods beginning on or after December 15, 2011. The guidance applies prospectively to transactions or modification of existing transactions that occur on or after the effective date and early adoption is not permitted.2012. The adoption of this ASU willdid not have a material impact on the Company’s consolidated financial statements.In April 2011,January 2013, the FASB issued ASU No. 2011-04,Amendments to Achieve Common Fair Value Measurement2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Disclosure Requirements in U.S. GAAP and IFRSsLiabilities. The Update amends existing guidance regarding the highest and best use and valuation premise by clarifying these concepts are only applicable to measuring the fair value of nonfinancial assets. The Update alsothe fair value measurementASU. 2011-11 applies only to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. Entities with other types of financial assets and financial liabilities which have offsetting market riskssubject to a master netting arrangement or counterparty credit risks thatsimilar agreement are managed on a portfolio basis, when several criteria are met, can be measured at the net risk position. Additional disclosures about Level 3 fair value measurements are required including a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and discussion of the sensitivity of fair value changes in unobservable inputs and interrelationships about those inputs as well disclosure of the level of the fair value of items that are not measured at fair value in the financial statements but disclosure of fair value is required. The provisions of ASU No. 2011-04 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied prospectively. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.In June 2011, the FASB issued ASU No. 2011-05,Presentation of Comprehensive Income. The Update amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions do not change the items that must be reported in other comprehensive income or when an item of other comprehensive must to reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) relatedno longer subject to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU No. 2011-05 are effective for the Company’s reporting period beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted and there are no required transition disclosures. In December 2011, the FASB issued ASU No. 2011-12,Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Incomedisclosure requirements in Accounting Standards Update No. 2011-05. The ASU defers indefinitely the requirement to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. The Company is currently in the process of evaluating the Updates but does not expect either will have a material impact on the Company’s consolidated financial statements.In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. With the Update, a company testing goodwill for impairment now has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (the first step of goodwill impairment test). If, on the basis of qualitative factors, the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Additionally, new examples of events and circumstances that an entity should consider in performing its qualitative assessment about whether to proceed to the first step of the goodwill impairment have been made to the guidance and replace the previous guidance for triggering events for interim impairment assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.In December 2011, the FASB issued ASU No. 2011-11,Disclosures about Offsetting Assets and Liabilities. The update requires an entity to offset, and present as a single net amount, a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.ASU. 2011-11. The amendments are effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently in the processadoption of evaluating thethis ASU but doesdid not expect it will have a material impact on the Company’s consolidated financial statements.In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The adoption of ASU No. 2013-02 did not have a material impact on the Company's consolidated financial statements.In July 2013, the FASB issued ASU No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or redesiginated hedging relationships entered into on or after July 17, 2013. The adoption of ASU No. 2013-10 did not have a material impact on the Company's consolidated financial statements.95In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. No new recurring disclosures are required. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2013 and are to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's consolidated financial statements.In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. ASU 2014-04 permit an entity to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and should be applied prospectively. The Company is currently reviewing the requirements of ASU No. 2014-01, but does not expect the ASU to have a material impact on the Company's consolidated financial statements.In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's consolidated financial statements.Reclassifications—- Certain amounts reported in prior years’years' financial statements have been reclassified to conform to the current presentation. The results of the reclassifications are not considered material and have no effect on previously reported net earnings (losses) available to common shareholders and earnings (losses) per common share.Umpqua HoldingsNote 2 – Business Combinations Sterling Financial CorporationOn September 11, 2013, the Company entered into an Agreement and SubsidiariesNOTE 2. BUSINESS COMBINATIONSOn January 22, 2010,Plan of Merger (the "Merger Agreement") with Sterling Financial Corporation, a Washington corporation ("Sterling"). The Merger Agreement provides that Sterling will merge with and into the Washington Department of Financial Institutions closed EvergreenBank (“Evergreen”Company (the "Merger"), Seattle, Washingtonwith the Company as the surviving corporation in the Merger. Immediately following the Merger, Sterling's wholly owned subsidiary, Sterling Savings Bank, will merge with and appointedinto the Bank (the "Bank Merger"), with the Bank as the surviving bank in the Bank Merger. Holders of shares of common stock of Sterling will have the right to receive 1.671 shares of the Company's common stockThe completion of the Merger is subject to customary conditions, including (1) adoption of the Merger Agreement by Sterling's shareholders and by the Company's shareholders, (2) approval of an amendment to the Company's articles of incorporation to increase the number of authorized shares of the Company's common stock, (3) authorization for listing on the NASDAQ of the shares of the Company's common stock to be issued in the Merger, (4) the receipt of required regulatory approvals for the Merger and the Bank Merger from the Federal Reserve Board, Federal Deposit Insurance Corporation (“FDIC”and Oregon and Washington state bank regulators, in each case without the imposition of any materially burdensome regulatory condition, (5) effectiveness of the registration statement on Form S-4 for the Company's common stock to be issued in the Merger, and (6) the absence of any order, injunction or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party's obligation to complete the Merger is also subject to certain additional customary conditions. The Merger Agreement provides certain termination rights for both the Company and Sterling and further provides that, upon termination of the Merger Agreement under certain circumstances, the Company or Sterling, as applicable, will be obligated to pay the other party a termination fee of $75 million. The Merger is expected to be completed in the second quarter of 2014.96Financial Pacific Holding Corp.On July 1, 2013, the Bank acquired Financial Pacific Holding Corp. ("FPHC") based in Federal Way, Washington, and its subsidiary, Financial Pacific Leasing, Inc ("FinPac Leasing"), and its subsidiaries, Financial Pacific Funding, Inc. ("FPF"), Financial Pacific Funding II, Inc. ("FPF II") and Financial Pacific Funding III, Inc. ("FPF III"). As part of the same transaction, the Company acquired two related entities, FPC Leasing Corporation ("FPC") and Financial Pacific Reinsurance Co., Ltd. ("FPR"). FPHC, FinPac Leasing, FPF, FPF II, FPF III, FPC and FPR are collectively referred to herein as receiver. That same date, Umpqua Bank assumed"FinPac". FinPac provides business-essential commercial equipment leases to various industries throughout the bankingUnited States and Canada. It originates leases through its brokers, lessors, and direct marketing programs. The results of FinPac's operations are included in the consolidated financial statements as of EvergreenJuly 1, 2013.The aggregate consideration for the FinPac purchase was $158.0 million. Of that amount, $156.1 was distributed in cash, and $1.9 million was exchanged for restricted shares of the Company stock. The restricted shares were issued from the FDIC underCompany’s 2013 Incentive Plan pursuant to employment agreements between the Company and certain executives of FinPac, vest over a whole bank purchaseperiod of either two or three years, and assumption agreement with loss-sharing. Underwill be recognized over that time period within the termssalaries and employee benefits line item on the Consolidated Statements of Income. The structure of the loss-sharing agreement,transaction was as follows:The Bank acquired all of the FDIC will coveroutstanding stock of FPHC, a substantialshell holding company, which is the sole shareholder of FinPac Leasing, the primary operating subsidiary of FinPac that engages in equipment leasing and financing activities, and is also the sole shareholder of FPF and FPF III, which are bankruptcy-remote entities that serve as lien holder for certain leases. FinPac Leasing is also the sole shareholder of FPF II, which no longer engages in any activities or holds any assets and is anticipated to be wound up in the near future.The Company acquired all of the outstanding stock of FPC, a Canadian leasing subsidiary, and FPR, a corporation organized in the Turks & Caicos Islands that reinsures a portion of any future lossesthe liability risk of each insurance policy that is issued by a third party insurance company on loans, related unfunded loan commitments, other real estate owned (“OREO”) and accrued interest on loans for upleased equipment when the lessee fails to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveriesmeet its contractual obligations under the lease or financing agreement to obtain insurance on the first $90.0 million on covered assets for Evergreenleased equipment.The acquisition provides diversification, and absorb 95% of losses and share in 95% of loss recoveries exceeding $90.0 million, except the Bank will incur losses up to $30.2 million before the loss-sharing will commence. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date. With this agreement, Umpqua Bank assumed six additional store locations in the greater Seattle, Washington market. This acquisitiona scalable platform that is consistent with our community banking expansion strategy and provides further opportunity to fill in our market presenceinitiatives that the Bank has completed over the last three years, including growth in the greater Seattle, Washington market.On February 26, 2010, the Washington Department of Financial Institutions closed Rainier Pacific Bank (“Rainier”), Tacoma, Washingtonbusiness banking, agricultural lending and appointed the FDIC as receiver. That same date, Umpqua Bank assumed the banking operations of Rainier from the FDIC under a whole bank purchase and assumption agreement with loss-sharing. Under the termshome builder lending groups. The transaction leverages excess capital of the loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREOCompany and accrued interest on loans for updeploys excess liquidity into significantly higher yielding assets, provides growth and diversification, and is anticipated to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $95.0 million of losses on covered assets and absorb 95% of losses and share in 95% of loss recoveries exceeding $95.0 million. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates. With this agreement, Umpqua Bank assumed 14 additional store locations in Pierce County and surrounding areas. This acquisition expands our presence in the south Puget Sound region of Washington State.The operations of Evergreen and RainierFinPac are included in our operating results from January 23, 2010 and February 27, 2010, respectively,July 1, 2013, and added combined revenue of $46.2 million and $54.0$29.9 million, non-interest expense of $25.3$8.8 million, and $23.6 million, and earningsnet income of $13.8 million and $11.0$9.5 million net of tax, for the yearsyear ended December 31, 2011 and 2010, respectively. These operating results include a bargain purchase gain of $6.4 million for the year ended December 31, 2010, which is not indicative of future operating results. Evergreen’s and Rainiers’s2013. FinPac's results of operations prior to the acquisition are not included in our operating results. Merger-relatedMerger related expenses of $92,000 and $4.4$1.6 million for the yearsyear ended December 31, 2011 and 2010 have been incurred in connection with these acquisitions and recognized in a separate line item on theCondensed Consolidated Statements of Operations.2013On June 18, 2010, the Nevada State Financial Institutions Division closed Nevada Security Bank (“Nevada Security”), Reno, Nevada and appointed the FDIC as receiver. That same date, Umpqua Bank assumed the banking operations of Nevada Security from the FDIC under a whole bank purchase and assumption agreement with loss-sharing. Under the terms of the loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREO, and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on all covered assets. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates. With this agreement, Umpqua Bank now assumed five additional store locations, including three in Reno, Nevada, one in Incline Village, Nevada, and one in Roseville, California. This acquisition expands our presence into the State of Nevada.The operations of Nevada Security are included in our operating results from June 19, 2010, and added revenue of $18.6 million and $15.1 million, non-interest expense of $11.3 million and $7.3 million, and earnings of $2.1 million and $1.3 million, net of tax, for the years ended December 31, 2011 and 2010, respectively. Nevada Security’s results of operations prior to the acquisition are not included in our operating results. Merger-related expenses of $101,000 and $1.7 million for the years ended December 31, 2011 and 2010 have been incurred in connection with the acquisition of Nevada SecurityFinPac and are recognized as a separatewithin the merger related expenses line item on theCondensed Consolidated Statements of Operations.Income.We refer toA summary of the net assets acquired loan portfolios and other real estate owned as “covered loans” and “covered other real estate owned”, respectively, and thesethe estimated fair value adjustments of FinPac are presented as separate line items below:(in our consolidated balance sheet. Collectively these balances are referred to as “covered assets”. FinPac July 1, 2013 Cost basis net assets $ 61,446 Cash payment paid (156,110 ) Fair value adjustments: Non-covered loans and leases, net 6,881 Other intangible assets (8,516 ) Other assets (1,650 ) Term debt (400 ) Other liabilities 1,572 Goodwill $ (96,777 ) The statement of assets acquired and liabilities assumed at their fair values of FinPac are presented below. Additional adjustments to the purchase price allocation may be required, specifically to leases, other assets, other liabilities and taxes.(in thousands)97 FinPac July 1, 2013 Assets Acquired: Cash and equivalents $ 6,452 Non-covered loans and leases, net 264,336 Premises and equipment 491 Goodwill 96,777 Other assets 8,015 Total assets acquired $ 376,071 Liabilities Assumed: Term debt 211,204 Other liabilities 8,757 Total liabilities assumed 219,961 Net Assets Acquired $ 156,110 No accrued restructuring charges were recorded with the FinPac acquisition.Non-covered leases acquired from FinPac that are not subject to the requirements of FASB ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30") are presented below at acquisition:(in thousands) FinPac July 1, 2013 Contractually required payments $ 350,403 Purchase adjustment for credit $ (20,520 ) Balance of non-covered loans and leases, net $ 264,336 The following tables present unaudited pro forma results of operations for the years ended December 31, 2013 and 2012 as if the acquisition of FinPac had occurred on January 1, 2012. The proforma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisitions actually occurred on January 1, 2012.98(in thousands, except per share data) December 31, 2013 Pro Forma Pro Forma Company FinPac (a) Adjustments Combined Net interest income $ 404,965 $ 25,526 $ (6,891 ) (b) $ 423,600 Provision for non-covered loan and lease losses 16,829 3,272 — (c) 20,101 Recapture of provision for covered loan losses (6,113 ) — — (6,113 ) Non-interest income 121,441 1,312 — 122,753 Non-interest expense 364,661 8,596 (76 ) (d) 373,181 Income before provision for income taxes 151,029 14,970 (6,815 ) 159,184 Provision for income taxes 52,668 5,835 (2,835 ) (e) 55,668 Net income 98,361 9,135 (3,980 ) 103,516 Dividends and undistributed earnings allocated to participating securities 788 — 41 829 Net earnings available to common shareholders $ 97,573 $ 9,135 $ (4,021 ) $ 102,687 Earnings per share: Basic $ 0.87 $ 0.92 Diluted $ 0.87 $ 0.92 Average shares outstanding: Basic 111,938 111,938 Diluted 112,176 112,176 (a) FinPac amounts represent results from January 1, 2013 to June 30, 2013.(b) Adjustment of interest income from leases due to the estimated loss of income from the Evergreen, Rainier,write-off of FinPac's loan mark (related to a prior acquisition) and Nevada Security acquisitions havethe amortization of the new interest rate mark and the accretion of the acquisition accounting adjustment relating to the credit mark. The amortization period will be the contractual lives of the leases, which is approximately four years, and will be amortized into income using the effective yield method.(c) As acquired leases are recorded at fair value, Umpqua would expect a reduction in the historical provision for loan and leases losses from FinPac; however, no adjustment to the historical amount of FinPac provision for loan and lease losses is reflected.(d) Adjustment to reflect additional compensation expense related to restricted stock granted to FinPac management and the removal of FinPac director compensation and travel fees, and FinPac management fees of the Financial Pacific Holdings, LLC entity which was not acquired.(e) Income tax effect of pro forma adjustments at the Company's statutory tax rate of 35%.99(in thousands, except per share data) December 31, 2012 Pro Forma Pro Forma Company FinPac (a) Adjustments Combined Net interest income $ 407,236 $ 50,809 $ (5,332 ) (b) $ 452,713 Provision for non-covered loan and lease losses 21,796 7,291 — (c) 29,087 Provision for covered loan losses 7,405 — — 7,405 Non-interest income 136,829 4,132 — 140,961 Non-interest expense 359,652 16,101 (1,236 ) (d) 374,517 Income before provision for income taxes 155,212 31,549 (4,096 ) 182,665 Provision for income taxes 53,321 12,192 (1,434 ) (e) 64,079 Net income 101,891 19,357 (2,662 ) 118,586 Dividends and undistributed earnings allocated to participating securities 682 — 112 794 Net earnings available to common shareholders $ 101,209 $ 19,357 $ (2,774 ) $ 117,792 Earnings per share: Basic $ 0.90 $ 1.05 Diluted $ 0.90 $ 1.05 Average shares outstanding: Basic 111,935 111,935 Diluted 112,151 112,151 (a) FinPac amounts represent results from January 1, 2012 to December 31, 2012.(b) Adjustment of interest income from leases due to the estimated loss of income from the write-off of FinPac's loan mark (related to a prior acquisition) and the amortization of the new interest rate mark and the accretion of the acquisition accounting adjustment relating to the credit mark. The amortization period will be the contractual lives of the leases, which is approximately four years, and will be amortized into income using the effective yield method.(c) As acquired leases are recorded at fair value, Umpqua would expect a reduction in the historical provision for loan and leases losses from FinPac; however, no adjustment to the historical amount of FinPac provision for loan and lease losses is reflected.(d) Adjustment to reflect additional compensation expense related to restricted stock granted to FinPac management and the removal of FinPac director compensation and travel fees, FinPac management fees, and other expenses of Financial Pacific Holdings, LLC entity which was not acquired.(e) Income tax effect of pro forma adjustments at the Company's statutory tax rate of 35%.Circle BancorpOn November 14, 2012, the Company acquired all of the assets and liabilities of Circle Bancorp (“Circle”), which has been accounted for under the acquisition method of accounting.accounting for cash consideration of $24.9 million, including the redemption of all common and preferred shares and outstanding warrants and options. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition dates. The fair valuesdates, and were subject to change for up to one year after the closing date of the assets acquiredacquisition. This acquisition was consistent with the Company's overall banking expansion strategy and liabilities assumed were determined based onprovided further opportunity to enter growth markets in the requirementsSan Francisco Bay Area of California.Upon completion of the Fair Value Measurementsacquisition, all Circle Bank branches operated under the Umpqua Bank name. The acquisition added Circle Bank's network of six branches in Corte Madera, Novato, Petaluma, San Francisco, San Rafael and Disclosures topicSanta Rosa, California to Umpqua Bank's network of the Financial Accounting Standards Board Accounting Standards Codification (the “FASB ASC”). The terms of the agreements provide for the FDIC to indemnify the Bank against claims with respect to liabilities of Evergreen, Rainier,locations in California, Oregon, Washington and Nevada Security not assumed by the Bank and certain other types of claims identified in the agreement.Nevada. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain$11.9 million of $6.4goodwill. There is no tax deductible goodwill or other intangibles.The operations of Circle are included in our operating results from November 15, 2012, and added revenue of $17.0 million and $2.3 million, non-interest expense of $6.6 million and $2.8 million, and net income of $5.8 million and net loss of $306,000, net of tax, for the years ended December 31, 2013 and 2012, respectively. Circle's results of operations prior to the acquisition are not included in our operating results. Merger-related expenses of $996,000 and $1.9 million for the Evergreenyears ended December 31, 2013 and 2012, respectively, have been incurred in connection with the acquisition $35.8 million of goodwill inCircle and recognized within the Rainier acquisition and $10.4 millionmerger related expenses line item on the Consolidated Statements of goodwill in the Nevada Security acquisition.A summary of the net assets (liabilities) received from the FDICacquired and the estimated fair value adjustments of Circle are presented below:100(in thousands) Evergreen Rainier Nevada Security January 22, 2010 February 26, 2010 June 18, 2010 $ 58,811 $ (50,295 ) $ 53,629 — 59,351 (29,950 ) (117,449 ) (103,137 ) (112,975 ) (2,422 ) (6,581 ) (17,939 ) 440 6,253 322 71,755 76,603 99,160 (1,023 ) (1,828 ) (1,950 ) (2,496 ) (13,035 ) — (1,179 ) (3,139 ) (690 ) $ 6,437 $ (35,808 ) $ (10,393 ) In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer or the acquirer may be required to make payment to the FDIC.In the Evergreen acquisition, cost basis net assets of $58.8 million were transferred to the Company. The bargain purchase gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.In the Rainier acquisition, cost basis net liabilities of $50.3 million and a cash payment received from the FDIC of $59.4 million were transferred to the Company. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired. Goodwill of $27.6 million and core deposit intangible assets of $1.1 million recognized are deductible for income tax purposes.In the Nevada Security acquisition, cost basis net assets of $53.6 million were transferred to the Company and a cash payment of $30.0 million was made to the FDIC. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired. Goodwill of $36.8 million and core deposit intangible assets of $322,000 recognized are deductible for income tax purposes.The Bank did not immediately acquire all the real estate, banking facilities, furniture or equipment of Evergreen, Rainier, or Nevada Security as part of the purchase and assumption agreements. Rather, the Bank was granted the option to purchase or lease the real estate and furniture and equipment from the FDIC. The term of this option expired 90 days from the acquisitionUmpqua Holdings Corporation and Subsidiariesdates, unless extended by the FDIC. Acquisition costs of the real estate and furniture and equipment are based on current mutually agreed upon appraisals. Prior to the expiration of option term, Umpqua exercised the right to purchase approximately $344,000 of furniture and equipment for Evergreen, $26.3 million of real estate and furniture and equipment for Rainier, and $2.0 million of real estate, furniture and equipment for Nevada Security. Circle Bank November 14, 2012 Cost basis net assets $ 17,127 Cash payment paid (24,860 ) Fair value adjustments: Non-covered loans and leases, net (2,622 ) Other intangible assets 830 Non-covered other real estate owned (487 ) Deposits (904 ) Term debt (2,404 ) Other 1,407 Goodwill $ (11,913 ) The statement of assets acquired and liabilities assumed at their estimated fair values of Evergreen, Rainier, and Nevada SecurityCircle are presented below:(in thousands) Evergreen Rainier Nevada Security January 22, 2010 February 26, 2010 June 18, 2010 $ 18,919 $ 94,067 $ 66,060 3,850 26,478 22,626 252,493 458,340 215,507 — 17 50 3,073 13,712 2,951 — 35,808 10,393 440 6,253 322 — 62 — 2,421 6,580 17,938 71,755 76,603 99,160 328 3,254 2,588 $ 353,279 $ 721,174 $ 437,595 $ 285,775 $ 425,771 $ 437,299 60,813 293,191 — 254 2,212 296 346,842 721,174 437,595 $ 6,437 $ — $ — Rainier’s assets Circle Bank November 14, 2012 Assets Acquired: Cash and equivalents $ 39,328 Investment securities 793 Non-covered loans and leases, net 246,665 Premises and equipment 7,695 Restricted equity securities 2,491 Goodwill 11,913 Other intangible assets 830 Non-covered other real estate owned 1,602 Other assets 6,478 Total assets acquired $ 317,795 Liabilities Assumed: Deposits $ 250,408 Junior subordinated debentures 8,764 Term debt 55,404 Other liabilities 3,219 Total liabilities assumed $ 317,795 Accrued restructuring charges relating to the Circle acquisition are recorded in other liabilities and liabilities were none and $631,000 at December 31, 2013 and 2012, respectively.Non-covered loans acquired from Circle that are not subject to the requirements of FASB ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30") are presented below at acquisition:(in thousands) Circle Bank November 14, 2012 Contractually required principal payments $ 242,999 Purchase adjustment for credit (5,760 ) Balance of performing non-covered loans $ 240,850 101Non-covered loans acquired from Circle that are subject to the requirements of ASC 310-30 are presented below at acquisition and as of December 31, 2013 and December 31, 2012: (in thousands) December 31, December 31, November 14, 2013 2012 2012 Contractually required principal payments $ 5,523 $ 12,231 $ 12,252 Carrying balance of acquired purchase credit impaired non-covered loans $ 2,268 $ 5,809 $ 5,815 The acquisition of Circle is not considered significant at a level to require disclosure of one year of historicalthe Company's financial statements and relatedtherefore pro forma financial disclosure. However, given the pervasive nature of the loss-sharing agreement entered into with the FDIC, the historical information of Rainier is much less relevant for purposes of assessing the future operations of the combined entity. In addition, prior to closure Rainier had not completed an audit of their financial statements, and we determined that audited financial statements were not and would not be reasonably available for the year ended December 31, 2009. Given these considerations, the Company requested, and received, relief from the Securities and Exchange Commission from submitting certain financial information of Rainier. The assets and liabilities of Evergreen and Nevada Security were not at a level that requires disclosure of historical or pro forma financial information.The Company incurs significant expenses related to mergers that cannot be capitalized. Generally, these expenses begin to be recognized while due diligence is being conducted and continue until such time as all systems have been converted and operational functions become fully integrated. Merger-related expenses are presented as a line item on theConsolidated Statements of Operations.2011, 20102013, 2012 and 2009.2011. Substantially all of the merger-related expenses incurred during 20102013 were in connection with the acquisition of FinPac and the proposed merger of Sterling. Substantially all of the merger-related expenses incurred during 2012 were in connection with the acquisition of Circle Bancorp and substantially all of the merger-related expenses incurred during 2011 were in connection with the FDIC-assisted purchase and assumption of Evergreen Bank, Rainier Pacific Bank, and Nevada Security. Substantially all of the merger-related expenses incurred during 2009 were in connection with the FDIC-assisted purchase and assumption of certain assets and liabilities of the Bank of Clark County.Merger-Related Expense(in thousands) 2011 2010 2009 $ 173 $ 2,984 $ 143 — 962 39 — 330 61 82 630 2 11 710 — 94 1,059 28 $ 360 $ 6,675 $ 273 2013 2012 2011 Professional fees $ 7,755 $ 1,145 $ 173 Compensation and relocation 158 856 — Communications 49 66 — Premises and equipment 44 29 82 Travel 140 98 11 Other 690 144 94 Total $ 8,836 $ 2,338 $ 360 No additional merger-related expenses are expected in connection with the Circle acquisition or the FDIC-assisted purchase and assumption of Evergreen, Rainier, and Nevada Security assumptions or any other prior acquisitions.Note 3 – Cash and Due From BanksNOTE 3. CASH AND DUE FROM BANKS20112013 and 20102012 was approximately $33.6$27.2 million and $31.8$29.8 million, respectively, and was met by holding cash and maintaining an average balance with the Federal Reserve Bank.NOTE 4. INVESTMENT SECURITIESNote 4The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at December 31, 2011 and 2010:December 31, 20112013(in thousands) Amortized
