UMPQUA HOLDINGS CORP - Quarter Report: 2022 September (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:	September 30, 2022
	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 1400

Portland, Oregon 97204

(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: 217,053,322 shares outstanding as of October 27, 2022.

Table of Contents

UMPQUA HOLDINGS CORPORATION

FORM 10-Q

Table of Contents


GLOSSARY		3
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	6
	Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)	7
	Condensed Consolidated Statements of Cash Flows (unaudited)	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68
Item 4.	Controls and Procedures	69
Part II. OTHER INFORMATION		69
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71

SIGNATURES		72

Table of Contents


GLOSSARY OF DEFINED TERMS
ACL						Allowance for credit losses
ASU						Accounting Standards Update

Bank						Umpqua Bank
Bank Merger						The proposed merger of Columbia State Bank, a Washington state-chartered bank and a wholly owned subsidiary of Columbia, with the Bank, with the Bank as the surviving bank
Basel III						Basel capital framework (third accord)


CECL						Current Expected Credit Losses
Columbia						Columbia Banking System, Inc.
Company						Umpqua Holdings Corporation
COVID-19						Coronavirus Disease 2019
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.
FOMC						Federal Open Market Committee

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
Mergers						Merger Sub will merge with and into Umpqua, with Umpqua as the surviving entity, and immediately following such merger, Umpqua will merge with and into Columbia, with Columbia as the surviving corporation.
Merger Agreement						Agreement and Plan of Merger dated as of October 11, 2021, by and among the Company, Columbia, and Merger Sub
Merger Sub						Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
MSR						Mortgage servicing rights


PD						Probability of default
PPP						Paycheck Protection Program

SBA						Small Business Administration
SEC						Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate

TDR						Troubled debt restructuring
Umpqua						Umpqua Holdings Corporation and its subsidiaries

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except shares)	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks (restricted cash of $13,813 and $3,593)	$	321,447	$	222,015
Interest bearing cash and temporary investments (restricted cash of $13,410 and $400)	1,232,412		2,539,606
Total cash and cash equivalents	1,553,859		2,761,621
Investment securities
Equity and other, at fair value	72,277		81,214
Available for sale, at fair value	3,136,391		3,870,435
Held to maturity, at amortized cost	2,547		2,744
Loans held for sale, at fair value	148,275		353,105
Loans and leases (at fair value: $284,900 and $345,634)	25,507,951		22,553,180
Allowance for credit losses on loans and leases	(283,065)		(248,412)
Net loans and leases	25,224,886		22,304,768
Restricted equity securities	40,993		10,916
Premises and equipment, net	165,305		171,125
Operating lease right-of-use assets	81,729		82,366

Other intangible assets, net	5,764		8,840
Residential mortgage servicing rights, at fair value	196,177		123,615
Bank owned life insurance	329,699		327,745
Deferred tax asset, net	128,120		—
Other assets	385,938		542,442
Total assets	$	31,471,960	$	30,640,936
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing	$	11,246,358	$	11,023,724
Interest bearing	15,570,749		15,570,961
Total deposits	26,817,107		26,594,685
Securities sold under agreements to repurchase	383,569		492,247
Borrowings	756,214		6,329
Junior subordinated debentures, at fair value	325,744		293,081
Junior subordinated debentures, at amortized cost	87,870		88,041
Operating lease liabilities	95,512		95,427
Deferred tax liability, net	—		4,353
Other liabilities	588,430		317,503
Total liabilities	29,054,446		27,891,666
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY
Common stock, no par value, shares authorized: 400,000,000 in 2022 and 2021; issued and outstanding: 217,052,952 in 2022 and 216,625,506 in 2021	3,448,007		3,444,849
Accumulated deficit	(580,933)		(697,338)
Accumulated other comprehensive (loss) income	(449,560)		1,759
Total shareholders' equity	2,417,514		2,749,270
Total liabilities and shareholders' equity	$	31,471,960	$	30,640,936

See notes to condensed consolidated financial statements

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended				Nine Months Ended
(in thousands, except per share amounts)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
INTEREST INCOME
Interest and fees on loans and leases	$	278,830	$	224,403	$	727,908	$	669,014
Interest and dividends on investment securities:
Taxable	18,175		16,102		54,156		43,833
Exempt from federal income tax	1,322		1,470		4,063		4,491
Dividends	86		213		256		1,216
Interest on temporary investments and interest bearing deposits	5,115		1,237		9,387		2,635
Total interest income	303,528		243,425		795,770		721,189
INTEREST EXPENSE
Interest on deposits	9,090		5,100		17,021		22,794
Interest on securities sold under agreement to repurchase and federal funds purchased	545		88		674		232
Interest on borrowings	798		149		897		2,787
Interest on junior subordinated debentures	5,491		3,014		12,641		9,108
Total interest expense	15,924		8,351		31,233		34,921
Net interest income	287,604		235,074		764,537		686,268
PROVISION (RECAPTURE) FOR CREDIT LOSSES	27,572		(18,919)		51,068		(41,915)
Net interest income after provision (recapture) for credit losses	260,032		253,993		713,469		728,183
NON-INTEREST INCOME
Service charges on deposits	12,632		10,941		36,226		30,898
Card-based fees	9,115		9,111		28,353		26,759
Brokerage revenue	27		31		65		5,081
Residential mortgage banking revenue, net	17,341		34,150		108,671		143,626
Gain on sale of debt securities, net	—		—		2		4
Loss on equity securities, net	(2,647)		(343)		(7,383)		(1,045)
Gain on loan and lease sales, net	1,525		4,208		5,165		10,899
Bank owned life insurance income	2,023		2,038		6,220		6,201
Other (losses) income	(10,571)		13,569		(12,670)		51,157
Total non-interest income	29,445		73,705		164,649		273,580
NON-INTEREST EXPENSE
Salaries and employee benefits	109,164		117,636		333,244		363,343
Occupancy and equipment, net	35,042		33,944		104,430		103,236
Communications	2,542		2,866		7,881		8,633
Marketing	1,505		1,651		5,552		5,077
Services	13,355		12,017		39,094		36,279
FDIC assessments	3,007		2,136		10,477		6,342
Intangible amortization	1,025		1,130		3,076		3,390
Merger related expenses	769		—		5,719		—

Other expenses	11,555		12,373		30,495		34,445
Total non-interest expense	177,964		183,753		539,968		560,745
Income before provision for income taxes	111,513		143,945		338,150		441,018
Provision for income taxes	27,473		35,879		84,362		109,072
Net income	$	84,040	$	108,066	$	253,788	$	331,946
Earnings per common share:
Basic	$0.39		$0.49		$1.17		$1.51
Diluted	$0.39		$0.49		$1.17		$1.51
Weighted average number of common shares outstanding:
Basic	217,051		218,416		216,955		219,791
Diluted	217,386		218,978		217,353		220,278

See notes to condensed consolidated financial statements

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net income	$	84,040	$	108,066	$	253,788	$	331,946
Available for sale securities:
Unrealized losses arising during the period	(186,336)		(29,009)		(575,781)		(93,533)
Income tax benefit related to unrealized losses	47,926		7,463		148,091		24,058

Reclassification adjustment for net realized gains in earnings	—		—		(2)		(4)
Income tax expense related to realized gains	—		—		1		1
Net change in unrealized losses for available for sale securities	(138,410)		(21,546)		(427,691)		(69,478)

Junior subordinated debentures, at fair value:
Unrealized losses arising during the period	(4,043)		(11,946)		(31,810)		(44,504)
Income tax benefit related to unrealized losses	1,040		3,072		8,182		11,446
Net change in unrealized losses for junior subordinated debentures, at fair value	(3,003)		(8,874)		(23,628)		(33,058)
Other comprehensive loss, net of tax	(141,413)		(30,420)		(451,319)		(102,536)
Comprehensive (loss) income	$	(57,373)	$	77,646	$	(197,531)	$	229,410

See notes to condensed consolidated financial statements

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)


	Common Stock			Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)
(in thousands, except shares)	Shares	Amount						Total
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
Net income				116,143				116,143
Other comprehensive income, net of tax						12,497		12,497
Stock-based compensation		2,377						2,377
Stock repurchased and retired	(957)	(18)						(18)
Issuances of common stock under stock plans	136,206	34						34
Cash dividends on common stock ($0.21 per share)				(46,586)				(46,586)
Balance at June 30, 2021	220,626,452	$	3,517,641	$	(801,954)	$	50,629	$	2,766,316
Net income				108,066				108,066
Other comprehensive loss, net of tax						(30,420)		(30,420)
Stock-based compensation		2,765						2,765
Stock repurchased and retired	(4,011,808)	(78,321)						(78,321)
Issuances of common stock under stock plans	7,159	—						—
Cash dividends on common stock ($0.21 per share)				(46,027)				(46,027)
Balance at September 30, 2021	216,621,803	$	3,442,085	$	(739,915)	$	20,209	$	2,722,379
Net income				88,354				88,354
Other comprehensive loss, net of tax						(18,450)		(18,450)
Stock-based compensation		2,800						2,800
Stock repurchased and retired	(1,790)	(36)						(36)
Issuances of common stock under stock plans	5,493	—						—
Cash dividends on common stock ($0.21 per share)				(45,777)				(45,777)
Balance at December 31, 2021	216,625,506	$	3,444,849	$	(697,338)	$	1,759	$	2,749,270

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Continued)

(UNAUDITED)


	Common Stock			Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)
(in thousands, except shares)	Shares	Amount						Total
Balance at January 1, 2022	216,625,506	$	3,444,849	$	(697,338)	$	1,759	$	2,749,270
Net income				91,157				91,157
Other comprehensive loss, net of tax						(185,515)		(185,515)
Stock-based compensation		2,454						2,454
Stock repurchased and retired	(194,792)	(4,037)						(4,037)
Issuances of common stock under stock plans	536,157	—						—
Cash dividends on common stock ($0.21 per share)				(45,731)				(45,731)
Balance at March 31, 2022	216,966,871	$	3,443,266	$	(651,912)	$	(183,756)	$	2,607,598
Net income				78,591				78,591
Other comprehensive loss, net of tax						(124,391)		(124,391)
Stock-based compensation		2,283						2,283
Stock repurchased and retired	(4,267)	(72)						(72)
Issuances of common stock under stock plans	86,363	54						54
Cash dividends on common stock ($0.21 per share)				(45,787)				(45,787)
Balance at June 30, 2022	217,048,967	$	3,445,531	$	(619,108)	$	(308,147)	$	2,518,276
Net income				84,040				84,040
Other comprehensive loss, net of tax						(141,413)		(141,413)
Stock-based compensation		2,517						2,517
Stock repurchased and retired	(2,348)	(41)						(41)
Issuances of common stock under stock plans	6,333	—						—
Cash dividends on common stock ($0.21 per share)				(45,865)				(45,865)
Balance at September 30, 2022	217,052,952	$	3,448,007	$	(580,933)	$	(449,560)	$	2,417,514

See notes to condensed consolidated financial statements

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	253,788	$	331,946
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net	5,089		10,934
Gain on sale of investment securities, net	(2)		(4)



Provision (recapture) for credit losses	51,068		(41,915)
Change in cash surrender value of bank owned life insurance	(6,293)		(6,302)
Depreciation, amortization and accretion	21,560		23,492
(Gain) loss on sale of premises and equipment	(2,203)		436

Additions to residential mortgage servicing rights carried at fair value	(20,397)		(30,845)
Change in fair value of residential mortgage servicing rights carried at fair value	(52,165)		17,918


Stock-based compensation	7,254		8,106
Net decrease in equity and other investments	1,554		457
Loss on equity securities, net	7,383		1,045
Loss (gain) on sale of loans and leases, net	207		(124,764)
Change in fair value of loans held for sale	14,616		21,727
Origination of loans held for sale	(1,622,633)		(3,875,836)
Proceeds from sales of loans held for sale	1,793,676		4,065,846
Change in other assets and liabilities:
Net decrease in other assets	203,802		161,119
Net increase (decrease) in other liabilities	248,362		(21,816)
Net cash provided by operating activities	904,666		541,544
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(175,656)		(1,473,840)

Proceeds from investment securities available for sale	328,685		578,240


Purchases of restricted equity securities	(164,344)		(34)
Redemption of restricted equity securities	134,267		30,754
Net change in loans and leases	(3,064,741)		(85,539)
Proceeds from sales of loans and leases	111,584		182,605
Change in premises and equipment	(11,259)		(13,121)
Proceeds from bank owned life insurance death benefits	4,069		3,401



Net cash received from sale of Umpqua Investments, Inc.	—		10,781

Other	1,997		1,879
Net cash used in investing activities	$	(2,835,398)	$	(764,874)

Table of Contents


UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	222,437	$	2,286,225
Net (decrease) increase in securities sold under agreements to repurchase	(108,678)		92,376
Proceeds from borrowings	750,000		—
Repayment of borrowings	—		(765,000)

Net proceeds from issuance of common stock	54		34
Dividends paid on common stock	(136,693)		(138,243)

Repurchase and retirement of common stock	(4,150)		(80,654)
Net cash provided by financing activities	722,970		1,394,738
Net (decrease) increase in cash and cash equivalents	(1,207,762)		1,171,408
Cash and cash equivalents, beginning of period	2,761,621		2,573,181
Cash and cash equivalents, end of period	$	1,553,859	$	3,744,589

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	33,154	$	35,085
Income taxes	$	44,174	$	81,482
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in unrealized gains and losses on investment securities available for sale, net of taxes	$	(427,691)	$	(69,478)

Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes	$	(23,628)	$	(33,058)



Transfer of loans held for sale to loans held for investment	$	13,799	$	315,887

See notes to condensed consolidated financial statements

Table of Contents

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," or "us" or similar references mean the Company and include our consolidated subsidiaries where the context so requires. FinPac is the Bank's wholly-owned subsidiary, a commercial equipment leasing company. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and the Bank's wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of the Company's accounting policies is included in the 2021 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 2021 Annual Report filed on Form 10-K.

In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to September 30, 2022, for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period.

Application of new accounting guidance

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate or another reference rate expected to be discontinued. The guidance further provides an expedient of 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.

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 for contract modifications. 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.

The Company has an enterprise-wide LIBOR transition program which includes business strategy, product design and pricing strategy, instrument contract remediation, and systems and processes. The Company continues to use the expedients in the Topic 848 guidance to manage through the LIBOR transition, specifically for our loan portfolio. Umpqua has stopped originating new instruments using LIBOR, and consistent with regulatory guidance, Umpqua has stopped extensions of, or any increase in exposure in, current LIBOR instruments.

Table of Contents

Recent accounting pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The ASU specifies for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The guidance is applicable and the Company will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has adopted CECL, ASU No. 2022-02 will be effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on the Company's consolidated financial statements.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also update the disclosures for equity securities subject to contractual restrictions. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, with early adoption permitted. The amendment will be applied prospectively. The Company is currently evaluating the impact of this ASU on the Company's consolidated financial statements.

Note 2 – Investment Securities

The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	935,469	$	—	$	(104,656)	$	830,813
Obligations of states and political subdivisions	304,585		80		(34,761)		269,904
Mortgage-backed securities and collateralized mortgage obligations	2,466,040		1		(430,367)		2,035,674

Total available for sale securities	$	3,706,094	$	81	$	(569,784)	$	3,136,391
Held to maturity:

Mortgage-backed securities and collateralized mortgage obligations	$	2,547	$	740	$	—	$	3,287

Total held to maturity securities	$	2,547	$	740	$	—	$	3,287

Table of Contents


	December 31, 2021
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	894,969	$	27,279	$	(4,195)	$	918,053
Obligations of states and political subdivisions	320,338		11,734		(1,288)		330,784
Mortgage-backed securities and collateralized mortgage obligations	2,649,048		19,093		(46,543)		2,621,598

Total available for sale securities	$	3,864,355	$	58,106	$	(52,026)	$	3,870,435
Held to maturity:

Mortgage-backed securities and collateralized mortgage obligations	$	2,744	$	770	$	—	$	3,514

Total held to maturity securities	$	2,744	$	770	$	—	$	3,514

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 $12.3 million and $10.4 million as of September 30, 2022 and December 31, 2021, respectively, and is included in Other Assets.

Debt securities that were in an unrealized loss position as of September 30, 2022 and December 31, 2021 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.


