NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Significant Accounting Policies
Nature of Operations-Umpqua Holdings Corporation (the "Company" or "Umpqua") is a financial holding company with headquarters in Portland, Oregon, that is engaged primarily in the business of commercial and retail banking and the delivery of retail brokerage services. The Company provides a wide range of banking, wealth management, mortgage and other financial services to corporate, institutional and individual customers through its wholly-owned banking subsidiary Umpqua Bank. The Company engages in the retail brokerage business through its wholly-owned subsidiary Umpqua Investments, Inc.. The Bank also has a wholly-owned subsidiary, Financial Pacific Leasing Inc., a commercial equipment leasing company.
The Company and its subsidiaries are subject to regulation by certain federal and state agencies and undergo periodic examination by these regulatory agencies.
Basis of Financial Statement Presentation-The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with prevailing practices within the banking and securities industries. In preparing such financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of mortgage servicing rights, the fair value of junior subordinated debentures, and the valuation of goodwill.
Consolidation-The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, including the Bank and Umpqua Investments. All significant intercompany balances and transactions have been eliminated in consolidation. As of December 31, 2020, the Company had 23 wholly-owned trusts that were formed to issue trust preferred securities and related common securities of the Trusts. The Company has not consolidated the accounts of the Trusts in its consolidated financial statements as they are considered to be variable interest entities for which the Company is not a primary beneficiary. As a result, the junior subordinated debentures issued by the Company to the Trusts are reflected on the Company's consolidated balance sheet as junior subordinated debentures.
Subsequent events-The Company has evaluated events and transactions through the date that the consolidated financial statements were issued for potential recognition or disclosure.
Reclassifications-Certain amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current presentation.
Cash and Cash Equivalents-Cash and cash equivalents include cash and due from banks and temporary investments which are federal funds sold and interest bearing balances due from other banks. Cash and cash equivalents generally have a maturity of 90 days or less at the time of purchase.
Equity and Other Securities-Equity and other securities are carried at fair value with realized and unrealized gains or losses recorded in non-interest income.
Investment Securities Available for Sale-Debt securities are classified as available for sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a debt security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.
Securities available for sale are carried at fair value. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Unrealized holding gains or losses are included in other comprehensive income as a separate component of shareholders' equity, net of tax. When the fair value of an available-for-sale debt security falls below the amortized cost basis, it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss would be recorded directly to earnings with a corresponding allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves, the allowance would be reversed up to a maximum of the previously recorded credit losses. If the Company intends to sell an impaired available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment would be immediately recognized in earnings with no corresponding allowance for credit losses.
Loans Held for Sale-The Company has elected to account for residential mortgage loans held for sale at fair value. Fair value is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in the fair value of the related servicing asset, resulting in revaluation adjustments to the recorded fair value. The inputs used in the fair value measurements are considered Level 2 inputs. The use of the fair value option allows the change in the fair value of loans to more effectively offset the change in the fair value of derivative instruments that are used as economic hedges to loans held for sale. Loan origination fees and direct origination costs are recognized immediately in net income. Interest income on loans held for sale is included in interest income and recognized when earned. Loans held for sale are placed on nonaccrual in a manner consistent with loans held for investment. The Company recognizes the gain or loss on the sale of loans when the sales criteria for derecognition are met.
Allowance for Credit Losses-The Bank has established an Allowance for Credit Loss Committee, which is responsible for, among other things, regularly reviewing the ACL methodology, including allowance levels and ensuring that it is designed and applied in accordance with generally accepted accounting principles. The Bank's Audit and Compliance Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis. CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Instead, management has flexibility in selecting the methodology. The expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments utilizing quantitative and qualitative factors. There are also specific considerations for Purchased Credit-Deteriorated, Troubled Debt Restructured, and Collateral Dependent Loans.
The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life using an approach that reverts to historical credit loss information for the longer-term portion of the asset's life.
The Company utilizes complex models to obtain reasonable and supportable forecasts. Most of the models calculate two predictive metrics: the probability of default and loss given default. The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan or lease. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.
