United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| for the quarterly period ended: | September 30, 20202021 |
| or |
| | | | | | | | |
☐ | 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: 001-34624
Umpqua Holdings Corporation
(Exact Name of Registrant as Specified in Its Charter)
| | | | | |
Oregon | 93-1261319 |
(State or Other Jurisdiction | (I.R.S. Employer Identification Number) |
of Incorporation or Organization) | |
One SW Columbia Street, Suite 1200
Portland, Oregon 9725897204
(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:
| | | | | | | | |
TITLE OF EACH CLASS | TRADING SYMBOL | NAME OF EXCHANGE |
Common Stock | UMPQ | The NASDAQ Global Select Market |
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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒ Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer
☐ Smaller reporting company ☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date:
Common stock, no par value: 220,225,383216,621,803 shares outstanding as of October 31, 20202021
UMPQUA HOLDINGS CORPORATION
FORM 10-Q
Table of Contents
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Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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GLOSSARY OF DEFINED TERMS |
ACL | | Allowance for credit losses |
ASU | | Accounting Standards Update |
ATM | | Automated teller machine |
Bank | | Umpqua Bank |
Basel III | | Basel capital framework (third accord) |
| | |
| | |
CECL | | Current Expected Credit Losses |
Columbia | | Columbia Banking System, Inc. |
Company | | Umpqua Holdings Corporation and its subsidiaries |
| | |
CVA | | Credit valuation adjustments |
DCF | | Discounted cash flow |
FASB | | Financial Accounting Standards Board |
FDIC | | Federal Deposit Insurance Corporation |
Federal Reserve | | Board of Governors of the Federal Reserve System |
FHLB | | Federal Home Loan Bank |
FinPac | | Financial Pacific Leasing, Inc. |
| | |
| | |
GAAP | | Generally accepted accounting principles |
GDP | | Gross Domestic Product |
GNMA | | Government National Mortgage Association |
HELOC | | Home equity line of credit |
LGD | | Loss given default |
LIBOR | | London Inter-Bank Offered Rate |
Merger | | Merger Sub will merge with and into Umpqua, with Umpqua surviving |
Merger Agreement | | Agreement dated as of October 11, 2021, by and among Umpqua, Columbia, and Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia |
Merger Sub | | Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia |
MSR | | Mortgage servicing rights |
NOL | | Net operating loss |
N/M | | Not meaningful |
PD | | Probability of default |
PPP | | Paycheck Protection Program |
SBA | | Small Business Administration |
SEC | | Securities and Exchange Commission |
Surviving Entity | | Merger Sub will merge with and into Umpqua, with Umpqua surviving the Merger |
TDR | | Troubled debt restructuring |
USDA | | United States Department of Agriculture |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | |
(in thousands, except shares) | September 30, 2020 | | December 31, 2019 |
ASSETS | | | |
Cash and due from banks (restricted cash of $103,482 and $86,507) | $ | 370,595 | | | $ | 382,598 | |
Interest bearing cash and temporary investments (restricted cash of $1,359 and $590) | 1,849,132 | | | 980,158 | |
Total cash and cash equivalents | 2,219,727 | | | 1,362,756 | |
Investment securities | | | |
Equity and other, at fair value | 82,769 | | | 80,165 | |
Available for sale, at fair value | 2,898,700 | | | 2,814,682 | |
Held to maturity, at amortized cost | 3,088 | | | 3,260 | |
Loans held for sale, at fair value | 683,960 | | | 513,431 | |
Loans and leases | 22,426,473 | | | 21,195,684 | |
Allowance for credit losses on loans and leases | (345,049) | | | (157,629) | |
Net loans and leases | 22,081,424 | | | 21,038,055 | |
Restricted equity securities | 50,062 | | | 46,463 | |
Premises and equipment, net | 185,104 | | | 201,460 | |
Operating lease right-of-use assets | 107,321 | | | 110,718 | |
Goodwill | 2,715 | | | 1,787,651 | |
Other intangible assets, net | 14,606 | | | 18,346 | |
Residential mortgage servicing rights, at fair value | 93,248 | | | 115,010 | |
Bank owned life insurance | 326,120 | | | 320,611 | |
| | | |
Other assets | 688,597 | | | 434,201 | |
Total assets | $ | 29,437,441 | | | $ | 28,846,809 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Deposits | | | |
Noninterest bearing | $ | 9,475,244 | | | $ | 6,913,375 | |
Interest bearing | 15,194,539 | | | 15,568,129 | |
Total deposits | 24,669,783 | | | 22,481,504 | |
Securities sold under agreements to repurchase | 388,028 | | | 311,308 | |
Borrowings | 996,520 | | | 906,635 | |
Junior subordinated debentures, at fair value | 247,045 | | | 274,812 | |
Junior subordinated debentures, at amortized cost | 88,325 | | | 88,496 | |
Operating lease liabilities | 115,790 | | | 119,429 | |
Deferred tax liability, net | 13,239 | | | 52,928 | |
Other liabilities | 308,467 | | | 297,782 | |
Total liabilities | 26,827,197 | | | 24,532,894 | |
COMMITMENTS AND CONTINGENCIES (NOTE 6) | | | |
SHAREHOLDERS' EQUITY | | | |
Common stock, 0 par value, shares authorized: 400,000,000 in 2020 and 2019; issued and outstanding: 220,222,198 in 2020 and 220,229,282 in 2019 | 3,512,153 | | | 3,514,000 | |
(Accumulated deficit) retained earnings | (1,036,931) | | | 770,366 | |
Accumulated other comprehensive income | 135,022 | | | 29,549 | |
Total shareholders' equity | 2,610,244 | | | 4,313,915 | |
Total liabilities and shareholders' equity | $ | 29,437,441 | | | $ | 28,846,809 | |
| | | | | | | | | | | |
(in thousands, except shares) | September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Cash and due from banks (restricted cash of $89,006 and $92,955) | $ | 395,555 | | | $ | 370,219 | |
Interest bearing cash and temporary investments (restricted cash of $357 and $2,574) | 3,349,034 | | | 2,202,962 | |
Total cash and cash equivalents | 3,744,589 | | | 2,573,181 | |
Investment securities | | | |
Equity and other, at fair value | 81,575 | | | 83,077 | |
Available for sale, at fair value | 3,723,171 | | | 2,932,558 | |
Held to maturity, at amortized cost | 2,795 | | | 3,034 | |
Loans held for sale (at fair value: $352,466 and $688,079) | 352,466 | | | 766,225 | |
Loans and leases (at fair value: $353,912 and $0) | 21,969,940 | | | 21,779,367 | |
Allowance for credit losses on loans and leases | (257,560) | | | (328,401) | |
Net loans and leases | 21,712,380 | | | 21,450,966 | |
Restricted equity securities | 10,946 | | | 41,666 | |
Premises and equipment, net | 172,624 | | | 178,050 | |
Operating lease right-of-use assets | 88,379 | | | 104,937 | |
Goodwill | — | | | 2,715 | |
Other intangible assets, net | 9,970 | | | 13,360 | |
Residential mortgage servicing rights, at fair value | 105,834 | | | 92,907 | |
Bank owned life insurance | 325,646 | | | 323,470 | |
Deferred tax asset, net | 8,402 | | | — | |
Other assets | 552,702 | | | 669,029 | |
Total assets | $ | 30,891,479 | | | $ | 29,235,175 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Deposits | | | |
Non-interest bearing | $ | 11,121,127 | | | $ | 9,632,773 | |
Interest bearing | 15,787,270 | | | 14,989,428 | |
Total deposits | 26,908,397 | | | 24,622,201 | |
Securities sold under agreements to repurchase | 467,760 | | | 375,384 | |
Borrowings | 6,367 | | | 771,482 | |
Junior subordinated debentures, at fair value | 299,508 | | | 255,217 | |
Junior subordinated debentures, at amortized cost | 88,098 | | | 88,268 | |
Operating lease liabilities | 100,557 | | | 113,593 | |
Deferred tax liability, net | — | | | 5,441 | |
Other liabilities | 298,413 | | | 299,012 | |
Total liabilities | 28,169,100 | | | 26,530,598 | |
COMMITMENTS AND CONTINGENCIES (NOTE 6) | 0 | | 0 |
SHAREHOLDERS' EQUITY | | | |
Common stock, no par value, shares authorized: 400,000,000 in 2021 and 2020; issued and outstanding: 216,621,803 in 2021 and 220,226,335 in 2020 | 3,442,085 | | | 3,514,599 | |
Accumulated deficit | (739,915) | | | (932,767) | |
Accumulated other comprehensive income | 20,209 | | | 122,745 | |
Total shareholders' equity | 2,722,379 | | | 2,704,577 | |
Total liabilities and shareholders' equity | $ | 30,891,479 | | | $ | 29,235,175 | |
See notes to condensed consolidated financial statements
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands, except per share amounts) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
INTEREST INCOME | | | | | | | |
Interest and fees on loans and leases | $ | 229,457 | | | $ | 266,111 | | | $ | 710,624 | | | $ | 788,968 | |
Interest and dividends on investment securities: | | | | | | | |
Taxable | 10,168 | | | 12,546 | | | 35,788 | | | 42,789 | |
Exempt from federal income tax | 1,490 | | | 1,727 | | | 4,572 | | | 5,762 | |
Dividends | 710 | | | 599 | | | 1,956 | | | 1,690 | |
Interest on temporary investments and interest bearing deposits | 474 | | | 4,204 | | | 4,208 | | | 9,837 | |
Total interest income | 242,299 | | | 285,187 | | | 757,148 | | | 849,046 | |
INTEREST EXPENSE | | | | | | | |
Interest on deposits | 19,121 | | | 45,876 | | | 85,633 | | | 123,561 | |
Interest on securities sold under agreement to repurchase and federal funds purchased | 84 | | | 448 | | | 673 | | | 1,661 | |
Interest on borrowings | 3,271 | | | 4,238 | | | 11,156 | | | 12,484 | |
Interest on junior subordinated debentures | 3,249 | | | 5,652 | | | 12,074 | | | 17,520 | |
Total interest expense | 25,725 | | | 56,214 | | | 109,536 | | | 155,226 | |
Net interest income | 216,574 | | | 228,973 | | | 647,612 | | | 693,820 | |
(RECAPTURE) PROVISION FOR CREDIT LOSSES | (338) | | | 23,227 | | | 204,832 | | | 56,263 | |
Net interest income after provision for credit losses | 216,912 | | | 205,746 | | | 442,780 | | | 637,557 | |
NON-INTEREST INCOME | | | | | | | |
Service charges on deposits | 14,438 | | | 16,627 | | | 41,907 | | | 47,858 | |
Brokerage revenue | 3,686 | | | 4,060 | | | 11,506 | | | 11,850 | |
Residential mortgage banking revenue, net | 90,377 | | | 47,000 | | | 191,794 | | | 67,760 | |
Gain (loss) on sale of debt securities, net | 0 | | | 0 | | | 190 | | | (7,186) | |
(Loss) gain on equity securities, net | (112) | | | 257 | | | 942 | | | 83,559 | |
Gain on loan and lease sales, net | 1,092 | | | 1,762 | | | 3,333 | | | 5,864 | |
BOLI income | 2,087 | | | 2,067 | | | 6,332 | | | 6,328 | |
Other income | 20,356 | | | 16,739 | | | 32,045 | | | 40,042 | |
Total non-interest income | 131,924 | | | 88,512 | | | 288,049 | | | 256,075 | |
NON-INTEREST EXPENSE | | | | | | | |
Salaries and employee benefits | 120,337 | | | 106,819 | | | 346,787 | | | 311,526 | |
Occupancy and equipment, net | 36,720 | | | 35,446 | | | 109,892 | | | 107,723 | |
Communications | 2,943 | | | 3,617 | | | 9,010 | | | 11,743 | |
Marketing | 1,859 | | | 3,804 | | | 6,148 | | | 10,842 | |
Services | 13,193 | | | 15,326 | | | 34,319 | | | 40,763 | |
FDIC assessments | 2,989 | | | 2,587 | | | 9,502 | | | 8,366 | |
Intangible amortization | 1,247 | | | 1,405 | | | 3,740 | | | 4,214 | |
| | | | | | | |
Goodwill impairment | 0 | | | 0 | | | 1,784,936 | | | 0 | |
Other expenses | 10,919 | | | 14,586 | | | 30,441 | | | 40,420 | |
Total non-interest expense | 190,207 | | | 183,590 | | | 2,334,775 | | | 535,597 | |
Income (loss) before provision for income taxes | 158,629 | | | 110,668 | | | (1,603,946) | | | 358,035 | |
Provision for income taxes | 33,758 | | | 26,166 | | | 70,204 | | | 87,690 | |
Net income (loss) | $ | 124,871 | | | $ | 84,502 | | | $ | (1,674,150) | | | $ | 270,345 | |
Earnings (loss) per common share: | | | | | | | |
Basic | $0.57 | | | $0.38 | | | ($7.60) | | | $1.23 | |
Diluted | $0.57 | | | $0.38 | | | ($7.60) | | | $1.23 | |
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 220,221 | | | 220,285 | | | 220,216 | | | 220,379 | |
Diluted | 220,418 | | | 220,583 | | | 220,216 | | | 220,642 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands, except per share amounts) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
INTEREST INCOME | | | | | | | |
Interest and fees on loans and leases | $ | 224,403 | | | $ | 229,457 | | | $ | 669,014 | | | $ | 710,624 | |
Interest and dividends on investment securities: | | | | | | | |
Taxable | 16,102 | | | 10,168 | | | 43,833 | | | 35,788 | |
Exempt from federal income tax | 1,470 | | | 1,490 | | | 4,491 | | | 4,572 | |
Dividends | 213 | | | 710 | | | 1,216 | | | 1,956 | |
Interest on temporary investments and interest bearing deposits | 1,237 | | | 474 | | | 2,635 | | | 4,208 | |
Total interest income | 243,425 | | | 242,299 | | | 721,189 | | | 757,148 | |
INTEREST EXPENSE | | | | | | | |
Interest on deposits | 5,100 | | | 19,121 | | | 22,794 | | | 85,633 | |
Interest on securities sold under agreement to repurchase and federal funds purchased | 88 | | | 84 | | | 232 | | | 673 | |
Interest on borrowings | 149 | | | 3,271 | | | 2,787 | | | 11,156 | |
Interest on junior subordinated debentures | 3,014 | | | 3,249 | | | 9,108 | | | 12,074 | |
Total interest expense | 8,351 | | | 25,725 | | | 34,921 | | | 109,536 | |
Net interest income | 235,074 | | | 216,574 | | | 686,268 | | | 647,612 | |
(RECAPTURE) PROVISION FOR CREDIT LOSSES | (18,919) | | | (338) | | | (41,915) | | | 204,832 | |
Net interest income after (recapture) provision for credit losses | 253,993 | | | 216,912 | | | 728,183 | | | 442,780 | |
NON-INTEREST INCOME | | | | | | | |
Service charges on deposits | 10,941 | | | 10,405 | | | 30,898 | | | 30,635 | |
Card-based fees | 9,111 | | | 7,118 | | | 26,759 | | | 20,436 | |
Brokerage revenue | 31 | | | 3,686 | | | 5,081 | | | 11,506 | |
Residential mortgage banking revenue, net | 34,150 | | | 90,377 | | | 143,626 | | | 191,794 | |
Gain on sale of debt securities, net | — | | | — | | | 4 | | | 190 | |
(Loss) gain on equity securities, net | (343) | | | (112) | | | (1,045) | | | 942 | |
Gain on loan and lease sales, net | 4,208 | | | 1,092 | | | 10,899 | | | 3,333 | |
Bank owned life insurance income | 2,038 | | | 2,087 | | | 6,201 | | | 6,332 | |
Other income | 13,569 | | | 17,271 | | | 51,157 | | | 22,881 | |
Total non-interest income | 73,705 | | | 131,924 | | | 273,580 | | | 288,049 | |
NON-INTEREST EXPENSE | | | | | | | |
Salaries and employee benefits | 117,636 | | | 120,337 | | | 363,343 | | | 346,787 | |
Occupancy and equipment, net | 33,944 | | | 36,720 | | | 103,236 | | | 109,892 | |
Communications | 2,866 | | | 2,943 | | | 8,633 | | | 9,010 | |
Marketing | 1,651 | | | 1,859 | | | 5,077 | | | 6,148 | |
Services | 12,017 | | | 13,193 | | | 36,279 | | | 34,319 | |
FDIC assessments | 2,136 | | | 2,989 | | | 6,342 | | | 9,502 | |
Intangible amortization | 1,130 | | | 1,247 | | | 3,390 | | | 3,740 | |
| | | | | | | |
Goodwill impairment | — | | | — | | | — | | | 1,784,936 | |
Other expenses | 12,373 | | | 10,919 | | | 34,445 | | | 30,441 | |
Total non-interest expense | 183,753 | | | 190,207 | | | 560,745 | | | 2,334,775 | |
Income (loss) before provision for income taxes | 143,945 | | | 158,629 | | | 441,018 | | | (1,603,946) | |
Provision for income taxes | 35,879 | | | 33,758 | | | 109,072 | | | 70,204 | |
Net income (loss) | $ | 108,066 | | | $ | 124,871 | | | $ | 331,946 | | | $ | (1,674,150) | |
Earnings (loss) per common share: | | | | | | | |
Basic | $0.49 | | | $0.57 | | | $1.51 | | | ($7.60) | |
Diluted | $0.49 | | | $0.57 | | | $1.51 | | | ($7.60) | |
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 218,416 | | | 220,221 | | | 219,791 | | | 220,216 | |
Diluted | 218,978 | | | 220,418 | | | 220,278 | | | 220,216 | |
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Net income (loss) | $ | 124,871 | | | $ | 84,502 | | | $ | (1,674,150) | | | $ | 270,345 | |
Available for sale securities: | | | | | | | |
Unrealized gains arising during the period | 2,996 | | | 26,352 | | | 115,327 | | | 100,381 | |
Income tax expense related to unrealized gains | (771) | | | (6,778) | | | (29,663) | | | (25,819) | |
| | | | | | | |
Reclassification adjustment for net realized (gains) losses in earnings | 0 | | | 0 | | | (190) | | | 7,186 | |
Income tax expense (benefit) related to realized losses | 0 | | | 0 | | | 49 | | | (1,848) | |
Net change in unrealized gains for available for sale securities | 2,225 | | | 19,574 | | | 85,523 | | | 79,900 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Junior subordinated debentures, at fair value: | | | | | | | |
Unrealized (losses) gains arising during the period | (14,555) | | | 8,450 | | | 26,857 | | | 32,254 | |
Income tax benefit (expense) related to unrealized gains | 3,744 | | | (2,173) | | | (6,907) | | | (8,276) | |
Net change in unrealized (losses) gains for junior subordinated debentures, at fair value | (10,811) | | | 6,277 | | | 19,950 | | | 23,978 | |
Other comprehensive (loss) income, net of tax | (8,586) | | | 25,851 | | | 105,473 | | | 103,878 | |
Comprehensive income (loss) | $ | 116,285 | | | $ | 110,353 | | | $ | (1,568,677) | | | $ | 374,223 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Net income (loss) | $ | 108,066 | | | $ | 124,871 | | | $ | 331,946 | | | $ | (1,674,150) | |
Available for sale securities: | | | | | | | |
Unrealized (losses) gains arising during the period | (29,009) | | | 2,996 | | | (93,533) | | | 115,327 | |
Income tax benefit (expense) related to unrealized (losses) gains | 7,463 | | | (771) | | | 24,058 | | | (29,663) | |
| | | | | | | |
Reclassification adjustment for net realized gains in earnings | — | | | — | | | (4) | | | (190) | |
Income tax expense related to realized gains | — | | | — | | | 1 | | | 49 | |
Net change in unrealized (losses) gains for available for sale securities | (21,546) | | | 2,225 | | | (69,478) | | | 85,523 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Junior subordinated debentures, at fair value: | | | | | | | |
Unrealized (losses) gains arising during the period | (11,946) | | | (14,555) | | | (44,504) | | | 26,857 | |
Income tax benefit (expense) related to unrealized gains | 3,072 | | | 3,744 | | | 11,446 | | | (6,907) | |
Net change in unrealized (losses) gains for junior subordinated debentures, at fair value | (8,874) | | | (10,811) | | | (33,058) | | | 19,950 | |
Other comprehensive (loss) income, net of tax | (30,420) | | | (8,586) | | | (102,536) | | | 105,473 | |
Comprehensive income (loss) | $ | 77,646 | | | $ | 116,285 | | | $ | 229,410 | | | $ | (1,568,677) | |
See notes to condensed consolidated financial statements
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
(in thousands, except shares) | Shares | | Amount | | | | Total |
Balance at January 1, 2019 | 220,255,039 | | | $ | 3,512,874 | | | $ | 602,482 | | | $ | (58,914) | | | $ | 4,056,442 | |
Net income | | | | | 74,033 | | | | | 74,033 | |
Other comprehensive income, net of tax | | | | | | | 29,632 | | | 29,632 | |
Stock-based compensation | | | 754 | | | | | | | 754 | |
Stock repurchased and retired | (108,088) | | | (1,918) | | | | | | | (1,918) | |
Issuances of common stock under stock plans | 310,257 | | | 21 | | | | | | | 21 | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,394) | | | | | (46,394) | |
Cumulative effect adjustment (1) | | | | | (244) | | | | | (244) | |
Balance at March 31, 2019 | 220,457,208 | | | $ | 3,511,731 | | | $ | 629,877 | | | $ | (29,282) | | | $ | 4,112,326 | |
Net income | | | | | 111,810 | | | | | 111,810 | |
Other comprehensive income, net of tax | | | | | | | 48,395 | | | 48,395 | |
Stock-based compensation | | | 2,722 | | | | | | | 2,722 | |
Stock repurchased and retired | (4,113) | | | (62) | | | | | | | (62) | |
Issuances of common stock under stock plans | 45,589 | | | 0 | | | | | | | 0 | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,684) | | | | | (46,684) | |
Balance at June 30, 2019 | 220,498,684 | | | $ | 3,514,391 | | | $ | 695,003 | | | $ | 19,113 | | | $ | 4,228,507 | |
Net income | | | | | 84,502 | | | | | 84,502 | |
Other comprehensive income, net of tax | | | | | | | 25,851 | | | 25,851 | |
Stock-based compensation | | | 2,350 | | | | | | | 2,350 | |
Stock repurchased and retired | (300,719) | | | (5,248) | | | | | | | (5,248) | |
Issuances of common stock under stock plans | 14,169 | | | 0 | | | | | | | 0 | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,446) | | | | | (46,446) | |
Balance at September 30, 2019 | 220,212,134 | | | $ | 3,511,493 | | | $ | 733,059 | | | $ | 44,964 | | | $ | 4,289,516 | |
Net income | | | | | 83,750 | | | | | 83,750 | |
Other comprehensive loss, net of tax | | | | | | | (15,415) | | | (15,415) | |
Stock-based compensation | | | 2,547 | | | | | | | 2,547 | |
Stock repurchased and retired | (2,483) | | | (40) | | | | | | | (40) | |
Issuances of common stock under stock plans | 19,631 | | | 0 | | | | | | | 0 | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,443) | | | | | (46,443) | |
Balance at December 31, 2019 | 220,229,282 | | | $ | 3,514,000 | | | $ | 770,366 | | | $ | 29,549 | | | $ | 4,313,915 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income | | |
(in thousands, except shares) | Shares | | Amount | | | | Total |
Balance at January 1, 2020 | 220,229,282 | | | $ | 3,514,000 | | | $ | 770,366 | | | $ | 29,549 | | | $ | 4,313,915 | |
Net loss | | | | | (1,851,947) | | | | | (1,851,947) | |
Other comprehensive income, net of tax | | | | | | | 138,722 | | | 138,722 | |
Stock-based compensation | | | 2,253 | | | | | | | 2,253 | |
Stock repurchased and retired | (486,757) | | | (8,573) | | | | | | | (8,573) | |
Issuances of common stock under stock plans | 432,595 | | | — | | | | | | | — | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,578) | | | | | (46,578) | |
Cumulative effect adjustment (1) | | | | | (40,181) | | | | | (40,181) | |
Balance at March 31, 2020 | 220,175,120 | | | $ | 3,507,680 | | | $ | (1,168,340) | | | $ | 168,271 | | | $ | 2,507,611 | |
Net income | | | | | 52,926 | | | | | 52,926 | |
Other comprehensive loss, net of tax | | | | | | | (24,663) | | | (24,663) | |
Stock-based compensation | | | 2,503 | | | | | | | 2,503 | |
Stock repurchased and retired | (3,707) | | | (38) | | | | | | | (38) | |
Issuances of common stock under stock plans | 47,694 | | | — | | | | | | | — | |
| | | | | | | | | |
Balance at June 30, 2020 | 220,219,107 | | | $ | 3,510,145 | | | $ | (1,115,414) | | | $ | 143,608 | | | $ | 2,538,339 | |
Net income | | | | | 124,871 | | | | | 124,871 | |
Other comprehensive loss, net of tax | | | | | | | (8,586) | | | (8,586) | |
Stock-based compensation | | | 2,025 | | | | | | | 2,025 | |
Stock repurchased and retired | (1,523) | | | (17) | | | | | | | (17) | |
Issuances of common stock under stock plans | 4,614 | | | — | | | | | | | — | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,388) | | | | | (46,388) | |
Balance at September 30, 2020 | 220,222,198 | | | $ | 3,512,153 | | | $ | (1,036,931) | | | $ | 135,022 | | | $ | 2,610,244 | |
Net income | | | | | 150,730 | | | | | 150,730 | |
Other comprehensive loss, net of tax | | | | | | | (12,277) | | | (12,277) | |
Stock-based compensation | | | 2,473 | | | | | | | 2,473 | |
Stock repurchased and retired | (2,022) | | | (27) | | | | | | | (27) | |
Issuances of common stock under stock plans | 6,159 | | | — | | | | | | | — | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,566) | | | | | (46,566) | |
Balance at December 31, 2020 | 220,226,335 | | | $ | 3,514,599 | | | $ | (932,767) | | | $ | 122,745 | | | $ | 2,704,577 | |
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
(UNAUDITED)
| | | Common Stock | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | | | Common Stock | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | |
(in thousands, except shares) | (in thousands, except shares) | Shares | | Amount | | Total | (in thousands, except shares) | Shares | | Amount | | Total |
Balance at January 1, 2020 | 220,229,282 | | | $ | 3,514,000 | | | $ | 770,366 | | | $ | 29,549 | | | $ | 4,313,915 | | |
Net loss | | | | | (1,851,947) | | | | | (1,851,947) | | |
Other comprehensive income, net of tax | | | | | | | 138,722 | | | 138,722 | | |
Stock-based compensation | | | 2,253 | | | | | | | 2,253 | | |
Stock repurchased and retired | (486,757) | | | (8,573) | | | | | | | (8,573) | | |
Issuances of common stock under stock plans | 432,595 | | | 0 | | | | | | | 0 | | |
Cash dividends on common stock ($0.21 per share) | | | | | (46,578) | | | | | (46,578) | | |
Cumulative effect adjustment (2) | | (40,181) | | | (40,181) | | |
Balance at March 31, 2020 | 220,175,120 | | | $ | 3,507,680 | | | $ | (1,168,340) | | | $ | 168,271 | | | $ | 2,507,611 | | |
Net income | | | | | 52,926 | | | | | 52,926 | | |
Other comprehensive loss, net of tax | | | | | | | (24,663) | | | (24,663) | | |
Stock-based compensation | | | 2,503 | | | | | | | 2,503 | | |
Stock repurchased and retired | (3,707) | | | (38) | | | | | | | (38) | | |
Issuances of common stock under stock plans | 47,694 | | | 0 | | | | | | | 0 | | |
| Balance at June 30, 2020 | 220,219,107 | | | $ | 3,510,145 | | | $ | (1,115,414) | | | $ | 143,608 | | | $ | 2,538,339 | | |
Balance at January 1, 2021 | | Balance at January 1, 2021 | 220,226,335 | | | $ | 3,514,599 | | | $ | (932,767) | | | $ | 122,745 | | | $ | 2,704,577 | |
Net income | Net income | | | | | 124,871 | | | | | 124,871 | | Net income | | | | | 107,737 | | | | | 107,737 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | | | | | | (8,586) | | | (8,586) | | Other comprehensive loss, net of tax | | | | | | | (84,613) | | | (84,613) | |
Stock-based compensation | Stock-based compensation | | | 2,025 | | | | | | | 2,025 | | Stock-based compensation | | | 2,964 | | | | | | | 2,964 | |
Stock repurchased and retired | Stock repurchased and retired | (1,523) | | | (17) | | | | | | | (17) | | Stock repurchased and retired | (143,832) | | | (2,315) | | | | | | | (2,315) | |
Issuances of common stock under stock plans | Issuances of common stock under stock plans | 4,614 | | | 0 | | | | | | | 0 | | Issuances of common stock under stock plans | 408,700 | | | — | | | | | | | — | |
Cash dividends on common stock ($0.21 per share) | Cash dividends on common stock ($0.21 per share) | | | | | (46,388) | | | | | (46,388) | | Cash dividends on common stock ($0.21 per share) | | | | | (46,481) | | | | | (46,481) | |
Balance at September 30, 2020 | 220,222,198 | | | $ | 3,512,153 | | | $ | (1,036,931) | | | $ | 135,022 | | | $ | 2,610,244 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 220,491,203 | | | $ | 3,515,248 | | | $ | (871,511) | | | $ | 38,132 | | | $ | 2,681,869 | |
Net income | | Net income | | | | | 116,143 | | | | | 116,143 | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | | | | | | 12,497 | | | 12,497 | |
Stock-based compensation | | Stock-based compensation | | | 2,377 | | | | | | | 2,377 | |
Stock repurchased and retired | | Stock repurchased and retired | (957) | | | (18) | | | | | | | (18) | |
Issuances of common stock under stock plans | | Issuances of common stock under stock plans | 136,206 | | | 34 | | | | | | | 34 | |
Cash dividends on common stock ($0.21 per share) | | Cash dividends on common stock ($0.21 per share) | | | | | (46,586) | | | | | (46,586) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | 220,626,452 | | | $ | 3,517,641 | | | $ | (801,954) | | | $ | 50,629 | | | $ | 2,766,316 | |
Net income | | Net income | | | | | 108,066 | | | | | 108,066 | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | | | | | | (30,420) | | | (30,420) | |
Stock-based compensation | | Stock-based compensation | | | 2,765 | | | | | | | 2,765 | |
Stock repurchased and retired | | Stock repurchased and retired | (4,011,808) | | | (78,321) | | | | | | | (78,321) | |
Issuances of common stock under stock plans | | Issuances of common stock under stock plans | 7,159 | | | — | | | | | | | — | |
Cash dividends on common stock ($0.21 per share) | | Cash dividends on common stock ($0.21 per share) | | | | | (46,027) | | | | | (46,027) | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | 216,621,803 | | | $ | 3,442,085 | | | $ | (739,915) | | | $ | 20,209 | | | $ | 2,722,379 | |
(1) The cumulative effect adjustment relates to the implementation of new accounting guidance for leases on January 1, 2019.
(2) The cumulative effect adjustment relates to the implementation of new accounting guidance for the allowance for credit losses on January 1, 2020. Refer to Note 1 for discussion of the new accounting guidance.
See notes to condensed consolidated financial statements
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Nine Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | September 30, 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net (loss) income | $ | (1,674,150) | | | $ | 270,345 | | |
Net income (loss) | | Net income (loss) | $ | 331,946 | | | $ | (1,674,150) | |
Adjustments to reconcile net income to net cash used in operating activities: | Adjustments to reconcile net income to net cash used in operating activities: | | | | Adjustments to reconcile net income to net cash used in operating activities: | | | |
Goodwill impairment | Goodwill impairment | 1,784,936 | | | 0 | | Goodwill impairment | — | | | 1,784,936 | |
Amortization of investment premiums, net | Amortization of investment premiums, net | 20,911 | | | 19,592 | | Amortization of investment premiums, net | 10,934 | | | 20,911 | |
(Gain) loss on sale of investment securities, net | (190) | | | 7,186 | | |
Gain on sale of investment securities, net | | Gain on sale of investment securities, net | (4) | | | (190) | |
| Provision for credit losses | 204,832 | | | 56,263 | | |
(Recapture) provision for credit losses | | (Recapture) provision for credit losses | (41,915) | | | 204,832 | |
Change in cash surrender value of bank owned life insurance | Change in cash surrender value of bank owned life insurance | (6,433) | | | (6,365) | | Change in cash surrender value of bank owned life insurance | (6,302) | | | (6,433) | |
Depreciation, amortization and accretion | Depreciation, amortization and accretion | 28,494 | | | 33,126 | | Depreciation, amortization and accretion | 23,492 | | | 28,494 | |
Gain on sale of premises and equipment | (369) | | | (1,568) | | |
Loss (gain) on sale of premises and equipment | | Loss (gain) on sale of premises and equipment | 436 | | | (369) | |
Gain on store divestiture | Gain on store divestiture | (5,945) | | | (1,225) | | Gain on store divestiture | — | | | (5,945) | |
Additions to residential mortgage servicing rights carried at fair value | Additions to residential mortgage servicing rights carried at fair value | (37,484) | | | (16,772) | | Additions to residential mortgage servicing rights carried at fair value | (30,845) | | | (37,484) | |
Change in fair value of residential mortgage servicing rights carried at fair value | Change in fair value of residential mortgage servicing rights carried at fair value | 59,246 | | | 34,414 | | Change in fair value of residential mortgage servicing rights carried at fair value | 17,918 | | | 59,246 | |
| Stock-based compensation | Stock-based compensation | 6,781 | | | 5,826 | | Stock-based compensation | 8,106 | | | 6,781 | |
Net increase in equity and other investments | (1,662) | | | (1,217) | | |
Gain on equity securities, net | (942) | | | (83,559) | | |
Net decrease (increase) in equity and other investments | | Net decrease (increase) in equity and other investments | 457 | | | (1,662) | |
Loss (gain) on equity securities, net | | Loss (gain) on equity securities, net | 1,045 | | | (942) | |
Gain on sale of loans and leases, net | Gain on sale of loans and leases, net | (212,353) | | | (65,707) | | Gain on sale of loans and leases, net | (124,764) | | | (212,353) | |
Change in fair value of loans held for sale | Change in fair value of loans held for sale | (16,519) | | | (5,758) | | Change in fair value of loans held for sale | 21,727 | | | (16,519) | |
Origination of loans held for sale | Origination of loans held for sale | (4,897,068) | | | (2,029,682) | | Origination of loans held for sale | (3,875,836) | | | (4,897,068) | |
Proceeds from sales of loans held for sale | Proceeds from sales of loans held for sale | 4,958,265 | | | 1,906,722 | | Proceeds from sales of loans held for sale | 4,065,846 | | | 4,958,265 | |
Change in other assets and liabilities: | Change in other assets and liabilities: | | | | Change in other assets and liabilities: | | | |
Net increase in other assets | (231,781) | | | (179,316) | | |
Net decrease (increase) in other assets | | Net decrease (increase) in other assets | 161,119 | | | (232,499) | |
Net decrease in other liabilities | Net decrease in other liabilities | (59,519) | | | (20,180) | | Net decrease in other liabilities | (21,816) | | | (59,519) | |
Net cash used in operating activities | (80,950) | | | (77,875) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 541,544 | | | (81,668) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of investment securities available for sale | Purchases of investment securities available for sale | (595,396) | | | (563,606) | | Purchases of investment securities available for sale | (1,473,840) | | | (595,396) | |
| Proceeds from investment securities available for sale | Proceeds from investment securities available for sale | 604,553 | | | 778,259 | | Proceeds from investment securities available for sale | 578,240 | | | 604,553 | |
Proceeds from investment securities held to maturity | 319 | | | 432 | | |
Proceeds from sale of equity securities | 0 | | | 81,853 | | |
| Purchases of restricted equity securities | Purchases of restricted equity securities | (20,001) | | | (220,200) | | Purchases of restricted equity securities | (34) | | | (20,001) | |
Redemption of restricted equity securities | Redemption of restricted equity securities | 16,402 | | | 206,005 | | Redemption of restricted equity securities | 30,754 | | | 16,402 | |
Net change in loans and leases | Net change in loans and leases | (1,343,715) | | | (1,229,379) | | Net change in loans and leases | (85,539) | | | (1,343,715) | |
Proceeds from sales of loans and leases | Proceeds from sales of loans and leases | 60,777 | | | 88,776 | | Proceeds from sales of loans and leases | 182,605 | | | 60,777 | |
Change in premises and equipment | Change in premises and equipment | (11,526) | | | (8,230) | | Change in premises and equipment | (13,121) | | | (11,526) | |
Proceeds from bank owned life insurance death benefits | Proceeds from bank owned life insurance death benefits | 57 | | | 1,869 | | Proceeds from bank owned life insurance death benefits | 3,401 | | | 57 | |
| | Net cash received from sale of Umpqua Investments, Inc. | | Net cash received from sale of Umpqua Investments, Inc. | 10,781 | | | — | |
Net cash paid in store divestiture | Net cash paid in store divestiture | (81,172) | | | (44,646) | | Net cash paid in store divestiture | — | | | (81,172) | |
| Other | | Other | 1,879 | | | 1,037 | |
Net cash used in investing activities | Net cash used in investing activities | $ | (1,369,702) | | | $ | (908,867) | | Net cash used in investing activities | $ | (764,874) | | | $ | (1,368,984) | |
|
| | | UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED) | UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED) | UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED) |
| | Nine Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | September 30, 2020 |
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Net increase in deposit liabilities | Net increase in deposit liabilities | $ | 2,288,262 | | | $ | 1,347,046 | | Net increase in deposit liabilities | $ | 2,286,225 | | | $ | 2,288,262 | |
Net increase in securities sold under agreements to repurchase | Net increase in securities sold under agreements to repurchase | 76,720 | | | (434) | | Net increase in securities sold under agreements to repurchase | 92,376 | | | 76,720 | |
Proceeds from borrowings | Proceeds from borrowings | 600,000 | | | 810,670 | | Proceeds from borrowings | — | | | 600,000 | |
Repayment of borrowings | Repayment of borrowings | (510,000) | | | (455,670) | | Repayment of borrowings | (765,000) | | | (510,000) | |
| Net proceeds from issuance of common stock | | Net proceeds from issuance of common stock | 34 | | | — | |
Dividends paid on common stock | Dividends paid on common stock | (138,731) | | | (138,856) | | Dividends paid on common stock | (138,243) | | | (138,731) | |
Proceeds from stock options exercised | 0 | | | 21 | | |
| Repurchase and retirement of common stock | Repurchase and retirement of common stock | (8,628) | | | (7,228) | | Repurchase and retirement of common stock | (80,654) | | | (8,628) | |
Net cash provided by financing activities | Net cash provided by financing activities | 2,307,623 | | | 1,555,549 | | Net cash provided by financing activities | 1,394,738 | | | 2,307,623 | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 856,971 | | | 568,807 | | Net increase in cash and cash equivalents | 1,171,408 | | | 856,971 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 1,362,756 | | | 622,637 | | Cash and cash equivalents, beginning of period | 2,573,181 | | | 1,362,756 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 2,219,727 | | | $ | 1,191,444 | | Cash and cash equivalents, end of period | $ | 3,744,589 | | | $ | 2,219,727 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | |
Cash paid during the period for: | Cash paid during the period for: | | | | Cash paid during the period for: | | | |
Interest | Interest | $ | 115,016 | | | $ | 155,232 | | Interest | $ | 35,085 | | | $ | 115,016 | |
Income taxes | Income taxes | $ | 105,579 | | | $ | 107,933 | | Income taxes | $ | 81,482 | | | $ | 105,579 | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | |
Changes in unrealized gains and losses on investment securities available for sale, net of taxes | Changes in unrealized gains and losses on investment securities available for sale, net of taxes | $ | 85,523 | | | $ | 79,900 | | Changes in unrealized gains and losses on investment securities available for sale, net of taxes | $ | (69,478) | | | $ | 85,523 | |
| Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes | Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes | $ | 19,950 | | | $ | 23,978 | | Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes | $ | (33,058) | | | $ | 19,950 | |
Cumulative effect adjustment to retained earnings | Cumulative effect adjustment to retained earnings | $ | 40,181 | | | $ | 244 | | Cumulative effect adjustment to retained earnings | $ | — | | | $ | 40,181 | |
Cash dividend declared on common stock and payable after period-end | $ | 0 | | | $ | 46,245 | | |
| Transfer of loans to loans held for sale | Transfer of loans to loans held for sale | $ | 6,187 | | | $ | 0 | | Transfer of loans to loans held for sale | $ | — | | | $ | 6,187 | |
Transfer of loans held for sale to loans | | Transfer of loans held for sale to loans | $ | 315,887 | | | $ | — | |
Change in GNMA mortgage loans recognized due to repurchase option | Change in GNMA mortgage loans recognized due to repurchase option | $ | 15,617 | | | $ | (3,690) | | Change in GNMA mortgage loans recognized due to repurchase option | $ | — | | | $ | 15,617 | |
|
See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
The accounting and financial reporting policies of Umpqua Holdings Corporation conform to accounting principles generally accepted in the United States of America ("GAAP").America. All references in this report to "Umpqua," "we," "our," "us," the "Company"or "us" or similar references mean Umpqua Holdings Corporationthe Company and include our consolidated subsidiaries where the context so requires. References to "Bank" refer to our subsidiary Umpqua Bank, an Oregon state-chartered commercial bank, and references to "Umpqua Investments" refer to our subsidiary Umpqua Investments, Inc., a registered broker-dealer and investment adviser. The Bank also has abank. FinPac is the Bank's wholly-owned subsidiary, Financial Pacific Leasing, Inc. ("FinPac"), a commercial equipment leasing company. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and the Bank's wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of the Company's accounting policies is included in the 20192020 Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the 20192020 Annual Report filed on Form 10-K.
The results for interim periods are not necessarily indicative of results for the full year or any other interim period. As of September 30, 2020, the impact of the novel coronavirus ("COVID-19") continues to unfold and many of the Company's estimates and assumptions require increased judgment and carry a higher degree of variability and volatility, including the provision for credit losses which has been materially impacted. The Company is unable to fully predict the impact that COVID-19 will have on its financial position and results of operations due to numerous uncertainties and will continue to assess the potential impacts on its financial position and results of operations. As events continue to evolve and additional information becomes available, estimates may change materially in future periods.
In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to September 30, 20202021, for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period. Certain reclassifications of prior period amounts have been made to conform to current classifications.
Applicationclassifications, including the reclassification of new accounting guidance
In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL" or "ASC 326"). CECL is intendedline items within non-interest income to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates but will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASC 326 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses,add the card-based fees line item, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, ASC 326 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
The adoption date for the Company was January 1, 2020. The guidance was applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at January 1, 2020. However, certain provisions of the guidance are only required to be applied on a prospective basis.
The Bank has elected to not include accrued interest when determining the amortized cost basis of an asset. Instead, the amortized cost basis of an asset is the combination of the balance, deferred fees and costs, and premium or discount. In addition, the Bank has elected to continue to present accrued interest as part of Other Assets on the consolidated balance sheets. The Bank has calculated an allowance for credit losses on accrued interest that is included with the accrued interest balance. The policies related to income recognition on non-accrual loans are outlined below.
Upon adoption of CECL, the Company did not reassess whether loans previously accounted for as purchased credit impaired ("PCI") met the definition of a Purchased Credit-Deteriorated ("PCD") loan and therefore accounts for all such assets as PCD. The Company has elected not to retain the PCI pools previously established. Instead, the loans will now be included within the appropriate class of financing receivables which have been established based on shared risk characteristics. Changeschanges to the allowance after adoption are recorded through provision expense.