Cost Unrealized
Gains Unrealized
Losses Fair Value $ 117,232 $ 1,234 $ (1 ) $ 118,465 237,302 16,264 (13 ) 253,553 2,755,153 43,152 (3,950 ) 2,794,355 151 — (17 ) 134 1,959 112 — 2,071 $ 3,111,797 $ 60,762 $ (3,981 ) $ 3,168,578 $ 1,335 $ 2 $ — $ 1,337 3,379 120 (77 ) 3,422 $ 4,714 $ 122 $ (77 ) $ 4,759 Umpqua Holdings Corporation and SubsidiariesDecember 31, 20102013102(in thousands) Amortized
Cost Unrealized
Gains Unrealized
Losses Fair Value $ 117,551 $ 1,239 $ (1 ) $ 118,789 213,129 4,985 (1,388 ) 216,726 2,543,974 57,506 (19,976 ) 2,581,504 152 — — 152 1,959 50 — 2,009 $ 2,876,765 $ 63,780 $ (21,365 ) $ 2,919,180 $ 2,370 $ 5 $ — $ 2,375 2,392 216 (209 ) 2,399 $ 4,762 $ 221 $ (209 ) $ 4,774 Amortized Unrealized Unrealized Fair Cost Gains Losses Value AVAILABLE FOR SALE: U.S. Treasury and agencies $ 249 $ 20 $ (1 ) $ 268 Obligations of states and political subdivisions 229,969 7,811 (2,575 ) 235,205 Residential mortgage-backed securities and collateralized mortgage obligations 1,567,001 15,359 (28,819 ) 1,553,541 Investments in mutual funds and other equity securities 1,959 5 — 1,964 $ 1,799,178 $ 23,195 $ (31,395 ) $ 1,790,978 HELD TO MATURITY: Residential mortgage-backed securities and collateralized mortgage obligations $ 5,563 $ 330 $ (19 ) $ 5,874 $ 5,563 $ 330 $ (19 ) $ 5,874 December 31, 2012(in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value AVAILABLE FOR SALE: U.S. Treasury and agencies $ 45,503 $ 318 $ (1 ) $ 45,820 Obligations of states and political subdivisions 245,606 18,119 — 263,725 Residential mortgage-backed securities and collateralized mortgage obligations 2,291,253 28,747 (6,624 ) 2,313,376 Other debt securities 143 79 — 222 Investments in mutual funds and other equity securities 1,959 127 — 2,086 $ 2,584,464 $ 47,390 $ (6,625 ) $ 2,625,229 HELD TO MATURITY: Obligations of states and political subdivisions $ 595 $ 1 $ — $ 596 Residential mortgage-backed securities and collateralized mortgage obligations 3,946 197 (7 ) 4,136 $ 4,541 $ 198 $ (7 ) $ 4,732 Investment securities that were in an unrealized loss position as of December 31, 20112013 and 2010December 31, 2012 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:103December 31, 20112013(in thousands) Less than 12 Months 12 Months or Longer Total Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses $ — $ — $ 85 $ 1 $ 85 $ 1 516 13 — — 516 13 489,475 3,160 52,222 790 541,697 3,950 — — 134 17 134 17 $ 489,991 $ 3,173 $ 52,441 $ 808 $ 542,432 $ 3,981 $ — $ — $ 602 $ 77 $ 602 $ 77 $ — $ — $ 602 $ 77 $ 602 $ 77 Less than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses AVAILABLE FOR SALE: U.S. Treasury and agencies $ — $ — $ 32 $ 1 $ 32 $ 1 Obligations of states and political subdivisions 48,342 2,575 — — 48,342 2,575 Residential mortgage-backed securities and collateralized mortgage obligations 475,982 15,951 249,695 12,868 725,677 28,819 Total temporarily impaired securities $ 524,324 $ 18,526 $ 249,727 $ 12,869 $ 774,051 $ 31,395 HELD TO MATURITY: Residential mortgage-backed securities and collateralized mortgage obligations $ 156 $ 19 $ — $ — $ 156 $ 19 Total temporarily impaired securities $ 156 $ 19 $ — $ — $ 156 $ 19 Unrealized losses on the impaired held to maturity collateralized mortgage obligations include the unrealized losses related to factors other than credit that are included in other comprehensive income. December 31, 20102012(in thousands) Less than 12 Months 12 Months or Longer Total Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses $ — $ — $ 110 $ 1 $ 110 $ 1 60,110 1,366 1,003 22 61,113 1,388 1,238,483 19,968 1,539 8 1,240,022 19,976 $ 1,298,593 $ 21,334 $ 2,652 $ 31 $ 1,301,245 $ 21,365 $ — $ — $ 658 $ 209 $ 658 $ 209 $ — $ — $ 658 $ 209 $ 658 $ 209 Less than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses AVAILABLE FOR SALE: U.S. Treasury and agencies $ — $ — $ 59 $ 1 $ 59 $ 1 Residential mortgage-backed securities and collateralized mortgage obligations 780,234 5,548 106,096 1,076 886,330 6,624 Total temporarily impaired securities $ 780,234 $ 5,548 $ 106,155 $ 1,077 $ 886,389 $ 6,625 HELD TO MATURITY: Residential mortgage-backed securities and collateralized mortgage obligations $ — $ — $ 48 $ 7 $ 48 $ 7 Total temporarily impaired securities $ — $ — $ 48 $ 7 $ 48 $ 7 The unrealized losses on investments in U.S. Treasury and agenciesagency securities were caused by interest rate increases subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases,basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of December 31, 2011.2013. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases,basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at December 31, 20112013 are issued or guaranteed by governmental agencies. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment.104Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases,basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.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 declinechange in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely 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 likely 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 likely 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 flowsUmpqua Holdings Corporation and Subsidiariesaccordinglyaccording to the procedures described above.The following tables present the OTTI losses for For the years ended December 31, 2013, 2012, and 2011, 2010 and 2009.(in thousands) 2011 2010 2009 Held To
Maturity Available
For Sale Held To
Maturity Available
For Sale Held To
Maturity Available
For Sale $ 190 $ — $ 93 $ — $ 12,317 $ 239 169 — 321 — (1,983 ) — $ 359 $ — $ 414 $ — $ 10,334 $ 239 (1)Represents other-than-temporarywe recognized net impairment losses related to all other factors.(2)Represents other-than-temporary impairment losses related to credit losses.New guidance related to the recognition and presentation of OTTI of debt securities became effective beginning in the second quarter of 2009. Rather than asserting whether a Company has the ability and intent to hold an investment until a market price recovery, a Company must consider whether they intend to sell a security or if it is likely that they would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. The $8.2 million in OTTI recognized on investment securities held to maturity subsequent to March 31, 2009 primarily relates to 29 non-agency residential collateralized mortgage obligations. Each of these securities holds various levels of credit subordination. The underlying mortgage loans of these securities were originated from 2003 through 2007. At origination, the weighted average loan-to-value of the underlying mortgages was 69%; the underlying borrowers had weighted average FICO scores of 731, and 59% were limited documentation loans. These securities are valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimate cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as loan interest rates, geographic location, borrower characteristics and vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows are then discounted at the interest rate used to recognize interest income on each security. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows. The following table presents a summary of the significant inputs utilized to measure management’s estimate of the credit loss component on these non-agency residential collateralized mortgage obligations as of December 31, 2011 and 2010: 2011 2010 Range Weighted
Average Range Weighted
Average Minimum Maximum Minimum Maximum 10.0% 20.0% 14.0% 5.0% 20.0% 14.9% 5.0% 60.0% 22.6% 5.0% 15.0% 10.6% 27.5% 50.0% 32.5% 25.0% 55.0% 37.9% In the second quarter of 2009 the Company recorded an OTTI charge of $239,000 related to an available for sale collateralized debt obligation that holds trust preferred securities. Management noted certain deferrals and defaults in the pool and believes the impairment represents credit loss in its entirety. Through December 31, 2011, no further OTTI charges have been recorded on available for sale securities.The following table presents a roll forward of the credit loss component of held to maturity debt securities that have been written down for OTTI with the credit loss component recognized in earnings of none, $155,000, and the remaining impairment loss related to all other factors recognized in OCI for the years ended December 31, 2011 and 2010, respectively, since the adoption of the revised guidance related to the recognition and presentation of OTTI of debt securities: 2011 2010 $ 12,778 $ 12,364 359 414 (3,563 ) — $ 9,574 $ 12,778 Prior to the Company’s adoption of the new guidance related to the recognition and presentation of OTTI of debt securities which became effective in the second quarter of 2009, the Company would assess an OTTI or permanent impairment based on the nature of the decline and whether the Company had the ability and intent to hold the investments until a market price recovery. In the three months ended March 31, 2009, the Company recorded a $2.1 million OTTI charge. This charge related to three non-agency residential collateralized mortgage obligations carried as held to maturity for which the default rates and loss severities of the underlying collateral and credit coverage ratios of the security indicated that it was probable that credit losses were expected to occur. These securities were valued by third party pricing services using matrix or model pricing methodologies, and were corroborated by broker indicative bids. The remaining non-agency securities within residential mortgage-backed securities and collateralized mortgage obligations carried as held to maturity were specifically evaluated for OTTI, and the default rates and loss severities of the underlying collateral indicated that credit losses are not expected to occur. Upon adoption of the new OTTI guidance in the second quarter of 2009, the Company analyzed these securities as well as other securities where OTTI had been previously recognized, and determined that as of the adoption date such losses were credit related. As such, there was no cumulative effect adjustment to the opening balance of retained earnings or a corresponding adjustment to accumulated OCI.The following table presents the maturities of investment securities at December 31, 2011:(in thousands) Available For Sale Held To Maturity Amortized
Cost Fair
Value Amortized
Cost Fair
Value $ 22,142 $ 22,217 $ — $ — 424,824 429,396 330 331 2,272,876 2,310,113 1,096 1,155 310,639 323,164 1,023 1,010 79,357 81,617 2,265 2,263 1,959 2,071 — — $ 3,111,797 $ 3,168,578 $ 4,714 $ 4,759 Umpqua Holdings Corporation and Subsidiaries Available For Sale Held To Maturity Amortized Fair Amortized Fair �� Cost Value Cost Value AMOUNTS MATURING IN: Three months or less $ 15,169 $ 15,204 $ — $ — Over three months through twelve months 100,712 102,426 357 407 After one year through five years 1,055,812 1,067,340 728 983 After five years through ten years 554,722 534,083 44 49 After ten years 70,804 69,961 4,434 4,435 Other investment securities 1,959 1,964 — — $ 1,799,178 $ 1,790,978 $ 5,563 $ 5,874 The amortized cost and fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay underlying loans without prepayment penalties.The following table presents the gross realized gains and gross realized losses on the sale of securities available for sale for the years ended December 31, 2011, 20102013, 2012 and 2009:2011: (in thousands) 2011 2010 2009 Gains Losses Gains Losses Gains Losses $ — $ — $ — $ 1 $ — $ — 8 — 3 7 — 1 8,544 817 2,331 — 9,409 591 $ 8,552 $ 817 $ 2,334 $ 8 $ 9,409 $ 592 2013 2012 2011 Gains Losses Gains Losses Gains Losses U.S. Treasury and agencies $ — $ — $ 371 $ — $ — $ — Obligations of states and political subdivisions 10 1 10 1 8 — Residential mortgage-backed securities and collateralized mortgage obligations — — 4,578 953 8,544 817 Other debt securities 200 — 18 — — — $ 210 $ 1 $ 4,977 $ 954 $ 8,552 $ 817 105The following table presents, as of December 31, 2011,2013, investment securities which were pledged to secure borrowings, and public deposits, and repurchase agreements as permitted or required by law:(in thousands) Amortized Cost Fair Value $ 183,909 $ 190,176 738,780 759,019 191,740 194,200 $ 1,114,429 $ 1,143,395 The carrying value of investment securities pledged as of December 31, 2011 Amortized Fair Cost Value To Federal Home Loan Bank to secure borrowings $ 11,303 $ 11,689 To state and local governments to secure public deposits 833,068 824,737 Other securities pledged principally to secure repurchase agreements 324,253 318,708 Total pledged securities $ 1,168,624 $ 1,155,134 Note 5– Non-Covered Loans and December 31, 2010 was $1.1 billion and $1.5 billion.NOTE 5. NON-COVERED LOANS AND LEASES20112013 and 2010:(in thousands) 2011 2010 $ 3,558,295 $ 3,483,475 165,066 247,814 90,073 147,813 625,766 509,453 832,999 747,419 315,927 222,416 272,192 278,585 38,860 33,043 5,899,178 5,670,018 (11,080 ) (11,031 ) $ 5,888,098 $ 5,658,987 December 31, December 31, 2013 2012 Commercial real estate Non-owner occupied term, net $ 2,328,260 $ 2,316,909 Owner occupied term, net 1,259,583 1,276,840 Multifamily, net 403,537 331,735 Construction & development, net 245,231 200,631 Residential development, net 88,413 57,139 Commercial Term, net 770,845 797,061 LOC & other, net 987,360 890,808 Leases and equipment finance, net 361,591 31,270 Residential Mortgage, net 597,201 478,463 Home equity loans & lines, net 264,269 262,637 Consumer & other, net 48,113 37,587 Total loans and leases, net of deferred fees and costs $ 7,354,403 $ 6,681,080 As of December 31, 2011,2013, loans totaling $5.1$5.3 billion were pledged to secure borrowings and available lines of credit.NOTE 6. ALLOWANCE FOR NON-COVERED LOAN LOSS AND CREDIT QUALITYAt The following table presents the net investment in direct financing leases and loans, net as ofDecember 31, 2013 and 2012: (in thousands)106 December 31, December 31, 2013 2012 Minimum lease payments receivable $ 242,220 $ 26,265 Estimated guaranteed and unguaranteed residual value 8,455 3,163 Initial direct costs - net of accumulated amortization 3,824 — Unearned income (55,110 ) (3,238 ) Equipment finance loans, including unamortized deferred fees and costs 151,721 — Interim lease receivables 6,752 5,080 Accretable yield/purchase accounting adjustments 3,729 — Net investment in direct financing leases and loans $ 361,591 $ 31,270 Allowance for credit losses (3,775 ) (225 ) Net investment in direct financing leases and loans - net $ 357,816 $ 31,045 The following table presents the scheduled minimum lease payments receivable, excluding equipment finance loans, as of December 31, 2013:(in thousands)2014 $ 96,275 2015 68,310 2016 42,366 2017 23,790 2018 9,333 Thereafter 2,146 $ 242,220 Note 6– Allowance for Non-Covered Loan and Lease Loss and Credit Quality 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’sBank's Audit and Compliance Committee provides board oversight of the ALLL process and reviews and approves the ALLL methodology on a quarterly basis.Our methodology for assessing the appropriateness of the ALLL consists of three key elements, which include 1) the formula allowance; 2) the specific allowance; and 3) the unallocated allowance. By incorporating these factors into a single allowance requirement analysis, all risk-based activities within the loan portfolio are simultaneously considered.Formula AllowanceThe 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 or lease through the credit review process. The Company’sBank'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.loans and leases. Risk factors are assigned to each portfolio segment based on management’s evaluation of the losses inherent within each segment. Segments or regions with greater risk of loss will therefore be assigned a higher risk factor.Base risk—–The portfolio is segmented into loan categories, and these categories are assigned a Base Risk factor based on an evaluation of the loss inherent within each segment.107Extra risk—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.Umpqua Holdings Corporationloans and SubsidiariesChanges to risk factors—factors – Risk factors are assigned at origination and may be changed periodically based on management’s evaluation of the following factors: loss experience; changes in the level of non-performing loans;loans and leases; regulatory exam results; changes in the level of adversely classified loans and leases (positive or negative); improvement or deterioration in local economic conditions; and any other factors deemed relevant.Specific AllowanceRegular 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 Allowancespecific 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 with a specific allowance are excluded from the formula allowance so as not to double-count the loss exposure. The non-accrual impaired loans as of period end have already been partially charged offcharged-off to their estimated net realizable value, and are expected to be resolved over the coming quarters with no additional material loss, absent further decline in market prices.The combination of the formula allowance component and the specific allowance component representrepresents the allocated allowance for loan and lease losses.Unallocated AllowanceThe 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 10%5% of the allowance, but may be maintained at higher levels during times of deteriorating economic conditions characterized by falling real estate values. The unallocated amount is reviewed quarterly with consideration of factors including, but not limited to:loans;These factors are evaluated through a management survey of the Chief Credit Officer, Chief Lending Officer, Senior Credit Officers, Special AssetAssets Manager, and Credit Review Manager. The survey requests responses to evaluate current changes in the nine qualitativeManagement believes that the ALLL was adequate as of December 31, 2011.2013. 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. 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. Approximately 80%74% of our loan and lease portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the allowance for loan and lease losses. The recent U.S. recession, the housing market downturn, and declining real estate values in our markets have negatively impacted aspects of our loan and lease portfolio. A continued deterioration in our markets may adversely affect our loan and lease portfolio and may lead to additional charges to the provision for loan and lease losses.108The 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’smanagement's evaluation of numerous factors. For each portfolio segment, these factors include:portfolio’sportfolio's risk ratings;There have been no significant changes to the Bank’s methodology or policies in the periods presented.Activity in the Non-Covered Allowance for Loan and Lease LossesThe following table summarizes activity related to the allowance for non-covered loan and lease losses by non-covered loan and lease portfolio segment for the years endedDecember 31, 20112013 and 2010:2012, respectively: (in thousands) December 31, 2011 Commercial
Real Estate Commercial Residential Consumer
& Other Unallocated Total $ 64,405 $ 22,146 $ 5,926 $ 803 $ 8,641 $ 101,921 (36,011 ) (21,071 ) (6,333 ) (1,636 ) — (65,051 ) 5,906 3,348 239 385 — 9,878 25,274 16,062 7,793 1,315 (4,224 ) 46,220 $ 59,574 $ 20,485 $ 7,625 $ 867 $ 4,417 $ 92,968 Umpqua Holdings Corporation and Subsidiaries December 31, 2010 Commercial
Real Estate Commercial Residential Consumer
& Other Unallocated Total $ 67,281 $ 24,583 $ 5,811 $ 455 $ 9,527 $ 107,657 (71,030 ) (50,242 ) (5,168 ) (2,061 ) — (128,501 ) 6,980 1,318 334 465 — 9,097 61,174 46,487 4,949 1,944 (886 ) 113,668 $ 64,405 $ 22,146 $ 5,926 $ 803 $ 8,641 $ 101,921 December 31, 2013 Commercial Consumer Real Estate Commercial Residential & Other Unallocated Total Balance, beginning of period $ 54,909 $ 22,925 $ 6,925 $ 632 $ — $ 85,391 Charge-offs (7,445 ) (19,266 ) (3,458 ) (826 ) — (30,995 ) Recoveries 3,322 9,914 351 502 — 14,089 Provision 2,647 10,618 3,009 555 — 16,829 Balance, end of period $ 53,433 $ 24,191 $ 6,827 $ 863 $ — $ 85,314 December 31, 2012 Commercial Consumer Real Estate Commercial Residential & Other Unallocated Total Balance, beginning of period $ 59,574 $ 20,485 $ 7,625 $ 867 $ 4,417 $ 92,968 Charge-offs (22,349 ) (12,209 ) (5,282 ) (1,499 ) — (41,339 ) Recoveries 5,409 5,356 762 439 — 11,966 Provision 12,275 9,293 3,820 825 (4,417 ) 21,796 Balance, end of period $ 54,909 $ 22,925 $ 6,925 $ 632 $ — $ 85,391 The following table presents the allowance and recorded investment in non-covered loans and leases by portfolio segment and balances individually or collectively evaluated for impairment as of December 31, 20112013 and 2010,2012, respectively:(in thousands) December 31, 2011 Commercial
Real Estate Commercial Residential Consumer
& Other Unallocated Total $ 58,402 $ 17,877 $ 7,621 $ 867 $ 4,417 $ 89,184 1,172 2,608 4 — — 3,784 $ 59,574 $ 20,485 $ 7,625 $ 867 $ 4,417 $ 92,968 $ 3,673,455 $ 1,432,594 $ 587,990 $ 38,860 $ 5,732,899 139,979 26,171 129 — 166,279 $ 3,813,434 $ 1,458,765 $ 588,119 $ 38,860 $ 5,899,178 December 31, 2010 Commercial
Real Estate Commercial Residential Consumer
& Other Unallocated Total $ 61,885 $ 19,435 $ 5,918 $ 803 $ 8,641 $ 96,682 2,520 2,711 8 — — 5,239 $ 64,405 $ 22,146 $ 5,926 $ 803 $ 8,641 $ 101,921 $ 3,692,169 $ 1,221,365 $ 500,822 $ 33,043 $ 5,447,399 186,933 35,507 179 — 222,619 $ 3,879,102 $ 1,256,872 $ 501,001 $ 33,043 $ 5,670,018 (1)The gross non-covered loan and lease balance excludes deferred loans fees of $11.1 million and $11.0 million for the years ended December 31, 2011 and 2010, respectively.109 December 31, 2013 Commercial Consumer Real Estate Commercial Residential & Other Unallocated Total Allowance for non-covered loans and leases: Collectively evaluated for impairment $ 51,648 $ 24,179 $ 6,827 $ 863 $ — $ 83,517 Individually evaluated for impairment 1,785 12 — — — 1,797 Total $ 53,433 $ 24,191 $ 6,827 $ 863 $ — $ 85,314 Non-covered loans and leases: Collectively evaluated for impairment $ 4,235,744 $ 2,108,293 $ 861,470 $ 48,113 $ 7,253,620 Individually evaluated for impairment 89,280 11,503 — — 100,783 Total $ 4,325,024 $ 2,119,796 $ 861,470 $ 48,113 $ 7,354,403 (in thousands) December 31, 2012 Commercial Consumer Real Estate Commercial Residential & Other Unallocated Total Allowance for non-covered loans and leases: Collectively evaluated for impairment $ 53,513 $ 22,925 $ 6,920 $ 632 $ — $ 83,990 Individually evaluated for impairment 1,396 — 5 — — 1,401 Total $ 54,909 $ 22,925 $ 6,925 $ 632 $ — $ 85,391 Non-covered loans and leases: Collectively evaluated for impairment $ 4,059,419 $ 1,700,761 $ 740,925 $ 37,566 $ 6,538,671 Individually evaluated for impairment 123,835 18,378 175 21 142,409 Total $ 4,183,254 $ 1,719,139 $ 741,100 $ 37,587 $ 6,681,080 The non-covered loan and lease balance are net of deferred loans fees of $495,000 at December 31, 2013 and $12.1 million at December 31, 2012. Summary of Reserve for Unfunded Commitments ActivityThe following table presents a summary of activity in the reserve for unfunded commitments (“RUC”) and unfunded commitments at for the years endedDecember 31, 20112013 and 2010:2012, respectively: (in thousands) December 31, 2011 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 33 $ 575 $ 158 $ 52 $ 818 26 58 27 11 122 $ 59 $ 633 $ 185 $ 63 $ 940 December 31, 2010 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 57 $ 484 $ 144 $ 46 $ 731 (24 ) 91 14 6 87 $ 33 $ 575 $ 158 $ 52 $ 818 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 58,013 $ 605,001 $ 233,990 $ 47,577 $ 944,581 $ 33,326 $ 548,920 $ 210,574 $ 45,556 $ 838,376 December 31, 2013 Commercial Consumer Real Estate Commercial Residential & Other Total Balance, beginning of period $ 172 $ 807 $ 173 $ 71 $ 1,223 Net change to other expense 48 93 59 13 213 Balance, end of period $ 220 $ 900 $ 232 $ 84 $ 1,436 December 31, 2012 Commercial Consumer Real Estate Commercial Residential & Other Total Balance, beginning of period $ 59 $ 633 $ 185 $ 63 $ 940 Net change to other expense 113 174 (12 ) 8 283 Balance, end of period $ 172 $ 807 $ 173 $ 71 $ 1,223 110Non-Covered Loans Sold(in thousands) Commercial Consumer Real Estate Commercial Residential & Other Total Unfunded loan and lease commitments: December 31, 2013 $ 237,042 $ 1,012,257 $ 336,559 $ 52,588 $ 1,638,446 December 31, 2012 $ 196,292 $ 925,642 $ 257,508 $ 52,170 $ 1,431,612 Non-covered loans and leases sold In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans prior to resolution.and leases. The following table summarizes non-covered loans and leases sold by loan portfolio during the years endedDecember 31:(In thousands) 2011 2010 $ 7,143 $ 8,848 28 4,686 1,123 15,255 151 9,915 2,740 40 $ 11,185 $ 38,744 2013 2012 Commercial real estate Non-owner occupied term $ 4,039 $ 10,623 Owner occupied term 3,738 1,473 Multifamily — — Construction & development 3,515 — Residential development 363 12 Commercial Term 47,635 — LOC & other — 1,942 Leases and equipment finance — — Residential Mortgage 1,008 192 Home equity loans & lines — — Consumer & other — — Total $ 60,298 $ 14,242 Asset Quality and Non-Performing LoansWe manage asset quality and control credit risk through diversification of the non-covered loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank’sBank'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. Reviews of non-performing, past due non-covered 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.Umpqua Holdings Corporation and SubsidiariesA loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Generally, when non-covered loans are identified as impaired, they are moved to ourthe Special Assets Division. When we identify a loan as impaired, we measure the loan for potential 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 will use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every six to nine12 months. We obtain appraisals from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is: (a) currently licensed in the state in which the property is located, (b) is experienced in the appraisal of properties similar to the property being appraised, (c) is actively engaged in the appraisal work, (d) has knowledge of current real estate market conditions and financing trends, (e) is reputable, and (f) is not on Freddie Mac’s noror the Bank’s Exclusionary List of appraisers and brokers. In certain cases appraisals will be reviewed by our Real Estate Valuation Services groupGroup to ensure the quality111of the appraisal and the expertise and independence of the appraiser. Upon receipt and review, an external appraisal is utilized to measure a loan for potential impairment. Our impairment analysis documents the date of the appraisal used in the analysis, whether the officer preparing the report deems it current, and, if not, allows for internal valuation adjustments with justification. Typical justified adjustments might include discounts for continued market deterioration subsequent to appraisal date, adjustments for the release of collateral contemplated in the appraisal, or the value of other collateral or consideration not contemplated in the appraisal. An appraisal over one year old in most cases will be considered stale dated and an updated or new appraisal will be required. Any adjustments from appraised value to net realizable value are detailed and justified in the impairment analysis, which is reviewed and approved by senior credit quality officers and the Company’s Allowance for Loan and Lease Losses (“ALLL”)Bank's ALLL Committee. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, broker price opinions, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed and approved on a quarterly basis at or near the end of each reporting period. Appraisals or other alternative sources of value received subsequent to the reporting period, but prior to our filing of periodic reports, are considered and evaluated to ensure our periodic filings are materially correct and not misleading. Based on these processes, we do not believe there are significant time lapses for the recognition of additional loan loss provisions or charge-offs from the date they become known.Loans and leases are classified as non-accrual when collection of principal or interest is doubtful—generally if they are 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. Additionally, all loans that are impaired are considered for non-accrual status. Loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear relatively certain.Loans are reported as restructured 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 a reduction in the loan rate, 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.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 determined to be impaired are individually assessed for impairment except for impaired consumerhomogeneous loans which are collectively evaluated for impairment in accordance with FASB ASC 450,Contingencies (“(“ASC 450”). The specific factors considered in determining that a loan is impaired include borrower financial capacity, current economic, business and market conditions, collection efforts, collateral position and other factors deemed relevant. Generally, impairedThe CompanyBank has written down impaired, non-accrual loans as of December 31, 20112013 to their estimated net realizable value, generally based on disposition value, and expects resolution with no additional material loss, absent further decline in market prices.112Non-Covered Non-Accrual Loans and Leases and Loans and Leases Past DueThe following table summarizes our non-covered non-accrual loans and leases and loans and leases past due by loan and lease class as of December 31, 20112013 and December 31, 2010:(in thousands) December 31, 2011