Management believes that the ACL was adequate as of December 31, 2020. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ACL and could possibly result in additional charges to the provision for credit losses.
Acquired Loans and Leases-Loans and leases purchased without more-than-insignificant credit deterioration, are recorded at their fair value at the acquisition date. However, loans and leases purchased with more-than-insignificant credit deterioration will be recorded with their applicable allowance for credit loss to determine the amortized cost basis.
Originated Loans and Leases-Loans are stated at the amount of unpaid principal, net of unearned income and any deferred fees or costs. All discounts and premiums are recognized over the contractual life of the loan as yield adjustments. Leases are recorded at the amount of minimum future lease payments receivable and estimated residual value of the leased equipment, net of unearned income and any deferred fees. Initial direct costs related to lease originations are deferred as part of the investment in direct financing leases and amortized over their term using the effective interest method. Unearned lease income is amortized over the term using the effective interest method.
Income Recognition on Non-Accrual Loans-Loans are classified as non-accrual if the collection of principal and interest is doubtful. Generally, this occurs when a commercial or commercial real estate loan is past due beyond its maturity, principal payment, or interest payment due date by 90 days or more, unless such loans are well-secured and in the process of collection. Loans that are less than 90 days past due may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.
Generally, when a loan is classified as non-accrual, all uncollected accrued interest is reversed from interest income and the accrual of interest income is terminated. In addition, any cash payments subsequently received are applied as a reduction of principal outstanding. In cases where the future collectability of the principal balance in full is expected, interest income may be recognized on a cash basis. A loan may be restored to accrual status when the borrower's financial condition improves so that full collection of future contractual payments is considered likely. For those loans placed on non-accrual status due to payment delinquency, return to accrual status will typically not occur until the borrower demonstrates repayment ability over a period of not less than six months.
Collateral Dependent Loans and Troubled Debt Restructurings-A loan or lease is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. The Company's classification of CDLs includes: non-homogeneous non-accrual loans and leases; non-homogeneous loans determined by individual credit review; homogeneous non-accrual leases and equipment finance agreements; and homogeneous real estate secured loans that have been charged down to net realizable value or the government guaranteed balance. Except for homogeneous leases and equipment finance agreements, the expected credit losses for CDLs will be measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. The Company may also use the loan's observable market price, if available. If the value of the CDL is determined to be less than the recorded amount of the loan, a charge-off will be taken. To determine the expected credit loss for homogeneous leases or equipment finance agreements, the LGD calculated by the CECL model will be utilized. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is fully charged-off.
Loans are reported as TDR loans when, due to borrower financial difficulties, the Bank grants a more than insignificant concession it would not otherwise be willing to offer for a loan. Once a loan has been classified as a TDR, it continues in the classification until it has paid in full or it has demonstrated six months of payment performance and was determined to have been modified at market rate terms. TDRs, including reasonably expected TDRs, are individually recognized and measured for expected credit loss in one of two ways: when a TDR meets the definition of a CDL, it is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable; otherwise, a discounted cash flow analysis is utilized to measure the expected credit loss for a TDR. The expected cash flow for a TDR is discounted based on the pre-modification rate and the expected remaining life.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was passed, which, among other things, provided relief for Banks related to loan modifications for accounting purposes. Specifically, section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition to the CARES Act, bank regulatory agencies issued interagency guidance indicating that a lender could conclude that the modifications under section 4013 of the CARES Act or the interagency guidance are not a TDR if certain criteria are met. The guidance also provides that loans generally will not be adversely classified if the short-term modification is related to COVID-19 relief programs. The Company has followed the guidance under the CARES Act, the interagency guidance, and government-mandated programs related to these loan modifications. Loans modified under section 4013 of the CARES Act or the interagency guidance generally maintain their pre-COVID-19 delinquency status and are classified as performing loans. If it is deemed the modification is not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company evaluates the loan modification under its existing framework which requires modifications that result in a concession without appropriate compensation to a borrower experiencing financial difficulty to be accounted for as a TDR.