Based on the Bank's portfolio composition as of January 1, 2020, and the economic environment at that time, management recorded an initial estimate of the allowance for credit losses ("ACL") under CECL, which includes the allowance for credit losses on loans and leases ("ACLLL") of $207.6 million and the reserve for unfunded commitments ("RUC") of $8.3 million. The implementation of CECL resulted in a cumulative effect of an accounting change adjustment to retained earnings of $40.2 million.
The Company analyzed the portfolio segments and classes of financing receivables based on the implementation of CECL. There were no necessary changes in the portfolio segments or classes of financing receivables. The increase in the allowance by portfolio segment was as follows:
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| December 31, 2019 | | January 1, 2020 | | | | |
| | | | | | | | | |
(in thousands) | Allowance for Loan and Lease Losses | | Reserve for Unfunded Commitments | | Allowance for Credit Losses on Loans and Leases | | Reserve for Unfunded Commitments | | $ Increase (decrease) | | % Increase (decrease) |
Commercial real estate, net | $ | 50,847 | | | $ | 534 | | | $ | 55,924 | | | $ | 4,564 | | | $ | 9,107 | | | 18 | % |
Commercial, net | 73,820 | | | 2,539 | | | 117,829 | | | 2,052 | | | 43,522 | | | 57 | % |
Residential, net | 24,714 | | | 149 | | | 26,813 | | | 1,416 | | | 3,366 | | | 14 | % |
Consumer & other, net | 8,248 | | | 1,884 | | | 7,062 | | | 312 | | | (2,758) | | | (27) | % |
Total | $ | 157,629 | | | $ | 5,106 | | | $ | 207,628 | | | $ | 8,344 | | | $ | 53,237 | | | 33 | % |
Due to the significance of the implementation of CECL on the Company, the following significant accounting policies have been updated from the policies described in the 2019 Annual Report filed on Form 10-K.
Allowance for Credit Losses Policy- The Bank has established an Allowance for Credit Loss Committee, which is responsible for, among other things, regularly reviewing the ACL methodology, including allowance levels and ensuring that it is designed and applied in accordance with generally accepted accounting principles. The Bank's Audit and Compliance Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis. CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Instead, management has flexibility in selecting the methodology. The expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments utilizing quantitative and qualitative factors. There are also specific considerations for PCD, Troubled Debt Restructured ("TDR"), and Collateral Dependent Loans ("CDL").
The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life using an approach that reverts to historical credit loss information for the longer-term portion of the asset's life.
The Company utilizes complex models to obtain reasonable and supportable forecasts; most of the models calculate two predictive metrics: the probability of default ("PD") and loss given default ("LGD"). The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan or lease. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.
The combination of the current expected credit loss, PCD, CDL, TDR, and the RUC components represent the ACL. Management believes that the ACL was adequate as of September 30, 2020. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ACL and could possibly result in additional charges to the provision for credit losses.
Acquired Loans and Leases- Loans and leases purchased without more-than-insignificant credit deterioration, are recorded at their fair value at the acquisition date. However, loans and leases purchased with more-than-insignificant credit deterioration will be recorded with their applicable allowance for credit loss to determine the amortized cost basis.
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 contractual 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 the term using the effective interest method.
Income Recognition on Non-Accrual Loans- Loans are classified as non-accrual if the collection of principal and interest is doubtful. Generally, this occurs when a commercial or commercial real estate loan is past due beyond its maturity or principal or interest payment due date by 90 days or more, unless such loans are well-secured and in the process of collection. 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.
Generally, when a loan is classified as non-accrual, all uncollected accrued interest is reversed from interest income and the accrual of interest income is terminated. In addition, any cash payments subsequently received 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 loan may be restored to accrual status when the borrower's financial condition improves so that full collection of future contractual payments is considered likely. For those loans placed on non-accrual status due to payment delinquency, return to accrual status will typically not occur until the borrower demonstrates repayment ability over a period of not less than six months.
Collateral Dependent Loans and Troubled Debt Restructurings-A loan or lease is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. The Company's classification of CDLs includes: non-homogeneous non-accrual loans and leases; non-homogeneous loans determined by individual credit review; homogeneous non-accrual leases and equipment finance agreements; and homogeneous real estate secured loans that have been charged down to net realizable value or the government guaranteed balance. Except for homogeneous leases and equipment finance agreements, the expected credit losses for CDLs will be measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. The Company may also use the loan's observable market price, if available. If the value of the CDL is determined to be less than the recorded amount of the loan, a charge-off will be taken. To determine the expected credit loss for homogeneous leases or equipment finance agreements, the LGD calculated by the CECL model will be utilized. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is fully charged-off.
Loans are reported as TDR loans when, due to borrower financial difficulties, the Bank grants a concession it would not otherwise be willing to offer for a loan. Once a loan has been classified as a TDR, it continues in the classification until it has paid in full or it has demonstrated six months of payment performance and was determined to have been modified at a market rate terms. TDRs, including reasonably expected TDRs, are individually recognized and measured for expected credit loss in one of two ways: when a TDR meets the definition of a CDL, it is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable; otherwise, a discounted cash flow analysis is utilized to measure the expected credit loss for a TDR. The expected cash flow for a TDR is discounted based on the pre-modification rate and the expected remaining life.
In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed, which, among other things, provided relief for Banks related to loan modifications for accounting purposes. Specifically, section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition to the CARES Act, bank regulatory agencies issued interagency guidance indicating that a lender could conclude that the modifications under section 4013 of the CARES Act or the interagency guidance are not a TDR if certain criteria are met. The guidance also provides that loans generally will not be adversely classified if the short-term modification is related to COVID-19 relief programs. The Company has followed the guidance under the CARES Act and the interagency guidance related to these loan modifications. Loans modified under section 4013 of the CARES Act or the interagency guidance generally maintain their pre-COVID-19 delinquency status and are classified as performing loans. If it is deemed the modification is not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company evaluates the loan modifications under its existing framework which requires modifications that result in a concession without appropriate compensation to a borrower experiencing financial difficulty to be accounted for as a TDR.
Reserve for Unfunded Commitments- A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb expected losses associated with the Bank's commitment to lend funds under existing agreements, such as letters or lines of credit. The RUC calculation utilizes the allowance for credit loss on loans and leases rates, probability of default risk ratings, and utilization rates based on the economic expectations over the contractual life of the commitment. The reserve is based on estimates and ultimate losses may vary from the current estimates. These estimates are evaluated on a regular basis and adjustments 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 for credit losses on loans and leases. Provisions for unfunded commitment losses are added to the reserve for unfunded commitments, which is included in the Other Liabilities section of the consolidated balance sheets.
Investment Securities Available for Sale- Debt securities are classified as available for sale if 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 debt 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. 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.
Securities available for sale are carried at fair value. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Unrealized holding gains or losses are included in other comprehensive income ("OCI") as a separate component of shareholders' equity, net of tax. When the fair value of an available-for-sale debt security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss would be recorded directly to earnings with a corresponding allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves the allowance would be reversed up to a maximum of the previously recorded credit losses. If the Company intends to sell an impaired available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment would be immediately recognized in earnings with no corresponding allowance for credit losses.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU was issued to improve the effectiveness of disclosures surrounding fair value measurements. The ASU removes numerous disclosures from Topic 820 including: transfers between level 1 and 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation process for level 3 fair value measurements. The ASU also modified and added disclosure requirements in regards to changes in unrealized gains and losses included in other comprehensive income, as well as the range and weighted average of unobservable inputs for level 3 fair value measurements. The Company adopted this ASU as of January 1, 2020, on a retrospective basis except certain provisions of the guidance which are only required to be applied on a prospective basis.reporting structure.
Recent accounting pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate ("LIBOR")LIBOR or another reference rate expected to be discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022. The Company is currently evaluatingwill be able to use the impact ofexpedients in this guidance to manage through the transition away from LIBOR, specifically for our loan portfolio.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions in Topic 848. The amendments are in effect from March 12, 2020, through December 31, 2022. This ASU does not have a material impact on the Company's consolidated financial statements.
Note 2 – Investment Securities
The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at September 30, 20202021 and December 31, 2019:2020:
| | | September 30, 2020 | | September 30, 2021 |
(in thousands) | (in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | (in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Available for sale: | Available for sale: | | | | | | | | Available for sale: | | | | | | | |
U.S. Treasury and agencies | U.S. Treasury and agencies | $ | 689,137 | | | $ | 68,877 | | | $ | (61) | | | $ | 757,953 | | U.S. Treasury and agencies | $ | 806,469 | | | $ | 35,304 | | | $ | (2,796) | | | $ | 838,977 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 249,423 | | | 15,121 | | | (57) | | | 264,487 | | Obligations of states and political subdivisions | 272,275 | | | 11,851 | | | (717) | | | 283,409 | |
Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | 1,820,569 | | | 56,121 | | | (430) | | | 1,876,260 | | Residential mortgage-backed securities and collateralized mortgage obligations | 2,606,906 | | | 29,272 | | | (35,393) | | | 2,600,785 | |
| Total available for sale securities | Total available for sale securities | $ | 2,759,129 | | | $ | 140,119 | | | $ | (548) | | | $ | 2,898,700 | | Total available for sale securities | $ | 3,685,650 | | | $ | 76,427 | | | $ | (38,906) | | | $ | 3,723,171 | |
Held to maturity: | Held to maturity: | | | | | | | | Held to maturity: | | | | | | | |
| Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 3,088 | | | $ | 862 | | | $ | 0 | | | $ | 3,950 | | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 2,795 | | | $ | 786 | | | $ | — | | | $ | 3,581 | |
| Total held to maturity securities | Total held to maturity securities | $ | 3,088 | | | $ | 862 | | | $ | 0 | | | $ | 3,950 | | Total held to maturity securities | $ | 2,795 | | | $ | 786 | | | $ | — | | | $ | 3,581 | |
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|
| December 31, 2019 |
| December 31, 2020 |
(in thousands) | (in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | (in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Available for sale: | Available for sale: | | | | | | | | Available for sale: | | | | | | | |
U.S. Treasury and agencies | U.S. Treasury and agencies | $ | 642,009 | | | $ | 5,919 | | | $ | (4,324) | | | $ | 643,604 | | U.S. Treasury and agencies | $ | 698,243 | | | $ | 64,271 | | | $ | (312) | | | $ | 762,202 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 251,531 | | | 9,600 | | | (37) | | | 261,094 | | Obligations of states and political subdivisions | 263,546 | | | 15,996 | | | (31) | | | 279,511 | |
Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | 1,896,708 | | | 18,962 | | | (5,686) | | | 1,909,984 | | Residential mortgage-backed securities and collateralized mortgage obligations | 1,839,711 | | | 51,583 | | | (449) | | | 1,890,845 | |
| Total available for sale securities | Total available for sale securities | $ | 2,790,248 | | | $ | 34,481 | | | $ | (10,047) | | | $ | 2,814,682 | | Total available for sale securities | $ | 2,801,500 | | | $ | 131,850 | | | $ | (792) | | | $ | 2,932,558 | |
Held to maturity: | Held to maturity: | | | | | | | | Held to maturity: | | | | | | | |
| Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 3,260 | | | $ | 1,003 | | | $ | 0 | | | $ | 4,263 | | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 3,034 | | | $ | 849 | | | $ | — | | | $ | 3,883 | |
| Total held to maturity securities | Total held to maturity securities | $ | 3,260 | | | $ | 1,003 | | | $ | 0 | | | $ | 4,263 | | Total held to maturity securities | $ | 3,034 | | | $ | 849 | | | $ | — | | | $ | 3,883 | |
The Company elected to exclude accrued interest receivable from the amortized cost basis of debt securities disclosed throughout this note. Interest accrued on investment securities totaled $11.4$12.2 million and $9.8$8.9 million as of September 30, 20202021 and December 31, 2019,2020, respectively, and is included in Other Assets.
Debt securities that were in an unrealized loss position as of September 30, 20202021 and December 31, 20192020 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Less than 12 Months | | 12 Months or Longer | | Total |
(in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Available for sale: | | | | | | | | | | | |
U.S. Treasury and agencies | $ | 119,093 | | | $ | 1,773 | | | $ | 18,805 | | | $ | 1,023 | | | $ | 137,898 | | | $ | 2,796 | |
Obligations of states and political subdivisions | 53,099 | | | 717 | | | — | | | — | | | 53,099 | | | 717 | |
Residential mortgage-backed securities and collateralized mortgage obligations | 1,500,804 | | | 34,346 | | | 23,561 | | | 1,047 | | | 1,524,365 | | | 35,393 | |
Total temporarily impaired securities | $ | 1,672,996 | | | $ | 36,836 | | | $ | 42,366 | | | $ | 2,070 | | | $ | 1,715,362 | | | $ | 38,906 | |
| | | | | | | | | | | |
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| September 30, 2020 |
| Less than 12 Months | | 12 Months or Longer | | Total |
(in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Available for sale: | | | | | | | | | | | |
U.S. Treasury and agencies | $ | 19,748 | | | $ | 61 | | | $ | 0 | | | $ | 0 | | | $ | 19,748 | | | $ | 61 | |
Obligations of states and political subdivisions | 2,028 | | | 57 | | | 0 | | | 0 | | | 2,028 | | | 57 | |
Residential mortgage-backed securities and collateralized mortgage obligations | 214,879 | | | 430 | | | 0 | | | 0 | | | 214,879 | | | 430 | |
Total | $ | 236,655 | | | $ | 548 | | | $ | 0 | | | $ | 0 | | | $ | 236,655 | | | $ | 548 | |
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|
| December 31, 2019 |
| December 31, 2020 |
| | Less than 12 Months | | 12 Months or Longer | | Total | | Less than 12 Months | | 12 Months or Longer | | Total |
(in thousands) | (in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | (in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Available for sale: | Available for sale: | | | | | | | | | | | | Available for sale: | | | | | | | | | | | |
U.S. Treasury and agencies | U.S. Treasury and agencies | $ | 313,169 | | | $ | 4,324 | | | $ | 0 | | | $ | 0 | | | $ | 313,169 | | | $ | 4,324 | | U.S. Treasury and agencies | $ | 29,493 | | | $ | 312 | | | $ | — | | | $ | — | | | $ | 29,493 | | | $ | 312 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 4,611 | | | 30 | | | 1,906 | | | 7 | | | 6,517 | | | 37 | | Obligations of states and political subdivisions | 4,357 | | | 31 | | | — | | | — | | | 4,357 | | | 31 | |
Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | 288,866 | | | 1,628 | | | 402,802 | | | 4,058 | | | 691,668 | | | 5,686 | | Residential mortgage-backed securities and collateralized mortgage obligations | 215,165 | | | 449 | | | — | | | — | | | 215,165 | | | 449 | |
| Total | $ | 606,646 | | | $ | 5,982 | | | $ | 404,708 | | | $ | 4,065 | | | $ | 1,011,354 | | | $ | 10,047 | | |
Total temporarily impaired securities | | Total temporarily impaired securities | $ | 249,015 | | | $ | 792 | | | $ | — | | | $ | — | | | $ | 249,015 | | | $ | 792 | |
|
These unrealized losses on the Company's debt securities held by the Company were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not due to the underlying credit of the issuers. Management monitors the published credit ratings of the Company'sissuers of the debt securities for material rating or outlook changes. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at September 30, 20202021 are issued or guaranteed by government sponsored enterprises. Because the decline in fair value of the Company's debt securities is attributable to changes in interest rates or widening market spreads and not credit quality, these investments do not have an allowance for credit losses at September 30, 2020.2021.
The following table presents the contractual maturities of debt securities at September 30, 2020:2021:
|
|
| Available For Sale | | Held To Maturity |
| Available For Sale | | Held To Maturity |
(in thousands) | (in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | (in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due within one year | Due within one year | $ | 3,264 | | | $ | 3,298 | | | $ | 0 | | | $ | 0 | | Due within one year | $ | 16,913 | | | $ | 17,150 | | | $ | — | | | $ | — | |
Due after one year through five years | Due after one year through five years | 71,383 | | | 73,499 | | | 3 | | | 3 | | Due after one year through five years | 122,809 | | | 128,548 | | | 2 | | | 2 | |
Due after five years through ten years | Due after five years through ten years | 904,677 | | | 979,854 | | | 10 | | | 10 | | Due after five years through ten years | 967,343 | | | 1,004,037 | | | 8 | | | 8 | |
Due after ten years | Due after ten years | 1,779,805 | | | 1,842,049 | | | 3,075 | | | 3,937 | | Due after ten years | 2,578,585 | | | 2,573,436 | | | 2,785 | | | 3,571 | |
Total securities | Total securities | $ | 2,759,129 | | | $ | 2,898,700 | | | $ | 3,088 | | | $ | 3,950 | | Total securities | $ | 3,685,650 | | | $ | 3,723,171 | | | $ | 2,795 | | | $ | 3,581 | |
The following table presents, as of September 30, 2020,2021, investment securities that were pledged to secure borrowings, public deposits, and repurchase agreements as permitted or required by law:
| | | | | | | | | | | |
(in thousands) | Amortized Cost | | Fair Value |
| | | |
To state and local governments to secure public deposits | $ | 275,686 | | | $ | 286,052 | |
Other securities pledged principally to secure repurchase agreements | 604,045 | | | 643,522 | |
Total pledged securities | $ | 879,731 | | | $ | 929,574 | |
| | | | | | | | | | | |
(in thousands) | Amortized Cost | | Fair Value |
| | | |
To state and local governments to secure public deposits | $ | 293,931 | | | $ | 301,370 | |
Other securities pledged principally to secure repurchase agreements | 746,122 | | | 770,020 | |
Total pledged securities | $ | 1,040,053 | | | $ | 1,071,390 | |
Note 3 – Loans and Leases
The following table presents the major types of loans and leases, net of deferred fees and costs, as of September 30, 20202021 and December 31, 2019:2020:
| (in thousands) | (in thousands) | September 30, 2020 | | December 31, 2019 | (in thousands) | September 30, 2021 | | December 31, 2020 |
Commercial real estate | Commercial real estate | | | | Commercial real estate | | | |
Non-owner occupied term, net | Non-owner occupied term, net | $ | 3,533,776 | | | $ | 3,545,566 | | Non-owner occupied term, net | $ | 3,561,764 | | | $ | 3,505,802 | |
Owner occupied term, net | Owner occupied term, net | 2,411,098 | | | 2,496,088 | | Owner occupied term, net | 2,330,338 | | | 2,333,945 | |
Multifamily, net | Multifamily, net | 3,389,034 | | | 3,514,774 | | Multifamily, net | 3,813,024 | | | 3,349,196 | |
Construction & development, net | Construction & development, net | 757,462 | | | 678,740 | | Construction & development, net | 882,778 | | | 828,478 | |
Residential development, net | Residential development, net | 163,400 | | | 189,010 | | Residential development, net | 177,148 | | | 192,761 | |
Commercial | Commercial | | Commercial | |
Term, net | Term, net | 4,246,229 | | | 2,232,817 | | Term, net | 3,159,466 | | | 4,024,467 | |
Lines of credit & other, net | Lines of credit & other, net | 894,782 | | | 1,212,393 | | Lines of credit & other, net | 930,350 | | | 862,760 | |
Leases & equipment finance, net | Leases & equipment finance, net | 1,496,650 | | | 1,465,489 | | Leases & equipment finance, net | 1,457,248 | | | 1,456,630 | |
Residential | Residential | | Residential | |
Mortgage, net | Mortgage, net | 4,042,416 | | | 4,215,424 | | Mortgage, net | 4,330,860 | | | 3,871,906 | |
Home equity loans & lines, net | Home equity loans & lines, net | 1,172,697 | | | 1,237,512 | | Home equity loans & lines, net | 1,133,823 | | | 1,136,064 | |
Consumer & other, net | Consumer & other, net | 318,929 | | | 407,871 | | Consumer & other, net | 193,141 | | | 217,358 | |
Total loans and leases, net of deferred fees and costs | Total loans and leases, net of deferred fees and costs | $ | 22,426,473 | | | $ | 21,195,684 | | Total loans and leases, net of deferred fees and costs | $ | 21,969,940 | | | $ | 21,779,367 | |
The loan balances above include deferred costs, net of deferred fees, of $19.4 million and $71.9 million asAs of September 30, 20202021 and December 31, 2019,2020, the net deferred costs were $47.7 million and $38.6 million, respectively. In response to the COVID-19 crisis, the federal government created the Paycheck Protection Program ("PPP"), sponsored by the Small Business Administration ("SBA"), under the CARES Act. The Bank participated in the PPP to originate SBA loans designated to help businesses maintain their workforce and cover other working capital needs during the COVID-19 pandemic by funding 16,900pandemic. As of September 30, 2021, the Bank had approximately 7,500 PPP loans, totaling $2.0 billion$726.7 million in net loans, which are classified as commercial term loans in the table above. As of December 31, 2020, the Bank had approximately 15,000 PPP loans totaling $1.8 billion in net loans. Net deferred costs are offset by $51.2for the loan portfolio include the net deferred fees for the origination of PPP loans of $21.2 million inand $26.9 million as of September 30, 2021 and December 31, 2020, respectively. The PPP loan relatednet deferred fees net ofand costs which will beare a yield adjustment over the remaining term of these loans. The loans are fully guaranteed by the SBA and the maximum term of the loans is either two or five years; however, the majority of the loan balances are expected to be forgiven by the SBA.SBA, which will accelerate the recognition of these net deferred fees at the forgiveness date.
NetTotal loans and leases also include discounts on acquired loans of $20.7$11.4 million and $30.2$17.9 million as of September 30, 20202021 and December 31, 2019,2020, respectively. As of September 30, 2020,2021, loans totaling $12.7$14.4 billion were pledged to secure borrowings and available lines of credit. The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. Interest accrued on loans totaled $70.9$63.3 million and $58.5$74.8 million as of September 30, 20202021 and December 31, 2019,2020, respectively, and is included in Other Assets.
The Bank, through its commercial equipment leasing subsidiary, FinPac, is a provider of commercial equipment leasing and financing. Direct finance leases are included within the lease and equipment finance segment within the loans and leases, net line item. These leases typically have terms of three to five years and are considered to be direct financing leases. Interest income recognized on these leases was $6.1 million and $17.3 million for the three and nine months ended September 30, 2021, respectively, as compared to $6.7 million and $20.5 million for the three and nine months ended September 30, 2020, respectively, as compared to $8.1 million and $24.6 million for the three and nine months ended September 30, 2019, respectively.
Loans and leases sold
In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the three and nine months ended September 30, 20202021 and 2019:2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Commercial real estate | Commercial real estate | | | | | | | | Commercial real estate | | | | | | | |
Non-owner occupied term, net | Non-owner occupied term, net | $ | 3,009 | | | $ | 16,467 | | | $ | 12,767 | | | $ | 24,229 | | Non-owner occupied term, net | $ | 14,828 | | | $ | 3,009 | | | $ | 38,124 | | | $ | 12,767 | |
Owner occupied term, net | Owner occupied term, net | 6,138 | | | 2,780 | | | 15,330 | | | 15,751 | | Owner occupied term, net | 12,692 | | | 6,138 | | | 25,115 | | | 15,330 | |
| Multifamily, net | | Multifamily, net | — | | | — | | | 3,776 | | | — | |
| Commercial | Commercial | | | | | | | | Commercial | | | | | | | |
Term, net | Term, net | 8,628 | | | 7,670 | | | 28,780 | | | 23,633 | | Term, net | 10,866 | | | 8,628 | | | 39,180 | | | 28,780 | |
Lines of credit & other, net | Lines of credit & other, net | 159 | | | 1,619 | | | 159 | | | 1,619 | | Lines of credit & other, net | — | | | 159 | | | — | | | 159 | |
Leases & equipment finance, net | Leases & equipment finance, net | 0 | | | 0 | | | 43 | | | 17,571 | | Leases & equipment finance, net | — | | | — | | | — | | | 43 | |
Residential | Residential | | | | | | | | Residential | | | | | | | |
Mortgage, net | Mortgage, net | 365 | | | 0 | | | 365 | | | 109 | | Mortgage, net | — | | | 365 | | | 1,712 | | | 365 | |
| Consumer & other | | Consumer & other | — | | | — | | | 63,799 | | | — | |
Total loans and leases sold, net | Total loans and leases sold, net | $ | 18,299 | | | $ | 28,536 | | | $ | 57,444 | | | $ | 82,912 | | Total loans and leases sold, net | $ | 38,386 | | | $ | 18,299 | | | $ | 171,706 | | | $ | 57,444 | |
Note 4 – Allowance for Credit Losses
Allowance for Credit Losses Methodology
The Allowance for Credit Losses is an important element in the Bank's financial statements. In accordance with CECL, the ACL represents management's estimate of lifetime credit losses for assets within its scope, specifically loans and leases and unfunded commitments. To calculate the ACL, management uses models to estimate the PD and LGD for loans utilizing inputs that include forecasted future economic conditions and that are dependent upon specific macroeconomic variables relevant to each of the Bank's loan and lease portfolios. Moody's Analytics, a third party, provided the historical and forward-looking macroeconomic data usedutilized in the development of the models used to calculate the ACL.
For ACL calculation purposes, the Bank considered the financial and economic environment at the time of assessment and economic scenarios that differed in the levels of severity and sensitivity to the ACL results. At each measurement date, the Bank selects the scenario that reflects its view of future economic conditions and is determined to be the most probable outcome.
All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results and the timing thereof will differ from the estimate of credit losses, either in a strong economy or a recession, as ourthe portfolio will change through time due to growth, risk mitigation actions and other factors. In addition, the scenarios used will differ and change through time as economic conditions change. Economic scenarios might not capture deterioration or improvement in the economy timely enough for the Bank to be able to adequately assessaddress the impact to the ACL.
Select macroeconomic variables are projected over the forecast period, and they could have a material impact in determining the ACL. As the length of the forecast period increases, information about the future becomes less readily available and projections are inherently less certain.
The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three and nine months ended September 30, 2020,2021, were primarily related to changes in the economic assumptions.The Bank opted to use Moody's AnalyticsAnalytics' August consensus economic forecast for estimating the ACL as of September 30, 2020.2021. This scenario is based on Moody's AnalyticsAnalytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents to a survey.respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's AnalyticsAnalytics' approach is to give greater consideration to whatever forecasts were producedthe most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.
In the consensus scenario selected, the probability that the economy will perform better than this consensus is equal to the probability that it will perform worse and included the following factors:
•U.S. real GDP average annualized growth begins to decrease after the strong recovery but continues to be positive over both the short and long-term;of 4.9% through 2022;
•U.S. unemployment rate average for 2021 of 10.7%5.5%, dropping to 4.2% in the third quarter of 2020 and is expected to be 9.3% in the fourth quarter of 2020;2022;
•very strong recovery with sustained growthCOVID infections abate in the fourth quarter of 2020, and continued slow growth thereafter;November 2021;
•returnFederal Reserve to less than 5% unemployment by 2024.keep the target range for the Fed Funds rate at 0% to 0.25% until early 2023.
The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's AnalyticsAnalytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:
•rising business bankruptciesThe stimulus is less effective than expected because of slower consumer spending. More of the funds end up in savings, and reduced consumer and business sentiment causethus fiscal multipliers are smaller than assumed in the economy to stall over the next several quarters;consensus scenario;
•slowNew cases, hospitalizations and deaths from COVID-19 rise again and then diminish more slowly than anticipated, with fewer people than expected receiving vaccines;
•U.S. real GDP average annualized growth of 3.5% through 2021 with increases thereafter;2022;
•U.S. unemployment rate average for 2021 of 10.2% in the third quarter of 2020 and is expected to be 10.4% in the fourth quarter of 2020;
•very strong recovery in the current quarter of 2020,5.9% with substantially slower growth after the current quarter through the second quarter of 2021, then gradually increasing growth thereafter;
•return to less than 5%5.0% unemployment by 2025.in 2023;
•COVID infections abate in January 2022;
•Federal Reserve to keep target range for the Fed Funds rate near 0% until mid-2024.
The results using the comparison scenario for sensitivity analysis were reviewed by management but management believesand were considered when evaluating the consensus scenario better reflects the estimated economic environment.qualitative factor adjustments.
The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models. Except as noted below, the macroeconomic variables that are inputs to the models are reasonable and supportable over the life of the loans in that they reasonably project the key economic variables in the near term and then converge to a long run equilibrium trend. These models produce reasonable and supportable estimates of loss over the life of the loans as the projected credit losses will also converge to a steady state in line with the variables applied. The Company measures the ACL using the following methods:
Commercial Real Estate ("CRE"):Estate: Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: Net Operating Income ("NOI"), Property Value, Property Type,net operating income, property value, property type, and Location.location. For PD estimation, the model simulates potential future paths of NOInet operating income given commercial real estate market factors determined from macroeconomic and regional commercial real estate forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP Growth,growth, U.S. unemployment rate, and 10-Year Treasury yield. These economic drivers are translated into a forecast provided by Moody's Analytics' REIS of real estate metrics, such as rental rates, vacancies and cap rates. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.
The owner-occupied commercial real-estate portfolio utilizes a top downtop-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years.years and carries forward the last quarter's projected expected loss percentage to remaining periods. The primary economic drivers for this model are the 7-year A vs Aa corporate bond spread and S&P 500 corporate after-tax profits.
Commercial: Non-homogeneous commercial loans and leases and residential development loans are analyzed in a multi-step process. An initial PD is estimated using a model driven by an obligor's selected financial statement ratios, together with cycle-adjusting information based on the obligor's state and industry. An initial LGD is derived separately based on collateral type using collateral value and a haircut to reflect the loss in liquidation. Another model then applies an auto-regression technique to the initial PD and LGD metrics to estimate the PD and LGD curves according to the macroeconomic scenario over a one-year reasonable and supportable forecast. The primary economic drivers in the model are the S&P 500 Stock Price Index, S&P 500 Market Volatility Index, U.S. unemployment rate, as well as appropriate yield curves and credit spreads. This model utilizes output reversion methodology, which, after one year, reverts on a straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.
The model for the homogeneous lease and equipment finance agreement portfolio uses lease and equipment finance agreement information, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD values. The PD calculation is based on survival analysis while LGD is calculated using a two-step regression. The model calculates LGD using an estimate of the probability that a defaulted lease or equipment finance agreement will have a loss, and an estimate of the loss amount. The primary economic drivers for the model are GDP, U.S. unemployment rate, and a home price growth index. The model produces PD and LGD curves at the lease or equipment finance agreement level for each month in the forecast horizon.
Residential: The models for residential real estate and Home Equity Lineshome equity lines of Credit ("HELOC")credit utilize loan level variables, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD. The U.S. unemployment rate and home price growth rate indexes are primary economic drivers in both the residential real estate and HELOC models. In addition, the prime rate is also a primary driver in the HELOC model. The models focus on establishing an empirical relationship between default probabilities and a set of loan-level, borrower, and macroeconomic credit risk drivers. The LGD calculation for residential real estate is based on an estimate of the probability that a defaulted loan will have a loss, and then an estimate of the loss amount. HELOCs utilize the same model using residential real estate LGD values to assign loans to cohorts based on FICO scores and loan age. The model produces PD and LGD curves at the loan level for each quarter in the forecast horizon.
Consumer: Historical net charge-off information as well as economic forecast assumptions are used to project loss rates for the Consumer segment.
All loans and leases that have not been modeled receive a loss rate via an extrapolated rate methodology. The loans and leases receiving an extrapolated rate are typically newly originated loans and leases or loans and leases without the granularity of data necessary to be modeled. Based on the vintage year, credit classification, and reporting category of the modeled loans and leases, a loss factor is calculated and applied to the non-modeled loans and leases.
Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data.data for the commercial real estate, commercial and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential portfolio. Below are the nine qualitative factors considered where applicable:
•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 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 loans and leases.
•Changes in the experience, ability, and depth of lending management and other relevant staff.
•Changes in the volume and severity of past due loans and leases, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded loans and leases.
•Changes in the quality of the Bank's credit review system.
•Changes in the value of the underlying collateral for collateral-dependent loans and leases.
•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 Bank's existing portfolio.
The Company evaluated each qualitative factor as of September 30, 2020,2021, and concluded that a $40.6made qualitative overlay adjustments of approximately $16.9 million to increase the amounts indicated by the models as considered necessary to adequately reflect the model results was appropriate for the allowance forsignificant changes in credit losses on loansconditions and leases, due to model limitations in the current economic environment. The Company also determined that a $5.0overall portfolio risk, including $13.8 million qualitative overlay increase to the calculated results was appropriate for the RUC related to construction loans. Models were deemed to be under predicting losses, because certain economic variables were lagging indicatorsloans collateralized by hotel, retail, and had not yet shown the effects of the current recession, and models were not appropriately capturing elevated risk associated with payment deferral programs offered by the Bank.office properties.
Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow ("DCF") method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to difficulty of calculating an effective interest rate when lines have yet to be drawn on. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The non-discounted cash flow method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.
The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021 and 2020:
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| | Three Months Ended September 30, 2020 |
(in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | | $ | 152,828 | | | $ | 152,615 | | | $ | 40,548 | | | $ | 10,754 | | | $ | 356,745 | |
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(Recapture) provision for credit losses for loans and leases (1) | | (18,834) | | | 25,603 | | | (5,641) | | | 657 | | | 1,785 | |
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Charge-offs | | 0 | | | (15,426) | | | (120) | | | (1,100) | | | (16,646) | |
Recoveries | | 61 | | | 2,044 | | | 407 | | | 653 | | | 3,165 | |
Net recoveries (charge-offs) | | 61 | | | (13,382) | | | 287 | | | (447) | | | (13,481) | |
Balance, end of period | | $ | 134,055 | | | $ | 164,836 | | | $ | 35,194 | | | $ | 10,964 | | | $ | 345,049 | |
Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | | $ | 20,808 | | | $ | 2,921 | | | $ | 2,061 | | | $ | 578 | | | $ | 26,368 | |
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(Recapture) provision for credit losses on unfunded commitments (1) | | (380) | | | (1,198) | | | (542) | | | 58 | | | (2,062) | |
Balance, end of period | | 20,428 | | | 1,723 | | | 1,519 | | | 636 | | | 24,306 | |
Total allowance for credit losses | | $ | 154,483 | | | $ | 166,559 | | | $ | 36,713 | | | $ | 11,600 | | | $ | 369,355 | |
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(1) The total provision for credit losses as disclosed on the income statement includes a recapture of $61,000 for the three months ended September 30, 2020, related to an allowance for accrued interest on loans deferred due to COVID-19.
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| | Nine Months Ended September 30, 2020 |
(in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | | $ | 50,847 | | | $ | 73,820 | | | $ | 24,714 | | | $ | 8,248 | | | $ | 157,629 | |
Impact of adoption CECL | | 5,077 | | | 44,009 | | | 2,099 | | | (1,186) | | | 49,999 | |
Adjusted balance, beginning of period | | 55,924 | | | 117,829 | | | 26,813 | | | 7,062 | | | 207,628 | |
Provision for credit losses for loans and leases (1) | | 77,664 | | | 96,577 | | | 7,701 | | | 6,829 | | | 188,771 | |
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Charge-offs | | 0 | | | (55,583) | | | (274) | | | (4,697) | | | (60,554) | |
Recoveries | | 467 | | | 6,013 | | | 954 | | | 1,770 | | | 9,204 | |
Net recoveries (charge-offs) | | 467 | | | (49,570) | | | 680 | | | (2,927) | | | (51,350) | |
Balance, end of period | | $ | 134,055 | | | $ | 164,836 | | | $ | 35,194 | | | $ | 10,964 | | | $ | 345,049 | |
Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | | $ | 534 | | | $ | 2,539 | | | $ | 149 | | | $ | 1,884 | | | $ | 5,106 | |
Impact of adoption CECL | | 4,030 | | | (487) | | | 1,267 | | | (1,572) | | | 3,238 | |
Adjusted balance, beginning of period | | 4,564 | | | 2,052 | | | 1,416 | | | 312 | | | 8,344 | |
Provision (recapture) for credit losses on unfunded commitments (1) | | 15,864 | | | (329) | | | 103 | | | 324 | | | 15,962 | |
Balance, end of period | | 20,428 | | | 1,723 | | | 1,519 | | | 636 | | | 24,306 | |
Total allowance for credit losses | | $ | 154,483 | | | $ | 166,559 | | | $ | 36,713 | | | $ | 11,600 | | | $ | 369,355 | |
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(1) The total provision for credit losses as disclosed on the income statement includes a provision of $99,000 for the nine months ended September 30, 2020, related to an allowance for accrued interest on loans deferred due to COVID-19.
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| | Three Months Ended September 30, 2021 |
(in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | | $ | 128,951 | | | $ | 121,390 | | | $ | 25,296 | | | $ | 4,250 | | | $ | 279,887 | |
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(Recapture) provision for credit losses for loans and leases | | (20,141) | | | 2,719 | | | 1,703 | | | (413) | | | (16,132) | |
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Charge-offs | | (916) | | | (8,521) | | | — | | | (936) | | | (10,373) | |
Recoveries | | 120 | | | 3,346 | | | 281 | | | 431 | | | 4,178 | |
Net (charge-offs) recoveries | | (796) | | | (5,175) | | | 281 | | | (505) | | | (6,195) | |
Balance, end of period | | $ | 108,014 | | | $ | 118,934 | | | $ | 27,280 | | | $ | 3,332 | | | $ | 257,560 | |
Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | | $ | 10,094 | | | $ | 2,145 | | | $ | 1,710 | | | $ | 590 | | | $ | 14,539 | |
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(Recapture) provision for credit losses on unfunded commitments | | (3,273) | | | 440 | | | 247 | | | (201) | | | (2,787) | |
Balance, end of period | | 6,821 | | | 2,585 | | | 1,957 | | | 389 | | | 11,752 | |
Total allowance for credit losses | | $ | 114,835 | | | $ | 121,519 | | | $ | 29,237 | | | $ | 3,721 | | | $ | 269,312 | |
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(in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | | $ | 141,710 | | | $ | 150,864 | | | $ | 27,964 | | | $ | 7,863 | | | $ | 328,401 | |
(Recapture) provision for credit losses for loans and leases | | (33,199) | | | 4,180 | | | (1,212) | | | (3,150) | | | (33,381) | |
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Charge-offs | | (1,086) | | | (44,228) | | | (70) | | | (2,983) | | | (48,367) | |
Recoveries | | 589 | | | 8,118 | | | 598 | | | 1,602 | | | 10,907 | |
Net (charge-offs) recoveries | | (497) | | | (36,110) | | | 528 | | | (1,381) | | | (37,460) | |
Balance, end of period | | $ | 108,014 | | | $ | 118,934 | | | $ | 27,280 | | | $ | 3,332 | | | $ | 257,560 | |
Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | | 15,360 | | | 2,190 | | | 1,661 | | | 1,075 | | | 20,286 | |
(Recapture) provision for credit losses on unfunded commitments | | (8,539) | | | 395 | | | 296 | | | (686) | | | (8,534) | |
Balance, end of period | | 6,821 | | | 2,585 | | | 1,957 | | | 389 | | | 11,752 | |
Total allowance for credit losses | | $ | 114,835 | | | $ | 121,519 | | | $ | 29,237 | | | $ | 3,721 | | | $ | 269,312 | |
|
The following tables summarize activity related to the allowance for loan and lease losses by loan and lease portfolio segment and the reserve for unfunded commitments for the three and nine months ended September 30, 2019:
| | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 |
(in thousands) | (in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total | (in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | Allowance for credit losses on loans and leases | | | | | | | | | | | Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | $ | 48,997 | | | $ | 68,353 | | | $ | 23,654 | | | $ | 10,065 | | | $ | 151,069 | | Balance, beginning of period | | $ | 152,828 | | | $ | 152,615 | | | $ | 40,548 | | | $ | 10,754 | | | $ | 356,745 | |
Provision | | 2,524 | | | 18,797 | | | 1,113 | | | 793 | | | 23,227 | | |
(Recapture) provision for credit losses for loans and leases | | (Recapture) provision for credit losses for loans and leases | | (18,834) | | | 25,603 | | | (5,641) | | | 657 | | | 1,785 | |
Charge-offs | Charge-offs | | (497) | | | (20,457) | | | (305) | | | (1,853) | | | (23,112) | | Charge-offs | | — | | | (15,426) | | | (120) | | | (1,100) | | | (16,646) | |
Recoveries | Recoveries | | 177 | | | 4,263 | | | 94 | | | 570 | | | 5,104 | | Recoveries | | 61 | | | 2,044 | | | 407 | | | 653 | | | 3,165 | |
Net charge-offs | | (320) | | | (16,194) | | | (211) | | | (1,283) | | | (18,008) | | |
Net recoveries (charge-offs) | | Net recoveries (charge-offs) | | 61 | | | (13,382) | | | 287 | | | (447) | | | (13,481) | |
Balance, end of period | Balance, end of period | | $ | 51,201 | | | $ | 70,956 | | | $ | 24,556 | | | $ | 9,575 | | | $ | 156,288 | | Balance, end of period | | $ | 134,055 | | | $ | 164,836 | | | $ | 35,194 | | | $ | 10,964 | | | $ | 345,049 | |
Reserve for unfunded commitments | Reserve for unfunded commitments | | | | | | | | | | | Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | $ | 561 | | | $ | 2,595 | | | $ | 157 | | | $ | 1,544 | | | $ | 4,857 | | Balance, beginning of period | | $ | 20,808 | | | $ | 2,921 | | | $ | 2,061 | | | $ | 578 | | | $ | 26,368 | |
Provision (recapture) for credit losses on unfunded commitments | | 43 | | | 189 | | | (55) | | | 51 | | | 228 | | |
(Recapture) provision for credit losses on unfunded commitments | | (Recapture) provision for credit losses on unfunded commitments | | (380) | | | (1,198) | | | (542) | | | 58 | | | (2,062) | |
Balance, end of period | Balance, end of period | | 604 | | | 2,784 | | | 102 | | | 1,595 | | | 5,085 | | Balance, end of period | | 20,428 | | | 1,723 | | | 1,519 | | | 636 | | | 24,306 | |
Total allowance for credit losses | Total allowance for credit losses | | $ | 51,805 | | | $ | 73,740 | | | $ | 24,658 | | | $ | 11,170 | | | $ | 161,373 | | Total allowance for credit losses | | $ | 154,483 | | | $ | 166,559 | | | $ | 36,713 | | | $ | 11,600 | | | $ | 369,355 | |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2020 |
(in thousands) | (in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total | (in thousands) | | Commercial Real Estate | | Commercial | | Residential | | Consumer & Other | | Total |
Allowance for credit losses on loans and leases | Allowance for credit losses on loans and leases | | | | | | | | | | | Allowance for credit losses on loans and leases | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | $ | 47,904 | | | $ | 63,957 | | | $ | 22,034 | | | $ | 10,976 | | | $ | 144,871 | | Balance, beginning of period | | $ | 50,847 | | | $ | 73,820 | | | $ | 24,714 | | | $ | 8,248 | | | $ | 157,629 | |
Provision | | 5,599 | | | 46,135 | | | 2,630 | | | 1,899 | | | 56,263 | | |
Impact of CECL adoption | | Impact of CECL adoption | | 5,077 | | | 44,009 | | | 2,099 | | | (1,186) | | | 49,999 | |
Adjusted balance, beginning of period | | Adjusted balance, beginning of period | | 55,924 | | | 117,829 | | | 26,813 | | | 7,062 | | | 207,628 | |
Provision for credit losses for loans and leases | | Provision for credit losses for loans and leases | | 77,664 | | | 96,577 | | | 7,701 | | | 6,829 | | | 188,771 | |
Charge-offs | Charge-offs | | (3,035) | | | (48,364) | | | (507) | | | (5,065) | | | (56,971) | | Charge-offs | | — | | | (55,583) | | | (274) | | | (4,697) | | | (60,554) | |
Recoveries | Recoveries | | 733 | | | 9,228 | | | 399 | | | 1,765 | | | 12,125 | | Recoveries | | 467 | | | 6,013 | | | 954 | | | 1,770 | | | 9,204 | |
Net charge-offs | | (2,302) | | | (39,136) | | | (108) | | | (3,300) | | | (44,846) | | |
Net recoveries (charge-offs) | | Net recoveries (charge-offs) | | 467 | | | (49,570) | | | 680 | | | (2,927) | | | (51,350) | |
Balance, end of period | Balance, end of period | | $ | 51,201 | | | $ | 70,956 | | | $ | 24,556 | | | $ | 9,575 | | | $ | 156,288 | | Balance, end of period | | $ | 134,055 | | | $ | 164,836 | | | $ | 35,194 | | | $ | 10,964 | | | $ | 345,049 | |
Reserve for unfunded commitments | Reserve for unfunded commitments | | | | | | | | | | | Reserve for unfunded commitments | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | $ | 628 | | | $ | 2,250 | | | $ | 160 | | | $ | 1,485 | | | $ | 4,523 | | Balance, beginning of period | | $ | 534 | | | $ | 2,539 | | | $ | 149 | | | $ | 1,884 | | | $ | 5,106 | |
(Recapture) provision for credit losses on unfunded commitments | | (24) | | | 534 | | | (58) | | | 110 | | | 562 | | |
Impact of CECL adoption | | Impact of CECL adoption | | 4,030 | | | (487) | | | 1,267 | | | (1,572) | | | 3,238 | |
Adjusted balance, beginning of period | | Adjusted balance, beginning of period | | 4,564 | | | 2,052 | | | 1,416 | | | 312 | | | 8,344 | |
Provision (recapture) for credit losses on unfunded commitments | | Provision (recapture) for credit losses on unfunded commitments | | 15,864 | | | (329) | | | 103 | | | 324 | | | 15,962 | |
Balance, end of period | Balance, end of period | | 604 | | | 2,784 | | | 102 | | | 1,595 | | | 5,085 | | Balance, end of period | | 20,428 | | | 1,723 | | | 1,519 | | | 636 | | | 24,306 | |
Total allowance for credit losses | Total allowance for credit losses | | $ | 51,805 | | | $ | 73,740 | | | $ | 24,658 | | | $ | 11,170 | | | $ | 161,373 | | Total allowance for credit losses | | $ | 154,483 | | | $ | 166,559 | | | $ | 36,713 | | | $ | 11,600 | | | $ | 369,355 | |
|
The following table presents the unfunded commitments for the period ended September 30, 20202021 and 2019:
2020: | | | | | |
(in thousands) | Total |
Unfunded loan and lease commitments | |
September 30, 2021 | $ | 6,302,898 | |
September 30, 2020 | $ | 5,887,887 | |
September 30, 2019 | $ | 5,744,307 | |
Asset Quality and Non-Performing Loans and Leases
The Bank manages asset quality and controlcontrols 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 department 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 credit 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.