covered $ 7,319 $ 11,184 $ — $ 18,503 $ 44,486 $ 3,495,306 $ 3,558,295 — 662 575 1,237 3,348 160,481 165,066 4,171 — — 4,171 15,836 70,066 90,073 2,075 738 1,179 3,992 8,120 613,654 625,766 5,435 1,697 1,397 8,529 8,772 815,698 832,999 215 965 4,343 5,523 — 310,404 315,927 492 191 2,648 3,331 — 268,861 272,192 67 16 679 762 — 38,098 38,860 $ 19,774 $ 15,453 $ 10,821 $ 46,048 $ 80,562 $ 5,772,568 $ 5,899,178 (11,080 ) $ 5,888,098 Umpqua Holdings Corporation and Subsidiaries December 31, 2010
covered $ 14,596 $ 8,328 $ 3,008 $ 25,932 $ 49,162 $ 3,408,381 $ 3,483,475 2,172 6,726 — 8,898 20,124 218,792 247,814 640 — — 640 34,586 112,587 147,813 2,010 932 — 2,942 6,271 500,240 509,453 5,939 1,418 18 7,375 28,034 712,010 747,419 1,314 1,101 3,372 5,787 — 216,629 222,416 1,096 1,351 232 2,679 — 275,906 278,585 361 233 441 1,035 — 32,008 33,043 $ 28,128 $ 20,089 $ 7,071 $ 55,288 $ 138,177 $ 5,476,553 $ 5,670,018 (11,031 ) $ 5,658,987 Non-covered December 31, 2013 30-59 60-89 Greater Than Total Non- Days Days 90 Days and Total Non- Current & covered Loans Past Due Past Due Accruing Past Due accrual Other (1) and Leases Commercial real estate Non-owner occupied term, net $ 3,618 $ 352 $ — $ 3,970 $ 9,193 $ 2,315,097 $ 2,328,260 Owner occupied term, net 1,320 340 610 2,270 6,204 1,251,109 1,259,583 Multifamily, net — — — — 935 402,602 403,537 Construction & development, net — — — — — 245,231 245,231 Residential development, net — — — — 2,801 85,612 88,413 Commercial Term, net 901 1,436 — 2,337 8,723 759,785 770,845 LOC & other, net 619 224 — 843 1,222 985,295 987,360 Leases and equipment finance, net 2,202 1,706 517 4,425 2,813 354,353 361,591 Residential Mortgage, net 1,050 342 2,070 3,462 — 593,739 597,201 Home equity loans & lines, net 473 563 160 1,196 — 263,073 264,269 Consumer & other, net 69 75 73 217 — 47,896 48,113 Total, net of deferred fees and costs $ 10,252 $ 5,038 $ 3,430 $ 18,720 $ 31,891 $ 7,303,792 $ 7,354,403 (1) Other includes non-covered loans accounted for under ASC 310-30.113(in thousands) December 31, 2012 30-59 60-89 Greater Than Total Non- Days Days 90 Days and Total Non- Current & covered Loans Past Due Past Due Accruing Past Due accrual Other (1) and Leases Commercial real estate Non-owner occupied term, net $ 5,132 $ 1,097 $ — $ 6,229 $ 33,797 $ 2,276,883 $ 2,316,909 Owner occupied term, net 2,615 1,687 — 4,302 8,448 1,264,090 1,276,840 Multifamily, net — — — — 1,045 330,690 331,735 Construction & development, net 283 — — 283 4,177 196,171 200,631 Residential development, net 479 — — 479 5,132 51,528 57,139 Commercial Term, net 3,009 746 81 3,836 7,040 786,185 797,061 LOC & other, net 1,647 1,503 — 3,150 7,027 880,631 890,808 Leases and equipment finance, net — — — — — 31,270 31,270 Residential Mortgage, net 2,906 602 3,303 6,811 — 471,652 478,463 Home equity loans & lines, net 1,398 214 758 2,370 49 260,218 262,637 Consumer & other, net 282 191 90 563 21 37,003 37,587 Total, net of deferred fees and costs $ 17,751 $ 6,040 $ 4,232 $ 28,023 $ 66,736 $ 6,586,321 $ 6,681,080 (1) Other includes non-covered loans accounted for under ASC 310-30.Non-Covered Impaired LoansThe following table summarizes our non-covered impaired loans by loan class as of December 31, 2011 and December 31, 2010:(in thousands) 2011 Unpaid
Principal
Balance Recorded
Investment Related
Allowance Average
Recorded
Investment Interest
Income
Recognized $ 54,673 $ 47,344 $ — $ 50,459 $ — 22,553 17,744 — 21,498 — 30,575 23,212 — 33,864 — 14,205 11,311 — 9,339 — 23,132 9,034 — 16,121 — — — — — — — — — — — — — — — — 22,611 13,105 557 18,792 894 3,762 12,248 151 6,560 798 26,326 26,326 464 32,810 1,120 1,851 1,851 608 627 140 3,975 3,975 2,000 3,642 — — — — 143 — 129 129 4 52 3 — — — — — $ 160,500 $ 139,979 $ 1,172 $ 163,983 $ 2,812 43,163 26,171 2,608 29,729 140 129 129 4 195 3 — — — — — $ 203,792 $ 166,279 $ 3,784 $ 193,907 $ 2,955 Umpqua Holdings Corporation and Subsidiaries 2010 $ 62,605 $ 49,790 $ — $ 56,003 $ — 33,091 25,558 — 27,588 — 63,859 39,011 — 37,603 — 8,024 6,969 — 9,420 — 56,046 19,814 — 38,215 — — — — — — — — — — — — — — — — 29,926 28,070 1,614 28,518 823 — — — 1,706 38 46,059 44,504 906 54,607 1,474 205 205 9 402 48 9,878 8,519 2,702 1,884 14 179 179 8 3,750 6 — — — 21 — — — — — — $ 235,540 $ 186,933 $ 2,520 $ 206,025 $ 2,335 74,153 35,507 2,711 49,921 62 179 179 8 3,771 6 — — — — — $ 309,872 $ 222,619 $ 5,239 $ 259,717 $ 2,403 Loans with no related allowance reported generally represent non-accrual loans. The CompanyBank recognizes the charge-off of impairment reserves on impaired loans in the period it arises for collateral dependent loans. Therefore, the non-accrual loans as of December 31, 20112013 have already been written-down to their estimated net realizable value, based on dispositionnet 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.At December 31, 20112013 and 2010, non-coveredDecember 31, 2012, impaired loans of $80.6$68.8 million and $84.4$70.6 million were classified as accruing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provideby providing for a temporary modification of loan repayment terms. The restructured loans on accrual status and two loans included in loans past due 30+ days and accruing represent the only impaired loans accruing interest at December 31, 2011. The restructured loans on accrual status represent the only impaired loans accruing interest at December 31, 2010.each respective date. 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. The CompanyBank had obligations of $205,000no obligation to lend additional funds on the restructured loans as of December 31, 2011.For2013The following table summarizes our non-covered impaired loans, including average recorded investment and interest income recognized on impaired non-covered loans, by loan class for the years ended December 31, 2011, 20102013 and 2009, interest income2012: 114(in connection with impaired loans. thousands) December 31, 2013 Unpaid Average Interest Principal Recorded Related Recorded Income Balance Investment Allowance Investment Recognized With no related allowance recorded: Commercial real estate Non-owner occupied term, net $ 19,350 $ 18,285 $ — $ 31,024 $ — Owner occupied term, net 6,674 6,204 — 3,014 — Multifamily, net 1,416 935 — 765 — Construction & development, net 9,518 8,498 — 12,021 — Residential development, net 12,347 5,776 — 7,592 — Commercial Term, net 22,750 8,723 — 10,981 — LOC & other, net 5,886 1,222 — 2,836 — Residential Mortgage, net — — — — — Home equity loans & lines, net — — — 70 — Consumer & other, net — — — 1 — With an allowance recorded: Commercial real estate Non-owner occupied term, net 31,252 31,362 928 32,250 1,512 Owner occupied term, net 5,202 5,202 198 4,448 205 Multifamily, net — — — — — Construction & development, net 1,091 1,091 11 1,898 484 Residential development, net 10,166 11,927 648 14,759 644 Commercial Term, net — 300 8 974 17 LOC & other, net 1,258 1,258 4 1,172 51 Residential Mortgage, net — — — 153 — Home equity loans & lines, net — — — 25 — Consumer & other, net — — — — — Total: Commercial real estate, net 97,016 89,280 1,785 107,771 2,845 Commercial, net 29,894 11,503 12 15,963 68 Residential, net — — — 248 — Consumer & other, net — — — 1 — Total, net of deferred fees and costs $ 126,910 $ 100,783 $ 1,797 $ 123,983 $ 2,913 115(in thousands) December 31, 2012 Unpaid Average Interest Principal Recorded Related Recorded Income Balance Investment Allowance Investment Recognized With no related allowance recorded: Commercial real estate Non-owner occupied term, net $ 38,654 $ 33,912 $ — $ 36,167 $ — Owner occupied term, net 10,085 8,449 — 7,998 Multifamily, net 1,214 1,045 — 886 Construction & development, net 18,526 15,638 — 17,899 — Residential development, net 9,293 6,091 — 15,518 — Commercial Term, net 13,729 10,532 — 11,966 — LOC & other, net 10,778 7,846 — 7,949 — Residential Mortgage, net — — — — — Home equity loans & lines, net 50 49 — 301 — Consumer & other, net 21 21 — 4 — With an allowance recorded: Commercial real estate Non-owner occupied term, net 35,732 35,732 762 25,608 1,076 Owner occupied term, net 5,284 5,284 436 3,328 37 Multifamily, net — — — — — Construction & development, net 1,091 1,091 14 2,400 672 Residential development, net 16,593 16,593 184 18,417 747 Commercial Term, net — — — 443 182 LOC & other, net — — — 795 9 Residential Mortgage, net — — — — — Home equity loans & lines, net 126 126 5 127 6 Consumer & other, net — — — — — Total: Commercial real estate, net 136,472 123,835 1,396 128,221 2,532 Commercial, net 24,507 18,378 — 21,153 191 Residential, net 176 175 5 428 6 Consumer & other, net 21 21 — 4 — Total, net of deferred fees and costs $ 161,176 $ 142,409 $ 1,401 $ 149,806 $ 2,729 The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.Non-coveredNon-Covered Credit Quality IndicatorsAs previously noted, the Company’sBank'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 (generally consumer loans)and leases and non-homogeneous loans (generally all non-consumer loans).and leases. The 10 risk rating categories can be generally described by the following groupings for non-homogeneous loans: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.116Low 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 ofassociated with collection. The borrower exhibits a very strong capacity to repay the credit in 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. Borrowers rated Watchwatch are characterized by elements of uncertainty, such as:LoansA loan or lease may also be a Watchwatch if financial information is late, there is a documentation deficiency, the borrower has experienced unexpected management turnover, or if they face industry issues that, when combined with performance factors create uncertainty in their future ability to perform.Umpqua Holdings Corporation and SubsidiariesWatchwatch or worse risk rating.Special Mention—A Special Mentionspecial 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 institutions 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 Substandardsubstandard classification. A Special Mentionspecial 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. Such weaknesses include:Substandardsubstandard credit, there should be a reasonable expectation that these temporary issues will be corrected within the normal course of business, rather than liquidation of assets, and in a reasonable period of time.Substandard—A substandard asset, risk rated 8, is inadequately protected by the current sound 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 not117corrected. 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 Substandardsubstandard 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 Mentionspecial mention and Substandard.substandard. The following are examples of well-defined weaknesses:• Borrower• The borrower has been unable to adjust to prolonged and unfavorable industry or economic trends.diverted, to the point that sale of collateral is now the Bank’s primary source of repayment (unless this was the original source of repayment). If the collateral is under the Bank’s control and is cash or other liquid, highly marketable securities and properly margined, then a more appropriate rating might be Special Mention or Watch.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 Doubtfuldoubtful 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.charged-off. The remaining balance, properly margined, may then be upgraded to Substandard,substandard, however must remain on non-accrual.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 offcharged-off now, even though partial or full recovery may be possible in the future.Impaired—Impaired—Loans are classified as impairedwhen, 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.Homogeneous loans and leases are not risk rated until they are greater than 30 days past due, and risk rating is based primarily on the past due status of the loan.loan or lease. The risk rating categories can be generally described by the following groupings for commercial and commercial real estate homogeneous loans:Special Mention—A homogeneous special mention loan or lease, risk rated 7, is 30-5930-59 days past due from the required payment date at month-end.Substandard—A homogeneous substandard loan or lease, risk rated 8, is 60-11960-89 days past due from the required payment date at month-end.Doubtful—A homogeneous doubtful loan or lease, risk rated 9, is 120-14990-179 days past due from the required payment date at month-end.Loss—A homogeneous loss loan or lease, risk rated 10, is 150180 days and more past due from the required payment date. These loans are generally charged-off in the month in which the 150-180 day time period elapses.The risk rating categories can be generally described by the following groupings for residential and consumer and other homogeneous loans:Special Mention—A homogeneous retail special mention loan, risk rated 7, is 30-8930-89 days past due from the required payment date at month-end.118Substandard—A homogeneous retail substandard loan, risk rated 8, is an open-end loan 90-18090-180 days past due from the required payment date at month-end or a closed-end loan 90-12090-120 days past due from the required payment date at month-end.Umpqua Holdings Corporation and SubsidiariesLoss—A homogeneous retail loss loan, risk rated 10, is a closed-end loan that becomes past due 120 cumulative days or 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 120-120 or 180-day180 day period elapses.The following table summarizes our internal risk rating by loan and lease class for the non-covered loan and lease portfolio as of December 30, 2011 and December 31, 2010:(in thousands) December 31, 2011 Pass/Watch Special Mention Substandard Doubtful Loss Impaired Total $ 3,075,452 $ 275,475 $ 146,919 $ — $ — $ 60,449 $ 3,558,295 102,786 19,946 12,342 — — 29,992 165,066 25,062 6,740 8,733 — — 49,538 90,073 586,365 16,631 9,608 — — 13,162 625,766 775,233 22,051 22,706 — — 13,009 832,999 309,478 2,106 296 — 4,047 — 315,927 268,731 683 773 — 1,876 129 272,192 38,098 82 254 — 426 — 38,860 $ 5,181,205 $ 343,714 $ 201,631 $ — $ 6,349 $ 166,279 $ 5,899,178 (11,080 ) $ 5,888,098 December 31, 2010 Pass/Watch Special Mention Substandard Doubtful Loss Impaired Total $ 2,978,116 $ 314,094 $ 113,405 $ — $ — $ 77,860 $ 3,483,475 145,108 25,295 51,853 — — 25,558 247,814 27,428 13,764 23,106 — — 83,515 147,813 472,512 17,658 12,109 — — 7,174 509,453 646,163 30,761 42,162 — — 28,333 747,419 216,899 2,414 786 — 2,138 179 222,416 275,906 2,447 125 — 107 — 278,585 32,008 595 29 — 411 — 33,043 $ 4,794,140 $ 407,028 $ 243,575 $ — $ 2,656 $ 222,619 $ 5,670,018 (11,031 ) $ 5,658,987 December 31, 2013 Pass/Watch Special Mention Substandard Doubtful Loss Impaired Total Commercial real estate Non-owner occupied term, net $ 2,073,366 $ 108,263 $ 96,984 $ — $ — $ 49,647 $ 2,328,260 Owner occupied term, net 1,182,865 27,615 37,524 173 — 11,406 1,259,583 Multifamily, net 385,335 5,574 11,693 — — 935 403,537 Construction & development, net 230,262 2,054 3,326 — — 9,589 245,231 Residential development, net 67,019 1,836 1,855 — — 17,703 88,413 Commercial Term, net 718,778 23,393 19,651 — — 9,023 770,845 LOC & other, net 951,109 24,197 9,574 — — 2,480 987,360 Leases and equipment finance, net 351,971 4,585 1,706 2,996 333 — 361,591 Residential Mortgage, net 593,723 1,405 743 — 1,330 — 597,201 Home equity loans & lines, net 263,070 1,038 25 — 136 — 264,269 Consumer & other, net 47,895 144 33 — 41 — 48,113 Total, net of deferred fees and costs $ 6,865,393 $ 200,104 $ 183,114 $ 3,169 $ 1,840 $ 100,783 $ 7,354,403 (in thousands) December 31, 2012 Pass/Watch Special Mention Substandard Doubtful Loss Impaired Total Commercial real estate Non-owner occupied term, net $ 1,993,369 $ 174,892 $ 79,004 $ — $ — $ 69,644 $ 2,316,909 Owner occupied term, net 1,185,721 26,475 50,911 — — 13,733 1,276,840 Multifamily, net 324,315 1,950 4,425 — — 1,045 331,735 Construction & development, net 165,185 12,654 6,063 — — 16,729 200,631 Residential development, net 25,018 4,373 5,064 — — 22,684 57,139 Commercial Term, net 717,546 22,256 46,727 — — 10,532 797,061 LOC & other, net 847,883 19,510 15,569 — — 7,846 890,808 Leases and equipment finance, net 31,270 — — — — — 31,270 Residential Mortgage, net 471,206 3,510 1,120 — 2,627 — 478,463 Home equity loans & lines, net 260,086 1,616 — — 760 175 262,637 Consumer & other, net 37,056 419 57 — 34 21 37,587 Total, net of deferred fees and costs $ 6,058,655 $ 267,655 $ 208,940 $ — $ 3,421 $ 142,409 $ 6,681,080 119The percentage of non-covered impaired loans classified as watch, special mention, and substandard and loss was 3.8%6.4%, 96.0%3.7%, and 0.2%89.9%, respectively, as of December 31, 2011.Troubled Debt RestructuringsAt December 31, 2011 and December 31, 2010,. The percentage of non-covered impaired loans classified as watch, special mention, and substandard was 9.0%, 1.7%, and 89.3%, respectively, as of $80.6December 31, 2012. Troubled Debt Restructurings At December 31, 2013 and December 31, 2012, impaired loans of $68.8 million and $84.4$70.6 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. The restructured loans on accrual status and two loans included in loans past due 30+ days and accruing represent the only impaired loans accruing interest. 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. calculated and the allowance on impaired restructured loans is calculated consistently across the portfolios.As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as troubled debt restructurings, the Company identified them as impaired under the guidance in Section 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first year of adoption (December 31, 2011), the recorded investment in receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under Section 310-10-35 was $5.4 million, and there was There were no allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss. In evaluating concessions made during the year, the Company frequently obtained adequate compensation for concessions made. As a result, few loans qualified as troubled debt restructuring under the new definitions outlined in Section 310-10-35.Available non-covered troubled debt restructurings outstanding as of December 31, 2011 totaled $205,000. As2013 and none as of December 2010, no available commitments were outstanding on non-covered troubled debt restructurings.The following tables present non-covered troubled debt restructurings by accrual versus non-accrual status and by loan class as of December 31, 20112013 and 2010:December 31, 2012: (in thousands) December 31, 2011 Accrual
Status Non-Accrual
Status Total
Modifications $ 22,611 $ 21,951 $ 44,562 19,996 921 20,917 33,964 11,969 45,933 3,863 1,762 5,625 — 6,973 6,973 — — — 129 — 129 — — — $ 80,563 $ 43,576 $ 124,139 Umpqua Holdings Corporation and Subsidiaries December 31, 2010 Accrual
Status Non-Accrual
Status Total
Modifications $ 28,697 $ 3,185 $ 31,882 5,434 — 5,434 48,929 8,036 56,965 904 725 1,629 298 11,040 11,338 179 — 179 — — — — — — $ 84,441 $ 22,986 $ 107,427 December 31, 2013 Accrual Non-Accrual Total Status Status Modifications Commercial real estate Non-owner occupied term, net $ 37,366 $ — $ 37,366 Owner occupied term, net 5,202 — 5,202 Multifamily, net — — — Construction & development, net 9,590 — 9,590 Residential development, net 14,902 2,196 17,098 Commercial Term, net — 2,603 2,603 LOC & other, net 1,258 — 1,258 Leases and equipment finance, net — — — Residential Mortgage, net 473 — 473 Home equity loans & lines, net — — — Consumer & other, net — — — Total, net of deferred fees and costs $ 68,791 $ 4,799 $ 73,590 (in thousands)120 December 31, 2012 Accrual Non-Accrual Total Status Status Modifications Commercial real estate Non-owner occupied term, net $ 34,329 $ 16,200 $ 50,529 Owner occupied term, net 5,284 405 5,689 Multifamily, net — — — Construction & development, net 12,552 3,516 16,068 Residential development, net 17,141 4,921 22,062 Commercial Term, net 350 4,641 4,991 LOC & other, net 820 1,493 2,313 Leases and equipment finance, net — — — Residential Mortgage, net — — — Home equity loans & lines, net 126 — 126 Consumer & other, net — — — Total, net of deferred fees and costs $ 70,602 $ 31,176 $ 101,778 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 appearappears relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.The types of modifications offered can generally be described in the following categories:Rate Modification—A modification in which the interest rate is modified.Term Modification—A —A modification in which the maturity date, timing of payments, or frequency of payments is changed.Interest Only Modification—A modification in which the loan is converted to interest only payments for a period of time.Payment Modification—A modification in which the payment amount is changed, other than an interest only modification described above.Combination Modification—Any other type of modification, including the use of multiple types of modifications.The following tables present newly non-covered restructured loans that occurred during the years endedDecember 31, 20112013 and 2010,2012, respectively: 2011 Term
Modifications Interest Only
Modifications Payment
Modifications Combination
Modifications Total
Modifications $ — $ — $ — $ — $ 34,943 $ 34,943 — — — — 13,760 13,760 279 354 — — 9,090 9,723 — — — 70 5,311 5,381 — — — — 4,050 4,050 — — — — — — — 130 — — — 130 — — — — — — $ 279 $ 484 $ — $ 70 $ 67,154 $ 67,987 (in thousands) 2010 Rate
Modifications Term
Modifications Interest Only
Modifications Payment
Modifications Combination
Modifications Total
Modifications $ — $ — $ — $ — $ 13,018 $ 13,018 — — — — 5,534 5,534 — 1,459 — — 3,691 5,150 — — — — — — — 1,371 — — — 1,371 — — — — — — — — — — — — — — — — — — $ — $ 2,830 $ — $ — $ 22,243 $ 25,073 121(in thousands) December 31, 2013 Rate Term Interest Only Payment Combination Modifications Modifications Modifications Modifications Modifications Total Commercial real estate Non-owner occupied term, net $ — $ — $ 4,291 $ — $ — $ 4,291 Owner occupied term, net — — — — — — Multifamily, net — — — — — — Construction & development, net — — — — — — Residential development, net — — — — — — Commercial Term, net — — — — 3,588 3,588 LOC & other, net — — — — 452 452 Leases and equipment finance, net — — — — — — Residential Mortgage, net — — — — 478 478 Home equity loans & lines, net — — — — — — Consumer & other, net — — — — — — Total, net of deferred fees and costs $ — $ — $ 4,291 $ — $ 4,518 $ 8,809 December 31, 2012 Rate Term Interest Only Payment Combination Modifications Modifications Modifications Modifications Modifications Total Commercial real estate Non-owner occupied term, net $ 14,333 $ — $ — $ — $ 2,595 $ 16,928 Owner occupied term, net 587 — — — 4,722 5,309 Multifamily, net — — — — — — Construction & development, net — — — — — — Residential development, net — — — — — — Commercial Term, net — — — — — — LOC & other, net — — — 820 — 820 Leases and equipment finance, net — — — — — — Residential Mortgage, net — — — — — — Home equity loans & lines, net — — — — — — Consumer & other, net — — — — — — Total, net of deferred fees and costs $ 14,920 $ — $ — $ 820 $ 7,317 $ 23,057 For the periods presented in the tables above, the outstanding recorded investment was the same pre and post modification.The following tables represent financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the years endedDecember 31, 20112013 and 2010,2012, respectively:(in thousands) 2011 2010 $ 9,642 $ 5,553 — — 1,767 — 140 661 — — — 944 — — — — $ 11,549 $ 7,158 122 2013 2012 Commercial real estate Non-owner occupied term, net $ — $ — Owner occupied term, net — 217 Multifamily, net — — Construction & development, net — — Residential development, net — 633 Commercial Term, net 1,786 — LOC & other, net — 26 Leases and equipment finance, net — — Residential Mortgage, net — — Home equity loans & lines, net — — Consumer & other, net — — Total, net of deferred fees and costs $ 1,786 $ 876 NOTE 7. COVERED ASSETS AND INDEMNIFICATION ASSETNote 7 – Covered Assets andCovered Loans,Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans”covered loans and reported separately in our statements of financial condition. Covered loans are reported exclusive of the expected cash flow reimbursements expected from the FDIC.Acquired loans are valued as of acquisition date in accordance with ASC 805. Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under FASB ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality. Because of the significant fair value discounts associated with the acquired portfolios, the concentration of real estate related loans (to financeUmpqua Holdings Corporation and Subsidiariesor secured by real estate collateral) and the decline in real estate values in the regions serviced, and after considering the underwriting standards of the acquired originating bank, the Company elected to account for all acquired loans under ASC 310-30. Under ASC 805 and ASC 310-30, loans are to be recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date. We have aggregated the acquired loans into various loan pools based on multiple layers of common risk characteristics for the purpose of determining their respective fair values as of their acquisition dates, and for applying the subsequent recognition and measurement provisions for income accretion and impairment testing.Acquired loans were first segregated between those designated as performing versus those designated as non-performing. In this application, ‘performing’ and ‘non-performing’ loans were defined in accordance with the scoping requirements of ASC 310-30, that is the ‘non-performing’ loans individually exhibited evidence of deteriorated credit quality since origination for which it is probable that we will not be able to collect all contractually required payments receivable. Our Credit Quality and Credit Review teams identified these non-performing credits on a loan-by-loan basis during the due diligence process. Generally, identified non-performing loans tended to be risk rated substandard or worse on the acquired institution’s books. Collectively, the non-performing loans would be considered the ‘classic’ application of ASC 310-30. The remaining performing notes were accounted for under ASC 310-30 by analogy due to the significant fair value discounts associated with the pools resulting from the underwriting standards of the acquired bank (that often contributed to the bank’s failure), the concentration of loans for the purpose of, and collateralized by, real estate, and the general economic condition of the regions each acquired bank serviced. We deem analogizing all loans to ASC 310-30 acceptable as a significant component of the fair value discount applied to each loan pool is attributed to estimated credit losses that are anticipated to occur over the life of each respective loan pool.Once notes were separated based on their expected future performance, they were further segregated based on specific loan types (purpose/collateral) and then their principal cash flow and interest rate characteristics. The most significant loan type categories utilized (in no particular order) were commercial residential development, commercial construction, farmland, 1st lien single family mortgages, 2nd lien single family loans, single family revolving lines of credit, multifamily mortgages, owner occupied commercial real estate, non-owner occupied commercial real estate, commercial loans, commercial lines of credit, consumer installment loans, and consumer lines of credit. Next, groups of loans were segregated based on repayment characteristics, specifically whether the notes’ principal balances were amortizing or interest-only. Lastly, loans were separated by various interest rate characteristics, such as whether the interest rate was fixed or variable. For those loans whose interest rates were variable, they were also segregated by their underlying indices (e.g. PRIME, Federal Home Loan Bank, or constant maturity treasury) and whether or not there were interest rate floors.numbermajor types of pools, numbercovered loans as of loansDecember 31, 2013 and acquiredDecember 31, 2012: (in thousands) December 31, 2013 Evergreen Rainier Nevada Security Total Commercial real estate Non-owner occupied term, net $ 29,019 $ 117,076 $ 60,807 $ 206,902 Owner occupied term, net 18,582 14,711 16,524 49,817 Multifamily, net 7,626 22,210 7,835 37,671 Construction & development, net 1,506 — 1,949 3,455 Residential development, net 1,861 — 5,425 7,286 Commercial Term, net 5,651 768 9,300 15,719 LOC & other, net 2,664 1,934 2,100 6,698 Residential Mortgage, net 3,075 17,468 1,773 22,316 Home equity loans & lines, net 2,820 14,782 2,035 19,637 Consumer & other, net 954 3,308 — 4,262 Total, net of deferred fees and costs $ 73,758 $ 192,257 $ 107,748 $ 373,763 Allowance for covered loans (9,771 ) Total $ 363,992 December 31, 2012 Evergreen Rainier Nevada Security Total Commercial real estate Non-owner occupied term, net $ 36,074 $ 157,055 $ 71,352 $ 264,481 Owner occupied term, net 26,682 18,853 23,115 68,650 Multifamily, net 10,132 23,777 10,969 44,878 Construction & development, net 4,941 637 6,133 11,711 Residential development, net 3,840 — 5,954 9,794 Commercial Term, net 9,961 2,230 11,333 23,524 LOC & other, net 4,984 7,081 2,932 14,997 Residential Mortgage, net 3,948 22,059 1,818 27,825 Home equity loans & lines, net 3,478 17,178 2,786 23,442 Consumer & other, net 1,855 4,143 53 6,051 Total, net of deferred fees and costs $ 105,895 $ 253,013 $ 136,445 $ 495,353 Allowance for covered loans (18,275 ) Total $ 477,078 The outstanding contractual unpaid principal balance, by performing (“analogized 310-30”)excluding purchase accounting adjustments, at December 31, 2013 was $93.8 million, non-performing (“classic 310-30”)$224.1 million and in total, separately$144.5 million, for each institution acquired in 2010.