	September 30, 2022
	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	$	714,139	$	81,728	$	116,674	$	22,928	$	830,813	$	104,656
Obligations of states and political subdivisions	224,486		24,966		31,605		9,795		256,091		34,761
Mortgage-backed securities and collateralized mortgage obligations	970,093		142,645		1,065,483		287,722		2,035,576		430,367
Total temporarily impaired securities	$	1,908,718	$	249,339	$	1,213,762	$	320,445	$	3,122,480	$	569,784


	December 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	$	197,529	$	2,749	$	28,378	$	1,446	$	225,907	$	4,195
Obligations of states and political subdivisions	75,200		1,153		2,162		135		77,362		1,288
Mortgage-backed securities and collateralized mortgage obligations	1,777,288		40,579		129,943		5,964		1,907,231		46,543

Total temporarily impaired securities	$	2,050,017	$	44,481	$	160,483	$	7,545	$	2,210,500	$	52,026

These unrealized losses on the debt securities held by the Company were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not due to the underlying credit of the issuers. Management monitors the published credit ratings of the issuers of the debt securities for material rating or outlook changes. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at September 30, 2022 are issued or guaranteed by government sponsored enterprises. Because the decline in fair value of the debt securities is attributable to changes in interest rates or widening market spreads and not credit quality, these investments do not have an allowance for credit losses at September 30, 2022.

Table of Contents

The following table presents the contractual maturities of debt securities at September 30, 2022:


	Available For Sale				Held To Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	32,935	$	31,768	$	—	$	—
Due after one year through five years	381,941		355,163		4		4
Due after five years through ten years	879,699		769,002		3		3
Due after ten years	2,411,519		1,980,458		2,540		3,280
Total securities	$	3,706,094	$	3,136,391	$	2,547	$	3,287

The following table presents, as of September 30, 2022, investment securities which 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	$	492,344	$	433,917
To secure repurchase agreements	479,063		416,031
Other securities pledged	243,069		217,513
Total pledged securities	$	1,214,476	$	1,067,461

Note 3 – Loans and Leases

The following table presents the major types of loans and leases, net of deferred fees and costs, as of September 30, 2022 and December 31, 2021:


(in thousands)	September 30, 2022		December 31, 2021
Commercial real estate
Non-owner occupied term, net	$	3,846,426	$	3,786,887
Owner occupied term, net	2,549,761		2,332,422
Multifamily, net	5,090,661		4,051,202
Construction & development, net	1,036,931		890,338
Residential development, net	205,935		206,990
Commercial
Term, net	3,003,424		3,008,473
Lines of credit & other, net	914,507		910,733
Leases & equipment finance, net	1,669,817		1,467,676
Residential
Mortgage, net	5,470,624		4,517,266
Home equity loans & lines, net	1,565,094		1,197,170
Consumer & other, net	154,771		184,023
Total loans and leases, net of deferred fees and costs	$	25,507,951	$	22,553,180

As of September 30, 2022 and December 31, 2021, the net deferred costs were $83.9 million and $57.5 million, respectively. Total loans and leases also include discounts on acquired loans of $6.5 million and $9.8 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, loans totaling $16.4 billion were pledged to secure borrowings and available lines of credit. The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. Interest accrued on loans totaled $72.7 million and $60.1 million as of September 30, 2022 and December 31, 2021, respectively, and is included in Other Assets.

Table of Contents

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 leases and equipment finance segment within the loans and leases, net line item. These direct financing leases typically have terms of three to five years. Interest income recognized on these leases was $4.4 million and $14.3 million for the three and nine months ended September 30, 2022, as compared to $6.1 million and $17.3 million for the three and nine months ended September 30, 2021.

Loans and leases sold

In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Commercial real estate
Non-owner occupied term, net	$	10,704	$	14,828	$	35,412	$	38,124
Owner occupied term, net	13,093		12,692		31,977		25,115
Multifamily, net	—		—		—		3,776


Commercial
Term, net	15,759		10,866		37,537		39,180


Residential
Mortgage, net	—		—		1,493		1,712

Consumer & other	—		—		—		63,799
Total loans and leases sold, net	$	39,556	$	38,386	$	106,419	$	171,706

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 utilized in the models used to calculate the ACL.

For ACL calculation purposes, the Bank considered the financial and economic environment at the time of assessment and economic scenarios that differed in the levels of severity and sensitivity to the ACL results. At each measurement date, the Bank selects the scenario that reflects its view of future economic conditions and is determined to be the most probable outcome.

All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results and the timing thereof will differ from the estimate of credit losses, either in a strong economy or a recession, as 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 address 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.

Table of Contents

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 September 30, 2022, were primarily related to changes in the economic assumptions. The Bank opted to use Moody's Analytics' August consensus economic forecast for estimating the ACL as of September 30, 2022. This scenario is based on Moody's Analytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's Analytics' approach is to give greater consideration to the most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.

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

•U.S. real GDP average annualized growth of 1.7% in 2022, 1.3% in 2023, 1.7% in 2024, and 1.9% in 2025;

•U.S. unemployment rate average of 3.6% in 2022, 3.9% in 2023, 4.0% in 2024, and 3.9% 2025;

•The forecasted average federal funds rate is expected to be 3.2% in Q4 2022, 3.3% in 2023, 2.8% 2024 and 2.6% in 2025.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:

•The economy falls into a recession in the fourth quarter of 2022;

•The Russian invasion of Ukraine persists longer than anticipated. Import bans of Russian oil purchases increase the loss of oil on the global market to 3 million barrels per day, the same as in the baseline, but concerns build that there could be an even larger interruption of global oil supplies. This causes oil prices to stay elevated above $100 per barrel for several quarters longer than in the baseline, and thereby increases inflationary pressures. Higher gasoline prices cut into disposable income that would otherwise be available for other spending;

•Supply-chain issues also persist, increasing shortages of affected goods, also keeping inflation elevated;

•New cases, hospitalizations and deaths from COVID-19 start to rise again, slowing growth in spending on air travel, retail, and hotels;

•U.S real GDP average annualized growth is expected to be 1.6% in 2022, (0.5)% in 2023, 3.0% in 2024, and 3.4% in 2025;

•U.S. unemployment rate average of 3.9% in 2022, 6.1% in 2023, 4.8% in 2024, and 3.9% in 2025;

•The Federal Reserve is expected to increase the federal funds rate somewhat faster than in the baseline in the fourth quarter of 2022 and the first half of 2023.

The results using the comparison scenario in addition to changes to the macroeconomic variables subsequent to selected scenarios for sensitivity analysis were reviewed by management and were considered when evaluating the qualitative factor adjustments.

The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models. Except as noted below, the macroeconomic variables that are inputs to the models are reasonable and supportable over the life of the loans in that they reasonably project the key economic variables in the near term and then converge to a long run equilibrium trend. These models produce reasonable and supportable estimates of loss over the life of the loans as the projected credit losses will also converge to a steady state in line with the variables applied. The Company measures the ACL using the following methods:

Commercial Real Estate: 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 and regional commercial real estate forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP growth, U.S. unemployment rate, and 10-Year Treasury yield. These economic drivers are translated into a forecast provided by Moody's Analytics' REIS of real estate metrics, such as rental rates, vacancies, and cap rates. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.

Table of Contents

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 expected loss percentage projection to remaining periods. The primary economic drivers for this model are the 7-year A vs Aa corporate bond spread and S&P 500 corporate after-tax profits.

Commercial: Non-homogeneous commercial loans and leases and residential development loans are analyzed in a multi-step process. An initial PD is estimated using a model driven by an obligor's selected financial statement ratios, together with cycle-adjusting information based on the obligor's state and industry. An initial LGD is derived separately based on collateral type using collateral value and a haircut to reflect the loss in liquidation. Another model then applies an auto-regression technique to the initial PD and LGD metrics to estimate the PD and LGD curves according to the macroeconomic scenario over a one-year reasonable and supportable forecast. The primary economic drivers in the model are the S&P 500 Stock Price Index, S&P 500 Market Volatility Index, U.S. unemployment rate, as well as appropriate yield curves and credit spreads. This model utilizes output reversion methodology, which, after one year, reverts on a straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.

The model for the homogeneous lease and equipment finance agreement portfolio uses lease and equipment finance agreement information, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD values. The PD calculation is based on survival analysis while LGD is calculated using a two-step regression. The model calculates LGD using an estimate of the probability that a defaulted lease or equipment finance agreement will have a loss, and an estimate of the loss amount. The primary economic drivers for the model are GDP, U.S. unemployment rate, and a home price growth index. The model produces PD and LGD curves at the lease or equipment finance agreement level for each month in the forecast horizon.

Residential: The models for residential real estate and home equity 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 for the commercial real estate, commercial and industrial and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential and leases portfolios. 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.

Table of Contents

•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Bank's existing portfolio.

The Company evaluated each qualitative factor as of September 30, 2022, 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 DCF method, which is used for all loans except lines of credit and 2) the non-DCF 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-DCF method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.

Table of Contents

The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	88,983	$	131,455	$	36,586	$	4,087	$	261,111

(Recapture) provision for credit losses for loans and leases	(3,563)		26,762		4,307		1,036		28,542

Charge-offs	—		(9,459)		(4)		(929)		(10,392)
Recoveries	123		2,842		249		590		3,804
Net recoveries (charge-offs)	123		(6,617)		245		(339)		(6,588)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	7,351	$	2,232	$	2,735	$	505	$	12,823

(Recapture) provision for credit losses on unfunded commitments	(1,994)		579		304		141		(970)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918

	Nine Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	99,075	$	117,573	$	29,068	$	2,696	$	248,412
(Recapture) provision for credit losses for loans and leases	(13,745)		52,058		11,603		3,109		53,025

Charge-offs	(8)		(26,352)		(171)		(2,650)		(29,181)
Recoveries	221		8,321		638		1,629		10,809
Net recoveries (charge-offs)	213		(18,031)		467		(1,021)		(18,372)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	8,461	$	2,028	$	1,957	$	321	$	12,767
(Recapture) provision for credit losses on unfunded commitments	(3,104)		783		1,082		325		(914)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918

Table of Contents


	Three Months Ended September 30, 2021
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	128,951	$	121,390	$	25,296	$	4,250	$	279,887
(Recapture) provision for credit losses for loans and leases	(20,141)		2,719		1,703		(413)		(16,132)
Charge-offs	(916)		(8,521)		—		(936)		(10,373)
Recoveries	120		3,346		281		431		4,178
Net (charge-offs) recoveries	(796)		(5,175)		281		(505)		(6,195)
Balance, end of period	$	108,014	$	118,934	$	27,280	$	3,332	$	257,560
Reserve for unfunded commitments
Balance, beginning of period	$	10,094	$	2,145	$	1,710	$	590	$	14,539
(Recapture) provision for credit losses on unfunded commitments	(3,273)		440		247		(201)		(2,787)
Balance, end of period	6,821		2,585		1,957		389		11,752
Total allowance for credit losses	$	114,835	$	121,519	$	29,237	$	3,721	$	269,312

	Nine Months Ended September 30, 2021
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	141,710	$	150,864	$	27,964	$	7,863	$	328,401
(Recapture) provision for credit losses for loans and leases	(33,199)		4,180		(1,212)		(3,150)		(33,381)
Charge-offs	(1,086)		(44,228)		(70)		(2,983)		(48,367)
Recoveries	589		8,118		598		1,602		10,907
Net (charge-offs) recoveries	(497)		(36,110)		528		(1,381)		(37,460)
Balance, end of period	$	108,014	$	118,934	$	27,280	$	3,332	$	257,560
Reserve for unfunded commitments
Balance, beginning of period	$	15,360	$	2,190	$	1,661	$	1,075	$	20,286
(Recapture) provision for credit losses on unfunded commitments	(8,539)		395		296		(686)		(8,534)
Balance, end of period	6,821		2,585		1,957		389		11,752
Total allowance for credit losses	$	114,835	$	121,519	$	29,237	$	3,721	$	269,312

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 department is charged with monitoring asset quality, establishing credit policies and procedures, and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions, and other factors.

Table of Contents

Loans and Leases Past Due and Non-Accrual Loans and Leases

The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	321	$	—	$	—	$	321	$	3,282	$	3,842,823	$	3,846,426
Owner occupied term, net	282		24		1		307		2,121		2,547,333		2,549,761
Multifamily, net	—		—		—		—		—		5,090,661		5,090,661
Construction & development, net	—		—		—		—		—		1,036,931		1,036,931
Residential development, net	—		—		—		—		—		205,935		205,935
Commercial
Term, net	3,743		4,073		1		7,817		3,945		2,991,662		3,003,424
Lines of credit & other, net	778		83		6		867		86		913,554		914,507
Leases & equipment finance, net	15,628		14,952		5,136		35,716		14,621		1,619,480		1,669,817
Residential
Mortgage, net (2)	869		8,518		20,717		30,104		—		5,440,520		5,470,624
Home equity loans & lines, net	2,406		1,191		1,716		5,313		—		1,559,781		1,565,094
Consumer & other, net	420		250		152		822		—		153,949		154,771
Total, net of deferred fees and costs	$	24,447	$	29,091	$	27,729	$	81,267	$	24,055	$	25,402,629	$	25,507,951

(1) Loans and leases on non-accrual with an amortized cost basis of $24.1 million had a related allowance for credit losses of $13.1 million at September 30, 2022.

(2) Includes government guaranteed mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $1.0 million at September 30, 2022.

Table of Contents


	December 31, 2021
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current and Other		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	388	$	1,138	$	—	$	1,526	$	3,384	$	3,781,977	$	3,786,887
Owner occupied term, net	101		65		1		167		2,383		2,329,872		2,332,422
Multifamily, net	—		—		—		—		—		4,051,202		4,051,202
Construction & development, net	—		—		—		—		—		890,338		890,338
Residential development, net	—		—		—		—		—		206,990		206,990
Commercial
Term, net	4,627		2,345		4		6,976		4,225		2,997,272		3,008,473
Lines of credit & other, net	300		2		357		659		—		910,074		910,733
Leases & equipment finance, net	6,806		8,951		3,799		19,556		8,873		1,439,247		1,467,676
Residential
Mortgage, net	802		3,668		27,249		31,719		—		4,485,547		4,517,266
Home equity loans & lines, net	1,214		491		732		2,437		—		1,194,733		1,197,170
Consumer & other, net	396		386		194		976		—		183,047		184,023
Total, net of deferred fees and costs	$	14,634	$	17,046	$	32,336	$	64,016	$	18,865	$	22,470,299	$	22,553,180

(1) Loans and leases on non-accrual with an amortized cost basis of $18.9 million had a related allowance for credit losses of $7.5 million at December 31, 2021.

Collateral Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of September 30, 2022. 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	$	—	$	3,059	$	—	$	—	$	3,059
Owner occupied term, net	—		1,879		—		—		1,879



Commercial
Term, net	1,092		520		1,922		—		3,534
Line of credit & other, net	—		—		86		1		87
Leases & equipment finance, net	—		—		14,621		—		14,621
Residential
Mortgage, net	38,051		—		—		—		38,051
Home equity loans & lines, net	3,497		—		—		—		3,497

Total net of deferred fees and costs	$	42,640	$	5,458	$	16,629	$	1	$	64,728

Table of Contents

Troubled Debt Restructuring

At September 30, 2022 and December 31, 2021, troubled debt restructured loans of $7.1 million and $6.7 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	278	$	32	$	310	3

Residential, net	6,785		—		6,785		42
Consumer & other, net	13		—		13		2
Total, net of deferred fees and costs	$	7,076	$	32	$	7,108	47

	December 31, 2021
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	1,031	$	59	$	1,090	5

Residential, net	5,641		—		5,641		35
Consumer & other, net	22		—		22		3
Total, net of deferred fees and costs	$	6,694	$	59	$	6,753	43

The following table presents loans that were determined to be TDRs during the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Commercial real estate, net	$	278	$	—	$	278	$	—

Residential, net	$	1,405	$	1,661	5,611		5,903
Consumer & other, net	—		—		—		36
Total, net of deferred fees and costs	$	1,683	$	1,661	$	5,889	$	5,939

Table of Contents

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 Company's board of directors 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 initially risk rated on a single risk rating scale based on the past due status of the loan or lease. Homogeneous loans and leases that have risk-based modifications or forbearances enter into an alternative elevated risk rating scale that freezes the elevated risk rating and requires six consecutive months of scheduled payments without delinquency before the loan or lease can return to the delinquency-based risk rating scale. Homogeneous loans and leases with other defined risk factors such as confirmed bankruptcy, business closure, death of a guarantor or fraud will be set to a floor substandard rating.