Loans and Leases Past Due and Non-Accrual Loans and Leases
Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized 0no interest income on non-accrual loans and leases during the three and nine months ended September 30, 2021 and 2020.
Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with various government-mandated programs, these loans are generally classified based on their past due status prior to their deferral period; as such, they are classified as performing loans that accrue interest. As of September 30, 2020,2021, loans of approximately $782.3$132.5 million are currently deferred under the CARES Act or interagency guidancevarious federal and state guidelines and are classified as current as their contractual payments have been deferred. These deferred loans do not include deferrals of delinquent repurchased GNMA loans as the credit risk of these loans are guaranteed by government programs such as Federal Housing Agency, Veterans Affairs, and USDA Rural Development. At September 30, 2021, approximately $121.0 million of GNMA repurchased loans were on deferral. At December 31, 2020, the Bank had $355.5 million in deferred loans under various federal and state guidelines, excluding GNMA repurchased loans on deferral of $177.7 million.
The following tables present the amortized cost basiscarrying value of the loans and leases past due, by loan and lease class, as of September 30, 20202021 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
(in thousands) | 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 (1) | | Current | | Total Loans and Leases |
Commercial real estate | | | | | | | | | | | | | |
Non-owner occupied term, net | $ | 3,069 | | | $ | 8,959 | | | $ | 1,154 | | | $ | 13,182 | | | $ | 8,030 | | | $ | 3,512,564 | | | $ | 3,533,776 | |
Owner occupied term, net | 3,432 | | | 414 | | | 1 | | | 3,847 | | | 4,385 | | | 2,402,866 | | | 2,411,098 | |
Multifamily, net | 1,868 | | | 0 | | | 0 | | | 1,868 | | | 0 | | | 3,387,166 | | | 3,389,034 | |
Construction & development, net | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 757,462 | | | 757,462 | |
Residential development, net | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 163,400 | | | 163,400 | |
Commercial | | | | | | | | | | | | | |
Term, net | 389 | | | 57 | | | 0 | | | 446 | | | 10,103 | | | 4,235,680 | | | 4,246,229 | |
Lines of credit & other, net | 2,960 | | | 3,080 | | | 3 | | | 6,043 | | | 143 | | | 888,596 | | | 894,782 | |
Leases & equipment finance, net | 8,454 | | | 24,057 | | | 18,063 | | | 50,574 | | | 3,764 | | | 1,442,312 | | | 1,496,650 | |
Residential | | | | | | | | | | | | | |
Mortgage, net (2) | 1,190 | | | 3,386 | | | 29,593 | | | 34,169 | | | 0 | | | 4,008,247 | | | 4,042,416 | |
Home equity loans & lines, net | 1,411 | | | 1,443 | | | 1,769 | | | 4,623 | | | 0 | | | 1,168,074 | | | 1,172,697 | |
Consumer & other, net | 1,511 | | | 475 | | | 346 | | | 2,332 | | | 0 | | | 316,597 | | | 318,929 | |
Total, net of deferred fees and costs | $ | 24,284 | | | $ | 41,871 | | | $ | 50,929 | | | $ | 117,084 | | | $ | 26,425 | | | $ | 22,282,964 | | | $ | 22,426,473 | |
2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
(in thousands) | 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 (1) | | Current | | Total Loans and Leases |
Commercial real estate | | | | | | | | | | | | | |
Non-owner occupied term, net | $ | 1,750 | | | $ | — | | | $ | — | | | $ | 1,750 | | | $ | 3,417 | | | $ | 3,556,597 | | | $ | 3,561,764 | |
Owner occupied term, net | 1,416 | | | 343 | | | 1 | | | 1,760 | | | 2,535 | | | 2,326,043 | | | 2,330,338 | |
Multifamily, net | 9,389 | | | — | | | — | | | 9,389 | | | — | | | 3,803,635 | | | 3,813,024 | |
Construction & development, net | — | | | — | | | — | | | — | | | — | | | 882,778 | | | 882,778 | |
Residential development, net | — | | | — | | | — | | | — | | | — | | | 177,148 | | | 177,148 | |
Commercial | | | | | | | | | | | | | |
Term, net | 211 | | | 82 | | | 2 | | | 295 | | | 5,511 | | | 3,153,660 | | | 3,159,466 | |
Lines of credit & other, net | 501 | | | 5,820 | | | 3 | | | 6,324 | | | 930 | | | 923,096 | | | 930,350 | |
Leases & equipment finance, net | 8,502 | | | 7,347 | | | 2,449 | | | 18,298 | | | 11,759 | | | 1,427,191 | | | 1,457,248 | |
Residential | | | | | | | | | | | | | |
Mortgage, net | 943 | | | 2,728 | | | 23,957 | | | 27,628 | | | — | | | 4,303,232 | | | 4,330,860 | |
Home equity loans & lines, net | 1,182 | | | 414 | | | 962 | | | 2,558 | | | — | | | 1,131,265 | | | 1,133,823 | |
Consumer & other, net | 455 | | | 243 | | | 116 | | | 814 | | | — | | | 192,327 | | | 193,141 | |
Total, net of deferred fees and costs | $ | 24,349 | | | $ | 16,977 | | | $ | 27,490 | | | $ | 68,816 | | | $ | 24,152 | | | $ | 21,876,972 | | | $ | 21,969,940 | |
(1) Loans and leases on non-accrual with an unamortizedamortized cost basis of $26.4$24.2 million had a related allowance for credit losses of $3.3$7.3 million at September 30, 2020.
(2) Includes government guaranteed GNMA mortgage loans that the Bank has the right but not the obligation to repurchase that are past due 90 days or more in relation to their original term, of which $19.3 million are classified as current as a result of COVID-19 related payment forbearance or deferral while $660,000 are classified as greater than 90 days past due.
2021.
| | | December 31, 2019 | | December 31, 2020 |
(in thousands) | (in thousands) | | 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 and Other (1) | | Total Loans and Leases | (in thousands) | | 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 (1) | | Current and Other | | Total Loans and Leases |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | Commercial real estate | | | | | | | | | | | | | | |
Non-owner occupied term, net | Non-owner occupied term, net | | $ | 0 | | | $ | 0 | | | $ | 121 | | | $ | 121 | | | $ | 2,920 | | | $ | 3,542,525 | | | $ | 3,545,566 | | Non-owner occupied term, net | | $ | 1,214 | | | $ | 21,309 | | | $ | 815 | | | $ | 23,338 | | | $ | 3,809 | | | $ | 3,478,655 | | | $ | 3,505,802 | |
Owner occupied term, net | Owner occupied term, net | | 975 | | | 470 | | | 1 | | | 1,446 | | | 4,600 | | | 2,490,042 | | | 2,496,088 | | Owner occupied term, net | | 182 | | | 103 | | | 208 | | | 493 | | | 5,984 | | | 2,327,468 | | | 2,333,945 | |
Multifamily, net | Multifamily, net | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,514,774 | | | 3,514,774 | | Multifamily, net | | — | | | 215 | | | — | | | 215 | | | — | | | 3,348,981 | | | 3,349,196 | |
Construction & development, net | Construction & development, net | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 678,740 | | | 678,740 | | Construction & development, net | | 3,991 | | | — | | | — | | | 3,991 | | | — | | | 824,487 | | | 828,478 | |
Residential development, net | Residential development, net | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 189,010 | | | 189,010 | | Residential development, net | | — | | | — | | | — | | | — | | | — | | | 192,761 | | | 192,761 | |
Commercial | Commercial | | Commercial | |
Term, net | Term, net | | 136 | | | 381 | | | 0 | | | 517 | | | 3,458 | | | 2,228,842 | | | 2,232,817 | | Term, net | | 562 | | | — | | | 4 | | | 566 | | | 2,205 | | | 4,021,696 | | | 4,024,467 | |
Lines of credit & other, net | Lines of credit & other, net | | 3,548 | | | 376 | | | 36 | | | 3,960 | | | 767 | | | 1,207,666 | | | 1,212,393 | | Lines of credit & other, net | | 1,491 | | | 2,667 | | | 7 | | | 4,165 | | | 336 | | | 858,259 | | | 862,760 | |
Leases & equipment finance, net | Leases & equipment finance, net | | 10,685 | | | 11,176 | | | 3,086 | | | 24,947 | | | 14,499 | | | 1,426,043 | | | 1,465,489 | | Leases & equipment finance, net | | 14,242 | | | 18,220 | | | 4,796 | | | 37,258 | | | 18,742 | | | 1,400,630 | | | 1,456,630 | |
Residential | Residential | | Residential | |
Mortgage, net (2) | Mortgage, net (2) | | 0 | | | 8,104 | | | 36,642 | | | 44,746 | | | 0 | | | 4,170,678 | | | 4,215,424 | | Mortgage, net (2) | | 1,587 | | | 3,912 | | | 27,713 | | | 33,212 | | | — | | | 3,838,694 | | | 3,871,906 | |
Home equity loans & lines, net | Home equity loans & lines, net | | 2,173 | | | 867 | | | 1,804 | | | 4,844 | | | 0 | | | 1,232,668 | | | 1,237,512 | | Home equity loans & lines, net | | 844 | | | 544 | | | 2,463 | | | 3,851 | | | — | | | 1,132,213 | | | 1,136,064 | |
Consumer & other, net | Consumer & other, net | | 2,043 | | | 948 | | | 615 | | | 3,606 | | | 0 | | | 404,265 | | | 407,871 | | Consumer & other, net | | 678 | | | 286 | | | 355 | | | 1,319 | | | — | | | 216,039 | | | 217,358 | |
Total, net of deferred fees and costs | Total, net of deferred fees and costs | | $ | 19,560 | | | $ | 22,322 | | | $ | 42,305 | | | $ | 84,187 | | | $ | 26,244 | | | $ | 21,085,253 | | | $ | 21,195,684 | | Total, net of deferred fees and costs | | $ | 24,791 | | | $ | 47,256 | | | $ | 36,361 | | | $ | 108,408 | | | $ | 31,076 | | | $ | 21,639,883 | | | $ | 21,779,367 | |
(1) Other includes purchasedLoans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit impaired loanslosses of $89.5 million.
(2) Includes government guaranteed GNMA mortgage loans that the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling $4.3$16.7 million at December 31, 2019.2020.
Collateral Dependent Loans and Leases
Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of September 30, 2020.2021. There have been no significant changes in the level of collateralization from the prior periods.
| (in thousands) | (in thousands) | | Residential Real Estate | | Commercial Real Estate | | General Business Assets | | Other | | Total | (in thousands) | | Residential Real Estate | | Commercial Real Estate | | General Business Assets | | Other | | Total |
Commercial real estate | Commercial real estate | | | | | | | | | | | Commercial real estate | | | | | | | | | | |
Non-owner occupied term, net | Non-owner occupied term, net | | $ | 0 | | | $ | 7,786 | | | $ | 0 | | | $ | 0 | | | $ | 7,786 | | Non-owner occupied term, net | | $ | — | | | $ | 3,121 | | | $ | — | | | $ | — | | | $ | 3,121 | |
Owner occupied term, net | Owner occupied term, net | | 0 | | | 3,627 | | | 0 | | | 0 | | | 3,627 | | Owner occupied term, net | | — | | | 2,123 | | | — | | | — | | | 2,123 | |
| Commercial | Commercial | | Commercial | |
Term, net | Term, net | | 940 | | | 59 | | | 7,963 | | | 1,227 | | | 10,189 | | Term, net | | 1,356 | | | 536 | | | 779 | | | 2,454 | | | 5,125 | |
Line of credit & other, net | Line of credit & other, net | | 0 | | | 0 | | | 143 | | | — | | | 143 | | Line of credit & other, net | | — | | | — | | | 930 | | | 1 | | | 931 | |
Leases & equipment finance, net | Leases & equipment finance, net | | 0 | | | 0 | | | 3,764 | | | 0 | | | 3,764 | | Leases & equipment finance, net | | — | | | — | | | 11,759 | | | — | | | 11,759 | |
Residential | Residential | | Residential | |
Mortgage, net | Mortgage, net | | 207,199 | | | 0 | | | 0 | | | 0 | | | 207,199 | | Mortgage, net | | 27,988 | | | — | | | — | | | — | | | 27,988 | |
Home equity loans & lines, net | Home equity loans & lines, net | | 2,359 | | | 0 | | | 0 | | | 0 | | | 2,359 | | Home equity loans & lines, net | | 2,937 | | | — | | | — | | | — | | | 2,937 | |
| Total net of deferred fees and costs | Total net of deferred fees and costs | | $ | 210,498 | | | $ | 11,472 | | | $ | 11,870 | | | $ | 1,227 | | | $ | 235,067 | | Total net of deferred fees and costs | | $ | 32,281 | | | $ | 5,780 | | | $ | 13,468 | | | $ | 2,455 | | | $ | 53,984 | |
Troubled Debt RestructuringsRestructuring
At September 30, 20202021 and December 31, 2019,2020, troubled debt restructured loans of $15.8$9.8 million and $18.6$15.0 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR 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 following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of September 30, 20202021 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
(in thousands) | | Accrual Status | | Non-Accrual Status | | Total Modification | | # of Contracts |
Commercial real estate, net | | $ | 1,356 | | | $ | 3,946 | | | $ | 5,302 | | | 8 | |
Commercial, net | | 1,258 | | | 7,954 | | | 9,212 | | | 2 | |
Residential, net | | 13,100 | | | 0 | | | 13,100 | | | 78 | |
Consumer & other, net | | 105 | | | 0 | | | 105 | | | 5 | |
Total, net of deferred fees and costs | | $ | 15,819 | | | $ | 11,900 | | | $ | 27,719 | | | 93 | |
| | | | | | | | |
| | December 31, 2019 |
(in thousands) | | Accrual Status | | Non-Accrual Status | | Total Modification | | # of Contracts |
Commercial real estate, net | | $ | 3,968 | | | $ | 0 | | | $ | 3,968 | | | 3 | |
Commercial, net | | 4,105 | | | 0 | | | 4,105 | | | 2 | |
Residential, net | | 10,460 | | | 0 | | | 10,460 | | | 54 | |
Consumer & other, net | | 43 | | | 0 | | | 43 | | | 3 | |
Total, net of deferred fees and costs | | $ | 18,576 | | | $ | 0 | | | $ | 18,576 | | | 62 | |
2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
(in thousands) | | Accrual Status | | Non-Accrual Status | | Total Modification | | # of Contracts |
Commercial real estate, net | | $ | 1,061 | | | $ | 70 | | | $ | 1,131 | | | 5 | |
| | | | | | | | |
Residential, net | | 8,762 | | | — | | | 8,762 | | | 45 | |
Consumer & other, net | | 26 | | | — | | | 26 | | | 3 | |
Total, net of deferred fees and costs | | $ | 9,849 | | | $ | 70 | | | $ | 9,919 | | | 53 | |
| | | | | | | | |
| | December 31, 2020 |
(in thousands) | | Accrual Status | | Non-Accrual Status | | Total Modification | | # of Contracts |
Commercial real estate, net | | $ | 1,345 | | | $ | 289 | | | $ | 1,634 | | | 7 | |
Commercial, net | | 1,231 | | | — | | | 1,231 | | | 1 | |
Residential, net | | 12,415 | | | — | | | 12,415 | | | 75 | |
| | | | | | | | |
Total, net of deferred fees and costs | | $ | 14,991 | | | $ | 289 | | | $ | 15,280 | | | 83 | |
The following table presents loans that were determined to be TDRs during the three and nine months ended September 30, 20202021 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Commercial real estate, net | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 118 | |
Commercial, net | 0 | | | 0 | | | 8,508 | | | 1,842 | |
Residential, net | 7,029 | | | 0 | | | 13,463 | | | 7 | |
Consumer & other, net | 0 | | | 0 | | | 74 | | | 0 | |
Total, net of deferred fees and costs | $ | 7,029 | | | $ | 0 | | | $ | 22,045 | | | $ | 1,967 | |
2020:
For the periods presented in the table above, the outstanding recorded investment was the same pre and post modification and all modifications were combination modifications. There were $132,000 and $9.6 million in financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the three and nine months ended September 30, 2020. There were 0 financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the three and nine months ended September 30, 2019.
COVID-19 Related Payment Deferral and Forbearance
Due to the deterioration of the US economy resulting from the COVID-19 pandemic, the Company has had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended one to six months to allow for full amortization. In accordance with the CARES Act and interagency guidance, these loans are generally classified based on their past due status prior to their deferral period, so they are classified as performing loans that accrue interest. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| | | | | | | |
Commercial, net | $ | — | | | $ | — | | | $ | — | | | $ | 8,508 | |
Residential, net | 1,661 | | | 7,029 | | | 5,903 | | | 13,463 | |
Consumer & other, net | — | | | — | | | 36 | | | 74 | |
Total, net of deferred fees and costs | $ | 1,661 | | | $ | 7,029 | | | $ | 5,939 | | | $ | 22,045 | |
Credit Quality Indicators
Management regularly reviews loans and leases in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. In addition, the board reviews and approves the credit quality indicators each year. The Bank differentiates its lending portfolios into homogeneous and non-homogeneous loans and leases. Homogeneous loans and leases are risk rated on a single risk rating scale based on the past due status of the loan or lease.
The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. For non-homogeneous loans and leases, PD ratings of 1 through 9 are "pass" grades, while PD ratings of 10 and 11 are "watch" grades. PD ratings of 12-16 correspond to the regulatory-defined categories of special mention (12), substandard (13-14), doubtful (15), and loss (16). The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six alphabetic ratings from A-F, where a higher rating represents higher risk. The LGD scale quantifies recovery risk associated with an event of default and predicts the amount of loss that would be incurred on a loan or lease if a borrower were to experience a major default and includes variables that may be external to the borrower, such as industry, geographic location, and credit cycle stage. It could also include variables specific to the borrower such as their probability of default and bankruptcies as well as variables specific to the loan or lease, including collateral valuation, covenant structure and debt type. The product of the borrower's PD and a loan or lease LGD is the loan or lease expected loss, expressed as a percentage. This provides a common language of credit risk across different loans.
The PD scale estimates the likelihood that a borrower will experience a major default on any of its debt obligations within a specified time period. Examples of major defaults include payments 90 days or more past due, non-accrual classification, bankruptcy filing, or a full or partial charge-off of a loan or lease. As such, the PD scale represents the credit quality indicator for non-homogeneous loans and leases.
The credit quality indicator rating categories follow regulatory classification and can be generally described by the following groupings for loans and leases:
PassPass/Watch—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring.
Watch—A watch loan or lease is considered pass rated but has a heightened level of unacceptable default 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 risk rating would be appropriate within a short period of time.
Special Mention—A special mention loan or lease 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 in the institution's credit position at some future date. These borrowers have an elevated probability of default but not to the point of a substandard classification.
Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard 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.
Doubtful—Loans or leases classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable.
Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.
The following table representstables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of September 30, 2021 and December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
Commercial real estate: | | | | | | | | | | | | | | | | | | |
Non-owner occupied term, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 526,979 | | | $ | 452,318 | | | $ | 626,217 | | | $ | 451,713 | | | $ | 323,746 | | | $ | 1,017,904 | | | $ | 1,853 | | | $ | 4,060 | | | $ | 3,404,790 | |
| Special mention | | 10,693 | | | 933 | | | 5,791 | | | 36,676 | | | — | | | 48,995 | | | — | | | — | | | 103,088 | |
| Substandard | | 829 | | | 2,020 | | | 2,616 | | | 20,787 | | | 3,008 | | | 24,296 | | | — | | | — | | | 53,556 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | 86 | | | — | | | — | | | 86 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 244 | | | — | | | — | | | 244 | |
Total non-owner occupied term, net | | $ | 538,501 | | | $ | 455,271 | | | $ | 634,624 | | | $ | 509,176 | | | $ | 326,754 | | | $ | 1,091,525 | | | $ | 1,853 | | | $ | 4,060 | | | $ | 3,561,764 | |
Owner occupied term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 375,653 | | | $ | 254,143 | | | $ | 390,432 | | | $ | 283,285 | | | $ | 282,030 | | | $ | 674,773 | | | $ | 5,187 | | | $ | 748 | | | $ | 2,266,251 | |
| Special mention | | 550 | | | 897 | | | 7,977 | | | 11,685 | | | 9,322 | | | 19,095 | | | — | | | — | | | 49,526 | |
| Substandard | | — | | | — | | | 703 | | | 968 | | | — | | | 12,393 | | | — | | | — | | | 14,064 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | 67 | | | — | | | — | | | 67 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 430 | | | — | | | — | | | 430 | |
Total owner occupied term, net | | $ | 376,203 | | | $ | 255,040 | | | $ | 399,112 | | | $ | 295,938 | | | $ | 291,352 | | | $ | 706,758 | | | $ | 5,187 | | | $ | 748 | | | $ | 2,330,338 | |
Multifamily, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 1,124,021 | | | $ | 386,911 | | | $ | 794,320 | | | $ | 427,943 | | | $ | 421,530 | | | $ | 621,542 | | | $ | 23,182 | | | $ | 2,936 | | | $ | 3,802,385 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | 1,250 | | | — | | | — | | | 1,250 | |
| Substandard | | — | | | — | | | — | | | — | | | 9,389 | | | — | | | — | | | — | | | 9,389 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multifamily, net | | $ | 1,124,021 | | | $ | 386,911 | | | $ | 794,320 | | | $ | 427,943 | | | $ | 430,919 | | | $ | 622,792 | | | $ | 23,182 | | | $ | 2,936 | | | $ | 3,813,024 | |
Construction & development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 132,710 | | | $ | 321,591 | | | $ | 275,301 | | | $ | 105,270 | | | $ | 27,688 | | | $ | 172 | | | $ | 2,380 | | | $ | — | | | $ | 865,112 | |
| Special mention | | — | | | 1,635 | | | — | | | 7,600 | | | — | | | — | | | — | | | — | | | 9,235 | |
| Substandard | | — | | | — | | | — | | | 8,431 | | | — | | | — | | | — | | | — | | | 8,431 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction & development, net | | $ | 132,710 | | | $ | 323,226 | | | $ | 275,301 | | | $ | 121,301 | | | $ | 27,688 | | | $ | 172 | | | $ | 2,380 | | | $ | — | | | $ | 882,778 | |
Residential development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 15,260 | | | $ | 15,391 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 136,948 | | | $ | 9,549 | | | $ | 177,148 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total residential development, net | | $ | 15,260 | | | $ | 15,391 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 136,948 | | | $ | 9,549 | | | $ | 177,148 | |
| | | | | | | | | | | | | | | | | | |
Total commercial real estate | | $ | 2,186,695 | | | $ | 1,435,839 | | | $ | 2,103,357 | | | $ | 1,354,358 | | | $ | 1,076,713 | | | $ | 2,421,247 | | | $ | 169,550 | | | $ | 17,293 | | | $ | 10,765,052 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Commercial real estate: | | | | | | | | | | | | | | | | | | |
Non-owner occupied term, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 391,145 | | | $ | 689,391 | | | $ | 498,018 | | | $ | 386,182 | | | $ | 363,588 | | | $ | 1,040,039 | | | $ | 3,166 | | | $ | 4,165 | | | $ | 3,375,694 | |
| Special mention | | 2,531 | | | 6,687 | | | 41,037 | | | 7,937 | | | 43,589 | | | 9,579 | | | 0 | | | 0 | | | 111,360 | |
| Substandard | | 859 | | | 6,322 | | | 19,997 | | | 3,079 | | | 2,564 | | | 13,559 | | | 0 | | | 0 | | | 46,380 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 342 | | | 0 | | | 0 | | | 342 | |
Total non-owner occupied term, net | | $ | 394,535 | | | $ | 702,400 | | | $ | 559,052 | | | $ | 397,198 | | | $ | 409,741 | | | $ | 1,063,519 | | | $ | 3,166 | | | $ | 4,165 | | | $ | 3,533,776 | |
Owner occupied term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 250,333 | | | $ | 426,560 | | | $ | 310,809 | | | $ | 343,877 | | | $ | 270,519 | | | $ | 677,020 | | | $ | 5,541 | | | $ | 795 | | | $ | 2,285,454 | |
| Special mention | | 3,670 | | | 10,898 | | | 40,098 | | | 15,996 | | | 3,450 | | | 9,024 | | | 0 | | | 0 | | | 83,136 | |
| Substandard | | 4,564 | | | 3,691 | | | 7,965 | | | 2,849 | | | 5,316 | | | 17,473 | | | 0 | | | 0 | | | 41,858 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 220 | | | 0 | | | 0 | | | 220 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 430 | | | 0 | | | 0 | | | 430 | |
Total owner occupied term, net | | $ | 258,567 | | | $ | 441,149 | | | $ | 358,872 | | | $ | 362,722 | | | $ | 279,285 | | | $ | 704,167 | | | $ | 5,541 | | | $ | 795 | | | $ | 2,411,098 | |
Multifamily, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 211,471 | | | $ | 881,877 | | | $ | 625,317 | | | $ | 649,637 | | | $ | 301,816 | | | $ | 654,444 | | | $ | 28,110 | | | $ | 2,962 | | | $ | 3,355,634 | |
| Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 33,400 | | | 0 | | | 0 | | | 33,400 | |
| Substandard | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total multifamily, net | | $ | 211,471 | | | $ | 881,877 | | | $ | 625,317 | | | $ | 649,637 | | | $ | 301,816 | | | $ | 687,844 | | | $ | 28,110 | | | $ | 2,962 | | | $ | 3,389,034 | |
Construction & development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 61,200 | | | $ | 238,868 | | | $ | 282,156 | | | $ | 166,146 | | | $ | 6,901 | | | $ | 554 | | | $ | 0 | | | $ | 0 | | | $ | 755,825 | |
| Special mention | | 1,637 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,637 | |
| Substandard | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total construction & development, net | | $ | 62,837 | | | $ | 238,868 | | | $ | 282,156 | | | $ | 166,146 | | | $ | 6,901 | | | $ | 554 | | | $ | 0 | | | $ | 0 | | | $ | 757,462 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
Commercial: | | | | | | | | | | | | | | | | | | |
Term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 1,024,743 | | | $ | 511,451 | | | $ | 237,257 | | | $ | 238,367 | | | $ | 186,079 | | | $ | 238,496 | | | $ | 594,949 | | | $ | 15,062 | | | $ | 3,046,404 | |
| Special mention | | 15,000 | | | 7,501 | | | 122 | | | 29,182 | | | 642 | | | 1,181 | | | 26,795 | | | 239 | | | 80,662 | |
| Substandard | | 16,469 | | | 650 | | | 1,772 | | | 1,379 | | | 3,647 | | | 1,648 | | | — | | | 5,548 | | | 31,113 | |
| Doubtful | | — | | | — | | | — | | | — | | | 869 | | | 1 | | | — | | | — | | | 870 | |
| Loss | | — | | | — | | | — | | | 417 | | | — | | | — | | | — | | | — | | | 417 | |
Total term, net | | $ | 1,056,212 | | | $ | 519,602 | | | $ | 239,151 | | | $ | 269,345 | | | $ | 191,237 | | | $ | 241,326 | | | $ | 621,744 | | | $ | 20,849 | | | $ | 3,159,466 | |
Lines of credit & other, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 33,823 | | | $ | 11,766 | | | $ | 16,996 | | | $ | 17,615 | | | $ | 357 | | | $ | 1,888 | | | $ | 772,450 | | | $ | 2,997 | | | $ | 857,892 | |
| Special mention | | 496 | | | — | | | — | | | 134 | | | — | | | 224 | | | 15,364 | | | 2,009 | | | 18,227 | |
| Substandard | | — | | | 476 | | | — | | | — | | | — | | | 1,118 | | | 47,428 | | | 5,205 | | | 54,227 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | 2 | |
Total lines of credit & other, net | | $ | 34,319 | | | $ | 12,242 | | | $ | 16,996 | | | $ | 17,749 | | | $ | 357 | | | $ | 3,230 | | | $ | 835,245 | | | $ | 10,212 | | | $ | 930,350 | |
Leases & equipment finance, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 468,180 | | | $ | 366,626 | | | $ | 322,365 | | | $ | 161,696 | | | $ | 58,870 | | | $ | 44,112 | | | $ | — | | | $ | — | | | $ | 1,421,849 | |
| Special mention | | 2,193 | | | 1,980 | | | 2,349 | | | 1,869 | | | 706 | | | 170 | | | — | | | — | | | 9,267 | |
| Substandard | | 1,650 | | | 6,179 | | | 2,279 | | | 4,380 | | | 741 | | | 263 | | | — | | | — | | | 15,492 | |
| Doubtful | | 2,273 | | | 2,494 | | | 2,373 | | | 1,506 | | | 748 | | | 70 | | | — | | | — | | | 9,464 | |
| Loss | | — | | | 446 | | | 454 | | | 104 | | | 158 | | | 14 | | | — | | | — | | | 1,176 | |
Total leases & equipment finance, net | | $ | 474,296 | | | $ | 377,725 | | | $ | 329,820 | | | $ | 169,555 | | | $ | 61,223 | | | $ | 44,629 | | | $ | — | | | $ | — | | | $ | 1,457,248 | |
| | | | | | | | | | | | | | | | | | |
Total commercial | | $ | 1,564,827 | | | $ | 909,569 | | | $ | 585,967 | | | $ | 456,649 | | | $ | 252,817 | | | $ | 289,185 | | | $ | 1,456,989 | | | $ | 31,061 | | | $ | 5,547,064 | |
| | | | | | | | | | | | | | | | | | | |
Residential: | | | | | | | | | | | | | | | | | | |
Mortgage, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 1,700,114 | | | $ | 722,986 | | | $ | 702,425 | | | $ | 220,512 | | | $ | 246,799 | | | $ | 710,397 | | | $ | — | | | $ | — | | | $ | 4,303,233 | |
| Special mention | | — | | | — | | | 780 | | | 81 | | | 488 | | | 2,321 | | | — | | | — | | | 3,670 | |
| Substandard | | 431 | | | 597 | | | 2,046 | | | 1,064 | | | 3,105 | | | 15,070 | | | — | | | — | | | 22,313 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | 907 | | | — | | | — | | | 737 | | | — | | | — | | | 1,644 | |
Total mortgage, net | | $ | 1,700,545 | | | $ | 723,583 | | | $ | 706,158 | | | $ | 221,657 | | | $ | 250,392 | | | $ | 728,525 | | | $ | — | | | $ | — | | | $ | 4,330,860 | |
| | | | | | | | | | | | | | | | | | | |
Home equity loans & lines, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 135 | | | $ | 2 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 12,476 | | | $ | 1,086,719 | | | $ | 31,913 | | | $ | 1,131,264 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | 60 | | | 1,285 | | | 251 | | | 1,596 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | 134 | | | 321 | | | 152 | | | 607 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 36 | | | 93 | | | 227 | | | 356 | |
Total home equity loans & lines, net | | $ | 135 | | | $ | 2 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 12,706 | | | $ | 1,088,418 | | | $ | 32,543 | | | $ | 1,133,823 | |
| | | | | | | | | | | | | | | | | | |
Total residential | | $ | 1,700,680 | | | $ | 723,585 | | | $ | 706,158 | | | $ | 221,676 | | | $ | 250,392 | | | $ | 741,231 | | | $ | 1,088,418 | | | $ | 32,543 | | | $ | 5,464,683 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Residential development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 14,489 | | | $ | 8,244 | | | $ | 2,770 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 135,377 | | | $ | 2,520 | | | $ | 163,400 | |
| Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Substandard | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total residential development, net | | $ | 14,489 | | | $ | 8,244 | | | $ | 2,770 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 135,377 | | | $ | 2,520 | | | $ | 163,400 | |
| | | | | | | | | | | | | | | | | | |
Total commercial real estate | | $ | 941,899 | | | $ | 2,272,538 | | | $ | 1,828,167 | | | $ | 1,575,703 | | | $ | 997,743 | | | $ | 2,456,084 | | | $ | 172,194 | | | $ | 10,442 | | | $ | 10,254,770 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | |
Term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 2,314,701 | | | $ | 352,092 | | | $ | 351,231 | | | $ | 254,727 | | | $ | 71,041 | | | $ | 235,495 | | | $ | 594,893 | | | $ | 28,230 | | | $ | 4,202,410 | |
| Special mention | | 2,985 | | | 307 | | | 1,427 | | | 786 | | | 2,993 | | | 3,596 | | | 585 | | | 435 | | | 13,114 | |
| Substandard | | 995 | | | 1,038 | | | 4,441 | | | 5,038 | | | 1,414 | | | 1,320 | | | 0 | | | 15,884 | | | 30,130 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 575 | | | 0 | | | 0 | | | 575 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total term, net | | $ | 2,318,681 | | | $ | 353,437 | | | $ | 357,099 | | | $ | 260,551 | | | $ | 75,448 | | | $ | 240,986 | | | $ | 595,478 | | | $ | 44,549 | | | $ | 4,246,229 | |
Lines of credit & other, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 17,429 | | | $ | 22,326 | | | $ | 25,574 | | | $ | 791 | | | $ | 2,558 | | | $ | 594 | | | $ | 734,015 | | | $ | 6,303 | | | $ | 809,590 | |
| Special mention | | 4,037 | | | 0 | | | 0 | | | 0 | | | 77 | | | 324 | | | 38,772 | | | 4,089 | | | 47,299 | |
| Substandard | | 573 | | | 517 | | | 0 | | | 0 | | | 252 | | | 940 | | | 29,218 | | | 6,390 | | | 37,890 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | | 2 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1 | |
Total lines of credit & other, net | | $ | 22,039 | | | $ | 22,843 | | | $ | 25,574 | | | $ | 791 | | | $ | 2,887 | | | $ | 1,858 | | | $ | 802,007 | | | $ | 16,783 | | | $ | 894,782 | |
Leases & equipment finance, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 409,148 | | | $ | 499,778 | | | $ | 275,149 | | | $ | 149,288 | | | $ | 77,733 | | | $ | 13,758 | | | $ | 0 | | | $ | 0 | | | $ | 1,424,854 | |
| Special mention | | 1,232 | | | 3,555 | | | 7,808 | | | 4,066 | | | 702 | | | 45 | | | 0 | | | 0 | | | 17,408 | |
| Substandard | | 2,181 | | | 9,466 | | | 14,242 | | | 4,588 | | | 2,419 | | | 5,384 | | | 0 | | | 0 | | | 38,280 | |
| Doubtful | | 892 | | | 5,194 | | | 4,809 | | | 2,937 | | | 1,205 | | | 169 | | | 0 | | | 0 | | | 15,206 | |
| Loss | | 228 | | | 100 | | | 298 | | | 62 | | | 157 | | | 57 | | | 0 | | | 0 | | | 902 | |
Total leases & equipment finance, net | | $ | 413,681 | | | $ | 518,093 | | | $ | 302,306 | | | $ | 160,941 | | | $ | 82,216 | | | $ | 19,413 | | | $ | 0 | | | $ | 0 | | | $ | 1,496,650 | |
| | | | | | | | | | | | | | | | | | |
Total commercial | | $ | 2,754,401 | | | $ | 894,373 | | | $ | 684,979 | | | $ | 422,283 | | | $ | 160,551 | | | $ | 262,257 | | | $ | 1,397,485 | | | $ | 61,332 | | | $ | 6,637,661 | |
| | | | | | | | | | | | | | | | | | | |
Residential: | | | | | | | | | | | | | | | | | | |
Mortgage, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 580,651 | | | $ | 1,281,752 | | | $ | 449,023 | | | $ | 462,024 | | | $ | 490,798 | | | $ | 744,660 | | | $ | 0 | | | $ | 0 | | | $ | 4,008,908 | |
| Special mention | | 0 | | | 0 | | | 197 | | | 1,206 | | | 142 | | | 3,030 | | | 0 | | | 0 | | | 4,575 | |
| Substandard | | 0 | | | 1,405 | | | 2,911 | | | 5,287 | | | 6,951 | | | 10,488 | | | 0 | | | 0 | | | 27,042 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 1,269 | | | 0 | | | 190 | | | 0 | | | 432 | | | 0 | | | 0 | | | 1,891 | |
Total mortgage, net | | $ | 580,651 | | | $ | 1,284,426 | | | $ | 452,131 | | | $ | 468,707 | | | $ | 497,891 | | | $ | 758,610 | | | $ | 0 | | | $ | 0 | | | $ | 4,042,416 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
Consumer & other, net: | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 13,616 | | | $ | 12,411 | | | $ | 14,605 | | | $ | 6,621 | | | $ | 4,589 | | | $ | 5,729 | | | $ | 132,063 | | | $ | 2,692 | | | $ | 192,326 | |
| Special mention | | — | | | 39 | | | 58 | | | — | | | 175 | | | 186 | | | 203 | | | 38 | | | 699 | |
| Substandard | | — | | | — | | | 22 | | | — | | | — | | | 15 | | | 10 | | | 59 | | | 106 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 7 | | | 3 | | | — | | | 10 | |
Total consumer & other, net | | $ | 13,616 | | | $ | 12,450 | | | $ | 14,685 | | | $ | 6,621 | | | $ | 4,764 | | | $ | 5,937 | | | $ | 132,279 | | | $ | 2,789 | | | $ | 193,141 | |
| | | | | | | | | | | | | | | | | | | |
Grand total | | $ | 5,465,818 | | | $ | 3,081,443 | | | $ | 3,410,167 | | | $ | 2,039,304 | | | $ | 1,584,686 | | | $ | 3,457,600 | | | $ | 2,847,236 | | | $ | 83,686 | | | $ | 21,969,940 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Commercial real estate: | | | | | | | | | | | | | | | | | | |
Non-owner occupied term, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 496,412 | | | $ | 677,975 | | | $ | 489,350 | | | $ | 379,691 | | | $ | 338,257 | | | $ | 932,207 | | | $ | 2,855 | | | $ | 4,139 | | | $ | 3,320,886 | |
| Special mention | | 13,281 | | | 1,432 | | | 40,899 | | | 2,800 | | | 31,699 | | | 27,167 | | | — | | | — | | | 117,278 | |
| Substandard | | 3,129 | | | 2,668 | | | 19,951 | | | 3,062 | | | 19,806 | | | 18,586 | | | — | | | — | | | 67,202 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | 103 | | | — | | | — | | | 103 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 333 | | | — | | | — | | | 333 | |
Total non-owner occupied term, net | | $ | 512,822 | | | $ | 682,075 | | | $ | 550,200 | | | $ | 385,553 | | | $ | 389,762 | | | $ | 978,396 | | | $ | 2,855 | | | $ | 4,139 | | | $ | 3,505,802 | |
Owner occupied term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 284,698 | | | $ | 414,715 | | | $ | 321,900 | | | $ | 344,606 | | | $ | 257,969 | | | $ | 610,893 | | | $ | 6,270 | | | $ | 783 | | | $ | 2,241,834 | |
| Special mention | | 3,641 | | | 8,373 | | | 13,143 | | | 7,365 | | | 3,425 | | | 18,386 | | | — | | | — | | | 54,333 | |
| Substandard | | 2,657 | | | 1,694 | | | 9,868 | | | 2,846 | | | 4,356 | | | 14,609 | | | 282 | | | 975 | | | 37,287 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | 61 | | | — | | | — | | | 61 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 430 | | | — | | | — | | | 430 | |
Total owner occupied term, net | | $ | 290,996 | | | $ | 424,782 | | | $ | 344,911 | | | $ | 354,817 | | | $ | 265,750 | | | $ | 644,379 | | | $ | 6,552 | | | $ | 1,758 | | | $ | 2,333,945 | |
Multifamily, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 383,871 | | | $ | 870,871 | | | $ | 593,076 | | | $ | 574,185 | | | $ | 276,108 | | | $ | 618,031 | | | $ | 23,282 | | | $ | 2,956 | | | $ | 3,342,380 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | 6,601 | | | — | | | — | | | 6,601 | |
| Substandard | | — | | | — | | | — | | | 215 | | | — | | | — | | | — | | | — | | | 215 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multifamily, net | | $ | 383,871 | | | $ | 870,871 | | | $ | 593,076 | | | $ | 574,400 | | | $ | 276,108 | | | $ | 624,632 | | | $ | 23,282 | | | $ | 2,956 | | | $ | 3,349,196 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| September 30, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Home equity loans & lines, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 73 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 259 | | | $ | 18,245 | | | $ | 1,110,441 | | | $ | 39,035 | | | $ | 1,168,074 | |
| Special mention | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 75 | | | 1,849 | | | 929 | | | 2,853 | |
| Substandard | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 74 | | | 392 | | | 604 | | | 1,070 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 130 | | | 433 | | | 137 | | | 700 | |
Total home equity loans & lines, net | | $ | 73 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 259 | | | $ | 18,524 | | | $ | 1,113,115 | | | $ | 40,705 | | | $ | 1,172,697 | |
| | | | | | | | | | | | | | | | | | |
Total residential | | $ | 580,724 | | | $ | 1,284,426 | | | $ | 452,152 | | | $ | 468,707 | | | $ | 498,150 | | | $ | 777,134 | | | $ | 1,113,115 | | | $ | 40,705 | | | $ | 5,215,113 | |
| | | | | | | | | | | | | | | | | | | |
Consumer & other, net: | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 19,644 | | | $ | 25,713 | | | $ | 13,427 | | | $ | 59,830 | | | $ | 28,164 | | | $ | 15,626 | | | $ | 152,320 | | | $ | 1,874 | | | $ | 316,598 | |
| Special mention | | 0 | | | 49 | | | 45 | | | 233 | | | 224 | | | 122 | | | 1,225 | | | 88 | | | 1,986 | |
| Substandard | | 14 | | | 33 | | | 0 | | | 40 | | | 20 | | | 9 | | | 157 | | | 59 | | | 332 | |
| Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Loss | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 11 | | | 2 | | | 0 | | | 13 | |
Total consumer & other, net | | $ | 19,658 | | | $ | 25,795 | | | $ | 13,472 | | | $ | 60,103 | | | $ | 28,408 | | | $ | 15,768 | | | $ | 153,704 | | | $ | 2,021 | | | $ | 318,929 | |
| | | | | | | | | | | | | | | | | | | |
Grand total | | $ | 4,296,682 | | | $ | 4,477,132 | | | $ | 2,978,770 | | | $ | 2,526,796 | | | $ | 1,684,852 | | | $ | 3,511,243 | | | $ | 2,836,498 | | | $ | 114,500 | | | $ | 22,426,473 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Construction & development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 146,012 | | | $ | 283,052 | | | $ | 255,449 | | | $ | 127,564 | | | $ | — | | | $ | 372 | | | $ | — | | | $ | — | | | $ | 812,449 | |
| Special mention | | 1,637 | | | — | | | 14,392 | | | — | | | — | | | — | | | — | | | — | | | 16,029 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction & development, net | | $ | 147,649 | | | $ | 283,052 | | | $ | 269,841 | | | $ | 127,564 | | | $ | — | | | $ | 372 | | | $ | — | | | $ | — | | | $ | 828,478 | |
Residential development, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 17,188 | | | $ | 2,571 | | | $ | 2,151 | | | $ | — | | | $ | — | | | $ | — | | | $ | 163,320 | | | $ | 2,507 | | | $ | 187,737 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | — | | | 5,024 | | | — | | | 5,024 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total residential development, net | | $ | 17,188 | | | $ | 2,571 | | | $ | 2,151 | | | $ | — | | | $ | — | | | $ | — | | | $ | 168,344 | | | $ | 2,507 | | | $ | 192,761 | |
| | | | | | | | | | | | | | | | | | |
Total commercial real estate | | $ | 1,352,526 | | | $ | 2,263,351 | | | $ | 1,760,179 | | | $ | 1,442,334 | | | $ | 931,620 | | | $ | 2,247,779 | | | $ | 201,033 | | | $ | 11,360 | | | $ | 10,210,182 | |
| | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | |
Term, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 2,146,758 | | | $ | 294,576 | | | $ | 323,744 | | | $ | 240,458 | | | $ | 67,502 | | | $ | 226,137 | | | $ | 626,878 | | | $ | 29,598 | | | $ | 3,955,651 | |
| Special mention | | 4,859 | | | 548 | | | 13,395 | | | 1,265 | | | 273 | | | 1,416 | | | 1,036 | | | 2,259 | | | 25,051 | |
| Substandard | | 251 | | | 1,105 | | | 24,845 | | | 7,259 | | | 1,137 | | | 561 | | | — | | | 8,029 | | | 43,187 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | 578 | | | — | | | — | | | 578 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total term, net | | $ | 2,151,868 | | | $ | 296,229 | | | $ | 361,984 | | | $ | 248,982 | | | $ | 68,912 | | | $ | 228,692 | | | $ | 627,914 | | | $ | 39,886 | | | $ | 4,024,467 | |
Lines of credit & other, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 27,503 | | | $ | 27,395 | | | $ | 26,731 | | | $ | 548 | | | $ | 1,679 | | | $ | 531 | | | $ | 709,606 | | | $ | 5,578 | | | $ | 799,571 | |
| Special mention | | 4,033 | | | — | | | — | | | 1 | | | 77 | | | 299 | | | 42,882 | | | 271 | | | 47,563 | |
| Substandard | | 501 | | | 472 | | | — | | | 195 | | | 377 | | | 940 | | | 6,958 | | | 6,177 | | | 15,620 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | — | | | 4 | |
| Loss | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | 2 | |
Total lines of credit & other, net | | $ | 32,037 | | | $ | 27,867 | | | $ | 26,731 | | | $ | 744 | | | $ | 2,133 | | | $ | 1,770 | | | $ | 759,451 | | | $ | 12,027 | | | $ | 862,760 | |
Leases & equipment finance, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 502,305 | | | $ | 442,692 | | | $ | 239,551 | | | $ | 125,619 | | | $ | 64,400 | | | $ | 7,619 | | | $ | — | | | $ | — | | | $ | 1,382,186 | |
| Special mention | | 2,321 | | | 4,918 | | | 7,765 | | | 3,797 | | | 1,983 | | | 99 | | | — | | | — | | | 20,883 | |
| Substandard | | 6,999 | | | 7,193 | | | 11,617 | | | 1,945 | | | 2,081 | | | 157 | | | — | | | — | | | 29,992 | |
| Doubtful | | 2,615 | | | 8,255 | | | 4,834 | | | 2,880 | | | 1,343 | | | 79 | | | — | | | — | | | 20,006 | |
| Loss | | 101 | | | 1,481 | | | 1,015 | | | 635 | | | 309 | | | 22 | | | — | | | — | | | 3,563 | |
Total leases & equipment finance, net | | $ | 514,341 | | | $ | 464,539 | | | $ | 264,782 | | | $ | 134,876 | | | $ | 70,116 | | | $ | 7,976 | | | $ | — | | | $ | — | | | $ | 1,456,630 | |
| | | | | | | | | | | | | | | | | | |
Total commercial | | $ | 2,698,246 | | | $ | 788,635 | | | $ | 653,497 | | | $ | 384,602 | | | $ | 141,161 | | | $ | 238,438 | | | $ | 1,387,365 | | | $ | 51,913 | | | $ | 6,343,857 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving to Non-Revolving Loans Amortized Cost | | |
| December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total |
Residential: | | | | | | | | | | | | | | | | | | |
Mortgage, net | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 809,232 | | | $ | 1,136,220 | | | $ | 393,041 | | | $ | 406,069 | | | $ | 424,270 | | | $ | 669,862 | | | $ | — | | | $ | — | | | $ | 3,838,694 | |
| Special mention | | — | | | 397 | | | 286 | | | 688 | | | 946 | | | 3,183 | | | — | | | — | | | 5,500 | |
| Substandard | | 335 | | | 1,398 | | | 1,822 | | | 4,133 | | | 6,381 | | | 11,113 | | | — | | | — | | | 25,182 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | 1,314 | | | — | | | — | | | — | | | 1,216 | | | — | | | — | | | 2,530 | |
Total mortgage, net | | $ | 809,567 | | | $ | 1,139,329 | | | $ | 395,149 | | | $ | 410,890 | | | $ | 431,597 | | | $ | 685,374 | | | $ | — | | | $ | — | | | $ | 3,871,906 | |
| | | | | | | | | | | | | | | | | | | |
Home equity loans & lines, net | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 40 | | | $ | — | | | $ | 20 | | | $ | — | | | $ | 259 | | | $ | 16,575 | | | $ | 1,077,753 | | | $ | 37,008 | | | $ | 1,131,655 | |
| Special mention | | — | | | — | | | — | | | — | | | — | | | 211 | | | 1,537 | | | 198 | | | 1,946 | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | 43 | | | 254 | | | 233 | | | 530 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 182 | | | 1,107 | | | 644 | | | 1,933 | |
Total home equity loans & lines, net | | $ | 40 | | | $ | — | | | $ | 20 | | | $ | — | | | $ | 259 | | | $ | 17,011 | | | $ | 1,080,651 | | | $ | 38,083 | | | $ | 1,136,064 | |
| | | | | | | | | | | | | | | | | | |
Total residential | | $ | 809,607 | | | $ | 1,139,329 | | | $ | 395,169 | | | $ | 410,890 | | | $ | 431,856 | | | $ | 702,385 | | | $ | 1,080,651 | | | $ | 38,083 | | | $ | 5,007,970 | |
| | | | | | | | | | | | | | | | | | | |
Consumer & other, net: | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | |
| Pass/Watch | | $ | 24,408 | | | $ | 22,802 | | | $ | 11,372 | | | $ | 4,170 | | | $ | 2,582 | | | $ | 4,101 | | | $ | 143,813 | | | $ | 2,789 | | | $ | 216,037 | |
| Special mention | | — | | | 95 | | | 79 | | | 27 | | | 28 | | | 3 | | | 660 | | | 74 | | | 966 | |
| Substandard | | — | | | 25 | | | — | | | — | | | 2 | | | — | | | 205 | | | 110 | | | 342 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss | | — | | | — | | | — | | | — | | | — | | | 10 | | | 3 | | | — | | | 13 | |
Total consumer & other, net | | $ | 24,408 | | | $ | 22,922 | | | $ | 11,451 | | | $ | 4,197 | | | $ | 2,612 | | | $ | 4,114 | | | $ | 144,681 | | | $ | 2,973 | | | $ | 217,358 | |
| | | | | | | | | | | | | | | | | | | |
Grand total | | $ | 4,884,787 | | | $ | 4,214,237 | | | $ | 2,820,296 | | | $ | 2,242,023 | | | $ | 1,507,249 | | | $ | 3,192,716 | | | $ | 2,813,730 | | | $ | 104,329 | | | $ | 21,779,367 | |
| | | | | | | | | | | | | | | | | | | |
Note 5 – Residential Mortgage Servicing Rights
The Company measures its residential mortgage servicing rights ("MSR") at fair value with changes in fair value reported in residential mortgage banking revenue.revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the three and nine months ended September 30, 20202021 and 2019:2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Balance, beginning of period | Balance, beginning of period | $ | 96,356 | | | $ | 139,780 | | | $ | 115,010 | | | $ | 169,025 | | Balance, beginning of period | $ | 102,699 | | | $ | 96,356 | | | $ | 92,907 | | | $ | 115,010 | |
Additions for new MSR capitalized | Additions for new MSR capitalized | 14,014 | | | 7,393 | | | 37,484 | | | 16,772 | | Additions for new MSR capitalized | 8,450 | | | 14,014 | | | 30,845 | | | 37,484 | |
Changes in fair value: | Changes in fair value: | | | | | | | | Changes in fair value: | | | | | | | |
Changes due to collection/realization of expected cash flows over time | Changes due to collection/realization of expected cash flows over time | (4,878) | | | (6,835) | | | (15,249) | | | (20,171) | | Changes due to collection/realization of expected cash flows over time | (4,681) | | | (4,878) | | | (13,592) | | | (15,249) | |
Changes due to valuation inputs or assumptions (1) | Changes due to valuation inputs or assumptions (1) | (12,244) | | | 11,045 | | | (43,997) | | | (14,243) | | Changes due to valuation inputs or assumptions (1) | (634) | | | (12,244) | | | (4,326) | | | (43,997) | |
Balance, end of period | Balance, end of period | $ | 93,248 | | | $ | 151,383 | | | $ | 93,248 | | | $ | 151,383 | | Balance, end of period | $ | 105,834 | | | $ | 93,248 | | | $ | 105,834 | | | $ | 93,248 | |
(1) The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.