(dollars in millions)$137.7 million Evergreen Rainier Nevada Security January 22, 2010 February 26, 2010 June 18, 2010 15 19 19 1,263 3,647 402 $ 247.9 $ 516.9 $ 224.2 8 10 9 127 39 106 $ 120.6 $ 44.5 $ 103.4 23 29 28 1,390 3,686 508 $ 368.5 $ 561.4 $ 327.6 The fair value of each loan pool was computed by discounting the expected cash flows, $297.0 million and $198.4 million, for Evergreen, Rainier, and Nevada Security, respectively, at their estimated market discount rate. Cash flows expected to be collected at acquisition date were estimated by applying certain key assumptions to each loan pool, such as credit loss rates, prepayment speeds, and resolution terms related to nonperforming loans, against the contractual cash flows of the underlying loans. Credit loss estimates for each pool were determined by considering factors such as, underlying collateral types, collateral locations, estimated collateral values, and credit quality indicators such as risk ratings. Market discount rates were determined using a buildup approach which included assumptions with respect to funding cost and funding mix, a market participant’s required rate of return on equity capital, servicing costs and a liquidity premium.The following table reflects the estimated fair value of the acquired loans at the acquisition dates:(in thousands) Evergreen Rainier Nevada Security January 22, 2010 February 26, 2010 June 18, 2010 Total $ 141,076 $ 331,869 $ 154,119 $ 627,064 18,832 562 9,481 28,875 16,219 10,340 15,641 42,200 27,272 14,850 18,257 60,379 23,965 18,169 11,408 53,542 11,886 39,897 1,539 53,322 8,308 31,029 4,421 43,758 4,935 11,624 641 17,200 $ 252,493 $ 458,340 $ 215,507 $ 926,340 In estimating the fair value of the covered loans at the acquisition date, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference. On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.The following table presents a reconciliation of the undiscounted contractual cash flows, nonaccretable difference, accretable yield, and fair value of covered loans for each respective acquired loan portfolio at the acquisition dates:(in thousands) Evergreen Rainier Nevada Security January 22, 2010 February 26, 2010 June 18, 2010 Total $ 498,216 $ 821,972 $ 396,134 $ 1,716,322 (124,131 ) (125,774 ) (115,021 ) (364,926 ) 374,085 696,198 281,113 1,351,396 (121,592 ) (237,858 ) (65,606 ) (425,056 ) $ 252,493 $ 458,340 $ 215,507 $ 926,340 The covered loan portfolio also includes revolving lines of credit with funded and unfunded commitments. Balances outstanding at the time of acquisition are included in the loan pools and are accounted for under ASC 310-30. Any additionalUmpqua Holdings Corporation and Subsidiariesadvances on these loans subsequent to the acquisition date may or may not be covered depending on the nature of the disbursement and the terms of each respective loss-sharing agreement, and are not accounted for under ASC 310-30.The covered loans acquired are and will continue to be subject to the Company’s internal and external credit review and monitoring. To the extent there is experienced or projected credit deterioration on the acquired loan pools subsequent to amounts estimated at the previous remeasurement date, this deterioration will be measured, and a provision for credit losses will be charged to earnings. Additionally, provision for credit losses will be recorded on advances on covered loans subsequent to acquisition date in a manner consistent with the allowance for non-covered loan and lease losses. These provisions will be mostly offset by an increase to the FDIC indemnification asset, which is recognized in non-interest income.Covered LoansThe following table presents the major types of covered loans as of December 31, 2011 and 2010:(in thousands) 2011 Evergreen Rainier Nevada Security Total $ 99,346 $ 248,206 $ 126,502 $ 474,054 7,241 711 6,868 14,820 7,809 227 9,727 17,763 14,911 5,807 13,432 34,150 8,776 8,854 5,796 23,426 6,320 27,320 1,863 35,503 4,660 21,055 3,370 29,085 2,394 5,541 35 7,970 $ 151,457 $ 317,721 $ 167,593 636,771 (14,320 ) $ 622,451 2010 Evergreen Rainier Nevada Security Total $ 124,743 $ 303,585 $ 141,314 $ 569,642 14,470 854 9,389 24,713 11,024 2,497 11,372 24,893 18,895 10,881 13,000 42,776 11,876 14,320 9,031 35,227 8,129 35,026 1,669 44,824 6,740 25,214 3,726 35,680 2,793 8,071 — 10,864 $ 198,670 $ 400,448 $ 189,501 788,619 (2,721 ) $ 785,898 The outstanding contractual unpaid principal balance, excluding purchase accounting adjustments, at December 31, 2011 was $209.5 million, $379.0 million and $260.2 million, for Evergreen, Rainier, and Nevada Security, respectively, as compared to $286.6 million, $481.7 million and $295.4 million, for Evergreen, Rainier, and Nevada Security, respectively, at December 31, 2010.In estimating the fair value of the covered loans at the acquisition date, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference.On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.20112013 and 20102012 for each respective acquired loan portfolio: 2011 Evergreen Rainier Nevada Security Total $ 90,770 $ 172,614 $ 73,515 $ 336,899 (26,240 ) (35,382 ) (22,580 ) (84,202 ) (10,575 ) (19,893 ) (4,595 ) (35,063 ) 2,524 2,994 14,681 20,199 $ 56,479 $ 120,333 $ 61,021 $ 237,833 2010 Evergreen Rainier Nevada Security Total $ — $ — $ — $ — 121,592 237,858 65,606 425,056 (29,060 ) (32,979 ) (10,978 ) (73,017 ) (6,572 ) (12,830 ) (2,376 ) (21,778 ) 4,810 (19,435 ) 21,263 6,638 $ 90,770 $ 172,614 $ 73,515 $ 336,899 The estimated fair value(in thousands) December 31, 2013 Evergreen Rainier Nevada Security Total Balance, beginning of period $ 34,567 $ 102,468 $ 46,353 $ 183,388 Accretion to interest income (12,695 ) (23,511 ) (15,292 ) (51,498 ) Disposals (3,221 ) (12,362 ) (3,703 ) (19,286 ) Reclassifications from nonaccretable difference 1,412 5,194 7,274 13,880 Balance, end of period 20,063 $ 71,789 $ 34,632 $ 126,484 December 31, 2012 Evergreen Rainier Nevada Security Total Balance, beginning of period $ 56,479 $ 120,333 $ 61,021 $ 237,833 Accretion to interest income (21,237 ) (30,325 ) (19,969 ) (71,531 ) Disposals (9,688 ) (19,705 ) (5,214 ) (34,607 ) Reclassifications from nonaccretable difference 9,013 32,165 10,515 51,693 Balance, end of period $ 34,567 $ 102,468 $ 46,353 $ 183,388 123Allowance for Covered Loan and Lease LossesThe following table summarizes activity related to the allowance for covered loan and lease losses by covered loan portfolio segment for the years ended December 31, 20112013 and 2010,2012, respectively:(in thousands) December 31, 2011 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 2,465 $ 176 $ 56 $ 24 $ 2,721 (3,177 ) (660 ) (1,657 ) (1,192 ) (6,686 ) 1,348 512 142 142 2,144 8,303 3,936 2,450 1,452 16,141 $ 8,939 $ 3,964 $ 991 $ 426 $ 14,320 December 31, 2010 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ — $ — $ — $ — $ — (2,439 ) (266 ) — — (2,705 ) 11 263 — 1 275 4,893 179 56 23 5,151 $ 2,465 $ 176 $ 56 $ 24 $ 2,721 December 31, 2013 Commercial Consumer Real Estate Commercial Residential & Other Total Balance, beginning of period $ 12,129 $ 4,980 $ 804 $ 362 $ 18,275 Charge-offs (2,303 ) (1,544 ) (197 ) (459 ) (4,503 ) Recoveries 1,114 531 218 249 2,112 (Recapture) provision (4,835 ) (1,130 ) (165 ) 17 (6,113 ) Balance, end of period $ 6,105 $ 2,837 $ 660 $ 169 $ 9,771 December 31, 2012 Commercial Consumer Real Estate Commercial Residential & Other Total Balance, beginning of period $ 8,939 $ 3,964 $ 991 $ 426 $ 14,320 Charge-offs (2,921 ) (1,613 ) (596 ) (659 ) (5,789 ) Recoveries 1,264 733 237 105 2,339 Provision 4,847 1,896 172 490 7,405 Balance, end of period $ 12,129 $ 4,980 $ 804 $ 362 $ 18,275 The following table presents the allowance and recorded investment in covered loans by portfolio segment as of December 31, 20112013 and 2010:2012: (in thousands) December 31, 2011 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 8,491 $ 3,366 $ 955 $ 395 $ 13,207 448 598 36 31 1,113 $ 8,939 $ 3,964 $ 991 $ 426 $ 14,320 $ 503,575 $ 39,427 $ 59,980 $ 5,410 $ 608,392 3,062 18,149 4,608 2,560 28,379 $ 506,637 $ 57,576 $ 64,588 $ 7,970 $ 636,771 December 31, 2010 Commercial
Real Estate Commercial Residential Consumer
& Other Total $ 2,345 $ — $ — $ — $ 2,345 120 176 56 24 376 $ 2,465 $ 176 $ 56 $ 24 $ 2,721 $ 614,361 $ 63,252 $ 72,650 $ 8,610 $ 758,873 4,887 14,751 7,854 2,254 29,746 $ 619,248 $ 78,003 $ 80,504 $ 10,864 $ 788,619 (1)In accordance with ASC 310-30, the valuation allowance is netted against the carrying value of the covered loan and lease balance.(2)The allowance on covered loan and lease losses includes an allowance on covered loan advances on acquired loans subsequent to acquisition. December 31, 2013 Commercial Consumer Real Estate Commercial Residential & Other Total Allowance for covered loans: Loans acquired with deteriorated credit quality (1) $ 5,995 $ 2,713 $ 609 $ 118 $ 9,435 Collectively evaluated for impairment (2) 110 124 51 51 336 Total $ 6,105 $ 2,837 $ 660 $ 169 $ 9,771 Covered loans: Loans acquired with deteriorated credit quality (1) $ 304,232 $ 15,781 $ 36,960 $ 1,739 $ 358,712 Collectively evaluated for impairment (2) 899 6,636 4,993 2,523 15,051 Total $ 305,131 $ 22,417 $ 41,953 $ 4,262 $ 373,763 124 December 31, 2012 Commercial Consumer Real Estate Commercial Residential & Other Total Allowance for covered loans: Loans acquired with deteriorated credit quality (1) $ 11,756 $ 4,559 $ 755 $ 315 $ 17,385 Collectively evaluated for impairment (2) 373 421 49 47 890 Total $ 12,129 $ 4,980 $ 804 $ 362 $ 18,275 Covered loans: Loans acquired with deteriorated credit quality (1) $ 393,464 $ 25,402 $ 46,382 $ 3,360 $ 468,608 Collectively evaluated for impairment (2) 6,050 13,119 4,885 2,691 26,745 Total $ 399,514 $ 38,521 $ 51,267 $ 6,051 $ 495,353 (1) In accordance with ASC 310-30, the valuation allowance is netted against the carrying value of the covered loan balance.(2) The allowance on covered loan losses includes an allowance on covered loan advances on acquired loans subsequent to acquisition.The valuation allowance on covered loans was reduced by recaptured provision of $8.8 million, $3.8 million, and $3.5 million and none for the years ended December 31, 20112013, 2012 and 2010, respectively.2011. Covered Credit Quality IndicatorsCovered loans are risk rated in a manner consistent with non-covered loans. As previously noted, the Company’sBank’s risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The 10 risk rating groupings are described fully in Note 6. The belowfollowing table includes both loans acquired with deteriorated credit quality accounted for under ASC 310-30, and covered loan advances on acquired loansmade subsequent to acquisition.The following table summarizes our internal risk rating grouping by class of covered loans, net as of December 31, 20112013 and 2010:December 31, 2012: (in thousands) December 31, 2011 Pass/Watch Special Mention Substandard Doubtful Loss Total $ 329,273 $ 58,610 $ 68,521 $ 12,343 $ — $ 468,747 1,552 1,410 6,733 3,410 — 13,105 1,187 405 8,394 5,808 — 15,794 18,006 1,661 8,244 3,228 — 31,139 13,605 2,756 5,607 556 — 22,524 35,233 — — — — 35,233 28,223 — 143 — — 28,366 7,543 — — — — 7,543 $ 434,622 $ 64,842 $ 97,642 $ 25,345 $ — $ 622,451 Umpqua Holdings Corporation and Subsidiaries December 31, 2010 Pass/Watch Special Mention Substandard Doubtful Loss Total $ 485,238 $ 32,150 $ 44,833 $ 7,421 $ — $ 569,642 6,155 3,799 7,640 4,841 — 22,435 6,625 1,322 12,907 3,852 — 24,706 31,760 2,119 7,087 1,634 — 42,600 22,960 4,246 7,183 838 — 35,227 44,524 — 300 — — 44,824 34,998 — 627 — — 35,625 10,827 — 12 — — 10,839 $ 643,087 $ 43,636 $ 80,589 $ 18,586 $ — $ 785,898 December 31, 2013 Special Pass/Watch Mention Substandard Doubtful Loss Total Commercial real estate Non-owner occupied term, net $ 133,452 $ 26,321 $ 44,279 $ — $ — $ 204,052 Owner occupied term, net 30,119 3,370 14,971 213 — 48,673 Multifamily, net 24,213 2,563 10,409 — — 37,185 Construction & development, net 1,117 — 1,686 — — 2,803 Residential development, net 492 224 5,541 54 — 6,311 Commercial Term, net 3,753 3,141 6,128 258 — 13,280 LOC & other, net 4,630 991 681 — — 6,302 Residential Mortgage, net 22,175 — — — — 22,175 Home equity loans & lines, net 19,043 — 76 — — 19,119 Consumer & other, net 4,092 — — — — 4,092 Total, net of deferred fees and costs $ 243,086 $ 36,610 $ 83,771 $ 525 $ — $ 363,992 125 December 31, 2012 Special Pass/Watch Mention Substandard Doubtful Loss Total Construction & development Non-owner occupied term, net $ 177,791 $ 30,253 $ 42,590 $ 8,471 $ — $ 259,105 Owner occupied term, net 43,698 7,803 10,417 4,673 — 66,591 Multifamily, net 22,234 9,824 9,804 1,781 — 43,643 Construction & development, net 1,792 195 4,315 3,386 — 9,688 Residential development, net — 391 6,658 1,309 — 8,358 Commercial Term, net 9,020 3,401 4,986 2,021 — 19,428 LOC & other, net 11,498 354 1,080 1,181 — 14,113 Residential Mortgage, net 27,596 — — — — 27,596 Home equity loans & lines, net 22,790 — 77 — — 22,867 Consumer & other, net 5,689 — — — — 5,689 Total, net of deferred fees and costs $ 322,108 $ 52,221 $ 79,927 $ 22,822 $ — $ 477,078 Covered Other Real Estate OwnedAll other real estate owned (“OREO”) acquired in FDIC-assisted acquisitions that are subject to a FDIC loss-share agreement are referred to as “covered OREO” and reported separately in our statements of financial position. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s net realizable value, less selling costs.Covered OREO was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Subsequent to acquisition, loan collateral transferred to OREO is at its net realizable value. Any subsequent valuation adjustments due to declines in fair value will be charged to non-interest expense, and will be mostly offset by non-interest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.The following table summarizes the activity related to the covered OREO for the years ended December 31, 20112013, 2012 and 2010:2011: (in thousands) 2011 2010 $ 29,863 $ — — 26,939 15,271 15,350 (16,934 ) (10,485 ) (8,709 ) (1,941 ) $ 19,491 $ 29,863 2013 2012 2011 Balance, beginning of period $ 10,374 $ 19,491 $ 29,863 Additions to covered OREO 2,555 6,987 15,271 Dispositions of covered OREO (10,115 ) (11,458 ) (16,934 ) Valuation adjustments in the period (712 ) (4,646 ) (8,709 ) Balance, end of period $ 2,102 $ 10,374 $ 19,491 FDIC Indemnification AssetThe Company has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC 805,Business Combinations. The FDIC indemnification asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-shareagreement. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into non-interestincome over the life of the FDIC indemnification asset.Subsequent to initial recognition, the FDIC indemnification asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered assets. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases126those expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset are recorded as adjustments to non-interest income. The resulting carrying value of the indemnification asset represents the amounts recoverable from the FDIC for future expected losses, and the amounts due from the FDIC for claims related to covered losses the Company have incurred less amounts due back to the FDIC relating to shared recoveries.The following table summarizes the activity related to the FDIC indemnification asset for each respective acquired portfolio for the years ended December 31, 20112013 and 2010:2012: (in thousands) 2011 Evergreen Rainier Nevada Security Total $ 40,606 $ 43,726 $ 62,081 $ 146,413 1,357 (7,343 ) (182 ) (6,168 ) (13,416 ) (8,111 ) (27,629 ) (49,156 ) $ 28,547 $ 28,272 $ 34,270 $ 91,089 2010 Evergreen Rainier Nevada Security Total $ — $ — $ — $ — 71,755 76,603 99,160 247,518 (12,864 ) (7,045 ) 3,464 (16,445 ) (18,285 ) (25,832 ) (40,543 ) (84,660 ) $ 40,606 $ 43,726 $ 62,081 $ 146,413 December 31, 2013 Evergreen Rainier Nevada Security Total Balance, beginning of period $ 14,876 $ 15,110 $ 22,812 $ 52,798 Change in FDIC indemnification asset (8,556 ) (6,280 ) (10,713 ) (25,549 ) Transfers to due from FDIC and other (1,111 ) (814 ) (2,150 ) (4,075 ) Balance, end of period $ 5,209 $ 8,016 $ 9,949 $ 23,174 December 31, 2012 Evergreen Rainier Nevada Security Total Balance, beginning of period $ 28,547 $ 28,272 $ 34,270 $ 91,089 Change in FDIC indemnification asset (9,611 ) (6,355 ) 732 (15,234 ) Transfers to due from FDIC and other (4,060 ) (6,807 ) (12,190 ) (23,057 ) Balance, end of period $ 14,876 $ 15,110 $ 22,812 $ 52,798 Note 8–Premises and EquipmentNOTE 8. PREMISES AND EQUIPMENT20112013 and 2010:(in thousands) 2011 2010 $ 24,855 $ 23,174 127,028 115,807 108,599 95,909 10,360 4,471 270,842 239,361 (118,476 ) (102,762 ) $ 152,366 $ 136,599 2013 2012 Land $ 26,438 $ 26,438 Buildings and improvements 153,771 134,464 Furniture, fixtures and equipment 131,691 121,086 Construction in progress 13,172 10,488 Total premises and equipment 325,072 292,476 Less: Accumulated depreciation and amortization (147,392 ) (129,809 ) Premises and equipment, net $ 177,680 $ 162,667 Depreciation expense totaled $16.5$20.5 million $14.4, $17.6 million and $12.8$16.5 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.Umpqua’s subsidiaries have entered into a number of non-cancelable lease agreements with respect to premises and equipment. See Note 20 for more information regarding rental expense, net of rent income, and minimum annual rental commitments under non-cancelable lease agreements.Umpqua Holdings CorporationNote 9–Goodwill and SubsidiariesNOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETSThe following table summarizes the changes in the Company’sCompany's goodwill and other intangible assets for the years ended December 31, 2008, 2009, 2010, 2011, 2012, and 2011.2013. Goodwill is reflected by operating segment; all other intangible assets are related to the Community Banking segment.(in thousands) Goodwill Community Banking Wealth Management Gross Accumulated
Impairment Total Gross Accumulated
Impairment Total $ 719,336 $ — $ 719,336 $ 3,697 $ (982 ) $ 2,715 (81 ) — (81 ) — — — — (111,952 ) (111,952 ) — — — 719,255 (111,952 ) 607,303 3,697 (982 ) 2,715 45,954 — 45,954 — — — (96 ) — (96 ) — — — 765,113 (111,952 ) 653,161 3,697 (982 ) 2,715 247 — 247 — — — (44 ) — (44 ) — — — $ 765,316 $ (111,952 ) $ 653,364 $ 3,697 $ (982 ) $ 2,715 Other Intangible Assets Gross Accumulated
Amortization Net $ 56,213 $ (20,432 ) $ 35,781 — (804 ) (804 ) — (5,361 ) (5,361 ) 56,213 (26,597 ) 29,616 7,016 — 7,016 (5,150 ) — (5,150 ) — (5,389 ) (5,389 ) 58,079 (31,986 ) 26,093 — — — — (4,948 ) (4,948 ) $ 58,079 $ (36,934 ) $ 21,145 127 Goodwill Community Banking Wealth Management Accumulated Accumulated Gross Impairment Total Gross Impairment Total Balance, December 31, 2010 $ 765,113 $ (111,952 ) $ 653,161 $ 3,697 $ (982 ) $ 2,715 Net additions 247 — 247 — — — Reductions (44 ) — (44 ) — — — Balance, December 31, 2011 765,316 (111,952 ) 653,364 3,697 (982 ) 2,715 Net additions 12,545 — 12,545 — — — Reductions (452 ) — (452 ) — — — Balance, December 31, 2012 777,409 (111,952 ) 665,457 3,697 (982 ) 2,715 Net additions 96,777 — 96,777 — — — Reductions (644 ) — (644 ) — — — Balance, December 31, 2013 $ 873,542 $ (111,952 ) $ 761,590 $ 3,697 $ (982 ) $ 2,715 Other Intangible Assets Accumulated Gross Amortization Net Balance, December 31, 2010 $ 58,079 $ (31,986 ) $ 26,093 Net additions — — — Amortization — (4,948 ) (4,948 ) Balance, December 31, 2011 58,079 (36,934 ) 21,145 Net additions 830 — 830 Amortization — (4,816 ) (4,816 ) Balance, December 31, 2012 58,909 (41,750 ) 17,159 Net additions — — — Amortization — (4,781 ) (4,781 ) Balance, December 31, 2013 $ 58,909 $ (46,531 ) $ 12,378 Goodwill additions in 2011 relate to purchase accounting adjustments finalized relating to the Rainier acquisition. The 2010 goodwill additions2013 relate to the Rainier and Nevada Security acquisitionsFinPac acquisition and represent the excess of the total purchase price paid over the fair valuesvalue of the assets acquired, net of the fair values of liabilities assumed. Additional information on the acquisition and purchase price allocation is provided in Note 2. Goodwill additions in 2012 relate to the Circle acquisition and represent the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Additional information on the acquisition and purchase price allocation is provided in Note 2. Goodwill additions in 2011 relate to purchase accounting adjustments finalized relating to the Rainier acquisition. The reductionsreduction to goodwill include decreasesin 2013 of $44,000, $96,000,$644,000 relates to purchase accounting adjustments. The reduction to goodwill in 2012 and $81,000 in 2011 2010,of $452,000, and 2009, respectively,$44,000 are due to the recognition of tax benefits upon exercise of fully vested acquired stock options.Intangible additions in 20102012 relate to the Evergreen, Rainier, and Nevada Security acquisitionsCircle acquisition and represent core deposits, which includes all deposits except certificates of deposit, and an insurance related customer relationship, which was sold in the second quarter of 2010 for the same value recorded in the purchase price allocation.deposit. The values of the core deposit intangible assets were determined by an analysis of the cost differential between the core deposits and alternative funding sources. The value of the insurance related customer relationship was determined based on market indicators. Intangible assets with definiteThe Company performed a goodwill impairment analysis of the Community Banking operating segment as of June 30, 2009, due to a decline in the Company’s market capitalization below book value of equity and continued weakness in the banking industry. The Company engaged an independent valuation consultant to assist us in determining whether and to what extent our goodwill asset was impaired. The results of the Company’s and valuation specialist’s step one impairment test indicated that the reporting unit’s fair value was less than its carrying value, and therefore the Company performed a step two analysis. As part of the second step of the goodwill impairment analysis, we calculated the fair value of the reporting unit’s assets and liabilities, as well as its unrecognized identifiable intangible assets, such as the core deposit intangible and trade name. Fair value adjustments to items on the balance sheet primarily related to investment securities held to maturity, loans, other real estate owned, Visa Class B common stock, deferred taxes, deposits, term debt, and junior subordinated debentures carried at amortized cost. The external valuation specialist assisted management to estimate the fair value of our unrecognized identifiable assets, such as the core deposit intangible and trade name.The most significant fair value adjustment made in this analysis was to adjust the carrying value of the Company’s loans receivable portfolio to fair value. The fair value of the Company’s loan receivable portfolio at June 30, 2009 was estimated in a manner similar to methodology utilized as part of the December 31, 2008 goodwill impairment evaluation. As part of the December 31, 2008 loan valuation, the loan portfolio was stratified into sixty-eight loan pools that shared common characteristics, namely loan type, payment terms, and whether the loans were performing or non-performing. Each loan pool was discounted at a rate that considers current market interest rates, credit risk, and assumed liquidity premiums required based upon the nature of the underlying pool. Due to the disruption in the financial markets experienced during 2008 and continuing through 2009, the liquidity premium reflects the reduction in demand in the secondary markets for all grades of non-conforming credit, including those that are performing. Liquidity premiums for individual loan categories generally ranged from 4.6% for performing loans to 30% for construction and non-performing loans. At December 31, 2008, the fair value of the overall loan portfolio was calculated to be at a 9% discount relative to its book value. The composition of the loan portfolio at June 30, 2009, including loan type and performance indicators, was substantially similar to the loan portfolio at December 31, 2008. At June 30, 2009, the fair value of the loan portfolio was estimated to be at a 12% discount relative to its carrying value. The additional discount is primarily attributed to the additional liquidity premium required as of the measurement date associated with the Company’s concentration of commercial real estate loans.Other significant fair value adjustments utilized in this goodwill impairment analysis included the value of the core deposit intangible asset which was calculated as 0.53% of core deposits, and includes all deposits except certificates of deposit. The carrying value of other real estate owned was discounted by 25%, representing a liquidity adjustment given the current market conditions. The fair value of our trade name, which represents the competitive advantage associated with our brand recognition and ability to attract and retain relationships, was estimated to be $19.3 million. The fair value of our junior subordinated debentures carried at amortized cost was determined in a manner and utilized inputs, primarily the credit risk adjusted spread, consistent with our methodology for determining the fair value of junior subordinated debentures recorded at fair value.Based on the results of the step two analysis, the Company determined that the implied fair value of the goodwill was less than its carrying amount on the Company’s balance sheet, and as a result, recognized a goodwill impairment loss of $112.0 million in the second quarter of 2009. This write-down of goodwill was a non-cash charge that did not affect the Company’s or the Bank’s liquidity or operations. In addition, because goodwill is excluded in the calculation of regulatory capital, the Company’s “well-capitalized” capital ratios were not affected by this charge.The Company conducted its annual evaluation of goodwill for impairment at both December 31, 20112013 and 2010,2012 , respectively. At both dates, in the first step of the goodwill impairment test, the Company determined that the fair value of the Community Banking and Wealth Management reporting unitunits exceeded its carrying amount. This determination is consistent with the events occurring after the Company recognized the $112.0 million impairment of goodwill in the second quarter of 2009. First, the market capitalization and estimated fair value of the Company increased significantly subsequent to the recognition of the impairment charge, as theUmpqua Holdings Corporation and Subsidiariesfair value of the Company’s stock increased 60% from June 30, 2009 to December 31, 2011. Secondly, the Company’s successful public common stock offerings in the third quarter of 2009 and first quarter of 2010 diluted the carrying value of the reporting unit’s book equity on a per share basis, against which the fair value of the reporting unit is measured. The significant assumptions and methodology utilized to test for goodwill impairment as of 20112013 were consistent with those used at December 31, 2010.If the Company’s common2012128A 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 should significantly declineand market capitalization; a significant adverse change in legal factors or continues to trade below book value per common share, or should general economic conditions deteriorate further or remain depressed for a prolonged period of time, particularly in the financial industry,business climate; adverse action or assessment by a regulator; and unanticipated competition.The Company has the Company may be requiredoption to recognize additionalperform a qualitative assessment before completing the goodwill impairment of all, or some portion of, its goodwill. It is possible that changes in circumstances, existing at the measurement date or at other times in the future, or changes in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, such as valuation multiples, discount rates, or projected earnings, could result in an impairment charge in future periods. Additional impairment charges, if any, may be material to the Company’s results of operations and financial position. However, any potential future impairment charge will have no effect on the Company’s or the Bank’s cash balances, liquidity, or regulatory capital ratios.inputs management utilizes to estimatefirst step compares the fair value of a reporting unit in step one of the goodwill impairment test, and estimating the fair values of the underlying assets and liabilities of a reporting unit in the second step of the goodwill impairment test, require management to make significant judgments, assumptions and estimates where observable market may not readily exist. Such inputs include, but are not limited to, trading multiples from comparable transactions, control premiums, the value that may arise from synergies and other benefits that would accrue from control over an entity, and the appropriate rates to discount projected cash flows. Additionally, there may be limited current market inputs to value certain assets or liabilities, particularly loans and junior subordinated debentures. These valuation inputs are considered to be Level 3 inputs.Management will continue to monitor the relationship of the Company’s market capitalization to both its book value and tangible book value, which management attributes to both financial services industry-wide and Company specific factors, and to evaluate the carrying value of goodwill and other intangible assets.The Company evaluated the Wealth Management reporting segment’s goodwill for impairment as of December 31, 2011. The first step of the goodwill impairment test indicated thatvalue. If the reporting unit’s fair value exceededis less than its carrying value, therefore, no additional impairment was recognized.In 2009, the Company recognized an $804,000 impairment relatedwould be required to proceed to the merchant servicing portfoliosecond step. In the second step the Company calculates the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The estimated fair value of the Company is allocated to all of the Company’s assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination and the estimated fair value of the reporting unit is the price paid to acquire it. The allocation process is performed only for purposes of determining the amount of goodwill impairment. No assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets recorded as a resultpart of this process. Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss would be recognized as a decreasecharge to earnings in an amount equal to that excess. The Company performs the actualfirst step on an annual basis and expected future cash flows related to the income stream. Additional information on intangible assets related to acquisitions is provided in Note 2.The table below presents the forecasted amortization expense for intangible assets acquired in all mergers:(in thousands)Year Expected