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 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 loan or lease is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans and leases 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.

Table of Contents

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 September 30, 2022 and December 31, 2021:


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	611,283	$	779,385	$	394,345	$	572,015	$	396,511	$	1,003,038	$	1,015	$	4,502	$	3,762,094
	Special mention	893		18,188		373		4,628		4,028		10,825		—		—		38,935
	Substandard	2,559		797		1,960		—		33,202		6,583		—		—		45,101
	Doubtful	—		—		—		—		—		52		—		—		52
	Loss	—		—		—		—		—		244		—		—		244
Total non-owner occupied term, net		$	614,735	$	798,370	$	396,678	$	576,643	$	433,741	$	1,020,742	$	1,015	$	4,502	$	3,846,426
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	558,055	$	562,282	$	188,825	$	333,328	$	214,471	$	641,716	$	4,532	$	119	$	2,503,328
	Special mention	2,103		—		—		3,483		12,163		11,688		—		—		29,437
	Substandard	—		1,658		404		660		1,362		12,808		—		—		16,892
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		104		—		—		104
Total owner occupied term, net		$	560,158	$	563,940	$	189,229	$	337,471	$	227,996	$	666,316	$	4,532	$	119	$	2,549,761
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	1,641,219	$	1,619,672	$	366,586	$	656,951	$	236,674	$	541,995	$	24,649	$	2,915	$	5,090,661
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total multifamily, net		$	1,641,219	$	1,619,672	$	366,586	$	656,951	$	236,674	$	541,995	$	24,649	$	2,915	$	5,090,661
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	133,105	$	471,095	$	247,657	$	112,484	$	27,875	$	18,228	$	2,390	$	—	$	1,012,834
	Special mention	—		12,571		—		11,526		—		—		—		—		24,097
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total construction & development, net		$	133,105	$	483,666	$	247,657	$	124,010	$	27,875	$	18,228	$	2,390	$	—	$	1,036,931
Residential development, net
Credit quality indicator:
	Pass/Watch	$	27,328	$	18,597	$	1,250	$	—	$	—	$	—	$	158,760	$	—	$	205,935
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total residential development, net		$	27,328	$	18,597	$	1,250	$	—	$	—	$	—	$	158,760	$	—	$	205,935

Total commercial real estate		$	2,976,545	$	3,484,245	$	1,201,400	$	1,695,075	$	926,286	$	2,247,281	$	191,346	$	7,536	$	12,729,714

Table of Contents


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	639,802	$	719,847	$	186,897	$	174,050	$	136,346	$	297,180	$	698,264	$	45,295	$	2,897,681
	Special mention	—		3,459		23		94		1,612		30,388		—		869		36,445
	Substandard	—		3,099		8,123		7		26,854		2,448		26,880		813		68,224
	Doubtful	—		—		657		—		—		—		—		—		657
	Loss	—		—		—		—		417		—		—		—		417
Total term, net		$	639,802	$	726,405	$	195,700	$	174,151	$	165,229	$	330,016	$	725,144	$	46,977	$	3,003,424
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	41,018	$	8,347	$	4,909	$	15,459	$	8,967	$	1,298	$	793,610	$	16,818	$	890,426
	Special mention	—		—		—		—		—		—		7,637		273		7,910
	Substandard	—		356		—		—		—		1,103		7,933		6,779		16,171
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total lines of credit & other, net		$	41,018	$	8,703	$	4,909	$	15,459	$	8,967	$	2,401	$	809,180	$	23,870	$	914,507
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	662,587	$	413,258	$	224,418	$	176,694	$	79,557	$	47,081	$	—	$	—	$	1,603,595
	Special mention	4,797		6,434		2,334		2,953		1,146		1,171		—		—		18,835
	Substandard	6,292		7,367		3,388		2,502		1,687		294		—		—		21,530
	Doubtful	6,053		10,491		3,665		3,299		893		223		—		—		24,624
	Loss	414		476		163		130		38		12		—		—		1,233
Total leases & equipment finance, net		$	680,143	$	438,026	$	233,968	$	185,578	$	83,321	$	48,781	$	—	$	—	$	1,669,817

Total commercial		$	1,360,963	$	1,173,134	$	434,577	$	375,188	$	257,517	$	381,198	$	1,534,324	$	70,847	$	5,587,748

Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	1,267,843	$	2,376,164	$	491,918	$	478,631	$	148,352	$	678,634	$	—	$	—	$	5,441,542
	Special mention	433		595		1,546		901		1,016		4,896		—		—		9,387
	Substandard	—		2,246		1,081		2,858		1,936		11,098		—		—		19,219
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		233		—		237		—		6		—		—		476
Total mortgage, net		$	1,268,276	$	2,379,238	$	494,545	$	482,627	$	151,304	$	694,634	$	—	$	—	$	5,470,624

Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	1,028	$	652	$	—	$	—	$	17	$	8,243	$	1,519,724	$	30,115	$	1,559,779
	Special mention	—		—		—		—		—		63		2,955		580		3,598
	Substandard	—		—		—		—		—		133		625		484		1,242
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		52		193		230		475
Total home equity loans & lines, net		$	1,028	$	652	$	—	$	—	$	17	$	8,491	$	1,523,497	$	31,409	$	1,565,094

Total residential		$	1,269,304	$	2,379,890	$	494,545	$	482,627	$	151,321	$	703,125	$	1,523,497	$	31,409	$	7,035,718

Table of Contents


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	14,687	$	8,542	$	7,593	$	7,282	$	3,139	$	5,076	$	106,881	$	753	$	153,953
	Special mention	10		9		21		33		24		182		364		28		671
	Substandard	—		—		2		7		27		23		66		15		140
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		7		—		—		7
Total consumer & other, net		$	14,697	$	8,551	$	7,616	$	7,322	$	3,190	$	5,288	$	107,311	$	796	$	154,771

Grand total		$	5,621,509	$	7,045,820	$	2,138,138	$	2,560,212	$	1,338,314	$	3,336,892	$	3,356,478	$	110,588	$	25,507,951


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	901,230	$	434,875	$	618,879	$	431,098	$	308,872	$	942,501	$	1,313	$	3,679	$	3,642,447
	Special mention	—		1,311		1,411		12,252		844		38,268		—		—		54,086
	Substandard	19,270		2,214		2,605		53,312		2,990		9,641		—		—		90,032
	Doubtful	—		—		—		—		—		78		—		—		78
	Loss	—		—		—		—		—		244		—		—		244
Total non-owner occupied term, net		$	920,500	$	438,400	$	622,895	$	496,662	$	312,706	$	990,732	$	1,313	$	3,679	$	3,786,887
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	594,677	$	237,814	$	369,483	$	245,707	$	227,201	$	601,934	$	5,017	$	737	$	2,282,570
	Special mention	—		—		7,445		10,739		4,936		12,219		—		—		35,339
	Substandard	—		897		674		1,815		—		10,697		—		—		14,083
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		430		—		—		430
Total owner occupied term, net		$	594,677	$	238,711	$	377,602	$	258,261	$	232,137	$	625,280	$	5,017	$	737	$	2,332,422
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	1,700,221	$	380,506	$	748,207	$	346,192	$	334,688	$	510,385	$	26,475	$	2,931	$	4,049,605
	Special mention	—		—		—		—		—		1,597		—		—		1,597
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total multifamily, net		$	1,700,221	$	380,506	$	748,207	$	346,192	$	334,688	$	511,982	$	26,475	$	2,931	$	4,051,202

Table of Contents


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	264,489	$	310,207	$	237,435	$	48,911	$	18,375	$	136	$	2,382	$	—	$	881,935
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		8,403		—		—		—		—		8,403
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total construction & development, net		$	264,489	$	310,207	$	237,435	$	57,314	$	18,375	$	136	$	2,382	$	—	$	890,338
Residential development, net
Credit quality indicator:
	Pass/Watch	$	28,744	$	15,623	$	—	$	—	$	—	$	—	$	156,587	$	6,036	$	206,990
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total residential development, net		$	28,744	$	15,623	$	—	$	—	$	—	$	—	$	156,587	$	6,036	$	206,990

Total commercial real estate		$	3,508,631	$	1,383,447	$	1,986,139	$	1,158,429	$	897,906	$	2,128,130	$	191,774	$	13,383	$	11,267,839

Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	1,102,310	$	306,969	$	200,352	$	179,217	$	206,405	$	215,105	$	699,230	$	14,075	$	2,923,663
	Special mention	—		4,454		97		28,971		587		825		27,909		1,501		64,344
	Substandard	1,217		9,827		—		1,095		2,648		1,264		—		3,189		19,240
	Doubtful	—		—		—		—		809		—		—		—		809
	Loss	—		—		—		417		—		—		—		—		417
Total term, net		$	1,103,527	$	321,250	$	200,449	$	209,700	$	210,449	$	217,194	$	727,139	$	18,765	$	3,008,473
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	31,836	$	9,170	$	16,529	$	10,945	$	334	$	1,605	$	812,207	$	8,498	$	891,124
	Special mention	—		—		—		—		—		—		8,830		752		9,582
	Substandard	714		414		—		—		—		1,118		3,238		4,540		10,024
	Doubtful	—		—		—		—		—		—		1		—		1
	Loss	—		—		—		—		—		—		1		1		2
Total lines of credit & other, net		$	32,550	$	9,584	$	16,529	$	10,945	$	334	$	2,723	$	824,277	$	13,791	$	910,733
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	599,301	$	325,379	$	282,101	$	138,627	$	43,950	$	38,965	$	—	$	—	$	1,428,323
	Special mention	2,512		1,965		1,782		1,690		572		130		—		—		8,651
	Substandard	4,280		7,333		2,682		1,448		578		160		—		—		16,481
	Doubtful	3,781		3,232		3,238		1,343		663		636		—		—		12,893
	Loss	614		258		187		84		179		6		—		—		1,328
Total leases & equipment finance, net		$	610,488	$	338,167	$	289,990	$	143,192	$	45,942	$	39,897	$	—	$	—	$	1,467,676

Total commercial		$	1,746,565	$	669,001	$	506,968	$	363,837	$	256,725	$	259,814	$	1,551,416	$	32,556	$	5,386,882

Table of Contents


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	2,252,704	$	606,671	$	585,923	$	190,673	$	209,990	$	639,585	$	—	$	—	$	4,485,546
	Special mention	372		—		555		81		632		2,830		—		—		4,470
	Substandard	—		1,379		4,430		1,147		3,098		15,692		—		—		25,746
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		907		—		—		597		—		—		1,504
Total mortgage, net		$	2,253,076	$	608,050	$	591,815	$	191,901	$	213,720	$	658,704	$	—	$	—	$	4,517,266

Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	972	$	—	$	—	$	18	$	—	$	10,973	$	1,151,063	$	31,708	$	1,194,734
	Special mention	—		—		—		—		—		102		1,355		248		1,705
	Substandard	—		—		—		—		—		96		280		213		589
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		36		42		64		142
Total home equity loans & lines, net		$	972	$	—	$	—	$	18	$	—	$	11,207	$	1,152,740	$	32,233	$	1,197,170

Total residential		$	2,254,048	$	608,050	$	591,815	$	191,919	$	213,720	$	669,911	$	1,152,740	$	32,233	$	5,714,436

Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	15,375	$	10,955	$	12,167	$	5,395	$	3,983	$	5,070	$	128,264	$	1,835	$	183,044
	Special mention	—		23		41		1		113		113		391		101		783
	Substandard	—		3		15		—		17		25		55		71		186
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		7		3		—		10
Total consumer & other, net		$	15,375	$	10,981	$	12,223	$	5,396	$	4,113	$	5,215	$	128,713	$	2,007	$	184,023

Grand total		$	7,524,619	$	2,671,479	$	3,097,145	$	1,719,581	$	1,372,464	$	3,063,070	$	3,024,643	$	80,179	$	22,553,180

Note 5 – Residential Mortgage Servicing Rights

The Company measures its MSR asset 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 MSR for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Balance, beginning of period	$	179,558	$	102,699	$	123,615	$	92,907
Additions for new MSR capitalized	5,194		8,450		20,397		30,845
Changes in fair value:
Changes due to collection/realization of expected cash flows over time	(4,978)		(4,681)		(15,286)		(13,592)
Changes due to valuation inputs or assumptions (1)	16,403		(634)		67,451		(4,326)
Balance, end of period	$	196,177	$	105,834	$	196,177	$	105,834

(1) The change in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

Table of Contents

Information related to the serviced loan portfolio as of September 30, 2022 and December 31, 2021 is as follows:


(dollars in thousands)	September 30, 2022			December 31, 2021
Balance of loans serviced for others	$	12,997,911		$	12,755,671
MSR as a percentage of serviced loans	1.51		%	0.97		%

The amount of contractually specified servicing fees, late fees, and ancillary fees earned, which are recorded in residential mortgage banking revenue, were $9.5 million and $28.2 million for the three and nine months ended September 30, 2022, respectively, as compared to $9.2 million and $27.4 million for the three and nine months ended September 30, 2021, respectively.

Note 6 – Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk — The Company's financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank's business and involve elements of credit, liquidity, and interest rate risk.

The following table presents a summary of the Bank's commitments and contingent liabilities:


(in thousands)	September 30, 2022
Commitments to extend credit	$	8,021,552
Forward sales commitments	$	247,469
Commitments to originate residential mortgage loans held for sale	$	131,443
Standby letters of credit	$	125,320

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 and nine months ended September 30, 2022 and 2021. At September 30, 2022, approximately $115.6 million of standby letters of credit expire within one year, and $9.7 million expire thereafter.

Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations.

Legal Proceedings and Regulatory Matters—We are subject to litigation in court and arbitral proceedings, as well as proceedings, investigations, examinations, and other actions brought or considered by governmental and self-regulatory agencies. We are a party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which involve claims for substantial or uncertain amounts.

On September 29, 2022, the United States District Court for the Northern District of California heard oral arguments on the Bank’s motion for summary judgment in the civil class action lawsuit, Camenisch et al v. Umpqua Bank. The case was filed on August 21, 2020, on behalf of a class of investor-victims of decedent Kenneth J. Casey and a Ponzi scheme he effectuated through his companies Professional Financial Investors, Inc. or Professional Investors Security Fund, Inc. Plaintiffs claim that the companies banked with the Bank and, therefore, the Bank allegedly knew that Mr. Casey was defrauding investors. Plaintiffs' claims against the Bank include aiding and abetting fraud and aiding and abetting breach of fiduciary duty. The cases follow an SEC non-public investigation into this matter on May 28, 2020.

Table of Contents

At least quarterly, we assess liabilities and contingencies in connection with all outstanding or new legal matters, utilizing the most recent information available. If we determine that a loss from a matter is probable and the amount of the loss can be reasonably estimated, we establish an accrual for the loss. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments in the specific legal matter. It is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Actual losses may be in excess of any established accrual or the range of reasonably possible loss. Management's estimate will change from time to time. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established. The Company does not have any amounts accrued related to legal matters as of September 30, 2022.

Resolution and the outcome of legal claims is unpredictable, exacerbated by the following: damages sought are unsubstantiated or indeterminate; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; discovery or motion practice is not complete; the proceeding is not yet in its final stages; the matters present legal uncertainties; there are significant facts in dispute; there are a large number of parties, including multiple defendants; or there is a wide range of potential results. Any estimate or determination relating to the future resolution of legal and regulatory matters is uncertain and involves significant judgment. We usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the process.

Although there can be no assurance as to the ultimate outcome of specific legal matter, we believe we have meritorious defenses to the claims asserted against us in our currently outstanding legal matters, and we intend to continue to vigorously defend ourselves. We will consider settlement of legal matters when, in management's judgment, it is in the best interests of the Company and its shareholders.

Based on information currently available, advice of counsel, available insurance coverage, and established reserves, the Company believes that the eventual outcome of the actions against us will not have a material adverse effect on the Company's consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to the Company's results of operations for any particular period.

