UMPQUA HOLDINGS CORP - Quarter Report: 2021 March (Form 10-Q)

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:	March 31, 2021
	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 97258

(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: 220,623,153 shares outstanding as of April 30, 2021

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UMPQUA HOLDINGS CORPORATION

FORM 10-Q

Table of Contents


GLOSSARY		3
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61
Item 4.	Controls and Procedures	61
Part II. OTHER INFORMATION		61
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63

SIGNATURES		64

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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)

CARES Act						Coronavirus Aid, Relief and Economic Security Act
CECL						Current Expected Credit Losses
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.

FRB						Federal Reserve Bank
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
MSR						Mortgage servicing rights
NOL						Net operating loss
PD						Probability of default
PPP						Paycheck Protection Program
SBA						Small Business Administration
SEC						Securities and Exchange Commission
TDR						Troubled debt restructured
USDA						United States Department of Agriculture

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except shares)	March 31, 2021		December 31, 2020
ASSETS
Cash and due from banks (restricted cash of $103,941 and $92,955)	$	379,361	$	370,219
Interest bearing cash and temporary investments (restricted cash of $0 and $2,574)	2,861,820		2,202,962
Total cash and cash equivalents	3,241,181		2,573,181
Investment securities
Equity and other, at fair value	82,771		83,077
Available for sale, at fair value	3,167,825		2,932,558
Held to maturity, at amortized cost	2,954		3,034
Loans held for sale (at fair value: $376,481 and $688,079)	376,481		766,225
Loans and leases (at fair value: $258,203 and $0)	22,160,860		21,779,367
Allowance for credit losses on loans and leases	(311,283)		(328,401)
Net loans and leases	21,849,577		21,450,966
Restricted equity securities	22,057		41,666
Premises and equipment, net	176,571		178,050
Operating lease right-of-use assets	100,643		104,937
Goodwill	2,715		2,715
Other intangible assets, net	12,230		13,360
Residential mortgage servicing rights, at fair value	100,413		92,907
Bank owned life insurance	322,867		323,470
Deferred tax asset, net	10,905		—
Other assets	567,490		669,029
Total assets	$	30,036,680	$	29,235,175
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing	$	10,500,482	$	9,632,773
Interest bearing	15,386,351		14,989,428
Total deposits	25,886,833		24,622,201
Securities sold under agreements to repurchase	420,402		375,384
Borrowings	281,444		771,482
Junior subordinated debentures, at fair value	281,580		255,217
Junior subordinated debentures, at amortized cost	88,212		88,268
Operating lease liabilities	109,014		113,593
Deferred tax liability, net	—		5,441
Other liabilities	287,326		299,012
Total liabilities	27,354,811		26,530,598
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY
Common stock, no par value, shares authorized: 400,000,000 in 2021 and 2020; issued and outstanding: 220,491,203 in 2021 and 220,226,335 in 2020	3,515,248		3,514,599
Accumulated deficit	(871,511)		(932,767)
Accumulated other comprehensive income	38,132		122,745
Total shareholders' equity	2,681,869		2,704,577
Total liabilities and shareholders' equity	$	30,036,680	$	29,235,175

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended
(in thousands, except per share amounts)		March 31, 2021		March 31, 2020
INTEREST INCOME
Interest and fees on loans and leases		$	221,141	$	245,993
Interest and dividends on investment securities:
Taxable		13,112		16,605
Exempt from federal income tax		1,534		1,562
Dividends		598		678
Interest on temporary investments and interest bearing deposits		624		3,331
Total interest income		237,009		268,169
INTEREST EXPENSE
Interest on deposits		10,678		40,290
Interest on securities sold under agreement to repurchase and federal funds purchased		76		395
Interest on borrowings		1,772		4,046
Interest on junior subordinated debentures		3,052		4,903
Total interest expense		15,578		49,634
Net interest income		221,431		218,535
PROVISION FOR CREDIT LOSSES		—		118,085
Net interest income after provision for credit losses		221,431		100,450
NON-INTEREST INCOME
Service charges on deposits		9,647		11,473
Card-based fees		7,374		7,417
Brokerage revenue		3,915		4,015
Residential mortgage banking revenue, net		65,033		17,540
Gain (loss) on sale of debt securities, net		4		(133)
(Loss) gain on equity securities, net		(706)		814
Gain on loan and lease sales, net		1,373		1,167
Bank owned life insurance income		2,071		2,129
Other income (expense)		20,089		(3,777)
Total non-interest income		108,800		40,645
NON-INTEREST EXPENSE
Salaries and employee benefits		124,134		109,774
Occupancy and equipment, net		34,635		37,001
Communications		2,763		3,128
Marketing		1,372		2,530
Services		10,750		10,770
FDIC assessments		2,599		2,542
Intangible amortization		1,130		1,247

Goodwill impairment		—		1,784,936
Other expenses		10,209		10,730
Total non-interest expense		187,592		1,962,658
Income (loss) before provision for income taxes		142,639		(1,821,563)
Provision for income taxes		34,902		30,384
Net income (loss)		$	107,737	$	(1,851,947)
Earnings (loss) per common share:
Basic		$0.49		($8.41)
Diluted		$0.49		($8.41)
Weighted average number of common shares outstanding:
Basic		220,367		220,216
Diluted		220,891		220,216

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020
Net income (loss)		$	107,737	$	(1,851,947)
Available for sale securities:
Unrealized (losses) gains arising during the period		(87,345)		107,761
Income tax benefit (expense) related to unrealized (losses) gains		22,465		(27,717)

Reclassification adjustment for net realized (gains) losses in earnings		(4)		133
Income tax expense (benefit) related to realized losses		1		(34)
Net change in unrealized (losses) gains for available for sale securities		(64,883)		80,143






Junior subordinated debentures, at fair value:
Unrealized (losses) gains arising during the period		(26,562)		78,862
Income tax benefit (expense) related to unrealized gains		6,832		(20,283)
Net change in unrealized (losses) gains for junior subordinated debentures, at fair value		(19,730)		58,579
Other comprehensive (loss) income, net of tax		(84,613)		138,722
Comprehensive income (loss)		$	23,124	$	(1,713,225)

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)


	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




Balance at January 1, 2021	220,226,335	$	3,514,599	$	(932,767)	$	122,745	$	2,704,577
Net income				107,737				107,737
Other comprehensive loss, net of tax						(84,613)		(84,613)
Stock-based compensation		2,964						2,964
Stock repurchased and retired	(143,832)	(2,315)						(2,315)
Issuances of common stock under stock plans	408,700	—						—
Cash dividends on common stock ($0.21 per share)				(46,481)				(46,481)
Balance at March 31, 2021	220,491,203	$	3,515,248	$	(871,511)	$	38,132	$	2,681,869

(1) The cumulative effect adjustment relates to the implementation of new accounting guidance for the allowance for credit losses on January 1, 2020.

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended
(in thousands)	March 31, 2021		March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	107,737	$	(1,851,947)
Adjustments to reconcile net income to net cash used in operating activities:
Goodwill impairment	—		1,784,936
Amortization of investment premiums, net	4,455		3,040
(Gain) loss on sale of investment securities, net	(4)		133



Provision for credit losses	—		118,085
Change in cash surrender value of bank owned life insurance	(2,105)		(2,163)
Depreciation, amortization and accretion	7,759		10,273
(Gain) loss on sale of premises and equipment	(149)		18

Additions to residential mortgage servicing rights carried at fair value	(14,065)		(10,023)
Change in fair value of residential mortgage servicing rights carried at fair value	6,559		30,687


Stock-based compensation	2,964		2,253
Net (increase) decrease in equity and other investments	(400)		182
Loss (gain) on equity securities, net	706		(814)
Gain on sale of loans and leases, net	(50,194)		(38,346)
Change in fair value of loans held for sale	24,118		(8,094)
Origination of loans held for sale	(1,635,532)		(1,148,184)
Proceeds from sales of loans held for sale	1,837,626		1,235,581
Change in other assets and liabilities:
Net decrease (increase) in other assets	128,221		(219,567)
Net decrease in other liabilities	(25,683)		(25,117)
Net cash provided by (used in) operating activities	392,013		(119,067)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(555,269)		(140,407)

Proceeds from investment securities available for sale	227,122		168,851


Purchases of restricted equity securities	(6)		(19,999)
Redemption of restricted equity securities	19,615		8,400
Net change in loans and leases	(267,940)		(109,523)
Proceeds from sales of loans and leases	82,529		22,038
Change in premises and equipment	(4,007)		(3,943)
Proceeds from bank owned life insurance death benefits	2,708		57




Other	135		464
Net cash used in investing activities	$	(495,113)	$	(74,062)

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
	Three Months Ended
(in thousands)	March 31, 2021		March 31, 2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	1,264,645	$	217,973
Net increase in securities sold under agreements to repurchase	45,018		34,937
Proceeds from borrowings	—		600,000
Repayment of borrowings	(490,000)		(310,000)

Dividends paid on common stock	(46,248)		(46,248)

Repurchase and retirement of common stock	(2,315)		(8,573)
Net cash provided by financing activities	771,100		488,089
Net increase in cash and cash equivalents	668,000		294,960
Cash and cash equivalents, beginning of period	2,573,181		1,362,756
Cash and cash equivalents, end of period	$	3,241,181	$	1,657,716

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	15,434	$	53,213
Income taxes	$	36,404	$	38,732
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in unrealized gains and losses on investment securities available for sale, net of taxes	$	(64,883)	$	80,143

Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes	$	(19,730)	$	58,579
Cumulative effect adjustment to retained earnings	$	—	$	40,181
Cash dividend declared on common stock and payable after period-end	$	—	$	46,237
Transfer of loans to loans held for sale	$	—	$	10,234
Transfer of loans held for sale to loans	$	212,353	$	—
Change in GNMA mortgage loans recognized due to repurchase option	$	—	$	992

See notes to condensed consolidated financial statements

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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. All references in this report to "Umpqua," "we," "our," "us," the "Company" or similar references mean Umpqua Holdings Corporation 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. The Bank also has a wholly-owned subsidiary, Financial Pacific Leasing, Inc., a commercial equipment leasing company. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its 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 2020 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 2020 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 March 31, 2021, the impact of 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 allowance for credit losses. 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 March 31, 2021 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. Certain reclassifications of prior period amounts have been made to conform to current classifications.

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 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 will be able to use the expedients 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.