Amortization $ 4,795 4,623 4,403 4,182 2,433 709 $ 21,145 Expected Year Amortization 2014 $ 4,528 2015 4,286 2016 2,520 2017 549 2018 190 Thereafter 305 $ 12,378 NOTE 10. MORTGAGE SERVICING RIGHTSNote 10The following table presents the changes in the Company’s mortgage servicing rights (“MSR”) for the years ended December 31, 2011, 20102013, 2012 and 2009:(in thousands) 2011 2010 2009 $ 14,454 $ 12,625 $ 8,205 6,720 5,645 7,570 — 62 — (858 ) (1,598 ) (3,469 ) (2,132 ) (2,280 ) 319 $ 18,184 $ 14,454 $ 12,625 $ 2,009,849 $ 1,603,414 $ 1,277,832 0.90% 0.90% 0.99% 2013 2012 2011 Balance, beginning of period $ 27,428 $ 18,184 $ 14,454 Additions for new mortgage servicing rights capitalized 17,963 17,710 6,720 Changes in fair value: Due to changes in model inputs or assumptions(1)5,688 (4,651 ) (858 ) Other(2)(3,314 ) (3,815 ) (2,132 ) Balance, end of period $ 47,765 $ 27,428 $ 18,184 (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, 2013, 2012 and 2011 is as follows: (dollars in thousands)129 December 31, 2013 December 31, 2012 December 31, 2011 Balance of loans serviced for others $ 4,362,499 $ 3,162,080 $ 2,009,849 MSR as a percentage of serviced loans 1.09 % 0.87 % 0.90 % The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in mortgage banking revenue on theConsolidated Statements of OperationsIncome, werewas $10.4 million, $6.6 million, and $4.7 million $3.9 million, and $3.0 million, respectively, for the years ended December 31, 2011, 2010,2013, 2012 and 2009.2011. NOTE 11. NON-COVERED OTHER REAL ESTATE OWNED, NETA sensitivity analysis of the current fair value to changes in discount and prepayment speed assumptions as of December 31, 2013 December 31, 2012 Constant prepayment rate Effect on fair value of a 10% adverse change $ (2,255 ) $ (1,445 ) Effect on fair value of a 20% adverse change $ (4,323 ) $ (2,754 ) Discount rate Effect on fair value of a 100 basis point adverse change $ (1,832 ) $ (889 ) Effect on fair value of a 200 basis point adverse change $ (3,534 ) $ (1,720 ) 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 11– Non-covered Other Real Estate Owned, Net The following table presents the changes in non-covered other real estate owned (“OREO”), net of valuation allowance, for the years ended December 31, 2011, 20102013, 2012 and 2009:(in thousands) 2011 2010 2009 $ 32,791 $ 24,566 $ 27,898 47,414 41,491 50,914 (37,083 ) (29,192 ) (41,999 ) (8,947 ) (4,074 ) (12,247 ) $ 34,175 $ 32,791 $ 24,566 2013 2012 2011 Balance, beginning of period $ 17,138 $ 34,175 $ 32,791 Additions to OREO due to acquisition — 1,602 — Additions to OREO 21,638 17,699 47,414 Dispositions of OREO (15,495 ) (29,442 ) (37,083 ) Valuation adjustments in the period (1,448 ) (6,896 ) (8,947 ) Balance, end of period $ 21,833 $ 17,138 $ 34,175 OREO properties are recorded at the lower of the recorded investment in the loan (prior to foreclosure) or the fair market value of the property less expected selling costs. The Company recognized valuation allowances of $5.1$1.0 million, $2.4$1.8 million, and $11.4$5.1 million on its non-covered OREO balances as of December 31, 2011, 20102013, 2012 and 2009,2011, respectively. Valuation allowances on non-covered OREO balances are based on updated appraisals of the underlying properties as received during a period or management’smanagement's authorization to reduce the selling price of a property during the period.Umpqua Holdings Corporation and SubsidiariesNOTE 12. OTHER ASSETSOther assets consisted of the following at December 31, 20112013 and 2010:2012:130(in thousands) 2011 2010 $ 92,555 $ 90,161 30,617 30,307 26,510 36,461 18,739 29,369 14,715 516 12,400 8,377 7,955 1,060 6,934 6,933 — 9,649 37,181 29,632 $ 247,606 $ 242,465 2013 2012 Accrued interest receivable $ 23,720 $ 26,998 Derivative assets 17,921 23,942 Income taxes receivable 15,665 12,859 Equity method investments 9,641 11,031 Investment in unconsolidated Trusts 6,933 6,933 Due from FDIC 3,322 12,606 Prepaid FDIC deposit assessment — 12,307 Other 34,756 32,026 Total $ 111,958 $ 138,702 The amount due from the FDIC relates to the FDIC-assisted acquisitions of Evergreen, Rainier, and Nevada Security. See further discussion at Note 7.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 under the equity method. The Company’s remaining capital commitments to these partnerships at December 31, 20112013 and 20102012 were approximately $6.9$1.4 million and $1.9$4.1 million, respectively. Such amounts are included in other liabilities on the consolidated balance sheets.Also see Note 18 for information on the Company’s investment in Trusts and Note 21 for information on the Company’s derivatives.NOTE 13. INCOME TAXESNote 13The following table presents the components of income tax expense (benefit) attributable to continuing operations included in theConsolidated Statements of OperationsIncome for the years ended December 31:(in thousands) Current Deferred Total $ 29,932 $ (40 ) $ 29,892 4,810 2,040 6,850 $ 34,742 $ 2,000 $ 36,742 $ (1,714 ) $ 6,364 $ 4,650 3,126 (1,971 ) 1,155 $ 1,412 $ 4,393 $ 5,805 $ (24,339 ) $ (7,471 ) $ (31,810 ) 1,762 (10,889 ) (9,127 ) $ (22,577 ) $ (18,360 ) $ (40,937 ) Current Deferred Total YEAR ENDED DECEMBER 31, 2013: Federal $ 36,733 $ 7,459 $ 44,192 State 8,187 289 8,476 $ 44,920 $ 7,748 $ 52,668 YEAR ENDED DECEMBER 31, 2012: �� Federal $ 44,268 $ (426 ) $ 43,842 State 2,632 6,847 9,479 $ 46,900 $ 6,421 $ 53,321 YEAR ENDED DECEMBER 31, 2011: Federal $ 29,932 $ (40 ) $ 29,892 State 4,810 2,040 6,850 $ 34,742 $ 2,000 $ 36,742 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: 2011 2010 2009 35.0% 35.0% 35.0% — — -20.0% 3.8% 2.5% 2.9% -3.7% -13.6% 2.2% -1.5% -5.5% 1.0% -0.6% -1.4% -0.1% 33.0% 17.0% 21.0% 131 2013 2012 2011 Statutory Federal income tax rate 35.0 % 35.0 % 35.0 % State tax, net of Federal income tax 4.4 % 4.4 % 3.8 % Tax-exempt income (3.2 )% (3.0 )% (3.7 )% Tax credits (1.8 )% (1.1 )% (1.5 )% Nondeductible merger expenses 1.0 % 0.1 % — % Other (0.5 )% (1.0 )% (0.6 )% Effective income tax rate 34.9 % 34.4 % 33.0 % The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax (liabilities) assets (recorded in other liabilities or/and other assetsrecorded on the consolidated balance sheets)sheets as of December 31:(in thousands) 2011 2010 $ 38,812 $ 49,334 36,221 41,084 10,976 10,690 6,815 13,289 6,566 3,741 6,284 8,132 2,607 3,401 2,535 2,753 2,335 2,998 1,291 8,897 9,826 7,719 124,268 152,038 45,817 73,719 22,713 16,966 20,099 20,801 8,789 5,581 7,058 5,782 4,983 4,297 4,928 5,228 4,251 4,879 6,063 5,136 124,701 142,389 $ (433 ) $ 9,649 2013 2012 DEFERRED TAX ASSETS: Allowance for loan and lease losses $ 33,652 $ 33,782 Covered loans 16,788 28,610 Accrued severance and deferred compensation 13,080 13,376 Non-accrual loans 5,760 4,759 Tax credits 5,716 3,655 Unrealized loss on investment securities 3,318 — Non-covered other real estate owned 3,023 1,974 Covered other real estate owned 831 5,120 Other 16,230 14,702 Total gross deferred tax assets 98,398 105,978 DEFERRED TAX LIABILITIES: Mortgage servicing rights 18,855 10,847 Fair market value adjustment on preferred securities 18,649 19,567 FDIC indemnification asset 10,471 25,913 Leased assets 9,719 3,930 Deferred loan fees 7,525 5,706 Premises and equipment depreciation 7,356 8,834 Intangibles 5,633 5,161 Unrealized gain on investment securities — 16,306 Other 3,512 6,186 Total gross deferred tax liabilities 81,720 102,450 Valuation allowance (51 ) — Net deferred tax assets $ 16,627 $ 3,528 The Company has determined that it is not required to establish a valuation allowance for a portion of the deferred tax assets as management believes it is more likely than not that a deferred tax asset of $51,000 as December 31, 2013, relating to Canadian net operating losses, may not be able to be utilized in the future. 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 deferred tax assets of $124.3$98.3 million and $152.0$106.0 million at December 31, 20112013 and 2010,2012, respectively, will be realized principally through carry-back to taxable income in prior years and 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.Umpqua Holdings Corporation and Subsidiaries132The tax credits consist entirely of state tax credits of $6.8 and $8.9 million at December 31, 20112013 and 2010, respectively, and none and $4.3 million of federal low income housing credits at December 31, 2011 and 2010, respectively.2012. The state tax credits, comprised primarily of State of Oregon Business Energy Tax Credits (“BETC”), will be utilized to offset future state income taxes. Most of the state tax credits benefit a five-year period, with an eight-year carry-forward allowed. Federal low income housing credits have a twenty-year carry forward. Management believes, based upon the Company’s historical performance that the deferred tax assets relating to these tax credits will be realized in the normal course of operations, and, accordingly, management has not reduced these deferred tax assets by a valuation allowance.The Company has California state net operating loss carry forwards of $1.3 million at both December 31, 2011 and 2010. The California state net operating losses may be carried forward twenty years. Management believes, based upon the Company’s historical performance, that the deferred tax assets relating to federal and state net operating losses will be realized in the normal course of operations, and, accordingly, management has not reduced these deferred tax assets by a valuation allowance.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the Oregon and California state jurisdictions. Except forAdditionally, as a result of the California amended returnsFinPac acquisition, the Company will now be subject to filings in the majority of an acquired institution for the tax years 2001, 2002,states and 2003, and only as it relates to the net interest deduction taken on these amended returns, thein Canada. The Company is no longer subject to U.S. federal or Oregonand other state tax authorities examinations for years before 2009, except in California for years before 2005 and for Canadian tax authority examinations for years before 2008 and California state tax authority examinations for years before 2004. The Internal Revenue Service concluded an examination of the Company’s U.S. income tax returns for 2006 through 2008 in 2010. The results of these examinations had no significant impact on the Company’s financial statements.In accordance with the provisions of FASB ASC 740,Income Taxes, (“ASC 740”), relating to the accounting for uncertainty in income taxes, 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 recorded a reductionan increase in its liability for unrecognized tax benefits relating to California tax incentives and temporary differences in the amount of $39,000$4,000 during 2013 and $1.7 millionan increase of $47,000 during 2011 and 2010, respectively.2012. The Company had gross unrecognized tax benefits recorded as of December 31, 20112013 and 20102012 in the amounts of $550,000$602,000 and $589,000,$598,000, respectively. If recognized the unrecognized tax benefit would impactreduce the 20112013 annual effective tax rate by 0.3%. During 2011, theThe Company accrued $24,000 of interest related to unrecognized tax benefits and recognized a benefit of $4,000$6,000 in interest relatedreversed primarily due to the reductions of its liability for unrecognized tax benefits during the same period. During 2010, the Company accrued $194,000 of interest related to2013 and 2012 , respectively. Interest on unrecognized tax benefits which is reported by the Company as a component as of tax expense. As of December 31, 20112013 and 2010,2012, the accrued interest related to unrecognized tax benefits is $167,000$193,000 and $171,000,$168,000, 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, 20112013 and 2010,2012, respectively:(in thousands) 2011 2010 $ 589 $ 2,263 — (1,674 ) (39 ) — $ 550 $ 589 2013 2012 Balance, beginning of period $ 598 $ 550 Effectively settled positions 4 (39 ) Changes for tax positions of prior years — 87 Balance, end of period $ 602 $ 598 NOTE 14. INTEREST BEARING DEPOSITSNote 14The following table presents the major types of interest bearing deposits at December 31, 20112013 and 2010:2012:(in thousands) 2011 2010 $ 993,579 $ 927,224 3,661,785 3,467,549 386,528 349,696 1,629,505 2,191,055 652,172 881,594 $ 7,323,569 $ 7,817,118 2013 2012 Interest bearing demand $ 1,233,070 $ 1,215,002 Money market 3,349,946 3,407,047 Savings 560,699 475,325 Time, $100,000 and over 1,065,380 1,429,153 Time less than $100,000 472,088 573,834 Total interest bearing deposits $ 6,681,183 $ 7,100,361 The following table presents interest expense for each deposit type for the years ended December 31, 2011, 20102013, 2012 and 2009:(in thousands) 2011 2010 2009 $ 3,056 $ 4,677 $ 4,884 17,236 26,412 26,885 356 543 572 25,771 31,735 36,070 9,324 12,874 20,331 $ 55,743 $ 76,241 $ 88,742 133 2013 2012 2011 Interest bearing demand $ 978 $ 1,980 $ 3,056 Money market 3,485 7,193 17,236 Savings 321 291 356 Time, $100,000 and over 11,911 16,067 25,771 Other time less than $100,000 4,060 5,602 9,324 Total interest on deposits $ 20,755 $ 31,133 $ 55,743 The following table presents the scheduled maturities of time deposits as of December 31, 2011:(in thousands)Year Amount $ 1,589,811 469,152 45,831 37,493 136,685 2,705 $ 2,281,677 Year Amount 2014 $ 1,009,077 2015 204,701 2016 217,406 2017 78,728 2018 25,001 Thereafter 2,555 Total time deposits $ 1,537,468 The following table presents the remaining maturities of time deposits of $100,000 or more as of December 31, 2011:(in thousands)Year Amount $ 493,587 192,775 463,446 479,697 $ 1,629,505 Umpqua Holdings Corporation and Subsidiaries Amount Three months or less $ 226,849 Over three months through six months 211,268 Over six months through twelve months 253,595 Over twelve months 373,668 Time, $100,000 and over $ 1,065,380 NOTE 15. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASENote 15The following table presents information regarding securities sold under agreements to repurchase at December 31, 20112013 and 2010:2012:(dollars in thousands) Repurchase
Amount Weighted
Average
Interest
Rate Carrying
Value of
Underlying
Assets Market
Value of
Underlying
Assets $ 124,605 0.35% $ 129,810 $ 129,810 $ 73,759 0.66% $ 75,305 $ 75,305 Weighted Carrying Market Average Value of Value of Repurchase Interest Underlying Underlying Amount Rate Assets Assets December 31, 2013 $ 224,882 0.07 % $ 229,439 $ 229,439 December 31, 2012 $ 137,075 0.14 % $ 139,373 $ 139,373 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 $113.1$177.9 million $54.7, $142.4 million, and $60.7$113.1 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively. The maximum amount outstanding at any month end for the years ended December 31, 2011, 20102013, 2012 and 20092011, was $148.2$233.8 million $73.8, $166.3 million, and $64.3$148.2 million, respectively. Investment securities are pledged as collateral in an amount equal to or greater than the repurchase agreements.NOTE 16. FEDERAL FUNDS PURCHASEDNote 16134At December 31, 20112013 and 2010,2012, the Company had no outstanding federal funds purchased balances. The Bank had available lines of credit with the FHLB totaling $1.8$2.2 billion at December 31, 2011.2013. The Bank had available lines of credit with the Federal Reserve totaling $448.5$391.7 million subject to certain collateral requirements, namely the amount of certain pledged loans at December 31, 2011.2013. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $135.0$185.0 million at December 31, 2011.2013. At December 31, 2011,2013, the lines of credit had interest rates ranging from 0.3% to 3.0%0.8%. 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 17. TERM DEBTNote 17The Bank had outstanding secured advances from the FHLB and other creditors at December 31, 20112013 and 20102012 with carrying values of $255.7$251.5 million and $262.8$253.6 million, respectively.The following table summarizes the future contractual maturities of borrowed funds (excluding the remaining unamortized purchase accounting adjustments relating to the Rainier acquisition of $10.1$6.0 million) as of December 31, 2011:(dollars in thousands)Year Amount $ — — — — 190,016 55,519 $ 245,535 Year Amount 2014 $ — 2015 — 2016 190,016 2017 55,000 2018 — Thereafter 495 Total borrowed funds $ 245,511 The maximum amount outstanding from the FHLB under term advances at month end during 2011 and 2010 was $250.0 million and $355.2 million, respectively. Thethe average balance outstanding on FHLB term advances during 2011both 2013 and 20102012 was $245.8 and $247.5 million, respectively.$245.0 million. The average interest rate on the borrowings (excluding the accretion of purchase accounting adjustments) was 4.6% in 20112013 and 4.4% in 2010.2012. The FHLB requires the Bank to maintain a required level of investment in FHLB and sufficient collateral to qualify for notes. The Bank has pledged as collateral for these notes 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.135NOTE 18. JUNIOR SUBORDINATED DEBENTURESNote 18The following– Junior Subordinated Debentures Following is information about the Company’s wholly-owned trusts (“Trusts”) as of December 31, 2011:(dollars in thousands) Issued
Amount Carrying
Value (1) Rate (2) Effective
Rate (3) Maturity Date Redemption
Date Trust Name Issue Date October 2002 $ 20,619 $ 14,166 Floating (4) 5.50% October 2032 October 2007 October 2002 30,928 21,476 Floating (5) 5.62% November 2032 November 2007 December 2003 10,310 6,641 Floating (6) 5.05% January 2034 January 2009 December 2003 10,310 6,625 Floating (6) 5.31% March 2034 March 2009 August 2007 41,238 21,134 Floating (7) 3.70% September 2037 September 2012 September 2007 20,619 12,863 Floating (8) 5.28% December 2037 December 2012 134,024 82,905 March 2000 5,310 6,329 10.875% 8.24% March 2030 March 2010 February 2001 5,155 5,897 10.200% 8.26% February 2031 February 2011 December 2001 10,310 11,378 Floating (9) 3.29% December 2031 December 2006 September 2003 27,836 30,605 Floating (10) 2.76% September 2033 September 2008 November 2002 10,310 11,219 Floating (5) 3.20% November 2032 November 2007 July 2001 6,186 6,186 Floating (11) 4.01% July 2031 July 2006 December 2001 10,310 10,310 Floating (9) 4.15% December 2031 December 2006 September 2003 10,310 10,310 Floating (12) 3.30% September 2033 September 2008 September 2003 10,310 10,310 Floating (12) 3.30% September 2033 September 2008 96,037 102,544 Total $ 230,061 $ 185,449 Issued Carrying Effective Trust Name Issue Date Amount Value (1) Rate (2) Rate (3) Maturity Date Redemption Date AT FAIR VALUE: Umpqua Statutory Trust II October 2002 $ 20,619 $ 14,791 Floating (4) 5.00% October 2032 October 2007 Umpqua Statutory Trust III October 2002 30,928 22,392 Floating (5) 5.10% November 2032 November 2007 Umpqua Statutory Trust IV December 2003 10,310 6,978 Floating (6) 4.57% January 2034 January 2009 Umpqua Statutory Trust V December 2003 10,310 6,957 Floating (6) 4.58% March 2034 March 2009 Umpqua Master Trust I August 2007 41,238 22,696 Floating (7) 2.89% September 2037 September 2012 Umpqua Master Trust IB September 2007 20,619 13,460 Floating (8) 4.58% December 2037 December 2012 134,024 87,274 AT AMORTIZED COST: HB Capital Trust I March 2000 5,310 6,218 10.875% 8.39% March 2030 March 2010 Humboldt Bancorp Statutory Trust I February 2001 5,155 5,819 10.200% 8.37% February 2031 February 2011 Humboldt Bancorp Statutory Trust II December 2001 10,310 11,271 Floating (9) 3.04% December 2031 December 2006 Humboldt Bancorp Statutory Trust III September 2003 27,836 30,344 Floating (10) 2.50% September 2033 September 2008 CIB Capital Trust November 2002 10,310 11,131 Floating (5) 3.02% November 2032 November 2007 Western Sierra Statutory Trust I July 2001 6,186 6,186 Floating (11) 3.82% July 2031 July 2006 Western Sierra Statutory Trust II December 2001 10,310 10,310 Floating (9) 3.84% December 2031 December 2006 Western Sierra Statutory Trust III September 2003 10,310 10,310 Floating (12) 3.14% September 2033 September 2008 Western Sierra Statutory Trust IV September 2003 10,310 10,310 Floating (12) 3.14% September 2033 September 2008 96,037 101,899 Total $ 230,061 $ 189,173 (1) Includes purchase 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 2011.31, 2013. (4) Rate based on LIBOR plus 3.35%, adjusted quarterly.(5) Rate based on LIBOR plus 3.45%, adjusted quarterly.(6) Rate based on LIBOR plus 2.85%, adjusted quarterly.(7) Rate based on LIBOR plus 1.35%, adjusted quarterly.(8) Rate based on LIBOR plus 2.75%, adjusted quarterly.(9) Rate based on LIBOR plus 3.60%, adjusted quarterly.(10) Rate based on LIBOR plus 2.95%, adjusted quarterly.(11) Rate based on LIBOR plus 3.58%, adjusted quarterly.(12) Rate based on LIBOR plus 2.90%, adjusted quarterly.Umpqua Holdings Corporation and SubsidiariesThe Trusts are reflected as junior subordinated debentures in the Consolidated Balance Sheets.Sheets. The common stock issued by the Trusts is recorded in other assets in the Consolidated Balance Sheets, and totaled $6.9$6.9 million and $6.9 million at December 31, 20112013 and 2010, respectively.$7.2 million at December 31, 2012. On January 1, 2007, the Company selected the fair value measurement option for certain pre-existing junior subordinated debentures (the Umpqua Statutory Trusts). The remaining junior subordinated debentures as of the adoption date were acquired through business combinations and were measured at fair value at the time of acquisition. In 2007, the Company issued two series of trust preferred securities and elected to measure each instrument at fair value. Accounting for the junior subordinated debentures originally issued by the Company 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.136The 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. Generally, an increase in the credit risk adjusted spread and/or a decrease in the three month LIBOR will result in positive fair value adjustments. Conversely, a decrease in the credit risk adjusted spread and/or an increase in the three month LIBOR will result in negative fair value adjustments.Through the first quarter of 2010 we obtained valuations from a third-party pricing service to assist with the estimation and determination of fair value of these liabilities. In these valuations, the credit risk adjusted interest spread for potential new issuances through the primary market and implied spreads of these instruments when traded as assets on the secondary market, were estimated to be significantly higher than the contractual spread of our junior subordinated debentures measured at fair value. The difference between these spreads has resulted in the cumulative gain in fair value, reducing the carrying value of these instruments as reported on our Consolidated Balance Sheets.Sheets. In July 2010, the Dodd-Frank Wall Street Reform and consumer Protection Act (the "Dodd-Frank Act") was signed into law which, among other things, limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law may require many banks to raise new Tier 1 capital and is expected tohas effectively closeclosed the trust-preferred securities markets from offering new issuances in the future. As a result of this legislation, our third-party pricing service noted that they were no longer to able to provide reliable fair value estimates related to these liabilities given the absence of observable or comparable transactions in the market place in recent history or as anticipated into the future.Due to inactivity in the junior subordinated debenture market and the inability to obtain 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, 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. Regarding the activity in and condition of the junior subordinated debt market, we noted no observable changes in the current period as it relates to companies comparable to our size and condition, in either the primary or secondary markets. Relating to the interest rate environment, we considered the change in slope and shape of the forward LIBOR swap curve in the current period, the affectseffects of which did not result in a significant change in the fair value of these liabilities.The Company’s specific credit risk is implicit in the credit risk adjusted spread used to determine the fair value of our junior subordinated debentures. As our Company is not specifically rated by any credit agency, it is difficult to specifically attribute changes in our estimate of the applicable credit risk adjusted spread to specific changes in our own creditworthiness versus changes in the market’s required return from similar companies. As a result, these considerations must be largely based off of qualitative considerations as we do not have a credit rating and we do not regularly issue senior or subordinated debt that would provide us an independent measure of the changes in how the market quantifies our perceived default risk.On a quarterly basis we assess entity-specific qualitative considerations that if not mitigated or represents a material change from the prior reporting period may result in a change to the perceived creditworthiness and ultimately the estimated credit risk adjusted spread utilized to value these liabilities. Entity-specific considerations that positively impact our creditworthiness include: our strong capital position resulting from our successful public stock offerings in 2009 and 2010 that offers us flexibility to pursue business opportunities such as mergers and acquisitions, or expand our footprint and product offerings; having significant levels of on and off-balance sheet liquidity; being profitable (after excluding the one-time goodwill impairment charge recognized in 2009); and, having an experienced management team. However, these positive considerations are mitigated by significant risks and uncertainties that impact our creditworthiness and ability to maintain capital adequacy in the future. Specific risks and concerns include: given our concentration of loans secured by real estate in our loan portfolio, a continued and sustained deterioration of the real estate market may result in declines in the value of the underlying collateral and increased delinquencies that could result in an increasedincrease of charge-offs; despite recent improvement, our credit quality metrics remain negatively elevated since 2007 relative to historical standards; the continuation of current economic downturn that has been particularly severe in our primary markets could adversely affect our business; recent increased regulation facing our industry, such as the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 and the Dodd-Frank Act, will increase the cost of compliance and restrict our ability to conduct business consistent with historical practices, require that we hold additional capital and could negatively impact profitability; we have a significant amount of goodwill and other intangible assets that dilute our available tangible common equity; and the carrying value of certain material, recently recorded assets on our balance sheet, such as the FDIC loss-sharing indemnification asset, are highly reliant on management estimates, such as the timing or amount of losses that are estimated to be covered, and the assumed continued compliance with the provisions of the applicable loss-share agreement. To the extent assumptions ultimately prove incorrect or should we consciously forego or unknowingly violate the guidelines of the agreement, an impairment of the asset may result which would reduce capital.Additionally, the Company periodically utilizes an external valuation firm to determine or validate the reasonableness of the assessments of inputs and factors that ultimately determines the estimateestimated fair value of these liabilities. The extent we involve or137engage these external third parties correlates to management’s assessment of the current subordinatesubordinated debt market, how the current environment and market compares to the preceding quarter, and perceived changes in the Company’s own creditworthiness during the quarter. In periods of potential significant valuation changes and at year-end reporting periods we typically engage third parties to perform a full independent valuation of these liabilities. For periods where management has assessed the market and other factors impacting the underlying valuation assumptions of these liabilities, and has determined significant changes to the valuation of these liabilities in the current period are remote, the scope of the valuation specialist’s review is limited to a review the reasonableness of Management’smanagement’s assessment of inputs. In the fourth quarter of 2011,2013, the Company engaged an external valuation firm to prepare an independent valuation of our junior subordinated debentures measured at fair value and the results were consistent with the Company’sCompany's valuation.Absent changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these instruments at each reporting period, the cumulative discount for each junior subordinated debenture will reverse over time, ultimately returning the carrying values of these instruments to their notional values at their expected redemption dates, in a manner similar to the effective yield method as if these instruments were accounted for under the amortized cost method. This will result in recognizing losses on junior subordinated debentures carried at fair value on a quarterly basis within non-interest income. For the years ended December 31, 20112013, 2012 and 2010,2011, we recorded a loss of $2.2$2.2 million and a gain $5.0 million, respectively, resulting from the change in fair value of the junior subordinated debentures recorded at fair value. Observable activity in the junior subordinated debenture and related markets in future periods may change the effective rate used to discount these liabilities, and could result in additional fair value adjustments (gains or losses on junior subordinated debentures measured at fair value) outside the expected periodic change in fair value had the fair value assumptions remained unchanged.As noted above,On July 2, 2013, the federal banking regulators approved the final 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"). Under the final rule, consistent with Section 171 of the Dodd-Frank Act, limits the ability of certain bank holding companies with less than $15 billion assets as of December 31, 2009 will be grandfathered and may continue to treatinclude these instruments in Tier 1 capital, subject to certain restrictions. However, if an institution grows above $15 billion as a result of an acquisition, or organically grows above $15 billion and then makes an acquisition, the combined trust preferred security debt issuances would be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016 and later). If the Company exceeds $15 billion in consolidated assets other than in an organic manner and these instruments no longer qualify as Tier 1 capital. Ascapital, it is possible the Company had less than $15 billionmay accelerate redemption of the existing junior subordinated debentures. This could result in assetsadjustments 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 following the proposed merger in order to support regulatory total capital levels. At December 31, 2009, under2013, the Dodd-Frank Act, the Company will be able to continue to include its existing trust preferred securities, less the common stock of the Trusts, in Tier 1 capital. At December 31, 2011, the Company’sCompany's restricted core capital elements were 18.41%18.6% of total core capital, net of goodwill and any associated deferred tax liability.Umpqua Holdings Corporation and SubsidiariesNOTE 19. EMPLOYEE BENEFIT PLANSNote 19Employee Savings Plan—Substantially-Substantially all of the Bank’sBank's and Umpqua Investments’Investments' 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’sCompany'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. FinPac employees are also eligible to participate in a 401(k) Savings Plan (the "FinPac 401(k) Plan"). Under the provisions of the FinPac 401(k) Plan, employees may elect to have a portion of their salary contributed to the plan and FinPac elects to make a matching contribution. The Company’sFinPac 401(k) Plan also permits FinPac to make a discretionary profit-sharing match. The Company's contributions under the planboth plans charged to expense amounted to $2.7$3.8 million, $2.2$3.0 million, and $2.1$2.7 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.Supplemental Retirement Plan—The-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’sCompany'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, 2011, 20102013, 2012 and 2009,2011, the Company’sCompany's matching contribution charged to expense for these supplemental plans totaled $96,000, $56,000,$123,000, $116,000, and $6,000,$96,000, respectively. The SRP plan balances at December 31, 20112013 and 20102012 were $530,000$678,000 and $387,000,$566,000, 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 $532,000$2.1 million and $300,000$1.1 million at December 31, 20112013 and 2010,2012, respectively.138Salary Continuation Plans—The-The Bank sponsors various salary continuation plans for the CEO and certain retired employees. 