Allowance for Loan and Lease Loss and Credit Quality

The Bank's methodology for assessing the appropriateness of the Allowance for Loan and Lease Loss ("ALLL") consists of three key elements: 1) the formula allowance; 2) the specific allowance; and 3) the unallocated allowance. By incorporating these factors into a single allowance requirement analysis, we believe all risk-based activities within the loan and lease portfolios are simultaneously considered.

Formula Allowance

When loans and leases are originated or acquired, they are assigned a risk rating that is reassessed periodically during the term of the loan or lease through the credit review process. The Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The 10 risk rating categories are a primary factor in determining an appropriate amount for the formula allowance.

The formula allowance is calculated by applying risk factors to various segments of pools of outstanding loans and leases. Risk factors are assigned to each portfolio segment based on management's evaluation of the losses inherent within each segment. Segments with greater risk of loss will therefore be assigned a higher risk factor.

Base risk – The portfolio is segmented into loan categories, and these categories are assigned a Base risk factor based on an evaluation of the loss inherent within each segment.

Extra risk – Additional risk factors provide for an additional allocation of ALLL based on the loan and lease risk rating system and loan delinquency, and reflect the increased level of inherent losses associated with more adversely classified loans and leases.

Risk factors may be changed periodically based on management's evaluation of the following factors: loss experience; changes in the level of non-performing loans and leases; regulatory exam results; changes in the level of adversely classified loans and leases; improvement or deterioration in economic conditions; and any other factors deemed relevant. Additionally, Financial Pacific Leasing Inc. considers the additional quantitative and qualitative factors: migration analysis; a static pool analysis of historic recoveries; and forecasting uncertainties. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency states and ultimately be charged off.

Specific Allowance

Regular credit reviews of the portfolio identify loans that are considered potentially impaired. Potentially impaired loans are referred to the ALLL Committee which reviews and approves designated loans as impaired. A loan is considered impaired when, based on current information and events, we determine that we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments. When we identify a loan as impaired, we measure the impairment using discounted cash flows or estimated note sale price, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we either recognize an impairment reserve as a specific allowance to be provided for in the allowance for loan and lease losses or charge-off the impaired balance on collateral-dependent loans if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double-count the loss exposure.

The combination of the formula allowance component and the specific allowance component represents the allocated allowance for loan and lease losses. There is currently no unallocated allowance.

Management believes that the ALLL was adequate as of September 30, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses.

The reserve for unfunded commitments ("RUC") is established to absorb inherent losses associated with our commitment to lend funds, such as with a letter or line of credit. The adequacy of the ALLL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio's risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information.

There have been no significant changes to the Bank's ALLL methodology or policies in the periods presented.

Activity in the Allowance for Loan and Lease Losses

The following tables summarize activity related to the allowance for loan and lease losses by loan and lease portfolio segment for the three and nine months ended September 30, 2017 and 2016:



(in thousands)	Three Months Ended September 30, 2017
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	47,414		$	60,057		$	18,051		$	11,345		$	136,867
Charge-offs	(503		)	(10,504		)	(128		)	(2,087		)	(13,222		)
Recoveries	676			2,121			287			777			3,861
(Recapture) provision	(696		)	9,900			755			2,038			11,997
Balance, end of period	$	46,891		$	61,574		$	18,965		$	12,073		$	139,503

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




(in thousands)	Nine Months Ended September 30, 2017
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	47,795		$	58,840		$	17,946		$	9,403		$	133,984
Charge-offs	(1,651		)	(31,304		)	(745		)	(6,468		)	(40,168		)
Recoveries	2,533			5,662			597			2,569			11,361
(Recapture) provision	(1,786		)	28,376			1,167			6,569			34,326
Balance, end of period	$	46,891		$	61,574		$	18,965		$	12,073		$	139,503

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

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

The following tables present the allowance and recorded investment in loans and leases by portfolio segment as of September 30, 2017 and 2016:



(in thousands)	September 30, 2017
	Commercial						Consumer
	Real Estate		Commercial		Residential		& Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	43,792	$	60,809	$	18,383	$	12,045	$	135,029
Individually evaluated for impairment	749		416		—		—		1,165
Loans acquired with deteriorated credit quality	2,350		349		582		28		3,309
Total	$	46,891	$	61,574	$	18,965	$	12,073	$	139,503
Loans and leases:
Collectively evaluated for impairment	$	9,440,129	$	4,054,600	$	4,136,418	$	767,054	$	18,398,201
Individually evaluated for impairment	40,832		32,125		—		—		72,957
Loans acquired with deteriorated credit quality	163,546		4,716		37,874		468		206,604
Total	$	9,644,507	$	4,091,441	$	4,174,292	$	767,522	$	18,677,762