Contingencies—On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved the Merger Agreement under which the two companies will combine in an all-stock transaction. Under the terms of the Merger Agreement, Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company. On September 17, 2022, Umpqua and Columbia entered into a Letter of Agreement with the Department of Justice, which stipulates that in order to obtain regulatory approvals necessary to complete the transaction, ten Columbia State Bank branches will need to be divested. On October 25, 2022, Columbia received regulatory approval from the Board of Governors of the Federal Reserve System to complete the proposed merger with Umpqua. The transaction is expected to close following the satisfaction of customary closing conditions, including receipt of remaining regulatory approvals. The Merger Agreement provides certain termination rights for both Umpqua and Columbia and further provides that, if termination of the Merger Agreement under certain circumstances, Umpqua or Columbia, as applicable, will be obligated to pay the other party a termination fee of $145.0 million.

Concentrations of Credit Risk— The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers in Oregon, Washington, California, Idaho, Nevada, Arizona, and Colorado. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 78% and 76% of the Bank's loan and lease portfolio at September 30, 2022 and December 31, 2021, 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, 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.

Table of Contents

Note 7 – Derivatives

The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments, residential mortgage loans held for sale, and MSRs. 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 and nine months ended September 30, 2022 and 2021. 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 September 30, 2022, the Bank had commitments to originate mortgage loans held for sale totaling $131.4 million and forward sales commitments of $247.5 million, which are used to hedge both on-balance sheet and off-balance sheet exposures.

In August 2022, the Bank began purchasing interest rate futures and forward settling mortgage-backed securities to hedge the interest rate risk of mortgage servicing rights. As of September 30, 2022, the Bank had $155.0 million notional of interest rate futures contracts and $14.1 million of mortgage-backed securities related to this program. The Bank had cash collateral posting requirements for margins with its futures and mortgage-back securities counterparties and was required to post collateral against its obligations under these agreements of $13.4 million as of September 30, 2022.

The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of September 30, 2022, the Bank had 932 interest rate swaps with an aggregate notional amount of $7.3 billion related to this program. As of December 31, 2021, the Bank had 936 interest rate swaps with an aggregate notional amount of $7.0 billion related to this program.

As of September 30, 2022 and December 31, 2021, 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 $282.1 million and $8.7 million, 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 $96.9 million and $92.6 million as of September 30, 2022 and December 31, 2021, respectively. In 2021, the Bank began to collateralize a portion of its initial margin with U.S. Treasury securities.

The Bank's clearable interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for certain derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to the derivative asset and liability. As of September 30, 2022 and December 31, 2021, the variation margin adjustments consisted of a positive adjustment of $238.3 million and a negative adjustment of $172.9 million, respectively.

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.

Table of Contents

The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of September 30, 2022 and December 31, 2021:


(in thousands)	Asset Derivatives				Liability Derivatives
Derivatives not designated as hedging instrument	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Interest rate lock commitments	$	24	$	4,641	$	2,290	$	—
Interest rate futures	—		—		10,359		—
Interest rate forward sales commitments	9,740		615		5		699
Interest rate swaps	4,479		171,827		282,087		8,671
Foreign currency derivatives	586		340		481		305
Total derivative assets and liabilities	$	14,829	$	177,423	$	295,222	$	9,675

The gains and losses on the Company's mortgage banking derivatives are included in mortgage banking revenue. The gains and losses on the Company's interest rate swaps and foreign currency derivatives are included in other income. The following table summarizes the types of derivatives and the gains (losses) recorded during the three and nine months ended September 30, 2022 and 2021:


(in thousands)	Three Months Ended				Nine Months Ended
Derivatives not designated as hedging instrument	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest rate lock commitments	$	(2,149)	$	(4,952)	$	(6,907)	$	(19,886)
Interest rate futures	(14,128)		—		(14,128)		—
Interest rate forward sales commitments	10,017		(2,550)		49,468		15,336
Interest rate swaps	4,194		1,429		18,578		8,698
Foreign currency derivatives	779		718		2,283		1,985
Total derivative (losses) gains	$	(1,287)	$	(5,355)	$	49,294	$	6,133

Note 8 – Earnings Per Common Share

The following is a computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands, except per share data)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net income	$	84,040	$	108,066	$	253,788	$	331,946

Weighted average number of common shares outstanding - basic	217,051		218,416		216,955		219,791
Effect of potentially dilutive common shares (1)	335		562		398		487
Weighted average number of common shares outstanding - diluted	217,386		218,978		217,353		220,278
Earnings per common share:
Basic	$	0.39	$	0.49	$	1.17	$	1.51
Diluted	$	0.39	$	0.49	$	1.17	$	1.51

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

The following table represents the weighted average outstanding restricted shares that were not included in the computation of diluted earnings per share because their effect would be anti-dilutive for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Nine Months Ended

(in thousands)

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Restricted stock awards

502

—

395

Table of Contents

Note 9 – Segment Information

The Company reports two segments: Core Banking and Mortgage Banking. The Core Banking segment includes all lines of business, except Mortgage Banking, including commercial, retail, and private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from the serviced loan portfolio, the quarterly changes to the MSR, the quarterly changes in the MSR hedge, 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 primarily originated through the Bank's retail consumer (store) and wealth channels. Management periodically updates the allocation methods and assumptions within the current segment structure.

Table of Contents

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 September 30, 2022						Three Months Ended September 30, 2021
(in thousands)		Core Banking		Mortgage Banking		Consolidated		Core Banking		Mortgage Banking		Consolidated
Net interest income		$	286,532	$	1,072	$	287,604	$	232,348	$	2,726	$	235,074
Provision (recapture) for credit losses		27,572		—		27,572		(18,919)		—		(18,919)
Non-interest income
	Residential mortgage banking revenue:
	Origination and sale	—		10,515		10,515		—		30,293		30,293
	Servicing	—		9,529		9,529		—		9,172		9,172
	Change in fair value of MSR asset:
	Changes due to collection/realization of expected cash flows over time	—		(4,978)		(4,978)		—		(4,681)		(4,681)
	Changes due to valuation inputs or assumptions	—		16,403		16,403		—		(634)		(634)

	MSR hedge loss	—		(14,128)		(14,128)		—		—		—
	Loss on equity securities, net	(2,647)		—		(2,647)		(343)		—		(343)
	Gain on swap derivatives, net	4,194		—		4,194		1,429		—		1,429
	Change in fair value of certain loans held for investment	(26,397)		—		(26,397)		3,432		—		3,432
	Non-interest income (excluding above items)	36,769		185		36,954		34,849		188		35,037
	Total non-interest income	11,919		17,526		29,445		39,367		34,338		73,705
Non-interest expense
	Merger related expenses	769		—		769		—		—		—
	Exit and disposal costs	1,364		—		1,364		3,813		—		3,813
	Non-interest expense (excluding above items)	154,320		21,511		175,831		146,931		33,009		179,940
	Allocated expenses, net (1)	(39)		39		—		3,680		(3,680)		—
	Total non-interest expense	156,414		21,550		177,964		154,424		29,329		183,753
Income (loss) before income taxes		114,465		(2,952)		111,513		136,210		7,735		143,945
Provision (benefit) for income taxes		28,212		(739)		27,473		33,945		1,934		35,879
Net income (loss)		$	86,253	$	(2,213)	$	84,040	$	102,265	$	5,801	$	108,066
(1) Represents the internal charges for centrally provided support services and other corporate overhead to the Mortgage Banking segment, net of allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.

Table of Contents


		Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
(in thousands)		Core Banking		Mortgage Banking		Consolidated		Core Banking		Mortgage Banking		Consolidated
Net interest income		$	760,628	$	3,909	$	764,537	$	676,837	$	9,431	$	686,268
Provision (recapture) for credit losses		51,068		—		51,068		(41,915)		—		(41,915)
Non-interest income
	Residential mortgage banking revenue:
	Origination and sale	—		42,460		42,460		—		134,165		134,165
	Servicing	—		28,174		28,174		—		27,379		27,379
	Changes due to collection/realization of expected cash flows over time	—		(15,286)		(15,286)		—		(13,592)		(13,592)
	Changes due to valuation inputs or assumptions	—		67,451		67,451		—		(4,326)		(4,326)
	MSR hedge loss	—		(14,128)		(14,128)		—		—		—
	Gain on sale of debt securities, net	2		—		2		4		—		4
	Loss on equity securities, net	(7,383)		—		(7,383)		(1,045)		—		(1,045)
	Gain on swap derivatives, net	18,578		—		18,578		8,698		—		8,698
	Change in fair value of certain loans held for investment	(62,656)		—		(62,656)		5,704		—		5,704
	Non-interest income (excluding above items)	106,880		557		107,437		115,913		680		116,593
	Total non-interest income	55,421		109,228		164,649		129,274		144,306		273,580
Non-interest expense
	Merger related expenses	5,719		—		5,719		—		—		—
	Exit and disposal costs	4,839		—		4,839		9,741		—		9,741
	Non-interest expense (excluding above items)	451,689		77,721		529,410		438,969		112,035		551,004
	Allocated expenses, net (1)	7,398		(7,398)		—		3,860		(3,860)		—
	Total non-interest expense	469,645		70,323		539,968		452,570		108,175		560,745
Income before income taxes		295,336		42,814		338,150		395,456		45,562		441,018
Provision for income taxes		73,659		10,703		84,362		97,681		11,391		109,072
Net income		$	221,677	$	32,111	$	253,788	$	297,775	$	34,171	$	331,946
(1) Represents the internal charges for centrally provided support services and other corporate overhead to the Mortgage Banking segment, net of allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.


	September 30, 2022						December 31, 2021
(in thousands)	Core Banking		Mortgage Banking		Consolidated		Core Banking		Mortgage Banking		Consolidated
Total assets	$	31,100,700	$	371,260	$	31,471,960	$	30,155,058	$	485,878	$	30,640,936
Loans held for sale	$	—	$	148,275	$	148,275	$	—	$	353,105	$	353,105
Total loans and leases	$	25,507,951	$	—	$	25,507,951	$	22,553,180	$	—	$	22,553,180
Total deposits	$	26,588,217	$	228,890	$	26,817,107	$	26,370,568	$	224,117	$	26,594,685

Table of Contents

Note 10 – Fair Value Measurement

The following table presents estimated fair values of the Company's financial instruments as of September 30, 2022 and December 31, 2021, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:


		September 30, 2022				December 31, 2021
(in thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	1,553,859	$	1,553,859	$	2,761,621	$	2,761,621
Equity and other investment securities	1,2	72,277		72,277		81,214		81,214
Investment securities available for sale	1,2	3,136,391		3,136,391		3,870,435		3,870,435
Investment securities held to maturity	3	2,547		3,287		2,744		3,514
Loans held for sale	2	148,275		148,275		353,105		353,105
Loans and leases, net	2,3	25,224,886		24,201,550		22,304,768		22,356,321
Restricted equity securities	1	40,993		40,993		10,916		10,916
Residential mortgage servicing rights	3	196,177		196,177		123,615		123,615
Bank owned life insurance	1	329,699		329,699		327,745		327,745
Derivatives	2,3	14,829		14,829		177,423		177,423
Financial liabilities:
Deposits	1,2	$	26,817,107	$	26,780,203	$	26,594,685	$	26,593,521
Securities sold under agreements to repurchase	2	383,569		383,569		492,247		492,247
Borrowings	2	756,214		755,820		6,329		7,073
Junior subordinated debentures, at fair value	3	325,744		325,744		293,081		293,081
Junior subordinated debentures, at amortized cost	3	87,870		80,337		88,041		75,199
Derivatives	2,3	295,222		295,222		9,675		9,675

Table of Contents

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:


(in thousands)	September 30, 2022
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	61,309	$	43,972	$	17,337	$	—
Equity securities held in rabbi trusts	10,968		10,968		—		—

Investment securities available for sale
U.S. Treasury and agencies	830,813		125,510		705,303		—
Obligations of states and political subdivisions	269,904		—		269,904		—
Mortgage-backed securities and collateralized mortgage obligations	2,035,674		—		2,035,674		—

Loans held for sale, at fair value	148,275		—		148,275		—
Loans and leases, at fair value	284,900		—		284,900		—
Residential mortgage servicing rights, at fair value	196,177		—		—		196,177
Derivatives
Interest rate lock commitments	24		—		—		24

Interest rate forward sales commitments	9,740		—		9,740		—
Interest rate swaps	4,479		—		4,479		—
Foreign currency derivatives	586		—		586		—
Total assets measured at fair value	$	3,852,849	$	180,450	$	3,476,198	$	196,201
Financial liabilities:
Junior subordinated debentures, at fair value	$	325,744	$	—	$	—	$	325,744
Derivatives
Interest rate lock commitments	2,290		—		—		2,290
Interest rate futures	10,359		—		10,359		—
Interest rate forward sales commitments	5		—		5		—
Interest rate swaps	282,087		—		282,087		—
Foreign currency derivatives	481		—		481		—
Total liabilities measured at fair value	$	620,966	$	—	$	292,932	$	328,034

Table of Contents


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

Investments in mutual funds and other securities	$	68,692	$	51,355	$	17,337	$	—
Equity securities held in rabbi trusts	12,522		12,522		—		—

Investment securities available for sale
U.S. Treasury and agencies	918,053		89,038		829,015		—
Obligations of states and political subdivisions	330,784		—		330,784		—
Mortgage-backed securities and collateralized mortgage obligations	2,621,598		—		2,621,598		—

Loans held for sale, at fair value	353,105		—		353,105		—
Loans and leases, at fair value	345,634		—		345,634		—
Residential mortgage servicing rights, at fair value	123,615		—		—		123,615
Derivatives
Interest rate lock commitments	4,641		—		—		4,641
Interest rate forward sales commitments	615		—		615		—
Interest rate swaps	171,827		—		171,827		—
Foreign currency derivatives	340		—		340		—
Total assets measured at fair value	$	4,951,426	$	152,915	$	4,670,255	$	128,256
Financial liabilities:
Junior subordinated debentures, at fair value	$	293,081	$	—	$	—	$	293,081
Derivatives
Interest rate forward sales commitments	699		—		699		—
Interest rate swaps	8,671		—		8,671		—
Foreign currency derivatives	305		—		305		—
Total liabilities measured at fair value	$	302,756	$	—	$	9,675	$	293,081

The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above:

Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.

Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights.

Loans and leases— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates at which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. As of September 30, 2022, there were $284.9 million in mortgage loans recorded at fair value as they were previously transferred from held for sale to loans held for investment.

Table of Contents

Residential Mortgage Servicing Rights— The fair value of MSR is estimated using a DCF 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, interest rate futures, 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 DCF technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2022, 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 and futures derivative valuations in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at September 30, 2022:


Financial Instrument	Fair Value (in thousands)		Valuation Technique	Unobservable Input	Range of Inputs	Weighted Average
Assets:
Residential mortgage servicing rights	$	196,177	Discounted cash flow
				Constant prepayment rate	6.06% - 20.75%	6.34%
				Discount rate	9.50% - 15.94%	10.05%
Liabilities:
Interest rate lock commitments, net	$	2,266	Internal pricing model
				Pull-through rate	12.53% - 100.00%	91.86%
Junior subordinated debentures	$	325,744	Discounted cash flow
				Credit spread	1.93% - 3.77%	2.93%

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.

Table of Contents

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate will result in a decrease in the fair value measurement.

Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated debentures carried at fair value is indicative of the nonperformance risk premium a willing market participant would require under current market conditions, which is an inactive market. 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 and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Three Months Ended
	September 30, 2022						September 30, 2021
(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	$	179,558	$	(117)	$	(321,268)	$	102,699	$	13,210	$	(287,723)

Change included in earnings	11,425		(1,072)		(4,348)		(5,315)		1,301		(2,344)
Change in fair values included in comprehensive income/loss	—		—		(4,043)		—		—		(11,946)
Purchases and issuances	5,194		1,376		—		8,450		16,007		—
Sales and settlements	—		(2,453)		3,915		—		(22,260)		2,505
Ending balance	$	196,177	$	(2,266)	$	(325,744)	$	105,834	$	8,258	$	(299,508)
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period	$	16,403	$	(2,266)	$	(4,348)	$	(634)	$	8,258	$	(2,344)
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period	$	—	$	—	$	(4,043)	$	—	$	—	$	(11,946)

Table of Contents


	Nine Months Ended						Nine Months Ended
	September 30, 2022						September 30, 2021
(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	$	123,615	$	4,641	$	(293,081)	$	92,907	$	28,144	$	(255,217)

Change included in earnings	52,165		(7,779)		(9,941)		(17,918)		199		(7,087)
Change in fair values included in comprehensive income/loss	—		—		(31,810)		—		—		(44,504)
Purchases and issuances	20,397		9,074		—		30,845		67,730		—
Sales and settlements	—		(8,202)		9,088		—		(87,815)		7,300
Ending balance	$	196,177	$	(2,266)	$	(325,744)	$	105,834	$	8,258	$	(299,508)
Change in unrealized gains or losses for the period included in earnings for assets held at end of period	$	67,451	$	(2,266)	$	(9,941)	$	(4,326)	$	8,258	$	(7,087)
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period	$	—	$	—	$	(31,810)	$	—	$	—	$	(44,504)

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, unrealized losses on fair value of junior subordinated debentures of $4.0 million and $31.8 million for the three and nine months ended September 30, 2022, are recorded net of tax as other comprehensive loss of $3.0 million and $23.6 million, respectively. Comparatively, unrealized losses of $11.9 million and $44.5 million were recorded net of tax as other comprehensive losses of $8.9 million and $33.1 million, for the three and nine months ended September 30, 2021, respectively. The loss recorded for the three and nine months ended September 30, 2022 was due primarily to an increase in the implied forward curve, partially offset by an increase in the discount rate, which resulted in an increase in the liability.

Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

From time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans. The following table presents information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.


	September 30, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases	$	1,845	$	—	$	—	$	1,845

Total assets measured at fair value on a nonrecurring basis	$	1,845	$	—	$	—	$	1,845


	December 31, 2021
(in thousands)	Total		Level 1		Level 2		Level 3



Loans and leases	$	4,129	$	—	$	—	$	4,129

Total assets measured at fair value on a nonrecurring basis	$	4,129	$	—	$	—	$	4,129

Table of Contents

The following table presents the losses resulting from nonrecurring fair value adjustments for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021



Loans and leases	$	8,621	$	8,470	$	25,153	$	43,480

Total losses from nonrecurring measurements	$	8,621	$	8,470	$	25,153	$	43,480

Fair Value Option

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of September 30, 2022 and December 31, 2021:


	September 30, 2022						December 31, 2021
(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	$	148,275	$	150,794	$	(2,519)	$	353,105	$	341,008	$	12,097
Loans	$	284,900	$	336,980	$	(52,080)	$	345,634	$	335,058	$	10,576

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking revenue. For the three and nine months ended September 30, 2022, the Company recorded net decreases in fair value of $7.8 million and $14.6 million, respectively. For the three and nine months ended September 30, 2021, the Company recorded net decreases in fair value of $4.5 million and $13.5 million, respectively.

Certain residential mortgage loans were initially originated for sale and measured at fair value; after origination, the loans were transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of other income. For the three and nine months ended September 30, 2022, the Company recorded net decreases in fair value of $26.4 million and $62.7 million, as compared to net increases in fair value of $3.4 million and $5.7 million for the three and nine months ended September 30, 2021, respectively.

The Company selected the fair value measurement option for certain junior subordinated debentures. The remaining junior subordinated debentures were acquired through previous business combinations and were measured at fair value at the time of acquisition and subsequently measured at amortized cost.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends" and "forecast," and words or phrases of similar meaning.

We make forward-looking statements about the proposed transaction between us and Columbia Banking System, Inc.; 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; mortgage volumes and the impact of rate changes; the economic environment; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including MSR values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology.

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:

•changes in general economic, political, or industry conditions; the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and Umpqua's business, results of operations, and financial condition;

•deterioration in economic conditions that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans;

•uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve or the effects of any declines in housing and commercial real estate prices, high or increasing unemployment rates, inflation, or any slowdown in economic growth particularly in the western United States;

•volatility and disruptions in global capital and credit markets;

•movements in interest rates;

•transition of LIBOR to other indexes including SOFR;

•competitive pressures, including on product pricing and services;

•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 and the pendency of the Mergers;

•demand for financial services in our market areas;

•stability, cost, and 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 manage climate change concerns and related regulations;

•our ability to recruit and retain key management and staff;

•our ability to raise capital or incur debt on reasonable terms;

•regulatory limits on the Bank's ability to pay dividends to the Company and that could impact the timing and amount of dividends to shareholders;

•financial services reform and the impact of legislation and implementing regulations on our business operations, including our compliance costs, interest expense, and revenue;

Table of Contents

•a breach or failure of our operational or security systems, or those of our third-party vendors, including as a result of cyber-attacks;

•success, impact, and timing of Umpqua's business strategies, including market acceptance of any new products or services;

•the occurrence of any event, change, or other circumstances that could give rise to the right of one or both of the parties to terminate the Merger Agreement;

•the outcome of legal proceedings;

•delays in completing the proposed transaction with Columbia;

•the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction) to complete the Mergers or the Bank Merger;

•the failure to satisfy any of the other conditions to the proposed transaction with Columbia on a timely basis or at all;

•the possibility that the anticipated benefits of the proposed transaction with Columbia are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Umpqua and Columbia do business;

•certain restrictions during the pendency of the proposed transaction with Columbia that may impact the parties' ability to pursue certain business opportunities or strategic transactions;

•the possibility that the proposed transaction with Columbia may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

•diversion of management's attention from ongoing business operations and opportunities during the pendency of the Mergers;

•potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the transaction and the integration of the two companies and banks;

•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; and

•our ability to successfully negotiate with landlords or reconfigure facilities.

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

The Company is an Oregon corporation and the financial holding company of the Bank. The 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, private banking, mortgage and other financial services to corporate, institutional, and individual customers. FinPac, a commercial equipment leasing company, is a Bank subsidiary. Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes regular examinations by these regulatory agencies.

On October 12, 2021, we announced that we and Columbia, the parent company of Columbia State Bank, entered into a definitive agreement under which the companies will join together in an all-stock combination. Once the transaction is completed, the combined organization will be a leading West Coast franchise with more than $50 billion in assets. On September 17, 2022, we and Columbia entered into a Letter of Agreement with the Department of Justice, which stipulates that in order to obtain regulatory approvals necessary to complete the transaction, ten Columbia State Bank branches will need to be divested. On October 25, 2022, Columbia received regulatory approval from the Board of Governors of the Federal Reserve System to complete the proposed merger with Umpqua. The transaction is expected to close following the satisfaction of customary closing conditions, including receipt of remaining regulatory approvals.

Item 303 of Regulation S-K allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. Umpqua has elected to compare our results for the three months ended September 30, 2022 and June 30, 2022, where applicable, throughout this Management's Discussion and Analysis.

Table of Contents

Executive Overview

The following is a discussion of our results for the three and nine months ended September 30, 2022, as compared to the applicable prior periods.

Financial Performance

Comparison of current quarter to prior quarter

•Earnings per diluted common share was $0.39 for the three months ended September 30, 2022, as compared to $0.36 for the three months ended June 30, 2022. The increase for the three months ended September 30, 2022, as compared to the prior period, was primarily driven by an increase in net interest income due to the rising interest rate environment. The increase was partially offset by a decrease in non-interest income due to a decline in residential mortgage banking revenue and a decrease in the fair value of certain loans held for investment, with both items also reflective of the rising rate environment.

•Net interest margin, on a tax equivalent basis, was 3.88% for the three months ended September 30, 2022, as compared to 3.41% for the three months ended June 30, 2022. The increase for the three months ended September 30, 2022, was due to a higher mix of loans as a percentage of earning assets as well as an increase in individual category earning asset yields given upward interest rate movements.

•Residential mortgage banking revenue was $17.3 million for the three months ended September 30, 2022, as compared to $30.5 million for the three months ended June 30, 2022. The variance for the three months ended September 30, 2022, as compared to prior period, was primarily attributable to lower revenue from the origination and sale of residential mortgages given lower volumes and a loss on the MSR hedge initiated during the period, which offset the change in fair value of MSR assets during the period. For-sale mortgage closed loan volume decreased by 31% for the three months ended September 30, 2022, as compared to the three months ended June 30, 2022. The gain on sale margin increased to 2.65% for the three months ended September 30, 2022, as compared to 2.62% for the three months ended June 30, 2022.

Comparison of current year-to-date to prior year period

•Earnings per diluted common share was $1.17 for the nine months ended September 30, 2022, as compared to earnings per diluted common share of $1.51 for the nine months ended September 30, 2021. The decrease for the nine months ended September 30, 2022, as compared to the prior period, was primarily driven by a decrease in non-interest income due to a decline in residential mortgage banking revenue and a decrease in the fair value of certain loans held for investment, as well as an increase in the provision for credit losses. The decrease was partially offset by an increase in net interest income due to the rising interest rate environment.

•Net interest margin, on a tax equivalent basis, was 3.48% for the nine months ended September 30, 2022, as compared to 3.20% for the nine months ended September 30, 2021. The increase in net interest margin for the nine months ended September 30, 2022, primarily resulted from the rising rate environment and a higher level of loans and securities as a percentage of earning assets.

•Residential mortgage banking revenue was $108.7 million for the nine months ended September 30, 2022, as compared to $143.6 million for the nine months ended September 30, 2021. The variance for the nine months ended September 30, 2022, as compared to prior periods, was primarily attributable to lower revenue from the origination and sale of residential mortgages given lower volumes and gain on sale margins. The decrease was partially offset by a net write-up of the MSR asset that significantly offset the loss on the MSR hedge, that was put in place in mid-August 2022. For-sale mortgage closed loan volume decreased by 58% for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. For the nine months ended September 30, 2022, the gain on sale margin decreased to 2.62%, as compared to 3.46% for the nine months ended September 30, 2021. The lower gain on sale margin for the nine months ended September 30, 2022 as compared to the prior period reflects the adverse impact from rising rates on the pipeline and competitive pricing pressures.

Table of Contents

Comparison of current period to prior year end period

•Total loans and leases were $25.5 billion as of September 30, 2022, an increase of $3.0 billion, as compared to December 31, 2021. The increase in total loans is primarily due to an increase in the commercial real estate balances of $1.5 billion, primarily within multifamily lending, and an increase in residential real estate balances of $1.3 billion.

•Total deposits were $26.8 billion as of September 30, 2022, an increase of $222.4 million, compared to December 31, 2021. The increase was due to growth in demand deposits and savings deposits, offset partially by decreases in time deposits.

•Total consolidated assets were $31.5 billion and $30.6 billion as of September 30, 2022 and December 31, 2021, with the increase due to growth in loans, offset by decreases in cash and cash equivalents and available for sale securities.

Credit Quality

•Non-performing assets decreased to $50.8 million, or 0.16% of total assets, as of September 30, 2022, compared to $53.1 million, or 0.17% of total assets, as of December 31, 2021. Non-performing loans and leases were $50.8 million, or 0.20% of total loans and leases, as of September 30, 2022, compared to $51.2 million, or 0.23% of total loans and leases, as of December 31, 2021.

•The allowance for credit losses was $294.9 million as of September 30, 2022, an increase of $33.7 million compared to December 31, 2021. The increase in the allowance for credit losses is due to the growth of the loan portfolio, as well as changes in the economic forecasts used in the credit models.

•The Company had a provision for credit losses of $27.6 million and $51.1 million for the three and nine months ended September 30, 2022, respectively. This compares to a provision for credit losses of $18.7 million for the three months ended June 30, 2022. For the nine months ended September 30, 2021, there was a recapture of provision for credit losses of $41.9 million. The provision for credit losses in the current periods was due to allowance requirements for new loan generation, loan mix changes, and changes to the economic forecasts used in credit models.

Liquidity

•Total cash and cash equivalents was $1.6 billion as of September 30, 2022, a decrease of $1.2 billion from December 31, 2021. The decrease in cash and cash equivalents is due to an increase in loan production, which outpaced deposit generation for the period.

Capital and Growth Initiatives

•In October 2021, Umpqua and Columbia announced their entering into the Merger Agreement under which the two companies will combine in an all-stock transaction. On September 17,2022, a Letter of Agreement was entered into with the Department of Justice, which stipulates that in order to obtain regulatory approvals necessary to complete the transaction, ten Columbia State Bank branches will need to be divested. On October 25, 2022, Columbia received regulatory approval from the Board of Governors of the Federal Reserve System to complete the proposed merger with Umpqua. The transaction is expected to close following the satisfaction of customary closing conditions, including receipt of remaining regulatory approvals.

•The Company's total risk-based capital ratio was 13.2% and its Tier 1 common to risk-based assets ratio was 10.6% as of September 30, 2022. As of December 31, 2021, the Company's total risk-based capital ratio was 14.3% and its Tier 1 common to risk-based assets ratio was 11.6%.

•The Company paid quarterly cash dividends of $0.21 per common share to shareholders on August 15, 2022. In addition, the Company declared a quarterly cash dividend of $0.21 per common share on October 3, 2022, paid on October 28, 2022, to shareholders of record as of October 14, 2022.

Table of Contents

Critical Accounting Estimates

Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of the Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry, in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the ACL estimate is important to the portrayal of the Company's financial condition and results of operations and requires difficult, subjective or complex judgments. There have been no material changes in the ACL estimate methodology during the nine months ended September 30, 2022.

Results of Operations

The Company reports two segments: Core Banking and Mortgage Banking, which 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 commercial, retail, private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from our serviced loan portfolio, the quarterly changes in the MSR asset, the quarterly changes in the MSR hedge, 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 primarily originated through the Bank's retail consumer (store) and wealth channels. Management periodically updates the allocation methods and assumptions within the current segment structure

Comparison of current quarter to prior quarter

The Core Banking segment had net income of $86.3 million for the three months ended September 30, 2022, compared to net income of $72.5 million for the three months ended June 30, 2022. The increase in net income is mainly attributable to an increase in net interest income, partially offset by a decrease in non-interest income and an increase in provision for credit losses. The increase in net interest income is reflective of the favorable impact of higher interest rates during the quarter, as well as the increase in average loans and leases during the quarter. The decrease in non-interest income was due to a fair value loss of $24.9 million for the third quarter of 2022, driven by an increase in long-term interest rates and their effect on fair value adjustments related to investment securities, swap derivatives, and loans carried at fair value. This compares to a fair value loss of $9.9 million for the three months ended June 30, 2022.

The Mortgage Banking segment had a net loss of $2.2 million for the three months ended September 30, 2022, compared to net income of $6.1 million for the three months ended June 30, 2022. The decrease in net income for the three months ended September 30, 2022 for the Mortgage Banking segment, compared to the three months ended June 30, 2022, is attributable to a decrease in non-interest income due to lower revenue from the origination and sale of residential mortgages as closed loan volume for-sale declined by 31%. The non-interest income decline was also driven by a loss on the MSR hedge, which was put in place during the quarter to reduce net income volatility related to changes in fair value of MSR assets due to valuation inputs or assumptions.

Comparison of current year-to-date to prior year period

For the nine months ended September 30, 2022, the Core Banking segment had net income of $221.7 million, a decrease of $76.1 million, as compared to the same period in the prior year, mainly attributable to an increase in the provision for credit losses, a decrease in non-interest income and an increase in non-interest expense, partially offset by an increase in net interest income. The change in the provision is due to allowance requirements for new loan generation, loan mix changes, and changes to the economic forecasts used in credit models. The decrease in non-interest income was due to a fair value loss of $51.5 million for the nine months ended September 30, 2022, driven by an increase in long-term interest rates and their effect on fair value adjustments related to investment securities, swap derivatives, and loans carried at fair value. This compares to a fair value gain of $13.4 million for the nine months ended September 30, 2021. The increase in net interest income is reflective of the increase in loans and leases and the favorable impact of higher interest rates during the period.

Table of Contents

The Mortgage Banking segment had net income of $32.1 million for the nine months ended September 30, 2022, compared to net income of $34.2 million during the same period of the prior year. The decrease was primarily due to lower revenue from the origination and sale of residential mortgages given lower volumes and gain on sale margins, and a loss on the MSR hedge that was put in place during the third quarter of 2022 to reduce net income volatility related to changes in fair value of MSR assets due to valuation inputs or assumptions. These changes were offset by a net write-up of the MSR asset during the nine months ended September 30, 2022, compared to a net write-down during the same period of the prior year, and a decrease in non-interest expense, which is due to decreased incentives as originations have slowed due to rising interest rates.