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Note 2 – Investment Securities

The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at March 31, 2021 and December 31, 2020:


	March 31, 2021
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	708,821	$	30,012	$	(2,175)	$	736,658
Obligations of states and political subdivisions	263,457		12,698		(1,075)		275,080
Residential mortgage-backed securities and collateralized mortgage obligations	2,151,838		39,390		(35,141)		2,156,087

Total available for sale securities	$	3,124,116	$	82,100	$	(38,391)	$	3,167,825
Held to maturity:

Residential mortgage-backed securities and collateralized mortgage obligations	$	2,954	$	842	$	—	$	3,796

Total held to maturity securities	$	2,954	$	842	$	—	$	3,796


	December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	698,243	$	64,271	$	(312)	$	762,202
Obligations of states and political subdivisions	263,546		15,996		(31)		279,511
Residential mortgage-backed securities and collateralized mortgage obligations	1,839,711		51,583		(449)		1,890,845

Total available for sale securities	$	2,801,500	$	131,850	$	(792)	$	2,932,558
Held to maturity:

Residential mortgage-backed securities and collateralized mortgage obligations	$	3,034	$	849	$	—	$	3,883

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 $11.5 million and $8.9 million as of March 31, 2021 and December 31, 2020, respectively, and is included in Other Assets.

Debt securities that were in an unrealized loss position as of March 31, 2021 and December 31, 2020 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.


	March 31, 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	$	39,094	$	2,175	$	—	$	—	$	39,094	$	2,175
Obligations of states and political subdivisions	38,507		1,075		—		—		38,507		1,075
Residential mortgage-backed securities and collateralized mortgage obligations	1,023,075		35,141		—		—		1,023,075		35,141
Total temporarily impaired securities	$	1,100,676	$	38,391	$	—	$	—	$	1,100,676	$	38,391

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	December 31, 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	$	29,493	$	312	$	—	$	—	$	29,493	$	312
Obligations of states and political subdivisions	4,357		31		—		—		4,357		31
Residential mortgage-backed securities and collateralized mortgage obligations	215,165		449		—		—		215,165		449

Total temporarily impaired securities	$	249,015	$	792	$	—	$	—	$	249,015	$	792

These unrealized losses on the Company's debt securities 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's 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 March 31, 2021 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 March 31, 2021.

The following table presents the contractual maturities of debt securities at March 31, 2021:


	Available For Sale				Held To Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	7,639	$	7,695	$	—	$	—
Due after one year through five years	76,491		79,415		3		3
Due after five years through ten years	891,005		927,102		9		9
Due after ten years	2,148,981		2,153,613		2,942		3,784
Total securities	$	3,124,116	$	3,167,825	$	2,954	$	3,796

The following table presents, as of March 31, 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	$	253,107	$	262,336
Other securities pledged principally to secure repurchase agreements	599,137		621,582
Total pledged securities	$	852,244	$	883,918

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Note 3 – Loans and Leases

The following table presents the major types of loans and leases, net of deferred fees and costs, as of March 31, 2021 and December 31, 2020:


(in thousands)	March 31, 2021		December 31, 2020
Commercial real estate
Non-owner occupied term, net	$	3,455,773	$	3,505,802
Owner occupied term, net	2,358,169		2,333,945
Multifamily, net	3,421,320		3,349,196
Construction & development, net	876,297		828,478
Residential development, net	190,841		192,761
Commercial
Term, net	4,350,763		4,024,467
Lines of credit & other, net	825,162		862,760
Leases & equipment finance, net	1,420,977		1,456,630
Residential
Mortgage, net	3,958,644		3,871,906
Home equity loans & lines, net	1,097,168		1,136,064
Consumer & other, net	205,746		217,358
Total loans and leases, net of deferred fees and costs	$	22,160,860	$	21,779,367

As of March 31, 2021 and December 31, 2020, the net deferred costs were $18.7 million and $38.6 million, respectively. The Bank is participating 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. As of March 31, 2021, the Bank had approximately 18,000 PPP loans, totaling $2.0 billion 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 include deferred fees and costs for the origination of PPP loans of $44.4 million and $26.9 million, respectively, as of March 31, 2021 and December 31, 2020. The PPP net deferred fees and costs are 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, which will accelerate the recognition of these net deferred fees at the forgiveness date.

Total loans and leases also include discounts on acquired loans of $15.7 million and $17.9 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, loans totaling $13.5 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 $75.7 million and $74.8 million as of March 31, 2021 and December 31, 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 $5.6 million for the three months ended March 31, 2021, as compared to $6.7 million for the three months ended March 31, 2020.

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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 months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020
Commercial real estate
Non-owner occupied term, net		$	5,430	$	3,385
Owner occupied term, net		1,611		5,766



Commercial
Term, net		8,993		11,677

Leases & equipment finance, net		—		43
Residential
Mortgage, net		1,323		—

Consumer & other		63,799		—
Total loans and leases sold, net		$	81,156	$	20,871

Note 4 – Allowance for Credit Losses

Allowance for Credit Losses Methodology

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 used 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 will differ from the estimate of credit losses, either in a strong economy or a recession, as the 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 assess 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 months ended March 31, 2021, were primarily related to changes in the economic assumptions. Because of the uncertain economic environment due to the COVID-19 pandemic, additional risk associated with payment deferrals, increasing interest rates and unknown fiscal support, the Bank opted to use Moody's Analytics February baseline economic forecast for estimating the ACL as of March 31, 2021.

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In the baseline scenario selected, the probability that the economy will perform better than this baseline is equal to the probability that it will perform worse and included the following factors:

•U.S. real GDP growth continues to be positive over both the short and long term;

•U.S. unemployment rate average of 6.1% through 2021;

•U.S. economy experiences strong growth through 2022, and normalized growth thereafter;

•Federal Reserve to keep target range for the Fed Funds rate at 0.0% to 0.25% until the second quarter of 2023;

•Net fiscal support over President Biden’s current term expected to be approximately $2 trillion;

•Return to less than 5% unemployment by the third quarter of 2022.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics February 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:

•Elevated new cases, hospitalizations and deaths from COVID-19 force state and local officials in some areas of the country to keep some nonessential businesses closed or limited, but there is no return to widespread shutdowns;

•Consumers are slower to return to spending on travel, retail, and hotel;

•Slower real GDP growth through 2022 with normalized growth thereafter;

•U.S. unemployment rate average of 6.7% through 2021;

•Net fiscal support over President Biden’s current term expected to be approximately $1.6 trillion;

•Return to less than 5% unemployment by the second quarter of 2024.

The results using the comparison scenario for sensitivity analysis were reviewed by management, but management believes the baseline scenario better reflects the estimated economic environment.

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: Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: net operating income, property value, property type, and location. For PD estimation, the model simulates potential future paths of net operating income given commercial real estate market factors determined from macroeconomic 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, U.S. unemployment rate, and 10-Year Treasury yield. 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-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years and carries forward the last quarter's projected expected loss percentage forward 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.

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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 lines of 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. 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 March 31, 2021, and concluded that a material adjustment to the amounts indicated by the models was not necessary, as the models adequately reflected the significant changes in credit conditions and overall portfolio risk.

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 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.

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The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three months ended March 31, 2021 and 2020:




















	Three Months Ended March 31, 2021
	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
Provision for credit losses for loans and leases	12,426		(4,503)		(6,912)		(485)		526

Charge-offs	(41)		(19,614)		(70)		(1,190)		(20,915)
Recoveries	380		2,091		108		692		3,271
Net recoveries (charge-offs)	339		(17,523)		38		(498)		(17,644)
Balance, end of period	$	154,475	$	128,838	$	21,090	$	6,880	$	311,283
Reserve for unfunded commitments
Balance, beginning of period	15,360		2,190		1,661		1,075		20,286
Provision (recapture) for credit losses on unfunded commitments	308		(389)		(373)		(72)		(526)
Balance, end of period	15,668		1,801		1,288		1,003		19,760
Total allowance for credit losses	$	170,143	$	130,639	$	22,378	$	7,883	$	331,043

















	Three Months Ended March 31, 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	43,608		49,673		7,185		5,036		105,502
Charge-offs	—		(22,608)		(11)		(1,836)		(24,455)
Recoveries	246		1,713		264		522		2,745
Net recoveries (charge-offs)	246		(20,895)		253		(1,314)		(21,710)
Balance, end of period	$	99,778	$	146,607	$	34,251	$	10,784	$	291,420
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 for credit losses on unfunded commitments	11,196		875		325		187		12,583
Balance, end of period	15,760		2,927		1,741		499		20,927
Total allowance for credit losses	$	115,538	$	149,534	$	35,992	$	11,283	$	312,347

The following table presents the unfunded commitments for the period ended March 31, 2021 and 2020:


(in thousands)	Total
Unfunded loan and lease commitments
March 31, 2021	$	5,809,620
March 31, 2020	$	5,705,316

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Asset Quality and Non-Performing Loans and Leases

The Bank manages asset quality and controls credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for 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

Due to the deterioration of the U.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 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, so they are classified as performing loans that accrue interest. As of March 31, 2021, loans of approximately $324.0 million are currently deferred under various 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 March 31, 2021, approximately $166.3 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.

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The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of March 31, 2021 and December 31, 2020:


	March 31, 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	$	452	$	1,093	$	—	$	1,545	$	3,602	$	3,450,626	$	3,455,773
Owner occupied term, net	1,099		1,069		1		2,169		5,830		2,350,170		2,358,169
Multifamily, net	9,562		1,035		—		10,597		—		3,410,723		3,421,320
Construction & development, net	—		—		—		—		—		876,297		876,297
Residential development, net	—		—		—		—		—		190,841		190,841
Commercial
Term, net	—		57		—		57		4,113		4,346,593		4,350,763
Lines of credit & other, net	2,207		983		756		3,946		310		820,906		825,162
Leases & equipment finance, net	16,270		7,216		—		23,486		15,361		1,382,130		1,420,977
Residential
Mortgage, net	4,855		3,033		22,963		30,851		—		3,927,793		3,958,644
Home equity loans & lines, net	939		384		1,561		2,884		—		1,094,284		1,097,168
Consumer & other, net	618		248		331		1,197		—		204,549		205,746
Total, net of deferred fees and costs	$	36,002	$	15,118	$	25,612	$	76,732	$	29,216	$	22,054,912	$	22,160,860

(1) Loans and leases on non-accrual with an amortized cost basis of $29.2 million had a related allowance for credit losses of $12.3 million at March 31, 2021.