Information related to the Bank's serviced loan portfolio as of September 30, 20202021 and December 31, 20192020 is as follows:
| (dollars in thousands) | (dollars in thousands) | September 30, 2020 | | December 31, 2019 | (dollars in thousands) | September 30, 2021 | | December 31, 2020 |
Balance of loans serviced for others | Balance of loans serviced for others | $ | 12,964,361 | | | $ | 12,276,943 | | Balance of loans serviced for others | $ | 12,853,291 | | | $ | 13,026,720 | |
MSR as a percentage of serviced loans | MSR as a percentage of serviced loans | 0.72 | % | | 0.94 | % | MSR as a percentage of serviced loans | 0.82 | % | | 0.71 | % |
The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue, onwas $9.2 million and $27.4 million for the Condensed Consolidated Statements of Income, wasthree and nine months ended September 30, 2021, respectively, as compared to $8.8 million and $26.2 million for the three and nine months ended September 30, 2020, respectively, as compared to $11.3 million and $33.2 million for the three and nine months ended September 30, 2019, respectively.
Note 6 – Commitments and Contingencies
Financial Instruments with Off-Balance-Sheet Risk — The Company's financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank's business and involve elements of credit, liquidity, and interest rate risk.
The following table presents a summary of the Bank's commitments and contingent liabilities:
| | | | | |
(in thousands) | September 30, 20202021 |
Commitments to extend credit | $ | 5,785,9096,180,820 | |
Forward sales commitments | $ | 1,029,734555,170 | |
Commitments to originate residential mortgage loans held for sale | $ | 950,570432,659 | |
Standby letters of credit | $ | 101,978122,078 | |
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 risk involved in on-balance sheet items. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.
The Bank'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.
There were 0no financial guarantees in connection with standby letters of credit that the Bank was required to perform on during the three and nine months ended September 30, 20202021 and 2019.2020. At September 30, 2020,2021, approximately $91.5$113.4 million of standby letters of credit expire within one year, and $10.5$8.7 million expire thereafter.
Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations. As of September 30, 2020,2021, the Company had a residential mortgage loan repurchase reserve liability of $1.6 million. For loans sold to GNMA, the Bank has a unilateral right, but not the obligation, to repurchase loans that are past due 90 days or more. As of September 30, 2020, the Bank has recorded a liability for the loans subject to this repurchase right of $20.0 million, and has recorded these loans as part of the loan portfolio as if the Bank had repurchased these loans.
Commitments — In September 2020, the Company and its wholly-owned subsidiary Umpqua Investments, entered into an agreement to sell substantially all of the assets of Umpqua Investments to Steward Partners. Umpqua Investments is included within the Company's Wealth Management segment. The acquisition is expected to close in the first quarter of 2021, subject to customary closing conditions.$545,000.
Legal Proceedings—UmpquaThe Company is involved in legal proceedings occurring in the ordinary course of business. Based on information currently available, advice of counsel and available insurance coverage, management believes that the eventual outcome of actions against the Company or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to results of operations for any particular period.
Contingencies—In 2020, the Company launched "Next Gen 2.0," an initiative designed to continue to modernize the Bank, advance technology initiatives, and improve operating leverage. As part of this initiative, management continues to evaluate all aspects of the Company's operations. The Company consolidated 12 store locations in April 2021 and consolidated an additional 15 store locations in October and November 2021. Costs associated with these consolidations will be included in exit and disposal costs within other expenses in non-interest expense. The Next Gen 2.0 strategy involves evaluation of these consolidations and possible future consolidations.
On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved a Merger Agreement under which the two companies will combine in an all-stock transaction. Under the terms of the Merger Agreement, Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company. The merger is expected to close in mid-2022, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approvals from each company's shareholders. Refer to the subsequent event footnote for additional information.
Concentrations of Credit Risk— The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington, California, Idaho, and Nevada. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 71%75% and 76%71% of the Bank's loan and lease portfolio at September 30, 20202021 and December 31, 2019,2020, respectively. The decrease is related to PPP loans which are not real estate secured and will likely be short-term in duration. Commercial real estate concentrations are managed to ensure geographic and business diversity, primarily in our footprint. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general or caused by the COVID-19 pandemic, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Bank's primary market areas in particular, 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 repayment for 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 with an issuer.
Note 7 – Derivatives
The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. 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/dealersbroker-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 interest rate lock commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were 0no counterparty default losses on forward contracts in the three and nine months ended September 30, 20202021 and 2019.2020. 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.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/dealerbroker-dealer equal to the increase or decrease in the market value of the forward contract. At September 30, 2020,2021, the Bank had commitments to originate mortgage loans held for sale totaling $950.6$432.7 million and forward sales commitments of $1.0 billion,$555.2 million, which are used to hedge both on-balance sheet and off-balance sheet exposures.
The Bank 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. As of September 30, 2021, the Bank had 914 interest rate swaps with an aggregate notional amount of $6.6 billion related to this program. As of December 31, 2020, the Bank had 884886 interest rate swaps with an aggregate notional amount of $6.2 billion related to this program. As of December 31, 2019, the Bank had 846 interest rate swaps with an aggregate notional amount of $5.7 billion related to this program.
At bothAs of September 30, 20202021 and December 31, 2019,2020, the termination value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $65,000$8.9 million and $7.0 million,$370,000, respectively. The Bank has collateral posting requirements for initial margins with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of $103.1$89.0 million and $86.2$92.6 million as of September 30, 20202021 and December 31, 2019,2020, respectively.
The Bank's interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to the derivative asset and liability. As of September 30, 20202021 and December 31, 2019,2020, the variation margin adjustments were negative adjustments of $374.8$198.7 million and $144.8$330.5 million, respectively.
The Bank incorporates credit valuation adjustments ("CVA") to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. The net CVA reduced the settlement values of the Bank's net derivative assets by $22.5$9.7 million and $9.1$18.5 million as of September 30, 20202021 and December 31, 2019,2020, respectively. Various factors impact changes in the CVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges with other third-party banks to limit the Bank's risk exposure.
The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities on the condensed consolidated balance sheet.liabilities. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of September 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Asset Derivatives | | Liability Derivatives |
Derivatives not designated as hedging instrument | | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Interest rate lock commitments | | $ | 28,839 | | | $ | 7,056 | | | $ | 0 | | | $ | 0 | |
Interest rate forward sales commitments | | 814 | | | 105 | | | 2,843 | | | 1,351 | |
Interest rate swaps | | 352,956 | | | 142,787 | | | 65 | | | 7,001 | |
Foreign currency derivatives | | 562 | | | 626 | | | 525 | | | 456 | |
Total derivative assets and liabilities | | $ | 383,171 | | | $ | 150,574 | | | $ | 3,433 | | | $ | 8,808 | |
The following table summarizes the types of derivatives and the gains (losses) recorded during the three and nine months ended September 30, 2020 and 2019:
| (in thousands) | (in thousands) | | Three Months Ended | | Nine Months Ended | (in thousands) | | Asset Derivatives | | Liability Derivatives |
Derivatives not designated as hedging instrument | Derivatives not designated as hedging instrument | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | Derivatives not designated as hedging instrument | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
Interest rate lock commitments | Interest rate lock commitments | | $ | 3,303 | | | $ | 922 | | | $ | 21,784 | | | $ | 2,313 | | Interest rate lock commitments | | $ | 8,258 | | | $ | 28,144 | | | $ | — | | | $ | — | |
Interest rate forward sales commitments | Interest rate forward sales commitments | | (11,650) | | | (2,467) | | | (51,952) | | | (11,875) | | Interest rate forward sales commitments | | 3,367 | | | 7 | | | 374 | | | 7,257 | |
Interest rate swaps | Interest rate swaps | | 1,765 | | | (2,281) | | | (13,364) | | | (8,712) | | Interest rate swaps | | 198,607 | | | 313,090 | | | 8,944 | | | 370 | |
Foreign currency derivatives | Foreign currency derivatives | | 585 | | | 527 | | | 1,567 | | | 1,522 | | Foreign currency derivatives | | 456 | | | 1,269 | | | 343 | | | 1,155 | |
Total derivative losses | | $ | (5,997) | | | $ | (3,299) | | | $ | (41,965) | | | $ | (16,752) | | |
Total derivative assets and liabilities | | Total derivative assets and liabilities | | $ | 210,688 | | | $ | 342,510 | | | $ | 9,661 | | | $ | 8,782 | |
The gains and losses on the Company's mortgage banking derivatives are included in mortgage banking revenue. The gains and losses on the Company's interest rate swaps and foreign currency derivatives are included in other income. The following table summarizes the types of derivatives and the gains (losses) recorded during the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended | | Nine Months Ended |
Derivatives not designated as hedging instrument | | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Interest rate lock commitments | | $ | (4,952) | | | $ | 3,303 | | | $ | (19,886) | | | $ | 21,784 | |
Interest rate forward sales commitments | | (2,550) | | | (11,650) | | | 15,336 | | | (51,952) | |
Interest rate swaps | | 1,429 | | | 1,765 | | | 8,698 | | | (13,364) | |
Foreign currency derivatives | | 718 | | | 585 | | | 1,985 | | | 1,567 | |
Total derivative gains (losses) | | $ | (5,355) | | | $ | (5,997) | | | $ | 6,133 | | | $ | (41,965) | |
Note 8 – Earnings (Loss) Per Common Share
The following is a computation of basic and diluted earnings (loss) per common share for the three and nine months ended September 30, 20202021 and 2019:2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
(in thousands, except per share data) | (in thousands, except per share data) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands, except per share data) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Net income (loss) | Net income (loss) | $ | 124,871 | | | $ | 84,502 | | | $ | (1,674,150) | | | $ | 270,345 | | Net income (loss) | $ | 108,066 | | | $ | 124,871 | | | $ | 331,946 | | | $ | (1,674,150) | |
| | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding - basic | Weighted average number of common shares outstanding - basic | 220,221 | | | 220,285 | | | 220,216 | | | 220,379 | | Weighted average number of common shares outstanding - basic | 218,416 | | | 220,221 | | | 219,791 | | | 220,216 | |
Effect of potentially dilutive common shares (1) | Effect of potentially dilutive common shares (1) | 197 | | | 298 | | | 0 | | | 263 | | Effect of potentially dilutive common shares (1) | 562 | | | 197 | | | 487 | | | — | |
Weighted average number of common shares outstanding - diluted | Weighted average number of common shares outstanding - diluted | 220,418 | | | 220,583 | | | 220,216 | | | 220,642 | | Weighted average number of common shares outstanding - diluted | 218,978 | | | 220,418 | | | 220,278 | | | 220,216 | |
EARNINGS (LOSS) PER COMMON SHARE: | | | | | | | | |
Earnings (loss) per common share: | | Earnings (loss) per common share: | | | | | | | |
Basic | Basic | $ | 0.57 | | | $ | 0.38 | | | $ | (7.60) | | | $ | 1.23 | | Basic | $ | 0.49 | | | $ | 0.57 | | | $ | 1.51 | | | $ | (7.60) | |
Diluted | Diluted | $ | 0.57 | | | $ | 0.38 | | | $ | (7.60) | | | $ | 1.23 | | Diluted | $ | 0.49 | | | $ | 0.57 | | | $ | 1.51 | | | $ | (7.60) | |
(1)Represents the effect of the assumed vesting of non-participating restricted shares based on the treasury stock method.
There were 763,000 and 1.2 millionThe following table represents the weighted average outstanding restricted shares that were not included in the computation of diluted earnings (loss) per common share because their effect would be anti-dilutive for the three and nine months ended September 30, 2020, respectively.2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Restricted stock awards | — | | 763 | | 73 | | 1,164 |
Note 9 – Segment Information
In the first quarter of 2021, the Company realigned its operating segments based on changes in management's focus and its internal reporting structure. The Company now reports 4 primary2 segments: Wholesale Bank, Wealth Management, Retail Bank,Core Banking and Home Lending with the remainder as Corporate and other.
The Wholesale Bank segment includes lending, treasury and cash management services and customer risk management products to middle market corporate, commercial and business banking customers and includes the operations of FinPac, a commercial leasing company. 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. The Retail Bank segment includes retail and small business lending and deposit services for customers served through the Bank's store network. The Home Lending segment originates, sells and services residential mortgage loans. The Corporate and other segment includes activities that are not directly attributable to one of the 4 principal lines of business and includes the operations of the parent company, eliminations and the economic impact of certain assets, capital and support functions not specifically identifiable within the other lines of business.
Management monitors the Company's results using an internal performance measurement accounting system, which provides line of business results and key performance measures. The application and development of these management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised retrospectively. In the current period, certain business banking related departments were moved from Retail Bank to Wholesale Bank to realign with Umpqua's strategic goals.Mortgage Banking. The prior periods have been revised accordingly.restated to reflect these two segments. Management periodically updates the allocation methods and assumptions within the current segment structure.
The provisionCore Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, and private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from the serviced loan portfolio, the quarterly changes to the MSR, and the specific expenses that are related to mortgage banking activities including variable commission expenses. Revenue and related expenses related to residential real estate loans held for income taxes is typically allocated to business segments usinginvestment are included in the Core Banking segment as portfolio loans are an anchor product for the consumer channels and are originated through a 25% effective tax rate. The residual income tax expense or benefit arising from tax planning strategies or other tax attributes to arrive atvariety of channels throughout the consolidated effective tax rate is retained in Corporate and Other.Company.
Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:
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| Three Months Ended September 30, 2020 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other (2) | | Consolidated |
Net interest income | $ | 118,913 | | | $ | 5,777 | | | $ | 57,938 | | | $ | 17,937 | | | $ | 16,009 | | | $ | 216,574 | |
Provision (recapture) for credit losses | 5,999 | | | (572) | | | (78) | | | (5,753) | | | 66 | | | (338) | |
Non-interest income | 15,298 | | | 4,007 | | | 18,481 | | | 90,593 | | | 3,545 | | | 131,924 | |
| | | | | | | | | | | |
Non-interest expense | 60,935 | | | 8,050 | | | 58,666 | | | 49,014 | | | 13,542 | | | 190,207 | |
Income before income taxes | 67,277 | | | 2,306 | | | 17,831 | | | 65,269 | | | 5,946 | | | 158,629 | |
Provision (benefit) for income taxes (1) | 14,317 | | | 577 | | | 3,795 | | | 16,317 | | | (1,248) | | | 33,758 | |
Net income | $ | 52,960 | | | $ | 1,729 | | | $ | 14,036 | | | $ | 48,952 | | | $ | 7,194 | | | $ | 124,871 | |
| | | | | | | | | | | |
Notable fair value adjustments included in non-interest income: |
Residential mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (17,122) | | | $ | 0 | | | $ | (17,122) | |
Interest rate swaps | 1,765 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,765 | |
(1) The Wholesale Bank and Retail Bank do not have the standard tax rate of 25% allocated in 2020 due to the impact of the goodwill impairment on these reporting units.
(2) The Corporate & Other segment reflects the recording of the deferred fees and costs on loans originated during the period, as the loan fees and costs are reflected within net interest income and non-interest expense, respectively, upon loan origination for the Wholesale Bank, Retail Bank, Home Lending, and Wealth Management segments.
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| Nine Months Ended September 30, 2020 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other (2) | | Consolidated |
Net interest income (loss) | $ | 422,622 | | | $ | 16,837 | | | $ | 208,453 | | | $ | 49,465 | | | $ | (49,765) | | | $ | 647,612 | |
Provision for credit losses | 187,766 | | | 3,917 | | | 7,715 | | | 5,294 | | | 140 | | | 204,832 | |
Non-interest income | 29,635 | | | 12,865 | | | 43,566 | | | 192,323 | | | 9,660 | | | 288,049 | |
Goodwill impairment | 1,033,744 | | | 0 | | | 751,192 | | | 0 | | | 0 | | | 1,784,936 | |
Non-interest expense (excluding goodwill impairment) | 179,762 | | | 24,374 | | | 178,333 | | | 133,373 | | | 33,997 | | | 549,839 | |
(Loss) income before income taxes | (949,015) | | | 1,411 | | | (685,221) | | | 103,121 | | | (74,242) | | | (1,603,946) | |
Provision (benefit) for income taxes (1) | 41,538 | | | 353 | | | 29,992 | | | 25,780 | | | (27,459) | | | 70,204 | |
Net (loss) income | $ | (990,553) | | | $ | 1,058 | | | $ | (715,213) | | | $ | 77,341 | | | $ | (46,783) | | | $ | (1,674,150) | |
| | | | | | | | | | | |
Notable fair value adjustments included in non-interest income: |
Residential mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (59,246) | | | $ | 0 | | | $ | (59,246) | |
Interest rate swaps | (13,364) | | | 0 | | | 0 | | | 0 | | | 0 | | | (13,364) | |
(1) The Wholesale Bank and Retail Bank do not have the standard tax rate of 25% allocated in 2020 due to the impact of the goodwill impairment on these reporting units.
(2) The Corporate & Other segment reflects the recording of the deferred fees and costs on loans originated during the period, as the loan fees and costs are reflected within net interest income and non-interest expense, respectively, upon loan origination for the Wholesale Bank, Retail Bank, Home Lending, and Wealth Management segments.
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| Three Months Ended September 30, 2019 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other | | Consolidated |
Net interest income | $ | 113,151 | | | $ | 5,491 | | | $ | 82,130 | | | $ | 13,039 | | | $ | 15,162 | | | $ | 228,973 | |
Provision for loan and lease losses | 20,807 | | | 5 | | | 1,242 | | | 904 | | | 269 | | | 23,227 | |
Non-interest income | 16,275 | | | 4,713 | | | 15,974 | | | 47,161 | | | 4,389 | | | 88,512 | |
Non-interest expense | 60,663 | | | 10,003 | | | 64,586 | | | 36,750 | | | 11,588 | | | 183,590 | |
Income before income taxes | 47,956 | | | 196 | | | 32,276 | | | 22,546 | | | 7,694 | | | 110,668 | |
Provision for income taxes | 11,989 | | | 49 | | | 8,069 | | | 5,637 | | | 422 | | | 26,166 | |
Net income | $ | 35,967 | | | $ | 147 | | | $ | 24,207 | | | $ | 16,909 | | | $ | 7,272 | | | $ | 84,502 | |
| | | | | | | | | | | |
Notable fair value adjustments included in non-interest income: |
Residential mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,210 | | | $ | 0 | | | $ | 4,210 | |
Interest rate swaps | (2,281) | | | 0 | | | 0 | | | 0 | | | 0 | | | (2,281) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other | | Consolidated |
Net interest income | $ | 333,953 | | | $ | 17,964 | | | $ | 254,985 | | | $ | 33,793 | | | $ | 53,125 | | | $ | 693,820 | |
Provision for loan and lease losses | 50,190 | | | 826 | | | 2,584 | | | 1,953 | | | 710 | | | 56,263 | |
Non-interest income | 39,287 | | | 13,953 | | | 47,036 | | | 68,067 | | | 87,732 | | | 256,075 | |
Non-interest expense | 172,852 | | | 28,496 | | | 193,568 | | | 98,496 | | | 42,185 | | | 535,597 | |
Income before income taxes | 150,198 | | | 2,595 | | | 105,869 | | | 1,411 | | | 97,962 | | | 358,035 | |
Provision for income taxes | 37,549 | | | 649 | | | 26,467 | | | 353 | | | 22,672 | | | 87,690 | |
Net income | $ | 112,649 | | | $ | 1,946 | | | $ | 79,402 | | | $ | 1,058 | | | $ | 75,290 | | | $ | 270,345 | |
| | | | | | | | | | | |
Notable fair value adjustments included in non-interest income: |
Residential mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (34,414) | | | $ | 0 | | | $ | (34,414) | |
Interest rate swaps | (8,712) | | | 0 | | | 0 | | | 0 | | | 0 | | | (8,712) | |
| | | | | | | | | | | |
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| September 30, 2020 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other | | Consolidated |
Total assets | $ | 17,009,192 | | | $ | 776,171 | | | $ | 1,596,435 | | | $ | 4,356,884 | | | $ | 5,698,759 | | | $ | 29,437,441 | |
Total loans and leases | $ | 16,675,987 | | | $ | 756,715 | | | $ | 1,510,440 | | | $ | 3,533,990 | | | $ | (50,659) | | | $ | 22,426,473 | |
Total deposits | $ | 5,375,438 | | | $ | 1,281,811 | | | $ | 15,461,369 | | | $ | 576,003 | | | $ | 1,975,162 | | | $ | 24,669,783 | |
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| December 31, 2019 |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Home Lending | | Corporate & Other | | Consolidated |
Total assets | $ | 15,404,164 | | | $ | 710,873 | | | $ | 1,753,682 | | | $ | 4,423,869 | | | $ | 6,554,221 | | | $ | 28,846,809 | |
Total loans and leases | $ | 15,119,857 | | | $ | 693,569 | | | $ | 1,671,472 | | | $ | 3,768,584 | | | $ | (57,798) | | | $ | 21,195,684 | |
Total deposits | $ | 4,462,630 | | | $ | 1,221,869 | | | $ | 13,548,089 | | | $ | 279,226 | | | $ | 2,969,690 | | | $ | 22,481,504 | |
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| | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
(in thousands) | Core Banking | | Mortgage Banking | | Consolidated | | Core Banking | | Mortgage Banking | | Consolidated |
Net interest income | $ | 232,348 | | | $ | 2,726 | | | $ | 235,074 | | | $ | 212,215 | | | $ | 4,359 | | | $ | 216,574 | |
(Recapture) provision for credit losses | (18,919) | | | — | | | (18,919) | | | (338) | | | — | | | (338) | |
Non-interest income | | | | | | | | | | | |
| Residential mortgage banking revenue: | | | | | | | | | | | |
| Origination and sale | — | | | 30,293 | | | 30,293 | | | — | | | 98,703 | | | 98,703 | |
| Servicing | — | | | 9,172 | | | 9,172 | | | — | | | 8,796 | | | 8,796 | |
| Change in fair value of MSR asset: | | | | | | | | | | | |
| Changes due to collection/realization of expected cash flows over time | — | | | (4,681) | | | (4,681) | | | — | | | (4,878) | | | (4,878) | |
| Changes due to valuation inputs or assumptions | — | | | (634) | | | (634) | | | — | | | (12,244) | | | (12,244) | |
| | | | | | | | | | | | |
| Loss on equity securities, net | (343) | | | — | | | (343) | | | (112) | | | — | | | (112) | |
| Gain on swap derivatives, net | 1,429 | | | — | | | 1,429 | | | 1,765 | | | — | | | 1,765 | |
| Non-interest income (excluding above items) | 38,281 | | | 188 | | | 38,469 | | | 39,678 | | | 216 | | | 39,894 | |
| Total non-interest income | 39,367 | | | 34,338 | | | 73,705 | | | 41,331 | | | 90,593 | | | 131,924 | |
Non-interest expense | | | | | | | | | | | |
| | | | | | | | | | | | |
| Exit and disposal costs | 3,813 | | | — | | | 3,813 | | | 792 | | | — | | | 792 | |
| Non-interest expense (excluding above items) | 146,931 | | | 33,009 | | | 179,940 | | | 148,519 | | | 40,896 | | | 189,415 | |
| Allocated expenses, net (1) | 3,680 | | | (3,680) | | | — | | | (2,976) | | | 2,976 | | | — | |
| Total non-interest expense | 154,424 | | | 29,329 | | | 183,753 | | | 146,335 | | | 43,872 | | | 190,207 | |
Income before income taxes | 136,210 | | | 7,735 | | | 143,945 | | | 107,549 | | | 51,080 | | | 158,629 | |
Provision for income taxes | 33,945 | | | 1,934 | | | 35,879 | | | 20,988 | | | 12,770 | | | 33,758 | |
Net income | $ | 102,265 | | | $ | 5,801 | | | $ | 108,066 | | | $ | 86,561 | | | $ | 38,310 | | | $ | 124,871 | |
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs. |
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| | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
(in thousands) | Core Banking | | Mortgage Banking | | Consolidated | | Core Banking | | Mortgage Banking | | Consolidated |
Net interest income | $ | 676,837 | | | $ | 9,431 | | | $ | 686,268 | | | $ | 636,566 | | | $ | 11,046 | | | $ | 647,612 | |
(Recapture) provision for credit losses | (41,915) | | | — | | | (41,915) | | | 204,832 | | | — | | | 204,832 | |
Non-interest income | | | | | | | | | | | |
| Residential mortgage banking revenue: | | | | | | | | | | | |
| Origination and sale | — | | | 134,165 | | | 134,165 | | | — | | | 224,831 | | | 224,831 | |
| Servicing | — | | | 27,379 | | | 27,379 | | | — | | | 26,209 | | | 26,209 | |
| Change in fair value of MSR asset: | | | | | | | | | | | |
| Changes due to collection/realization of expected cash flows over time | — | | | (13,592) | | | (13,592) | | | — | | | (15,249) | | | (15,249) | |
| Changes due to valuation inputs or assumptions | — | | | (4,326) | | | (4,326) | | | — | | | (43,997) | | | (43,997) | |
| Gain on sale of debt securities, net | 4 | | | — | | | 4 | | | 190 | | | — | | | 190 | |
| (Loss) gain on equity securities, net | (1,045) | | | — | | | (1,045) | | | 942 | | | — | | | 942 | |
| Gain (loss) on swap derivatives, net | 8,698 | | | — | | | 8,698 | | | (13,364) | | | — | | | (13,364) | |
| Non-interest income (excluding above items) | 121,617 | | | 680 | | | 122,297 | | | 107,963 | | | 524 | | | 108,487 | |
| Total non-interest income | 129,274 | | | 144,306 | | | 273,580 | | | 95,731 | | | 192,318 | | | 288,049 | |
Non-interest expense | | | | | | | | | | | |
| Goodwill impairment | — | | | — | | | — | | | 1,784,936 | | | — | | | 1,784,936 | |
| Exit and disposal costs | 9,741 | | | — | | | 9,741 | | | 1,864 | | | — | | | 1,864 | |
| Non-interest expense (excluding above items) | 438,969 | | | 112,035 | | | 551,004 | | | 437,863 | | | 110,112 | | | 547,975 | |
| Allocated expenses, net (1) | 3,860 | | | (3,860) | | | — | | | (7,992) | | | 7,992 | | | — | |
| Total non-interest expense | 452,570 | | | 108,175 | | | 560,745 | | | 2,216,671 | | | 118,104 | | | 2,334,775 | |
Income (loss) before income taxes | 395,456 | | | 45,562 | | | 441,018 | | | (1,689,206) | | | 85,260 | | | (1,603,946) | |
Provision for income taxes | 97,681 | | | 11,391 | | | 109,072 | | | 48,889 | | | 21,315 | | | 70,204 | |
Net income (loss) | $ | 297,775 | | | $ | 34,171 | | | $ | 331,946 | | | $ | (1,738,095) | | | $ | 63,945 | | | $ | (1,674,150) | |
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs. |
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| | September 30, 2021 | | December 31, 2020 |
(in thousands) | Core Banking | | Mortgage Banking | | Consolidated | | Core Banking | | Mortgage Banking | | Consolidated |
Total assets | $ | 30,419,108 | | | $ | 472,371 | | | $ | 30,891,479 | | | $ | 28,438,813 | | | $ | 796,362 | | | $ | 29,235,175 | |
Loans held for sale | $ | — | | | $ | 352,466 | | | $ | 352,466 | | | $ | 78,146 | | | $ | 688,079 | | | $ | 766,225 | |
Total loans and leases | $ | 21,969,940 | | | $ | — | | | $ | 21,969,940 | | | $ | 21,779,367 | | | $ | — | | | $ | 21,779,367 | |
Total deposits | $ | 26,510,938 | | | $ | 397,459 | | | $ | 26,908,397 | | | $ | 24,200,012 | | | $ | 422,189 | | | $ | 24,622,201 | |
Note 10 – Fair Value Measurement
The following table presents estimated fair values of the Company's financial instruments as of September 30, 20202021 and December 31, 2019,2020, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(in thousands) | (in thousands) | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | (in thousands) | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | 1 | | $ | 2,219,727 | | | $ | 2,219,727 | | | $ | 1,362,756 | | | $ | 1,362,756 | | Cash and cash equivalents | 1 | | $ | 3,744,589 | | | $ | 3,744,589 | | | $ | 2,573,181 | | | $ | 2,573,181 | |
Equity and other investment securities | Equity and other investment securities | 1,2 | | 82,769 | | | 82,769 | | | 80,165 | | | 80,165 | | Equity and other investment securities | 1,2 | | 81,575 | | | 81,575 | | | 83,077 | | | 83,077 | |
Investment securities available for sale | Investment securities available for sale | 2 | | 2,898,700 | | | 2,898,700 | | | 2,814,682 | | | 2,814,682 | | Investment securities available for sale | 2 | | 3,723,171 | | | 3,723,171 | | | 2,932,558 | | | 2,932,558 | |
Investment securities held to maturity | Investment securities held to maturity | 3 | | 3,088 | | | 3,950 | | | 3,260 | | | 4,263 | | Investment securities held to maturity | 3 | | 2,795 | | | 3,581 | | | 3,034 | | | 3,883 | |
Loans held for sale, at fair value | 2 | | 683,960 | | | 683,960 | | | 513,431 | | | 513,431 | | |
Loans held for sale | | Loans held for sale | 2 | | 352,466 | | | 352,466 | | | 766,225 | | | 766,225 | |
Loans and leases, net | Loans and leases, net | 3 | | 22,081,424 | | | 22,458,575 | | | 21,038,055 | | | 21,274,319 | | Loans and leases, net | 2,3 | | 21,712,380 | | | 21,853,775 | | | 21,450,966 | | | 21,904,189 | |
Restricted equity securities | Restricted equity securities | 1 | | 50,062 | | | 50,062 | | | 46,463 | | | 46,463 | | Restricted equity securities | 1 | | 10,946 | | | 10,946 | | | 41,666 | | | 41,666 | |
Residential mortgage servicing rights | Residential mortgage servicing rights | 3 | | 93,248 | | | 93,248 | | | 115,010 | | | 115,010 | | Residential mortgage servicing rights | 3 | | 105,834 | | | 105,834 | | | 92,907 | | | 92,907 | |
Bank owned life insurance | Bank owned life insurance | 1 | | 326,120 | | | 326,120 | | | 320,611 | | | 320,611 | | Bank owned life insurance | 1 | | 325,646 | | | 325,646 | | | 323,470 | | | 323,470 | |
Derivatives | Derivatives | 2,3 | | 383,171 | | | 383,171 | | | 150,574 | | | 150,574 | | Derivatives | 2,3 | | 210,688 | | | 210,688 | | | 342,510 | | | 342,510 | |
Financial liabilities: | Financial liabilities: | | | | | | | | | Financial liabilities: | | | | | | | | |
Deposits | Deposits | 1,2 | | $ | 24,669,783 | | | $ | 24,699,587 | | | $ | 22,481,504 | | | $ | 22,503,916 | | Deposits | 1,2 | | $ | 26,908,397 | | | $ | 26,911,910 | | | $ | 24,622,201 | | | $ | 24,641,876 | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 2 | | 388,028 | | | 388,028 | | | 311,308 | | | 311,308 | | Securities sold under agreements to repurchase | 2 | | 467,760 | | | 467,760 | | | 375,384 | | | 375,384 | |
Borrowings | Borrowings | 2 | | 996,520 | | | 1,001,504 | | | 906,635 | | | 906,160 | | Borrowings | 2 | | 6,367 | | | 7,160 | | | 771,482 | | | 774,586 | |
Junior subordinated debentures, at fair value | Junior subordinated debentures, at fair value | 3 | | 247,045 | | | 247,045 | | | 274,812 | | | 274,812 | | Junior subordinated debentures, at fair value | 3 | | 299,508 | | | 299,508 | | | 255,217 | | | 255,217 | |
Junior subordinated debentures, at amortized cost | Junior subordinated debentures, at amortized cost | 3 | | 88,325 | | | 65,833 | | | 88,496 | | | 70,909 | | Junior subordinated debentures, at amortized cost | 3 | | 88,098 | | | 76,686 | | | 88,268 | | | 67,425 | |
Derivatives | Derivatives | 2 | | 3,433 | | | 3,433 | | | 8,808 | | | 8,808 | | Derivatives | 2 | | 9,661 | | | 9,661 | | | 8,782 | | | 8,782 | |
Fair Value of Assets and Liabilities Measured on a Recurring Basis
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | September 30, 2020 |
Description | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | |
Equity and other investment securities | | | | | | | |
| | | | | | | |
Investments in mutual funds and other securities | $ | 70,376 | | | $ | 53,039 | | | $ | 17,337 | | | $ | 0 | |
Equity securities held in rabbi trusts | 11,721 | | | 11,721 | | | 0 | | | 0 | |
Other investments securities (1) | 672 | | | 0 | | | 672 | | | 0 | |
Investment securities available for sale | | | | | | | |
U.S. Treasury and agencies | 757,953 | | | 0 | | | 757,953 | | | 0 | |
Obligations of states and political subdivisions | 264,487 | | | 0 | | | 264,487 | | | 0 | |
Residential mortgage-backed securities and collateralized mortgage obligations | 1,876,260 | | | 0 | | | 1,876,260 | | | 0 | |
| | | | | | | |
Loans held for sale, at fair value | 683,960 | | | 0 | | | 683,960 | | | 0 | |
Residential mortgage servicing rights, at fair value | 93,248 | | | 0 | | | 0 | | | 93,248 | |
Derivatives | | | | | | | |
Interest rate lock commitments | 28,839 | | | 0 | | | 0 | | | 28,839 | |
Interest rate forward sales commitments | 814 | | | 0 | | | 814 | | | 0 | |
Interest rate swaps | 352,956 | | | 0 | | | 352,956 | | | 0 | |
Foreign currency derivative | 562 | | | 0 | | | 562 | | | 0 | |
Total assets measured at fair value | $ | 4,141,848 | | | $ | 64,760 | | | $ | 3,955,001 | | | $ | 122,087 | |
Financial liabilities: | | | | | | | |
Junior subordinated debentures, at fair value | $ | 247,045 | | | $ | 0 | | | $ | 0 | | | $ | 247,045 | |
Derivatives | | | | | | | |
Interest rate forward sales commitments | 2,843 | | | 0 | | | 2,843 | | | 0 | |
Interest rate swaps | 65 | | | 0 | | | 65 | | | 0 | |
Foreign currency derivative | 525 | | | 0 | | | 525 | | | 0 | |
Total liabilities measured at fair value | $ | 250,478 | | | $ | 0 | | | $ | 3,433 | | | $ | 247,045 | |
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities. | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | September 30, 2021 |
Description | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | |
Equity and other investment securities | | | | | | | |
| | | | | | | |
Investments in mutual funds and other securities | $ | 69,157 | | | $ | 51,820 | | | $ | 17,337 | | | $ | — | |
Equity securities held in rabbi trusts | 12,418 | | | 12,418 | | | — | | | — | |
| | | | | | | |
Investment securities available for sale | | | | | | | |
U.S. Treasury and agencies | 838,977 | | | — | | | 838,977 | | | — | |
Obligations of states and political subdivisions | 283,409 | | | — | | | 283,409 | | | — | |
Residential mortgage-backed securities and collateralized mortgage obligations | 2,600,785 | | | — | | | 2,600,785 | | | — | |
| | | | | | | |
Loans held for sale, at fair value | 352,466 | | | — | | | 352,466 | | | — | |
Loans and leases, at fair value | 353,912 | | | — | | | 353,912 | | | — | |
Residential mortgage servicing rights, at fair value | 105,834 | | | — | | | — | | | 105,834 | |
Derivatives | | | | | | | |
Interest rate lock commitments | 8,258 | | | — | | | — | | | 8,258 | |
Interest rate forward sales commitments | 3,367 | | | — | | | 3,367 | | | — | |
Interest rate swaps | 198,607 | | | — | | | 198,607 | | | — | |
Foreign currency derivative | 456 | | | — | | | 456 | | | — | |
Total assets measured at fair value | $ | 4,827,646 | | | $ | 64,238 | | | $ | 4,649,316 | | | $ | 114,092 | |
Financial liabilities: | | | | | | | |
Junior subordinated debentures, at fair value | $ | 299,508 | | | $ | — | | | $ | — | | | $ | 299,508 | |
Derivatives | | | | | | | |
Interest rate forward sales commitments | 374 | | | — | | | 374 | | | — | |
Interest rate swaps | 8,944 | | | — | | | 8,944 | | | — | |
Foreign currency derivative | 343 | | | — | | | 343 | | | — | |
Total liabilities measured at fair value | $ | 309,169 | | | $ | — | | | $ | 9,661 | | | $ | 299,508 | |
| (in thousands) | (in thousands) | December 31, 2019 | (in thousands) | December 31, 2020 |
Description | Description | Total | | Level 1 | | Level 2 | | Level 3 | Description | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | Financial assets: | | | | | | | | Financial assets: | | | | | | | |
Equity and other investment securities | Equity and other investment securities | | | | | | | | Equity and other investment securities | | | | | | | |
| Investments in mutual funds and other securities | Investments in mutual funds and other securities | $ | 67,133 | | | $ | 52,096 | | | $ | 15,037 | | | $ | 0 | | Investments in mutual funds and other securities | $ | 70,203 | | | $ | 52,866 | | | $ | 17,337 | | | $ | — | |
Equity securities held in rabbi trusts | Equity securities held in rabbi trusts | 12,147 | | | 12,147 | | | 0 | | | 0 | | Equity securities held in rabbi trusts | 12,814 | | | 12,814 | | | — | | | — | |
Other investments securities (1) | Other investments securities (1) | 885 | | | 0 | | | 885 | | | 0 | | Other investments securities (1) | 60 | | | — | | | 60 | | | — | |
Investment securities available for sale | Investment securities available for sale | | Investment securities available for sale | |
U.S. Treasury and agencies | U.S. Treasury and agencies | 643,604 | | | 0 | | | 643,604 | | | 0 | | U.S. Treasury and agencies | 762,202 | | | — | | | 762,202 | | | — | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 261,094 | | | 0 | | | 261,094 | | | 0 | | Obligations of states and political subdivisions | 279,511 | | | — | | | 279,511 | | | — | |
Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | 1,909,984 | | | 0 | | | 1,909,984 | | | 0 | | Residential mortgage-backed securities and collateralized mortgage obligations | 1,890,845 | | | — | | | 1,890,845 | | | — | |
| Loans held for sale, at fair value | Loans held for sale, at fair value | 513,431 | | | 0 | | | 513,431 | | | 0 | | Loans held for sale, at fair value | 688,079 | | | — | | | 688,079 | | | — | |
Residential mortgage servicing rights, at fair value | Residential mortgage servicing rights, at fair value | 115,010 | | | 0 | | | 0 | | | 115,010 | | Residential mortgage servicing rights, at fair value | 92,907 | | | — | | | — | | | 92,907 | |
Derivatives | Derivatives | | | | | | | | Derivatives | | | | | | | |
Interest rate lock commitments | Interest rate lock commitments | 7,056 | | | 0 | | | 0 | | | 7,056 | | Interest rate lock commitments | 28,144 | | | — | | | — | | | 28,144 | |
Interest rate forward sales commitments | Interest rate forward sales commitments | 105 | | | 0 | | | 105 | | | 0 | | Interest rate forward sales commitments | 7 | | | — | | | 7 | | | — | |
Interest rate swaps | Interest rate swaps | 142,787 | | | 0 | | | 142,787 | | | 0 | | Interest rate swaps | 313,090 | | | — | | | 313,090 | | | — | |
Foreign currency derivative | Foreign currency derivative | 626 | | | 0 | | | 626 | | | 0 | | Foreign currency derivative | 1,269 | | | — | | | 1,269 | | | — | |
Total assets measured at fair value | Total assets measured at fair value | $ | 3,673,862 | | | $ | 64,243 | | | $ | 3,487,553 | | | $ | 122,066 | | Total assets measured at fair value | $ | 4,139,131 | | | $ | 65,680 | | | $ | 3,952,400 | | | $ | 121,051 | |
Financial liabilities: | Financial liabilities: | | | | | | | | Financial liabilities: | | | | | | | |
Junior subordinated debentures, at fair value | Junior subordinated debentures, at fair value | $ | 274,812 | | | $ | 0 | | | $ | 0 | | | $ | 274,812 | | Junior subordinated debentures, at fair value | $ | 255,217 | | | $ | — | | | $ | — | | | $ | 255,217 | |
Derivatives | Derivatives | | | | | | | | Derivatives | | | | | | | |
Interest rate forward sales commitments | Interest rate forward sales commitments | 1,351 | | | 0 | | | 1,351 | | | 0 | | Interest rate forward sales commitments | 7,257 | | | — | | | 7,257 | | | — | |
Interest rate swaps | Interest rate swaps | 7,001 | | | 0 | | | 7,001 | | | 0 | | Interest rate swaps | 370 | | | — | | | 370 | | | — | |
Foreign currency derivative | Foreign currency derivative | 456 | | | 0 | | | 456 | | | 0 | | Foreign currency derivative | 1,155 | | | — | | | 1,155 | | | — | |
Total liabilities measured at fair value | Total liabilities measured at fair value | $ | 283,620 | | | $ | 0 | | | $ | 8,808 | | | $ | 274,812 | | Total liabilities measured at fair value | $ | 263,999 | | | $ | — | | | $ | 8,782 | | | $ | 255,217 | |
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities.