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

Summary of Reserve for Unfunded Commitments Activity

The following table presents a summary of activity in the RUC and unfunded commitments for the three and nine months ended September 30, 2017 and 2016:



(in thousands)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Balance, beginning of period	$	3,816	$	3,531	$	3,611	$	3,574
Net charge to other expense	116		5		321		(38		)
Balance, end of period	$	3,932	$	3,536	$	3,932	$	3,536



(in thousands)
	Total
Unfunded loan and lease commitments:
September 30, 2017	$	4,839,882
September 30, 2016	$	4,118,259

Asset Quality and Non-Performing Loans and Leases

We manage asset quality and control credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for loan and lease losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.

Non-Accrual Loans and Leases and Loans and Leases Past Due

The following tables summarize our non-accrual loans and leases and loans and leases past due, by loan and lease class, as of September 30, 2017 and December 31, 2016:



(in thousands)	September 30, 2017
	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other (1)		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	258	$	947	$	599	$	1,804	$	3,500	$	3,469,939	$	3,475,243
Owner occupied term, net	2,087		2,397		1		4,485		6,780		2,456,730		2,467,995
Multifamily, net	—		325		—		325		366		2,992,512		2,993,203
Construction & development, net	—		—		—		—		1,091		520,575		521,666
Residential development, net	—		—		—		—		6,153		180,247		186,400
Commercial
Term, net	131		973		—		1,104		13,081		1,805,479		1,819,664
LOC & other, net	583		169		505		1,257		3,700		1,129,088		1,134,045
Leases and equipment finance, net	5,379		8,072		2,411		15,862		9,902		1,111,968		1,137,732
Residential
Mortgage, net (2)	—		5,024		35,532		40,556		—		3,053,805		3,094,361
Home equity loans & lines, net	1,235		1,309		2,023		4,567		—		1,075,364		1,079,931
Consumer & other, net	2,360		1,002		304		3,666		—		763,856		767,522
Total, net of deferred fees and costs	$	12,033	$	20,218	$	41,375	$	73,626	$	44,573	$	18,559,563	$	18,677,762

(1) Other includes purchased credit impaired loans of $206.6 million.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $12.3 million at September 30, 2017.



(in thousands)	December 31, 2016
	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other (1)		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	718	$	1,027	$	1,047	$	2,792	$	2,100	$	3,325,550	$	3,330,442
Owner occupied term, net	974		4,539		1		5,514		4,391		2,589,150		2,599,055
Multifamily, net	—		—		—		—		476		2,858,480		2,858,956
Construction & development, net	—		—		—		—		—		463,625		463,625
Residential development, net	—		—		—		—		—		142,984		142,984
Commercial
Term, net	319		233		—		552		6,880		1,501,348		1,508,780
LOC & other, net	1,673		27		—		1,700		4,998		1,109,561		1,116,259
Leases and equipment finance, net	5,343		6,865		1,808		14,016		8,920		927,652		950,588
Residential
Mortgage, net (2)	10		3,114		33,703		36,827		—		2,851,144		2,887,971
Home equity loans & lines, net	289		848		2,080		3,217		—		1,008,627		1,011,844
Consumer & other, net	3,261		1,185		587		5,033		—		633,126		638,159
Total, net of deferred fees and costs	$	12,587	$	17,838	$	39,226	$	69,651	$	27,765	$	17,411,247	$	17,508,663

(1) Other includes purchased credit impaired loans of $280.4 million.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $10.9 million at December 31, 2016.

Impaired Loans

Loans with no related allowance reported generally represent non-accrual loans, which are also considered impaired loans. The Bank recognizes the charge-off on impaired loans in the period it arises for collateral-dependent loans. Therefore, the non-accrual loans as of September 30, 2017 have already been written down to their estimated net realizable value and are expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on impaired loans primarily represents the impairment reserves on performing restructured loans, and is measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan's carrying value.