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	December 31, 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 and Other		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	1,214	$	21,309	$	815	$	23,338	$	3,809	$	3,478,655	$	3,505,802
Owner occupied term, net	182		103		208		493		5,984		2,327,468		2,333,945
Multifamily, net	—		215		—		215		—		3,348,981		3,349,196
Construction & development, net	3,991		—		—		3,991		—		824,487		828,478
Residential development, net	—		—		—		—		—		192,761		192,761
Commercial
Term, net	562		—		4		566		2,205		4,021,696		4,024,467
Lines of credit & other, net	1,491		2,667		7		4,165		336		858,259		862,760
Leases & equipment finance, net	14,242		18,220		4,796		37,258		18,742		1,400,630		1,456,630
Residential
Mortgage, net	1,587		3,912		27,713		33,212		—		3,838,694		3,871,906
Home equity loans & lines, net	844		544		2,463		3,851		—		1,132,213		1,136,064
Consumer & other, net	678		286		355		1,319		—		216,039		217,358
Total, net of deferred fees and costs	$	24,791	$	47,256	$	36,361	$	108,408	$	31,076	$	21,639,883	$	21,779,367

(1) Loans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit losses of $16.7 million at December 31, 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 March 31, 2021. There have been no significant changes in the level of collateralization from the prior periods.


(in thousands)	Residential Real Estate		Commercial Real Estate		General Business Assets		Other		Total
Commercial real estate
Non-owner occupied term, net	$	—	$	3,280	$	—	$	—	$	3,280
Owner occupied term, net	—		5,327		—		—		5,327



Commercial
Term, net	961		572		340		2,299		4,172
Line of credit & other, net	—		—		100		154		254
Leases & equipment finance, net	—		—		15,361		—		15,361
Residential
Mortgage, net	25,496		—		—		—		25,496
Home equity loans & lines, net	2,396		—		—		—		2,396

Total net of deferred fees and costs	$	28,853	$	9,179	$	15,801	$	2,453	$	56,286

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Troubled Debt Restructurings

At March 31, 2021 and December 31, 2020, troubled debt restructured loans of $9.9 million and $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 March 31, 2021 and December 31, 2020:


	March 31, 2021
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	1,274	$	88	$	1,362	7

Residential, net	8,620		—		8,620		50
Consumer & other, net	27		—		27		4
Total, net of deferred fees and costs	$	9,921	$	88	$	10,009	61

	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 months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020


Residential, net		$	1,710	$	5,678
Consumer & other, net		27		24
Total, net of deferred fees and costs		$	1,737	$	5,702

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.

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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:

Pass/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. 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 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.

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The following tables 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 March 31, 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
	March 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	96,511	$	479,661	$	665,311	$	470,651	$	360,770	$	1,173,416	$	1,424	$	5,542	$	3,253,286
	Special mention	—		13,287		2,379		41,110		2,784		74,164		—		—		133,724
	Substandard	—		2,892		2,652		20,968		3,044		39,005		—		—		68,561
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		202		—		—		202
Total non-owner occupied term, net		$	96,511	$	495,840	$	670,342	$	532,729	$	366,598	$	1,286,787	$	1,424	$	5,542	$	3,455,773
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	134,192	$	263,284	$	410,853	$	306,434	$	329,221	$	817,035	$	6,226	$	772	$	2,268,017
	Special mention	—		3,609		8,161		19,944		9,555		21,216		—		—		62,485
	Substandard	—		2,653		1,669		2,892		216		18,483		—		1,235		27,148
	Doubtful	—		—		—		—		—		89		—		—		89
	Loss	—		—		—		—		—		430		—		—		430
Total owner occupied term, net		$	134,192	$	269,546	$	420,683	$	329,270	$	338,992	$	857,253	$	6,226	$	2,007	$	2,358,169
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	216,623	$	377,128	$	862,049	$	560,483	$	546,476	$	816,392	$	23,292	$	2,945	$	3,405,388
	Special mention	—		—		—		—		9,469		6,463		—		—		15,932
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total multifamily, net		$	216,623	$	377,128	$	862,049	$	560,483	$	555,945	$	822,855	$	23,292	$	2,945	$	3,421,320
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	15,237	$	229,269	$	292,819	$	227,787	$	93,871	$	257	$	—	$	—	$	859,240
	Special mention	—		1,636		—		15,421		—		—		—		—		17,057
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total construction & development, net		$	15,237	$	230,905	$	292,819	$	243,208	$	93,871	$	257	$	—	$	—	$	876,297
Residential development, net
Credit quality indicator:
	Pass/Watch	$	4,580	$	18,772	$	2,099	$	1,535	$	—	$	—	$	161,335	$	2,520	$	190,841
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total residential development, net		$	4,580	$	18,772	$	2,099	$	1,535	$	—	$	—	$	161,335	$	2,520	$	190,841

Total commercial real estate		$	467,143	$	1,392,191	$	2,247,992	$	1,667,225	$	1,355,406	$	2,967,152	$	192,277	$	13,014	$	10,302,400

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(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	March 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	745,516	$	1,776,691	$	275,431	$	264,964	$	204,944	$	278,180	$	664,344	$	32,876	$	4,242,946
	Special mention	15,000		64		268		30,165		1,245		1,326		18,000		2,183		68,251
	Substandard	—		—		1,056		21,451		6,874		1,744		—		6,849		37,974
	Doubtful	—		—		—		—		1,017		575		—		—		1,592
	Loss	—		—		—		—		—		—		—		—		—
Total term, net		$	760,516	$	1,776,755	$	276,755	$	316,580	$	214,080	$	281,825	$	682,344	$	41,908	$	4,350,763
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	8,675	$	31,465	$	30,177	$	30,704	$	5,094	$	8,741	$	655,593	$	3,249	$	773,698
	Special mention	—		2,992		5		5		7		282		36,495		1,117		40,903
	Substandard	—		494		460		—		153		1,028		3,123		5,237		10,495
	Doubtful	2		—		5		—		—		—		57		—		64
	Loss	—		—		—		—		—		—		1		1		2
Total lines of credit & other, net		$	8,677	$	34,951	$	30,647	$	30,709	$	5,254	$	10,051	$	695,269	$	9,604	$	825,162
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	150,264	$	441,607	$	402,799	$	209,546	$	105,250	$	57,571	$	—	$	—	$	1,367,037
	Special mention	374		2,875		6,519		6,511		2,126		2,262		—		—		20,667
	Substandard	19		6,249		2,593		7,261		842		999		—		—		17,963
	Doubtful	—		2,364		4,700		3,301		1,512		768		—		—		12,645
	Loss	—		230		1,253		604		459		119		—		—		2,665
Total leases & equipment finance, net		$	150,657	$	453,325	$	417,864	$	227,223	$	110,189	$	61,719	$	—	$	—	$	1,420,977

Total commercial		$	919,850	$	2,265,031	$	725,266	$	574,512	$	329,523	$	353,595	$	1,377,613	$	51,512	$	6,596,902

Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	550,324	$	819,230	$	973,835	$	318,656	$	338,447	$	927,303	$	—	$	—	$	3,927,795
	Special mention	—		—		1,593		762		1,195		4,338		—		—		7,888
	Substandard	—		335		1,297		1,270		3,327		14,385		—		—		20,614
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		1,130		—		—		1,217		—		—		2,347
Total mortgage, net		$	550,324	$	819,565	$	977,855	$	320,688	$	342,969	$	947,243	$	—	$	—	$	3,958,644

Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	—	$	24	$	—	$	20	$	—	$	15,433	$	1,043,242	$	35,564	$	1,094,283
	Special mention	—		—		—		—		—		181		760		382		1,323
	Substandard	—		—		—		—		—		131		101		248		480
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		158		713		211		1,082
Total home equity loans & lines, net		$	—	$	24	$	—	$	20	$	—	$	15,903	$	1,044,816	$	36,405	$	1,097,168

Total residential		$	550,324	$	819,589	$	977,855	$	320,708	$	342,969	$	963,146	$	1,044,816	$	36,405	$	5,055,812

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(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	March 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	5,538	$	16,719	$	20,042	$	9,755	$	6,457	$	8,151	$	135,208	$	2,680	$	204,550
	Special mention	—		1		11		—		222		193		347		92		866
	Substandard	—		9		—		3		22		14		81		191		320
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		7		3		—		10
Total consumer & other, net		$	5,538	$	16,729	$	20,053	$	9,758	$	6,701	$	8,365	$	135,639	$	2,963	$	205,746

Grand total		$	1,942,855	$	4,493,540	$	3,971,166	$	2,572,203	$	2,034,599	$	4,292,258	$	2,750,345	$	103,894	$	22,160,860


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	As of 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

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(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	As of 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

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(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	As of 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 mortgage servicing rights at fair value with changes in fair value reported in residential mortgage banking revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the three months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020
Balance, beginning of period		$	92,907	$	115,010
Additions for new MSR capitalized		14,065		10,023
Changes in fair value:
Changes due to collection/realization of expected cash flows over time		(4,545)		(5,329)
Changes due to valuation inputs or assumptions (1)		(2,014)		(25,358)
Balance, end of period		$	100,413	$	94,346

(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.

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Information related to the Bank's serviced loan portfolio as of March 31, 2021 and December 31, 2020 is as follows:


(dollars in thousands)	March 31, 2021			December 31, 2020
Balance of loans serviced for others	$	13,030,467		$	13,026,720
MSR as a percentage of serviced loans	0.77		%	0.71		%

The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue on the Condensed Consolidated Statements of Income, was $9.1 million for the three months ended March 31, 2021, as compared to $8.9 million for the three months ended March 31, 2020, 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)	March 31, 2021
Commitments to extend credit	$	5,697,859
Forward sales commitments	$	742,907
Commitments to originate residential mortgage loans held for sale	$	687,418
Standby letters of credit	$	111,761

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 no financial guarantees in connection with standby letters of credit that the Bank was required to perform on during the three months ended March 31, 2021 and 2020. At March 31, 2021, approximately $100.3 million of standby letters of credit expire within one year, and $11.5 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 March 31, 2021, the Company had a residential mortgage loan repurchase reserve liability of $1.0 million.

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. In January 2021, the parties terminated the asset purchase agreement and entered into an agreement to sell all of the equity interests of Umpqua Investments to Steward Partners. The sale closed in April 2021.

Legal Proceedings—The 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.

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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. 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.

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% of the Bank's loan and lease portfolio at both March 31, 2021 and December 31, 2020, respectively. 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-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 no counterparty default losses on forward contracts in the three months ended March 31, 2021 and 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. 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-dealer equal to the increase or decrease in the market value of the forward contract. At March 31, 2021, the Bank had commitments to originate mortgage loans held for sale totaling $687.4 million and forward sales commitments of $742.9 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 March 31, 2021, the Bank had 890 interest rate swaps with an aggregate notional amount of $6.3 billion related to this program. As of December 31, 2020, the Bank had 886 interest rate swaps with an aggregate notional amount of $6.2 billion related to this program.