The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above:
Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker 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 a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.
Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights.
Loans and leases— Fair values are estimated for portfolios of loans 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 adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates at which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. As of September 30, 2021, there were $353.9 million in mortgage loans recorded at fair value as they were previous transferred from held for sale to loans held for investment.
Residential Mortgage Servicing Rights— The fair value of the MSRs 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 net of servicing costs. This model is periodically validated by an independent 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. Management believes the significant inputs utilized are indicative of those that would be used by market participants.
Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant inputsunobservable input utilized in the estimation of fair value of these instruments areis the credit risk adjusted spread and three-month LIBOR.spread. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. 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, the Company has classified this as a Level 3 fair value measurement.
Derivative Instruments— The fair value of the interest 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. 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 the interest rate swaps is determined 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 itself and its counterparties. However, as of September 30, 2020,2021, 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 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)
The following table provides a description of the valuation technique, significant unobservable inputs, 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 September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial Instrument | | Fair Value (in thousands) | | Valuation Technique | | Unobservable Input | | Range of Inputs | | Weighted Average |
Residential mortgage servicing rights | | $ | 93,248105,834 | | | Discounted cash flow | | | | | | |
| | | | | | Constant prepayment rate | | 9.688.20% - 79.94%72.17% | | 18.10%16.21% |
| | | | | | Discount rate | | 9.509.50% - 12.50% | | 9.74%9.69% |
Interest rate lock commitments | | $ | 28,8398,258 | | | Internal pricing model | | | | | | |
| | | | | | Pull-through rate | | 49.7970.00% - 100.00% | | 84.78%88.03% |
Junior subordinated debentures | | $ | 247,045299,508 | | | Discounted cash flow | | | | | | |
| | | | | | Credit spread | | 4.361.57% - 5.78%4.42% | | 4.94%3.46% |
Generally, increases in the constant prepayment rate or the discount rate utilized in the fair value measurement of the residential mortgage servicing rights will result in a decrease in fair value. Conversely, decreases in the constant prepayment rate or the discount rate will result in an increase in fair value.
An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate will result in 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, which is an 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. The widening of the credit risk adjusted spread above the Company's contractual spreads has primarily contributed to the decrease in the estimated fair value. Future contractions in the instrument-specific credit risk adjusted spread relative to the spread currently utilized to measure the Company's junior subordinated debentures at fair value as of September 30, 2020, or the passage of time, will result in an increase in the estimated fair value. Generally, an increase in the credit spread will result in a decrease in the estimated fair value. Conversely, a decrease in the credit spread will result in an increase in the estimated fair value.
The following tables providetable provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 20202021 and 2019: 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2021 | | September 30, 2020 |
(in thousands) | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value | | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value |
Beginning balance | $ | 102,699 | | | $ | 13,210 | | | $ | 287,723 | | | $ | 96,356 | | | $ | 25,537 | | | $ | 232,936 | |
| | | | | | | | | | | |
Change included in earnings | (5,315) | | | 1,301 | | | 2,344 | | | (17,122) | | | 3,723 | | | 2,536 | |
Change in fair values included in comprehensive income/loss | — | | | — | | | 11,946 | | | — | | | — | | | 14,555 | |
Purchases and issuances | 8,450 | | | 16,007 | | | — | | | 14,014 | | | 55,854 | | | — | |
Sales and settlements | — | | | (22,260) | | | (2,505) | | | — | | | (56,275) | | | (2,982) | |
Ending balance | $ | 105,834 | | | $ | 8,258 | | | $ | 299,508 | | | $ | 93,248 | | | $ | 28,839 | | | $ | 247,045 | |
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period | $ | (634) | | | $ | 8,258 | | | $ | 2,344 | | | $ | (12,244) | | | $ | 28,839 | | | $ | 2,536 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period | $ | — | | | $ | — | | | $ | 11,946 | | | $ | — | | | $ | — | | | $ | 14,555 | |
| | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2021 | | September 30, 2020 |
(in thousands) | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value | | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value |
Beginning Balance | $ | 92,907 | | | $ | 28,144 | | | $ | 255,217 | | | $ | 115,010 | | | $ | 7,056 | | | $ | 274,812 | |
| | | | | | | | | | | |
Change included in earnings | (17,918) | | | 199 | | | 7,087 | | | (59,246) | | | 10,946 | | | 9,509 | |
Change in fair values included in comprehensive income/loss | — | | | — | | | 44,504 | | | — | | | — | | | (26,857) | |
Purchases and issuances | 30,845 | | | 67,730 | | | — | | | 37,484 | | | 130,862 | | | — | |
Sales and settlements | — | | | (87,815) | | | (7,300) | | | — | | | (120,025) | | | (10,419) | |
Ending Balance | $ | 105,834 | | | $ | 8,258 | | | $ | 299,508 | | | $ | 93,248 | | | $ | 28,839 | | | $ | 247,045 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of period | $ | (4,326) | | | $ | 8,258 | | | $ | 7,087 | | | $ | (43,997) | | | $ | 28,839 | | | $ | 9,509 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period | $ | — | | | $ | — | | | $ | 44,504 | | | $ | — | | | $ | — | | | $ | (26,857) | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2020 | | September 30, 2019 |
(in thousands) | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value | | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value |
Beginning balance | $ | 96,356 | | | $ | 25,537 | | | $ | 232,936 | | | $ | 139,780 | | | $ | 8,149 | | | $ | 277,028 | |
Transfer out of level 3 | 0 | | | 0 | | | 0 | | | (36,191) | | | 0 | | | 0 | |
Change included in earnings | (17,122) | | | 3,723 | | | 2,536 | | | 4,210 | | | 1,456 | | | 4,495 | |
Change in fair values included in comprehensive income/loss | 0 | | | 0 | | | 14,555 | | | 0 | | | 0 | | | (8,450) | |
Purchases and issuances | 14,014 | | | 55,854 | | | 0 | | | 7,393 | | | 9,027 | | | 0 | |
Sales and settlements | 0 | | | (56,275) | | | (2,982) | | | 0 | | | (9,562) | | | (5,275) | |
Ending balance | $ | 93,248 | | | $ | 28,839 | | | $ | 247,045 | | | $ | 115,192 | | | $ | 9,070 | | | $ | 267,798 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of period | $ | (12,244) | | | $ | 28,839 | | | $ | 2,536 | | | $ | 11,045 | | | $ | 9,070 | | | $ | 4,495 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period | $ | 0 | | | $ | 0 | | | $ | 14,555 | | | $ | 0 | | | $ | 0 | | | $ | (8,450) | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 |
| Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value | | Residential mortgage servicing rights | | Interest rate lock commitments, net | | Junior subordinated debentures, at fair value |
Beginning Balance | $ | 115,010 | | | $ | 7,056 | | | $ | 274,812 | | | $ | 169,025 | | | $ | 6,757 | | | $ | 300,870 | |
Transfer out of level 3 | 0 | | | 0 | | | 0 | | | (36,191) | | | 0 | | | 0 | |
Change included in earnings | (59,246) | | | 10,946 | | | 9,509 | | | (34,414) | | | 4,455 | | | 13,952 | |
Change in fair values included in comprehensive income/loss | 0 | | | 0 | | | (26,857) | | | 0 | | | 0 | | | (32,254) | |
Purchases and issuances | 37,484 | | | 130,862 | | | 0 | | | 16,772 | | | 21,318 | | | 0 | |
Sales and settlements | 0 | | | (120,025) | | | (10,419) | | | 0 | | | (23,460) | | | (14,770) | |
Ending Balance | $ | 93,248 | | | $ | 28,839 | | | $ | 247,045 | | | $ | 115,192 | | | $ | 9,070 | | | $ | 267,798 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of period | $ | (43,997) | | | $ | 28,839 | | | $ | 9,509 | | | $ | (14,243) | | | $ | 9,070 | | | $ | 13,952 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period | $ | 0 | | | $ | 0 | | | $ | (26,857) | | | $ | 0 | | | $ | 0 | | | $ | (32,254) | |
| | | | | | | | | | | |
Changes in residential mortgage servicing rights carried at fair value are recorded in residential mortgage banking revenue within non-interest income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in residential mortgage banking revenue within 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.
The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, the unrealized losses on fair value of junior subordinated debentures of $14.6$11.9 million and unrealized gains of $26.9$44.5 million respectively, for the three and nine months ended September 30, 2020,2021, are recorded net of tax as an other comprehensive loss of $8.9 million and $33.1 million, respectively. Comparatively, unrealized losses of $14.6 million and unrealized gains of $26.9 million were recorded net of tax as an other comprehensive loss of $10.8 million and other comprehensive income of $20.0 million, respectively. Comparatively, unrealized gains of $8.5 million and $32.3 million, respectively, were recorded net of tax as an other comprehensive income of $6.3 million and $24.0 million for the three and nine months ended September 30, 2019. The gain recorded for the nine months ended September 30, 2020 is due mostly to an overall increase in the discount rates due to an increase in the credit spread, in addition to the implied forward curve shifting lower. The loss recorded for the three months ended September 30, 2020 was due primarily to a decrease in the credit spread which resulted in a lower discount rate and an increase in the forward curve partially offset by an increase in the spot curve.2020.
Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
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, typically on collateral dependent loans.
Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following tables present 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 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.
| | | September 30, 2020 | | September 30, 2021 |
(in thousands) | (in thousands) | Total | | Level 1 | | Level 2 | | Level 3 | (in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Loans and leases | Loans and leases | $ | 8,231 | | | $ | 0 | | | $ | 0 | | | $ | 8,231 | | Loans and leases | $ | 5,835 | | | $ | — | | | $ | — | | | $ | 5,835 | |
Goodwill (Wholesale Bank and Retail Bank) | 0 | | | 0 | | | 0 | | | 0 | | |
Other real estate owned | 2,046 | | | 0 | | | 0 | | | 2,046 | | |
| Total assets measured at fair value on a nonrecurring basis | Total assets measured at fair value on a nonrecurring basis | $ | 10,277 | | | $ | 0 | | | $ | 0 | | | $ | 10,277 | | Total assets measured at fair value on a nonrecurring basis | $ | 5,835 | | | $ | — | | | $ | — | | | $ | 5,835 | |
|
|
| December 31, 2019 | | December 31, 2020 |
(in thousands) | (in thousands) | Total | | Level 1 | | Level 2 | | Level 3 | (in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
| Loans and leases | Loans and leases | $ | 18,134 | | | $ | 0 | | | $ | 0 | | | $ | 18,134 | | Loans and leases | $ | 8,231 | | | $ | — | | | $ | — | | | $ | 8,231 | |
Other real estate owned | 2,079 | | | 0 | | | 0 | | | 2,079 | | |
| Total assets measured at fair value on a nonrecurring basis | Total assets measured at fair value on a nonrecurring basis | $ | 20,213 | | | $ | 0 | | | $ | 0 | | | $ | 20,213 | | Total assets measured at fair value on a nonrecurring basis | $ | 8,231 | | | $ | — | | | $ | — | | | $ | 8,231 | |
The following table presents the losses resulting from nonrecurring fair value adjustments for the three and nine months ended September 30, 20202021 and 2019:2020:
|
|
| Three Months Ended | | Nine Months Ended |
| Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| Loans and leases | Loans and leases | $ | 14,797 | | | $ | 20,435 | | | $ | 53,336 | | | $ | 51,212 | | Loans and leases | $ | 8,470 | | | $ | 14,797 | | | $ | 43,480 | | | $ | 53,336 | |
Goodwill impairment (Wholesale Bank and Retail Bank) | 0 | | | 0 | | | 1,784,936 | | | 0 | | |
Other real estate owned | 352 | | | 279 | | | 499 | | | 3,013 | | |
Goodwill impairment | | Goodwill impairment | — | | | — | | | — | | | 1,784,936 | |
Total loss from nonrecurring measurements | Total loss from nonrecurring measurements | $ | 15,149 | | | $ | 20,714 | | | $ | 1,838,771 | | | $ | 54,225 | | Total loss from nonrecurring measurements | $ | 8,470 | | | $ | 14,797 | | | $ | 43,480 | | | $ | 1,838,272 | |
Goodwill was evaluated for impairment as of March 31, 2020, resulting in an impairment charge of $1.8 billion for the Retail Bank and Wholesale Bank reporting units. Refer to Note 11 - Goodwill, for discussion of the Company's goodwill impairment analysis.nine months ended September 30, 2020.
The 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, excluding goodwill. Unobservable inputs and qualitative information about the unobservable inputs are not presented as the fair value is determined by third-party information for loans and leases and other real estate owned.leases.
The loans and leases amounts above represent collateral dependent loans and leases that have been adjusted to fair value. When a loan or non-homogeneous lease is identified as collateral dependent, the Bank measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan or lease, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little to no value. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is determined that the collateral has little to no value. If it is determined that the value of the collateral dependent loan or lease is less than its recorded investment, the Bank recognizes this impairment and adjusts the carrying value of the loan or lease to fair value, less costs to sell, through the allowance for credit losses. The loss represents charge-offs on collateral dependent loans and leases for fair value adjustments based on the fair value of collateral.
The other real estate owned amount above represents impaired real estate that has been adjusted to fair value. 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's new basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for credit 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. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on other real estate owned for fair value adjustments based on the fair value of the real estate.
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of September 30, 20202021 and December 31, 2019:2020:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(in thousands) | (in thousands) | Fair Value | | Aggregate Unpaid Principal Balance | | Fair Value Less Aggregate Unpaid Principal Balance | | Fair Value | | Aggregate Unpaid Principal Balance | | Fair Value Less Aggregate Unpaid Principal Balance | (in thousands) | Fair Value | | Aggregate Unpaid Principal Balance | | Fair Value Less Aggregate Unpaid Principal Balance | | Fair Value | | Aggregate Unpaid Principal Balance | | Fair Value Less Aggregate Unpaid Principal Balance |
Loans held for sale | Loans held for sale | $ | 677,773 | | | $ | 644,507 | | | $ | 33,266 | | | $ | 513,431 | | | $ | 496,683 | | | $ | 16,748 | | Loans held for sale | $ | 352,466 | | | $ | 340,670 | | | $ | 11,796 | | | $ | 688,079 | | | $ | 654,555 | | | $ | 33,524 | |
Loans | | Loans | $ | 353,912 | | | $ | 340,664 | | | $ | 13,248 | | | $ | — | | | $ | — | | | $ | — | |
Residential mortgage 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 residential mortgage banking revenue. For the three and nine months ended September 30, 2021, the Company recorded net decreases in fair value of $4.5 million and $13.5 million, respectively. For the three and nine months ended September 30, 2020, the Company recorded a net increase in fair value of $2.2 million and $16.5 million, respectively.
Certain residential mortgage loans were initially originated for sale and initially measured at fair value; after origination, the loans were transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of other income. For the three and nine months ended September 30, 2019,2021, the Company recorded a net decreaseincrease in fair value of $1.9$3.4 million and an increase of $5.8$5.7 million, respectively.
The Company selected the fair value measurement option for certain junior subordinated debentures. The remaining junior subordinated debentures were acquired through previous business combinations and were measured at fair value at the time of acquisition and subsequently measured at amortized cost.
Accounting for the selected junior subordinated debentures at fair value enables the Company to more closely align financial performance with the economic value of those liabilities. Additionally, it improves the 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.
Due to inactivity in the junior subordinated debenture market and the lack of observable quotes of the Company's, or similar, junior subordinated debenture liabilities or the related trust preferred securities when traded as assets, the Company utilizes an income approach valuation technique to determine the fair value of these liabilities using estimation of market discount rate assumptions. The Company monitors activity in the trust preferred and related markets, to the extent available, evaluates changes related to the current and anticipated future interest rate environment, and considers entity-specific creditworthiness, to validate the reasonableness of the credit risk adjusted spread and effective yield utilized in the discounted cash flow model. The Company also considers changes in the interest rate environment in the valuation, specifically the absolute level and the shape of the slope of the forward swap curve.
Note 11 – Goodwill
At September 30, 2020, goodwill totaled $2.7 million, after a goodwill impairment of $1.8 billion was recorded as of March 31, 2020. Goodwill was $1.8 billion at December 31, 2019. Goodwill is required to be allocated to reporting units, which the Company has determined to be the same as its operating segments.
The following table summarizes the change in the Company's goodwill for the nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | Goodwill |
(in thousands) | | Gross | | Accumulated Impairment | | Total |
Balance, December 31, 2019 | | $ | 1,900,727 | | | $ | (113,076) | | | $ | 1,787,651 | |
Goodwill impairment | | — | | | (1,784,936) | | | (1,784,936) | |
Balance, September 30, 2020 | | $ | 1,900,727 | | | $ | (1,898,012) | | | $ | 2,715 | |
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As of September 30, 2020 and December 31, 2019, goodwill was allocated to the reporting units as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill |
(in thousands) | Wholesale Bank | | Wealth Management | | Retail Bank | | Total |
Allocated goodwill, December 31, 2019 | $ | 1,033,744 | | | $ | 2,715 | | | $ | 751,192 | | | $ | 1,787,651 | |
Goodwill impairment | (1,033,744) | | | 0 | | | (751,192) | | | (1,784,936) | |
Allocated goodwill, September 30, 2020 | $ | 0 | | | $ | 2,715 | | | $ | 0 | | | $ | 2,715 | |
The Company updated its goodwill assessment for the Wholesale Bank and Retail Bank reporting units as of March 31, 2020, due to events and circumstances indicating potential impairment. Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. A goodwill impairment is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.
The Company assessed qualitative factors that indicated that it was more likely than not that goodwill was impaired as of March 31, 2020. Based on that assessment, the Company determined that for the Wholesale Bank and Retail Bank reporting units, the qualitative analysis determined that there were negative indicators that would require a quantitative assessment of goodwill due to the decline in the current economic environment, specifically interest rates and the Company's stock price, as well as decreasing cash flow projections for these reporting units based on the low interest rate environment and potentially higher credit losses.
The Company performed a quantitative analysis of the Wholesale Bank and Retail Bank reporting units, by comparing the fair value of these reporting units with their carrying amount. The Company estimated the fair value of its Wholesale Bank and Retail Bank reporting units using an income approach to estimate the fair value of both reporting units. The income approach estimates the fair value of the reporting units by discounting management's projections of the reporting units' cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, discounted using an estimated cost of capital discount rate. The Company also considered the market and cost approaches when determining the fair value of the reporting units.
The projected cash flows used to estimate fair value of the reporting units was lower than previous projections due to declining interest rate forecasts for a prolonged low-interest rate environment, due to the significant impact of the Federal Reserve's rate cuts and the impact of the COVID-19 pandemic on the economy. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires management to make assumptions and estimates regarding the Company's future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors.
Upon completing the quantitative impairment analysis as of March 31, 2020, the Company recorded a goodwill impairment of $1.8 billion, which represented the entire amount of goodwill allocated to the Wholesale Bank and Retail Bank reporting units. The remaining goodwill of $2.7 million after the impairment relates to the Wealth Management reporting unit. As of September 30, 2020, the Company updated its goodwill impairment analysis for the Wealth Management reporting unit by assessing qualitative factors to determine whether the existence of events and circumstances indicated that it is more likely than not that goodwill is impaired. Based upon that assessment, the Company determined that there were no additional factors indicating impairment and no further testing was determined to be necessary as of September 30, 2020.
Note 12 - Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as in the majority of states and in Canada.states. As of September 30, 2020,2021, the Company has a net deferred tax liabilityasset of $13.2$8.4 million, which includes $2.0$1.3 million of state net operating loss ("NOL") carry-forwards, expiring in the tax years of 2029-2031. The Company believes that it is more likely than not that the benefit from only certain state NOL carry-forwards will not be realized and therefore has provided a valuation allowance of $1.1 million against the deferred tax assets relating to these NOL carry-forwards. The Company had gross unrecognized tax benefits of $4.3$3.4 million as of September 30, 2020.2021. If recognized, the unrecognized tax benefit would reduce the 20202021 annual effective tax rate by 0.27%0.56%.
The Company's consolidated effective tax rate as a percentage of pre-tax income (loss) for the three and nine months ended September 30, 20202021 was 21.3% and (4.4)%24.7%, respectively, as compared to 23.6% and 24.5%(4.4)% for the three and nine months ended September 30, 2019.2020. The effective tax rate decreasedincreased from the prior year primarily due to the impairment of non-deductible goodwill during the nine months ended September 30, 2020. Additionally, the effective tax rates differed from the statutory rate principally because of state taxes, non-taxable income arising from bank ownedbank-owned life insurance, income on tax-exempt investment securities non-deductible FDIC premiums and tax credits arising from low-income housing investments.
Note 12– Subsequent Event
On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved a Merger Agreement under which the two companies will combine in an all-stock transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Umpqua, with Umpqua surviving the Merger, and immediately following the Merger and as a part of a single integrated transaction, Umpqua will merge with and into Columbia, with Columbia continuing as the surviving entity. Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company.
The completion of the Merger is subject to customary conditions, including (1) approval by Umpqua's and Columbia's shareholders, (2) approval by Columbia's shareholders of an amendment to Columbia's articles of incorporation to increase the number of authorized shares of Columbia's common stock, (3) authorization for listing on the NASDAQ of the shares of Columbia's common stock to be issued in the Merger, (4) the receipt of required regulatory approvals for the Merger from the Federal Reserve Board, Federal Deposit Insurance Corporation 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 Columbia'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 Umpqua and Columbia and further provides that, upon termination of the Merger Agreement under certain circumstances, Umpqua or Columbia, as applicable, will be obligated to pay the other party a termination fee of $145.0 million.
At September 30, 2021, Columbia reported $18.6 billion in assets, including $9.4 billion in net loans and $4.8 billion in available for sale debt securities, $16.0 billion in deposits, and $2.3 billion in shareholders' equity.
The transaction is expected to close in mid-2022. A summary of the terms of the Merger Agreement and other related agreements are summarized in, and the Merger Agreement has been filed as an exhibit to, the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 12, 2021.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Report contains certain 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," "intends" and "forecast," and words or phrases of similar meaning.
We make forward-looking statements about the proposed transaction between us and Columbia Banking System, Inc.; the projected impactimpacts on our business operations of the COVID-19 pandemic; Next Gen 2.0 initiatives including store consolidations, new products and services, technology initiatives, operational improvements, and facilities rationalizations; the sale of substantially all of the assets of Umpqua Investments; LIBOR; derivatives and hedging; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of funds and the Company's liquidity position; our securities portfolio; loan sales; adequacy of our allowance for credit losses,ACL, including the reserve for unfunded commitments; provision for credit losses; non-performing loans and future losses; performance of troubled debt restructurings; our commercial real estate portfolio, its collectability and subsequent charge-offs; resolution of non-accrual loans; PPP forgiveness and SBA fees; mortgage volumes and the impact of rate changes; the economic environment; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including mortgage servicing rights values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation: our ability to complete the Merger with Columbia and realize the anticipated benefits of the merger; current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, and any slowdown in economic growth particularly in the western United States; the length and immediate and long-term effects of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and demand for our products; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; our ability to effectively manage problem credits; our ability to successfully implement technology, efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; our ability to meet the closing conditions to complete the sale of Umpqua Investments' assets; interest in our stores from potential purchasers; and our ability to successfully negotiate with landlords or reconfigure facilities. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements, applicable law and regulations (including federal securities laws and state and federal banking laws and regulations), and other factors deemed relevant by the Company's Board of Directors, and willmay be subject to regulatory approval or conditions.
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. The COVID-19 pandemic, including the governmental reaction to COVID-19 and the economic impacts, may materially impact our business, liquidity and financial position, results of operations, and stock price, as more fully described in Part II Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission (the "SEC") and the following factors that might cause actual results to differ materially from those presented:
•the ability to complete, or any delays in completing, the proposed transaction between us and Columbia;
•the significant risks and uncertainties for our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its influence on the economy and financial markets, the continued effectiveness of our work from home arrangements and staffing levels in operational facilities, challenges associated with our return to office plans such as maintaining a safe office environment and integrating at-home and in-office staff, the impact of market participants on which we rely and actions taken by governmental authorities and other third parties in response to the pandemic and the impact of lower equity market valuations on our service and management fee revenue;
•continued deterioration in economic conditions that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans;
•our ability to successfully, including on time and on budget, implement and sustain information technology product and system enhancements and operational initiatives;
•our ability to attract new deposits and loans and leases;
•our ability to retain deposits, especially during store consolidations;
•demand for financial services in our market areas;
•competitive market pricing factors;
•our ability to effectively develop and implement new technology;
•continued market interest rate volatility;
•prolonged low interest rate environment;
•continued compression of our net interest margin;
•stability and cost of funding sources;
•continued availability of borrowings and other funding sources such as brokered and public deposits;
•changes in legal or regulatory requirements or the results of regulatory examinations that could increase expenses or restrict growth;
•our ability to recruit and retain key management and staff;
•availability of, and competition for, acquisition opportunities;
•our ability to raise capital or incur debt on reasonable terms;
•regulatory limits on the Bank's ability to pay dividends to the Company;
•financial services reform and the impact of legislation and implementing regulations on our business operations, including our compliance costs, interest expense, and revenue;
•a breach or failure of our operational or security systems, or those of our third-party vendors, including as a result of cyber-attacks; and
•competition, including from financial technology companies.
There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements are made as of the date of this Form 10-Q. We do not intend to update these forward-looking statements. Readers should consider any forward-looking statements in light of this explanation, and we caution readers about relying on forward-looking statements.
General
Umpqua Holdings Corporation,The Company is an Oregon corporation is aand the financial holding company of the Bank. The Bank is the largest bank with two principal operating subsidiaries, Umpqua Bankheadquarters in the Pacific Northwest and Umpqua Investments, Inc. The Bank's wholly-owned subsidiary, Financial Pacific Leasing, Inc., is a commercial equipment leasing company.
With headquarters located in Roseburg, Oregon, Umpqua Bank is considered one of the most innovative community banks in the United States, recognized nationally and internationally for its unique company culture and customer experience strategy, which we believe differentiates the Company from its competition.strategy. The Bank provides a widebroad range of banking, wealth management,private banking, mortgage and other financial services to corporate, institutional, and individual customers.
Umpqua Investments FinPac, a commercial equipment leasing company, is a registered broker-dealer and registered investment advisor with offices in Oregon, Washington, and California, and also offers products and services throughBank subsidiary.
On October 12, 2021, Umpqua Bank stores. Umpqua Investments offersannounced entering into 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, advisory account services, goals-based planning and insurance. In September 2020, the Company entered into andefinitive agreement to sell substantially all ofjoin together with Columbia. Once the assets of Umpqua Investmentstransaction is completed, the combined organization is expected to Steward Partners.be a leading West Coast franchise with more than $50 billion in assets. The acquisitiontransaction is expected to close in the first quartermid-2022, subject to satisfaction of 2021.customary closing conditions, including receipt of regulatory approvals and approvals from each company's shareholders.
Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes regular examinations by these regulatory agencies.
In November 2020, the SEC issued Final Rule 33-10890, Management’s Discussion and Analysis, Selected Financial Data and Supplementary Financial Information, which modernizes and simplifies certain disclosure requirements of Regulation S-K. One update to Item 303 of Regulation S-K allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. We have elected to early adopt this rule change, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison. Accordingly, we have compared the results for the three months ended September 30, 2021 and June 30, 2021, where applicable, throughout this Management's Discussion and Analysis.
Executive Overview
Recent Developments – COVID-19
We expect that the COVID-19 pandemic and the related governmental reaction will continue to negatively impact the economy and our business including our results of operations and stock price among other negative impacts. The government's reactions to the COVID-19 pandemic has also had a positive impact on our business, including our involvement in the PPP, as well as increased mortgage loan production fueled by the decline in interest rates, although these benefits may be short-term in nature. The risks to our business are more fully described in Part II, item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. We are closely monitoring the impact of COVID-19 on all aspects of our business.
At this time, we are unable to predict the extent and magnitude of the negative impact on our business of the COVID-19 pandemic and related governmental reaction due to numerous uncertainties. To limit the impact of COVID-19 on our business operations, customers and associates, we have modified our operations to comply with multiple state-level proclamations and Centers for Disease Control and Prevention ("CDC") guidance and best practices by restricting travel, maintaining remote work programs for associates, restricting lobby access to stores and having customers bank by appointment, online, or via our app, increasing facilities cleaning scope and frequency, and deploying resources for new programs such as the Payroll Protection Program ("PPP"). We have also addressed other customer needs during the pandemic by continuing to offer our Umpqua Go-To® application which offers customers and associates a safe and effective way to conduct banking. As of September 30, 2020, we funded approximately 16,900 PPP loans, totaling $2.0 billion, to help businesses maintain their workforce and cover other working capital needs during the COVID-19 pandemic.
We have increased our community support by allocating $3.0 million in grants and investments to organizations providing COVID-19 community relief and small business microloans, activating an associate 3:1 giving match to donations, and initiating virtual volunteerism opportunities. We enhanced associate benefits by introducing supplemental front line associate pay, providing a pandemic pay bank for associates needing additional paid time off due to COVID-19 impacts, and implementing flexible work rotations and remote work for higher-risk associates.
While we do not know and cannot quantify all of the specific impacts, the extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic; the effect on our customers, counterparties, employees and third party service providers; and the effect on the economy and markets.
Due to the COVID-19 pandemic, the Umpqua Go-To® application's message volumes have increased as the application provides customers and bankers with a socially-distant way to conduct transactions and get answers to critical questions. During this difficult time, we continue to focus on operational excellence and on the well-being of our customers, associates, and communities.
Social Justice Initiatives
As part of our community support, Umpqua prioritized strategic investments and resource allocation to support minority-owned businesses, which are most vulnerable during the pandemic. This support includes $750,000 in community development and Equity Equivalent ("EQ2") investments to provide support for women and minority owned businesses. Umpqua bankers are providing expertise through virtual volunteering programs and small business banker's hours. We are also providing free use of space at local stores in numerous localities to support their small businesses.
Wildfire Support
Due to the recent wildfires impacting the West Coast, Umpqua has committed $750,000 in relief across our footprint, including $100,000 in grants for response and recovery; $350,000 in EQ2 to support impacted small businesses in Oregon and $300,000 in EQ2 to support small businesses in California and Washington. We also activated our 3:1 match program to include wildfire relief and increased the eligible associate match. In addition, we support active associate volunteering to organize supply drives, sharing critical information, as well as donating money, time, talent, space, and resources as Umpqua associates are active in the many communities impacted by the wildfires.
The following is a discussion of our results for the three and nine months ended September 30, 20202021, as compared to the applicable prior periods.
Financial Performance
•Net income per diluted common share was $0.57 and$0.49 for the three months ended September 30, 2021, as compared to $0.53 for the three months ended June 30, 2021. Net income per diluted common share was $1.51 for the nine months ended September 30, 2021, as compared to a net loss per diluted common share was $7.60of ($7.60) for the three and nine months ended September 30, 2020, respectively, as compared to net income per diluted common share of $0.38 and $1.232020. The decrease for the three and nine months ended September 30, 2019.2021, as compared to the prior quarter, was primarily driven by a decline in non-interest income due to the decrease in residential mortgage banking revenue, as well as the decrease in recapture of the provision for credit losses in the current quarter. The decrease was offset slightly by a decrease in non-interest expense and an increase in net-interest income. The increase in net income for the threenine months ended September 30, 2020,2021 as compared to the same period in the prior year, is due primarilymainly to an increasethe goodwill impairment taken in residential mortgage banking income. The net loss2020. In addition, for the nine months ended September 30, 2020, is due to the goodwill impairment, increased2021, we recorded a recapture of provision for credit losses as well as interest margin compression.
•As of March 31, 2020,compared to provision expense for the Company recorded a goodwill impairment of $1.8 billion. An interim impairment analysis was completed due to the declinesame period in the economic environment, specifically the impact of significant decreases in interest rates, declines in the Company's stock price, as well as potentially higher credit losses. The non-cash goodwill impairment recorded does not impact tangible equity or our regulatory capital ratios. There was no further goodwill impairment indicated as of September 30, 2020.prior year.
•Net interest margin, on a tax equivalent basis, was 3.08% and 3.19%3.21% for the three andmonths ended September 30, 2021, as compared to 3.20% for the three months ended June 30, 2021. Net interest margin, on a tax equivalent basis, was 3.20% for the nine months ended September 30, 2020, respectively,2021, as compared to 3.63% and 3.78%3.19% for the three and nine months ended September 30, 2019.2020. The increase for the three months ended September 30, 2021 as compared to the prior quarter was driven by an increase in interest income as a result of higher non-PPP average loans and leases, as well as a decrease in interest expense due to the decline in average rates on deposits, specifically time deposits. The increase in net interest margin for the three and nine months ended September 30, 2020,2021, compared to the same periodsperiod in the prior year, was driven by lower yieldscosts on interest-earning assets offset by higher volume,interest-bearing liabilities due to the interest rate cuts that the Federal Reserve instituted as a response to the COVID-19 pandemic.decline in deposit costs. The decrease was partially offset by a reductiondecrease in the cost of interest-bearing liabilities from the Company's management of the cost of our funding sources.yields on interest-earning assets.
•Residential mortgage banking revenue was $90.4$34.2 million andfor the three months ended September 30, 2021, as compared to $44.4 million for the three months ended June 30, 2021. Residential mortgage banking revenue was $143.6 million for the nine months ended September 30, 2021, as compared to $191.8 million for the nine months ended September 30, 2020. The decrease for the three and nine months ended September 30, 2020, respectively,2021, as compared to $47.0 millionthe prior periods, was driven by a decline in for-sale originations and $67.8 millionin the gain on sale margin due to normalizing margins, caused by rising rates which has resulted in a slow-down in refinancing demand. The decrease for the three and nine months ended September 30, 2019. The increase in residential mortgage banking revenue for the three and nine months ended September 30, 2020 was primarily driven by an increase in originations in the current year due to elevated refinance demand due to lower interest rates. This resulted in increases in the income from the origination and sale of residential mortgages of $67.3 million and $155.9 million, for the three and nine months ended September 30, 2020, respectively,2021, as compared to the same periods in the prior year. Thisprevious period, was slightly offset by higher origination expense and by lossesa lower loss on the fair value ofon the MSR asset due to increases induring the prepayment speeds.period.
•For-sale mortgage closed loan volume increaseddecreased by 128% and 141%21% for the three andmonths ended September 30, 2021, as compared to the three months ended June 30, 2021. For-sale mortgage closed loan volume also decreased 21% for the nine months ended September 30, 2020, respectively,2021, as compared to the same periods in the prior year.nine months ended September 30, 2020. In addition, the gain on sale margin increaseddecreased to 5.13% and 4.59%,3.07% for the three andmonths ended September 30, 2021, as compared to 3.30% for the three months ended June 30, 2021. For the nine months ended September 30, 2020, respectively, as compared to 3.72% and 3.40% in the same periods of the prior year. The increase in2021, the gain on sale margin is duedecreased to constrained industry capacity.3.46%, as compared to 4.59% for the nine months ended September 30, 2020.
•Total gross loans and leases were $22.4$22.0 billion as of September 30, 2020,2021, an increase of $1.2 billion,$190.6 million, as compared to December 31, 2019.2020. The increase in total loans is primarily due to an increase in the productioncommercial real estate balances of approximately 16,900$554.9 million, primarily within multifamily lending and an increase in residential real estate balances of $456.7 million, offset by a decrease of $796.8 million in commercial balances. The decrease in commercial balances mainly relates to the decrease in PPP loans totaling $2.0of $1.0 billion netduring the period, as the majority of deferred fees and costs. Excluding PPP loan production, loan balances declined due to reduced origination activity inthese loans are forgiven by the current economic environment.SBA, as expected.