The following tables summarize our impaired loans by loan class as of September 30, 2017 and December 31, 2016:



(in thousands)	September 30, 2017
	Unpaid		Recorded Investment
	Principal		Without		With		Related
	Balance		Allowance		Allowance		Allowance
Commercial real estate
Non-owner occupied term, net	$	18,726	$	2,143	$	16,485	$	319
Owner occupied term, net	10,617		4,216		6,039		284
Multifamily, net	3,998		366		3,519		141
Construction & development, net	1,091		1,091		—		—
Residential development, net	6,974		6,153		820		5
Commercial
Term, net	28,340		16,911		5,044		113
LOC & other, net	11,845		3,518		6,652		303
Total, net of deferred fees and costs	$	81,591	$	34,398	$	38,559	$	1,165



(in thousands)	December 31, 2016
	Unpaid		Recorded Investment
	Principal		Without		With		Related
	Balance		Allowance		Allowance		Allowance
Commercial real estate
Non-owner occupied term, net	$	19,797	$	278	$	19,116	$	524
Owner occupied term, net	8,467		1,768		6,445		131
Multifamily, net	4,015		476		3,520		123
Construction & development, net	1,091		—		1,091		9
Residential development, net	7,304		—		7,304		72
Commercial
Term, net	16,875		5,982		3,239		8
LOC & other, net	8,279		4,755		—		—
Total, net of deferred fees and costs	$	65,828	$	13,259	$	40,715	$	867

The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three and nine months ended September 30, 2017 and 2016:



(in thousands)	Three Months Ended				Three Months Ended
	September 30, 2017				September 30, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Commercial real estate
Non-owner occupied term, net	$	18,706	$	149	$	18,544	$	155
Owner occupied term, net	10,159		14		3,682		—
Multifamily, net	3,890		30		4,209		31
Construction & development, net	1,091		—		1,860		21
Residential development, net	7,096		13		7,671		77
Commercial
Term, net	19,269		88		17,884		67
LOC & other, net	7,560		5		4,536		20
Leases and equipment finance, net	137		—		—		—
Total, net of deferred fees and costs	$	67,908	$	299	$	58,386	$	371




(in thousands)	Nine Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Commercial real estate
Non-owner occupied term, net	$	17,220	$	447	$	12,634	$	350
Owner occupied term, net	9,556		141		7,950		86
Multifamily, net	3,914		91		3,792		91
Construction & development, net	1,201		22		1,412		61
Residential development, net	7,270		163		7,871		238
Commercial
Term, net	16,048		242		21,223		180
LOC & other, net	6,263		55		3,686		60
Leases and equipment finance, net	185		—		—		—
Total, net of deferred fees and costs	$	61,657	$	1,161	$	58,568	$	1,066

The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.

Credit Quality Indicators

As previously noted, the Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The Bank differentiates its lending portfolios into homogeneous loans and leases and non-homogeneous loans and leases. Homogeneous loans and leases are not risk rated until they are greater than 30 days past due, and risk rating is based on the past due status of the loan or lease. The 10 risk rating categories can be generally described by the following groupings for loans and leases:

Minimal Risk—A minimal risk loan or lease, risk rated 1, is to a borrower of the highest quality. The borrower has an unquestioned ability to produce consistent profits and service all obligations and can absorb severe market disturbances with little or no difficulty.

Low Risk—A low risk loan or lease, risk rated 2, is similar in characteristics to a minimal risk loan. Margins may be smaller or protective elements may be subject to greater fluctuation. The borrower will have a strong demonstrated ability to produce profits, provide ample debt service coverage and to absorb market disturbances.

Modest Risk—A modest risk loan or lease, risk rated 3, is a desirable loan or lease with excellent sources of repayment and no currently identifiable risk associated with collection. The borrower exhibits a very strong capacity to repay the credit in accordance with the repayment agreement. The borrower may be susceptible to economic cycles, but will have reserves to weather these cycles.

Average Risk—An average risk loan or lease, risk rated 4, is an attractive loan or lease with sound sources of repayment and no material collection or repayment weakness evident. The borrower has an acceptable capacity to pay in accordance with the agreement. The borrower is susceptible to economic cycles and more efficient competition, but should have modest reserves sufficient to survive all but the most severe downturns or major setbacks.

Acceptable Risk—An acceptable risk loan or lease, risk rated 5, is a loan or lease with lower than average, but still acceptable credit risk. These borrowers may have higher leverage, less certain but viable repayment sources, have limited financial reserves and may possess weaknesses that can be adequately mitigated through collateral, structural or credit enhancement. The borrower is susceptible to economic cycles and is less resilient to negative market forces or financial events. Reserves may be insufficient to survive a modest downturn.

Watch—A watch loan or lease, risk rated 6, is still pass-rated, but represents the lowest level of acceptable risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower rating would be appropriate. The borrower should have a plausible plan, with reasonable certainty of success, to correct the problems in a short period of time.