As of March 31, 2021 and December 31, 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 $14.5 million and $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 $103.9 million and $92.6 million as of March 31, 2021 and December 31, 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 March 31, 2021 and December 31, 2020, the variation margin adjustments were negative adjustments of $180.4 million and $330.5 million, respectively.

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The Bank incorporates credit valuation adjustments 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 $6.7 million and $18.5 million as of March 31, 2021 and December 31, 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. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of March 31, 2021 and December 31, 2020:


(in thousands)	Asset Derivatives				Liability Derivatives
Derivatives not designated as hedging instrument	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Interest rate lock commitments	$	14,755	$	28,144	$	—	$	—
Interest rate forward sales commitments	16,364		7		182		7,257
Interest rate swaps	188,947		313,090		14,496		370
Foreign currency derivatives	894		1,269		781		1,155
Total derivative assets and liabilities	$	220,960	$	342,510	$	15,459	$	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 months ended March 31, 2021 and 2020:


(in thousands)	Three Months Ended
Derivatives not designated as hedging instrument		March 31, 2021		March 31, 2020
Interest rate lock commitments		$	(13,389)	$	16,671
Interest rate forward sales commitments		28,171		(31,052)
Interest rate swaps		11,750		(14,306)
Foreign currency derivatives		555		424
Total derivative gains (losses)		$	27,087	$	(28,263)

Note 8 – Earnings (Loss) Per Common Share

The following is a computation of basic and diluted earnings (loss) per common share for the three months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands, except per share data)		March 31, 2021		March 31, 2020
Net income (loss)		$	107,737	$	(1,851,947)

Weighted average number of common shares outstanding - basic		220,367		220,216
Effect of potentially dilutive common shares (1)		524		—
Weighted average number of common shares outstanding - diluted		220,891		220,216
Earnings (loss) per common share:
Basic		$	0.49	$	(8.41)
Diluted		$	0.49	$	(8.41)

(1)Represents the effect of the assumed vesting of non-participating restricted shares based on the treasury stock method.

For the three months ended March 31, 2021 and 2020, respectively, there were 149,000 and 947,000 weighted average outstanding restricted shares that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.

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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 two segments: Core Banking and Mortgage Banking. The prior periods have been restated to reflect current presentation of segments.

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, wealth management, 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 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 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.

Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:


		Three Months Ended March 31, 2021
(in thousands)		Core Banking		Mortgage Banking		Consolidated
Net interest income		$	217,574	$	3,857	$	221,431
Provision for credit losses		—		—		—
Non-interest income
	Residential mortgage banking revenue:
	Origination and sale	—		62,505		62,505
	Servicing	—		9,087		9,087
	Change in fair value of MSR asset:
	Changes due to collection/realization of expected cash flows over time	—		(4,545)		(4,545)
	Changes due to valuation inputs or assumptions	—		(2,014)		(2,014)
	Gain on sale of debt securities, net	4		—		4
	Loss on equity securities, net	(706)		—		(706)
	Gain on swap derivatives, net	11,750		—		11,750
	Non-interest income (excluding above items)	32,403		316		32,719
	Total Non-interest income	43,451		65,349		108,800
Non-interest expense

	Exit and disposal costs	1,200		—		1,200
	Non-interest expense (excluding above items)	145,161		41,231		186,392
	Allocated expenses, net (1)	(790)		790		—
	Total non-interest expense	145,571		42,021		187,592
Income before income taxes		115,454		27,185		142,639
Provision for income taxes		28,106		6,796		34,902
Net income		$	87,348	$	20,389	$	107,737
(1) Represents the net internal charges of centrally provided support services and other corporate overhead to the Mortgage Banking segment.

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		Three Months Ended March 31, 2020
(in thousands)		Core Banking		Mortgage Banking		Consolidated
Net interest income		$	216,106	$	2,429	$	218,535
Provision for credit losses		118,085		—		118,085
Non-interest income
	Residential mortgage banking revenue:
	Origination and sale	—		39,347		39,347
	Servicing	—		8,880		8,880
	Change in fair value of MSR asset:
	Changes due to collection/realization of expected cash flows over time	—		(5,329)		(5,329)
	Changes due to valuation inputs or assumptions	—		(25,358)		(25,358)
	Loss on sale of debt securities, net	(133)		—		(133)
	Gain on equity securities, net	814		—		814
	Loss on swap derivatives, net	(14,306)		—		(14,306)
	Non-interest income (excluding above items)	36,588		142		36,730
	Total Non-interest income	22,963		17,682		40,645
Non-interest expense
	Goodwill impairment	1,784,936		—		1,784,936
	Exit and disposal costs	524		—		524
	Non-interest expense (excluding above items)	147,896		29,302		177,198
	Allocated expenses, net (1)	(3,053)		3,053		—
	Total non-interest expense	1,930,303		32,355		1,962,658
Loss before income taxes		(1,809,319)		(12,244)		(1,821,563)
Provision (benefit) for income taxes		33,445		(3,061)		30,384
Net loss		$	(1,842,764)	$	(9,183)	$	(1,851,947)
(1) Represents the net internal charges of centrally provided support services and other corporate overhead to the Mortgage Banking segment.


	March 31, 2021						December 31, 2020
(in thousands)	Core Banking		Mortgage Banking		Consolidated		Core Banking		Mortgage Banking		Consolidated
Total assets	$	29,529,769	$	506,911	$	30,036,680	$	28,438,813	$	796,362	$	29,235,175
Loans held for sale	$	—	$	376,481	$	376,481	$	78,146	$	688,079	$	766,225
Total loans and leases	$	22,160,860	$	—	$	22,160,860	$	21,779,367	$	—	$	21,779,367
Total deposits	$	25,425,339	$	461,494	$	25,886,833	$	24,200,012	$	422,189	$	24,622,201

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Note 10 – Fair Value Measurement

The following table presents estimated fair values of the Company's financial instruments as of March 31, 2021 and December 31, 2020, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:


		March 31, 2021				December 31, 2020
(in thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	3,241,181	$	3,241,181	$	2,573,181	$	2,573,181
Equity and other investment securities	1,2	82,771		82,771		83,077		83,077
Investment securities available for sale	2	3,167,825		3,167,825		2,932,558		2,932,558
Investment securities held to maturity	3	2,954		3,796		3,034		3,883
Loans held for sale	2	376,481		376,481		766,225		766,225
Loans and leases, net	2,3	21,849,577		22,189,061		21,450,966		21,904,189
Restricted equity securities	1	22,057		22,057		41,666		41,666
Residential mortgage servicing rights	3	100,413		100,413		92,907		92,907
Bank owned life insurance	1	322,867		322,867		323,470		323,470
Derivatives	2,3	220,960		220,960		342,510		342,510
Financial liabilities:
Deposits	1,2	$	25,886,833	$	25,897,982	$	24,622,201	$	24,641,876
Securities sold under agreements to repurchase	2	420,402		420,402		375,384		375,384
Borrowings	2	281,444		282,955		771,482		774,586
Junior subordinated debentures, at fair value	3	281,580		281,580		255,217		255,217
Junior subordinated debentures, at amortized cost	3	88,212		72,671		88,268		67,425
Derivatives	2	15,459		15,459		8,782		8,782

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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 March 31, 2021 and December 31, 2020:


(in thousands)	March 31, 2021
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	69,497	$	52,160	$	17,337	$	—
Equity securities held in rabbi trusts	13,274		13,274		—		—

Investment securities available for sale
U.S. Treasury and agencies	736,658		—		736,658		—
Obligations of states and political subdivisions	275,080		—		275,080		—
Residential mortgage-backed securities and collateralized mortgage obligations	2,156,087		—		2,156,087		—

Loans held for sale, at fair value	376,481		—		376,481		—
Loans and leases, at fair value	258,203		—		258,203		—
Residential mortgage servicing rights, at fair value	100,413		—		—		100,413
Derivatives
Interest rate lock commitments	14,755		—		—		14,755
Interest rate forward sales commitments	16,364		—		16,364		—
Interest rate swaps	188,947		—		188,947		—
Foreign currency derivative	894		—		894		—
Total assets measured at fair value	$	4,206,653	$	65,434	$	4,026,051	$	115,168
Financial liabilities:
Junior subordinated debentures, at fair value	$	281,580	$	—	$	—	$	281,580
Derivatives
Interest rate forward sales commitments	182		—		182		—
Interest rate swaps	14,496		—		14,496		—
Foreign currency derivative	781		—		781		—
Total liabilities measured at fair value	$	297,039	$	—	$	15,459	$	281,580

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(in thousands)	December 31, 2020
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	70,203	$	52,866	$	17,337	$	—
Equity securities held in rabbi trusts	12,814		12,814		—		—
Other investments securities (1)	60		—		60		—
Investment securities available for sale
U.S. Treasury and agencies	762,202		—		762,202		—
Obligations of states and political subdivisions	279,511		—		279,511		—
Residential mortgage-backed securities and collateralized mortgage obligations	1,890,845		—		1,890,845		—

Loans held for sale, at fair value	688,079		—		688,079		—
Residential mortgage servicing rights, at fair value	92,907		—		—		92,907
Derivatives
Interest rate lock commitments	28,144		—		—		28,144
Interest rate forward sales commitments	7		—		7		—
Interest rate swaps	313,090		—		313,090		—
Foreign currency derivative	1,269		—		1,269		—
Total assets measured at fair value	$	4,139,131	$	65,680	$	3,952,400	$	121,051
Financial liabilities:
Junior subordinated debentures, at fair value	$	255,217	$	—	$	—	$	255,217
Derivatives
Interest rate forward sales commitments	7,257		—		7,257		—
Interest rate swaps	370		—		370		—
Foreign currency derivative	1,155		—		1,155		—
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 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 March 31, 2021, there were $258.2 million in mortgage loans that have been transferred from held for sale to loans held for investment, recorded at fair value.

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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 unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted 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 March 31, 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 March 31, 2021:


Financial Instrument	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs	Weighted Average
Residential mortgage servicing rights	$	100,413	Discounted cash flow
				Constant prepayment rate	8.12 - 79.94%	17.15%
				Discount rate	9.50 - 12.50%	9.71%
Interest rate lock commitments	$	14,755	Internal pricing model
				Pull-through rate	40.30 - 100.00%	87.87%
Junior subordinated debentures	$	281,580	Discounted cash flow
				Credit spread	3.60 - 4.56%	4.04%

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.