The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three months ended September 30, 2022 and June 30, 2022, respectively, as well as the nine months ended September 30, 2022 and 2021. For each period presented, the table includes the calculated ratios based on reported net income. To the extent return on average common shareholders' equity 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 other intangible assets, net (excluding MSR). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.

Return on Average Assets, Common Shareholders' Equity and Tangible Common Shareholders' Equity


	Three Months Ended						Nine Months Ended
(dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Return on average assets	1.09		%	1.04		%	1.11		%	1.48		%
Return on average common shareholders' equity	12.99		%	12.20		%	12.94		%	16.47		%
Return on average tangible common shareholders' equity	13.02		%	12.23		%	12.98		%	16.55		%
Calculation of average common tangible shareholders' equity:
Average common shareholders' equity	$	2,567,266		$	2,584,836		$	2,621,725		$	2,694,968
Less: average goodwill and other intangible assets, net	6,343			7,379			7,369			12,922
Average tangible common shareholders' equity	$	2,560,923		$	2,577,457		$	2,614,356		$	2,682,046

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 goodwill and other intangible assets, net (excluding MSR). In addition, tangible assets are total assets less goodwill and other intangible assets, net (excluding MSR). The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets. Tangible common equity and the tangible common equity ratio are considered non-GAAP financial measures and should be viewed in conjunction with total shareholders' equity and the total shareholders' equity ratio.

Table of Contents

The following table provides a reconciliation of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP) as of September 30, 2022 and December 31, 2021:


(dollars in thousands)	September 30, 2022			December 31, 2021
Total shareholders' equity	$	2,417,514		$	2,749,270
Subtract:

Other intangible assets, net	5,764			8,840
Tangible common shareholders' equity	$	2,411,750		$	2,740,430
Total assets	$	31,471,960		$	30,640,936
Subtract:

Other intangible assets, net	5,764			8,840
Tangible assets	$	31,466,196		$	30,632,096
Total shareholders' equity to total assets ratio	7.68		%	8.97		%
Tangible common equity ratio	7.66		%	8.95		%

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not reviewed or audited. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

Net Interest Income

Comparison of current quarter to prior quarter

Net interest income for the three months ended September 30, 2022 was $287.6 million, an increase of $39.4 million compared to the three months ended June 30, 2022. The increase was driven by a $44.2 million increase in the total interest and fees on loans and leases, due to assets repricing higher in the rising rate environment and growth in the loan portfolio, offset by an increase of $7.8 million in interest expense due to the increase in long-term rates in the quarter compared to the prior period.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.88% for the three months ended September 30, 2022, as compared to 3.41% for the three months ended June 30, 2022. The increase in net interest margin primarily resulted from an increase in the average yields on interest-earning assets, due to a higher mix of loans as a percentage of earning assets as well as an increase in individual category earning asset yields given upward interest rate movements.

The yield on loans and leases for the three months ended September 30, 2022 increased by 47 basis points as compared to the three months ended June 30, 2022, primarily attributable to the impact of the higher interest rate environment increasing yields on floating and adjustable rate loans.

The cost of interest-bearing liabilities for the three months ended September 30, 2022 increased by 19 basis points compared to the three months ended June 30, 2022, due primarily to rising interest rates.

Comparison of current year-to-date to prior year period

Net interest income for the nine months ended September 30, 2022 was $764.5 million, an increase of $78.3 million compared to the nine months ended September 30, 2021. The increase for the nine months ended September 30, 2022 was due primarily to higher loan interest income from increasing rates and higher average loan and lease balances.

The net interest margin on a fully tax equivalent basis was 3.48% for the nine months ended September 30, 2022, as compared to 3.20% for the nine months ended September 30, 2021. The increase in net interest margin for the nine months ended September 30, 2022, primarily resulted from an increase in the average yields on interest-earning assets, due to a higher mix of loans as a percentage of earning assets.

Table of Contents

The yield on loans and leases for the nine months ended September 30, 2022, increased by 5 basis points as compared to the same period in 2021, primarily attributable to the rising interest rate environment, which favorably impacted the repricing of floating and adjustable rate loans and the coupon rate on new loan generation.

The cost of interest-bearing liabilities decreased by 2 basis points for the nine months ended September 30, 2022, as compared to the same period in 2021, due to a higher mix of lower-cost deposits during the current period. 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 following tables present condensed average balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three months ended September 30, 2022 and June 30, 2022, as well as the nine months ended September 30, 2022 and 2021, respectively:


	Three Months Ended
	September 30, 2022						June 30, 2022
(dollars in thousands)	Average Balance		Interest Income or Expense		Average Yields or Rates		Average Balance		Interest Income or Expense		Average Yields or Rates
INTEREST-EARNING ASSETS:
Loans held for sale	$	173,397	$	2,205	5.09	%	$	264,320	$	2,742	4.15	%
Loans and leases (1)	24,886,203		276,625		4.41	%	23,550,796		231,932		3.94	%
Taxable securities	3,271,185		18,261		2.23	%	3,410,091		17,340		2.03	%
Non-taxable securities (2)	212,847		1,651		3.10	%	220,327		1,721		3.13	%
Temporary investments and interest-bearing cash	893,471		5,115		2.27	%	1,663,454		2,919		0.70	%
Total interest-earning assets	29,437,103		$	303,857	4.10	%	29,108,988		$	256,654	3.53	%
Other assets	1,231,074						1,247,915
Total assets	$	30,668,177					$	30,356,903
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits	$	3,829,688	$	1,705	0.18	%	$	3,896,553	$	610	0.06	%
Money market deposits	7,550,791		5,817		0.31	%	7,366,987		1,717		0.09	%
Savings deposits	2,468,187		250		0.04	%	2,426,124		199		0.03	%
Time deposits	1,501,724		1,318		0.35	%	1,618,394		1,489		0.37	%
Total interest-bearing deposits	15,350,390		9,090		0.23	%	15,308,058		4,015		0.11	%
Repurchase agreements and federal funds purchased	509,559		545		0.42	%	512,641		66		0.05	%
Borrowings	90,475		798		3.50	%	6,273		50		3.21	%
Junior subordinated debentures	409,151		5,491		5.33	%	393,964		4,001		4.07	%
Total interest-bearing liabilities	16,359,575		$	15,924	0.39	%	16,220,936		$	8,132	0.20	%
Non-interest-bearing deposits	11,250,764						11,086,376
Other liabilities	490,572						464,755
Total liabilities	28,100,911						27,772,067
Common equity	2,567,266						2,584,836
Total liabilities and shareholders' equity	$	30,668,177					$	30,356,903
NET INTEREST INCOME			$	287,933					$	248,522
NET INTEREST SPREAD					3.71	%					3.33	%
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)					3.88	%					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 $329,000 for the three months ended September 30, 2022, as compared to approximately $352,000 for the three months ended June 30, 2022.

Table of Contents


	Nine Months Ended
	September 30, 2022						September 30, 2021
(dollars in thousands)	Average Balance		Interest Income or Expense		Average Yields or Rates		Average Balance		Interest Income or Expense		Average Yields or Rates
INTEREST-EARNING ASSETS:
Loans held for sale	$	240,928	$	7,209	3.99	%	$	545,237	$	12,242	2.99	%
Loans and leases (1)	23,676,201		720,699		4.06	%	21,866,569		656,772		4.01	%
Taxable securities	3,445,386		54,412		2.11	%	3,199,653		45,049		1.88	%
Non-taxable securities (2)	222,375		5,098		3.06	%	248,617		5,627		3.02	%
Temporary investments and interest bearing cash	1,718,832		9,387		0.73	%	2,850,639		2,635		0.12	%
Total interest-earning assets	29,303,722		$	796,805	3.62	%	28,710,715		$	722,325	3.36	%
Other assets	1,237,305						1,348,054
Total assets	$	30,541,027					$	30,058,769
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits	$	3,846,202	$	2,813	0.10	%	$	3,359,865	$	1,341	0.05	%
Money market deposits	7,519,200		8,942		0.16	%	7,593,320		4,516		0.08	%
Savings deposits	2,433,651		654		0.04	%	2,152,667		523		0.03	%
Time deposits	1,623,742		4,612		0.38	%	2,336,261		16,414		0.94	%
Total interest-bearing deposits	15,422,795		17,021		0.15	%	15,442,113		22,794		0.20	%
Repurchase agreements and federal funds purchased	502,998		674		0.18	%	444,919		232		0.07	%
Borrowings	34,662		897		3.46	%	259,890		2,787		1.43	%
Junior subordinated debentures	394,803		12,641		4.28	%	363,122		9,108		3.35	%
Total interest-bearing liabilities	16,355,258		$	31,233	0.26	%	16,510,044		$	34,921	0.28	%
Non-interest-bearing deposits	11,115,618						10,484,104
Other liabilities	448,426						369,653
Total liabilities	27,919,302						27,363,801
Common equity	2,621,725						2,694,968
Total liabilities and shareholders' equity	$	30,541,027					$	30,058,769
NET INTEREST INCOME			$	765,572					$	687,404
NET INTEREST SPREAD					3.36	%					3.08	%
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)					3.48	%					3.20	%

(1)Non-accrual loans and leases are included in the average balance. (2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $1.0 million for the nine months ended September 30, 2022, as compared to approximately $1.1 million for the same period in 2021.

Table of Contents

The following tables set forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three months ended September 30, 2022 as compared to three months ended June 30, 2022, as well as the nine months ended September 30, 2022 and 2021, respectively. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances.


	Three Months Ended
	September 30, 2022 compared to June 30, 2022
	Increase (decrease) in interest income and expense due to changes in
(in thousands)	Volume		Rate		Total
INTEREST-EARNING ASSETS:
Loans held for sale	$	(1,070)	$	533	$	(537)
Loans and leases	14,318		30,375		44,693
Taxable securities	(724)		1,645		921
Non-taxable securities (1)	(58)		(12)		(70)
Temporary investments and interest-bearing cash	(1,859)		4,055		2,196
Total interest-earning assets (1)	10,607		36,596		47,203
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits	(10)		1,105		1,095
Money market deposits	45		4,055		4,100
Savings deposits	4		47		51
Time deposits	(96)		(75)		(171)
Repurchase agreements and federal funds purchased	342		137		479
Borrowings	743		5		748
Junior subordinated debentures	166		1,324		1,490
Total interest-bearing liabilities	1,194		6,598		7,792
Net increase in net interest income (1)	$	9,413	$	29,998	$	39,411
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

Table of Contents


	Nine Months Ended
	September 30, 2022 compared to September 30, 2021
	Increase (decrease) in interest income and expense due to changes in
(in thousands)	Volume		Rate		Total
INTEREST-EARNING ASSETS:
Loans held for sale	$	(8,242)	$	3,209	$	(5,033)
Loans and leases	56,160		7,767		63,927
Taxable securities	3,624		5,739		9,363
Non-taxable securities (1)	(600)		71		(529)
Temporary investments and interest-bearing cash	(1,431)		8,183		6,752
Total interest-earning assets (1)	49,511		24,969		74,480
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits	218		1,254		1,472
Money market deposits	(45)		4,471		4,426
Savings deposits	72		59		131
Time deposits	(3,996)		(7,806)		(11,802)
Repurchase agreements and federal funds purchased	372		70		442
Borrowings	(3,713)		1,823		(1,890)
Junior subordinated debentures	847		2,686		3,533
Total interest-bearing liabilities	(6,245)		2,557		(3,688)
Net increase (decrease) in net interest income (1)	$	55,756	$	22,412	$	78,168
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

Provision for Credit Losses

Comparison of current quarter to prior quarter

The Company had a $27.6 million provision for credit losses for the three months ended September 30, 2022, as compared to a $18.7 million provision for credit losses for the three months ended June 30, 2022.

The September 30, 2022 provision reflects allowance requirements for new loan generation and loan mix changes, and changes between economic forecasts used in credit models. As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the three months ended September 30, 2022 was 0.44%, as compared to 0.32% for the three months ended June 30, 2022.

For the three months ended September 30, 2022, net charge-offs were $6.6 million, as compared to $6.2 million for the three months ended June 30, 2022. As an annualized percentage of average outstanding loans and leases, net charge-offs for the three months ended September 30, 2022 were 0.11%, as compared to 0.11% for the three months ended June 30, 2022.

Comparison of current year-to-date to prior year period

The Company had a $51.1 million provision for credit losses for the nine months ended September 30, 2022, as compared to a recapture of provision for credit losses of $41.9 million for the nine months ended September 30, 2021. The change in the provision reflects allowance requirements for new loan generation and loan mix changes, and changes between economic forecasts used in credit models. As an annualized percentage of average outstanding loans and leases, the provision (recapture) for credit losses recorded for the nine months ended September 30, 2022 was 0.29%, compared to (0.26)% for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, net charge-offs were $18.4 million, as compared to $37.5 million for the nine months ended September 30, 2021. As an annualized percentage of average outstanding loans and leases, net charge-offs for the nine months ended September 30, 2022 were 0.10%, as compared to 0.23% for the nine months ended September 30, 2021. The majority of net charge-offs relate to leases and equipment finance loans, included within the commercial loan portfolio.

Table of Contents

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 $14.6 million as of September 30, 2022 have a related allowance for credit losses of $12.5 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.

Non-Interest Income

The following table presents the key components of non-interest income for the three months ended September 30, 2022, compared to the three months ended June 30, 2022, as well as the comparison of the nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
(in thousands)	September 30, 2022		June 30, 2022		Change Amount		Change Percent		September 30, 2022		September 30, 2021		Change Amount		Change Percent
Service charges on deposits	$	12,632	$	12,011	$	621	5	%	$	36,226	$	30,898	$	5,328	17	%
Card-based fees	9,115		10,530		(1,415)		(13)	%	28,353		26,759		1,594		6	%
Brokerage revenue	27		27		—		—	%	65		5,081		(5,016)		(99)	%
Residential mortgage banking revenue, net	17,341		30,544		(13,203)		(43)	%	108,671		143,626		(34,955)		(24)	%
Gain on sale of debt securities, net	—		—		—		nm		2		4		(2)		(50)	%
Loss on equity securities, net	(2,647)		(2,075)		(572)		28	%	(7,383)		(1,045)		(6,338)		nm
Gain on loan and lease sales, net	1,525		1,303		222		17	%	5,165		10,899		(5,734)		(53)	%


Bank owned life insurance income	2,023		2,110		(87)		(4)	%	6,220		6,201		19		—	%
Other (losses) income	(10,571)		785		(11,356)		nm		(12,670)		51,157		(63,827)		(125)	%
Total non-interest income	$	29,445	$	55,235	$	(25,790)	(47)	%	$	164,649	$	273,580	$	(108,931)	(40)	%

Comparison of current quarter to prior quarter

Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, decreased as compared to three months ended June 30, 2022. The variance for the three months ended September 30, 2022, as compared to the three months ended June 30, 2022, was driven by rising long-term interest rates and attributable to lower origination and sales revenue, favorable changes in the fair value of the MSR asset, and a loss on the MSR hedge that was put in place during the quarter. The gain on the fair value of the MSR asset due to valuation inputs or assumptions was $16.4 million, which was offset by the MSR hedge loss of $14.1 million, for the three months ended September 30, 2022, compared to a fair value gain due to valuation inputs of $10.9 million for the three months ended June 30, 2022. Revenue related to the origination and sale of residential mortgages decreased by $4.6 million for the three months ended September 30, 2022, as compared to the three months ended June 30, 2022.

For-sale mortgage closed loan volume for the three months ended September 30, 2022, decreased 31%, as compared to the three months ended June 30, 2022. However, the gain on sale margin increased to 2.65% for the three months ended September 30, 2022, as compared to 2.62% for the three months ended June 30, 2022.

Other (losses) income for the three months ended September 30, 2022 decreased by $11.4 million, as compared to the three months ended June 30, 2022, primarily due to an increase in fair value loss on certain loans held for investment to $26.4 million from $15.2 million, which reduced other income by $11.2 million. A $3.1 million decline in the gain on swap derivatives was partially offset by a $1.7 million increase in customer swap fee revenue, as compared to the prior quarter.