•Total deposits were $24.7$26.9 billion as of September 30, 2020,2021, an increase of $2.2$2.3 billion, compared to December 31, 2019.2020. This increase was due to growth in non-interest bearing demand, money market, and savings deposits, which is attributable to ancustomer saving habits in the current economic environment, resulting in higher average balances per deposit account. The increase in commercial customers' non-interest bearing accounts to increase their liquidity position, and personal customers decreasing discretionary spending. This increasedeposits is partially offset by decreasesa decline in higher cost time deposits.
•Total consolidated assets were $29.4 billion as of September 30, 2020, compared to $28.8 billion at December 31, 2019. The increase was mainly due to the increase in loans due to PPP loan production and an increase in on-balance sheet liquidity, offset by the goodwill impairment recorded in the first quarter of 2020 and an increase in the allowance for credit losses.
•The Company participates in the PPP, offering loans to both customers and non-customers throughout our footprint. AsTotal consolidated assets were $30.9 billion as of September 30, 2020, the Company had processed approximately 16,900 PPP loans2021, compared to $29.2 billion at December 31, 2020. The increase was mainly due to an increase in on-balance sheet liquidity, as well as an increase in available for sale securities and funded $2.0 billion in PPP loans, with an average customer loan balance of $122,000. The PPP loans will increase loan balances temporarily as PPP specific loan balances will decline as customers complete the applicable loan forgiveness process through the Company and the SBA.loans.
Credit Quality
•Non-performing assets increaseddecreased to $79.1$53.5 million, or 0.27%0.17% of total assets, as of September 30, 2020,2021, as compared to $67.5$69.2 million, or 0.23%0.24% of total assets, as of December 31, 2019.2020. Non-performing loans and leases were $76.7$51.6 million, or 0.34%0.24% of total loans and leases, as of September 30, 2020,2021, as compared to $64.2$67.4 million, or 0.30%0.31% of total loans and leases, as of December 31, 2019.2020.
•The allowance for credit losses on loans and leases was $345.0$257.6 million, as of September 30, 2020, an increase2021, a decrease of $187.4$70.8 million, as compared to December 31, 2019.2020. The reserve for unfunded commitments was $24.3$11.8 million, as of September 30, 2020, an increase2021, a decrease of $19.2$8.5 million, as compared to December 31, 2019.2020. The significant increasesdecrease in the allowances for credit losses are due to the economic forecasts anticipating a continued economic downturn as a result of the COVID-19 pandemic, as well as the implementation of CECL. The initial adjustment to the allowance for credit losses which includesis due to the allowance forimprovement in economic forecasts used in the credit losses on loans and leases and the reserve for unfunded commitments, with the adoption of CECL as of January 1, 2020, was $53.2 million.models.
•The Company had a recapture of credit losses was $338,000 for the three months ended September 30, 2020. The provision for credit losses was $204.8 million for the nine months ended September 30, 2020. This was compared to a provision for credit losses (including the provision related to the RUC) of $23.5$18.9 million and $56.8$41.9 million respectively, for the three and nine months ended September 30, 2019. The decrease2021, respectively. This was compared to a recapture of the provision for credit losses of $23.0 million for the three months ended June 30, 2021. For the nine months ended September 30, 2020, comparedthe provision for credit losses was $204.8 million. The recapture of the provision for credit losses in the current periods was due to the same period in 2019, was attributed to a stabilization of credit quality metrics and improved economic forecasts used in credit models as of September 30, 2020, along with a decline in loan balances for the three month period. The increase for the nine months ended September 30, 2020, compared to the same period of the prior year, was attributable to the economic forecasts influenced by the COVID-19 pandemic used in the CECL calculation of the allowance for credit losses. As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the three months ended September 30, 2020 was zero due to the small recapture, and for the nine months ended was 1.24%, as compared to 0.44% and 0.37% for the same periods in 2019.2021.
Liquidity
•Total cash and cash equivalents was $2.2$3.7 billion as of September 30, 2020,2021, an increase of $857.0 million$1.2 billion from December 31, 2019.2020. The increase in cash and cash equivalents reflectsis consistent with the Bank's current liquidity strategygrowth in deposit balances, which will provide flexibility to have an elevated on-balance sheet liquidity position to further enhance flexibility due tofund growth in the increased market volatilitylending and uncertaintyinvestment portfolios as a result of the COVID-19 pandemic.economic conditions permit.
Capital and Growth Initiatives
•Umpqua launched "Next Gen 2.0" as a continuation of our initiative to modernize the Bank. Like its predecessor, the Next Gen 2.0 program includes initiatives to grow revenue, invest in strategic areas for future growth, including technology and digital enhancements, and to continue to advance operational excellence goals to reduce operating costs and invest the savings in strategic growth opportunities. We’re buildingWe have focused on continued customer and talent acquisition, converting new PPP customers to expanded relationships with additional products and services, implemented new technology to gain efficiencies and advance the strong foundation established over the past few yearscustomer experience, and planned consolidation of stores and back-office facilities for expense reduction. We have also launched new products to continue streamlining the company’s operations in order to accelerate the development of a highly differentiated, humanprovide digital customer experience.offerings, as well as consolidated payment options for commercial customers.
•The Company's total risk based capital ratio was 15.0%14.9% and its Tier 1 common to risk weighted assets ratio was 11.7%12.0% as of September 30, 2020.2021. As of December 31, 2019,2020, the Company's total risk based capital ratio was 14.0%15.6% and its Tier 1 common to risk weighted assets ratio was 11.2%12.3%.
•The Company repurchased 4.0 million shares for a total of $78.2 million during the quarter, under the new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The Company does not anticipate any near-term share repurchases under our existing repurchase program given our pending combination with Columbia.
•The Company paid a quarterly cash dividenddividends of $0.21 per common share to shareholders on February 26, 2021, May 28, 2021 and August 31, 2020 to shareholders of record as of August 20, 2020.2021. The Company has shiftedmay not increase quarterly dividends during the timingpendency of any dividend declarations from historical intra-quarter announcements to after quarterly earnings are finalized and applicable regulatory approval processes are complete.the Merger.
Summary of Critical Accounting Policies
Our critical accounting policies are described in detail in the Summary of Critical Accounting Policies section of the Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on February 27, 2020.25, 2021. The SEC defines "critical accounting policies" as those that require application of management'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. As of January 1, 2020, the Company implemented CECL, and due to the significance of the implementation, the following Allowance for Credit Losses Policy has been updated from the policies disclosed in our prior year financial statements. The Company's critical accounting policies also include the allowance for credit losses, residential mortgage servicing rights, valuation of goodwill, and fair value. There have been no other material changes to the valuation techniques or modelsin these policies during the nine months ended September 30, 2020.2021.
Allowance for Credit Losses Policy
The Bank has established an ACL Committee, which is responsible for, among other things, regularly reviewing the ACL methodology, including allowance levels and ensuring that it is designed and applied in accordance with generally accepted accounting principles. The Company's Audit and Compliance Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis.
CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and qualitative factors.
The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life after the forecasted period, using an approach that reverts to historical credit loss information.
The Company utilizes complex models to obtain reasonable and supportable forecasts; most of the models calculate two predictive metrics: the probability of default and loss given default. The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan or lease. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.
Loans and leases deemed to be collateral dependent or reasonably expected troubled debt restructured or troubled debt restructured are individually evaluated for loss based on the value of the underlying collateral or a discounted cash flow analysis.
The Company considers various qualitative factors when determining the overall adequacy of the ACL, including changes within the portfolio, changes to Bank policies and processes, as well as external factors, which may result in qualitative overlays to the model results. Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to the difficulty of calculating an effective interest rate when lines of credit have not yet been drawn on.
The reserve for unfunded commitments 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 ACL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors, including: the CECL model outputs; 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.
Management believes that the ACL was adequate as of September 30, 2020. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ACL and could result in additional provision for loan and lease losses in future periods.
Results of Operations
Overview
For the three months ended September 30, 2020,2021, net income was $124.9$108.1 million or $0.57$0.49 per diluted common share, andcompared to net income of $116.1 million or $0.53 per diluted common share for the three months ended June 30, 2021. For the nine months ended September 30, 2021, net income was $331.9 million or $1.51 per diluted common share, which compares to a net loss of $1.7 billion or $7.60 per diluted common share for the nine months ended September 30, 2020,2020.
In the first quarter of 2021, the Company realigned its operating segments based on changes in management's focus and its internal reporting structure. The Company now reports two segments: Core Banking and Mortgage Banking. This aligns with how we manage the profitability of the Company and also provides greater transparency into the financial contribution of mortgage banking activities.
The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from our serviced loan portfolio, the quarterly changes in the MSR asset, and the specific expenses that are related to mortgage banking activities including variable commission expenses. Revenue and related expenses related to residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for our consumer channels and are originated through a variety of channels throughout the Company. Refer to the segment information footnote for additional detail of the segments' financial statements.
The Core Banking segment had net loss was $1.7 billion or $7.60 loss per diluted common share, which comparesincome of $102.3 million for the three months ended September 30, 2021, compared to net income of $84.5$108.2 million or $0.38 per diluted common share and $270.3 million or $1.23 per diluted common share for the three andmonths ended June 30, 2021. The decrease in net income is attributable to a decrease in non-interest income, as well as a decrease in the recapture of the provision for credit losses, offset by an increase in net interest income. Net income for the Core Banking segment increased for the nine months ended September 30, 2019, respectively.2021, as compared to the same period in the prior year, due to the impact of goodwill impairment in 2020, as well as the recapture of the provision for credit losses as economic forecasts improved in the current period.
The increaseMortgage Banking segment had net income of $5.8 million for the three months ended September 30, 2021, compared to net income of $8.0 million for the three months ended June 30, 2021. The decrease in net income for the three months ended September 30, 2020,2021 for the Mortgage Banking segment, compared to the three months ended June 30, 2021, is attributable to lower for-sale mortgage originations and lower gain on sale margin. The closed loan volume declined as a result of rate changes, resulting in a slowing of loan refinance activity. The decrease in net income for the Mortgage Banking segment, for the nine months ended September 30, 2021, compared to the same period of the prior year, is attributablewas primarily due to an increase in non-interest income due mainly to increased residential mortgage banking revenue from strong mortgage production in the quarter, a decrease in interest expense, as well as a decrease in provision for credit losses, offset partially by a decrease in interest incomefor-sale originations and an increase in non-interest expenses during the period.
The decrease in interest expense was driven by a decrease in the expense on time deposits due to lower brokered deposits as the Company has allowed these higher-cost deposits to runoff, as well as the Company reducing promotional and exception pricing on customer money market and time deposits. The decrease in the provison for credit losses for the three months ended September 30, 2020, compared to the same period in 2019, was attributed to a stabilization of credit quality metrics and economic forecasts used in credit models as of September 30, 2020, along with a decline in loan balances for the three month period. The decrease in interest income is driven by lower average yields on interest-earning assets as market or index rates continued to decline. The increase in non-interest expense is due mainly to an increase in home lending compensation related to higher origination volumes during the quarter.
The decrease in net income for the nine months ended September 30, 2020, compared to the same period of the prior year is primarily attributable to the goodwill impairment of $1.8 billion and an increase in provision for credit losses. The goodwill impairment was due to an interim impairment analysis completed as of March 31, 2020, triggered by the deterioration in the economic environment, resulting from the COVID-19 pandemic, specifically the reduction in interest rates, the increase in projected credit losses, and the decline in the Company's stock price. The increase in the provision for credit losses is due to the COVID-19 pandemic influenced economic forecast used in the calculation of the allowance for credit losses using CECL. For the nine months ended September 30, 2019, the Bank also had a one-time gain on the sale margin.
The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three months ended September 30, 2021 and June 30, 2021, respectively, as well as the nine months ended September 30, 2021 and September 30, 2020, and 2019.respectively. For each period presented, the table includes the calculated ratios based on reported net income. Our return on average common shareholders' equity was negatively impacted as the 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 and acquisition-related intangible assets, we believe it is beneficial to also consider the return on average tangible common shareholders' equity. The return on average tangible common shareholders' equity is calculated by dividing net income by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.
Return on Average Assets, Common Shareholders' Equity and Tangible Common Shareholders' Equity
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(dollars in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Return on average assets | 1.68 | % | | 1.18 | % | | (7.67) | % | | 1.31 | % |
Return on average common shareholders' equity | 19.48 | % | | 7.87 | % | | (72.01) | % | | 8.67 | % |
Return on average tangible common shareholders' equity | 19.62 | % | | 13.67 | % | | (89.45) | % | | 15.32 | % |
Calculation of average common tangible shareholders' equity: | | | | | | | |
Average common shareholders' equity | $ | 2,549,703 | | | $ | 4,260,810 | | | $ | 3,105,611 | | | $ | 4,169,008 | |
Less: average goodwill and other intangible assets, net | (18,021) | | | (1,808,191) | | | (605,548) | | | (1,809,583) | |
Average tangible common shareholders' equity | $ | 2,531,682 | | | $ | 2,452,619 | | | $ | 2,500,063 | | | $ | 2,359,425 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(dollars in thousands) | September 30, 2021 | | June 30, 2021 | | | | September 30, 2021 | | September 30, 2020 |
Return on average assets | 1.40 | % | | 1.54 | % | | | | 1.48 | % | | (7.67) | % |
Return on average common shareholders' equity | 15.82 | % | | 17.25 | % | | | | 16.47 | % | | (72.01) | % |
Return on average tangible common shareholders' equity | 15.88 | % | | 17.33 | % | | | | 16.55 | % | | (89.45) | % |
Calculation of average common tangible shareholders' equity: | | | | | | | | | |
Average common shareholders' equity | $ | 2,709,641 | | | $ | 2,700,010 | | | | | $ | 2,694,968 | | | $ | 3,105,611 | |
Less: average goodwill and other intangible assets, net | (10,609) | | | (12,615) | | | | | (12,922) | | | (605,548) | |
Average tangible common shareholders' equity | $ | 2,699,032 | | | $ | 2,687,395 | | | | | $ | 2,682,046 | | | $ | 2,500,063 | |
| | | | | | | | | |
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' 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 September 30, 20202021 and December 31, 2019:2020:
| (dollars in thousands) | (dollars in thousands) | September 30, 2020 | | December 31, 2019 | (dollars in thousands) | September 30, 2021 | | December 31, 2020 |
Total shareholders' equity | Total shareholders' equity | $ | 2,610,244 | | | $ | 4,313,915 | | Total shareholders' equity | $ | 2,722,379 | | | $ | 2,704,577 | |
Subtract: | Subtract: | | | | Subtract: | | | |
Goodwill | Goodwill | 2,715 | | | 1,787,651 | | Goodwill | — | | | 2,715 | |
Other intangible assets, net | Other intangible assets, net | 14,606 | | | 18,346 | | Other intangible assets, net | 9,970 | | | 13,360 | |
Tangible common shareholders' equity | Tangible common shareholders' equity | $ | 2,592,923 | | | $ | 2,507,918 | | Tangible common shareholders' equity | $ | 2,712,409 | | | $ | 2,688,502 | |
Total assets | Total assets | $ | 29,437,441 | | | $ | 28,846,809 | | Total assets | $ | 30,891,479 | | | $ | 29,235,175 | |
Subtract: | Subtract: | | Subtract: | |
Goodwill | Goodwill | 2,715 | | | 1,787,651 | | Goodwill | — | | | 2,715 | |
Other intangible assets, net | Other intangible assets, net | 14,606 | | | 18,346 | | Other intangible assets, net | 9,970 | | | 13,360 | |
Tangible assets | Tangible assets | $ | 29,420,120 | | | $ | 27,040,812 | | Tangible assets | $ | 30,881,509 | | | $ | 29,219,100 | |
Tangible common equity ratio | Tangible common equity ratio | 8.81 | % | | 9.27 | % | Tangible common equity ratio | 8.78 | % | | 9.20 | % |
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not reviewed or audited. Although we believe these non-GAAP financial measures 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 Income
Net interest income for the three andmonths ended September 30, 2021 was $235.1 million, an increase of $5.3 million compared to the three months ended June 30, 2021. Net interest income for the nine months ended September 30, 20202021 was $216.6$686.3 million, and $647.6an increase of $38.7 million respectively, a decrease of $12.4 million and $46.2 million, respectively, compared to the same periods in 2019. The decrease in net interest income for the three and nine months ended September 30, 2020 as2020. The increase for the three months ended September 30, 2021 compared to the same periods in 2019,prior quarter was driven by lower yields on interest-earning assets offset byan increase of $2.7 million in interest income which is a result of higher volume,non-PPP average loan balances and taxable securities income growth, and a decrease of $2.6 million in interest expense due to the interest rate cuts thatdecline in high-cost time deposits and term debt in the Federal Reserve instituted as a responsequarter compared to the COVID-19 pandemic, in additionprior period. The increase for the nine months ended September 30, 2021, was due to rate decreases in the second half of 2019. The decrease was partially offset by a lower cost of interest-bearing liabilities due to lower retail and brokered time deposits as the Bank has allowed these higher-cost deposits to runoff. In addition,The decrease in interest expense was partially offset by lower average yields on interest-earning assets for the Bank is actively reducing deposit exception pricing to reduce the cost of deposits.period.
The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.08% and 3.19%3.21% for the three andmonths ended September 30, 2021, as compared to 3.20% for the three months ended June 30, 2021. The net interest margin on a fully tax equivalent basis was 3.20% for the nine months ended September 30, 2020, respectively,2021, as compared to 3.63% and 3.78%3.19% for the same periods in 2019.nine months ended September 30, 2020. The decreaseincrease in net interest margin for the three andmonths ended September 30, 2021, as compared to the three months ended June 30, 2021, was driven by the increase in net interest income. The increase in net interest margin for the nine months ended September 30, 2020,2021, primarily resulted from a decrease in the average yields on interest-earning assets,cost of interest bearing liabilities, partially offset by the decline in the costaverage yields of interest-bearing liabilities and the increase in average loan and lease balances. In March 2020, in response to the COVID-19 pandemic, theinterest-earning assets. The Federal Open Market Committee ("FOMC") of the Federal Reserve System, lowered the target range for the federal funds rate 150 basis points to a range of 0.00% to 0.25%. The FOMC expects to maintain thisthe target rates at the current levels until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Key interest rate declines experienced year to date have negatively impacted the Company's net interest margin.
The yield on loans and leases decreased by 97 and 81 basis points, respectively, for the three months ended September 30, 2021 increased by 3 basis points as compared to the three months ended June 30, 2021, primarily attributable higher rates on average loans and leases as PPP loan balances decline. The yield on loans and leases for the nine months ended September 30, 2020,2021 decreased by 20 basis points as compared to the same period in 2019,2020, primarily attributable to the decrease in short and long-term interest rates as well as the origination of PPPcompared to prior periods and lower average loans which have a low coupon rate.and leases. The cost of interest-bearing liabilities decreased 74 and 427 basis points, respectively, for the three andmonths ended September 30, 2021, as compared to the three months ended June 30, 2021, due to the continued run off of higher-cost time deposits, as well as the paydown of borrowings during the period. The cost of interest-bearing liabilities decreased by 56 basis points for the nine months ended September 30, 2020,2021, as compared to the same period in 2019,2020, also due to the decrease in interest rates and the runoff of brokered deposits.
corresponding deposit pricing strategy, as well as decreased borrowings. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, as well as changes in the yields earned on interest-earning assets and rates paid on deposits and borrowed funds. The Company continues to be "asset-sensitive." As interest rates have declined, theThe decrease in yields on earning assets has compressed thecontinued to impact net interest margin, even as liabilities reprice downward. Further rate changes will continue to have an impact on our net interest margin. In addition, the increase in average loans and leases in the current period is due to PPP loans, which are expected to be short-term in nature due to SBA forgiveness of these loans, which could cause future net interest margin to decline as loan and lease balances decline.
The following tables present condensed average balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 20202021 and 2019:2020:
| | | Three Months Ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2019 | | September 30, 2021 | | June 30, 2021 | |
(dollars in thousands) | (dollars in thousands) | Average Balance | | Interest Income or Expense | | Average Yields or Rates | | Average Balance | | Interest Income or Expense | | Average Yields or Rates | (dollars in thousands) | Average Balance | | Interest Income or Expense | | Average Yields or Rates | | Average Balance | | Interest Income or Expense | | Average Yields or Rates | |
INTEREST-EARNING ASSETS: | INTEREST-EARNING ASSETS: | | | | | | | | | | | | INTEREST-EARNING ASSETS: | | | | | | | | | | | | |
Loans held for sale | Loans held for sale | $ | 669,646 | | | $ | 5,248 | | | 3.13 | % | | $ | 328,155 | | | $ | 3,953 | | | 4.82 | % | Loans held for sale | $ | 465,805 | | | $ | 3,672 | | | 3.15 | % | | $ | 468,960 | | | $ | 3,725 | | | 3.18 | % | |
Loans and leases (1) | Loans and leases (1) | 22,560,076 | | | 224,209 | | | 3.96 | % | | 21,170,915 | | | 262,158 | | | 4.93 | % | Loans and leases (1) | 21,864,387 | | | 220,731 | | | 4.02 | % | | 22,040,794 | | | 219,745 | | | 3.99 | % | |
Taxable securities | Taxable securities | 2,797,547 | | | 10,878 | | | 1.56 | % | | 2,648,092 | | | 13,145 | | | 1.99 | % | Taxable securities | 3,436,895 | | | 16,315 | | | 1.90 | % | | 3,210,771 | | | 15,024 | | | 1.87 | % | |
Non-taxable securities (2) | Non-taxable securities (2) | 237,165 | | | 1,845 | | | 3.11 | % | | 252,765 | | | 2,086 | | | 3.30 | % | Non-taxable securities (2) | 245,904 | | | 1,848 | | | 3.01 | % | | 247,282 | | | 1,864 | | | 3.02 | % | |
Temporary investments and interest-bearing cash | Temporary investments and interest-bearing cash | 1,827,818 | | | 474 | | | 0.10 | % | | 759,416 | | | 4,204 | | | 2.20 | % | Temporary investments and interest-bearing cash | 3,224,846 | | | 1,237 | | | 0.15 | % | | 2,835,474 | | | 774 | | | 0.11 | % | |
Total interest-earning assets | Total interest-earning assets | 28,092,252 | | | $ | 242,654 | | | 3.45 | % | | 25,159,343 | | | $ | 285,546 | | | 4.52 | % | Total interest-earning assets | 29,237,837 | | | $ | 243,803 | | | 3.32 | % | | 28,803,281 | | | $ | 241,132 | | | 3.35 | % | |
Other assets | Other assets | 1,441,619 | | | 3,197,639 | | | Other assets | 1,376,537 | | | 1,352,736 | | | |
Total assets | Total assets | $ | 29,533,871 | | | $ | 28,356,982 | | | Total assets | $ | 30,614,374 | | | $ | 30,156,017 | | | |
INTEREST-BEARING LIABILITIES: | INTEREST-BEARING LIABILITIES: | | | | | INTEREST-BEARING LIABILITIES: | | | | | |
Interest-bearing demand deposits | Interest-bearing demand deposits | $ | 2,878,529 | | | $ | 573 | | | 0.08 | % | | $ | 2,363,626 | | | $ | 3,117 | | | 0.52 | % | Interest-bearing demand deposits | $ | 3,564,040 | | | $ | 468 | | | 0.05 | % | | $ | 3,385,336 | | | $ | 459 | | | 0.05 | % | |
Money market deposits | Money market deposits | 7,179,705 | | | 2,284 | | | 0.13 | % | | 6,962,370 | | | 16,575 | | | 0.94 | % | Money market deposits | 7,800,144 | | | 1,492 | | | 0.08 | % | | 7,614,474 | | | 1,533 | | | 0.08 | % | |
Savings deposits | Savings deposits | 1,790,055 | | | 179 | | | 0.04 | % | | 1,462,198 | | | 557 | | | 0.15 | % | Savings deposits | 2,284,077 | | | 206 | | | 0.04 | % | | 2,171,865 | | | 154 | | | 0.03 | % | |
Time deposits | Time deposits | 3,603,527 | | | 16,085 | | | 1.78 | % | | 4,501,270 | | | 25,627 | | | 2.26 | % | Time deposits | 2,031,494 | | | 2,934 | | | 0.57 | % | | 2,303,068 | | | 4,870 | | | 0.85 | % | |
Total interest-bearing deposits | Total interest-bearing deposits | 15,451,816 | | | 19,121 | | | 0.49 | % | | 15,289,464 | | | 45,876 | | | 1.19 | % | Total interest-bearing deposits | 15,679,755 | | | 5,100 | | | 0.13 | % | | 15,474,743 | | | 7,016 | | | 0.18 | % | |
Repurchase agreements and federal funds purchased | Repurchase agreements and federal funds purchased | 378,844 | | | 84 | | | 0.09 | % | | 313,089 | | | 448 | | | 0.57 | % | Repurchase agreements and federal funds purchased | 496,822 | | | 88 | | | 0.07 | % | | 440,881 | | | 68 | | | 0.06 | % | |
Borrowings | Borrowings | 1,054,153 | | | 3,271 | | | 1.23 | % | | 860,285 | | | 4,238 | | | 1.95 | % | Borrowings | 31,500 | | | 149 | | | 1.88 | % | | 214,670 | | | 866 | | | 1.62 | % | |
Junior subordinated debentures | Junior subordinated debentures | 320,962 | | | 3,249 | | | 4.03 | % | | 365,079 | | | 5,652 | | | 6.14 | % | Junior subordinated debentures | 375,726 | | | 3,014 | | | 3.18 | % | | 369,812 | | | 3,042 | | | 3.30 | % | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 17,205,775 | | | $ | 25,725 | | | 0.59 | % | | 16,827,917 | | | $ | 56,214 | | | 1.33 | % | Total interest-bearing liabilities | 16,583,803 | | | $ | 8,351 | | | 0.20 | % | | 16,500,106 | | | $ | 10,992 | | | 0.27 | % | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 9,335,350 | | | 6,880,093 | | | Non-interest-bearing deposits | 10,960,686 | | | 10,582,197 | | | |
Other liabilities | Other liabilities | 443,043 | | | 388,162 | | | Other liabilities | 360,244 | | | 373,704 | | | |
Total liabilities | Total liabilities | 26,984,168 | | | 24,096,172 | | | Total liabilities | 27,904,733 | | | 27,456,007 | | | |
Common equity | Common equity | 2,549,703 | | | 4,260,810 | | | Common equity | 2,709,641 | | | 2,700,010 | | | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 29,533,871 | | | $ | 28,356,982 | | | Total liabilities and shareholders' equity | $ | 30,614,374 | | | $ | 30,156,017 | | | |
NET INTEREST INCOME | NET INTEREST INCOME | | | $ | 216,929 | | | | | $ | 229,332 | | | NET INTEREST INCOME | | | $ | 235,452 | | | | | $ | 230,140 | | | |
NET INTEREST SPREAD | NET INTEREST SPREAD | | | | 2.85�� | % | | | | 3.19 | % | NET INTEREST SPREAD | | | | 3.12 | % | | | | 3.08 | % | |
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) | NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) | | 3.08 | % | | 3.63 | % | NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) | | 3.21 | % | | 3.20 | % | |
| (1)Non-accrual loans and leases are included in the average balance. (2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $377,000 for the three months ended September 30, 2021, as compared to approximately $377,000 for the three months ended June 30, 2021. | | (1)Non-accrual loans and leases are included in the average balance. (2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $377,000 for the three months ended September 30, 2021, as compared to approximately $377,000 for the three months ended June 30, 2021. |
(1)Non-accrual loans and leases are included in the average balance.
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $355,000 for the three months ended September 30, 2020, as compared to $359,000 for the same period in 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 |
| Average Balance | | Interest Income or Expense | | Average Yields or Rates | | Average Balance | | Interest Income or Expense | | Average Yields or Rates |
INTEREST-EARNING ASSETS: | | | | | | | | | | | |
Loans held for sale | $ | 551,583 | | | $ | 14,955 | | | 3.61 | % | | $ | 260,600 | | | $ | 10,069 | | | 5.15 | % |
Loans and leases (1) | 22,063,582 | | | 695,669 | | | 4.21 | % | | 20,724,820 | | | 778,899 | | | 5.02 | % |
Taxable securities | 2,778,460 | | | 37,744 | | | 1.81 | % | | 2,696,001 | | | 44,479 | | | 2.20 | % |
Non-taxable securities (2) | 238,059 | | | 5,608 | | | 3.14 | % | | 270,461 | | | 6,991 | | | 3.45 | % |
Temporary investments and interest bearing cash | 1,493,352 | | | 4,208 | | | 0.38 | % | | 567,709 | | | 9,837 | | | 2.32 | % |
Total interest-earning assets | 27,125,036 | | | $ | 758,184 | | | 3.73 | % | | 24,519,591 | | | $ | 850,275 | | | 4.63 | % |
Other assets | 2,024,722 | | | | | | | 3,112,041 | | | | | |
Total assets | $ | 29,149,758 | | | | | | | $ | 27,631,632 | | | | | |
INTEREST-BEARING LIABILITIES: | | | | | | | | | | | |
Interest-bearing demand deposits | $ | 2,667,160 | | | $ | 5,264 | | | 0.26 | % | | $ | 2,338,787 | | | $ | 8,555 | | | 0.49 | % |
Money market deposits | 7,187,615 | | | 18,080 | | | 0.34 | % | | 6,702,551 | | | 42,943 | | | 0.86 | % |
Savings deposits | 1,635,064 | | | 618 | | | 0.05 | % | | 1,468,449 | | | 1,237 | | | 0.11 | % |
Time deposits | 4,159,926 | | | 61,671 | | | 1.98 | % | | 4,381,484 | | | 70,826 | | | 2.16 | % |
Total interest-bearing deposits | 15,649,765 | | | 85,633 | | | 0.73 | % | | 14,891,271 | | | 123,561 | | | 1.11 | % |
Repurchase agreements and federal funds purchased | 363,957 | | | 673 | | | 0.25 | % | | 325,281 | | | 1,661 | | | 0.68 | % |
Borrowings | 1,041,181 | | | 11,156 | | | 1.43 | % | | 852,659 | | | 12,484 | | | 1.96 | % |
Junior subordinated debentures | 322,356 | | | 12,074 | | | 5.00 | % | | 378,816 | | | 17,520 | | | 6.18 | % |
Total interest-bearing liabilities | 17,377,259 | | | $ | 109,536 | | | 0.84 | % | | 16,448,027 | | | $ | 155,226 | | | 1.26 | % |
Non-interest-bearing deposits | 8,237,095 | | | | | | | 6,648,638 | | | | | |
Other liabilities | 429,793 | | | | | | | 365,959 | | | | | |
Total liabilities | 26,044,147 | | | | | | | 23,462,624 | | | | | |
Common equity | 3,105,611 | | | | | | | 4,169,008 | | | | | |
Total liabilities and shareholders' equity | $ | 29,149,758 | | | | | | | $ | 27,631,632 | | | | | |
NET INTEREST INCOME | | | $ | 648,648 | | | | | | | $ | 695,049 | | | |
NET INTEREST SPREAD | | | | | 2.89 | % | | | | | | 3.37 | % |
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) | | | | | 3.19 | % | | | | | | 3.78 | % |
| | | | | | | | | | | |
(1)Non-accrual loans and leases are included in the average balance.
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $1.0 million for the nine months ended September 30, 2020, as compared to $1.2 million for the same period in 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2021 | | September 30, 2020 |
(dollars in thousands) | Average Balance | | Interest Income or Expense | | Average Yields or Rates | | Average Balance | | Interest Income or Expense | | Average Yields or Rates |
INTEREST-EARNING ASSETS: | | | | | | | | | | | |
Loans held for sale | $ | 545,237 | | | $ | 12,242 | | | 2.99 | % | | $ | 551,583 | | | $ | 14,955 | | | 3.61 | % |
Loans and leases (1) | 21,866,569 | | | 656,772 | | | 4.01 | % | | 22,063,582 | | | 695,669 | | | 4.21 | % |
Taxable securities | 3,199,653 | | | 45,049 | | | 1.88 | % | | 2,778,460 | | | 37,744 | | | 1.81 | % |
Non-taxable securities (2) | 248,617 | | | 5,627 | | | 3.02 | % | | 238,059 | | | 5,608 | | | 3.14 | % |
Temporary investments and interest bearing cash | 2,850,639 | | | 2,635 | | | 0.12 | % | | 1,493,352 | | | 4,208 | | | 0.38 | % |
Total interest-earning assets | 28,710,715 | | | $ | 722,325 | | | 3.36 | % | | 27,125,036 | | | $ | 758,184 | | | 3.73 | % |
Other assets | 1,348,054 | | | | | | | 2,024,722 | | | | | |
Total assets | $ | 30,058,769 | | | | | | | $ | 29,149,758 | | | | | |
INTEREST-BEARING LIABILITIES: | | | | | | | | | | | |
Interest-bearing demand deposits | $ | 3,359,865 | | | $ | 1,341 | | | 0.05 | % | | $ | 2,667,160 | | | $ | 5,264 | | | 0.26 | % |
Money market deposits | 7,593,320 | | | 4,516 | | | 0.08 | % | | 7,187,615 | | | 18,080 | | | 0.34 | % |
Savings deposits | 2,152,667 | | | 523 | | | 0.03 | % | | 1,635,064 | | | 618 | | | 0.05 | % |
Time deposits | 2,336,261 | | | 16,414 | | | 0.94 | % | | 4,159,926 | | | 61,671 | | | 1.98 | % |
Total interest-bearing deposits | 15,442,113 | | | 22,794 | | | 0.20 | % | | 15,649,765 | | | 85,633 | | | 0.73 | % |
Repurchase agreements and federal funds purchased | 444,919 | | | 232 | | | 0.07 | % | | 363,957 | | | 673 | | | 0.25 | % |
Borrowings | 259,890 | | | 2,787 | | | 1.43 | % | | 1,041,181 | | | 11,156 | | | 1.43 | % |
Junior subordinated debentures | 363,122 | | | 9,108 | | | 3.35 | % | | 322,356 | | | 12,074 | | | 5.00 | % |
Total interest-bearing liabilities | 16,510,044 | | | $ | 34,921 | | | 0.28 | % | | 17,377,259 | | | $ | 109,536 | | | 0.84 | % |
Non-interest-bearing deposits | 10,484,104 | | | | | | | 8,237,095 | | | | | |
Other liabilities | 369,653 | | | | | | | 429,793 | | | | | |
Total liabilities | 27,363,801 | | | | | | | 26,044,147 | | | | | |
Common equity | 2,694,968 | | | | | | | 3,105,611 | | | | | |
Total liabilities and shareholders' equity | $ | 30,058,769 | | | | | | | $ | 29,149,758 | | | | | |
NET INTEREST INCOME | | | $ | 687,404 | | | | | | | $ | 648,648 | | | |
NET INTEREST SPREAD | | | | | 3.08 | % | | | | | | 2.89 | % |
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) | | | | | 3.20 | % | | | | | | 3.19 | % |
| | | | | | | | | | | |
(1)Non-accrual loans and leases are included in the average balance. (2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $1.1 million for the nine months ended September 30, 2021, as compared to approximately $1.0 million for the same period in 2020. |
The following tables set 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 the three andmonths ended September 30, 2021 as compared to three months ended June 30, 2021, as well as the nine months ended September 30, 2021 and September 30, 2020, as compared to the same periods in 2019.respectively. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 compared to 2019 |
| Increase (decrease) in interest income and expense due to changes in |
(in thousands) | Volume | | Rate | | Total |
INTEREST-EARNING ASSETS: | | | | | |
Loans held for sale | $ | 3,055 | | | $ | (1,760) | | | $ | 1,295 | |
Loans and leases | 16,342 | | | (54,291) | | | (37,949) | |
Taxable securities | 718 | | | (2,985) | | | (2,267) | |
Non-taxable securities (1) | (125) | | | (116) | | | (241) | |
Temporary investments and interest bearing cash | 2,551 | | | (6,281) | | | (3,730) | |
Total interest-earning assets (1) | 22,541 | | | (65,433) | | | (42,892) | |
INTEREST-BEARING LIABILITIES: | | | | | |
Interest bearing demand deposits | 560 | | | (3,104) | | | (2,544) | |
Money market deposits | 502 | | | (14,793) | | | (14,291) | |
Savings deposits | 103 | | | (481) | | | (378) | |
Time deposits | (4,605) | | | (4,937) | | | (9,542) | |
Repurchase agreements | 79 | | | (443) | | | (364) | |
Borrowings | 819 | | | (1,786) | | | (967) | |
Junior subordinated debentures | (624) | | | (1,779) | | | (2,403) | |
Total interest-bearing liabilities | (3,166) | | | (27,323) | | | (30,489) | |
Net increase (decrease) in net interest income (1) | $ | 25,707 | | | $ | (38,110) | | | $ | (12,403) | |
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| September 30, 2021 compared June 30, 2021 | | |
| Increase (decrease) in interest income and expense due to changes in | | |
(in thousands) | Volume | | Rate | | Total | | | | | | |
INTEREST-EARNING ASSETS: | | | | | | | | | | | |
Loans held for sale | $ | (25) | | | $ | (28) | | | $ | (53) | | | | | | | |
Loans and leases | (1,065) | | | 2,051 | | | 986 | | | | | | | |
Taxable securities | 1,073 | | | 218 | | | 1,291 | | | | | | | |
Non-taxable securities (1) | (10) | | | (6) | | | (16) | | | | | | | |
Temporary investments and interest bearing cash | 120 | | | 343 | | | 463 | | | | | | | |
Total interest-earning assets (1) | 93 | | | 2,578 | | | 2,671 | | | | | | | |
INTEREST-BEARING LIABILITIES: | | | | | | | | | | | |
Interest bearing demand deposits | 26 | | | (17) | | | 9 | | | | | | | |
Money market deposits | 41 | | | (82) | | | (41) | | | | | | | |
Savings deposits | 9 | | | 43 | | | 52 | | | | | | | |
Time deposits | (516) | | | (1,420) | | | (1,936) | | | | | | | |
Repurchase agreements | 10 | | | 10 | | | 20 | | | | | | | |
Borrowings | (837) | | | 120 | | | (717) | | | | | | | |
Junior subordinated debentures | 59 | | | (87) | | | (28) | | | | | | | |
Total interest-bearing liabilities | (1,208) | | | (1,433) | | | (2,641) | | | | | | | |
Net increase in net interest income (1) | $ | 1,301 | | | $ | 4,011 | | | $ | 5,312 | | | | | | | |
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 compared to 2019 |
| Increase (decrease) in interest income and expense due to changes in |
(in thousands) | Volume | | Rate | | Total |
INTEREST-EARNING ASSETS: | | | | | |
Loans held for sale | $ | 8,583 | | | $ | (3,697) | | | $ | 4,886 | |
Loans and leases | 48,034 | | | (131,264) | | | (83,230) | |
Taxable securities | 1,317 | | | (8,052) | | | (6,735) | |
Non-taxable securities (1) | (794) | | | (589) | | | (1,383) | |
Temporary investments and interest bearing cash | 7,165 | | | (12,794) | | | (5,629) | |
Total (1) | 64,305 | | | (156,396) | | | (92,091) | |
INTEREST-BEARING LIABILITIES: | | | | | |
Interest bearing demand deposits | 1,072 | | | (4,363) | | | (3,291) | |
Money market | 2,909 | | | (27,772) | | | (24,863) | |
Savings | 127 | | | (746) | | | (619) | |
Time deposits | (3,447) | | | (5,708) | | | (9,155) | |
Repurchase agreements | (198) | | | (790) | | | (988) | |
Borrowings | 2,430 | | | (3,758) | | | (1,328) | |
Junior subordinated debentures | (2,388) | | | (3,058) | | | (5,446) | |
Total interest-bearing liabilities | 505 | | | (46,195) | | | (45,690) | |
Net increase in net interest income (1) | $ | 63,800 | | | $ | (110,201) | | | $ | (46,401) | |
| | | | | |
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2021 compared to September 30, 2020 |
| Increase (decrease) in interest income and expense due to changes in |
(in thousands) | Volume | | Rate | | Total |
INTEREST-EARNING ASSETS: | | | | | |
Loans held for sale | $ | (170) | | | $ | (2,543) | | | $ | (2,713) | |
Loans and leases | (6,219) | | | (32,678) | | | (38,897) | |
Taxable securities | 5,880 | | | 1,425 | | | 7,305 | |
Non-taxable securities (1) | 243 | | | (224) | | | 19 | |
Temporary investments and interest bearing cash | 2,345 | | | (3,918) | | | (1,573) | |
Total interest-earning assets (1) | 2,079 | | | (37,938) | | | (35,859) | |
INTEREST-BEARING LIABILITIES: | | | | | |
Interest bearing demand deposits | 1,099 | | | (5,022) | | | (3,923) | |
Money market | 967 | | | (14,531) | | | (13,564) | |
Savings | 163 | | | (258) | | | (95) | |
Time deposits | (20,580) | | | (24,677) | | | (45,257) | |
Repurchase agreements | 124 | | | (565) | | | (441) | |
Borrowings | (8,388) | | | 19 | | | (8,369) | |
Junior subordinated debentures | 1,385 | | | (4,351) | | | (2,966) | |
Total interest-bearing liabilities | (25,230) | | | (49,385) | | | (74,615) | |
Net increase in net interest income (1) | $ | 27,309 | | | $ | 11,447 | | | $ | 38,756 | |
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. |
Provision for Credit Losses
The Company had an $18.9 million recapture of provision for credit losses was $338,000 for the three months ended September 30, 2020.2021, as compared to a $23.0 million recapture of credit losses for the three months ended June 30, 2021. The Company had a $41.9 million recapture of provision for credit losses wasfor the nine months ended September 30, 2021, as compared to a provision for credit losses of $204.8 million for the nine months ended September 30, 2020. This was compared to a provision of $23.5 million and $56.8 million, respectively,The change for the three and nine months ended September 30, 2019 (which includes both2021, as compared to the three months ended June 30, 2021 was attributable to the stabilizing economic forecast used in the credit models and loan mix changes, which allowed for a recapture of previous provision for loan and lease losses and the provision for the reserve for unfunded commitments).credit losses. The change in the provision for threecredit losses for nine months ended September 30, 20202021 as compared to the same prior year period, is primarily attributed to changes in the loan portfolio mix and balances as well as a stabilization of credit quality matricesmetrics and the improvement in economic forecasts used in credit modelsmodels. The Company adopted CECL as of January 1, 2020, so there may be volatility in the provision for credit losses as CECL requires a current quarter. The change inexpected credit loss for the life of loans.
As an annualized percentage of average outstanding loans and leases, the recapture of provision for credit losses recorded for the three months ended September 30, 2021 was (0.34)% as compared to (0.42)% for the three months ended June 30, 2021. As an annualized percentage of average outstanding loans and leases, the recapture of provision for credit losses recorded for the nine months ended September 30, 2020 as compared to the same prior year period is primarily attributable to CECL as well as the economic forecasts related to the COVID-19 pandemic.2021 was (0.26)%. As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the three months ended September 30, 2020 was zero due to the small amount of recapture for the quarter, and 1.24% for the nine months ended September 30, 2020 as compared to 0.44% and 0.37% for the same periods in 2019.was 1.24%.
For the three andmonths ended September 30, 2021, net charge-offs were $6.2 million, as compared to $13.6 million for the three months ended June 30, 2021. For the nine months ended September 30, 2020,2021, net charge-offs were $13.5$37.5 million, and $51.4 million, respectively, as compared to $18.0$51.4 million and $44.8 million, respectively, for the three and nine months ended September 30, 2019.2020. As an annualized percentage of average outstanding loans and leases, net charge-offs for the three and nine months ended September 30, 2020 were 0.24% and 0.31%2021 was 0.11%, respectively, as compared to 0.34% and 0.29%0.25% for the same periods in 2019. The increase inthree months ended June 30, 2021. As an annualized percentage of average outstanding loans and leases, net charge-offs for the nine months ended September 30, 2020,2021 was primarily due0.23%, as compared to a single charge-off on a syndicated national credit to a regional air transportation lessor whose financial conditions and prospects were adversely impacted by COVID-19 in0.31% for the first quarter of 2020 as well as charge-offs related to the lease and equipment finance portfolio, which is included in the commercial loan portfolio.nine months ended September 30, 2020.
Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements are determined by the loss given default calculated by the CECL model, and therefore homogeneous leases and equipment finance agreements on non-accrual will have an allowance for credit loss amount until they become 181 days past due, at which time they are charged-off. The non-accrual leases and equipment finance agreements of $3.8$11.8 million as of September 30, 20202021 have a related allowance for credit losses of $3.2$6.9 million, with the remaining loans written-down to theirthe estimated fair value of the collateral, less estimated costs to sell, and are expected to be resolved with no additional material loss, absent further decline in market prices.
Non-Interest Income
Non-interest income for the three andmonths ended September 30, 2021 was $73.7 million, a decrease of $17.4 million compared to the three months ended June 30, 2021. Non-interest income for the nine months ended September 30, 20202021, was $131.9$273.6 million, and $288.0a decrease of $14.5 million, respectively, an increase of $43.4 million and $32.0 million or 49% and 12%, respectively, as compared to the same periods in 2019.nine months ended September 30, 2020. The following table presents the key components of non-interest income for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, as well as the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | |
(in thousands) | September 30, 2021 | | June 30, 2021 | | | | Change Amount | | Change Percent | | September 30, 2021 | | September 30, 2020 | | Change Amount | | Change Percent | | | | |
Service charges on deposits | $ | 10,941 | | | $ | 10,310 | | | | | $ | 631 | | | 6 | % | | $ | 30,898 | | | $ | 30,635 | | | $ | 263 | | | 1 | % | | | | |
Card-based fees | 9,111 | | | 10,274 | | | | | (1,163) | | | (11) | % | | 26,759 | | | 20,436 | | | 6,323 | | | 31 | % | | | | |
Brokerage revenue | 31 | | | 1,135 | | | | | (1,104) | | | (97) | % | | 5,081 | | | 11,506 | | | (6,425) | | | (56) | % | | | | |
Residential mortgage banking revenue, net | 34,150 | | | 44,443 | | | | | (10,293) | | | (23) | % | | 143,626 | | | 191,794 | | | (48,168) | | | (25) | % | | | | |
Gain on sale of debt securities, net | — | | | — | | | | | — | | | N/M | | 4 | | | 190 | | | (186) | | | (98) | % | | | | |
(Loss) gain on equity securities, net | (343) | | | 4 | | | | | (347) | | | N/M | | (1,045) | | | 942 | | | (1,987) | | | (211) | % | | | | |
Gain on loan and lease sales, net | 4,208 | | | 5,318 | | | | | (1,110) | | | (21) | % | | 10,899 | | | 3,333 | | | 7,566 | | | 227 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Bank owned life insurance income | 2,038 | | | 2,092 | | | | | (54) | | | (3) | % | | 6,201 | | | 6,332 | | | (131) | | | (2) | % | | | | |
Other income | 13,569 | | | 17,499 | | | | | (3,930) | | | (22) | % | | 51,157 | | | 22,881 | | | 28,276 | | | 124 | % | | | | |
Total non-interest income | $ | 73,705 | | | $ | 91,075 | | | | | $ | (17,370) | | | (19) | % | | $ | 273,580 | | | $ | 288,049 | | | $ | (14,469) | | | (5) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
During the current year, the Company added the card-based fees line item, which were previously included in the service charges on deposits and other income line items. Prior periods have been reclassified to conform to the current presentation. Card-based fees are comprised of debit and credit card income, ATM fees, and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned when our customers' debit and credit cards are processed through card payment networks. The decrease for the three months ended September 30, 2021, as compared to the prior quarter, was attributable to changes in our agreement with third-party interchange vendors. The increase in the nine months ended September 30, 2021, as compared to prior periods, is attributable to increased merchant processing fees, given strengthening economic activity and lower unemployment rates in our footprint, as businesses are once again open and experiencing increased customer activity.
Brokerage revenue decreased for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(in thousands) | 2020 | | 2019 | | Change Amount | | Change Percent | | 2020 | | 2019 | | Change Amount | | Change Percent |
Service charges on deposits | $ | 14,438 | | | $ | 16,627 | | | $ | (2,189) | | | (13) | % | | $ | 41,907 | | | $ | 47,858 | | | $ | (5,951) | | | (12) | % |
Brokerage revenue | 3,686 | | | 4,060 | | | (374) | | | (9) | % | | 11,506 | | | 11,850 | | | (344) | | | (3) | % |
Residential mortgage banking revenue, net | 90,377 | | | 47,000 | | | 43,377 | | | 92 | % | | 191,794 | | | 67,760 | | | 124,034 | | | 183 | % |
Gain (loss) on sale of debt securities, net | — | | | — | | | — | | | — | % | | 190 | | | (7,186) | | | 7,376 | | | (103) | % |
(Loss) gain on equity securities, net | (112) | | | 257 | | | (369) | | | (144) | % | | 942 | | | 83,559 | | | (82,617) | | | (99) | % |
Gain on loan and lease sales, net | 1,092 | | | 1,762 | | | (670) | | | (38) | % | | 3,333 | | | 5,864 | | | (2,531) | | | (43) | % |
| | | | | | | | | | | | | | | |
BOLI income | 2,087 | | | 2,067 | | | 20 | | | 1 | % | | 6,332 | | | 6,328 | | | 4 | | | — | % |
Other income | 20,356 | | | 16,739 | | | 3,617 | | | 22 | % | | 32,045 | | | 40,042 | | | (7,997) | | | (20) | % |
Total non-interest income | $ | 131,924 | | | $ | 88,512 | | | $ | 43,412 | | | 49 | % | | $ | 288,049 | | | $ | 256,075 | | | $ | 31,974 | | | 12 | % |
| | | | | | | | | | | | | | | |
2021 as compared to prior periods, due to the sale of Umpqua Investments, Inc. in April 2021.
Service chargesThe gain on depositsloan and lease sales decreased for the three months ended September 30, 2021, as compared to the previous quarter, due to lower SBA loan sales during the period as the three months ended June 30, 2021 had higher than average SBA loan sales. The increase for the nine months ended September 30, 2021, as compared to prior period, was driven by an increase in SBA loan sales which increased due to higher government guarantees and incentives for borrowers.
Other income for the three months ended September 30, 2021 decreased by $2.2$3.9 million as compared to the three months ended June 30, 2021. The decrease is primarily due to the $4.4 million dollar gain related to the sale of Umpqua Investments, Inc. and a $2.3 million advisory fee earned in the prior period, offset by miscellaneous other income items. For the nine months ended September 30, 2021, other income increased by $28.3 million, primarily due to the fluctuation in the gain on the swap derivative fair value of $22.1 million, as the gain on swap derivative fair value was $8.7 million, compared to a loss on swap derivative fair value of $13.4 million in the prior period. For nine months ended September 30, 2021, other income also includes the $4.4 million gain on sale of Umpqua Investments, Inc. during the period, as well as a $2.3 million advisory fee earned during the period. Other income for the three and nine months ended September 30, 2021, includes the gain on the changes in fair value of the held for investment mortgage loans at fair value of $3.4 million and $6.0$5.7 million, respectively.
Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, decreased $10.3 million and $48.2 million for the three and nine months ended September 30, 20202021, as compared to the samecomparison periods, due to a decrease in the prior year. The decrease is primarily related to the Bank waiving certain ATM fees and deposit account related feesoriginations driven by a slowdown in refinancing demand as well as a result of the COVID-19 pandemic. In addition, there has been a changedecline in customers' spending habits as a result of the COVID-19 pandemic, which has resulted in overdraft and interchange fees decreasing as customers are keeping more funds liquid and making fewer transactions.gain on sale margins.
ResidentialFor-sale mortgage banking revenue for the three and nine months ended September 30, 2020, as compared to the same periods of 2019, increased by $43.4 million and $124.0 million, respectively. The increase for the three and nine month periods was primarily driven by an increase in originations in 2020 due to elevated refinance demand because of lower interest rates, which resulted in an increase in revenue related to originations and sale of residential mortgages of $67.3 million and $155.9 million, respectively, as compared to prior periods. This was offset by higher origination expenses and a higher loss on fair value of the MSR of $17.1 million and $59.2 million for the three and nine months ended September 30, 2020, respectively, compared to a gain of $4.2 millionclosed loan volume for the three months ended September 30, 2019 and2021, decreased 21% as compared to the three months ended June 30, 2021. In addition, the gain on sale margin decreased to 3.07% for the three months ended September 30, 2021, as compared to 3.30% for the three months ended June 30, 2021. Direct expense related to the origination of for-sale mortgage loans as a losspercentage of $34.4 millionloan production was 2.02% for the three months ended September 30, 2021, as compared to 2.03% for the three months ended June 30, 2021.
For-sale mortgage closed loan volume decreased 21% for the nine months ended September 30, 2019. For-sale mortgage closed loan volume increased 128% or $1.1 billion and 141% or $2.9 billion, respectively, for2021, as compared to the three and nine months ended September 30, 2020, as compared to prior periods. In addition,2020. For the nine months ended September 30, 2021, the gain on sale margin increaseddecreased to 5.13% and3.46%, as compared to 4.59%, respectively, for the three and nine months ended September 30, 2020,2020. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 1.98% for the nine months ended September 30, 2021, compared to 3.72% and 3.40% in1.92% for the same periods of the prior year due to constrained industry capacity.nine months ended September 30, 2020.
Origination volume is generally linked to the level of interest rates. IfWhen rates fall, origination volume would be expected to be elevated relative to historical levels. IfWhen rates rise, origination volume would be expected to fall.decline. Margins observed in the current quarter could be expected to narrow somewhat in future periods as mortgage industry capacity constraints ease further and refinance demand is met. In addition, government-sponsored entity investors are increasing fees for refinance loans sold to them starting in December 2020, which may reduce refinance activity and gain on sale margins.wanes. The MSR asset value is also sensitive to interest rates, and generally falls with lower rates and rises with higher rates.
Servicing income was $8.8$9.2 million and $26.2 million, respectively, for the three andmonths ended September 30, 2021, as compared to $9.1 million for the three months ended June 30, 2021. For the nine months ended September 30, 2021 and 2020, as compared to $11.4servicing income was $27.4 million and $33.2$26.2 million, for the same periods of 2019. Income was lower primarily due to a smaller portfolio of loans serviced for others, resulting from a sale of part of the servicing portfolio in 2019. Operating expenses associated with mortgage servicing activities are at risk of increasing in future periods due to the potential of higher default frequency as a result of the COVID-19 pandemic.respectively.
The following table presents our residential mortgage banking revenuesrevenue for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 20202021 and 2019:2020:
|
|
| Three Months Ended | | Nine Months Ended |
| Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | June 30, 2021 | | | September 30, 2021 | | September 30, 2020 |
Origination and sale | Origination and sale | $ | 98,703 | | | $ | 31,432 | | | $ | 224,831 | | | $ | 68,956 | | Origination and sale | $ | 30,293 | | | $ | 41,367 | | | | $ | 134,165 | | | $ | 224,831 | |
Servicing | Servicing | 8,796 | | | 11,358 | | | 26,209 | | | 33,218 | | Servicing | 9,172 | | | 9,120 | | | | 27,379 | | | 26,209 | |
Change in fair value of MSR asset: | Change in fair value of MSR asset: | | Change in fair value of MSR asset: | | | |
Changes due to collection/realization of expected cash flows over time | Changes due to collection/realization of expected cash flows over time | (4,878) | | | (6,835) | | | (15,249) | | | (20,171) | | Changes due to collection/realization of expected cash flows over time | (4,681) | | | (4,366) | | | | (13,592) | | | (15,249) | |
Changes in valuation inputs or assumptions (1) | Changes in valuation inputs or assumptions (1) | (12,244) | | | 11,045 | | | (43,997) | | | (14,243) | | Changes in valuation inputs or assumptions (1) | (634) | | | (1,678) | | | | (4,326) | | | (43,997) | |
Balance, end of period | $ | 90,377 | | | $ | 47,000 | | | $ | 191,794 | | | $ | 67,760 | | |
Residential mortgage banking revenue, net | | Residential mortgage banking revenue, net | $ | 34,150 | | | $ | 44,443 | | | | $ | 143,626 | | | $ | 191,794 | |
| LHFS Production Statistics: | | LHFS Production Statistics: | | | |
Closed loan volume for-sale | | Closed loan volume for-sale | $ | 987,281 | | | $ | 1,253,023 | | | | $ | 3,875,836 | | | $ | 4,897,068 | |
Gain on sale margin | | Gain on sale margin | 3.07 | % | | 3.30 | % | | | 3.46 | % | | 4.59 | % |
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.
The loss on sale of debt securities of $7.2 million for the nine months ended September 30, 2019 was due to a strategic restructuring of our available for sale debt securities portfolio to reduce interest rate sensitivity, which has not been repeated in the current periods.
Gain on equity securities for the nine months ended September 30, 2019 was due to the one-time gain on sale of all of the shares of Visa Inc. Class B common stock held by the Company.
Other income for the three months ended September 30, 2020 increased by $3.6 million, when compared to the same period in the prior year, primarily due to the gain of $5.9 million on the sale of three stores during the three months ended September 30, 2020. Other income decreased by $8.0 million for the nine months ended September 30, 2020 when compared to the same period in the prior year, primarily due to the decline in revenue from market swap fees of $4.3 million and a loss on the swap derivative fair value of $2.3 million.
Non-Interest Expense
Non-interest expense for the three andmonths ended September 30, 2021 was $183.8 million, a decrease of $5.6 million or 3% compared to the three months ended June 30, 2021. Non-interest expense for the nine months ended September 30, 20202021 was $190.2$560.7 million, and $2.3 billion, respectively, an increasea decrease of $6.6 million and $1.8 billion or 4% and 336%76%, as compared to the same periods in 2019.nine months ended September 30, 2020. Excluding the goodwill impairment taken in 2020, non-interest expense for the nine months ended September 30, 2020,2021, increased $14.2$10.9 million over the same period in the prior year. The following table presents the key elements of non-interest expense for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 20202021 and 2019:2020:
| | | Three Months Ended | | Nine Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | September 30, | | Three Months Ended | | Nine Months Ended | |
(in thousands) | (in thousands) | 2020 | | 2019 | | Change Amount | | Change Percent | | 2020 | | 2019 | | Change Amount | | Change Percent | (in thousands) | September 30, 2021 | | June 30, 2021 | | | Change Amount | | Change Percent | | September 30, 2021 | | September 30, 2020 | | Change Amount | | Change Percent | |
Salaries and employee benefits | Salaries and employee benefits | $ | 120,337 | | | $ | 106,819 | | | $ | 13,518 | | | 13 | % | | $ | 346,787 | | | $ | 311,526 | | | $ | 35,261 | | | 11 | % | Salaries and employee benefits | $ | 117,636 | | | $ | 121,573 | | | | $ | (3,937) | | | (3) | % | | $ | 363,343 | | | $ | 346,787 | | | $ | 16,556 | | | 5 | % | |
Occupancy and equipment, net | Occupancy and equipment, net | 36,720 | | | 35,446 | | | 1,274 | | | 4 | % | | 109,892 | | | 107,723 | | | 2,169 | | | 2 | % | Occupancy and equipment, net | 33,944 | | | 34,657 | | | | (713) | | | (2) | % | | 103,236 | | | 109,892 | | | (6,656) | | | (6) | % | |
Communications | Communications | 2,943 | | | 3,617 | | | (674) | | | (19) | % | | 9,010 | | | 11,743 | | | (2,733) | | | (23) | % | Communications | 2,866 | | | 3,004 | | | | (138) | | | (5) | % | | 8,633 | | | 9,010 | | | (377) | | | (4) | % | |
Marketing | Marketing | 1,859 | | | 3,804 | | | (1,945) | | | (51) | % | | 6,148 | | | 10,842 | | | (4,694) | | | (43) | % | Marketing | 1,651 | | | 2,054 | | | | (403) | | | (20) | % | | 5,077 | | | 6,148 | | | (1,071) | | | (17) | % | |
Services | Services | 13,193 | | | 15,326 | | | (2,133) | | | (14) | % | | 34,319 | | | 40,763 | | | (6,444) | | | (16) | % | Services | 12,017 | | | 13,512 | | | | (1,495) | | | (11) | % | | 36,279 | | | 34,319 | | | 1,960 | | | 6 | % | |
FDIC assessments | FDIC assessments | 2,989 | | | 2,587 | | | 402 | | | 16 | % | | 9,502 | | | 8,366 | | | 1,136 | | | 14 | % | FDIC assessments | 2,136 | | | 1,607 | | | | 529 | | | 33 | % | | 6,342 | | | 9,502 | | | (3,160) | | | (33) | % | |
| Intangible amortization | Intangible amortization | 1,247 | | | 1,405 | | | (158) | | | (11) | % | | 3,740 | | | 4,214 | | | (474) | | | (11) | % | Intangible amortization | 1,130 | | | 1,130 | | | | — | | | — | % | | 3,390 | | | 3,740 | | | (350) | | | (9) | % | |
| Other expenses | Other expenses | 10,919 | | | 14,586 | | | (3,667) | | | (25) | % | | 30,441 | | | 40,420 | | | (9,979) | | | (25) | % | Other expenses | 12,373 | | | 11,863 | | | | 510 | | | 4 | % | | 34,445 | | | 30,441 | | | 4,004 | | | 13 | % | |
Non-interest expense before goodwill impairment | Non-interest expense before goodwill impairment | 190,207 | | | 183,590 | | | 6,617 | | | 4 | % | | 549,839 | | | 535,597 | | | 14,242 | | | 3 | % | Non-interest expense before goodwill impairment | 183,753 | | | 189,400 | | | | (5,647) | | | (3) | % | | 560,745 | | | 549,839 | | | 10,906 | | | 2 | % | |
Goodwill impairment | Goodwill impairment | — | | | — | | | — | | | nm | | 1,784,936 | | | — | | | 1,784,936 | | | nm | Goodwill impairment | — | | | — | | | | — | | | N/M | | — | | | 1,784,936 | | | (1,784,936) | | | N/M | |
Total non-interest expense | Total non-interest expense | $ | 190,207 | | | $ | 183,590 | | | $ | 6,617 | | | 4 | % | | $ | 2,334,775 | | | $ | 535,597 | | | $ | 1,799,178 | | | 336 | % | Total non-interest expense | $ | 183,753 | | | $ | 189,400 | | | | $ | (5,647) | | | (3) | % | | $ | 560,745 | | | $ | 2,334,775 | | | $ | (1,774,030) | | | (76) | % | |
nm = Not meaningful | | | | | | | | | | | | | | | | |
|
Goodwill impairment of $1.8 billion was recorded as of March 31, 2020, due tofollowing an interim impairment analysis in the first quarter of 2020 triggered by the decline in interest rates and economic impacts of COVID-19, as well as declines in the Company's stock price. TheThere was no impairment was a result of market volatility and forecasts for a prolonged low interest rate environment, as well as estimated higher credit losses expected due torecorded in the economic downturn.current period.
Salaries and employee benefits increaseddecreased by $13.5$3.9 million and $35.3 million, respectively, for the three and nine months ended September 30, 2020 as2021, compared to the same periods in the prior year. This increase is primarily related to an increase in home lending compensation of $10.6 million and $31.4 million for the three and nine months ended SeptemberJune 30, 2020, respectively, related2021. This was primarily due to higherthe decrease in for-sale loan origination volumes during the period.
Communications expense decreased by $674,000 and $2.7 million for the three and nine months ended September 30, 2020, respectively, due tovolume resulting in a decrease in data processing costs.
Marketing expense decreased by $1.9 millionMortgage Banking compensation of $4.2 million. Salaries and $4.7 million, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year due to the advertising in 2019 to attract wholesale and middle-market customers and to promote our Umpqua Go-To® app.
Services expense decreased by $2.1 million and $6.4 million, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year. The decrease primarily relates to lower consulting fees related to engagements in the same period of the prior year to assist with the identification and implementation of operational efficiencies that did not recur in 2020. In addition, current consulting engagements have been put on hold in some cases due to COVID-19 related to economic uncertainties and cost containment measures.
Other non-interest expense decreased by $3.7 million and $10.0 million, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in the prior year. The decrease for the three and nine months ended September 30, 2020 is primarily related to a decrease in the loss on OREO, a decrease in exit and disposal costs, as well as a decrease in travel expenses as the Bank continues to limit travel and use remote collaboration tools.
Income Taxes
The Company's consolidated effective tax rate as a percentage of pre-tax income (loss) for the three and nine months ended September 30, 2020, was 21.3% and (4.4)% as compared to 23.6% and 24.5% for the three and nine months ended September 30, 2019. The effective tax rateemployee benefits increased for the nine months ended September 30, 2020, declined2021, compared to the prior period, due to an increase in incentives and group insurance.
Occupancy and equipment, net decreased by $6.7 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The decrease is primarily attributable to a decrease in rent-related expenses due to the impairmentconsolidation of non-deductible goodwill. Additionally, the effective tax rates differed from the statutory rate principally because of state taxes, non-taxable income arising from bank owned life insurance, income on tax-exempt investment securities, non-deductible FDIC premiumsstore and tax credits arising from low income housing investments.back-office locations.
Services for the three months ended September 30, 2021, decreased by $1.5 million as compared to the three months ended June 30, 2021. Services increased by $2.0 million for the nine months ended September 30, 2021 compared to the same period in the prior year. The change is due to increased consulting and professional fees during the first half of 2021.
The FDIC assessment decreased $3.2 million for the nine months ended September 30, 2021, due to a decrease in the Bank's assessment rate.
Other expenses increased by $4.0 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The increase for the nine months ended September 30, 2021 was due to increased exit and disposal costs as the Company closed store locations and exited back-office leases as part of the Next Gen 2.0 strategy. Exit and disposal costs were $9.7 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively.
FINANCIAL CONDITION
Cash and Cash Equivalents
Cash and cash equivalents were $2.2$3.7 billion at September 30, 2020,2021, compared to $1.4$2.6 billion at December 31, 2019.2020. The increase of interest bearing cash and temporary investments reflects management's strategy to adopt anstrong deposit growth in the period, outpacing loan and investment growth as well as paydowns of the Company's borrowings. An elevated on-balance sheet liquidity position. Having high quality liquid assetsposition enhances the Company's liquidity flexibility given the market volatility and uncertainty in the current environment.
Investment Securities
Equity and other securities were $82.8 million at September 30, 2020, up from $80.2 million at December 31, 2019.
Investment debt securities available for sale were $2.9$3.7 billion as of September 30, 2020,2021, compared to $2.8$2.9 billion at December 31, 2019.2020. The increase was due to purchases of $595.4 million$1.5 billion of investment securities, offset by sales and paydowns of $578.2 million, as well as an increasea decrease of $115.1$93.5 million in fair value of investment securities available for sale, offset by sales and paydowns of $604.6 million.sale.
The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of September 30, 20202021 and December 31, 2019:2020:
| | | Investment Securities Available for Sale | | Investment Securities Available for Sale |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(dollars in thousands) | (dollars in thousands) | Fair Value | | % | | Fair Value | | % | (dollars in thousands) | Fair Value | | % | | Fair Value | | % |
U.S. Treasury and agencies | U.S. Treasury and agencies | $ | 757,953 | | | 26 | % | | $ | 643,604 | | | 23 | % | U.S. Treasury and agencies | $ | 838,977 | | | 23 | % | | $ | 762,202 | | | 26 | % |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 264,487 | | | 9 | % | | 261,094 | | | 9 | % | Obligations of states and political subdivisions | 283,409 | | | 7 | % | | 279,511 | | | 10 | % |
Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | 1,876,260 | | | 65 | % | | 1,909,984 | | | 68 | % | Residential mortgage-backed securities and collateralized mortgage obligations | 2,600,785 | | | 70 | % | | 1,890,845 | | | 64 | % |
| Total available for sale securities | Total available for sale securities | $ | 2,898,700 | | | 100 | % | | $ | 2,814,682 | | | 100 | % | Total available for sale securities | $ | 3,723,171 | | | 100 | % | | $ | 2,932,558 | | | 100 | % |
| | | Investment Securities Held to Maturity | | Investment Securities Held to Maturity |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(dollars in thousands) | (dollars in thousands) | Amortized Cost | | % | | Amortized Cost | | % | (dollars in thousands) | Amortized Cost | | % | | Amortized Cost | | % |
| Residential mortgage-backed securities and collateralized mortgage obligations | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 3,088 | | | 100 | % | | $ | 3,260 | | | 100 | % | Residential mortgage-backed securities and collateralized mortgage obligations | $ | 2,795 | | | 100 | % | | $ | 3,034 | | | 100 | % |
| Total held to maturity securities | Total held to maturity securities | $ | 3,088 | | | 100 | % | | $ | 3,260 | | | 100 | % | Total held to maturity securities | $ | 2,795 | | | 100 | % | | $ | 3,034 | | | 100 | % |
We review investment securities on an ongoing basis for the presence of 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.
Gross unrealized losses in the available for sale investment portfolio were $548,000$38.9 million at September 30, 2020.2021. This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of $430,000.$35.4 million. The unrealized losses were attributable to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not attributable to changes in credit quality. In the opinion of management, no allowance for credit losses was considered necessary on these debt securities as of September 30, 2020.2021.
Restricted Equity Securities
Restricted equity securities were $50.1$10.9 million at September 30, 20202021 and $46.5$41.7 million at December 31, 2019,2020, the majority of which represents the Bank's investment in the FHLB of Des Moines. The increasedecrease is attributable to purchasesredemptions of FHLB stock during the period due to additionaldecreased FHLB borrowing activity driven by the Company's liquidity strategy to increase on balance-sheet liquidity in the current environment.activity. 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.
Loans and Leases
Total loans and leases outstanding at September 30, 20202021 were $22.4$22.0 billion, an increase of $1.2 billion$190.6 million as compared to December 31, 2019.2020. The increase is attributable to net new loan and lease originations, with the majority being in multifamily and residential mortgage loans, as well as the transfer of $1.3 billion, primarily due$315.9 million from loans held for sale to our participation in the PPP.loans held for investment. The increase was partially offset by PPP loan forgiveness and payoffs, as well as loans sold of $57.4$171.7 million and net charge-offs of $51.4$37.5 million.
The following table presents the concentration distribution of the loan and lease portfolio, net of deferred fees and costs, as of September 30, 20202021 and December 31, 2019:2020: | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(dollars in thousands) | Amount | | % | | Amount | | % |
Commercial real estate | | | | | | | |
Non-owner occupied term, net | $ | 3,561,764 | | | 16 | % | | $ | 3,505,802 | | | 16 | % |
Owner occupied term, net | 2,330,338 | | | 11 | % | | 2,333,945 | | | 11 | % |
Multifamily, net | 3,813,024 | | | 17 | % | | 3,349,196 | | | 15 | % |
Construction & development, net | 882,778 | | | 4 | % | | 828,478 | | | 4 | % |
Residential development, net | 177,148 | | | 1 | % | | 192,761 | | | 1 | % |
Commercial | | | | | | | |
Term, net | 3,159,466 | | | 14 | % | | 4,024,467 | | | 18 | % |
Lines of credit & other, net | 930,350 | | | 4 | % | | 862,760 | | | 4 | % |
Leases & equipment finance, net | 1,457,248 | | | 7 | % | | 1,456,630 | | | 7 | % |
Residential | | | | | | | |
Mortgage, net | 4,330,860 | | | 20 | % | | 3,871,906 | | | 18 | % |
Home equity loans & lines, net | 1,133,823 | | | 5 | % | | 1,136,064 | | | 5 | % |
Consumer & other, net | 193,141 | | | 1 | % | | 217,358 | | | 1 | % |
Total, net of deferred fees and costs | $ | 21,969,940 | | | 100 | % | | $ | 21,779,367 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(dollars in thousands) | Amount | | Percentage | | Amount | | Percentage |
Commercial real estate | | | | | | | |
Non-owner occupied term, net | $ | 3,533,776 | | | 16 | % | | $ | 3,545,566 | | | 17 | % |
Owner occupied term, net | 2,411,098 | | | 11 | % | | 2,496,088 | | | 12 | % |
Multifamily, net | 3,389,034 | | | 15 | % | | 3,514,774 | | | 16 | % |
Construction & development, net | 757,462 | | | 3 | % | | 678,740 | | | 3 | % |
Residential development, net | 163,400 | | | 1 | % | | 189,010 | | | 1 | % |
Commercial | | | | | | | |
Term, net | 4,246,229 | | | 19 | % | | 2,232,817 | | | 10 | % |
Lines of credit & other, net | 894,782 | | | 4 | % | | 1,212,393 | | | 6 | % |
Leases & equipment finance, net | 1,496,650 | | | 7 | % | | 1,465,489 | | | 7 | % |
Residential | | | | | | | |
Mortgage, net | 4,042,416 | | | 18 | % | | 4,215,424 | | | 20 | % |
Home equity loans & lines, net | 1,172,697 | | | 5 | % | | 1,237,512 | | | 6 | % |
Consumer & other, net | 318,929 | | | 1 | % | | 407,871 | | | 2 | % |
Total, net of deferred fees and costs | $ | 22,426,473 | | | 100 | % | | $ | 21,195,684 | | | 100 | % |
As of September 30, 2021, there were $353.9 million in mortgage loans included in loans held for investment that are carried at fair value, as they were included in loans originated as held for sale that are elected to be fair valued at origination.
In April 2020, the Bank began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments.SBA. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA and therefore these loans carry no allowance for credit loss as of September 30, 2020.
Terms of the PPP loans typically include the following:
•Fixed interest rate of 1.00%;
•Loans issued have a maturity date of two or five years, depending on their date of issuance, and have the ability to prepay with no fees;
•First payment deferred for up to six months, with the potential ability to extend for another six months;
•Loan forgiveness up to the full principal amount of the loan and any accrued interest, subject to certain requirements including that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs;
•No collateral or personal guarantees are required;
•Maximum amount limited to the lesser of $10.0 million or an amount calculated using a payroll-based formula.
In return for processing and booking the loan, the SBA will pay the lender a processing fee tiered by the size of the loan; 5% for loans of up to $350,000; 3% for loans greater than $350,000 and less than $2.0 million; and 1% for loans of at least $2.0 million.
Through September 30, 2020, we have funded approximately $2.0 billion of SBA-approved PPP loans to approximately 16,900 customers for an average customer loan balance of $122,000, which are classified as commercial term loans.We expect to recognize the remaining unamortized balance of the PPP-related net loan processing fees of approximately $51.2 million,will be recognized as a yield adjustment over the remaining term of these loans.loans, although the forgiveness of these loans by the SBA accelerates the recognition of these fees.
| | | | | | | | | | | | | | |
(dollars in thousands) | | September 30, 2021 | | December 31, 2020 |
PPP principal balance | | $ | 747,979 | | | $ | 1,777,145 | |
PPP deferred fees | | (21,242) | | | (26,934) | |
Net PPP Balance | | $ | 726,737 | | | $ | 1,750,211 | |
| | | | |
PPP loan count | | 7,492 | | | 14,788 | |
The following table summarizes our PPP loans broken out by state (within our footprint) as of September 30, 2020:
| | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | Number of PPP Loans | | PPP Loan Balances | | % of Total PPP Loans | | |
Oregon | 6,595 | | $ | 726,007 | | | 36 | % | | |
California | 5,161 | | 730,127 | | | 36 | % | | |
Washington | 4,214 | | 416,909 | | | 21 | % | | |
Idaho | 413 | | 46,877 | | | 2 | % | | |
Nevada | 380 | | 56,103 | | | 3 | % | | |
Other | 156 | | 31,356 | | | 2 | % | | |
Total, net of deferred fees and costs | 16,919 | | $ | 2,007,379 | | | 100 | % | | |
| | | | | | | |
Asset Quality and Non-Performing Assets
The following table summarizes our non-performing assets, and TDR loans, the ACL and asset quality ratios as of September 30, 20202021 and December 31, 2019:
| | | | | | | | | | | |
(dollars in thousands) | September 30, 2020 | | December 31, 2019 |
Loans and leases on non-accrual status | $ | 26,425 | | | $ | 26,244 | |
Loans and leases past due 90 days or more and accruing (1) | 50,269 | | | 37,969 | |
Total non-performing loans and leases | 76,694 | | | 64,213 | |
Other real estate owned | 2,369 | | | 3,295 | |
Total non-performing assets | $ | 79,063 | | | $ | 67,508 | |
Restructured loans (2) | $ | 15,819 | | | $ | 18,576 | |
Allowance credit losses on loans and leases | $ | 345,049 | | | $ | 157,629 | |
Reserve for unfunded commitments | 24,306 | | | 5,106 | |
Allowance for credit losses | $ | 369,355 | | | $ | 162,735 | |
Asset quality ratios: | | | |
Non-performing assets to total assets | 0.27 | % | | 0.23 | % |
Non-performing loans and leases to total loans and leases | 0.34 | % | | 0.30 | % |
Allowance for credit losses on loans and leases to total loans and leases | 1.54 | % | | 0.74 | % |
Allowance for credit losses to total loans and leases | 1.65 | % | | 0.77 | % |
Allowance for credit losses to total non-performing loans and leases | 482 | % | | 253 | % |
2020: | | | | | | | | | | | |
(dollars in thousands) | September 30, 2021 | | December 31, 2020 |
Loans and leases on non-accrual status | $ | 24,152 | | | $ | 31,076 | |
Loans and leases past due 90 days or more and accruing | 27,490 | | | 36,361 | |
Total non-performing loans and leases | 51,642 | | | 67,437 | |
Other real estate owned | 1,868 | | | 1,810 | |
Total non-performing assets | $ | 53,510 | | | $ | 69,247 | |
Restructured loans (1) | $ | 9,849 | | | $ | 14,991 | |
Allowance credit losses on loans and leases | $ | 257,560 | | | $ | 328,401 | |
Reserve for unfunded commitments | 11,752 | | | 20,286 | |
Allowance for credit losses | $ | 269,312 | | | $ | 348,687 | |
Asset quality ratios: | | | |
Non-performing assets to total assets | 0.17 | % | | 0.24 | % |
Non-performing loans and leases to total loans and leases | 0.24 | % | | 0.31 | % |
Allowance for credit losses on loans and leases to total loans and leases | 1.17 | % | | 1.51 | % |
Allowance for credit losses to total loans and leases | 1.23 | % | | 1.60 | % |
Allowance for credit losses to total non-performing loans and leases | 521 | % | | 517 | % |
(1)Excludes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase totaling $20.0 million and $4.3 million as of September 30, 2020 and December 31, 2019, respectively.
(2)Represents accruing TDR loans performing according to their restructured terms.
At September 30, 20202021 and December 31, 2019, troubled debt restructurings2020, TDRs of $15.8$9.8 million and $18.6$15.0 million, respectively, were classified as accruing TDRrestructured 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 new TDR 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 must 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.
A further decline in the economic conditions due to the COVID-19 pandemic as well as 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, placed on non-accrual status, restructured or transferred to other real estate owned in the future. Umpqua is committed to helping borrowers during this unprecedented time of uncertainty and is working with customers on payment deferrals, forbearances, and other loan modifications.
COVID-19 Related Payment Deferrals and Forbearance
Due to the deterioration of the USU.S. economy resulting from the COVID-19 pandemic, the Company has had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for up to six months.an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended one to six months to allow for full amortization. TheseIn accordance with the deferral guidance at the federal and state levels, these loans are generally classified based on their past due status prior to their deferral period, so theyperiod; as such, are classified as performing loans that accrue interest.
A summary of outstanding loan balances with active payment deferral or forbearance as of September 30, 20202021 are shown in the table below, disaggregated by major types of loans and leases: | | | | | | | | | | | | | | | | | |
| Loans with Deferrals or Forbearances |
(dollars in thousands) | Number of Loans | | Loan Balance Outstanding | | % of Loan Portfolio |
Commercial real estate | 8 | | $ | 58,086 | | | 1 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Commercial | 4 | | 469 | | | — | % |
| | | | | |
| | | | | |
| | | | | |
Residential | 148 | | 73,732 | | | 1 | % |
| | | | | |
| | | | | |
Consumer & other, net | 12 | | 202 | | | — | % |
Total | 172 | | $ | 132,489 | | | 1 | % |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Loans with Deferrals or Forbearances |
(dollars in thousands) | Number of Loans | | Loan Balance Outstanding | | % of Loan Portfolio |
Commercial real estate | | | | | |
Non-owner occupied term, net | 27 | | $ | 143,423 | | | 4.1 | % |
Owner occupied term, net | 29 | | 61,142 | | | 2.5 | % |
Multifamily, net | 9 | | 3,866 | | | 0.1 | % |
Construction & development, net | 1 | | 1,637 | | | 0.2 | % |
| | | | | |
Commercial | | | | | |
Term, net | 20 | | 65,506 | | | 1.5 | % |
Lines of credit & other, net | 22 | | 1,463 | | | 0.2 | % |
Leases & equipment finance, net | 1,785 | | 67,529 | | | 4.5 | % |
Residential | | | | | |
Mortgage, net | 1,122 | | 427,977 | | | 10.6 | % |
Home equity loans & lines, net | 57 | | 7,327 | | | 0.6 | % |
Consumer & other, net | 125 | | 2,467 | | | 0.8 | % |
Total | 3,197 | | $ | 782,337 | | | 3.5 | % |
| | | | | |
Included inExcluded from the mortgage loans with payment deferrals or forbearance in the above table are $107.4$121.0 million of repurchased GNMA loans repurchasedon deferral, as the credit risk of these loans are guaranteed by government programs such as the Bank from GNMA during the quarter, due to the fact that GNMA considers them delinquentFederal Housing Agency, Veterans Affairs, and the Bank had the right to repurchase the loans.USDA Rural Development.
The Bank continues to monitor COVID-19 deferrals and if a customer continues to experience financial difficulty after the initial deferral and further concessions are granted, the loan will be reviewed to determine if a TDR designation is appropriate. As of October 31, 2020, the Company had $562.9 million in loans on deferral or forbearance, reflecting a positive trend as compared to loans with deferrals or forbearances as of September 30, 2020.
Allowance for Credit Losses
The ACL totaled $369.4$269.3 million at September 30, 2020, an increase2021, a decrease of $206.6$79.4 million from $162.7$348.7 million at December 31, 2019.2020. The following table shows the activity in the ACL for the three months ended September 30, 2021 and June 30, 2021, as well as for the nine months ended September 30, 20202021 and 2019: 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended |
(dollars in thousands) | September 30, 2021 | | June 30, 2021 | | | | September 30, 2021 | | September 30, 2020 |
Allowance for credit losses on loans and leases | | | | | | | | | |
| Balance, beginning of period | $ | 279,887 | | | $ | 311,283 | | | | | $ | 328,401 | | | $ | 157,629 | |
| Impact of CECL adoption | — | | | — | | | | | — | | | 49,999 | |
| Adjusted balance, beginning of period | 279,887 | | | 311,283 | | | | | 328,401 | | | 207,628 | |
| (Recapture) provision for credit losses on loans and leases | (16,132) | | | (17,775) | | | | | (33,381) | | | 188,771 | |
| Charge-offs | (10,373) | | | (17,079) | | | | | (48,367) | | | (60,554) | |
| Recoveries | 4,178 | | | 3,458 | | | | | 10,907 | | | 9,204 | |
| Net charge-offs | (6,195) | | | (13,621) | | | | | (37,460) | | | (51,350) | |
| Balance, end of period | $ | 257,560 | | | $ | 279,887 | | | | | $ | 257,560 | | | $ | 345,049 | |
Reserve for unfunded commitments | | | | | | | | | |
| Balance, beginning of period | $ | 14,539 | | | $ | 19,760 | | | | | $ | 20,286 | | | $ | 5,106 | |
| Impact of CECL adoption | — | | | — | | | | | — | | | 3,238 | |
| Adjusted balance, beginning of period | 14,539 | | | 19,760 | | | | | 20,286 | | | 8,344 | |
| (Recapture) provision for credit losses on unfunded commitments | (2,787) | | | (5,221) | | | | | (8,534) | | | 15,962 | |
| Balance, end of period | 11,752 | | | 14,539 | | | | | 11,752 | | | 24,306 | |
Total allowance for credit losses | $ | 269,312 | | | $ | 294,426 | | | | | $ | 269,312 | | | $ | 369,355 | |
As a percentage of average loans and leases (annualized): | | | | | | | | | |
| Net charge-offs | 0.11 | % | | 0.25 | % | | | | 0.23 | % | | 0.31 | % |
| (Recapture) provision for credit losses | (0.34) | % | | (0.42) | % | | | | (0.26) | % | | 1.24 | % |
Recoveries as a percentage of charge-offs | 40.28 | % | | 20.25 | % | | | | 22.55 | % | | 15.20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(dollars in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Allowance for credit losses on loans and leases | | | | | | | |
| Balance, beginning of period | $ | 356,745 | | | $ | 151,069 | | | $ | 157,629 | | | $ | 144,871 | |
| Impact of adoption of CECL | — | | | — | | | 49,999 | | | — | |
| Adjusted balance, beginning of period | 356,745 | | | 151,069 | | | 207,628 | | | 144,871 | |
| Provision for credit losses on loans and leases | 1,785 | | | 23,227 | | | 188,771 | | | 56,263 | |
| Charge-offs | (16,646) | | | (23,112) | | | (60,554) | | | (56,971) | |
| Recoveries | 3,165 | | | 5,104 | | | 9,204 | | | 12,125 | |
| Net charge-offs | (13,481) | | | (18,008) | | | (51,350) | | | (44,846) | |
| Balance, end of period | $ | 345,049 | | | $ | 156,288 | | | $ | 345,049 | | | $ | 156,288 | |
Reserve for unfunded commitments | | | | | | | |
| Balance, beginning of period | $ | 26,368 | | | $ | 4,857 | | | $ | 5,106 | | | $ | 4,523 | |
| Impact of adoption of CECL | — | | | — | | | 3,238 | | | — | |
| Adjusted balance, beginning of period | 26,368 | | | 4,857 | | | 8,344 | | | 4,523 | |
| (Recapture) provision for credit losses on unfunded commitments | (2,062) | | | 228 | | | 15,962 | | | 562 | |
| Balance, end of period | 24,306 | | | 5,085 | | | 24,306 | | | 5,085 | |
Total allowance for credit losses | $ | 369,355 | | | $ | 161,373 | | | $ | 369,355 | | | $ | 161,373 | |
As a percentage of average loans and leases (annualized): | | | | | | | |
| Net charge-offs | 0.24 | % | | 0.34 | % | | 0.31 | % | | 0.29 | % |
| Provision for credit losses (1) (2) | — | % | | 0.44 | % | | 1.24 | % | | 0.37 | % |
Recoveries as a percentage of charge-offs | 19.01 | % | | 22.08 | % | | 15.20 | % | | 21.28 | % |
(2) The total provision for credit losses disclosed in this table does not include the recapture or provision related to accrued interest on loans deferred due to COVID-19, which is included in the provision for credit losses in the income statement for the three and nine months ended September 30, 2020.
With the adoption of CECL on January 1, 2020, we recorded a one-time cumulative-effect pre-tax adjustment in the amount of $53.2 million. The allowance for credit losses on loans and leases increased by $50.0 million and the allowance for unfunded commitments increased by $3.2 million, resulting in a January 1, 2020, or day 1, balance of the Allowance for Credit Losses of $216.0 million.