Reserve for Unfunded Commitments-A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb expected losses associated with the Bank's commitment to lend funds under existing agreements, such as letters or lines of credit. The RUC calculation utilizes the allowance for credit loss on loans and leases rates, probability of default risk ratings, and utilization rates based on the economic expectations over the contractual life of the commitment. The reserve is based on estimates and ultimate losses may vary from the current estimates. These estimates are evaluated on a regular basis and adjustments are reported in earnings in the periods in which they become known. Draws on unfunded commitments that are considered uncollectible at the time funds are advanced are charged to the allowance for credit losses on loans and leases. Provisions for unfunded commitment losses are added to the reserve for unfunded commitments, which is included in the Other Liabilities section of the consolidated balance sheets.
Loan and Lease Fees and Direct Loan Origination Costs-Origination and commitment fees and direct loan origination costs for loans and leases held for investment are deferred and recognized as an adjustment to the yield over the life of the loans and leases. PPP loan related net fees are recognized over the contractual life of the loans as a yield adjustment. When these PPP loans are forgiven, the recognition of the net deferred fees is accelerated.
Restricted Equity Securities-Restricted equity securities consists mostly of the Bank's investment in Federal Home Loan Bank of Des Moines stock that is carried at par value, which reasonably approximates its fair value. Management periodically evaluates FHLB stock for other-than-temporary or permanent impairment. Management's determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value.
As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. The Bank may request redemption at par value of any stock in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.
Premises and Equipment-Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful life of equipment, generally three to ten years, on a straight-line or accelerated basis. Depreciation is provided over the estimated useful life of premises, up to 39 years, on a straight-line or accelerated basis. Generally, leasehold improvements are amortized or accreted over the life of the related lease, or the life of the related asset, whichever is shorter. Expenditures for major renovations and betterments of the Company's premises and equipment are capitalized. The Company purchases, as well as internally develops and customizes, certain software to enhance or perform internal business functions. Software development costs incurred in the preliminary project stages are charged to non-interest expense. Costs associated with designing software configuration, installation, coding programs and testing systems are capitalized and amortized using the straight-line method over three to seven years. Implementation costs incurred for software that is part of a hosting arrangement are capitalized in other assets and amortized on a straight-line basis over the life of the contract. In addition to annual impairment reviews, management reviews long-lived assets anytime a change in circumstance indicates the carrying amount of these assets may not be recoverable.
Operating Leases-The Company leases store locations, corporate office space, and equipment under non-cancelable leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with one or more options to renew, with renewal terms that can extend the lease term from one to ten years or more. The exercise of lease renewal options is at management's sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases of mainly former store locations or excess space in store or corporate facilities. In addition to annual impairment reviews, management reviews right of use assets anytime a change in circumstances indicates the carrying amount of these assets may not be recoverable.
Goodwill and Other Intangibles-Intangible assets are comprised of goodwill and other intangibles acquired in business combinations. Goodwill is not amortized but instead is periodically tested for impairment. Intangible assets with definite useful lives are amortized to their estimated residual values over their respective estimated useful lives, and also reviewed for impairment. Amortization of intangible assets is included in non-interest expense.
On at least an annual basis, goodwill is assessed for impairment at the reporting unit level either qualitatively or quantitatively. Additionally, the Company performs a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, a significant decline in expected future cash flows; a sustained, significant decline in the Company's stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. If the qualitative assessment results indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative impairment test is required. If the fair value of the reporting unit is less than its carrying amount, an impairment charge would be recorded for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Residential Mortgage Servicing Rights-The Company determines its classes of servicing assets based on the asset type being serviced along with the methods used to manage the risk inherent in the servicing assets, which includes the market inputs used to value the servicing assets. The Company measures its residential mortgage servicing assets at fair value and reports changes in fair value through earnings. Fair value adjustments encompass market-driven valuation changes and the runoff in value that occurs from the passage of time, which are separately disclosed. Under the fair value method, the MSR is carried in the balance sheet at fair value and the changes in fair value are reported in earnings under the caption residential mortgage banking revenue, net in the period in which the change occurs.
