Shareholders' Equity and Stock Compensation

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, and are 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.

Stock-Based Compensation

The compensation cost related to stock options, restricted stock and restricted stock units (included in salaries and employee benefits) was $3.1 million and $10.7 million for the three and nine months ended September 30, 2015, as compared to $3.7 million and $8.8 million for the three and nine months ended September 30, 2014. The total income tax benefit recognized related to stock-based compensation was $1.2 million and $3.9 million for the three and nine months ended September 30, 2015, respectively, as compared to $1.4 million and $3.4 million for the three and nine months ended September 30, 2014, respectively.

The following table summarizes information about stock option activity for the nine months ended September 30, 2015:



(in thousands, except per share data)	Nine Months Ended September 30, 2015
					Weighted-Avg
	Options		Weighted-Avg		Remaining Contractual	Aggregate
	Outstanding		Exercise Price		Term (Years)	Intrinsic Value
Balance, beginning of period	807		$	16.80
Granted/Assumed	—		$	—
Exercised	(80	)	$	11.01
Forfeited/expired	(251	)	$	22.88
Balance, end of period	476		$	14.56	4.20	$	1,625
Options exercisable, end of period	437		$	14.78	3.91	$	1,458

The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of options exercised during the three and nine months ended September 30, 2015 was $47,000 and $512,000, as compared to the three and nine months ended September 30, 2014 of $241,000 and $3.1 million.

During the three and nine months ended September 30, 2015, the amount of cash received from the exercise of stock options was $16 and $195,000, respectively, as compared to the three and nine months ended September 30, 2014 of $239,000 and $4.5 million, respectively. Total consideration was $117,000 and $877,000 for the three and nine months ended September 30, 2015, respectively, as compared to the three and nine months ended September 30, 2014 of $483,000 and $6.7 million, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. There were no stock options granted in the nine months ended September 30, 2015. The following weighted average assumptions were used to determine the fair value of stock options grants as of grant date for the nine months ended September 30, 2014:




	Nine Months Ended
	September 30,
	2014
Dividend yield	3.25		%
Expected life (years)	6.79
Expected volatility	31		%
Risk-free rate	0.91		%
Weighted average fair value of options on date of grant	$	3.22

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 year period, subject to time or time plus performance vesting conditions. The following table summarizes information about nonvested restricted share activity for the nine months ended September 30, 2015:



(in thousands, except per share data)	Nine Months Ended September 30, 2015
	Restricted		Weighted
	Shares		Average Grant
	Outstanding		Date Fair Value
Balance, beginning of period	1,386		$	15.39
Granted/assumed	599		$	15.71
Released	(501	)	$	14.53
Forfeited	(125	)	$	15.17
Balance, end of period	1,359		$	16.14

The total fair value of restricted shares vested and released during the three and nine months ended September 30, 2015 was $1.6 million and $8.3 million, respectively, as compared to the three and nine months ended September 30, 2014 of $615,000 and $7.0 million, respectively.

The Company granted restricted stock units as a part of the 2007 Long Term Incentive Plan for the benefit of certain executive officers. In addition, the Company granted restricted stock units in connection with the acquisition of Sterling as replacement awards. Restricted stock unit grants may be subject to performance-based vesting as well as other approved vesting conditions. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the performance and service conditions set forth in the grant agreements.



(in thousands, except per share data)	Nine Months Ended September 30, 2015
	Restricted		Weighted
	Stock Units		Average Grant
	Outstanding		Date Fair Value
Balance, beginning of period	675		$	18.03
Granted/assumed	—		$	—
Released	(253	)	$	17.99
Forfeited	(143	)	$	18.48
Balance, end of period	279		$	18.58

The total fair value of restricted stock units vested and released during the three and nine months ended September 30, 2015 was $430,000 and $4.4 million as compared to the three and nine months ended September 30, 2014 of $363,000 and $6.0 million.

As of September 30, 2015, there was $135,000 of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of 1.71 years. As of September 30, 2015, there was $10.1 million of total unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-average period of 1.35 years. As of September 30, 2015, there was $4.6 million of total unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted-average period of 1.77 years, assuming expected performance conditions are met.

For the three and nine months ended September 30, 2015, the Company received income tax benefits of $700,000 and $5.1 million, respectively, as compared to the three and nine months ended September 30, 2014 of $469,000 and $6.2 million, respectively, related to the exercise of non-qualified employee stock options, disqualifying dispositions on the exercise of incentive stock options, the vesting of restricted shares and the vesting of restricted stock units. In the nine months ended September 30, 2015, the Company had net excess tax benefit (tax benefit resulting from tax deductions greater than the compensation cost recognized) of $544,000, as compared to $1.2 million of net excess tax benefit for the nine months ended September 30, 2014.