Table of Contents

Comparison of current year-to-date to prior year period

Service charges on deposits increased as compared to the nine months ended September 30, 2021, due mainly to higher customer activity.

Brokerage revenue decreased for the nine months ended September 30, 2022, as compared to the same period of the prior year, due to the sale of Umpqua Investments, Inc. in April 2021.

The decrease in gain on loan and lease sales income for the nine months ended September 30, 2022, as compared to prior period, was driven by a decrease in SBA loan sales during the period.

For the nine months ended September 30, 2022, the decrease in other (losses) income was primarily attributable to a loss on the fair value on certain loans held for investment of $62.7 million, as compared to a gain of $5.7 million for the nine months ended September 30, 2021. Additionally, a one-time gain on the sale of Umpqua Investments, Inc. of $4.4 million was recorded for the nine months ended September 30, 2021. This was partially offset by a $9.9 million increase in the gain on swap derivatives and a $5.0 million increase in customer swap fee revenue, as compared to the prior period.

Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, decreased as compared to the nine months ended September 30, 2021. The variance for the nine months ended September 30, 2022, as compared to prior periods, was driven by rising long-term interest rates and attributable to lower revenue from the origination and sale of residential mortgages, favorable changes in the fair value of the MSR asset, and a loss taken on the MSR hedge that was put in place during the third quarter of 2022. The gain on the fair value of the MSR asset due to valuation inputs and assumptions was $67.5 million, which was partially offset by the MSR hedge loss of $14.1 million, for the nine months ended September 30, 2022, compared to a fair value loss of the MSR asset due to valuation inputs of $4.3 million for the nine months ended September 30, 2021. Revenue related to origination and sale of residential mortgages decreased by $91.7 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, for-sale mortgage closed loan volume decreased 58% compared to the nine months ended September 30, 2021. Additionally, the gain on sale margin decreased to 2.62% for the nine months ended September 30, 2022, as compared to 3.46% for the nine months ended September 30, 2021.

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 decline. The MSR asset value is also sensitive to interest rates, and generally falls with lower rates and rises with higher rates, resulting in fair value losses and gains, respectively, due to changes in valuation inputs or assumptions, where applicable. In August 2022, a MSR hedge was put in place as we work to minimize the interest rate risk of mortgage servicing rights and reduce net income volatility related to changes in fair value of MSR assets due to valuation inputs or assumptions.

Table of Contents

The following table presents our residential mortgage banking revenue for the three months ended September 30, 2022 and June 30, 2022, as well as the nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
(in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Origination and sale	$	10,515		$	15,101		$	42,460		$	134,165
Servicing	9,529			9,505			28,174			27,379
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time	(4,978)			(4,961)			(15,286)			(13,592)
Changes in valuation inputs or assumptions (1)	16,403			10,899			67,451			(4,326)
MSR hedge loss	(14,128)			—			(14,128)			—
Residential mortgage banking revenue, net	$	17,341		$	30,544		$	108,671		$	143,626

Loans Held for Sale Production Statistics:
Closed loan volume for-sale	$	396,979		$	576,532		$	1,622,633		$	3,875,836
Gain on sale margin	2.65		%	2.62		%	2.62		%	3.46		%

(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

The following table presents the key elements of non-interest expense for the three months ended September 30, 2022 and June 30, 2022, as well as the nine months ended September 30, 2022 and 2021.


	Three Months Ended						Nine Months Ended
(in thousands)	September 30, 2022		June 30, 2022		Change Amount		Change Percent		September 30, 2022		September 30, 2021		Change Amount		Change Percent
Salaries and employee benefits	$	109,164	$	110,942	$	(1,778)	(2)	%	$	333,244	$	363,343	$	(30,099)	(8)	%
Occupancy and equipment, net	35,042		34,559		483		1	%	104,430		103,236		1,194		1	%
Communications	2,542		2,585		(43)		(2)	%	7,881		8,633		(752)		(9)	%
Marketing	1,505		1,649		(144)		(9)	%	5,552		5,077		475		9	%
Services	13,355		14,402		(1,047)		(7)	%	39,094		36,279		2,815		8	%
FDIC assessments	3,007		2,954		53		2	%	10,477		6,342		4,135		65	%

Intangible amortization	1,025		1,026		(1)		—	%	3,076		3,390		(314)		(9)	%
Merger related expenses	769		2,672		(1,903)		(71)	%	5,719		—		5,719		nm
Other expenses	11,555		8,785		2,770		32	%	30,495		34,445		(3,950)		(11)	%
Total non-interest expense	$	177,964	$	179,574	$	(1,610)	(1)	%	$	539,968	$	560,745	$	(20,777)	(4)	%
nm = Not meaningful

Comparison of current quarter to prior quarter

Merger related expenses, related to the proposed merger with Columbia decreased $1.9 million during the three months ended September 30, 2022 as compared to the three months ended June 30, 2022, due to reduced consulting and legal costs incurred.

Other expenses for the three months ended September 30, 2022 increased as compared to the three months ended June 30, 2022, driven by $1.4 million in exit and disposal costs, a $923,000 increase from the prior quarter.

Table of Contents

Comparison of current year-to-date to prior year period

Salaries and employee benefits decreased for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to a decrease in mortgage banking production related incentive pay during the period, due to increasing rates suppressing demand for mortgage products.

Merger related expenses, related to the proposed merger with Columbia, were $5.7 million for the nine months ended September 30, 2022, compared to no such expenses for the nine months ended September 30, 2021.

Other expenses decreased, as compared to prior periods, due to a decrease in exit and disposal costs of $4.9 million for the nine months ended September 30, 2022. The prior elevated levels of exit and disposal costs was due to store consolidations and back-office lease exits as part of Umpqua's Next Gen 2.0 strategy.

Table of Contents

FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents were $1.6 billion as of September 30, 2022, compared to $2.8 billion as of December 31, 2021. The decrease of interest-bearing cash and temporary investments reflects strong loan portfolio growth of $3.0 billion, offset by increases in borrowings of $750.0 million and deposits of $222.4 million, respectively, in the period.

Investment Securities

Investment debt securities available for sale were $3.1 billion as of September 30, 2022, compared to $3.9 billion at December 31, 2021. The decrease was due to a decrease of $575.8 million in fair value of investment securities available for sale, due to the increase in rates during the period, as well as sales and paydowns of $328.7 million, offset partially by purchases of $175.7 million of investment securities.

The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of September 30, 2022 and December 31, 2021:


	Investment Securities Available for Sale
	September 30, 2022				December 31, 2021
(dollars in thousands)	Fair Value		%		Fair Value		%
U.S. Treasury and agencies	$	830,813	26	%	$	918,053	24	%
Obligations of states and political subdivisions	269,904		9	%	330,784		8	%
Mortgage-backed securities and collateralized mortgage obligations	2,035,674		65	%	2,621,598		68	%

Total available for sale securities	$	3,136,391	100	%	$	3,870,435	100	%


	Investment Securities Held to Maturity
	September 30, 2022				December 31, 2021
(dollars in thousands)	Amortized Cost		%		Amortized Cost		%

Mortgage-backed securities and collateralized mortgage obligations	$	2,547	100	%	$	2,744	100	%

Total held to maturity securities	$	2,547	100	%	$	2,744	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 $569.8 million as of September 30, 2022. This consisted primarily of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of $430.4 million. The unrealized losses were attributable to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not attributable to changes in credit quality. In the opinion of management, no ACL was considered necessary on these debt securities as of September 30, 2022.

Table of Contents

Loans and Leases

Total loans and leases outstanding as of September 30, 2022 were $25.5 billion, an increase of $3.0 billion as compared to December 31, 2021. The increase is attributable to new loan and lease originations, with the majority being in multifamily and residential mortgage loans. The loan to deposit ratio as of September 30, 2022 is 95%, as compared to 85% as of December 31, 2021.

The following table presents the concentration distribution of the loan and lease portfolio, net of deferred fees and costs, as of September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
(dollars in thousands)	Amount		%		Amount		%
Commercial real estate
Non-owner occupied term, net	$	3,846,426	15	%	$	3,786,887	17	%
Owner occupied term, net	2,549,761		10	%	2,332,422		10	%
Multifamily, net	5,090,661		20	%	4,051,202		18	%
Construction & development, net	1,036,931		4	%	890,338		4	%
Residential development, net	205,935		1	%	206,990		1	%
Commercial
Term, net	3,003,424		12	%	3,008,473		13	%
Lines of credit & other, net	914,507		4	%	910,733		4	%
Leases & equipment finance, net	1,669,817		6	%	1,467,676		7	%
Residential
Mortgage, net	5,470,624		21	%	4,517,266		20	%
Home equity loans & lines, net	1,565,094		6	%	1,197,170		5	%
Consumer & other, net	154,771		1	%	184,023		1	%
Total, net of deferred fees and costs	$	25,507,951	100	%	$	22,553,180	100	%

Table of Contents

Asset Quality and Non-Performing Assets

The following table summarizes our non-performing assets, TDR loans, the ACL and asset quality ratios as of September 30, 2022 and December 31, 2021:


	(dollars in thousands)	September 30, 2022			December 31, 2021
Loans and leases on non-accrual status
	Commercial real estate, net	$	5,403		$	5,767
	Commercial, net	18,652			13,098
	Residential, net	—			—
	Consumer & other, net	—			—
	Total loans and leases on non-accrual status	24,055			18,865
Loans and leases past due 90 days or more and accruing
	Commercial real estate, net	1			1
	Commercial, net	5,143			4,160
	Residential, net (1)	21,411			27,981
	Consumer & other, net	152			194
	Total loans and leases past due 90 days or more and accruing (1)	26,707			32,336
Total non-performing loans and leases		50,762			51,201
Other real estate owned		—			1,868
Total non-performing assets		$	50,762		$	53,069
Restructured loans (2)		$	7,076		$	6,694
Allowance for credit losses on loans and leases		$	283,065		$	248,412
Reserve for unfunded commitments		11,853			12,767
Allowance for credit losses		$	294,918		$	261,179
Asset quality ratios:
	Non-performing assets to total assets	0.16		%	0.17		%
	Non-performing loans and leases to total loans and leases	0.20		%	0.23		%
	Allowance for credit losses on loans and leases to total loans and leases	1.11		%	1.10		%
	Allowance for credit losses to total loans and leases	1.16		%	1.16		%
	Allowance for credit losses to total non-performing loans and leases	581		%	510		%

(1)Excludes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more totaling $1.0 million at September 30, 2022.

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

A decline in the economic conditions and 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.

Table of Contents

Allowance for Credit Losses

The ACL totaled $294.9 million at September 30, 2022, an increase of $33.7 million from December 31, 2021. The following table shows the activity in the ACL for the three months ended September 30, 2022 and June 30, 2022, as well as the nine months ended September 30, 2022 and 2021:


		Three Months Ended						Nine Months Ended
(dollars in thousands)		September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Allowance for credit losses on loans and leases
Balance, beginning of period		$	261,111		$	248,564		$	248,412		$	328,401
Provision (recapture) for credit losses on loans and leases		28,542			18,787			53,025			(33,381)
Charge-offs
	Commercial real estate, net	—			(8)			(8)			(1,086)
	Commercial, net	(9,459)			(9,035)			(26,352)			(44,228)
	Residential, net	(4)			—			(171)			(70)
	Consumer & other, net	(929)			(836)			(2,650)			(2,983)
	Total charge-offs	(10,392)			(9,879)			(29,181)			(48,367)
Recoveries
	Commercial real estate, net	123			73			221			589
	Commercial, net	2,842			2,934			8,321			8,118
	Residential, net	249			216			638			598
	Consumer & other, net	590			416			1,629			1,602
	Total recoveries	3,804			3,639			10,809			10,907
Net (charge-offs) recoveries
	Commercial real estate, net	123			65			213			(497)
	Commercial, net	(6,617)			(6,101)			(18,031)			(36,110)
	Residential, net	245			216			467			528
	Consumer & other, net	(339)			(420)			(1,021)			(1,381)
Total net charge-offs		(6,588)			(6,240)			(18,372)			(37,460)
Balance, end of period		$	283,065		$	261,111		$	283,065		$	257,560
Reserve for unfunded commitments
Balance, beginning of period		$	12,823		$	12,918		$	12,767		$	20,286
(Recapture) provision for credit losses on unfunded commitments		(970)			(95)			(914)			(8,534)
Balance, end of period		11,853			12,823			11,853			11,752
Total allowance for credit losses		$	294,918		$	273,934		$	294,918		$	269,312
As a percentage of average loans and leases (annualized):
Net charge-offs		0.11		%	0.11		%	0.10		%	0.23		%
Provision (recapture) for credit losses		0.44		%	0.32		%	0.29		%	(0.26)		%
Recoveries as a percentage of charge-offs		36.61		%	36.84		%	37.04		%	22.55		%

The provision for credit losses includes the provision (recapture) for loan and lease losses and the (recapture) provision for unfunded commitments. The increase in the provision is due to organic loan growth as well as updates to the economic forecasts used in credit models.

Table of Contents

The following table sets forth the allocation of the allowance for credit losses on loans and leases and percent of loans in each category to total loans and leases as of September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
(dollars in thousands)	Amount		% Loans to total loans		Amount		% Loans to total loans
Commercial real estate	$	85,543	50	%	$	99,075	50	%
Commercial	151,600		22	%	117,573		24	%
Residential	41,138		27	%	29,068		25	%
Consumer & other	4,784		1	%	2,696		1	%

Allowance for credit losses on loans and leases	$	283,065			$	248,412

The following table shows the change in the allowance for credit losses from June 30, 2022 to September 30, 2022:


(dollars in thousands)	June 30, 2022			Q3 2022 net (charge-offs) recoveries		Reserve build/(release)		September 30, 2022			% of Loan and leases outstanding
Commercial real estate	$	96,334		$	123	$	(5,557)	$	90,900		0.71	%
Commercial	133,687			(6,617)		27,341		154,411			2.76	%
Residential	39,321			245		4,611		44,177			0.63	%
Consumer & Other	4,592			(339)		1,177		5,430			3.51	%
Total allowance for credit losses	$	273,934		$	(6,588)	$	27,572	$	294,918		1.16	%
% of loans and leases outstanding	1.12		%					1.16		%

To calculate the ACL, the CECL models use a forecast of future economic conditions and are dependent upon specific macroeconomic variables that are relevant to each of the Bank's loan and lease portfolios. For the third quarter of 2022, the Bank used Moody's Analytics' August consensus economic forecast, which shows a worsening economic situation from the forecast used in the prior quarter. Key components include U.S. real GDP average annualized growth of 1.7% in 2022, decreasing to 1.3% in 2023, 1.7% in 2024, and 1.9% in 2025, and an average unemployment rate of 3.6% in 2022, 3.9% in 2023, 4.0% in 2024, and 3.9% in 2025. The forecasted average federal funds rate is expected to be 3.2% in Q4 2022, 3.3% in 2023, 2.8% in 2024, and 2.6% in 2025. 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.

We believe that the ACL as of September 30, 2022 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 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 MSR portfolio for the three months ended September 30, 2022 and June 30, 2022, as well as the nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		June 30, 2022		September 30, 2022		September 30, 2021
Balance, beginning of period	$	179,558	$	165,807	$	123,615	$	92,907
Additions for new MSR capitalized	5,194		7,813		20,397		30,845

Changes in fair value:
Changes due to collection/realization of expected cash flows over time	(4,978)		(4,961)		(15,286)		(13,592)
Changes due to valuation inputs or assumptions (1)	16,403		10,899		67,451		(4,326)
Balance, end of period	$	196,177	$	179,558	$	196,177	$	105,834

(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.

Table of Contents

Information related to our residential serviced loan portfolio as of September 30, 2022 and December 31, 2021 was as follows:


(dollars in thousands)	September 30, 2022			December 31, 2021
Balance of loans serviced for others	$	12,997,911		$	12,755,671
MSR as a percentage of serviced loans	1.51		%	0.97		%

Residential MSR 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 fee collections decline. Historically, the fair value of our residential MSR will increase as market rates for mortgage loans rise and decrease if market rates fall. Mortgage rates increased during the period and are expected to continue to rise, which has caused prepayment speeds to slow.