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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 a decrease in the credit spread, as well as an increase in the discount rates and an increase in the implied forward curve. 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 March 31, 2021, 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 table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2021 and 2020:


	Three Months Ended						Three Months Ended
	March 31, 2021						March 31, 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	(6,559)		(3,458)		2,376		(30,687)		4,694		3,890
Change in fair values included in comprehensive income/loss	—		—		26,562		—		—		(78,862)
Purchases and issuances	14,065		30,175		—		10,023		27,001		—
Sales and settlements	—		(40,106)		(2,575)		—		(15,024)		(4,319)
Ending balance	$	100,413	$	14,755	$	281,580	$	94,346	$	23,727	$	195,521
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period	$	(2,014)	$	14,755	$	2,376	$	(25,358)	$	23,727	$	3,890
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period	$	—	$	—	$	26,562	$	—	$	—	$	(78,862)

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 $26.6 million for the three months ended March 31, 2021, are recorded net of tax as an other comprehensive loss of $19.7 million. Comparatively, unrealized gains of $78.9 million, were recorded net of tax as an other comprehensive income of $58.6 million for the three months ended March 31, 2020.

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.

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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.


	March 31, 2021
(in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases	$	3,477	$	—	$	—	$	3,477

Other real estate owned	1,080		—		—		1,080
Total assets measured at fair value on a nonrecurring basis	$	4,557	$	—	$	—	$	4,557


	December 31, 2020
(in thousands)	Total		Level 1		Level 2		Level 3



Loans and leases	$	8,231	$	—	$	—	$	8,231
Goodwill	—		—		—		—
Other real estate owned	1,485		—		—		1,485
Total assets measured at fair value on a nonrecurring basis	$	9,716	$	—	$	—	$	9,716

The following table presents the losses resulting from nonrecurring fair value adjustments for the three months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020



Loans and leases		$	18,313	$	22,042
Goodwill impairment		—		1,784,936
Other real estate owned		405		117
Total loss from nonrecurring measurements		$	18,718	$	1,807,095

Goodwill was evaluated for impairment as of March 31, 2020, resulting in an impairment charge of $1.8 billion for the three months ended March 31, 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.

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.

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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 March 31, 2021 and December 31, 2020:


	March 31, 2021						December 31, 2020
(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	$	376,481	$	367,075	$	9,406	$	688,079	$	654,555	$	33,524
Loans	$	258,203	$	254,881	$	3,322	$	—	$	—	$	—

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 months ended March 31, 2021, the Company recorded a net decrease in fair value of $19.6 million. For the three months ended March 31, 2020, the Company recorded a net increase in fair value of $8.1 million.

Certain residential mortgage loans were initially originated for sale and fair valued, after origination, the loans were transferred to loans held for investment. Gains and losses for changes in fair value for these loans are reported in earnings as a component of other income.

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.

Note 11 - 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. As of March 31, 2021, the Company has a net deferred tax asset of $10.9 million, which includes $1.8 million of state net operating loss 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 $3.4 million as of March 31, 2021. If recognized, the unrecognized tax benefit would reduce the 2021 annual effective tax rate by 0.69%.

The Company's consolidated effective tax rate as a percentage of pre-tax income (loss) for the three months ended March 31, 2021 was 24.5%, respectively, as compared to (1.7)% for the three months ended March 31, 2020. The effective tax rate increased from the prior year primarily due to the impairment of non-deductible goodwill during the three months ended March 31, 2020. 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 premiums and tax credits arising from low-income housing investments.

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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 projected impact on our business operations of the COVID-19 pandemic; Next Gen 2.0 initiatives including store consolidations, operational improvements, and facilities rationalizations; 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 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; 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: 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; 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 will 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. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that might cause actual results to differ materially from those presented:

•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;

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•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, an Oregon corporation, is the financial holding company of Umpqua Bank. The Bank's wholly-owned subsidiary, Financial Pacific Leasing, Inc., is a commercial equipment leasing company.

Umpqua Bank is the largest bank with headquarters in the Pacific Northwest and is considered one of the most innovative banks in the United States, recognized for its company culture and customer experience strategy. The Bank provides a broad range of banking, wealth management, mortgage and other financial services to corporate, institutional, and individual customers.

Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes regular examinations by these regulatory agencies.

Executive Overview

Recent Developments – COVID-19

At this time, the extent and magnitude of the impact on our business of the ongoing COVID-19 pandemic and related governmental reaction due to numerous uncertainties are still not fully known. The impact of COVID-19 continues to evolve and the recovery could be slowed or reversed by a number of factors, including a resurgence in COVID-19 infections, whether due to the spread of variants or otherwise, the availability and rate of vaccinations, and the rate in which state and local governments are permitting businesses to re-open.

To limit the impact of COVID-19 on our business operations, customers and associates, we have continued to restrict travel, maintain remote-work programs for associates, restrict lobby access to some stores and have customers bank by appointment, online, or via our app, increase facilities cleaning scope and frequency, and deploy resources for programs such as the Payroll Protection Program. 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.

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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 remain 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.

The following is a discussion of our results for the three months ended March 31, 2021, as compared to the applicable prior periods.

Financial Performance

•Net income per diluted common share was $0.49 for the three months ended March 31, 2021, as compared to net loss per diluted common share of $8.41 for the three months ended March 31, 2020. The increase in net income for the three months ended March 31, 2021, is due to the goodwill impairment taken in 2020, a decrease in provision for credit losses and an increase in residential mortgage banking revenue.

•Net interest margin, on a tax equivalent basis, was 3.18% for the three months ended March 31, 2021, as compared to 3.41% for the three months ended March 31, 2020. The decrease in net interest margin for the three months ended March 31, 2021, compared to the same period in the prior year, was driven by lower yields on interest-earning assets due to the interest rate cuts that the Federal Reserve instituted as a response to the COVID-19 pandemic. The decrease was partially offset by increased volume of interest-earning assets, as well as due to a reduction in the cost of interest-bearing liabilities.

•Residential mortgage banking revenue was $65.0 million for the three months ended March 31, 2021, as compared to $17.5 million for the three months ended March 31, 2020. The increase in residential mortgage banking revenue for the three months ended March 31, 2021 was primarily driven by an increase in originations due to elevated refinance demand due to lower interest rates. This resulted in an increase in the income from the origination and sale of residential mortgages of $23.2 million, for the three months ended March 31, 2021 as compared to the same period in the prior year. The fair value of the MSR asset decreased due to changes to inputs in the valuation model, including changes in discount rates and prepayment speeds, by $2.0 million for the three months ended March 31, 2021, as compared to a decrease of $25.4 million for the three months ended March 31, 2020.

•For-sale mortgage closed loan volume increased by 42% for the three months ended March 31, 2021 as compared to the same period in the prior year. In addition, the gain on sale margin increased to 3.82% for the three months ended March 31, 2021, as compared to 3.43% in the same period of the prior year.

•Total loans and leases were $22.2 billion as of March 31, 2021, an increase of $381.5 million, as compared to December 31, 2020. The increase in total loans is primarily due to an increase in the commercial real estate balances of $92.2 million and an increase in net PPP loan balances of $297.6 million. The change in net PPP loan balances during the quarter was the result of an increase in round two PPP net loan balances of $659.2 million, offset by a decrease in PPP round one net loan balances of $361.6 million. The PPP loans may increase loan balances only temporarily as PPP loan balances will decline as customers complete the applicable loan forgiveness process through the SBA.

•Total deposits were $25.9 billion as of March 31, 2021, an increase of $1.3 billion, compared to December 31, 2020. This increase was due to growth in demand, money market, and savings deposits, which is attributable to higher savings rates and government stimulus payments driving increased average balances per deposit accounts. The increase is partially offset by a decline in time deposits.

•Total consolidated assets were $30.0 billion as of March 31, 2021, 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 loans due to PPP loan production.

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Credit Quality

•Non-performing assets decreased to $56.2 million, or 0.19% of total assets, as of March 31, 2021, as compared to $69.2 million, or 0.24% of total assets, as of December 31, 2020. Non-performing loans and leases were $54.8 million, or 0.25% of total loans and leases, as of March 31, 2021, as compared to $67.4 million, or 0.31% of total loans and leases, as of December 31, 2020.

•The allowance for credit losses on loans and leases was $311.3 million, as of March 31, 2021, a decrease of $17.1 million, as compared to December 31, 2020. The reserve for unfunded commitments was $19.8 million, as of March 31, 2021, a decrease of $526,000, as compared to December 31, 2020. The decrease in the allowance for credit losses is due to net charge-offs during the period.

•The Company had no provision for credit losses for the three months ended March 31, 2021. This was compared to a provision for credit losses of $118.1 million for the three months ended March 31, 2020. The decrease compared to the same period in 2020, was due to stabilization of credit quality metrics and economic forecasts used in credit models as of March 31, 2021.

Liquidity

•Total cash and cash equivalents was $3.2 billion as of March 31, 2021, an increase of $668.0 million from December 31, 2020. The increase in cash and cash equivalents reflects the Bank's current liquidity position with the growth in deposit balances.

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 have prioritized converting new PPP customers to expanded relationships with additional products and services, implemented new technology to gain efficiencies and advance the customer experience, and planned consolidation of stores and back office facilities for expense reduction.

•The Company's total risk based capital ratio was 15.8% and its Tier 1 common to risk weighted assets ratio was 12.6% as of March 31, 2021. As of December 31, 2020, the Company's total risk based capital ratio was 15.6% and its Tier 1 common to risk weighted assets ratio was 12.3%.

•The Company paid a quarterly cash dividend of $0.21 per common share on February 26, 2021 to shareholders of record as of February 16, 2021.

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, 2020, filed with the SEC on February 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. The Company's critical accounting policies include the allowance for credit losses, residential mortgage servicing rights, and fair value. There have been no material changes in these policies during the three months ended March 31, 2021.

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Results of Operations

Overview

For the three months ended March 31, 2021, net income was $107.7 million or $0.49 per diluted common share, which compares to net loss of $1.9 billion or $8.41 per diluted common share for the three months ended March 31, 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, wealth management, 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.

As a result of the Company's efforts to manage through the pandemic, as well as the beginning phases of Umpqua Next Gen 2.0, we are reporting solid financial trends within the Core Banking segment, including loan portfolio growth, an increase in non-interest income, and lower non-interest expense. The Core Banking segment was responsible for 81% of our reported net income for the quarter ended March 31, 2021. The increase in net income for the three months ended March 31, 2021 for the Core Banking segment, compared to the same period of the prior year is attributable to the goodwill impairment recorded in first quarter of 2020, in addition to the decrease in the provision for credit losses.

The increase in net income for the three months ended March 31, 2021 for the Mortgage Banking segment, compared to the same period of the prior year, is attributable to increased residential mortgage banking revenue from strong mortgage production due to lower interest rates and higher margins. The fair value of the MSR asset decreased due to changes to inputs in the valuation model, including changes in discount rates and prepayment speeds, by $2.0 million for the three months ended March 31, 2021, as compared to a decrease of $25.4 million for the three months ended March 31, 2020.