Special Mention—A special mention loan or lease, risk rated 7, has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the institution's credit position at some future date. They contain unfavorable characteristics and are generally undesirable. Loans and leases in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of a substandard classification. A special mention loan or lease has potential weaknesses, which if not checked or corrected, weaken the asset or inadequately protect the Bank's position at some future date. For commercial and commercial real estate homogeneous loans and leases to be classified as special mention, risk rated 7, the loan or lease is greater than 30 to 59 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are risk rated 7, when the loan is greater than 30 to 89 days past due from the required payment date at month-end.

Substandard—A substandard asset, risk rated 8, is inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. Loans and leases are classified as substandard when they have unsatisfactory characteristics causing unacceptable levels of risk. A substandard loan or lease normally has one or more well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between special mention and substandard. Commercial and commercial real estate homogeneous loans and leases are classified as a substandard loan or lease, risk rated 8, when the loan or lease 60 to 89 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are classified as a substandard loan, risk rated 8, when an open-end loan is 90 to 180 days past due from the required payment date at month-end or when a closed-end loan 90 to 120 days is past due from the required payment date at month-end.

Doubtful—Loans or leases classified as doubtful, risk rated 9, have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, and perfection of liens on additional collateral and refinancing plans. In certain circumstances, a doubtful rating will be temporary, while the Bank is awaiting an updated collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining un-collateralized portion will be charged-off. The remaining balance, properly margined, may then be upgraded to substandard, however must remain on non-accrual. Commercial and commercial real estate homogeneous doubtful loans or leases, risk rated 9, are 90 to 179 days past due from the required payment date at month-end.

Loss—Loans or leases classified as loss, risk rated 10, are considered un-collectible and of such little value that the continuance as an active Bank asset is not warranted. This rating does not mean that the loan or lease has no recovery or salvage value, but rather that the loan or lease should be charged-off now, even though partial or full recovery may be possible in the future. For a commercial or commercial real estate homogeneous loss loan or lease to be risk rated 10, the loan or lease is 180 days and more past due from the required payment date. These loans are generally charged-off in the month in which the 180 day time period elapses. Residential, consumer and other homogeneous loans are risk rated 10, when a closed-end loan becomes past due 120 cumulative days or when an open-end retail loan that becomes past due 180 cumulative days from the contractual due date. These loans are generally charged-off in the month in which the 120 or 180 day period elapses.

Impaired—Loans are classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original loan agreement, without unreasonable delay. This generally includes all loans classified as non-accrual and troubled debt restructurings. Impaired loans are risk rated for internal and regulatory rating purposes, but presented separately for clarification.

The following tables summarize our internal risk rating by loan and lease class for the loan and lease portfolio, including purchased credit impaired loans, as of September 30, 2017 and December 31, 2016:



(in thousands)	September 30, 2017
	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Impaired (1)		Total
Commercial real estate
Non-owner occupied term, net	$	3,381,062	$	40,560	$	34,711	$	282	$	—	$	18,628	$	3,475,243
Owner occupied term, net	2,374,238		43,483		39,662		—		357		10,255		2,467,995
Multifamily, net	2,963,655		16,695		8,968		—		—		3,885		2,993,203
Construction & development, net	516,139		1,934		2,502		—		—		1,091		521,666
Residential development, net	178,239		—		1,188		—		—		6,973		186,400
Commercial
Term, net	1,773,745		9,176		14,700		85		3		21,955		1,819,664
LOC & other, net	1,082,301		10,005		31,293		276		—		10,170		1,134,045
Leases and equipment finance, net	1,111,968		5,379		8,072		11,148		1,165		—		1,137,732
Residential
Mortgage, net (2)	3,050,451		6,071		35,919		—		1,920		—		3,094,361
Home equity loans & lines, net	1,074,788		2,942		2,119		—		82		—		1,079,931
Consumer & other, net	763,815		3,367		302		—		38		—		767,522
Total, net of deferred fees and costs	$	18,270,401	$	139,612	$	179,436	$	11,791	$	3,565	$	72,957	$	18,677,762

(1) The percentage of impaired loans classified as pass/watch, special mention, and substandard was 5.8%, 1.1% and 93.1%, respectively, as of September 30, 2017.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $12.3 million at September 30, 2017, which is included in the substandard category.