The recapture of or(recapture) provision for credit losses includes the (recapture) provision for loan and lease losses, (recapture) provision (recapture) for unfunded commitments, and the provision (recapture) provision for credit losses related to accrued interest on loans deferred due to COVID-19.loans. The recapture of credit losses was $338,000 for the three months ended September 30, 2020. The provision for credit losses was $204.8$18.9 million and $41.9 million for the three and nine months ended September 30, 2020. The decrease from $23.5 million for the three months ended September 30, 2019 was2021, respectively, which is due to the stabilization of credit quality metrics and economic forecasts used in credit models as compared to prior periods in 2020, along with the decline in loan balances as compared to September 30, 2019. In addition, the Bank used CECL in the current year, but incurred loss in the prior year. CECL is expected to cause the provision for credit losses to be more volatile as we now reflect current expected credit losses, instead of incurred losses. The increase from $56.8 million for the nine months ended September 30, 2019 was principally attributable to the COVID-19 pandemic and its impact on the forecasts used to determine the expected credit losses of the loan and lease portfolio in the current year.models.
The following table sets forth the allocation of the allowance for credit losses on loans and leases and percent of loans in each category to total loans and leases as of September 30, 20202021 and December 31, 2019:2020:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(dollars in thousands) | (dollars in thousands) | Amount | | % Loans to total loans | | Amount | | % Loans to total loans | (dollars in thousands) | Amount | | % Loans to total loans | | Amount | | % Loans to total loans |
Commercial real estate | Commercial real estate | $ | 134,055 | | | 46 | % | | $ | 50,847 | | | 49 | % | Commercial real estate | $ | 108,014 | | | 49 | % | | $ | 141,710 | | | 47 | % |
Commercial | Commercial | 164,836 | | | 30 | % | | 73,820 | | | 23 | % | Commercial | 118,934 | | | 25 | % | | 150,864 | | | 29 | % |
Residential | Residential | 35,194 | | | 23 | % | | 24,714 | | | 26 | % | Residential | 27,280 | | | 25 | % | | 27,964 | | | 23 | % |
Consumer & other | Consumer & other | 10,964 | | | 1 | % | | 8,248 | | | 2 | % | Consumer & other | 3,332 | | | 1 | % | | 7,863 | | | 1 | % |
| Allowance for credit losses on loans and leases | Allowance for credit losses on loans and leases | $ | 345,049 | | | | | $ | 157,629 | | | | Allowance for credit losses on loans and leases | $ | 257,560 | | | | | $ | 328,401 | | | |
The following table shows the change in the allowance for credit losses from June 30, 20202021 to September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | Q3 2020 net charge-offs | | (Release)/ reserve build | | September 30, 2020 | | % of Loan and Leases Outstanding |
Commercial real estate | | $ | 173,636 | | | $ | 61 | | | $ | (19,214) | | | $ | 154,483 | | | 1.51 | % |
Commercial | | 155,536 | | | (13,382) | | | 24,405 | | | 166,559 | | | 2.51 | % |
Residential | | 42,609 | | | 287 | | | (6,183) | | | 36,713 | | | 0.70 | % |
Consumer | | 11,332 | | | (447) | | | 715 | | | 11,600 | | | 3.64 | % |
Total allowance for credit losses(1) | | $ | 383,113 | | | $ | (13,481) | | | $ | (277) | | | $ | 369,355 | | | 1.65 | % |
% of Loans and leases outstanding | | 1.69 | % | | | | | | 1.65 | % | | |
% of Loans and leases outstanding - excluding PPP Loans | | 1.85 | % | | | | | | 1.81 | % | | |
(1) 2021:The total allowance for credit losses disclosed in this table does not include the recapture or provision related to accrued interest on loans deferred due to COVID-19, which is included in the provision for credit losses in the income statement for the three and nine months ended September 30, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | June 30, 2021 | | Q3 2021 net (charge-offs) recoveries | | Reserve build/(release) | | September 30, 2021 | | % of Loan and Leases Outstanding |
Commercial real estate | | $ | 139,045 | | | $ | (796) | | | $ | (23,414) | | | $ | 114,835 | | | 1.07 | % |
Commercial | | 123,535 | | | (5,175) | | | 3,159 | | | 121,519 | | | 2.19 | % |
Residential | | 27,006 | | | 281 | | | 1,950 | | | 29,237 | | | 0.54 | % |
Consumer & Other | | 4,840 | | | (505) | | | (614) | | | 3,721 | | | 1.93 | % |
Total allowance for credit losses | | $ | 294,426 | | | $ | (6,195) | | | $ | (18,919) | | | $ | 269,312 | | | |
% of loans and leases outstanding | | 1.33 | % | | | | | | 1.23 | % | | |
| | | | | | | | | | |
To calculate the ACL, the CECL models use a forecast of future economic conditions and are dependent upon specific macroeconomic variables that are relevant to each of the Bank's loan and lease portfolios. For the third quarter of 2021, the Bank used Moody's Analytics August Consensus forecast; keyconsensus economic forecast. Key components include a US economy experiencing strong growth, then slow growth thereafter,U.S. real GDP average annualized growth of 6.6% from Q2-Q4 2020,4.9% through 2022 and average unemployment rate for 2021 of 10.7%5.5% dropping to 4.2% in Q3 2020 with a return to less than 5% unemployment by 2024.2022. The models for calculating the ACL are sensitive to changes in these and other economic variables, which could result in volatility as these assumptions change over time. In addition, the forward-looking assumptions revert to historical data when they reach the point where future assumptions are no longer estimated.
Within the ACLL as of September 30, 2020, we had a qualitative overlay of $40.6 million related to loans and leases, which is above and beyond the model results. The majority of this overlay resulted from approximately $20.0 million in small ticket leases that are past due greater than 60 days after completing their deferral period. These will most likely result in an increase in charge-offs in the next quarter, but have already been fully reserved for in the ACL.
We believe that the allowance for credit losses as of September 30, 20202021 is sufficient to absorb losses inherent in the loan and lease portfolio and in credit commitments outstanding as of that date based on the information available. If the economic conditions continue to decline or are worse than economic forecasts predict, the Bank may need additional provisions for credit losses in future periods.
Residential Mortgage Servicing Rights
The following table presents the changes in our residential mortgage servicing rights portfolio for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 20202021 and 2019: 2020:
|
|
| Three Months Ended | | Nine Months Ended |
| Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (in thousands) | September 30, 2021 | | June 30, 2021 | | | September 30, 2021 | | September 30, 2020 |
Balance, beginning of period | Balance, beginning of period | $ | 96,356 | | | $ | 139,780 | | | $ | 115,010 | | | $ | 169,025 | | Balance, beginning of period | $ | 102,699 | | | $ | 100,413 | | | | $ | 92,907 | | | $ | 115,010 | |
Additions for new MSR capitalized | Additions for new MSR capitalized | 14,014 | | | 7,393 | | | 37,484 | | | 16,772 | | Additions for new MSR capitalized | 8,450 | | | 8,330 | | | | 30,845 | | | 37,484 | |
| Changes in fair value: | Changes in fair value: | | Changes in fair value: | | | |
Changes due to collection/realization of expected cash flows over time | Changes due to collection/realization of expected cash flows over time | (4,878) | | | (6,835) | | | (15,249) | | | (20,171) | | Changes due to collection/realization of expected cash flows over time | (4,681) | | | (4,366) | | | | (13,592) | | | (15,249) | |
Changes due to valuation inputs or assumptions (1) | Changes due to valuation inputs or assumptions (1) | (12,244) | | | 11,045 | | | (43,997) | | | (14,243) | | Changes due to valuation inputs or assumptions (1) | (634) | | | (1,678) | | | | (4,326) | | | (43,997) | |
Balance, end of period | Balance, end of period | $ | 93,248 | | | $ | 151,383 | | | $ | 93,248 | | | $ | 151,383 | | Balance, end of period | $ | 105,834 | | | $ | 102,699 | | | | $ | 105,834 | | | $ | 93,248 | |
|
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.
Information related to our residential serviced loan portfolio as of September 30, 20202021 and December 31, 20192020 was as follows:
| (dollars in thousands) | (dollars in thousands) | September 30, 2020 | | December 31, 2019 | (dollars in thousands) | September 30, 2021 | | December 31, 2020 |
Balance of loans serviced for others | Balance of loans serviced for others | $ | 12,964,361 | | | $ | 12,276,943 | | Balance of loans serviced for others | $ | 12,853,291 | | | $ | 13,026,720 | |
MSR as a percentage of serviced loans | MSR as a percentage of serviced loans | 0.72 | % | | 0.94 | % | MSR as a percentage of serviced loans | 0.82 | % | | 0.71 | % |
MortgageResidential mortgage servicing rights are adjusted to fair value quarterly with the change recorded in residential mortgage banking revenue. The value of servicing rights can fluctuate based on changes in interest rates and other factors. Generally, as interest rates decline and borrowers are able to take advantage of a refinance incentive, prepayments increase, and the total value of existing servicing rights declines as expectations of future servicing feesfee collections decline. Historically, the fair value of our residential mortgage servicing rights will increase as market rates for mortgage loans rise and decrease if market rates fall. Mortgage refinance volumes remain elevatedelevated; however, accelerated prepayment speeds have slowed due to low mortgagea flattening of long-term interest rates during the current periods, which caused accelerated prepayments and higher expectations for prepayment speeds in the future.quarter.
The fair value of the MSR asset decreased by $12.2 million and $44.0 million, respectively, for the three and nine months ended September 30, 2020, dueDue to changes to inputs in the valuation model including changes in discount rates and prepayment speeds, which was due to decreases in the long term interest rates duringfair value of the period.MSR asset decreased by $634,000 and $4.3 million for the three and nine months ended September 30, 2021, respectively. The fair value of the MSR asset decreased $4.9by $4.7 million and $15.2$13.6 million, respectively, due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three and nine months ended September 30, 2020.2021.
Goodwill
At September 30, 2020 and December 31, 2019, the Company had goodwill of $2.7 million and $1.8 billion, respectively. Goodwill is recorded in connection with business combinations and represents the excess of the purchase price over the estimated fair value of the net assets acquired. Goodwill impairment of $1.8 billion was recorded as of March 31, 2020, due to an interim impairment analysis triggered by the decline in interest rates and economic impacts of COVID-19, as well as declines in the Company's stock price. The impairment was a result of market volatility and forecasts for a prolonged low interest rate environment, as well as higher credit losses expected due to the forecasted economic downturn.
Deposits
Total deposits were $24.7$26.9 billion at September 30, 2020,2021, an increase of $2.2$2.3 billion, as compared to December 31, 2019.2020. The increase is mainly attributable to growth in non-interest bearing and interest bearing demand deposits and money market balances, offset by a decline in time deposits. The increase in non-maturity deposit account categories is driven byattributable to the impact of economic assistance payments, in addition to increased customer savings rates as customers look to increase their own liquidity in this uncertain environment, in addition, the increase is attributable to the impact of economic assistance payments.environment. The decrease in time deposits is mainly due to lower brokered deposits as the Company has allowed theserunoff of higher-cost deposits to runoff, as well as the Company reducing its exception pricing on customer money market and time deposits.
The following table presents the deposit balances by major category as of September 30, 20202021 and December 31, 2019:2020:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(dollars in thousands) | (dollars in thousands) | Amount | | Percentage | | Amount | | Percentage | (dollars in thousands) | Amount | | % | | Amount | | % |
Non-interest bearing demand | Non-interest bearing demand | $ | 9,475,244 | | | 38 | % | | $ | 6,913,375 | | | 31 | % | Non-interest bearing demand | $ | 11,121,127 | | | 41 | % | | $ | 9,632,773 | | | 39 | % |
Interest bearing demand | Interest bearing demand | 2,931,990 | | | 12 | % | | 2,524,534 | | | 11 | % | Interest bearing demand | 3,758,019 | | | 14 | % | | 3,051,487 | | | 12 | % |
Money market | Money market | 7,160,838 | | | 29 | % | | 6,930,815 | | | 31 | % | Money market | 7,780,442 | | | 29 | % | | 7,173,920 | | | 29 | % |
Savings | Savings | 1,848,639 | | | 8 | % | | 1,471,475 | | | 7 | % | Savings | 2,325,929 | | | 9 | % | | 1,912,752 | | | 8 | % |
Time, $100,000 or greater | 2,230,542 | | | 9 | % | | 3,420,446 | | | 15 | % | |
Time, less than $100,000 | 1,022,530 | | | 4 | % | | 1,220,859 | | | 5 | % | |
Time, greater than $250,000 | | Time, greater than $250,000 | 524,752 | | | 2 | % | | 899,563 | | | 4 | % |
Time, $250,000 or less | | Time, $250,000 or less | 1,398,128 | | | 5 | % | | 1,951,706 | | | 8 | % |
Total deposits | Total deposits | $ | 24,669,783 | | | 100 | % | | $ | 22,481,504 | | | 100 | % | Total deposits | $ | 26,908,397 | | | 100 | % | | $ | 24,622,201 | | | 100 | % |
The Company's brokered deposits totaled $523.2$353.8 million at September 30, 2020,2021, compared to $1.2 billion$424.1 million at December 31, 2019.2020.
Borrowings
At September 30, 2020,2021, the Bank had outstanding $388.0$467.8 million of securities sold under agreements to repurchase, an increase of $76.7$92.4 million from December 31, 2019.2020. The Bank had outstanding borrowings consisting of advances from the FHLB of $1.0 billion$6.4 million at September 30, 2020,2021, which increased $89.9decreased $765.1 million from December 31, 2019; the increase2020. The decrease is attributable to additional borrowing activity primarily driven bymaturity payoffs during the Company's liquidity strategy.period. The remaining FHLB advances are secured by investment securities and loans secured by real estate. The FHLB advances haveadvance has a fixed interest rates ranging from 0.60% torate of 7.10% and maturematures in 2020 through 2030.
Junior Subordinated Debentures
We had junior subordinated debentures with carrying values of $335.4$387.6 million and $363.3$343.5 million at September 30, 20202021 and December 31, 2019,2020, respectively. The decreaseincrease is mainly due to the $26.9$44.5 million declinechange in fair value for the junior subordinated debentures elected to be carried at fair value, which is due mostly to a decrease in the discount rates caused by a decrease in the credit spread paired with an increase in the credit spread, and the implied forward curve, shifting lower.partially offset by an increase in the long end of the SWAP spot curve. As of September 30, 2020,2021, substantially all of the junior subordinated debentures had interest rates that are adjustable on a quarterly basis based on a spread over three monththree-month LIBOR.
Liquidity and Cash Flow
The principal objective of our liquidity management program is to maintain the Bank'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. The Bank's liquidity strategy was adjusted to adoptincludes an elevated on-balance sheet liquidity position to further enhancegrow deposit balances to provide flexibility due to the increased market volatilityfund growth in lending and uncertaintyinvestment portfolios, as a result of the COVID-19 pandemic.well as deleverage liabilities as economic conditions permit. As a result, the Company believes that it has sufficient cash and access to borrowings to effectively manage through the COVID-19 pandemic as well as meet its working capital and other needs. The Company will continue to prudently evaluate and expandmaintain liquidity sources, including the management of availabilityability to fund future loan growth and utilization ofmanage our borrowing sources.
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 deposit balance in excess of FDIC insurance. Public deposits represented 7%5% of total deposits at September 30, 20202021 and 9%7% of total deposits at December 31, 2019.2020. 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 $6.3$8.5 billion at September 30, 2020,2021, 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 $456.4$915.8 million, subject to certain collateral requirements, namelyincluding eligibility and advance rates on the amount of certain pledged loans.loans and investment securities. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at September 30, 2020.2021. Availability of these 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 consecutive day usage.
The Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Company's revenues are obtained from dividends declared and paid by the Bank. There were $163.0$350.0 million of dividends paid by the Bank to the Company in the nine months ended September 30, 2020.2021, including the special dividend of $200.0 million paid in July 2021, to fund the repurchase plan announced by the Company. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Company. The Company recorded a net loss of $7.60 per diluted common share for the nine months ended September 30, 2020, due to a $1.8 billion goodwill impairment charge recorded during the period. As a result, the Company has an accumulated deficit, instead of retained earnings at September 30, 2020.
Due to the accumulated deficit, the Company is required to notify the Board of Governors of the Federal Reserve System ("FRB") prior to declaring and paying a cash dividend to our shareholders and may not pay a dividend if the FRB objects. Additionally, the Company will be required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company. In the second quarter, the Company changed theThe timing of itsthe quarterly dividend to shareholders from an intra-quarter announcement tois after quarterlyeach quarter's earnings are released. The shift in announcement timing was maderelease to provide the Company’sCompany's Board of Directors and regulators with the opportunity to review final quarterly financial results and financial projections, prior to approvalthe announcement of any dividends. Thedividend. Due to the Company's announcement of its pending merger with Columbia, Umpqua is restricted from paying quarterly cash dividends in excess of the current level and from repurchasing shares of Company expects to continue this cadence for dividend payments in future quarters.common stock until the transaction is closed.
As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $541.5 million during the nine months ended September 30, 2021, with the difference between cash provided by operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $4.1 billion and the decrease in other assets of $161.1 million, offset by originations of loans held for sale of $3.9 billion, the gain on sale of loans of $124.8 million and recapture of provision for loan and lease losses of $41.9 million. This compares to net cash used in operating activities was $81.0of $81.7 million during the nine months ended September 30, 2020, with the difference between cash used in operating activities and net loss consisting primarily of goodwill impairment of $1.8 billion, proceeds from the sale of loans held for sale of $5.0 billion, and provision for loan and lease losses of $204.8 million, offset by originations of loans held for sale of $4.9 billion, the net increase in other assets of $231.8$232.5 million and the gain on sale of loans of $212.4 million. This compares to net
Net cash of $764.9 million used in operatinginvesting activities of $77.9 million during the nine months ended September 30, 2019, with the difference between cash provided by operating activities2021, consisted principally of purchases of available for sale investment securities of $1.5 billion and net income consisting ofloan originations of loans held for sale of $2.0 billion, the increase in other assets of $179.3 million, gain on equity securities of $83.6 million, and gain on sale of loans of $65.7$85.5 million, offset by proceeds from available for sale investment securities of $578.2 million and the saleproceeds from sales of loans held for saleand leases of $1.9 billion, provision for loan and lease losses of $56.3 million, a loss on fair value of residential mortgage servicing rights carried at fair value of $34.4 million, and depreciation, amortization and accretion of $33.1$182.6 million.
Net This compares to net cash of $1.4 billion used in investing activities during the nine months ended September 30, 2020, which primarily consisted principally of net loan originations of $1.3 billion, purchases of investment securities available for sale investment securities of $595.4 million, and net cash paid in divestiture of stores of $81.2 million, offset by proceeds from investment securities available for sale investment securities of $604.6 million and the proceeds from sales of loans of $60.8 million. This compares to net
Net cash of $908.9 million used in investing$1.4 billion provided by financing activities during the nine months ended September 30, 2019, which2021, primarily consisted principally of $2.3 billion net loan originationsincrease in deposits and the net increase in securities sold under agreements to repurchase of $1.2 billion, purchases of available for sale investment securities of $563.6 million, purchases of restricted equity securities of $220.2 million and net cash paid in divestiture of a store of $44.6$92.4 million, offset by proceeds from available for sale investment securities$765.0 million repayment of $778.3borrowings, $138.2 million redemption of restricted equity securitiesdividends paid on common stock, and the repurchase and retirement of $206.0 million, proceeds from the salecommon stock of loans and leases of $88.8 million and proceeds from sale of equity securities of $81.9$80.7 million.
Net This compares to net cash of $2.3 billion provided by financing activities during the nine months ended September 30, 2020, primarily consisted of $2.3 billion net increase in deposits, and proceeds from borrowings of $600.0 million, offset by $510.0 million repayment of borrowings and $138.7 million of dividends paid on common stock. This compares to net cash of $1.6 billion provided by financing activities during the nine months ended September 30, 2019, which consisted primarily of $1.3 billion net increase in deposits and proceeds from borrowings of $810.7 million, offset by $455.7 million repayment of borrowings and $138.9 million of dividends paid on common stock.
Although we expect the Bank's and the Company's liquidity positions to remain satisfactory, during 2020, it is possible that our deposit growth may not be maintained at previous levels due to pricing pressure, store consolidations, or customers' spending habits due to the COVID-19 pandemic.habits. In addition, in order to generate deposit growth, our pricing may need to be adjusted in a manner that results in increased interest expense on deposits. The pending merger with Columbia may have an impact on Umpqua's liquidity position and strategy in the future.
Off-balance-Sheet Arrangements
Information regarding Off-Balance-Sheet Arrangements is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.
Concentrations of Credit Risk
Information regarding Concentrations of Credit Risk is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.
Capital Resources
Shareholders' equity at September 30, 20202021 was $2.6 billion, a decrease of $1.7 billion from December 31, 2019.$2.7 billion. The decreaseincrease in shareholders' equity during the nine months ended September 30, 20202021 was principally due to net income, offset by the other comprehensive loss, net lossof tax, cash dividends paid, and stock repurchased during the period, related mainly to the goodwill impairment as of March 31, 2020, and resulted in an accumulated deficit as of September 30, 2020.period.
The Company's dividend policy considers, among other things, earnings, regulatory capital levels, the overall payout ratio and expected asset growth to determine the amount of dividends declared, if any, on a quarterly basis. There is no assurance that future cash dividends on common shares will be declared or increased. We cannot predict the extent of the economic decline due to COVID-19 or other factors that could result in inadequate earnings, regulatory restrictions and limitations, changes to our capital requirements, or a decision to increase capital by retention of earnings, that may result in the inability to pay dividends at previous levels, or at all. Umpqua is restricted from paying quarterly cash dividends in excess of the current level until the Merger is closed.
Due to the accumulated deficit, the Company is required to notify the Board of GovernorsThe timing of the FRB prior to declaring and paying a cash dividend to our shareholders and may not pay a dividend if the FRB objects. Additionally, the Company will be required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company. In the second quarter of 2020, the Company changed the timing of its quarterly dividend from an intra-quarter announcement tois after quarterlyeach quarter's earnings release. The shift in announcement timing was maderelease to provide the Company’sCompany's Board of Directors and regulatorswith the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. TheOn August 9, 2021, the Company expects to continue this cadencedeclared a cash dividend in future quarters.the amount of $0.21 per common share based on second quarter 2021 performance, which was paid on August 31, 2021.
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 three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 20202021 and the three and nine months ended September 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Dividend declared per common share | $ | 0.21 | | | $ | 0.21 | | | $ | 0.42 | | | $ | 0.63 | |
Dividend payout ratio | 37 | % | | 55 | % | | (6) | % | | 51 | % |
2020: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | | June 30, 2021 | | | | September 30, 2021 | | September 30, 2020 |
Dividend declared per common share | $ | 0.21 | | | $ | 0.21 | | | | | $ | 0.63 | | | $ | 0.42 | |
Dividend payout ratio | 43 | % | | 40 | % | | | | 42 | % | | (6) | % |
In July 2021, the Company announced that its Board of Directors approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The program replaces and supersedes the previously approved share repurchase program which was scheduled to expire on July 31, 2021. As of September 30, 2020,2021, a total of 9.5$321.8 million shares areremained available forto repurchase shares under the Company's currentnew share repurchase plan.program. During the nine months ended September 30, 2020, 331,0002021, 4.0 million shares were repurchased under the new plan.
The repurchase program is currently halted, based on the announced merger with Columbia and in accordance with the Merger Agreement. The Company may not purchase any shares under this plan. The Board of Directors approved an extension ofprogram until the repurchase plan to July 31, 2021.Merger is closed. The timing and amount of future repurchases willwould depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, and our capital plan.plan, and bank or bank holding company regulatory approvals. In addition, our stock plans provide that option and award holders may pay for the exercise price and tax withholdings in part or entirely by tendering previously held shares.
The following table shows the Company's consolidated and the Bank's capital adequacy ratios compared to the regulatory minimum capital ratio and the regulatory minimum capital ratio needed to qualify as a "well-capitalized" institution, as calculated under regulatory guidelines of the Basel Committee on Banking Supervision to the Basel capital framework ("Basel III")III at September 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | For Capital Adequacy purposes | | To be Well Capitalized |
(dollars in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
September 30, 2020 | | | | | | | | | | | |
Total Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 3,256,042 | | | 15.02 | % | | $ | 1,733,969 | | | 8.00 | % | | $ | 2,167,461 | | | 10.00 | % |
Umpqua Bank | $ | 3,043,589 | | | 14.05 | % | | $ | 1,733,430 | | | 8.00 | % | | $ | 2,166,788 | | | 10.00 | % |
Tier I Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,534,109 | | | 11.69 | % | | $ | 1,300,476 | | | 6.00 | % | | $ | 1,733,969 | | | 8.00 | % |
Umpqua Bank | $ | 2,772,741 | | | 12.80 | % | | $ | 1,300,073 | | | 6.00 | % | | $ | 1,733,430 | | | 8.00 | % |
Tier I Common | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,534,109 | | | 11.69 | % | | $ | 975,357 | | | 4.50 | % | | $ | 1,408,849 | | | 6.50 | % |
Umpqua Bank | $ | 2,772,741 | | | 12.80 | % | | $ | 975,055 | | | 4.50 | % | | $ | 1,408,412 | | | 6.50 | % |
Tier I Capital | | | | | | | | | | | |
(to Average Assets) | | | | | | | | | | | |
Consolidated | $ | 2,534,109 | | | 8.59 | % | | $ | 1,179,486 | | | 4.00 | % | | $ | 1,474,357 | | | 5.00 | % |
Umpqua Bank | $ | 2,772,741 | | | 9.41 | % | | $ | 1,179,085 | | | 4.00 | % | | $ | 1,473,856 | | | 5.00 | % |
December 31, 2019 | | | | | | | | | | | |
Total Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 3,104,444 | | | 13.96 | % | | $ | 1,779,265 | | | 8.00 | % | | $ | 2,224,081 | | | 10.00 | % |
Umpqua Bank | $ | 2,945,830 | | | 13.26 | % | | $ | 1,777,265 | | | 8.00 | % | | $ | 2,221,581 | | | 10.00 | % |
Tier I Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,490,709 | | | 11.20 | % | | $ | 1,334,449 | | | 6.00 | % | | $ | 1,779,265 | | | 8.00 | % |
Umpqua Bank | $ | 2,783,095 | | | 12.53 | % | | $ | 1,332,949 | | | 6.00 | % | | $ | 1,777,265 | | | 8.00 | % |
Tier I Common | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,490,709 | | | 11.20 | % | | $ | 1,000,837 | | | 4.50 | % | | $ | 1,445,653 | | | 6.50 | % |
Umpqua Bank | $ | 2,783,095 | | | 12.53 | % | | $ | 999,712 | | | 4.50 | % | | $ | 1,444,028 | | | 6.50 | % |
Tier I Capital | | | | | | | | | | | |
(to Average Assets) | | | | | | | | | | | |
Consolidated | $ | 2,490,709 | | | 9.16 | % | | $ | 1,087,509 | | | 4.00 | % | | $ | 1,359,387 | | | 5.00 | % |
Umpqua Bank | $ | 2,783,095 | | | 10.24 | % | | $ | 1,086,999 | | | 4.00 | % | | $ | 1,358,749 | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | For Capital Adequacy purposes | | To be Well Capitalized |
(dollars in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
September 30, 2021 | | | | | | | | | | | |
Total Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 3,391,310 | | | 14.88 | % | | $ | 1,823,052 | | | 8.00 | % | | $ | 2,278,815 | | | 10.00 | % |
Umpqua Bank | $ | 3,048,815 | | | 13.38 | % | | $ | 1,823,416 | | | 8.00 | % | | $ | 2,279,269 | | | 10.00 | % |
Tier I Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,742,229 | | | 12.03 | % | | $ | 1,367,289 | | | 6.00 | % | | $ | 1,823,052 | | | 8.00 | % |
Umpqua Bank | $ | 2,850,732 | | | 12.51 | % | | $ | 1,367,562 | | | 6.00 | % | | $ | 1,823,416 | | | 8.00 | % |
Tier I Common | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,742,229 | | | 12.03 | % | | $ | 1,025,467 | | | 4.50 | % | | $ | 1,481,230 | | | 6.50 | % |
Umpqua Bank | $ | 2,850,732 | | | 12.51 | % | | $ | 1,025,671 | | | 4.50 | % | | $ | 1,481,525 | | | 6.50 | % |
Tier I Capital | | | | | | | | | | | |
(to Average Assets) | | | | | | | | | | | |
Consolidated | $ | 2,742,229 | | | 8.96 | % | | $ | 1,223,942 | | | 4.00 | % | | $ | 1,529,927 | | | 5.00 | % |
Umpqua Bank | $ | 2,850,732 | | | 9.31 | % | | $ | 1,224,669 | | | 4.00 | % | | $ | 1,530,836 | | | 5.00 | % |
December 31, 2020 | | | | | | | | | | | |
Total Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 3,347,926 | | | 15.63 | % | | $ | 1,713,891 | | | 8.00 | % | | $ | 2,142,364 | | | 10.00 | % |
Umpqua Bank | $ | 3,134,116 | | | 14.63 | % | | $ | 1,713,809 | | | 8.00 | % | | $ | 2,142,262 | | | 10.00 | % |
Tier I Capital | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,636,194 | | | 12.31 | % | | $ | 1,285,418 | | | 6.00 | % | | $ | 1,713,891 | | | 8.00 | % |
Umpqua Bank | $ | 2,873,383 | | | 13.41 | % | | $ | 1,285,357 | | | 6.00 | % | | $ | 1,713,809 | | | 8.00 | % |
Tier I Common | | | | | | | | | | | |
(to Risk Weighted Assets) | | | | | | | | | | | |
Consolidated | $ | 2,636,194 | | | 12.31 | % | | $ | 964,064 | | | 4.50 | % | | $ | 1,392,536 | | | 6.50 | % |
Umpqua Bank | $ | 2,873,383 | | | 13.41 | % | | $ | 964,018 | | | 4.50 | % | | $ | 1,392,470 | | | 6.50 | % |
Tier I Capital | | | | | | | | | | | |
(to Average Assets) | | | | | | | | | | | |
Consolidated | $ | 2,636,194 | | | 8.98 | % | | $ | 1,174,129 | | | 4.00 | % | | $ | 1,467,661 | | | 5.00 | % |
Umpqua Bank | $ | 2,873,383 | | | 9.79 | % | | $ | 1,174,065 | | | 4.00 | % | | $ | 1,467,581 | | | 5.00 | % |
Along with enactment of the CARES Act,In 2020, the federal bank regulatory authorities issued an interim finalfinalized a rule to provide banking organizations that are required to implementimplemented CECL before the end ofin 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company has elected this capital relief and will delay the estimated regulatory capital impact of adopting CECL, relative to the incurred loss methodology's effect on regulatory capital.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our assessment of market risk as of September 30, 20202021 indicates there are no material changes in the qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2019. However due to the impact of declining interest rates resulting from the Federal Reserve monetary policy and programs, and market reaction to the economic impact of the COVID-19 pandemic, the estimated impact on our net interest income over a one-year time horizon has shifted.
Interest Rate Simulation Impact on Net Interest Income
As of September 30, 2020 and December 31, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | December 31, 2018 |
Up 300 basis points | | 8.6 | % | | 5.9 | % | | 4.9 | % |
Up 200 basis points | | 5.9 | % | | 4.1 | % | | 3.3 | % |
Up 100 basis points | | 3.0 | % | | 2.2 | % | | 1.7 | % |
Down 100 basis points | | (1.5) | % | | (3.8) | % | | (2.8) | % |
Down 200 basis points | | (2.1) | % | | (7.4) | % | | (6.3) | % |
Down 300 basis points | | (2.3) | % | | (9.4) | % | | (9.5) | % |
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.
As rates have declined, our asset sensitivity in an increasing rate environment has increased. This is due to interest-bearing assets projected to reprice in greater velocity or magnitude in comparison to interest bearing liabilities, and also due to significant growth in non-interest bearing deposits which are not sensitive to changing interest rates in the simulation.In a declining rate environment, the reduced sensitivity, compared to year-end simulation results, reflects more interest-bearing assets at or near rate floors and the assumption that market interest rates do not go negative.
The short-term interest rate environment is primarily a function of the monetary policy of the FRB. The principal tools of the Federal Reserve for implementing monetary policy are open market operations, or the purchases and sales of U.S. Treasury and Federal agency securities, as well as the establishment of a short-term target rate. The Federal Reserve's objective for open market operations has varied over the years, but the focus has gradually shifted toward attaining a specified level of the federal funds rate to achieve the long-run goals of price stability and sustainable economic growth. The federal funds rate is the basis for overnight funding and drives the short end of the yield curve. Longer maturities are influenced by the market's expectations for economic growth and inflation, but are also influenced by Federal Reserve purchases and sales and expectations of monetary policy going forward.
In March 2020, in response to the COVID-19 pandemic, its effect on economic activity in the near term and the risk it poses to the economic outlook, the FOMC lowered the target range for the federal funds rate 150 basis points to 0.00% to 0.25%. At its September 2020 meeting the FOMC noted it expects to maintain an accommodating stance of monetary policy until the outcomes of maximum employment and inflation at a rate of 2% over the longer run is achieved. Maintaining the current level of the federal funds rate could cause overall interest rates to fall, which may negatively impact financial performance. Increases in the federal funds rate and the unwinding of its balance sheet could cause overall interest rates to rise, which may negatively impact the U.S. real estate markets and affect deposit growth and pricing. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance.
LIBOR Transition
In 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would no longer require banks to submit rates for LIBOR after 2021. The Alternative Reference Rates Committee ("ARRC") is a group of private-market participants convened by the FRB and the New York Fed to help ensure a successful transition from U.S. dollar LIBOR to a more robust reference rate, its recommended alternative, the Secured Overnight Financing Rate. In addition, the ARRC has noted that though near-term interim steps in the transition may be delayed given the current economic environment with the global pandemic, it remains clear that the financial system should continue to move to transition by the end of 2021.The Company holds financial instruments that will be impacted by the discontinuance of LIBOR, primarily certain loans, derivatives, and junior subordinated debentures that use LIBOR as the benchmark rate. The Company anticipates these financial instruments will require transition to new reference rates. This transition will occur over time as many of these arrangements do not have an alternative rate referenced in their contracts. The Company has commenced an enterprise-wide transition program with program deliverables including business strategy, product design and pricing strategy, instrument contract remediation, and systems and processes.These deliverables include milestones that address operational changes, targeted communications and education planning, and to identify, assess, monitor and remediate risks associated with the transition.2020.
Item 4. Controls and Procedures
Our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has concluded that our disclosure controls and procedures are effective in timely alerting them to information relating to us that is required to be included in our periodic filings with the SEC. The disclosure controls and procedures were last evaluated by management as of September 30, 2020.2021.
While we have incorporated additional controls related to our CECL accounting processes into our existing internal control environment, there was noNo change in internal control over financial reporting that occurred during the quarter ended September 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in our Form 10-K for the year ended December 31, 2019.2020. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Other than as described below, there
As a result of Umpqua entering into a merger agreement with Columbia, certain risk factors have been no other material changesidentified:
Umpqua may not be able to complete the merger with Columbia, as the completion is contingent upon the satisfaction of a number of conditions, some of which are beyond both Umpqua's and Columbia's control.
Adoption of the merger agreement is subject to customary closing conditions, including the receipt of regulatory approvals and the requisite approvals of both Umpqua's and Columbia's shareholders. Conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, or Umpqua or Columbia may unilaterally elect to terminate the merger agreement. If the merger agreement is terminated under certain circumstances, Umpqua may be required to pay a $145.0 million termination fee to Columbia.
Umpqua and Columbia may also be subject to lawsuits challenging the merger, and adverse rulings in these lawsuits may delay or prevent the merger from being completed or require Umpqua or Columbia to incur significant costs to defend or settle these lawsuits. Any delay in completing the risk factors describedmerger could cause Umpqua not to realize, or be delayed in our Form 10-K.realizing, some or all of the benefits that the Company expects to achieve if the merger is successfully completed within the anticipated time frame.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.
Before the Merger and the bank merger may be completed, Umpqua and Columbia must obtain approvals from the Federal Reserve Board, the FDIC, the Director of the Oregon Department of Consumer and Business Services and the Director of the Washington Department of Financial Institutions. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party's regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. Regulators may impose conditions on the completion of the Merger or the bank merger or require changes to the terms of the Merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the Merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the Merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.
Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.
Umpqua and Columbia have operated and, until the completion of the Merger, will continue to operate independently. The COVID-19 pandemic hassuccess of the Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of Umpqua and Columbia in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely impacted ouraffect the combined company's ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect Umpqua's ability to successfully conduct its business, andwhich could have an adverse effect on Umpqua's financial results and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, includingvalue of its common stock. If Umpqua experiences difficulties with the scope and durationintegration process, the anticipated benefits of the pandemicmerger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause Umpqua or Columbia to lose customers or cause customers to remove their accounts from Umpqua or Columbia and actions taken by governmental authorities in responsemove their business to competing financial institutions. Integration efforts between the pandemic.two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Umpqua and Columbia during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings of the Merger could be less than anticipated.
The COVID-19 pandemic has negatively impactedTermination of the economy, changed customer behaviors, disrupted supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. The pandemic has resulted in temporary and long-term closures of many businesses and the institution of social distancing and stay at home/sheltering in place requirements in the states and communities we serve. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. The pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, unemployment levels continue to rise, regional economic conditions worsen, or government stimulus programs are scaled back or eliminated. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. In response to the pandemic, we have initiated relief programs designed to support our customers and communities including payment deferral programs, deferral-related and other fee waivers, suspended residential property foreclosure sales, and other expanded assistance for customers. Future governmental actions may require additional types of customer-related responses thatmerger agreement could negatively impact our financial results. We couldUmpqua.
If the merger agreement is terminated, there may be requiredvarious consequences. For example, Umpqua's businesses may have been impacted adversely by the failure to take capital actions in responsepursue other beneficial opportunities due to the COVID-19 pandemic, including reducing dividends and eliminating stock repurchases. The extent to whichfocus of management on the COVID-19 pandemic continues to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and durationMerger, without realizing any of the pandemic; actions taken by governmental authorities and other third parties in responseanticipated benefits of completing the merger. Also, Umpqua has devoted significant internal resources to the pandemic;pursuit of the effect on our customers, counterparties, employees and third party service providers;Merger and the effect on economies and markets. Toexpected benefit of those resource allocations would be lost if the Merger is not completed. Additionally, if the merger agreement is terminated, the market price of Umpqua's common stock could decline to the extent that the COVID-19 pandemic continuescurrent market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, Umpqua may be required to pay to Columbia a termination fee of $145.0 million.
Umpqua will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect our business and financial performance, it may also haveoperations.
Uncertainty about the effect of heightening manythe Merger on employees, customers and other persons Umpqua has a business relationship with may have an adverse effect on Umpqua's business, operations, and stock price. These uncertainties may impair Umpqua's ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with Umpqua to seek to change existing business relationships. Retention of certain employees by Umpqua may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Umpqua. These retention challenges could require Umpqua to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Umpqua, Umpqua's business could be harmed. In addition, subject to certain exceptions, each of Umpqua and Columbia has agreed to operate its business in the ordinary course prior to closing and to refrain from taking certain actions. Umpqua may delay or abandon projects and other business decisions could be deferred during the pendency of the merger.
Umpqua will incur substantial expenses related to the merger.
Both Umpqua and Columbia will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. Many of the expenses related to integration of the two companies are difficult to accurately estimate and could exceed anticipated cost savings the companies expect to achieve. If the Merger is not completed, Umpqua would have to recognize transactions costs and other risks identifiedexpenses in connection with the "Risk Factors" sectionMerger without realizing the expected benefits of our most recently filedthe Merger. There are many factors beyond the Company's control that could affect the total amount or the timing of charges to earnings.
The merger agreement limits Umpqua's ability to pursue acquisition proposals.
The merger agreement prohibits Umpqua from soliciting, initiating, knowingly encouraging or knowingly facilitating certain third‑party acquisition proposals. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Umpqua from considering or proposing such an acquisition.
The other risk factors that could affect the Company's financial condition or operating results remain unchanged from those previously disclosed in Umpqua's Annual Report on Form 10-K.
We have adopted new accounting guidance, specifically CECL, to account10-K for our credit losses that may be more volatile and may adversely impact our financial statements when forecasted market conditions change.
In January 2020, the Company adopted the FASB Accounting Standard Update, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the previous "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as CECL. Under CECL, we are required to present certain financial assets carried at amortized cost, such as loans and leases held for investment, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model, which delays recognition until it is probable a loss has been incurred. CECL may create more volatility in the level of our allowance for credit losses.year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable
(b)Not applicable
(c)The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
7/1/20 - 7/31/20 | | 1,299 | | | $ | 11.24 | | | — | | | 9,524,429 | |
8/1/20 - 8/31/20 | | 177 | | | $ | 11.05 | | | — | | | 9,524,429 | |
9/1/20 - 9/30/20 | | 47 | | | $ | 10.52 | | | — | | | 9,524,429 | |
Total for quarter | | 1,523 | | | $ | 11.20 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 Dollar Value of Shares that May be Purchased at Period End under the Plan |
7/1/21 - 7/31/21 | | 862,127 | | | $ | 18.86 | | | 860,828 | | | $ | 383,765,495 | |
8/1/21 - 8/31/21 | | 3,148,950 | | | $ | 19.68 | | | 3,148,891 | | | $ | 321,797,719 | |
9/1/21 - 9/30/21 | | 731 | | | $ | 19.28 | | | — | | | $ | 321,797,719 | |
Total for quarter | | 4,011,808 | | | $ | 19.50 | | | 4,009,719 | | | |
(1)Common shares repurchased by the Company during the quarter consist of cancellation of 1,5232,089 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended September 30, 2020, no2021, 4.0 million shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.
(2)The Company'sAs of July 21, 2021, the Company approved a new share repurchase plan,program which was first approved by its Board of Directors and announced in August 2003, was amended on September 29, 2011authorizes the Company to increase the numberrepurchase up to $400 million of common shares available forstock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. This effectively ended the previous share repurchase under the plan to 15 million shares. The repurchase program has been extended multiple times by the board with the current expiration date of July 31, 2021.plan. As of September 30, 2020,2021, a total of 9.5$321.8 million shares remained available for repurchase.to repurchase shares. The timing and amount of future repurchases will depend upon the market price for our common stock, laws and regulations restricting repurchases, asset growth, earnings, and our capital plan.plan and bank or bank holding company regulatory approvals. In addition, the repurchase program was halted with the announcement of the proposed merger with Columbia and as required under the Merger Agreement.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
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Exhibit # | Description |
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2.1 | |
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3.1 | |
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3.2 | |
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4.1 | |
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4.2 | The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company. |
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10.1* | |
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31.1 | |
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31.2 | |
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31.3 | |
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32 | |
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101.INS | Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,2021, formatted in Inline XBRL (included in Exhibit 101) |
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* | Compensatory plan or arrangement |
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(a) | Incorporated by reference to Exhibit 2.1 to Form 8-K filed October 15, 2021 |
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(b) | Incorporated by reference to Exhibit 3.1 to Form 8-K filed April 23, 2018 |
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(c) | Incorporated by reference to Exhibit 99.2 to Form 8-K filed March 24, 2020 |
| |
(d) | Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (No. 333-77259) filed April 28, 1999 |
| |
(a) Incorporated by reference to Exhibit 3.1 to Form 8-K filed April 23, 2018
(b) Incorporated by reference to Exhibit 99.2 to Form 8-K filed March 24, 2020
(c) Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (No. 333-77259) filed April 28, 1999
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | UMPQUA HOLDINGS CORPORATION |
| | (Registrant) |
| | |
Dated | November 5, 20204, 2021 | /s/ Cort L. O'Haver |
| | Cort L. O'Haver President and Chief Executive Officer |
| | |
Dated | November 5, 20204, 2021 | /s/ Ronald L. Farnsworth |
| | Ronald L. Farnsworth Executive Vice President/Chief Financial Officer and Principal Financial Officer |
| | |
Dated | November 5, 20204, 2021 | /s/ Lisa M. White |
| | Lisa M. White Senior Vice President/Corporate Controller and Principal Accounting Officer |