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The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three months ended March 31, 2021 and 2020. 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
(dollars in thousands)		March 31, 2021			March 31, 2020
Return on average assets		1.49		%	(25.82)		%
Return on average common shareholders' equity		16.33		%	(174.94)		%
Return on average tangible common shareholders' equity		16.43		%	(301.30)		%
Calculation of average common tangible shareholders' equity:
Average common shareholders' equity		$	2,674,871		$	4,257,711
Less: average goodwill and other intangible assets, net		(15,598)			(1,785,608)
Average tangible common shareholders' equity		$	2,659,273		$	2,472,103

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 March 31, 2021 and December 31, 2020:


(dollars in thousands)	March 31, 2021			December 31, 2020
Total shareholders' equity	$	2,681,869		$	2,704,577
Subtract:
Goodwill	2,715			2,715
Other intangible assets, net	12,230			13,360
Tangible common shareholders' equity	$	2,666,924		$	2,688,502
Total assets	$	30,036,680		$	29,235,175
Subtract:
Goodwill	2,715			2,715
Other intangible assets, net	12,230			13,360
Tangible assets	$	30,021,735		$	29,219,100
Tangible common equity ratio	8.88		%	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.

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Net Interest Income

Net interest income for the three months ended March 31, 2021 was $221.4 million, an increase of $2.9 million compared to the same period in 2020. This increase was driven by the 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. The decrease in interest expense was partially offset by lower average yields on interest-earning assets for the period.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.18% for the three months ended March 31, 2021, as compared to 3.41% for the same period in 2020. The decrease in net interest margin for the three months ended March 31, 2021, primarily resulted from a decrease in the average yields on interest-earning assets, partially offset by the decline in the cost of interest-bearing liabilities and the increase in average loan and lease balances. The Federal Open Market Committee expects to maintain the 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 over the past year have negatively impacted the Company's net interest margin.

The yield on loans and leases for the three months ended March 31, 2021 decreased by 56 basis points, as compared to the same period in 2020, primarily attributable to the decrease in short and long-term interest rates. The cost of interest-bearing liabilities decreased 77 basis points, for the three months ended March 31, 2021, as compared to the same period in 2020, also due to the decrease in interest rates and corresponding deposit pricing strategy.

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." The decrease in yields on earning assets has compressed the 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 mostly to PPP loans, which are expected to be short-term in nature due to SBA forgiveness of these loans.

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The following table presents 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 March 31, 2021 and 2020:


































(dollars in thousands)	Three Months Ended
	March 31, 2021						March 31, 2020
	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	$	703,557	$	4,845	2.75	%	$	406,434	$	4,264	4.20	%
Loans and leases (1)	21,692,639		216,296		4.02	%	21,196,989		241,729		4.58	%
Taxable securities	2,945,896		13,710		1.86	%	2,760,461		17,283		2.50	%
Non-taxable securities (2)	252,741		1,915		3.03	%	241,105		1,894		3.14	%
Temporary investments and interest bearing cash	2,483,451		624		0.10	%	1,084,854		3,331		1.23	%
Total interest-earning assets	28,078,284		$	237,390	3.41	%	25,689,843		$	268,501	4.19	%
Other assets	1,314,206						3,154,930
Total assets	$	29,392,490					$	28,844,773
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits	$	3,125,398	$	414	0.05	%	$	2,471,556	$	3,543	0.58	%
Money market deposits	7,360,512		1,491		0.08	%	7,107,626		11,759		0.66	%
Savings deposits	1,998,927		163		0.03	%	1,485,171		241		0.07	%
Time deposits	2,681,361		8,610		1.30	%	4,630,956		24,747		2.15	%
Total interest-bearing deposits	15,166,198		10,678		0.29	%	15,695,309		40,290		1.03	%
Repurchase agreements and federal funds purchased	395,946		76		0.08	%	337,796		395		0.47	%
Borrowings	539,077		1,772		1.33	%	906,624		4,046		1.79	%
Junior subordinated debentures	343,473		3,052		3.60	%	361,983		4,903		5.45	%
Total interest-bearing liabilities	16,444,694		$	15,578	0.38	%	17,301,712		$	49,634	1.15	%
Non-interest-bearing deposits	9,897,749						6,880,457
Other liabilities	375,176						404,893
Total liabilities	26,717,619						24,587,062
Common equity	2,674,871						4,257,711
Total liabilities and shareholders' equity	$	29,392,490					$	28,844,773
NET INTEREST INCOME			$	221,812					$	218,867
NET INTEREST SPREAD					3.03	%					3.04	%
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)					3.18	%					3.41	%

(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 $381,000 for the three months ended March 31, 2021, as compared to $332,000 for the same period in 2020

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The following table sets 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 months ended March 31, 2021 as compared to the same period in 2020. 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 March 31,
	2021 compared to 2020
	Increase (decrease) in interest income and expense due to changes in
(in thousands)	Volume		Rate		Total
INTEREST-EARNING ASSETS:
Loans held for sale	$	2,382	$	(1,801)	$	581
Loans and leases	5,360		(30,793)		(25,433)
Taxable securities	1,079		(4,652)		(3,573)
Non-taxable securities (1)	89		(68)		21
Temporary investments and interest bearing cash	1,989		(4,696)		(2,707)
Total interest-earning assets (1)	10,899		(42,010)		(31,111)
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits	745		(3,874)		(3,129)
Money market	403		(10,671)		(10,268)
Savings	66		(144)		(78)
Time deposits	(8,336)		(7,801)		(16,137)
Repurchase agreements	59		(378)		(319)
Borrowings	(1,390)		(884)		(2,274)
Junior subordinated debentures	(243)		(1,608)		(1,851)
Total interest-bearing liabilities	(8,696)		(25,360)		(34,056)
Net increase in net interest income (1)	$	19,595	$	(16,650)	$	2,945
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

Provision for Credit Losses

The Company had no provision for credit losses for the three months ended March 31, 2021. This was compared to a provision for credit losses of $118.1 million for the three months ended March 31, 2020. The change in the provision for credit losses for three months ended March 31, 2021 as compared to the same prior year period, is primarily attributed to a stabilization of credit quality metrics and economic forecasts used in credit models in the current quarter. 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 expected credit loss for the life of the loan, instead of incurred losses under prior guidance. As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the three months ended March 31, 2021 was zero as compared to 2.24% for the same period in 2020.

For the three months ended March 31, 2021, net charge-offs were $17.6 million as compared to $21.7 million for the three months ended March 31, 2020. As an annualized percentage of average outstanding loans and leases, net charge-offs for the three months ended March 31, 2021 was 0.33%, as compared to 0.41% for the same period in 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 $15.4 million as of March 31, 2021 have a related allowance for credit losses of $12.2 million, with the remaining loans written-down to the 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.

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Non-Interest Income

Non-interest income for the three months ended March 31, 2021 was $108.8 million, an increase of $68.2 million or 168% as compared to the same period in 2020. The following table presents the key components of non-interest income for the three months ended March 31, 2021 and 2020:


	Three Months Ended
	March 31,
(in thousands)		2021		2020		Change Amount		Change Percent
Service charges on deposits		$	9,647	$	11,473	$	(1,826)	(16)	%
Card-based fees		7,374		7,417		(43)		(1)	%
Brokerage revenue		3,915		4,015		(100)		(2)	%
Residential mortgage banking revenue, net		65,033		17,540		47,493		271	%
Gain (loss) on sale of debt securities, net		4		(133)		137		nm
(Loss) gain on equity securities, net		(706)		814		(1,520)		(187)	%
Gain on loan and lease sales, net		1,373		1,167		206		18	%

Bank owned life insurance income		2,071		2,129		(58)		(3)	%
Other income (expense)		20,089		(3,777)		23,866		nm
Total non-interest income		$	108,800	$	40,645	$	68,155	168	%
nm = Not meaningful

During the quarter, the Company added the card-based fees line item. Prior period has 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 whenever our customers' debit and credit cards are processed through card payment networks.

Service charges on deposits decreased by $1.8 million for the three months ended March 31, 2021 compared to the same period in the prior year. The decrease is primarily related to a change in customers' spending habits as a result of the COVID-19 pandemic, which has resulted in overdraft fees decreasing as customers are keeping more funds liquid and making fewer transactions.

Other income for the three months ended March 31, 2021 increased by $23.9 million, when compared to the same period in the prior year, primarily due to a gain on the swap derivative fair value of $11.8 million as compared to a loss of $14.3 million in the prior period, due to changes in long-term interest rates.

Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, increased for the three months ended March 31, 2021, as compared to the same period of 2020, by $47.5 million. The increase for the three month period was primarily driven by an increase in originations in 2021 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 $23.2 million, as compared to prior year. The change in fair value of the MSR asset due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds decreased by $2.0 million for the three months ended March 31, 2021, as compared to a decrease of $25.4 million for the three months ended March 31, 2020.

For-sale mortgage closed loan volume increased 42% or $487.3 million for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. In addition, the gain on sale margin increased to 3.82%, for the three months ended March 31, 2021, as compared to 3.43% in the same period of the prior year due to constrained industry capacity. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 1.90% for the three months ended March 31, 2021, as compared to 2.09% as compared to the three months ended March 31, 2020.

Origination volume is generally linked to the level of interest rates. When rates fall, origination volume would be expected to be elevated relative to historical levels. When rates rise, origination volume would be expected to fall. Margins observed in the current quarter could narrow somewhat in future periods as mortgage industry capacity constraints ease and refinance demand is met. The MSR asset value is also sensitive to interest rates, and generally falls with lower rates and rises with higher rates.

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Servicing income was $9.1 million for the three months ended March 31, 2021, as compared to $8.9 million, for the same period of 2020. Income was higher primarily due to a larger portfolio of loans serviced for others.

The following table presents our residential mortgage banking revenue for the three months ended March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020
Origination and sale		$	62,505	$	39,347
Servicing		9,087		8,880
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time		(4,545)		(5,329)
Changes in valuation inputs or assumptions (1)		(2,014)		(25,358)
Residential mortgage banking revenue, net		$	65,033	$	17,540

(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.

