Earnings Per Common 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 earnings per share 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 earnings is allocated between the common stock and participating securities pursuant to the two-class method. Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares.

Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares, excluding the participating securities, were issued using the treasury stock method. For all periods presented, stock options, certain restricted stock awards and restricted stock units are 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.

The following is a computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2014 and 2013:



(in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
NUMERATORS:
Net income	$	58,989	$	23,477	$	94,974	$	73,091
Less:
Dividends and undistributed earnings allocated to participating securities (1)	142		196		338		576
Net earnings available to common shareholders	$	58,847	$	23,281	$	94,636	$	72,515
DENOMINATORS:
Weighted average number of common shares outstanding - basic	217,245		111,912		175,627		111,934
Effect of potentially dilutive common shares (2)	1,696		283		1,029		220
Weighted average number of common shares outstanding - diluted	218,941		112,195		176,656		112,154
EARNINGS PER COMMON SHARE:
Basic	$	0.27	$	0.21	$	0.54	$	0.65
Diluted	$	0.27	$	0.21	$	0.54	$	0.65


(1)	Represents dividends paid and undistributed earnings allocated to nonvested restricted stock awards.


(2)	Represents the effect of the assumed exercise of stock options, vesting of non-participating restricted shares, and vesting of restricted stock units and warrants that were converted into warrants exercisable for Umpqua common shares in connection with the Sterling acquisition, based on the treasury stock method.

The following table presents the weighted average outstanding securities that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive for the three and nine months ended September 30, 2014 and 2013.



(in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Stock options	5	363	398	738