The expected life of the loans underlying the MSR can vary from management's estimates due to prepayments by borrowers, especially when rates change significantly. Prepayments outside of management's estimates would impact the recorded value of the residential mortgage servicing rights. The value of the residential mortgage servicing rights is also dependent upon the discount rate used in the model, which management reviews on an ongoing basis. A significant increase in the discount rate would reduce the value of residential mortgage servicing rights.
GNMA Loan Sales-The Company originates government guaranteed loans which are sold to Government National Mortgage Association. Pursuant to GNMA servicing guidelines, the Company has the unilateral right to repurchase certain delinquent loans (loans past due 90 days or more) sold to GNMA, if the loans meet defined delinquent loan criteria. As a result of this unilateral right, once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, the Company accounts for the loans as if they had been repurchased. The Company recognizes these loans within loans and leases, net and also recognizes a corresponding liability that is recorded in other liabilities. If the loan is repurchased, the liability is settled and the loan remains.
SBA/USDA Loans Sales, Servicing, and Commercial Servicing Asset-The Bank, on a limited basis, sells or transfers loans, including the guaranteed portion of SBA and USDA loans (with servicing retained) for cash proceeds. The Bank records a servicing asset when it sells a loan and retains the servicing rights. The servicing asset is recorded at fair value upon sale, and the fair value is estimated by discounting estimated net future cash flows from servicing using discount rates that approximate current market rates and using estimated prepayment rates. Subsequent to initial recognition, the servicing rights are carried at the lower of amortized cost or fair value, and are amortized in proportion to, and over the period of, the estimated net servicing income.
Revenue Recognition-The majority of the Company's revenues come from interest income and other sources, including loans, leases, securities, and derivatives. The Company recognizes income in accordance with the applicable accounting guidance for these revenue sources. The Company's revenues that are within the scope of Accounting Standards Codification Topic 606 are presented within non-interest income and include service charges on deposits, brokerage revenue, and interchange income.
Revenue within the contracts with customers guidance is recognized when obligations under the terms of a contract with customers are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. When the amount of consideration is variable, the Company will only recognize revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in the future. Substantially all of the Company's contracts with customers have expected durations of one year or less and payments are typically due when or as the services are rendered or shortly thereafter. When third parties are involved in providing services to customers, the Company recognizes revenue on a gross basis when it has control over those services being provided to the customer; otherwise, revenue is recognized for the net amount of any fee or commission.
Income Taxes-Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company's income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized.
Deferred tax assets are recognized subject to management's judgment that realization is "more likely than not." Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the DTA will or will not be realized. The Company's ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.
The Company earns Investment Tax Credits on certain equipment leases and uses the deferral method to account for these tax credits. Under this method, the Investment Tax Credits are recognized as a reduction of depreciation expense over the life of the asset.
Derivatives-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 loan commitments. The commitments to originate mortgage loans held for sale and the related forward delivery contracts are considered derivatives. The Bank also executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are hedged by simultaneously entering into an offsetting interest rate swap that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. The Company considers all free-standing derivatives as economic hedges and recognizes these derivatives as either assets or liabilities in the balance sheet, and requires measurement of those instruments at fair value through adjustments to current earnings. None of the Company's derivatives are designated as hedging instruments.
As of October 2020, the Company changed its valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash margin from Overnight Index Swap to SOFR for cleared interest rate swaps. The changes in valuation methodology are applied prospectively as a change in accounting estimate and are immaterial to the Company's financial statements.
The fair value of the derivative residential mortgage loan commitments is estimated using the net present value of expected future cash flows. Assumptions used include pull-through rate assumption based on historical information, current mortgage interest rates, the stage of completion of the underlying application and underwriting process, direct origination costs yet to be incurred, the time remaining until the expiration of the derivative loan commitment, and the expected net future cash flows related to the associated servicing of the loan.