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2021 was $187.6 million a decrease of $1.8 billion or 90%, as compared to the same period in 2020. Excluding the goodwill impairment taken in 2020, non-interest expense, for the three months ended March 31, 2021, increased $9.9 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 March 31, 2021 and 2020:


	Three Months Ended
	March 31,
(in thousands)		2021		2020		Change Amount		Change Percent
Salaries and employee benefits		$	124,134	$	109,774	$	14,360	13	%
Occupancy and equipment, net		34,635		37,001		(2,366)		(6)	%
Communications		2,763		3,128		(365)		(12)	%
Marketing		1,372		2,530		(1,158)		(46)	%
Services		10,750		10,770		(20)		—	%
FDIC assessments		2,599		2,542		57		2	%

Intangible amortization		1,130		1,247		(117)		(9)	%

Other expenses		10,209		10,730		(521)		(5)	%
Non-interest expense before goodwill impairment		187,592		177,722		9,870		6	%
Goodwill impairment		—		1,784,936		(1,784,936)		nm
Total non-interest expense		$	187,592	$	1,962,658	$	(1,775,066)	(90)	%
nm = Not meaningful

Goodwill impairment of $1.8 billion was recorded as of March 31, 2020, due to 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. There was no impairment recorded in the current period.

Salaries and employee benefits increased by $14.4 million for the three months ended March 31, 2021 as compared to the same period in the prior year. This increase is primarily related to an increase in Mortgage Banking compensation of $11.0 million for the three months ended March 31, 2021 related to higher origination volumes during the period.

Occupancy and equipment expense decreased by $2.4 million mainly due to decreased software expenses for the three months ended March 31, 2021 as compared to the same period in the prior year.

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FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents were $3.2 billion at March 31, 2021, compared to $2.6 billion at December 31, 2020. The increase of interest bearing cash and temporary investments reflects strong deposit growth in the quarter, outpacing loan growth and borrowing declines. An elevated on-balance sheet liquidity position enhances the Company's liquidity flexibility given the market volatility and uncertainty in the current environment.

Investment Securities

Investment debt securities available for sale were $3.2 billion as of March 31, 2021, compared to $2.9 billion at December 31, 2020. The increase was due to purchases of $555.3 million of investment securities, offset by sales and paydowns of $227.1 million, as well as a decrease of $87.3 million in fair value of investment securities available for sale.

The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of March 31, 2021 and December 31, 2020:


	Investment Securities Available for Sale
	March 31, 2021				December 31, 2020
(dollars in thousands)	Fair Value		%		Fair Value		%
U.S. Treasury and agencies	$	736,658	23	%	$	762,202	26	%
Obligations of states and political subdivisions	275,080		9	%	279,511		10	%
Residential mortgage-backed securities and collateralized mortgage obligations	2,156,087		68	%	1,890,845		64	%

Total available for sale securities	$	3,167,825	100	%	$	2,932,558	100	%


	Investment Securities Held to Maturity
	March 31, 2021				December 31, 2020
(dollars in thousands)	Amortized Cost		%		Amortized Cost		%

Residential mortgage-backed securities and collateralized mortgage obligations	$	2,954	100	%	$	3,034	100	%

Total held to maturity securities	$	2,954	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 $38.4 million at March 31, 2021. This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of $35.1 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 March 31, 2021.

Restricted Equity Securities

Restricted equity securities were $22.1 million at March 31, 2021 and $41.7 million at December 31, 2020, the majority of which represents the Bank's investment in the FHLB of Des Moines. The decrease is attributable to redemptions of FHLB stock during the period due to decreased FHLB borrowing 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.

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Loans and Leases

Total loans and leases outstanding at March 31, 2021 were $22.2 billion, an increase of $381.5 million as compared to December 31, 2020. The increase is attributable to net new loan and lease originations of $267.9 million, primarily due to our participation in the PPP, as well as the transfer of $212.4 million from loans held for sale to loans held for investment. The increase was partially offset by loans sold of $81.2 million and net charge-offs of $17.6 million.

The following table presents the concentration distribution of the loan and lease portfolio, net of deferred fees and costs, as of March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
(dollars in thousands)	Amount		%		Amount		%
Commercial real estate
Non-owner occupied term, net	$	3,455,773	15	%	$	3,505,802	16	%
Owner occupied term, net	2,358,169		11	%	2,333,945		11	%
Multifamily, net	3,421,320		15	%	3,349,196		15	%
Construction & development, net	876,297		4	%	828,478		4	%
Residential development, net	190,841		1	%	192,761		1	%
Commercial
Term, net	4,350,763		20	%	4,024,467		18	%
Lines of credit & other, net	825,162		4	%	862,760		4	%
Leases & equipment finance, net	1,420,977		6	%	1,456,630		7	%
Residential
Mortgage, net	3,958,644		18	%	3,871,906		18	%
Home equity loans & lines, net	1,097,168		5	%	1,136,064		5	%
Consumer & other, net	205,746		1	%	217,358		1	%
Total, net of deferred fees and costs	$	22,160,860	100	%	$	21,779,367	100	%

As of March 31, 2021, there were $258.2 million in mortgage loans that were transferred from loans held for sale to loans held for investment and are carried at fair value.

In April 2020, the Bank began originating loans to qualified small businesses under the PPP administered by the SBA. As of March 31, 2021, we have $2.0 billion of SBA-approved PPP loans, net of related fees and costs, to approximately 18,000 customers, which are classified as commercial term loans. Of the $2.0 billion net PPP loans at March 31, 2021, there were $1.4 billion in net loans to approximately 11,000 customers for round one PPP loans, and there were $659.2 million in net loans to approximately 7,000 customers for round two PPP loans. We will recognize the remaining unamortized balance of the PPP-related net loan processing fees of approximately $44.4 million, as a yield adjustment over the remaining term of these loans, although the forgiveness of these loans by the SBA accelerates the accretion of these fees.

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Asset Quality and Non-Performing Assets

The following table summarizes our non-performing assets and TDR loans as of March 31, 2021 and December 31, 2020:


(dollars in thousands)	March 31, 2021			December 31, 2020
Loans and leases on non-accrual status	$	29,216		$	31,076
Loans and leases past due 90 days or more and accruing	25,612			36,361
Total non-performing loans and leases	54,828			67,437
Other real estate owned	1,405			1,810
Total non-performing assets	$	56,233		$	69,247
Restructured loans (1)	$	9,921		$	14,991
Allowance credit losses on loans and leases	$	311,283		$	328,401
Reserve for unfunded commitments	19,760			20,286
Allowance for credit losses	$	331,043		$	348,687
Asset quality ratios:
Non-performing assets to total assets	0.19		%	0.24		%
Non-performing loans and leases to total loans and leases	0.25		%	0.31		%
Allowance for credit losses on loans and leases to total loans and leases	1.40		%	1.51		%
Allowance for credit losses to total loans and leases	1.49		%	1.60		%
Allowance for credit losses to total non-performing loans and leases	604		%	517		%

(1)Represents accruing TDR loans performing according to their restructured terms.

At March 31, 2021 and December 31, 2020, troubled debt restructurings of $9.9 million and $15.0 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a modification of loan repayment terms.

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.

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COVID-19 Related Payment Deferrals and Forbearance

A summary of outstanding loan balances with active payment deferral or forbearance as of March 31, 2021 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
Non-owner occupied term, net	22	$	111,307	3	%
Owner occupied term, net	13	27,029		1	%
Multifamily, net	2	5,759		—	%
Construction & development, net	1	1,636		—	%

Commercial
Term, net	5	1,074		—	%
Lines of credit & other, net	6	869		—	%
Leases & equipment finance, net	539	19,506		1	%
Residential
Mortgage, net	271	152,250		4	%
Home equity loans & lines, net	32	3,828		—	%
Consumer & other, net	39	735		—	%
Total	930	$	323,993	1	%

Excluded from the mortgage loans with payment deferrals or forbearance in the above table are $166.3 million of repurchased GNMA loans on deferral, as the credit risk of these loans are guaranteed by government programs such as the Federal Housing Agency, Veterans Affairs, and 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.

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Allowance for Credit Losses

The ACL totaled $331.0 million at March 31, 2021, a decrease of $17.6 million from $348.7 million at December 31, 2020. The following table shows the activity in the ACL for the three months ended March 31, 2021 and 2020:


		Three Months Ended
(dollars in thousands)			March 31, 2021			March 31, 2020
Allowance for credit losses on loans and leases
	Balance, beginning of period		$	328,401		$	157,629
	Impact of adoption of CECL		—			49,999
	Adjusted balance, beginning of period		328,401			207,628
	Provision for credit losses on loans and leases		526			105,502
	Charge-offs		(20,915)			(24,455)
	Recoveries		3,271			2,745
	Net charge-offs		(17,644)			(21,710)
	Balance, end of period		$	311,283		$	291,420
Reserve for unfunded commitments
	Balance, beginning of period		$	20,286		$	5,106
	Impact of adoption of CECL		—			3,238
	Adjusted balance, beginning of period		20,286			8,344
	(Recapture) provision for credit losses on unfunded commitments		(526)			12,583
	Balance, end of period		19,760			20,927
Total allowance for credit losses			$	331,043		$	312,347
As a percentage of average loans and leases (annualized):
	Net charge-offs		0.33		%	0.41		%
	Provision for credit losses		—		%	2.24		%
Recoveries as a percentage of charge-offs			15.64		%	11.22		%

With the adoption of CECL, 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 provision for credit losses includes the provision for loan and lease losses, provision (recapture) for unfunded commitments, and the provision for credit losses related to accrued interest on loans. There was no provision of credit losses for the three months ended March 31, 2021. The decrease from the provision for credit losses of $118.1 million for the three months ended March 31, 2020 was due to the stabilization of credit quality metrics and economic forecasts used in credit 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 March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
(dollars in thousands)	Amount		% Loans to total loans		Amount		% Loans to total loans
Commercial real estate	$	154,475	46	%	$	141,710	47	%
Commercial	128,838		30	%	150,864		29	%
Residential	21,090		23	%	27,964		23	%
Consumer & other	6,880		1	%	7,863		1	%

Allowance for credit losses on loans and leases	$	311,283			$	328,401

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The following table shows the change in the allowance for credit losses from December 31, 2020 to March 31, 2021:


	December 31, 2020			Q1 2021 net charge-offs		Reserve build/(release)		March 31, 2021			% of Loan and Leases Outstanding
Commercial real estate	$	157,070		$	339	$	12,734	$	170,143		1.65	%
Commercial	153,054			(17,523)		(4,892)		130,639			1.98	%
Residential	29,625			38		(7,285)		22,378			0.44	%
Consumer	8,938			(498)		(557)		7,883			3.83	%
Total allowance for credit losses	$	348,687		$	(17,644)	$	—	$	331,043
% of loans and leases outstanding	1.60		%					1.49		%

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 first quarter of 2021, the Bank used Moody's February baseline forecast. Key components include a U.S. economy experiencing strong growth, then normalized growth thereafter, GDP growth over both the short and long term, and unemployment rate of 6.1% through 2021 with a return to less than 5% unemployment by the third quarter of 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.