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’semployee's death prior to or during retirement, the Bank is obligated to pay to the designated beneficiary the benefits set forth under the plan. At December 31, 20112013 and 2010,2012, liabilities recorded for the estimated present value of future salary continuation plan benefits totaled $16.9$19.0 million and $16.3$19.5 million, respectively, and are recorded in other liabilities. For the years ended December 31, 2011, 20102013, 2012 and 2009,2011, expense recorded for the salary continuation plan benefits totaled $1.8 million, $1.8$849,000, $2.5 million, and $1.8 million, respectively.Deferred Compensation Plans and Rabbi Trusts—Trusts-The Bank from time to time adopts deferred compensation plans that provide certain key executives with the option to defer a portion of their compensation. In connection with prior acquisitions, the Bank assumed liability for certain deferred compensation plans for key employees, retired employees and directors. Subsequent to the effective date of the acquisitions, no additional contributions were made to these plans. At December 31, 20112013 and 2010,2012, liabilities recorded in connection with deferred compensation plan benefits totaled $2.5$1.9 million and $3.0$2.3 million, respectively, and are recorded in other liabilities.The Bank has established 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, 20112013 and 20102012 were $1.3$3.9 million and $1.5$2.9 million, respectively.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 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, 20112013 and 2010,2012, the cash surrender value of these policies was $92.6$96.9 million and $90.2$93.8 million, respectively. At December 31, 20112013 and 2010,2012, the Bank also had liabilities for post-retirement benefits payable to other partial beneficiaries under some of these life insurance policies of $1.5$1.8 million and $1.4$1.9 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 20 – Commitments and Contingencies NOTE 20. COMMITMENTS AND CONTINGENCIESCompanyBank leases 142155 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, 2011, 20102013, 2012 and 20092011 was $19.1 million, $17.3 million, and $16.6 million, $15.3 million, and $13.0 million, respectively.million. Rent expense was offset by rent income of $1.0 million, $1.0 million, and $555,000 for the years ended December 31, 2011, 20102013, 2012 and 2009, respectively.2011 of $785,000, $1.0 million and $1.0 million.The following table sets forth, as of December 31, 2011,2013, the future minimum lease payments under non-cancelable operating leases and future minimum income receivable under non-cancelable operating subleases:(in thousands) Lease
Payments Sublease
Income $ 15,695 $ 1,019 13,444 696 11,856 514 10,002 421 7,724 260 21,386 802 $ 80,107 $ 3,712 Lease Sublease Payments Income 2014 $ 17,757 $ 578 2015 15,937 477 2016 13,774 311 2017 9,826 142 2018 7,570 46 Thereafter 22,938 — Total $ 87,802 $ 1,554 139Financial Instruments with Off-Balance-Sheet Risk—The Company’sCompany's financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank’sBank's business and involve elements of credit, liquidity, and interest rate risk. The following table presents a summary of the Bank’sBank's commitments and contingent liabilities:(in thousands) As of December 31, 2011 $ 1,222,920 $ 226,749 $ 182,671 $ 143,512 $ 61,316 As of December 31, 2013 Commitments to extend credit $ 1,606,910 Commitments to extend overdrafts $ 207,389 Forward sales commitments $ 152,500 Commitments to originate loans held for sale $ 77,314 Standby letters of credit $ 58,830 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 amountsrisk involved in on-balance sheet items recognized in the consolidated balance sheets.Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the Bank’sBank's involvement in particular classes of financial instruments.The Bank’sBank'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.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 notUmpqua Holdings Corporation and Subsidiariescustomer’scustomer'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’smanagement'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 financial guarantees written 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 haswas not beenrequired to perform on any financial guarantees and had $116,000 in recoveries and incurred $78,000 in losses in connection with standby letters of credit during the year ended December 31, 2013. The Bank was not required to perform on any financial guarantees and incurred $2.2 million losses in connection with standby letters of credit during the year ended December 31, 2012. The Bank was not required to perform on any financial guarantees but did incur losses of $110,000 in connection with standby letters of credit during the year ended December 31, 2011 and no losses in connection with standby letters of credit during the year ended 2011. At December 31, 2010. The Bank has not been required to perform on any financial guarantees but did incur losses of $23,000 in connection with standby letters of credit during the year ended December 31, 2009. At December 31, 2011,2013, approximately $31.5$40.8 million of standby letters of credit expire within one year, and $29.8$18.0 million expire thereafter. Upon issuance, the CompanyBank 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. The estimated fair value of guarantees associated with standby letters of credit was $254,000$183,000 as of December 31, 2011.At December 31, 2011 and 2010, the reserve for unfunded commitments, which is included in other liabilities on the consolidated balance sheet, was $940,000 and $818,000, respectively. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amounts of commitments, loss experience, and economic conditions.Mortgage loans sold to investors may be sold with servicing rights retained, for which the Bank makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards. In the past two years, the Bank has had to repurchase fewer than 1020 loans due to deficiencies in underwriting or loan documentation and has not realized significant losses related to these repurchases. Management believes that any liabilities that may result from such recourse provisions are not significant.Legal Proceedings—The Bank owns 468,659 shares of Class B common stock of Visa Inc. which are convertible into Class A common stock at a conversion ratio of 0.42540.4206 per Class A share. As of December 31, 2011,2013, the value of the Class A shares was $101.53$222.68 per share. Utilizing the conversion ratio, the value of unredeemed Class A equivalent shares owned by the CompanyBank was $20.2 $43.9140million as of December 31, 2011,2013, 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 until the later of (1) three years from the date of the initial public offering or (2) the period of time necessary to resolve the covered litigation.transferred. Visa Member Banksmember 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, and further reducethereby 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. The effect of this settlement on the value of the Bank’s Class B common stock is unknown at this time. In the ordinary course of business, various claims and lawsuits are brought by and against the Company and its subsidiaries, including the Bank and Umpqua Investments. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision could result in a material adverse change in the Company’sCompany's consolidated financial condition or results of operations.Concentrations of Credit Risk—Risk—The CompanyBank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington, California, and Nevada. In management’s judgment, a concentration exists in real estate-related loans, which representedapproximately 80%74% and 82%, respectively, 79%of the Company’sBank’s non-covered loan and lease portfolio at December 31, 20112013 and 2010.December 31, 2012. Commercial realestate concentrations are managed toassure 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 taxCompany’sBank's primary market areas in particular, and aspects of our commercial real estate, commercial construction and commercial loan portfolios, 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 repaymentfor 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 perwith an issuer.NOTE 21. DERIVATIVESNote 21The CompanyBank 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 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 (“MBS TBAs”) 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 2011, 2010 or 2009.2013, 2012, and 2011. 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, 2011,2013, the Bank had commitments to originate mortgage loans held for sale totaling $143.5$77.3 million and forward sales commitments of $182.7 million.$152.5 million. The Company’sBank’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.Effective in the second quarter of 2011, theThe Bank began executingexecutes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of December 31, 2011,2013, the Bank had 38254 interest rate swaps with an aggregate141notional amount of $1.3 billion related to this program. As of December 31, 2012, the Bank had 164 interest rate swaps with an aggregate notional amount of $194.3$912.0 million 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.Umpqua Holdings Corporation and SubsidiariesAs of December 31, 2011,2013 and 2012, 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 $6.6 million.$12.1 million and $21.8 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 $13.0 million and none as of December 31, 2013 and 2012, respectively. The Bank also has minimum collateral posting thresholds with certain of its derivative counterparties, and has been required to post collateral against its obligations under these agreements of $5.8none and $22.5 million as of December 31, 2011. If2013 and 2012, 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, to comply with the provisions of ASC 820, the Bank had breachedincorporates credit valuation adjustments (“CVA”) to appropriately reflect nonperformance risk in the fair value measurements of its derivatives. The CVA is calculated by determining the total expected exposure of the derivatives (which incorporates both the current and potential future exposure) and then applying the counterparties’ credit spreads to the exposure. For derivatives with two-way exposure, specifically, the Bank’s interest rate swaps, the counterparty’s credit spread is applied to the Bank’s exposure to the counterparty, and the Bank’s own credit spread is applied to the counterparty’s exposure to the Bank, and the net CVA is reflected in the Bank’s derivative valuations. The total expected exposure of a derivative is derived using market-observable inputs, such as yield curves and volatilities. For the Bank’s own credit spread and for counterparties having publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third party credit data provider. For counterparties without publicly available credit information, which are primarily commercial banking customers, the credit spreads over LIBOR used in the calculations are estimated by the Bank based on current market conditions, including consideration of current borrowing spreads for similar customers and transactions, review of existing collateralization or other credit enhancements, and changes in credit sector and entity-specific credit information. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Bank has considered the impact of netting and any applicable credit enhancements. Effective January 1, 2012, the Company made an accounting policy election to use the exception commonly referred to as the “portfolio exception” with respect to measuring counterparty credit risk for its interest rate swap derivative instruments that are subject to master netting agreements with commercial banking customers that are hedged with offsetting interest rate swaps with third parties.As of these provisionsJanuary 1, 2013, the Bank changed its valuation methodology for interest rate swap derivatives to discount cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at December 31, 2011, it could have been requiredfair value. Uncollateralized or partially-collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (e.g., a LIBOR-OIS basis adjustment to settleapproximate uncollateralized cost of funds) and credit risk. The Company is making the changes to better align its obligations underinputs, assumptions, and pricing methodologies with those used in its principal market by most dealers and major market participants. The changes in valuation methodology are applied prospectively as a change in accounting estimate and are immaterial to the agreements at the termination value.142The following tables summarize the types of derivatives, separately by assets and liabilities, their locations on theConsolidated Balance Sheets, and the fair values of such derivatives as of December 31, 20112013 and 2010:(in thousands) Asset Derivatives Liability Derivatives Other assets/Other liabilities $ 1,752 $ 306 $ 3 $ 170 Other assets/Other liabilities — 754 90 191 Other assets/Other liabilities 6,203 — 6,416 — $ 7,955 $ 1,060 $ 6,509 $ 361 Asset Derivatives Liability Derivatives Derivatives not designated Balance Sheet December 31, December 31, December 31, December 31, as hedging instrument Location 2013 2012 2013 2012 Interest rate lock commitments Other assets/Other liabilities $ 706 $ 1,496 $ — $ 18 Interest rate forward sales commitments Other assets/Other liabilities 1,250 133 6 905 Interest rate swaps Other assets/Other liabilities 15,965 22,213 14,556 22,048 Total $ 17,921 $ 23,842 $ 14,562 $ 22,971 The following table summarizes the types of derivatives, their locationlocations within the ConsolidatedStatements of Income, and the gains (losses) recorded during the 2013, 2012, and 2011: (in thousands)Derivatives not designated Income Statement December 31, as hedging instrument Location 2013 2012 2011 Interest rate lock commitments Mortgage banking revenue $ (772 ) $ (271 ) $ 1,613 Interest rate forward sales commitments Mortgage banking revenue 13,225 (21,281 ) (10,579 ) Interest rate swaps Other income 1,243 336 (187 ) Total $ 13,696 $ (21,216 ) $ (9,153 ) As of December 31, 2013 and 2012, the net CVA increased the settlement values of the Bank’s net derivative assets by $1.4 million and decreased the settlement values of the Bank's net derivative assets by $45,000, respectively. The gains (losses) above on theConsolidated Statements interest rate swaps relate to CVAs. Various factors impact changes in the CVA over time, including changes in the credit spreads of Operations,the parties to the contracts, as well as changes in market rates and volatilities, which affect the losses recorded in 2011, 2010total expected exposure of the derivative instruments. The following table summarizes the offsetting derivatives assets that have a right of offset as of December 31, 2013 and 2009:(in thousands) 2010 2009 Mortgage banking revenue $ 1,613 $ 146 $ (1,176 ) Mortgage banking revenue (10,579 ) (3,034 ) (255 ) Other income (187 ) — — $ (9,153 ) $ (2,888 ) $ (1,431 ) Gross Amounts Not Offset in the Statement of Financial Position 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 Financial Instruments Collateral Posted Net Amount December 31, 2013 Derivative Assets Interest rate swaps $ 15,965 $ — $ 15,965 $ (4,852 ) $ (2,207 ) $ 8,906 Derivative Liabilities Interest rate swaps $ 14,556 $ — $ 14,556 $ (4,852 ) $ (9,704 ) $ — December 31, 2012 Derivative Assets Interest rate swaps $ 22,213 $ — $ 22,213 $ (16 ) $ — $ 22,197 Derivative Liabilities Interest rate swaps $ 22,048 $ — $ 22,048 $ (16 ) $ (22,032 ) $ — NOTE 22. SHAREHOLDERS’ EQUITYNote 22On February 3, 2010,– Stock Compensation and Share Repurchase PlanAt the Company raised $303.6 million through a public offering by issuing 8,625,000annual meeting on April 16, 2013, shareholders approved the Company's 2013 Incentive Plan (the “2013 Plan”), which,among other things, authorizes the issuance of equity awards to directors and employees and reserves 4,000,000 shares of the Company’s common stock, including 1,125,000 shares pursuant to the underwriters’ over-allotment option, at a share price143Company's common stock for each share of Series B Common Stock Equivalent preferred stock. All shares of Series B Common Stock Equivalent preferred stock and representative depositary shares ceased to exist upon the conversion. Trading in the depositary shares on NASDAQ (ticker symbol “UMPQP”) ceased and the UMPQP symbol voluntarily delisted effective as of the close of business on April 21, 2010.The Company has 4,000,000 shares of no par value preferred stock authorized and available to be issued. As of December 31, 2011 and 2010, there was no preferred stock outstanding.Stock Plans—The Company’s 2007 Long Term Incentive Plan (“2007 LTI Plan”) authorizes the award of up to 1 million restricted stock unit grants, which are subject to performance-based vesting as well as other approved vesting conditions. The Company’s 2003 Stock Incentive Plan (“2003 Plan”) provides for grants of up to 4 million shares. The 2003 Plan terminates June 30, 2015, but it may be extended with the approval of the board and shareholders. The 2003 Plan further provides that no grants may be issued if existing options and subsequent grantsissuance under the 2003 Plan exceed 10% of the Company’s outstanding shares on a diluted basis. Under the terms of the 2003 Plan, options and awards generally vest ratably over a period of 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 Company has options outstanding under two prior plans adopted in 1995 and 2000, respectively. With the adoption of the 2003 Plan, no additional grants can be issued under the previous plans. The Company also assumed various plans in connection with mergers and acquisitions but does not make grants under those plans.On June 17, 2011, the Company’s Compensation Committee modified restricted stock awards and option grants that were originally issued to fourteen executive officers on January 31, 2011, as follows:As a result of the modification, there was no incremental compensation cost.Umpqua Holdings Corporation and SubsidiariesStock OptionsThe following table summarizes information about stock option activity for the years ended December 31, 2011, 20102013, 2012 and 2009:2011: (shares in thousands) 2011 2010 2009 2,067 $ 14.82 1,763 $ 15.05 1,819 $ 15.66 237 $ 11.01 450 $ 12.39 229 $ 9.34 (40 ) $ 7.67 (112 ) $ 8.97 (51 ) $ 5.93 (113 ) $ 15.72 (34 ) $ 13.83 (234 ) $ 16.20 2,151 $ 14.48 2,067 $ 14.82 1,763 $ 15.05 1,334 $ 16.13 1,217 $ 16.65 1,071 $ 15.90 2013 2012 2011 Options Weighted-Avg Options Weighted-Avg Options Weighted-Avg Outstanding Exercise Price Outstanding Exercise Price Outstanding Exercise Price Balance, beginning of period 1,850 $ 15.37 2,151 $ 14.48 2,067 $ 14.82 Granted — $ — 20 $ 11.98 237 $ 11.01 Exercised (515 ) $ 12.42 (174 ) $ 5.63 (40 ) $ 7.67 Forfeited/expired (354 ) $ 17.46 (147 ) $ 13.45 (113 ) $ 15.72 Balance, end of period 981 $ 16.17 1,850 $ 15.37 2,151 $ 14.48 Options exercisable, end of period 627 $ 18.86 1,263 $ 17.11 1,334 $ 16.13 The following table summarizes information about outstanding stock options issued under all plans as of December 31, 2011:(shares in thousands) Options Outstanding Options Exercisable 599 7.0 $ 8.76 255 $ 6.51 560 7.9 $ 12.11 188 $ 11.95 602 3.4 $ 16.13 502 $ 16.34 390 3.4 $ 24.14 389 $ 24.14 2,151 5.6 $ 14.48 1,334 $ 16.13 Options Outstanding Options Exercisable Weighted Avg. Remaining Range of Options Contractual Life Weighted Avg. Options Weighted Avg. Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price $4.58 to $10.97 277 6.4 $ 10.38 64 $ 8.96 $11.53 to $12.87 252 6.2 $ 12.05 121 $ 11.93 $13.45 to $23.49 299 2.3 $ 20.09 289 $ 20.32 $24.25 to $28.425 153 1.9 $ 25.77 153 $ 25.77 981 4.4 $ 16.17 627 $ 18.86 The compensation cost related to stock options, including costs related to unvested options assumed in connection with acquisitions, that has been charged against income (included in salaries and employee benefits) was $1.2$778,000, $1.1 million, $861,000, and $1.4$1.2 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.The total income tax benefit recognized in the income statement related to stock options was $463,000, $344,000,$311,000, $448,000, and $541,000$463,000 for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) of both options outstanding and options exercisable as of December 31, 2011,2013, was $2.4$4.7 million and $1.6$1.9 million, respectively.144The weighted average remaining contractual term of options exercisable was 4.33.0 years as of December 31, 2011. 2013.The total intrinsic value of options exercised was $147,000, $420,000,$2.3 million, $1.2 million, and $220,000,$147,000, in the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.During the years ended December 31, 2011, 20102013, 2012 and 2009,2011, the amount of cash received from the exercise of stock options was $159,000, $831,000, and $230,000 and total consideration was $6.4 million, $981,000, and $309,000, $1.0 million, and $301,000, respectively.As of December 31, 2011,2013, there was $2.7 million$640,000 of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of 2.40.6 years.Restricted SharesThe Company grants restricted stock awards periodically as a part of the 2003 Plan for the benefit of employees.employees and directors. Restricted shares issued prior to 2011 generally vest on an annual basis over five years. A deferred restricted stock award was grantedRestricted shares issued since 2011 generally vest over a three years period, subject to an executive in 2007 and is now fully vested. The Company will issue certificates for the vested award within the seventh month following termination of the executive’s employment.time or time plus performance vesting conditions. The following table summarizes information about nonvested restricted shares outstandingshare activity at December 31:(shares in thousands) 2011 2010 2009 401 $ 15.29 187 $ 21.46 216 $ 23.42 282 $ 11.02 274 $ 12.16 26 $ 9.83 (82 ) $ 17.58 (46 ) $ 22.23 (46 ) $ 23.81 (16 ) $ 12.91 (14 ) $ 13.32 (9 ) $ 22.85 585 $ 12.98 401 $ 15.29 187 $ 21.46 2013 2012 2011 Weighted Weighted Weighted Restricted Average Grant Restricted Average Grant Restricted Average Grant Shares Outstanding Date Fair Value Shares Outstanding Date Fair Value Shares Outstanding Date Fair Value Balance, beginning of period 763 $ 12.39 585 $ 12.98 401 $ 15.29 Granted 467 $ 13.04 369 $ 11.80 282 $ 11.02 Released (153 ) $ 12.17 (147 ) $ 13.50 (82 ) $ 17.58 Forfeited/expired (85 ) $ 11.74 (44 ) $ 11.52 (16 ) $ 12.91 Balance, end of period 992 $ 12.79 763 $ 12.39 585 $ 12.98 The compensation cost related to restricted stock awards that has been charged against income (included in salaries and employee benefits) was $2.3$3.7 million $1.9, $2.7 million, and $1.4$2.3 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.The total income tax benefit recognized in the income statement related to restricted stock awards was $899,000, $746,000,$1.5 million, $1.1 million, and $548,000$899,000 for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.The total fair value of restricted shares vested was $919,000, $571,000,$2.0 million, $1.9 million, and $445,000,$919,000, for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.As of December 31, 2011,2013, there was $3.7$6.4 million of total unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-average period of 2.41.4 years.Restricted Stock UnitsThe Company grantsgranted restricted stock units as a part of the 2007 Long Term Incentive Plan for the benefit of certain executive officers. Restricted stock unit grants are subject to performance-based vesting as well as other approved vesting conditions. In the first quarter of 2008, 2009 and 2011, restricted stock units were granted to executives that cliff vest after three years based on performance and service 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 unitsshares outstanding at December 31:(shares in thousands) 2011 2010 2009 225 $ 11.13 335 $ 15.54 301 $ 19.48 105 $ 10.42 — $ — 114 $ 8.01 (63 ) $ 14.33 (16 ) $ 24.52 (23 ) $ 21.33 (48 ) $ 14.33 (94 ) $ 24.52 (57 ) $ 18.98 219 $ 9.17 225 $ 11.13 335 $ 15.54 145 2013 2012 2011 Weighted Weighted Weighted Restricted Average Restricted Average Restricted Average Stock Units Grant Date Stock Units Grant Date Stock Units Grant Date Outstanding Fair Value Outstanding Fair Value Outstanding Fair Value Balance, beginning of period 130 $ 10.41 219 $ 9.17 225 $ 11.13 Granted — $ — 25 $ 10.39 105 $ 10.42 Released — $ — — $ — (63 ) $ 14.33 Forfeited/expired (35 ) $ 10.42 (114 ) $ 8.01 (48 ) $ 14.33 Balance, end of period 95 $ 10.41 130 $ 10.41 219 $ 9.17 The compensation cost related to restricted stock units that has been charged against income (included in salaries and employee benefits) was $391,000$144,000, $237,000, and $778,000$391,000 for the years ended December 31, 20112013, 2012 and 2010,2011, respectively. For the year ended December 31, 2009, the Company recorded a reversal of compensation cost of $539,000 related to restricted stock unitsUmpqua Holdings Corporation and Subsidiariesthat has been credited to salaries and employee benefits expense. The total income tax benefit recognized in the income statement related to restricted stock units was $156,000$58,000, $95,000 and $311,000$156,000 for the years ended December 31, 20112013, 2012 and 2010,2011, respectively. The total income tax expense recognized in the income statement related to restricted stock units was $215,000 for the year ended December 31, 2009. The total fair value of restricted stock units vested and released was $677,000, $213,000, and $186,000none for the years ended December 31, 2011, 20102013 and 2009, respectively. 2012 and $677,000 for the year ended December 31, 2011.As of December 31, 2011,2013, there was $772,000$105,000 of total unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted-average period of 1.10.4 years, assuming the current expectation of performance conditions are met.For the years ended December 31, 2011, 20102013, 2012 and 2009,2011, the Company received income tax benefits of $694,000, $406,000,$1.7 million, $1.2 million, and $326,000,$694,000, 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 yearyears ended December 31, 2013, 2012 and 2011, the Company had a net tax benefit of $148,000 and net tax deficiencies (tax deficiency resulting from tax deductions less than the compensation cost recognized) of $261,000, compared to net tax deficiencies of $216,000$59,000 and $369,000 for the years ended December 31, 2010 and 2009,$261,000, respectively. Only cash flows from gross excess tax benefits are classified as financing cash flows.Share Repurchase Plan—- 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. TheIn April 2013, the repurchase program willwas extended to run through June 2013.2015. As of December 31, 2011,2013, a total of 12.612.0 million shares remained available for repurchase. The Company repurchased 2.5 million98,027 shares under the repurchase plan in 20112013, 512,280 shares under the repurchase plan in 2012 and no2.5 million shares in 2010.2011. 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, 20112013 and 2010,2012, there were 8,135438,000 and 4,51538,000 shares tendered in connection with option exercises, respectively. Restricted shares cancelled to pay withholding taxes totaled 23,15849,000 and 12,44346,000 shares during the years ended December 31, 20112013 and 2010,2012, respectively. RestrictedThere were no restricted stock units cancelled to pay withholding taxes totaled 22,439 and 5,583 duringfor the years ended December 31, 20112013 and 2010, respectively.NOTE 23. REGULATORY CAPITALNote 23The 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’sCompany's financial statements. Under capital adequacy guidelines, the Company must meet specific capital guidelines that involve quantitative measures of the Company’sCompany's assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Company’sCompany's capital amounts and classifications are also subject to qualitative judgments by the regulators about risk components, asset risk weighting, and other factors.146Quantitative 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 and Tier 1 capital 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, 2011,2013, that the Company meets all capital adequacy requirements to which it is subject.The Company’sCompany's capital amounts and ratios as of December 31, 20112013 and 2010December 31, 2012 are presented in the following table:(dollars in thousands) Actual For Capital