Operating Segments-Public enterprises are required to report certain information about their operating segments in its financial statements. They are also required to report certain enterprise-wide information about the Company's products and services, its activities in different geographic areas, and its reliance on major customers. The basis for determining the Company's operating segments is the manner in which management operates the business. The Company reports four primary segments, which are also the Company's reporting units: Wholesale Bank, Wealth Management, Retail Bank, and Home Lending with the remainder as Corporate and other.
Stock-Based Compensation-The Company recognizes expense in the income statement for the grant-date fair value of restricted stock awards issued to employees over the employees' requisite service period (generally the vesting period). An estimate of expected forfeitures is included in the calculation of stock-based compensation expense over the vesting period, and actual forfeitures are recognized when they occur. The fair value of the restricted stock awards is based on the Company's share price on the grant date. Restricted stock awards generally vest ratably over three years and are recognized as expense over that same period of time.
Certain restricted stock awards (performance share awards) are subject to performance-based and market-based vesting criteria in addition to a requisite service period and cliff vest based on those conditions at the end of three years. Compensation expense is recognized over the service period to the extent restricted stock awards are expected to vest. The fair value of the performance-based restricted stock award grants is estimated as of the grant date using a Monte Carlo simulation pricing model.
Earnings per Share-Basic earnings or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted earnings or loss per common share is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method. For all periods presented, restricted stock awards are potentially dilutive instruments issued by the Company. Undistributed losses are not allocated to the nonvested stock-based payment awards as the holders are not contractually obligated to share in the losses of the Company.
Fair Value Measurements-Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities measured or disclosed at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect estimates about market data. In general, fair values determined by Level 1 inputs utilize quoted prices for identical assets or liabilities traded in active markets that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Application of new accounting guidance
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. CECL is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates but will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASC 326 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, ASC 326 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
The adoption date for the Company was January 1, 2020. The guidance was applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at January 1, 2020. However, certain provisions of the guidance are only required to be applied on a prospective basis.
The Bank has elected to not include accrued interest when determining the amortized cost basis of an asset. Instead, the amortized cost basis of an asset is the combination of the balance, deferred fees and costs, and premium or discount. In addition, the Bank has elected to continue to present accrued interest as part of Other Assets on the consolidated balance sheets. The Bank has calculated an allowance for credit losses on accrued interest that is included with the accrued interest balance. The policies related to income recognition on non-accrual loans are outlined above.
Upon adoption of CECL, the Company did not reassess whether loans previously accounted for as purchased credit impaired met the definition of a Purchased Credit-Deteriorated loan and therefore accounts for all such assets as PCD. The Company has elected not to retain the purchased credit impaired pools previously established. Instead, the loans will now be included within the appropriate class of financing receivables which have been established based on shared risk characteristics. Changes to the allowance after adoption are recorded through provision expense.
Based on the Bank's portfolio composition as of January 1, 2020, and the economic environment at that time, management recorded an initial estimate of the allowance for credit losses under CECL, which includes the allowance for credit losses on loans and leases of $207.6 million and the reserve for unfunded commitments of $8.3 million. The implementation of CECL resulted in a cumulative effect of an accounting change adjustment to retained earnings of $40.2 million.