We believe that the allowance for credit losses as of March 31, 2021 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, 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 March 31, 2021 and 2020:


	Three Months Ended
(in thousands)		March 31, 2021		March 31, 2020
Balance, beginning of period		$	92,907	$	115,010
Additions for new MSR capitalized		14,065		10,023

Changes in fair value:
Changes due to collection/realization of expected cash flows over time		(4,545)		(5,329)
Changes due to valuation inputs or assumptions (1)		(2,014)		(25,358)
Balance, end of period		$	100,413	$	94,346

(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 March 31, 2021 and December 31, 2020 was as follows:


(dollars in thousands)	March 31, 2021			December 31, 2020
Balance of loans serviced for others	$	13,030,467		$	13,026,720
MSR as a percentage of serviced loans	0.77		%	0.71		%

Residential 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 fees 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 elevated due to continued low mortgage rates during the period; however, accelerated prepayment speeds have slowed due to increased long-term interest rates during the latter part of the quarter.

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The fair value of the MSR asset decreased by $2.0 million for the three months ended March 31, 2021, due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds. The fair value of the MSR asset decreased by $4.5 million due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three months ended March 31, 2021.

Goodwill

At both March 31, 2021 and December 31, 2020, the Company had goodwill of $2.7 million. 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. There were no changes to goodwill during the three months ended March 31, 2021.

Deposits

Total deposits were $25.9 billion at March 31, 2021, an increase of $1.3 billion, as compared to December 31, 2020. The increase is mainly attributable to growth in non-interest bearing demand and money market deposits, offset by a decline in time deposits. The increase in non-maturity deposit account categories is driven by 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. The decrease in time deposits is mainly due to the runoff of higher-cost time deposits.

The following table presents the deposit balances by category as of March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
(dollars in thousands)	Amount		%		Amount		%
Non-interest bearing demand	$	10,500,482	41	%	$	9,632,773	39	%
Interest bearing demand	3,244,624		12	%	3,051,487		12	%
Money market	7,554,798		29	%	7,173,920		29	%
Savings	2,109,211		8	%	1,912,752		8	%
Time, greater than $250,000	763,532		3	%	899,563		4	%
Time, $250,000 or less	1,714,186		7	%	1,951,706		8	%
Total deposits	$	25,886,833	100	%	$	24,622,201	100	%

The Company's brokered deposits totaled $382.7 million at March 31, 2021, compared to $424.1 million at December 31, 2020.

Borrowings

At March 31, 2021, the Bank had outstanding $420.4 million of securities sold under agreements to repurchase, an increase of $45.0 million from December 31, 2020. The Bank had outstanding borrowings consisting of advances from the FHLB of $281.4 million at March 31, 2021, which decreased $490.0 million from December 31, 2020. The decrease is attributable to maturity payoffs during the quarter. The FHLB advances are secured by loans and have fixed interest rates ranging from 1.40% to 7.10% that mature in 2021 through 2030.

Junior Subordinated Debentures

We had junior subordinated debentures with carrying values of $369.8 million and $343.5 million at March 31, 2021 and December 31, 2020, respectively. The increase is mainly due to the $26.6 million change in fair value for the junior subordinated debentures elected to be carried at fair value, which is due mostly to an increase in the discount rates offset by a decrease in the credit spread, and an increase in the implied forward curve resulting in an increase in interest cash flows. As of March 31, 2021, substantially all of the junior subordinated debentures had interest rates that are adjustable on a quarterly basis based on a spread over three-month LIBOR.

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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 includes an elevated on-balance sheet liquidity position to further enhance flexibility due to the increased market volatility and uncertainty as a result of the COVID-19 pandemic. 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 maintain liquidity sources, including the management and utilization of 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 6% of total deposits at March 31, 2021 and 7% of total deposits at December 31, 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 $7.6 billion at March 31, 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 $683.0 million, subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at March 31, 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 $50.0 million of dividends paid by the Bank to the Company in the three months ended March 31, 2021. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Company. The Company is required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company. The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors and regulators with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. The Company expects to continue this cadence in future quarters.

As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $392.0 million during the three months ended March 31, 2021, with the difference between cash used in operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $1.8 billion, and the decrease in other assets of $128.2 million, offset by originations of loans held for sale of $1.6 billion and the gain on sale of loans of $50.2 million. This compares to net cash used in operating activities of $119.1 million during the three months ended March 31, 2020, with the difference between cash used in operating activities and net loss consisting of goodwill impairment of $1.8 billion, originations of loans held for sale of $1.1 billion, the net increase in other assets of $219.6 million, and gain on sale of loans of $38.3 million, offset by proceeds from the sale of loans held for sale of $1.2 billion, provision for loan and lease losses of $118.1 million, and a loss on fair value of residential mortgage servicing rights carried at fair value of $30.7 million

Net cash of $495.1 million used in investing activities during the three months ended March 31, 2021, consisted principally of purchases of available for sale investment securities of $555.3 million, and net loan originations of $267.9 million, offset by proceeds from available for sale investment securities of $227.1 million and the proceeds from sales of loans and leases of $82.5 million. This compares to net cash of $74.1 million used in investing activities during the three months ended March 31, 2020, which consisted principally of purchases of investment securities available for sale of $140.4 million, net loan originations of $109.5 million, and purchases of restricted equity securities of $20.0 million, offset by proceeds from investment securities available for sale of $168.9 million, and proceeds from sales of loans and leases of $22.0 million.

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Net cash of $771.1 million provided by financing activities during the three months ended March 31, 2021, primarily consisted of $1.3 billion net increase in deposits and the net increase in securities sold under agreements to repurchase of $45.0 million, offset by $490.0 million repayment of borrowings and $46.2 million of dividends paid on common stock. This compares to net cash of $488.1 million provided by financing activities during the three months ended March 31, 2020, primarily consisted of proceeds from borrowings of $600.0 million and $218.0 million net increase in deposits, offset by $310.0 million repayment of borrowings and $46.2 million of dividends paid on common stock.

Although we expect the Bank's and the Company's liquidity positions to remain satisfactory during 2021, 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. 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.

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 March 31, 2021 and December 31, 2020 was $2.7 billion. The change in shareholders' equity during the three months ended March 31, 2021 was principally due to the other comprehensive loss, net of tax, and cash dividends declared, offset by net income.

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 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.

The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. The Company expects to continue this cadence in future quarters. On February 1, 2021, the Company declared a cash dividend for the fourth quarter of 2020 in the amount of $0.21 per common share based on fourth quarter 2020 performance, which was paid on February 26, 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 March 31, 2021 and the three months ended March 31, 2020.


	Three Months Ended
		March 31, 2021			March 31, 2020
Dividend declared per common share		$	0.21		$	0.21
Dividend payout ratio		43		%	(2)		%

As of March 31, 2021, a total of 9.5 million shares are available for repurchase under the Company's share repurchase plan. During the three months ended March 31, 2021, no shares were repurchased under this plan. The timing and amount of future repurchases will depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, our capital 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.

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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 III at March 31, 2021 and December 31, 2020:


	Actual				For Capital Adequacy purposes				To be Well Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2021
Total Capital
(to Risk Weighted Assets)
Consolidated	$	3,392,620	15.81	%	$	1,716,294	8.00	%	$	2,145,368	10.00	%
Umpqua Bank	$	3,179,886	14.82	%	$	1,716,686	8.00	%	$	2,145,857	10.00	%
Tier I Capital
(to Risk Weighted Assets)
Consolidated	$	2,694,597	12.56	%	$	1,287,221	6.00	%	$	1,716,294	8.00	%
Umpqua Bank	$	2,932,861	13.67	%	$	1,287,514	6.00	%	$	1,716,686	8.00	%
Tier I Common
(to Risk Weighted Assets)
Consolidated	$	2,694,597	12.56	%	$	965,416	4.50	%	$	1,394,489	6.50	%
Umpqua Bank	$	2,932,861	13.67	%	$	965,636	4.50	%	$	1,394,807	6.50	%
Tier I Capital
(to Average Assets)
Consolidated	$	2,694,597	9.18	%	$	1,174,659	4.00	%	$	1,468,324	5.00	%
Umpqua Bank	$	2,932,861	9.98	%	$	1,175,098	4.00	%	$	1,468,873	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, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 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 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our assessment of market risk as of March 31, 2021 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, 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 March 31, 2021.

No change in internal control over financial reporting occurred during the quarter ended March 31, 2021 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, 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. There have been no material changes from the risk factors described in our Form 10-K.

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 March 31, 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
1/1/21 - 1/31/21	1,834	$	15.43	—	9,524,429
2/1/21 - 2/28/21	98,428	$	15.44	—	9,524,429
3/1/21 - 3/31/21	43,570	$	17.59	—	9,524,429
Total for quarter	143,832	$	16.09	—

(1)Common shares repurchased by the Company during the quarter consist of cancellation of 143,832 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended March 31, 2021, no shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

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(2)The Company's share repurchase plan, which was first approved by its Board of Directors and announced in August 2003, was amended on September 29, 2011 to increase the number of common shares available for repurchase under the plan to 15 million shares. As of March 31, 2021, a total of 9.5 million shares remained available for repurchase. 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, our capital plan and bank or bank holding company regulatory approvals.

Item 3. Defaults upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

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Item 6. Exhibits


Exhibit #			Description

3.1			(a) Restated Articles of Incorporation, as amended

3.2			(b) Bylaws, as amended

4.1			(c) Specimen Common Stock Certificate

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.

10.1*			Umpqua Holdings Corporation Notice of Performance Share Award based on relative TSR p erformance

10.2*			(d) Employment Agreement with CEO Cort O'Haver

10.3*			(e) Form of Employment Agreement with Executive Officers

31.1			Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.3			Certification of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32			Certification of Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

101.SCH			Inline XBRL Taxonomy Extension Schema Document

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104			The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (included in Exhibit 101)


*			Compensatory plan or arrangement

(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

(d)			Incorporated by reference to Exhibit 10.1 to Form 8-K filed April 6, 2021

(e)			Incorporated by reference to Exhibit 10.2 to Form 8-K filed April 6, 2021

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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	May 6, 2021	/s/ Cort L. O'Haver
		Cort L. O'Haver President and Chief Executive Officer

Dated	May 6, 2021	/s/ Ronald L. Farnsworth
		Ronald L. Farnsworth Executive Vice President/Chief Financial Officer and Principal Financial Officer

Dated	May 6, 2021	/s/ Lisa M. White
		Lisa M. White Senior Vice President/Corporate Controller and Principal Accounting Officer