Adequacy
purposes To be Well
Capitalized Amount Ratio Amount Ratio Amount Ratio $ 1,287,560 17.16% $ 600,261 8.00% $ 750,326 10.00% $ 1,163,611 15.53% $ 599,413 8.00% $ 749,267 10.00% $ 1,193,740 15.91% $ 300,123 4.00% $ 450,185 6.00% $ 1,069,914 14.28% $ 299,696 4.00% $ 449,544 6.00% $ 1,193,740 10.91% $ 437,668 4.00% $ 547,085 5.00% $ 1,069,914 9.78% $ 437,593 4.00% $ 546,991 5.00% Actual For Capital
Adequacy
purposes To be Well
Capitalized Amount Ratio Amount Ratio Amount Ratio $ 1,253,333 17.62% $ 569,050 8.00% $ 711,313 10.00% $ 1,085,839 15.27% $ 568,874 8.00% $ 711,093 10.00% $ 1,164,226 16.36% $ 284,652 4.00% $ 426,978 6.00% $ 996,798 14.02% $ 284,393 4.00% $ 426,590 6.00% $ 1,164,226 10.56% $ 440,995 4.00% $ 551,243 5.00% $ 996,798 9.04% $ 441,061 4.00% $ 551,326 5.00% For Capital To be Well Actual Adequacy purposes Capitalized Amount Ratio Amount Ratio Amount Ratio As of December 31, 2013 Total Capital (to Risk Weighted Assets) Consolidated $ 1,279,586 14.66 % $ 698,273 8.00 % $ 872,842 10.00 % Umpqua Bank $ 1,177,782 13.51 % $ 697,428 8.00 % $ 871,785 10.00 % Tier 1 Capital (to Risk Weighted Assets) Consolidated $ 1,183,061 13.56 % $ 348,986 4.00 % $ 523,478 6.00 % Umpqua Bank $ 1,081,282 12.40 % $ 348,801 4.00 % $ 523,201 6.00 % Tier 1 Capital (to Average Assets) Consolidated $ 1,183,061 10.90 % $ 434,151 4.00 % $ 542,689 5.00 % Umpqua Bank $ 1,081,282 9.97 % $ 433,814 4.00 % $ 542,268 5.00 % As of December 31, 2012 Total Capital (to Risk Weighted Assets) Consolidated $ 1,357,206 16.52 % $ 657,243 8.00 % $ 821,553 10.00 % Umpqua Bank $ 1,234,010 15.03 % $ 656,825 8.00 % $ 821,031 10.00 % Tier 1 Capital (to Risk Weighted Assets) Consolidated $ 1,254,514 15.27 % $ 328,622 4.00 % $ 492,933 6.00 % Umpqua Bank $ 1,131,373 13.78 % $ 328,410 4.00 % $ 492,615 6.00 % Tier 1 Capital (to Average Assets) Consolidated $ 1,254,514 11.44 % $ 438,641 4.00 % $ 548,302 5.00 % Umpqua Bank $ 1,131,373 10.32 % $ 438,517 4.00 % $ 548,146 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 Director of the Oregon Department of Consumer and Business Services, administered through the Division of Finance and Corporate Securities, and to the supervision and regulation of the California Department of Financial Institutions, the Washington Department of Financial Institutions and the FDIC. As of December 31, 2011,2013 , the most recent notification from the FDIC categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. The Company is not subject to the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’sBank's regulatory capital category.Umpqua Holdings CorporationOn 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 will begin for the Company on January 1, 2015, with full compliance with the final rules entire requirement phased in on January 1, 2019.147The 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%.Also, if an institution grows above $15 billion as a result of an acquisition, or organically grows above $15 billion and SubsidiariesThe final rules also provide for a number of adjustments to and deductions from the new CET1. Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded; however, non-advanced approaches banking organizations, including the Company and the Bank, may make a one-time permanent election to continue to exclude these items. The Company and Bank expect to make this election 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. The Company and the Bank are currently evaluating the provisions of the final rules and expected impact.NOTE 24. FAIR VALUESNote 24The following table presents estimated fair values of the Company’s financial instruments as of December 31, 20112013 and December 31, 2010,2012, whether or not recognized or recorded at fair value in theConsolidated Balance Sheets:148(in thousands) 2011 2010 Carrying
Value Fair Value Carrying
Value Fair Value $ 598,766 $ 598,766 $ 1,004,125 $ 1,004,125 2,309 2,309 3,024 3,024 3,168,578 3,168,578 2,919,180 2,919,180 4,714 4,759 4,762 4,774 98,691 98,691 75,626 75,626 5,795,130 5,816,714 5,557,066 5,767,506 622,451 722,295 785,898 893,682 32,581 32,581 34,475 34,475 18,184 18,184 14,454 14,454 92,555 92,555 90,161 90,161 91,089 47,008 146,413 90,011 7,955 7,955 1,060 1,060 — 19,230 — 15,987 $ 9,236,690 $ 9,260,327 $ 9,433,805 $ 9,464,406 124,605 124,605 73,759 73,759 255,676 284,911 262,760 282,127 82,905 82,905 80,688 80,688 102,544 68,698 102,866 65,771 6,509 6,509 361 361 December 31, 2013 December 31, 2012 Carrying Fair Carrying Fair Value Value Value Value FINANCIAL ASSETS: Cash and cash equivalents $ 790,423 $ 790,423 $ 543,787 $ 543,787 Trading securities 5,958 5,958 3,747 3,747 Securities available for sale 1,790,978 1,790,978 2,625,229 2,625,229 Securities held to maturity 5,563 5,874 4,541 4,732 Loans held for sale, at fair value 104,664 104,664 320,132 320,132 Non-covered loans and leases, net 7,269,089 7,250,596 6,595,689 6,652,179 Covered loans, net 363,992 409,555 477,078 543,628 Restricted equity securities 30,685 30,685 33,443 33,443 Mortgage servicing rights 47,765 47,765 27,428 27,428 Bank owned life insurance assets 96,938 96,938 93,831 93,831 FDIC indemnification asset 23,174 6,001 52,798 18,714 Derivatives 17,921 17,921 23,842 23,842 Visa Class B common stock — 41,700 — 28,385 FINANCIAL LIABILITIES: Deposits $ 9,117,660 $ 9,125,832 $ 9,379,275 $ 9,396,646 Securities sold under agreements to repurchase 224,882 224,882 137,075 137,075 Term debt 251,494 270,004 253,605 289,404 Junior subordinated debentures, at fair value 87,274 87,274 85,081 85,081 Junior subordinated debentures, at amortized cost 101,899 72,009 110,985 78,529 Derivatives 14,562 14,562 22,971 22,971 149Fair Value of Assets and Liabilities Not Measured at Fair Value The following table presents information about the level in the fair value hierarchy for the Company’s assets and liabilities that are not measured at fair value as of December 31, 2013 and December 31, 2012: (in thousands) December 31, 2013 Description Total Level 1 Level 2 Level 3 ASSETS Cash and cash equivalents $ 790,423 $ 790,423 $ — $ — Securities held to maturity 5,958 — — 5,958 Non-covered loans and leases, net 7,250,596 — — 7,250,596 Covered loans, net 409,555 — — 409,555 Restricted equity securities 30,685 30,685 — — Bank owned life insurance assets 96,938 96,938 — — FDIC indemnification asset 6,001 — — 6,001 Visa Class B common stock 41,700 — — 41,700 LIABILITIES Deposits Non-maturity deposits $ 7,580,192 $ 7,580,192 $ — $ — Deposits with stated maturities 1,545,640 — 1,545,640 — Securities sold under agreements to repurchase 224,882 — 224,882 — Term debt 270,004 — 270,004 — Junior subordinated debentures, at amortized cost 72,009 — — 72,009 (in thousands) December 31, 2012 Description Total Level 1 Level 2 Level 3 ASSETS Cash and cash equivalents $ 543,787 $ 543,787 $ — $ — Securities held to maturity 4,732 — — 4,732 Non-covered loans and leases, net 6,652,179 — — 6,652,179 Covered loans, net 543,628 — — 543,628 Restricted equity securities 33,443 33,443 — — Bank owned life insurance assets 93,831 93,831 — — FDIC indemnification asset 18,714 — — 18,714 Visa Class B common stock 28,385 — — 28,385 LIABILITIES Deposits Non-maturity deposits $ 7,376,288 $ 7,376,288 $ — $ — Deposits with stated maturities 2,020,358 — 2,020,358 — Securities sold under agreements to repurchase 137,075 — 137,075 — Term debt 289,404 — 289,404 — Junior subordinated debentures, at amortized cost 78,529 — — 78,529 Fair Value of Assets and Liabilities Measured on a Recurring Basis 150The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at as of December 31, 20112013 and 2010:December 31, 2012: (in thousands) Fair Value at December 31, 2011 Description Total Level 1 Level 2 Level 3 $ 296 $ 296 $ — $ — 1,918 1,918 — — 95 95 — — 118,465 — 118,465 — 253,553 — 253,553 — 2,794,355 — 2,794,355 — 134 — 134 — 2,071 — 2,071 — 18,184 — — 18,184 7,955 — 7,955 — $ 3,197,026 $ 2,309 $ 3,176,533 $ 18,184 $ 82,905 $ — $ — $ 82,905 6,509 — 6,509 — $ 89,414 $ — $ 6,509 $ 82,905 Fair Value at December 31, 2010 Description Total Level 1 Level 2 Level 3 $ 1,282 $ 1,282 $ — $ — 1,645 1,645 — — 97 97 — — 118,789 — 118,789 — 216,726 — 216,726 — 2,581,504 — 2,581,504 — 152 — 152 — 2,009 — 2,009 — 14,454 — — 14,454 1,060 — 1,060 — $ 2,937,718 $ 3,024 $ 2,920,240 $ 14,454 $ 80,688 $ — $ — $ 80,688 361 — 361 — $ 81,049 $ — $ 361 $ 80,688 Umpqua Holdings Corporation and Subsidiaries�� December 31, 2013 Description Total Level 1 Level 2 Level 3 Trading securities Obligations of states and political subdivisions $ 2,366 $ — $ 2,366 $ — Equity securities 3,498 3,498 — — Other investments securities(1)94 — 94 — Available for sale securities U.S. Treasury and agencies 268 — 268 — Obligations of states and political subdivisions 235,205 — 235,205 — Residential mortgage-backed securities and collateralized mortgage obligations 1,553,541 — 1,553,541 — Other debt securities — — — — Investments in mutual funds and other equity securities 1,964 — 1,964 — Loans held for sale, at fair value 104,664 104,664 Mortgage servicing rights, at fair value 47,765 — — 47,765 Derivatives Interest rate lock commitments 706 — — 706 Interest rate forward sales commitments 1,250 — 1,250 — Interest rate swaps 15,965 — 15,965 — Total assets measured at fair value $ 1,967,286 $ 3,498 $ 1,915,317 $ 48,471 Junior subordinated debentures, at fair value $ 87,274 $ — $ — $ 87,274 Derivatives Interest rate lock commitments — — — — Interest rate forward sales commitments 6 — 6 — Interest rate swaps 14,556 — 14,556 — Total liabilities measured at fair value $ 101,836 $ — $ 14,562 $ 87,274 151(in thousands) December 31, 2012 Description Total Level 1 Level 2 Level 3 Trading securities Obligations of states and political subdivisions $ 1,216 $ — $ 1,216 $ — Equity securities 2,408 2,408 — — Other investments securities(1)123 — 123 — Available for sale securities U.S. Treasury and agencies 45,820 — 45,820 — Obligations of states and political subdivisions 263,725 — 263,725 — Residential mortgage-backed securities and collateralized mortgage obligations 2,313,376 — 2,313,376 — Other debt securities 222 — 222 — Investments in mutual funds and other equity securities 2,086 — 2,086 — Loans held for sale, at fair value 320,132 320,132 Mortgage servicing rights, at fair value 27,428 — — 27,428 Derivatives Interest rate lock commitments 1,496 — — 1,496 Interest rate forward sales commitments 133 — 133 — Interest rate swaps 22,213 — 22,213 — Total assets measured at fair value $ 3,000,378 $ 2,408 $ 2,969,046 $ 28,924 Junior subordinated debentures, at fair value $ 85,081 $ — $ — $ 85,081 Derivatives Interest rate lock commitments 18 — — 18 Interest rate forward sales commitments 905 — 905 — Interest rate swaps 22,048 — 22,048 — Total liabilities measured at fair value $ 108,052 $ — $ 22,953 $ 85,099 (1) Principally represents U.S. Treasury and agencies or residential mortgage-backed securities issued or guaranteed by governmental agencies. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:Cash and Cash Equivalents—For short-term instruments, including cash and due from banks, and interest bearing deposits with banks, the carrying amount is a reasonable estimate of fair value.Securities—Fair values for investment securities are primarily measured using information from a third-party pricing service. The pricing service uses evaluated pricing models based on quoted market data. Inprices when available or through the event that limiteduse of alternative approaches, such as matrix or less transparent information is provided by the third-partymodel pricing, service, fair value is estimated using secondary pricing services or non-binding third-party broker quotes.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 secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.Loans Held Forfor Sale—For Fair value is determined based on quoted secondary market prices for similar loans, held for sale, carryingincluding the implicit fair value approximates fair value.of embedded servicing rights.Non-covered Loans and Leases net— - Fair values are estimated for portfolios of loans and leases 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 variable rate. For variableadjustable rate loans, carrying value approximates fair value. Effective in the second quarter of 2010, theloans. The fair value of fixed rate loans is calculated by discounting contractualexpected 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.Covered Loans and leases, net— – Covered loans and leases are initially measured at their estimated fair value on their date of acquisition as described in Note 7. Subsequent to acquisition, the fair value of covered loans is measured using the same methodology as that of non-covered loans.152Restricted 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.Mortgage Servicing Rights—-The fair value of mortgage servicing rights 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.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. Due to the limited observability of all significant inputs utilized in the valuation model, particularly the discount rate and projected constant prepayment rate, and how changes in these assumptions could potentially impact the ending valuation of this asset, as well as the lack of readily available quotes or observable trades of similar assets in the current period, we classify this as a Level 3 fair value measure. Management believes the significant inputs utilized are indicative of those that would be used by market participants.Bank Owned Life Insurance Assets—Assets –Fair values of insurance policies owned are based on the insurance contract’s cash surrender value.FDIC Indemnification Asset— - The FDIC indemnification asset is calculated as the expected future cash flows under the loss-share agreement discounted by a rate reflective of the creditworthiness of the FDIC as would be required from the market.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 as of December 31, 2011 and 2010.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— and Federal Funds Purchased - 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 medium 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—Debentures -The fair value of junior subordinated debentures is estimated using an income approach valuation technique. 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. For further discussion of the valuation technique and inputs, see Note 18. Derivative Instruments— -The fair value of the derivative instruments isinterest 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.Visa Class B Common Stock— 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 Visa Class B common stockthe interest rate swaps is estimateddetermined 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 applyingitself and its counterparties. However, as of December 31, 2013, 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 5%result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy. Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) 153The 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, 2013: (in thousands)Financial Instrument Valuation Technique Unobservable Input Weighted Average (Range) Mortgage servicing rights Discounted cash flow Constant Prepayment Rate 12.74% Discount Rate 8.69% Interest rate lock commitment Internal Pricing Model Pull-through rate 80.9% Junior subordinated debentures Discounted cash flow Credit Spread 6.53% Generally, any significant increases in the constant prepayment rate and discount torate utilized in the fair value measurement of the 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 unredeemed Class A equivalent shares.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 discountwidening of the credit risk adjusted spread above the Company’s contractual spreads has primarily represents the risk relatedcontributed to the further potential reductionpositive 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, 2013, or the conversion ratio between Class B and Class A shares andpassage of time, will result in negative fair value adjustments. Generally, an increase in the credit risk adjusted spread and/or a liquiditydecrease in the three month LIBOR swap curve will result in positive fair value adjustments (and decrease the fair value measurement). Conversely, a decrease in the credit risk premium.adjusted spread and/or an increase in the three month LIBOR swap curve will result in negative fair value adjustments (and increase the fair value measurement). 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, 20112013 and 2010.2012. (in thousands) Beginning
Balance Change
included in
earnings Issuances Settlements Ending
Balance Net change in
unrealized gains
or losses relating
to items held at
end of period $ 14,454 $ (2,990 ) $ 6,720 $ — $ 18,184 $ (961 ) 80,688 6,134 — (3,917 ) 82,905 6,134 $ 12,625 $ (3,878 ) $ 5,707 $ — $ 14,454 $ (1,965 ) 85,666 (1,004 ) — (3,974 ) 80,688 (1,004 ) Losses Beginning Balance Change included in earnings Purchases and issuances Sales and settlements Ending
Balance Net change in
unrealized gains
or (losses) relating
to items held at
end of period2013 Mortgage servicing rights, at fair value $ 27,428 $ 2,374 $ 17,963 $ — $ 47,765 $ 2,376 Interest rate lock commitment 1,478 (1,478 ) 62,560 (61,854 ) 706 706 Junior subordinated debentures, at fair value 85,081 6,090 — (3,897 ) 87,274 6,090 2012 Mortgage servicing rights, at fair value $ 18,184 $ (8,466 ) $ 17,710 $ — $ 27,428 $ (3,778 ) Interest rate lock commitment 1,749 (1,749 ) 111,473 (109,995 ) 1,478 1,478 Junior subordinated debentures, at fair value 82,905 6,350 — (4,174 ) 85,081 6,350 154Gains (losses) on mortgage servicing rights carried at fair value are recorded in mortgage banking revenue within other non-interest income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in mortgage banking revenue within other 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.Management believes that the credit risk adjusted spread being utilized 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. Future contractions in the credit risk adjusted the Company’s contractual spreads has primarily contributed to the positive fair value adjustments in 2010. Generally, an increase in the credit risk adjusted spread and/or a decrease in the three month LIBOR swap curve will result in positive fair value adjustments. Conversely, a decrease in the credit risk adjusted spread and/or an increase in the three month LIBOR swap curve will result in negative fair value adjustments.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. Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisThe 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 years ended December 31, 2011 and 2010.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.Umpqua Holdings Corporation and Subsidiaries(in thousands) December 31, 2011 Description Total Level 1 Level 2 Level 3 $ 487 $ — $ — $ 487 53,847 — — 53,847 11,321 — — 11,321 12,561 — — 12,561 $ 78,216 $ — $ — $ 78,216 December 31, 2010 Description Total Level 1 Level 2 Level 3 $ 1,226 $ — $ — $ 1,226 74,639 — — 74,639 7,958 — — 7,958 8,708 — — 8,708 $ 92,531 $ — $ — $ 92,531 December 31, 2013 Total Level 1 Level 2 Level 3 Non-covered loans and leases $ 20,421 $ — $ — $ 20,421 Non-covered other real estate owned 1,986 — — 1,986 Covered other real estate owned 2,770 — — 2,770 $ 25,177 $ — $ — $ 25,177 (in thousands) December 31, 2012 Total Level 1 Level 2 Level 3 Investment securities, held to maturity Residential mortgage-backed securities and collateralized mortgage obligations $ 432 $ — $ — $ 432 Non-covered loans and leases 34,007 — — 34,007 Non-covered other real estate owned 4,671 — — 4,671 Covered other real estate owned 8,957 — — 8,957 $ 48,067 $ — $ — $ 48,067 The following table presents the losses resulting from nonrecurring fair value adjustments for the years ended December 31, 2011, 20102013, 2012 and 2009:2011: (in thousands) 2011 2010 2009 $ 359 $ 414 $ 10,334 51,883 119,240 185,810 — — 111,952 — — 804 8,947 4,074 12,247 8,709 1,941 — $ 69,898 $ 125,669 $ 321,147 2013 2012 2011 Investment securities, held to maturity Residential mortgage-backed securities and collateralized mortgage obligations $ — $ 155 $ 359 Non-covered loans and leases 27,171 37,897 51,883 Non-covered other real estate owned 1,448 6,896 8,947 Covered other real estate owned 712 4,646 8,709 Total loss from nonrecurring measurements $ 29,331 $ 49,594 $ 69,898 155The 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 at December 31, 2013. Unobservable inputs and qualitative information about the unobservable inputs, as required by ASC 820-10-50-2-bbb, are not presented as the fair value is determined by third-party information.The investment securities held to maturity above relate to non-agency collateralized mortgage obligations where other-than-temporary impairment (“OTTI”)OTTI has been identified and the investments have been adjusted to fair value. The fair value of these investments securities were obtained from third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. While we do not expect to recover the entire amortized cost basis of these securities, as we as we do not intend to sell these securities and it is not likely that we will be required to sell these securities before maturity, only the credit loss component of the impairment is 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. The remaining impairment loss 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 a separate component other comprehensive income (“OCI”).of OCI. We estimate the cash flows of the underlying collateral within each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates andThe non-covered 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 carrying value of loans fully charged-off is zero.The goodwill amount above represents goodwill that has been adjusted to fair value. The impairment charge recognized in 2009 relates to the Community Banking reporting segment. The Company engaged an independent valuation consultant to assist the Company in estimating the fair value of the Community Banking reporting unit for step one of the goodwill impairment test. We utilized a variety of valuation techniques to analyze and measure the estimated fair value of the reporting unit under both the income and market valuation approach. Under the income approach, the fair value of the reporting unit is determined by projecting future earnings for five years, utilizing a terminal value based on expected future growth rates, and applying a discount rate reflective of current market conditions. The estimation of forecasted earnings uses management’s best estimates of economic and market conditions over the projected periods and considers estimated growth rates in loans and deposits and future expected changes in net interest margins. Various market-based valuation approaches are utilized and include applying market price to earnings, core deposit premium, and tangible book value multiples as observed from relevant, comparable peer companies of the reporting unit. We also valued the reporting unit by applying an estimated control premium to the market capitalization. Weightings are assigned to each of the aforementioned model results, judgmentally allocated based on the observability and reliability of the inputs, to arrive at a final fair value estimate of the reporting unit. Because the step one analysis indicated that the implied fair value of goodwill was likely lower than the carrying amount, we completed step two of the goodwill impairment test. In step two of the goodwill impairment test, we calculated the fair value for the reporting unit’s assets and liabilities, as well as its unrecognized identifiable intangible assets, such as the core deposit intangible and trade name, in order to determine the implied fair value of goodwill. Fair value adjustments to items on the balance sheet primarily related to investment securities held to maturity, loans, other real estate owned, Visa Class B common stock, deferred taxes, deposits, term debt, and junior subordinated debentures carried at amortized cost. The external valuation specialist assisted management to estimate the fair value of our unrecognized identifiable assets, such as the core deposit intangible and trade name. Information relating to our methodologies for estimating the fair value of financial instruments is described above. Through this process, the Company determined that the implied fair value of the reporting unit’s goodwill was less than its carrying amount, and as a result, we recognized a goodwill impairment charge equal to that deficit.The other intangible asset, net, amount above represents a merchant servicing portfolio income stream that has been adjusted to fair value. The impairment charge is a result of a decrease in the actual and expected future cash flows related to the income stream. The fair value of the merchant servicing portfolio was determined using an income approach (discounted cash flow model)Future cash flows were estimated based on actual historical experience and consideration of future expectations, including the discount revenue rates, offsetting operating expenses, growth and attrition rates, as well as other factors, discounted at a 14% discount rate.The non-covered and covered other real estate owned amount above represents impaired real estate that has been adjusted to fair value. Non-covered 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’sproperty's new basis. Any write-downs based on the asset’sasset's fair value at the date of acquisition are charged to the allowance for loan and lease losses. After foreclosure, management periodicallyUmpqua Holdings Corporation and SubsidiariesFair Value OptionNOTE 25. EARNINGS PER COMMON SHAREThe 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 (in thousands) December 31, 2013 December 31, 2012 Fair Value Fair Value Aggregate Less Aggregate Aggregate Less Aggregate Unpaid Unpaid Unpaid Unpaid Fair Principal Principal Fair Principal Principal Value Balance Balance Value Balance Balance Loans held for sale $ 104,664 $ 101,795 $ 2,869 $ 320,132 $ 302,760 $ 17,372 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 mortgage banking revenue, net in the Consolidated Statements of Income. For the years ended December 31, 2013, 2012 and 2011 the Company recorded a net decrease of $14.5 million, a net increase of $14.0 million, and a net increase of $3.4 million, respectively, representing the change in fair value reflected in earnings.156There were nononaccrual mortgage loans held for sale or mortgage loans held for sale 90 days or more past due and still accruing interest as of December 31, 2013 and December 31, 2012, respectively.Note 25– Earnings Per Common ShareThe following is a computation of basic and diluted earnings per common share for the years ended December 31, 2011, 20102013, 2012 and 2009:2011: (in thousands, except per share data) 2011 2010 2009 $ 74,496 $ 28,326 $ (153,366 ) — 12,192 12,866 356 67 30 $ 74,140 $ 16,067 $ (166,262 ) 114,220 107,922 70,399 189 231 — 114,409 108,153 70,399 $ 0.65 $ 0.15 $ (2.36 ) $ 0.65 $ 0.15 $ (2.36 ) 2013 2012 2011 NUMERATORS: Net income $ 98,361 $ 101,891 $ 74,496 Less: Dividends and undistributed earnings allocated to participating securities (1)788 682 356 Net earnings available to common shareholders $ 97,573 $ 101,209 $ 74,140 DENOMINATORS: Weighted average number of common shares outstanding - basic 111,938 111,935 114,220 Effect of potentially dilutive common shares (2)238 216 189 Weighted average number of common shares outstanding - diluted 112,176 112,151 114,409 EARNINGS PER COMMON SHARE: Basic $ 0.87 $ 0.90 $ 0.65 Diluted $ 0.87 $ 0.90 $ 0.65 (1) Represents dividends paid and undistributed earnings allocated to nonvested restricted stock awards. (2) Represents the effect of the assumed exercise of warrants, 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 non-participating 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, 2011, 20102013, 2012 and 2009:2011. (in thousands) 2011 2010 2009 1,815 1,450 1,826 — 274 1,811 — 9 17 — — 100 1,815 1,733 3,754 In the fourth quarter of 2008, the Company issued the CPP warrant to the U.S. Treasury to purchase up to 2,221,795 shares of common stock. This security was not included in the computation of diluted EPS for the year ended December 31, 2009 because the warrant’s exercise price was greater than the average market price of common shares. The weighted average number of outstanding common stock underlying the CPP warrant in 2009 reflects the 50% reduction of the number of shares of common stock underlying the warrant in connection with the Company’s qualifying public offering in the third quarter of 2009. The weighted average number of outstanding common stock underlying the CPP warrant in 2010 reflects the repurchase of the warrants in connection with the Company’s full repayment of TARP obligations and cancellation of all equity interests in the Company held by the U.S. Treasury. 