Due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds, the fair value of the MSR asset increased by $16.4 million and $67.5 million for the three and nine months ended September 30, 2022, as compared to an increase of $10.9 million for the three months ended June 30, 2022 and a decrease of $4.3 million for the nine months ended September 30, 2021. The fair value of the MSR asset decreased by $5.0 million and $15.3 million, due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three and nine months ended September 30, 2022, as compared to a decrease of $5.0 million for the three months ended June 30, 2022 and $13.6 million for the nine months ended September 30, 2021.

Deposits

Total deposits were $26.8 billion at September 30, 2022, an increase of $222.4 million, as compared to December 31, 2021. The increase is mainly attributable to growth in non-interest and interest bearing demand and savings accounts, partially offset by decreases in time and money market deposits.

The following table presents the deposit balances by category as of September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
(dollars in thousands)	Amount		%		Amount		%
Non-interest bearing demand	$	11,246,358	42	%	$	11,023,724	41	%
Interest bearing demand	3,903,746		15	%	3,774,937		14	%
Money market	7,601,506		28	%	7,611,718		29	%
Savings	2,455,917		9	%	2,375,723		9	%
Time, greater than $250,000	410,199		2	%	480,432		2	%
Time, $250,000 or less	1,199,381		4	%	1,328,151		5	%
Total deposits	$	26,817,107	100	%	$	26,594,685	100	%

The Company's total core deposits, which are deposits less time deposits greater than $250,000 and all brokered deposits, were $26.3 billion at September 30, 2022, compared to $26.0 billion at December 31, 2021. The Company's brokered deposits totaled $114.4 million at September 30, 2022, compared to $149.9 million at December 31, 2021.

Borrowings

At September 30, 2022, the Bank had outstanding securities sold under agreements to repurchase of $383.6 million, a decrease of $108.7 million from December 31, 2021. The Bank had outstanding borrowings consisting of advances from the FHLB of $756.2 million at September 30, 2022 and $6.3 million at December 31, 2021. The increase was due to $750.0 million in short-term advances, which have fixed rates ranging from 3.31% to 3.80% and are set to mature before the end of 2022. The remaining advance has a fixed interest rate of 7.10% and matures in 2030. Advances from the FHLB are secured by investment securities and loans secured by real estate.

Table of Contents

Junior Subordinated Debentures

We had junior subordinated debentures with carrying values of $413.6 million and $381.1 million at September 30, 2022 and December 31, 2021, respectively. The increase is mainly due to the $31.8 million change in fair value for the junior subordinated debentures elected to be carried at fair value, which is due to an increase in the implied forward curve resulting in increased cash flows, partially offset by an increase in the discount rate. As of September 30, 2022, 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. These instruments mature after June 2023, and we anticipate they will be covered under pending federal legislation that will allow us to replace the LIBOR index with SOFR under a safe-harbor provision.

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 maintaining a sufficient on-balance sheet liquidity position to provide flexibility, to grow deposit balances and fund growth in lending and investment portfolios, as well as to deleverage non-deposit liabilities as economic conditions permit. As a result, the Company believes that it has sufficient cash and access to borrowings to effectively manage through the current economic conditions, as well as meet its working capital and other needs. The Company will continue to prudently evaluate and maintain liquidity sources, including the ability to fund future loan growth and manage 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% and 5% of total deposits at September 30, 2022 and December 31, 2021, respectively. 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 $9.3 billion at September 30, 2022, 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 $1.2 billion, 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 September 30, 2022. 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 $144.0 million of dividends paid by the Bank to the Company in the nine months ended September 30, 2022. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Company. FDIC and Oregon Division of Financial Regulation approval is required for quarterly dividends from Umpqua Bank to the Company.

As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $904.7 million during the nine months ended September 30, 2022, with the difference between cash provided by operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $1.8 billion, the increase in other liabilities of $248.4 million, and the decrease in other assets of $203.8 million, offset by originations of loans held for sale of $1.6 billion. This compares to net cash provided by operating activities of $541.5 million during the nine months ended September 30, 2021, with the difference between cash provided by operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $4.1 billion, and the decrease in other assets of $161.1 million, offset by originations of loans held for sale of $3.9 billion, the gain on sale of loans of $124.8 million, and the recapture of provision for loan and lease losses of $41.9 million.

Table of Contents

Net cash of $2.8 billion used in investing activities during the nine months ended September 30, 2022, consisted principally of net change in loans of $3.1 billion, purchases of available for sale investment securities of $175.7 million and purchases of restricted equity securities of $164.3 million offset by proceeds from available for sale investment securities of $328.7 million, redemption of restricted equity securities of $134.3 million and the proceeds from sales of loans and leases of $111.6 million. This compares to net cash of $764.9 million used in investing activities during the nine months ended September 30, 2021, consisted principally of purchases of available for sale investment securities of $1.5 billion, and net loan originations of $85.5 million, offset by proceeds from available for sale investment securities of $578.2 million and the proceeds from sales of loans and leases of $182.6 million.

Net cash of $723.0 million provided by financing activities during the nine months ended September 30, 2022, primarily consisted of $750.0 million proceeds from borrowings and $222.4 million net increase in deposit liabilities, partially offset by $136.7 million of dividends paid on common stock and the net decrease in securities sold under agreements to repurchase of $108.7 million. This compares to net cash of $1.4 billion provided by financing activities during the nine months ended September 30, 2021, primarily consisted of $2.3 billion net increase in deposits and the net increase in securities sold under agreements to repurchase of $92.4 million, offset by $765.0 million repayment of borrowings, $138.2 million of dividends paid on common stock, and the repurchase and retirement of common stock of $80.7 million.

Although we expect the Bank's and the Company's liquidity positions to remain satisfactory during 2022, it is possible that our deposit balances may not be maintained at previous levels due to pricing pressure or customers' behavior in the current economic environment. 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. We may utilize borrowings or other funding sources, which are generally more costly than deposit funding, to support our liquidity levels.

Off-balance-Sheet Arrangements

Information regarding Off-Balance-Sheet Arrangements is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.

Concentrations of Credit Risk

Information regarding Concentrations of Credit Risk is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.

Capital Resources

Shareholders' equity at September 30, 2022 was $2.4 billion. The decrease in shareholders' equity during the nine months ended September 30, 2022 was principally due to the other comprehensive loss, net of tax, of $451.3 million and cash dividends paid of $137.4 million offset by net income of $253.8 million during the period.

The Company's dividend policy considers, among other things, earnings, regulatory capital levels, the overall payout ratio and expected asset growth to determine the amount of dividends declared, if any, on a quarterly basis. There is no assurance that future cash dividends on common shares will be declared or increased. We cannot predict the extent of the economic decline that could result in inadequate earnings, regulatory restrictions and limitations, changes to our capital requirements, or a decision to increase capital by retention of earnings, that may result in the inability to pay dividends at previous levels, or at all. Umpqua agreed to refrain from paying quarterly cash dividends in excess of the then-current level ($0.21 per share) at the time we entered into the Merger Agreement.

On July 20, 2022, the Company declared a cash dividend in the amount of $0.21 per common share based on second quarter 2022 performance, which was paid on August 15, 2022. The Company also declared a quarterly cash dividend, based on third quarter 2022 performance, of $0.21 per common share, paid on October 28, 2022, to shareholders of record as of October 14, 2022.

Table of Contents

The following table presents cash dividends declared and dividend payout ratios (dividends declared per common share divided by basic earnings per common share) for the three months ended September 30, 2022 and June 30, 2022, and the nine months ended September 30, 2022 and September 30, 2021:


	Three Months Ended						Nine Months Ended
	September 30, 2022			June 30, 2022				September 30, 2022			September 30, 2021
Dividend declared per common share	$	0.21		$	0.21			$	0.63		$	0.63
Dividend payout ratio	54		%	58		%		54		%	42		%

In July 2021, the Company announced that its Board of Directors approved a share repurchase program, which authorized the Company to repurchase up to $400 million of common stock from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. As of September 30, 2022, the Company repurchased a total of $78.2 million in shares under the program. During the nine months ended September 30, 2022, no shares were repurchased under the program and the program expired July 31, 2022.

The Company halted repurchases, based on the announced merger with Columbia and in accordance with the Merger Agreement. The timing and amount of future repurchases would 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 award holders may pay for the exercise price and tax withholdings in part or entirely by tendering previously held shares.

Table of Contents

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 September 30, 2022 and December 31, 2021:


	Actual				For Capital Adequacy purposes				To be Well Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022
Total Capital (to Risk Weighted Assets)
Consolidated	$	3,589,092	13.18	%	$	2,177,922	8.00	%	$	2,722,403	10.00	%
Umpqua Bank	$	3,374,328	12.40	%	$	2,177,601	8.00	%	$	2,722,002	10.00	%
Tier I Capital (to Risk Weighted Assets)
Consolidated	$	2,895,554	10.64	%	$	1,633,442	6.00	%	$	2,177,922	8.00	%
Umpqua Bank	$	3,131,788	11.51	%	$	1,633,201	6.00	%	$	2,177,601	8.00	%
Tier I Common (to Risk Weighted Assets)
Consolidated	$	2,895,554	10.64	%	$	1,225,081	4.50	%	$	1,769,562	6.50	%
Umpqua Bank	$	3,131,788	11.51	%	$	1,224,901	4.50	%	$	1,769,301	6.50	%
Tier I Capital (to Average Assets)
Consolidated	$	2,895,554	9.35	%	$	1,238,774	4.00	%	$	1,548,467	5.00	%
Umpqua Bank	$	3,131,788	10.11	%	$	1,239,024	4.00	%	$	1,548,780	5.00	%
December 31, 2021
Total Capital (to Risk Weighted Assets)
Consolidated	$	3,429,047	14.26	%	$	1,923,934	8.00	%	$	2,404,917	10.00	%
Umpqua Bank	$	3,085,848	12.83	%	$	1,924,015	8.00	%	$	2,405,019	10.00	%
Tier I Capital (to Risk Weighted Assets)
Consolidated	$	2,785,794	11.58	%	$	1,442,950	6.00	%	$	1,923,934	8.00	%
Umpqua Bank	$	2,893,593	12.03	%	$	1,443,011	6.00	%	$	1,924,015	8.00	%
Tier I Common (to Risk Weighted Assets)
Consolidated	$	2,785,794	11.58	%	$	1,082,213	4.50	%	$	1,563,196	6.50	%
Umpqua Bank	$	2,893,593	12.03	%	$	1,082,258	4.50	%	$	1,563,262	6.50	%
Tier I Capital (to Average Assets)
Consolidated	$	2,785,794	9.01	%	$	1,236,265	4.00	%	$	1,545,331	5.00	%
Umpqua Bank	$	2,893,593	9.36	%	$	1,236,518	4.00	%	$	1,545,648	5.00	%

In 2020, the federal bank regulatory authorities finalized a rule to provide banking organizations that implemented CECL in 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 to delay the estimated regulatory capital impact of adopting CECL, relative to the incurred loss methodology's effect on regulatory capital. Currently, the Company is beginning to phase out the cumulative adjustment as calculated at the end of 2021, by adjusting it by 75% through 2022, 50% in 2023, and 25% in 2024.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our assessment of market risk as of September 30, 2022 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, 2021. However, increasing interest rates resulting from Federal Reserve monetary policy and programs to address inflationary pressures have shifted the estimated impact of rate changes on our net interest income over a one-year time horizon.

Table of Contents

Interest Rate Simulation Impact on Net Interest Income

The following table presents interest rate simulations under different scenarios. Each simulation assumes a parallel and sustained shift in market interest rates ratably over a twelve-month period and no change in the composition or size of the balance sheet. The scenarios presented are as of September 30, 2022, and December 31, 2021 and 2020:


	Q3 2022		2021		2020
Up 300 basis points	3.0	%	9.7	%	9.7	%
Up 200 basis points	2.0	%	6.3	%	6.5	%
Up 100 basis points	1.0	%	3.0	%	3.2	%
Down 100 basis points	(3.1)	%	(1.2)	%	(1.8)	%
Down 200 basis points	(6.5)	%	(2.4)	%	(2.9)	%
Down 300 basis points	(10.2)	%	(3.1)	%	(3.3)	%

For the scenarios shown, the interest rate simulation assumes a parallel and sustained shift in market interest rates ratably over a twelve-month period and no change in the composition or size of the balance sheet.

As rates have increased in 2022, our asset sensitivity in an increasing rate environment has decreased and our sensitivity in a decreasing rate environment has increased as loans have moved off floors while interest bearing deposits have remained near historical low levels.

The short-term interest rate environment is primarily a function of the monetary policy of the Federal Reserve Board. The principal tools of the Federal Reserve for implementing monetary policy are open market operations, or the purchases and sales of U.S. Treasury and Federal agency securities, as well as the establishment of a short-term target rate. The Federal Reserve’s objective for open market operations has varied over the years, but the focus has gradually shifted toward attaining a specified level of the federal funds rate to achieve the long-run goals of price stability and sustainable economic growth. The federal funds rate is the basis for overnight funding and drives the short end of the yield curve. Longer maturities are influenced by the market’s expectations for economic growth and inflation, but they can also be influenced by Federal Reserve purchases and sales and expectations of monetary policy going forward.

Starting in March 2022, in response to persistent inflation, the FOMC raised the target range for the federal funds rate from 0.00% - 0.25% to a target range of 3.00% - 3.25% at September 30, 2022. Expectations are for the FOMC to continue increasing this target range until inflation is controlled and price stability is restored. Increases in the federal funds rate and the unwinding of its balance sheet could cause overall interest rates to rise, which may negatively impact the U.S. real estate markets and affect deposit growth and pricing. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance.

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has concluded that our disclosure controls and procedures are effective in timely alerting them to information relating to us that is required to be included in our periodic filings with the SEC. The disclosure controls and procedures were last evaluated by management as of September 30, 2022.

No change in internal control over financial reporting occurred during the quarter ended September 30, 2022 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

The information required by this item is set forth in Part I, Item 1 under Note 6 Commitments and Contingencies—Legal Proceedings and Regulatory Matters, and incorporated herein by reference.

Table of Contents

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, 2021. 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 September 30, 2022:


Period	Total number of Common Shares Purchased (1)	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (2)	Maximum Dollar Value of Shares that May be Purchased at Period End under the Plan
07/01/22 - 07/31/22	1,617	$	17.29	—	$	321,797,719
08/01/22 - 08/31/22	—	$	—	—	$	321,797,719
09/01/22 - 09/30/22	731	$	17.61	—	$	321,797,719
Total for quarter	2,348	$	17.39	—

(1)Common shares repurchased by the Company during the quarter consist of cancellation of 2,348 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended September 30, 2022, there were no shares repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

(2)On July 21, 2021, the Company approved a share repurchase program, which authorizes the Company to repurchase up to $400 million of common stock from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. As of September 30, 2022, the Company repurchased a total of $78.2 million in shares under the program. The Company halted repurchases under the program with the announcement of the proposed merger with Columbia and as required under the Merger Agreement, and the share repurchase program expired on July 31, 2022.

Item 3. Defaults upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Table of Contents

Item 6. Exhibits


Exhibit #			Description

2.1			(a) Agreement and Plan of Merger by and among Umpqua Holdings Corporation, Columbia Banking System, Inc, and Cascade Merger Sub, Inc..

3.1			(b) Restated Articles of Incorporation, as amended

3.2			(c) Bylaws, as amended

4.1			(d) 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.

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 September 30, 2022, formatted in Inline XBRL (included in Exhibit 101)



(a)			Incorporated by reference to Exhibit 2.1 to Form 8-K filed October 15, 2021

(b)			Incorporated by reference to Exhibit 3.1 to Form 8-K filed April 23, 2018

(c)			Incorporated by reference to Exhibit 99.2 to Form 8-K filed March 24, 2020

(d)			Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (No. 333-77259) filed April 28, 1999

Table of Contents

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	October 28, 2022	/s/ Cort L. O'Haver
		Cort L. O'Haver President and Chief Executive Officer

Dated	October 28, 2022	/s/ Ronald L. Farnsworth
		Ronald L. Farnsworth Executive Vice President/Chief Financial Officer and Principal Financial Officer

Dated	October 28, 2022	/s/ Lisa M. White
		Lisa M. White Senior Vice President/Corporate Controller and Principal Accounting Officer