(in thousands)	December 31, 2016
	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Impaired (1)		Total
Commercial real estate
Non-owner occupied term, net	$	3,205,241	$	55,194	$	48,699	$	1,368	$	546	$	19,394	$	3,330,442
Owner occupied term, net	2,466,247		75,189		46,781		972		1,653		8,213		2,599,055
Multifamily, net	2,828,370		11,903		14,687		—		—		3,996		2,858,956
Construction & development, net	458,328		1,712		2,494		—		—		1,091		463,625
Residential development, net	134,491		—		1,189		—		—		7,304		142,984
Commercial
Term, net	1,458,699		15,716		24,678		119		347		9,221		1,508,780
LOC & other, net	1,063,305		10,565		37,387		3		244		4,755		1,116,259
Leases and equipment finance, net	927,378		5,614		6,866		9,752		978		—		950,588
Residential
Mortgage, net (2)	2,830,547		1,803		53,607		—		2,014		—		2,887,971
Home equity loans & lines, net	1,006,647		1,490		2,727		—		980		—		1,011,844
Consumer & other, net	633,098		4,446		527		—		88		—		638,159
Total, net of deferred fees and costs	$	17,012,351	$	183,632	$	239,642	$	12,214	$	6,850	$	53,974	$	17,508,663

(1) The percentage of impaired loans classified as pass/watch, special mention, substandard and doubtful was 8.1%, 6.5%, 82.5%, and 2.9%, respectively, as of December 31, 2016.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $10.9 million at December 31, 2016, which is included in the substandard category.

Troubled Debt Restructurings

At September 30, 2017 and December 31, 2016, impaired loans of $45.8 million and $40.7 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms. In order for a newly restructured loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. Impaired restructured loans carry a specific allowance and the allowance on impaired restructured loans is calculated consistently across the portfolios.

There were $1.9 million available commitments for troubled debt restructurings outstanding as of September 30, 2017 and none as of December 31, 2016.

The following tables present troubled debt restructurings by accrual versus non-accrual status and by loan class as of September 30, 2017 and December 31, 2016:



(in thousands)	September 30, 2017
	Accrual		Non-Accrual		Total
	Status		Status		Modifications
Commercial real estate, net	$	22,807	$	7,244	$	30,051
Commercial, net	16,439		11,654		28,093
Residential, net	6,567		—		6,567
Total, net of deferred fees and costs	$	45,813	$	18,898	$	64,711



(in thousands)	December 31, 2016
	Accrual		Non-Accrual		Total
	Status		Status		Modifications
Commercial real estate, net	$	30,563	$	—	$	30,563
Commercial, net	3,054		3,345		6,399
Residential, net	7,050		—		7,050
Total, net of deferred fees and costs	$	40,667	$	3,345	$	44,012

The Bank's policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank's policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

The following tables present newly restructured loans that occurred during the three and nine months ended September 30, 2017 and 2016:



(in thousands)	Three Months Ended September 30, 2017
	Rate		Term		Interest Only		Payment		Combination		Total
	Modifications		Modifications		Modifications		Modifications		Modifications		Modifications
Commercial real estate, net	$	—	$	—	$	—	$	—	$	5,086	$	5,086
Commercial, net	—		—		—		—		9,053		9,053
Residential, net	—		187		—		—		—		187
Total, net of deferred fees and costs	$	—	$	187	$	—	$	—	$	14,139	$	14,326

	Three Months Ended September 30, 2016
	Rate		Term		Interest Only		Payment		Combination		Total
	Modifications		Modifications		Modifications		Modifications		Modifications		Modifications
Commercial, net	$	—	$	—	$	—	$	—	$	1,009	$	1,009
Residential, net	—		—		—		—		2,117		2,117
Total, net of deferred fees and costs	$	—	$	—	$	—	$	—	$	3,126	$	3,126




	Nine Months Ended September 30, 2017
	Rate		Term		Interest Only		Payment		Combination		Total
	Modifications		Modifications		Modifications		Modifications		Modifications		Modifications
Commercial real estate, net	$	—	$	—	$	—	$	—	$	5,086	$	5,086
Commercial, net	—		—		—		—		21,846		21,846
Residential, net	—		187		—		—		1,134		1,321
Total, net of deferred fees and costs	$	—	$	187	$	—	$	—	$	28,066	$	28,253

(in thousands)	Nine Months Ended September 30, 2016
	Rate		Term		Interest Only		Payment		Combination		Total
	Modifications		Modifications		Modifications		Modifications		Modifications		Modifications
Commercial real estate, net	$	—	$	—	$	—	$	—	$	5,659	$	5,659
Commercial, net	—		—		—		—		4,405		4,405
Residential, net	—		—		—		—		2,845		2,845
Consumer & other, net	—		—		—		—		77		77
Total, net of deferred fees and costs	$	—	$	—	$	—	$	—	$	12,986	$	12,986

For the periods presented in the tables above, the outstanding recorded investment was the same pre and post modification. There were $118,000 in financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the nine months ended September 30, 2017 and $77,000 and $304,000 for the three and nine months ended September 30, 2016. There were no payment defaults in the three months ended September 30, 2017.