Stock Compensation and Share Repurchase Plan

On April 18, 2014, the Company completed the Merger with Sterling. The details of the conversion of Sterling common stock, stock options, and restricted stock units are included in Note 2. The conversion resulted in the issuance of 104,385,087 shares of common stock, 994,214 restricted stock units, and 439,921 stock options granted. Additionally, the 2,960,238 outstanding Sterling warrants were converted into warrants exercisable to receive 1.671 shares of Umpqua stock per warrant, with an exercise price of $12.88 as of the merger date. In November 2014, the warrants were net exercised in full for 2,889,896 shares and $6.6 million. As of December 31, 2014, the warrants were no longer outstanding.

At a special meeting on February 25, 2014, the Company's shareholders approved an amendment to the Company's articles of incorporation, effective on April 18, 2014, increasing the number of authorized shares of common stock to 400,000,000.

At the annual 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 for issuance under the plan. With the adoption of the 2013 Plan, no additional awards will be issued from the 2003 Stock Incentive Plan or the 2007 Long Term Incentive Plan.

Stock-Based Compensation

The compensation cost related to stock options, restricted stock and restricted stock units (included in salaries and employee benefits) was $12.5 million, $5.0 million and $4.0 million for the years ended December 31, 2014, 2013, and 2012, respectively. The total income tax benefit recognized related to stock-based compensation was $4.8 million, $1.9 million and $1.6 million for the years ended December 31, 2014, 2013, and 2012, respectively. During the year ended December 31, 2014, vesting was accelerated for certain restricted stock units and stock options issued in connection with the Sterling Merger, resulting in $2.8 million of accelerated compensation expense which was recorded in merger related expense.

As of December 31, 2014, there was $320,000 of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of 1.63 years. As of December 31, 2014, there was $10.5 million of total unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-average period of 1.25 years. As of December 31, 2014, there was $8.3 million of total unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted-average period of 2.29 years, assuming the current expectation of performance conditions are met.

Stock Options

The following table summarizes information about stock option activity for the years ended December 31, 2014, 2013 and 2012:



(shares in thousands)	2014				2013				2012

	Options		Weighted-Avg		Options		Weighted-Avg		Options		Weighted-Avg
	Outstanding		Exercise Price		Outstanding		Exercise Price		Outstanding		Exercise Price
Balance, beginning of period	981		$	16.17	1,850		$	15.37	2,151		$	14.48
Granted/assumed	440		$	12.12	—		$	—	20		$	11.98
Exercised	(572	)	$	11.93	(515	)	$	12.42	(174	)	$	5.63
Forfeited/expired	(42	)	$	19.28	(354	)	$	17.46	(147	)	$	13.45
Balance, end of period	807		$	16.80	981		$	16.17	1,850		$	15.37
Options exercisable, end of period	676		$	17.71	627		$	18.86	1,263		$	17.11

The following table summarizes information about outstanding stock options issued under all plans as of December 31, 2014:



(shares in thousands)	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 $11.89	258	5.08	$	10.96	223	$	10.81
$11.98 to $15.50	240	6.34	$	13.23	144	$	13.90
$21.22 to $24.71	234	0.09	$	23.67	234	$	23.67
$26.12 to $28.43	75	1.83	$	26.89	75	$	26.89
	807	3.67	$	16.80	676	$	17.71

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, 2014, was $2.5 million for both options outstanding and options exercisable.

The weighted average remaining contractual term of options exercisable was 3.7 years as of December 31, 2014.

The total intrinsic value of options exercised was $3.1 million, $2.3 million, and $1.2 million, in the years ended December 31, 2014, 2013 and 2012, respectively.

During the years ended December 31, 2014, 2013 and 2012, the amount of cash received from the exercise of stock options was $4.6 million, $159,000, and $831,000 and total consideration was $3.1 million, $6.4 million, and $981,000, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. In 2014, there were stock options assumed in the Sterling merger, however, no additional stock options were granted. There were no stock options granted in 2013. The following weighted average assumptions were used to determine the fair value at the acquisition date of stock option grants assumed from the Sterling merger during the year ended December 31, 2014 and at grant date for stock option grants for the year ended December 31, 2012:



	2014			2013	2012
Dividend yield	3.25		%	n/a	3.90		%
Expected life (years)	6.8			n/a	7.4
Expected volatility	31		%	n/a	53		%
Risk-free rate	0.91		%	n/a	1.27		%
Weighted average fair value of options on date of grant	$	3.22		n/a	$	4.39

The above items for 2013 are n/a as no stock options were granted in 2013.

Restricted Shares

The Company grants restricted stock periodically for the benefit of employees and directors. Restricted shares issued prior to 2011 generally vest on an annual basis over five years. Restricted shares issued since 2011 generally vest over a three years period, subject to time or time plus performance vesting conditions. The following table summarizes information about nonvested restricted share activity for the year ended December 31:



(shares in thousands)	2014				2013				2012
			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	992		$	12.79	763		$	12.39	585		$	12.98
Granted	839		$	17.33	467		$	13.04	369		$	11.80
Vested/released	(399	)	$	12.42	(153	)	$	12.17	(147	)	$	13.50
Forfeited/expired	(46	)	$	12.99	(85	)	$	11.74	(44	)	$	11.52
Balance, end of period	1,386		$	15.39	992		$	12.79	763		$	12.39

The total fair value of restricted shares vested was $7.1 million, $2.0 million, and $1.9 million, for the years ended December 31, 2014, 2013 and 2012, respectively.

Restricted Stock Units

The Company granted 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. 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 shares outstanding at December 31:



(shares in thousands)	2014				2013				2012
			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	95		$	10.41	130		$	10.41	219		$	9.17
Assumed	994		$	18.58	—		$	—	25		$	10.39
Released	(342	)	$	16.91	—		$	—	—		$	—
Forfeited/expired	(72	)	$	18.58	(35	)	$	10.42	(114	)	$	8.01
Balance, end of period	675		$	18.03	95		$	10.41	130		$	10.41

The total fair value of restricted stock units vested and released was $4.8 million for the year ended December 31, 2014 and none for the years ended December 31, 2013 and 2012.

For the years ended December 31, 2014, 2013 and 2012, the Company received income tax benefits of $6.3 million, $1.7 million, and $1.2 million, respectively, related to the exercise of non-qualified employee stock options, disqualifying dispositions in the exercise of incentive stock options, the vesting of restricted shares and the vesting of restricted stock units.

For the years ended December 31, 2014, 2013 and 2012, the Company had a net tax benefit of $1.2 million and $148,000 and net tax deficiencies (tax deficiency resulting from tax deductions less than the compensation cost recognized) of $59,000, 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. In April 2013, the repurchase program was extended to run through June 2015. As of December 31, 2014, a total of 12.0 million shares remained available for repurchase. The Company did not repurchase any shares under the repurchase plan in 2014, and repurchased 98,027 shares under the repurchase plan in 2013, and 512,280 shares under the repurchase plan in 2012. 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, 2014 and 2013, there were 161,568 and 438,136 shares tendered in connection with option exercises, respectively. Restricted shares cancelled to pay withholding taxes totaled 107,131 and 48,514 shares during the years ended December 31, 2014 and 2013, respectively. There were 129,766 restricted stock units cancelled to pay withholding taxes for the years ended December 31, 2014 and none in 2013.