2013 2012 2011 Stock options 669 1,306 1,815 NOTE 26. OPERATING SEGMENTSNote 26The Company operates three primary segments: Community Banking, Mortgage BankingHome Lending and Wealth Management. The Community Banking segment’ssegment's principal business focus is the offering of loan and deposit products to its business and retail customers in its primary market areas. As of December 31, 2011,2013, the Community Banking segment operates 194operated 206 locations throughout Oregon, Northern California, Washington, and Nevada.The Mortgage BankingHome Lending segment, which operates as a division of the Bank, originates, sells and services residential mortgage loans.The Wealth Management segment consists of the operations of Umpqua Investments, which offers a full range of retail brokerage and investment advisory services and products to its clients who consist primarily of individual investors, and Umpqua Private Bank, which serves high net worth individuals with liquid investable assets and provides customized financial solutions and offerings, and Umpqua Financial Advisors.offerings. The Company accounts for intercompany fees and services between Umpqua Investments and the Bank at estimated fair value according to regulatory requirements for services provided. Intercompany items relate primarily to management services, referral fees and deposit rebates.Prior to January 1, 2011, the Company reported Retail Brokerage, consisting of Umpqua Investments, as its own segment. Effective in 2011, the Company began reporting Umpqua Investments, Umpqua Private Bank, and Umpqua Financial Advisors under the Wealth Management segment. Umpqua Private Bank and Umpqua Financial Advisors do not meet the quantitative thresholds for reporting as separate segments and service the same customer base as Umpqua Investments. As a result of the change in reportable segment, prior periods have been adjusted in the financial information below.Summarized financial information concerning the Company’sCompany's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:157Year Ended December 31, 2013 (in thousands) Community Wealth Home Banking Management Lending Consolidated Interest income $ 406,099 $ 14,755 $ 21,992 $ 442,846 Interest expense 34,636 731 2,514 37,881 Net interest income 371,463 14,024 19,478 404,965 Provision for non-covered loan and lease losses 16,829 — — 16,829 Recapture of provision for covered loan losses (6,113 ) — — (6,113 ) Non-interest income 26,440 15,662 79,339 121,441 Non-interest expense 308,894 16,849 38,918 364,661 Income before income taxes 78,293 12,837 59,899 151,029 Provision for income taxes 23,544 5,164 23,960 52,668 Net income 54,749 7,673 35,939 98,361 Dividends and undistributed earnings allocated to participating securities 788 — — 788 Net earnings available to common shareholders $ 53,961 $ 7,673 $ 35,939 $ 97,573 Total assets $ 10,822,990 $ 126,060 $ 687,062 $ 11,636,112 Total loans and leases (covered and non-covered) $ 7,076,279 $ 110,087 $ 532,029 $ 7,718,395 Total deposits $ 8,734,175 $ 356,784 $ 26,701 $ 9,117,660 Year Ended December 31, 2012 (in thousands) Community Wealth Home Banking Management Lending Consolidated Interest income $ 420,622 $ 15,192 $ 20,271 $ 456,085 Interest expense 45,240 865 2,744 48,849 Net interest income 375,382 14,327 17,527 407,236 Provision for non-covered loan and lease losses 21,796 — — 21,796 Provision for covered loan losses 7,405 — — 7,405 Non-interest income 38,272 13,759 84,798 136,829 Non-interest expense 307,089 15,108 37,455 359,652 Income before income taxes 77,364 12,978 64,870 155,212 Provision for income taxes 22,202 5,171 25,948 53,321 Net income 55,162 7,807 38,922 101,891 Dividends and undistributed earnings allocated to participating securities 682 — — 682 Net earnings available to common shareholders $ 54,480 $ 7,807 $ 38,922 $ 101,209 Total assets $ 10,984,996 $ 90,370 $ 720,077 $ 11,795,443 Total loans and leases (covered and non-covered) $ 6,713,792 $ 74,132 $ 370,234 $ 7,158,158 Total deposits $ 8,968,867 $ 382,033 $ 28,375 $ 9,379,275 Year Ended December 31, 2011(in thousands) Community
Banking Wealth
Management Mortgage
Banking Consolidated $ 474,167 $ 13,362 $ 14,224 $ 501,753 68,751 2,067 2,483 73,301 405,416 11,295 11,741 428,452 46,220 — — 46,220 16,141 — — 16,141 43,282 13,963 26,873 84,118 302,883 15,630 20,458 338,971 83,454 9,628 18,156 111,238 26,023 3,457 7,262 36,742 57,431 6,171 10,894 74,496
securities 356 — — 356 $ 57,075 $ 6,171 $ 10,894 $ 74,140 $ 11,086,493 $ 53,044 $ 423,818 $ 11,563,355 $ 6,171,368 $ 38,810 $ 300,371 $ 6,510,549 $ 8,830,353 $ 390,992 $ 15,345 $ 9,236,690 Umpqua Holdings Corporation and Subsidiaries158 Community Wealth Home Banking Management Lending Consolidated Interest income $ 474,167 $ 13,362 $ 14,224 $ 501,753 Interest expense 68,751 2,067 2,483 73,301 Net interest income 405,416 11,295 11,741 428,452 Provision for non-covered loan and lease losses 46,220 — — 46,220 Provision for covered loan losses 16,141 — — 16,141 Non-interest income 43,282 13,963 26,873 84,118 Non-interest expense 302,883 15,630 20,458 338,971 Income before income taxes 83,454 9,628 18,156 111,238 Provision for income taxes 26,023 3,457 7,262 36,742 Net income 57,431 6,171 10,894 74,496 Dividends and undistributed earnings allocated to participating securities 356 — — 356 Net earnings available to common shareholders $ 57,075 $ 6,171 $ 10,894 $ 74,140 Total assets $ 11,086,493 $ 53,044 $ 423,321 $ 11,562,858 Total loans and leases (covered and non-covered) $ 6,171,368 $ 38,810 $ 300,371 $ 6,510,549 Total deposits $ 8,830,353 $ 390,992 $ 15,345 $ 9,236,690 Year Ended December 31, 2010Note 27(in thousands) Community Wealth Mortgage Banking Management Banking Consolidated $ 466,054 $ 9,978 $ 12,564 $ 488,596 89,622 1,435 2,755 93,812 376,432 8,543 9,809 394,784 113,668 — — 113,668 5,151 — — 5,151 41,534 12,967 21,403 75,904 286,629 15,503 15,606 317,738 12,518 6,007 15,606 34,131 (2,342 ) 1,905 6,242 5,805 14,860 4,102 9,364 28,326 12,192 — — 12,192 67 — — 67 $ 2,601 $ 4,102 $ 9,364 $ 16,067 $ 11,314,681 $ 37,757 $ 316,272 $ 11,668,710 $ 6,198,532 $ 23,631 $ 222,722 $ 6,444,885 $ 9,160,058 $ 262,148 $ 11,599 $ 9,433,805 Year Ended December 31, 2009– Related Party Transactions(in thousands) Community Wealth Mortgage Banking Management Banking Consolidated $ 406,460 $ 4,467 $ 12,805 $ 423,732 99,382 1 3,641 103,024 307,078 4,466 9,164 320,708 209,124 — — 209,124 45,280 9,344 18,892 73,516 352,290 12,910 14,203 379,403 (209,056 ) 900 13,853 (194,303 ) (46,383 ) (95 ) 5,541 (40,937 ) (162,673 ) 995 8,312 (153,366 ) 12,866 — — 12,866 30 — — 30 $ (175,569 ) $ 995 $ 8,312 $ (166,262 ) $ 9,109,542 $ 31,196 $ 240,634 $ 9,381,372 $ 5,789,730 $ 17,484 $ 192,053 $ 5,999,267 $ 7,432,549 $ 98 $ 7,787 $ 7,440,434 NOTE 27. RELATED PARTY TRANSACTIONSIn 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 on the same terms as those prevailing at the time of origination to other borrowers.The following table presents a summary of aggregate activity involving related party borrowers for the years ended December 31, 2011, 20102013, 2012 and 2009:2011:(in thousands) 2011 2010 2009 $ 9,264 $ 12,301 $ 13,968 10,041 1,409 1,819 (7,060 ) (3,467 ) (3,471 ) — (979 ) (15 ) $ 12,245 $ 9,264 $ 12,301 (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. 2013 2012 2011 Loans outstanding at beginning of year $ 12,272 $ 12,245 $ 9,264 New loans and advances 3,584 2,697 10,041 Less loan repayments (2,213 ) (2,113 ) (7,060 ) Reclassification (1) (336 ) (557 ) — Loans outstanding at end of year $ 13,307 $ 12,272 $ 12,245 (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, 20112013 and 20102012 deposits of related parties amounted to $18.9$15.3 million and $14.7$16.3 million, respectively.NOTE 28. PARENT COMPANY FINANCIAL STATEMENTSNote 28Condensed Balance SheetsDecember 31,(in thousands) 2011 2010 $ 82,133 $ 128,450 1,772,003 1,695,914 24,486 20,560 — 8 5,713 1,782 $ 1,884,335 $ 1,846,714 $ 32 $ 26 26,441 20,560 82,905 80,688 102,544 102,866 211,922 204,140 1,672,413 1,642,574 $ 1,884,335 $ 1,846,714 Umpqua Holdings Corporation and Subsidiaries159 2013 2012 ASSETS Non-interest bearing deposits with subsidiary banks $ 72,679 $ 82,383 Investments in: Bank subsidiary 1,847,168 1,829,305 Nonbank subsidiaries 29,193 25,308 Other assets 1,590 1,498 Total assets $ 1,950,630 $ 1,938,494 LIABILITIES AND SHAREHOLDERS' EQUITY Payable to bank subsidiary $ 93 $ 49 Other liabilities 33,938 18,340 Junior subordinated debentures, at fair value 87,274 85,081 Junior subordinated debentures, at amortized cost 101,899 110,985 Total liabilities 223,204 214,455 Shareholders' equity 1,727,426 1,724,039 Total liabilities and shareholders' equity $ 1,950,630 $ 1,938,494 Condensed Statements of OperationsYear Ended December 31,(in thousands) 2011 2010 2009 $ 17,743 $ 245 $ 18,306 (2,127 ) 5,081 6,656 15,616 5,326 24,962 469 291 305 9,072 9,116 10,079 9,541 9,407 10,384 6,075 (4,081 ) 14,578 (4,325 ) (1,594 ) (1,677 ) 10,400 (2,487 ) 16,255 64,096 30,813 (169,621 ) 74,496 28,326 (153,366 ) — 12,192 12,866 356 67 30 $ 74,140 $ 16,067 $ (166,262 ) 2013 2012 2011 INCOME Dividends from subsidiaries $ 62,241 $ 78,755 $ 17,743 Other income (2,321 ) (2,174 ) (2,127 ) Total income 59,920 76,581 15,616 EXPENSES Management fees paid to subsidiaries 501 459 469 Other expenses 8,885 9,189 9,072 Total expenses 9,386 9,648 9,541 Income before income tax benefit and equity in undistributed earnings of subsidiaries 50,534 66,933 6,075 Income tax benefit (4,446 ) (4,904 ) (4,325 ) Net income before equity in undistributed earnings of subsidiaries 54,980 71,837 10,400 Equity in undistributed earnings of subsidiaries 43,381 30,054 64,096 Net income 98,361 101,891 74,496 Dividends and undistributed earnings allocated to participating securities 788 682 356 Net earnings available to common shareholders $ 97,573 $ 101,209 $ 74,140 Condensed Statements of Cash FlowsYear Ended December 31,(in thousands) 2011 2010 2009 $ 74,496 $ 28,326 $ (153,366 ) (64,096 ) (30,813 ) 169,621 — — (79 ) (322 ) (322 ) (467 ) 2,217 (4,978 ) (6,854 ) (3,933 ) 3,717 (637 ) 3,736 (1,930 ) 1,523 12,098 (6,000 ) 9,741 (3,668 ) (126,500 ) (87,000 ) — — 229 8 (8 ) — (3,660 ) (126,508 ) (86,771 ) 7 (34 ) 53 — 198,289 — — (214,181 ) — — (4,500 ) — — 89,786 245,697 — (3,686 ) (10,739 ) (25,317 ) (20,626 ) (13,399 ) (29,754 ) (284 ) (174 ) 309 1,004 301 (54,755 ) 45,768 221,739 (46,317 ) (86,740 ) 144,709 128,450 215,190 70,481 $ 82,133 $ 128,450 $ 215,190 Umpqua Holdings Corporation and Subsidiaries160 2013 2012 2011 OPERATING ACTIVITIES: Net income $ 98,361 $ 101,891 $ 74,496 Adjustment to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (43,381 ) (30,054 ) (64,096 ) Depreciation, amortization and accretion (322 ) (322 ) (322 ) Change in fair value of junior subordinated debentures 2,193 2,182 2,217 Net (increase) decrease in other assets (92 ) 4,925 (3,933 ) Net (decrease) increase in other liabilities (1,361 ) (1,184 ) 3,736 Net cash provided by operating activities 55,398 77,438 12,098 INVESTING ACTIVITIES: Investment in subsidiaries (2,928 ) (24,970 ) (3,668 ) Acquisitions — 419 — Net decrease in receivables from nonbank subsidiaries — — 8 Net cash used by investing activities (2,928 ) (24,551 ) (3,660 ) FINANCING ACTIVITIES: Net (decrease) increase in payables to subsidiaries (8,448 ) 17 7 Dividends paid on common stock (50,767 ) (46,201 ) (25,317 ) Stock repurchased (9,356 ) (7,433 ) (29,754 ) Proceeds from exercise of stock options 6,397 980 309 Net cash used by financing activities (62,174 ) (52,637 ) (54,755 ) Change in cash and cash equivalents (9,704 ) 250 (46,317 ) Cash and cash equivalents, beginning of year 82,383 82,133 128,450 Cash and cash equivalents, end of year $ 72,679 $ 82,383 $ 82,133 NOTE 29. QUARTERLY FINANCIAL INFORMATIONNote 29– Quarterly Financial Information (Unaudited)The following tables present the summary results for the eight quarters ending December 31, 2011:2011(in thousands, except per share information) 2011 December 31 September 30 June 30 March 31 $ 121,917 $ 126,527 $ 128,417 $ 124,892 $ 501,753 15,262 18,993 19,056 19,990 73,301 106,655 107,534 109,361 104,902 428,452 6,642 9,089 15,459 15,030 46,220 698 4,420 3,755 7,268 16,141 18,128 24,778 19,627 21,585 84,118 85,339 86,224 83,207 84,201 338,971 32,104 32,579 26,567 19,988 111,238 10,722 10,717 8,782 6,521 36,742 21,382 21,862 17,785 13,467 74,496 103 105 86 62 356 $ 21,279 $ 21,757 $ 17,699 $ 13,405 $ 74,140 $ 0.19 $ 0.19 $ 0.15 $ 0.12 $ 0.19 $ 0.19 $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.05 $ 0.05 2010161 2013 Four December 31 September 30 June 30 March 31 Quarters Interest income $ 118,538 $ 115,960 $ 104,015 $ 104,333 $ 442,846 Interest expense 8,464 9,151 10,122 10,144 37,881 Net interest income 110,074 106,809 93,893 94,189 404,965 Provision for non-covered loan and lease losses 3,840 3,008 2,993 6,988 16,829 (Recapture of) provision for covered loan and lease losses (1,369 ) (1,904 ) (3,072 ) 232 (6,113 ) Non-interest income 26,785 26,144 34,497 34,015 121,441 Non-interest expense 95,364 95,604 87,931 85,762 364,661 Income before provision for income taxes 39,024 36,245 40,538 35,222 151,029 Provision for income taxes 13,754 12,768 14,285 11,861 52,668 Net income 25,270 23,477 26,253 23,361 98,361 Dividends and undistributed earnings allocated to participating securities 212 196 197 183 788 Net earnings available to common shareholders $ 25,058 $ 23,281 $ 26,056 $ 23,178 $ 97,573 Basic earnings per common share $ 0.22 $ 0.21 $ 0.23 $ 0.21 Diluted earnings per common share $ 0.22 $ 0.21 $ 0.23 $ 0.21 Cash dividends declared per common share $ 0.15 $ 0.15 $ 0.20 $ 0.10 (in thousands, except per share information) 2010 December 31 September 30 June 30 March 31 $ 130,677 $ 132,946 $ 115,604 $ 109,369 $ 488,596 23,562 24,629 23,304 22,317 93,812 107,115 108,317 92,300 87,052 394,784 17,567 24,228 29,767 42,106 113,668 4,484 667 — — 5,151 15,161 12,133 18,563 30,047 75,904 87,864 85,170 74,833 69,871 317,738 12,361 10,385 6,263 5,122 34,131 4,203 2,194 2,800 (3,392 ) 5,805 8,158 8,191 3,463 8,514 28,326 — — — 12,192 12,192 18 18 16 15 67 $ 8,140 $ 8,173 $ 3,447 $ (3,693 ) $ 16,067 $ 0.07 $ 0.07 $ 0.03 $ (0.04 ) $ 0.07 $ 0.07 $ 0.03 $ (0.04 ) $ 0.05 $ 0.05 $ 0.05 $ 0.05 Umpqua Holdings Corporation 2012 Four December 31 September 30 June 30 March 31 Quarters Interest income $ 112,741 $ 114,108 $ 113,594 $ 115,642 $ 456,085 Interest expense 10,912 12,068 12,582 13,287 48,849 Net interest income 101,829 102,040 101,012 102,355 407,236 Provision for non-covered loan and lease losses 4,913 7,078 6,638 3,167 21,796 Provision for (recapture of) covered loan and lease losses 3,103 2,927 1,406 (31 ) 7,405 Non-interest income 46,987 33,679 28,926 27,237 136,829 Non-interest expense 98,046 86,974 86,936 87,696 359,652 Income before provision for income taxes 42,754 38,740 34,958 38,760 155,212 Provision for income taxes 14,796 13,587 11,681 13,257 53,321 Net income 27,958 25,153 23,277 25,503 101,891 Dividends and undistributed earnings allocated to participating securities 183 170 162 167 682 Net earnings available to common shareholders $ 27,775 $ 24,983 $ 23,115 $ 25,336 $ 101,209 Basic earnings per common share $ 0.25 $ 0.22 $ 0.21 $ 0.23 Diluted earnings per common share $ 0.25 $ 0.22 $ 0.21 $ 0.23 Cash dividends declared per common share $ 0.09 $ 0.09 $ 0.09 $ 0.07 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.Not applicable.162ITEM 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, 2011,2013, our management, including our Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer, concluded that our disclosure controls and procedures arewere 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 20112013 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGThe 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’sCompany'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’sCompany's internal control over financial reporting includes those policies and procedures that:Company’sCompany's assets;Company’sCompany'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’sCompany's internal control over financial reporting as of December 31, 2011.2013. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —- Integrated Framework. Based on our assessment and those criteria, we believe that, as of December 31, 2011,2013, the Company maintained effective internal control over financial reporting.The Company’sCompany's registered public accounting firm has audited the Company’s consolidated financial statements and the effectiveness of our internal control over financial reporting as of and for the year ended December 31, 20112013 that are included in this annual report and issued their Report of Independent Registered Public Accounting Firm, appearing under Item 8. The attestation report expresses an unqualified opinion on the effectiveness of the Company’sCompany's internal controls over financial reporting as of December 31, 2011.February 17, 2012163ITEM 9B. OTHER INFORMATION.None.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe response to this item is incorporated by reference to Umpqua’s Proxy Statement for the 20122014 annual meeting of shareholders under the captions “Annual Meeting Business”- “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 caption “Compensation"Compensation Discussion and Analysis.”ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe response to this item is set forth in Part II, Item 5, “Equity Compensation Plan Information” and is incorporated by reference to the Proxy Statement, under the caption “Security"Security Ownership of Management and Others.”ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe response to this item is incorporated by reference to the Proxy Statement, under the captions “Annual Meeting Business- Item 1, Election of Directors” and “Related"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 “Independent Registered Public Accounting Firm.”Umpqua Holdings CorporationPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(a)(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 exhibits incorporated herein by reference to other documents are listed on the Index of Exhibits to this annual report on Form 10-K on sequential page 186.166.164SIGNATURESPursuant 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 17, 2012.UMPQUA HOLDINGS CORPORATION (Registrant)/s/ Raymond P. Davis February 14, 2014 Date: February 17, 2012Raymond P. Davis, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.SignatureTitleDate/s/ Raymond P. DavisRaymond P. DavisPresident, Chief Executive Officerand Director(Principal Executive Officer)February 17, 2012/s/ Ronald L. FarnsworthRonald L. FarnsworthExecutive Vice President, Chief Financial Officer(Principal Financial Officer)February 17, 2012/s/ Neal T. McLaughlinNeal T. McLaughlinExecutive Vice President, Treasurer (Principal Accounting Officer)February 17, 2012/s/ Allyn C. FordAllyn C. FordDirectorFebruary 17, 2012/s/ Peggy Y. FowlerPeggy Y. FowlerDirectorFebruary 17, 2012/s/ Stephen M. GambeeStephen M. GambeeDirectorFebruary 17, 2012/s/ Jose R. HermocilloJose R. HermocilloDirectorFebruary 17, 2012/s/ William A. LansingWilliam A. LansingDirectorFebruary 17, 2012/s/ Luis F. MachucaLuis F. MachucaDirectorFebruary 17, 2012/s/ Diane D. MillerDiane D. MillerDirectorFebruary 17, 2012Umpqua Holdings CorporationSignatureTitleDate/s/ Dudley R. SlaterDudley R. SlaterDirectorFebruary 17, 2012/s/ Bryan L. TimmBryan L. TimmDirectorFebruary 17, 2012/s/ Hilliard C. Terry, IIIHilliard C. Terry, IIIDirectorFebruary 17, 2012/s/ Frank R. J. WhittakerFrank R. J. WhittakerDirectorFebruary 17, 2012Exhibit 3.1Signature Title Date /s/ Raymond P. Davis President, Chief Executive Officer and Director February 14, 2014 Raymond P. Davis (Principal Executive Officer) (a)/s/ Ronald L. Farnsworth Executive Vice President, Chief Financial Officer February 14, 2014 Ronald L. Farnsworth (Principal Financial Officer) /s/ Neal T. McLaughlin Executive Vice President, Treasurer February 14, 2014 Neal T. McLaughlin (Principal Accounting Officer) /s/ Peggy Y. Fowler Director February 14, 2014 Peggy Y. Fowler /s/ Stephen M. Gambee Director February 14, 2014 Stephen M. Gambee /s/ James S. Greene Director February 14, 2014 James S. Greene /s/ Luis F. Machuca Director February 14, 2014 Luis F. Machuca /s/ Laureen E. Seeger Director February 14, 2014 Laureen E. Seeger /s/ Dudley R. Slater Director February 14, 2014 Dudley R. Slater /s/ Susan F. Stevens Director February 14, 2014 Susan F. Stevens /s/ Hilliard C. Terry, III Director February 14, 2014 Hilliard C. Terry, III /s/ Bryan L. Timm Director February 14, 2014 Bryan L. Timm /s/ Frank R. J. Whittaker Director February 14, 2014 Frank R. J. Whittaker 165EXHIBIT INDEXExhibit 2.1 Agreement and Plan of Merger, dated as of September 11, 2013, by and between Sterling Financial Corporation and Umpqua Holdings Corporation (incorporated by reference to Annex A to the joint proxy statement/prospectus contained the Registration Statement on Form S-4 (Registration No. 333-192346) filed November 15, 2013) 3.1 (a) Restated Articles of Incorporation with designation of Fixed Rate Cumulative Perpetual Preferred Stock, Series A and designation of Series B Common Stock Equivalent preferred stock 3.2 3.2 (b) Bylaws, as amended 4.1 4.1 (c) Specimen Common Stock Certificate 4.2 4.2 (d) Amended and Restated Declaration of Trust for Umpqua Master Trust I, dated August 9, 2007 4.3 4.3 (e) Indenture, dated August 9, 2007, by and between Umpqua Holdings Corporation and LaSalle Bank National Association 4.4 4.4 (f) Series A Guarantee Agreement, dated August 9, 2007, by and between Umpqua Holdings Corporation and LaSalle Bank National Association 4.5 4.5 (g) Series B Guarantee Agreement, dated September 6, 2007, by and between Umpqua Holdings Corporation and LaSalle Bank National Association 4.6 4.6 (h) Series B Supplement pursuant to Amended and Restated Declaration of Trust dated August 9, 2007 10.1** (i) Third Restated Supplemental Executive Retirement Plan effective April 16, 2008 between the Company and Raymond P. Davis 10.2** (j) Employment Agreement dated July 1, 2003, between the Company and Raymond P. Davis 10.3** (k) Umpqua Holdings Corporation 2005 Performance-Based Executive Incentive Plan 10.4** (l) 2003 Stock Incentive Plan, as amended, effective March 5, 2007 10.5** (m) 2007 Long Term Incentive Plan effective March 5, 2007 10.6** (n) Employment Agreement with Brad Copeland dated March 10, 200610.7**(o)Employment Agreement with Kelly J. Johnson dated January 15, 2009 10.8** (p)Employment Agreement with Colin Eccles dated January 21, 200910.9*10.7**(q)(o) Form of Employment Agreement with Ronald L. Farnsworth, Steven L. Philpott and Neal T. McLaughlin, each dated March 5, 2008 10.10** (r)10.8**(p) Form of Long Term Incentive Restricted Stock Unit Agreement 10.11** (s)10.9**(q) Split-Dollar Insurance Agreement dated April 16, 2008 between the Company and Raymond P. Davis 10.12** (t)(r) Form of First Amendment to Employment Agreement effective September 16, 2008 between the Company and Brad Copeland and between the Company and Barbara Baker10.14** (u)(s) Employment Agreement dated effective March 21, 2010 between the Company and Cort O’Haver 10.15** (v)(t) Employment Agreement dated effective June 1, 2010 between the Company and Mark Wardlow 10.16** (w)Employment Agreement dated effective November 15, 2010 between the Company and Ulderico (Rick) Calero, Jr.10.17*10.13**(x)(u) Form of Amendment No. 1 to Nonqualified Stock Option Agreements between Company and Executive Officers that were originally issued January 31, 2011 10.18** (y)(v) Form of Amendment No. 1 to Restricted Stock Agreements between the Company and Executive Officers that were originally issued January 31, 2011 12 10.15** (w) Form of Amendment to Employment Agreement effective January 9, 2013, between the Company and Ronald L. Farnsworth, Steven L. Philpott and Neal T. McLaughlin 10.16** (x) Umpqua Holdings Corporation 2013 Incentive Plan, effective December 14, 2012 10.17** (y) Form of Restricted Stock Award Agreement under 2013 Incentive Plan (Service Vesting) 10.18** (z) Form of Restricted Stock Award Agreement under 2013 Incentive Plan (Performance Vesting) 10.19** (aa) Form of Restricted Stock Award Agreement under 2013 Incentive Plan (162(m) Performance Vesting) 10.20 Investor Letter Agreement, dated September 11, 2013, between Umpqua Holdings Corporation, Sterling Financial Corporation, Warburg Pincus Private Equity X, L.P. and Warburg Pincus X Partners, L.P. (incorporated by reference to Annex B to the joint proxy statement/prospectus contained in the Registration Statement on Form S-4 (Registration No. 333-192346) filed November 15, 2013) 16610.21 Investor Letter Agreement, dated September 11, 2013, between Umpqua Holdings Corporation, Sterling Financial Corporation, Thomas H. Lee Equity Fund VI, L.P., Thomas H. Lee Parallel Fund VI, L.P. and Thomas H. Lee Parallel (DT) Fund VI, L.P. (attached as Annex C to the joint proxy statement/prospectus contained in the Registration Statement on Form S-4 (Registration No. 333-192346) filed November 15, 2013) 10.22** (bb) Employment Agreement, dated September 11, 2013, by and between Umpqua Holdings Corporation and J. Gregory Seibly 12 Ratio of Earnings to Fixed Charges 21.1 21.1 Subsidiaries of the RegistrantRegistrants23.1 Consent of Independent Registered Public Accounting Firm –- Moss Adams LLP31.1 31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 31.2 31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 31.3 31.3 Certification of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley Act of 2002 32 32 Certification of Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Umpqua Holdings Corporation101.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 arrangement167101.INSXBRL Instance Document *101.SCHXBRL Taxonomy Extension Schema Document *101.CALXBRL Taxonomy Extension Calculation Linkbase Document *101.DEFXBRL Taxonomy Extension Definition Linkbase Document *101.LABXBRL Taxonomy Extension Label Linkbase Document *101.PREXBRL 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(a) Incorporated by reference to Exhibit 3.1 to Form 10-Q filed May 7, 2010 (b) Incorporated by reference to Exhibit 3.2 to Form 8-K filed April 22, 2008 (c) 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 (d) Incorporated by reference to Exhibit 4.1 to Form 8-K filed August 10, 2007 (e) Incorporated by reference to Exhibit 4.2 to Form 8-K filed August 10, 2007 (f) Incorporated by reference to Exhibit 4.3 to Form 8-K filed August 10, 2007 (g) Incorporated by reference to Exhibit 4.3 to Form 8-K filed September 7, 2007 (h) Incorporated by reference to Exhibit 4.4 to Form 8-K filed September 7, 2007 (i) Incorporated by reference to Exhibit 99.1 to Form 8-K/A filed April 22, 2008 (j) Incorporated by reference to Exhibit 10.4 to Form 10-Q filed August 14, 2003 (k) Incorporated by reference to Appendix B to Form DEF 14A filed March 31, 2005 (l) Incorporated by reference to Appendix A to Form DEF 14A filed March 14, 2007 (m) Incorporated by reference to Appendix B to Form DEF 14A filed March 14, 2007 (n) Incorporated by reference to Exhibit 10.2 to Form 8-K filed March 21, 2006(o)Incorporate by reference to Exhibit 10.7 to Form 10-K filed February 19, 2010 (p)Incorporated by reference to Exhibit 10.8 to Form 10-K filed February 19, 2010(q)(o)Incorporated by reference to Exhibit 99.1 to Form 8-K filed March 7, 2008 (r)(p)Incorporated by reference to Exhibit 10.4 to Form 10-Q filed August 3, 2007 (s)(q)Incorporated by reference to Exhibit 99.2 to Form 8-K filed April 22, 2008 (t)(r)Incorporated by reference to Exhibit 99.1 to Form 8-K filed October 8, 2008 (u)(s)Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 4, 2010 (v)(t)Incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 4, 2010 (w)(u)Incorporated by reference to Exhibit 99.1 to Form 8-K filed February 4, 2011 (x)Incorporated by reference to Exhibit 10.1 to Form 8-K filed June 20, 2011(y)(v)Incorporated by reference to Exhibit 10.2 to Form 8-K filed June 20, 2011 (w) Incorporated by reference to Exhibit 99.1 to Form 8-K filed January 14, 2013 (x) Incorporated by reference to Appendix A to DEF 14A filed February 25, 2013 (y) Incorporated by reference to Exhibit 99.1 to Form 8-K filed January 31, 2014 (z) Incorporated by reference to Exhibit 99.1 to Form 8-K filed January 31, 2014 (aa) Incorporated by reference to Exhibit 99.1 to Form 8-K filed January 31, 2014 (bb) Incorporated by reference to Exhibit 10.3 to Form S-4 filed November 15, 2013 (Registration No. 333-192346) 187168