The Company analyzed the portfolio segments and classes of financing receivables based on the implementation of CECL. There were no necessary changes in the portfolio segments or classes of financing receivables. The increase in the allowance by portfolio segment was as follows:
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December 31, 2019
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|
January 1, 2020
|
|
|
|
|
(in thousands)
|
Allowance for Loan and Lease Losses
|
|
Reserve for Unfunded Commitments
|
|
Allowance for Credit Losses on Loans and Leases
|
|
Reserve for Unfunded Commitments
|
|
$ Increase (decrease)
|
|
% Increase (decrease)
|
Commercial real estate, net
|
$
|
50,847
|
|
|
$
|
534
|
|
|
$
|
55,924
|
|
|
$
|
4,564
|
|
|
$
|
9,107
|
|
|
18
|
%
|
Commercial, net
|
73,820
|
|
|
2,539
|
|
|
117,829
|
|
|
2,052
|
|
|
43,522
|
|
|
57
|
%
|
Residential, net
|
24,714
|
|
|
149
|
|
|
26,813
|
|
|
1,416
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|
|
3,366
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|
|
14
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%
|
Consumer & other, net
|
8,248
|
|
|
1,884
|
|
|
7,062
|
|
|
312
|
|
|
(2,758)
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|
|
(27)
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%
|
Total
|
$
|
157,629
|
|
|
$
|
5,106
|
|
|
$
|
207,628
|
|
|
$
|
8,344
|
|
|
$
|
53,237
|
|
|
33
|
%
|
The required financial statement disclosures for CECL are included in Note 5 - Allowance for Credit Losses.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU was issued to improve the effectiveness of disclosures surrounding fair value measurements. The ASU removes numerous disclosures from Topic 820 including: transfers between level 1 and 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation process for level 3 fair value measurements. The ASU also modified and added disclosure requirements in regards to changes in unrealized gains and losses included in other comprehensive income, as well as the range and weighted average of unobservable inputs for level 3 fair value measurements. The Company adopted this ASU as of January 1, 2020, on a retrospective basis except certain provisions of the guidance which are only required to be applied on a prospective basis.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The ASU was issued in an effort to simplify accounting for income taxes by removing specific technical exceptions. Specifically, the guidance will remove the need for companies to analyze whether (1) the exception to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses apply in a given period. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.
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 last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022. The Company will be able to use the expedients in this guidance to manage through the transition away from LIBOR, specifically for our loan portfolio.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this Update 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 apply to derivatives that are affected by the discounting transition. The amendments are in effect from March 12, 2020, through December 31, 2022. This ASU does not have a material impact on the Company's consolidated financial statements.
Note 2 – Cash and Cash Equivalents
The Company had restricted cash included in cash and due from banks on the balance sheet of $93.0 million and $86.5 million as of December 31, 2020 and 2019, respectively, relating mostly to collateral required on interest rate swaps as discussed in Note 19. At December 31, 2020 and 2019, there was $2.6 million and $590,000, respectively, in restricted cash included in interest bearing cash and temporary investments on the balance sheet, relating to collateral requirements for derivatives for mortgage banking activities.
Previously, the Bank was required to maintain an average reserve balance with the Federal Reserve Bank or maintain such reserve balance in the form of cash. The amount of required reserve balance at December 31, 2019 was approximately $145.6 million and was met by holding cash and maintaining an average balance with the Federal Reserve Bank. As of December 31, 2020, there is no longer a minimum required reserve.
Note 3 – Investment Securities
The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at December 31, 2020 and 2019:
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
Available for sale:
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
$
|
698,243
|
|
|
$
|
64,271
|
|
|
$
|
(312)
|
|
|
$
|
762,202
|
|
Obligations of states and political subdivisions
|
263,546
|
|
|
15,996
|
|
|
(31)
|
|
|
279,511
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,839,711
|
|
|
51,583
|
|
|
(449)
|
|
|
1,890,845
|
|
Total available for sale securities
|
$
|
2,801,500
|
|
|
$
|
131,850
|
|
|
$
|
(792)
|
|
|
$
|
2,932,558
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
$
|
3,034
|
|
|
$
|
849
|
|
|
$
|
—
|
|
|
$
|
3,883
|
|
Total held to maturity securities
|
$
|
3,034
|
|
|
$
|
849
|
|
|
$
|
—
|
|
|
$
|
3,883
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
Available for sale:
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
$
|
642,009
|
|
|
$
|
5,919
|
|
|
$
|
(4,324)
|
|
|
$
|
643,604
|
|
Obligations of states and political subdivisions
|
251,531
|
|
|
9,600
|
|
|
(37)
|
|
|
261,094
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,896,708
|
|
|
18,962
|
|
|
(5,686)
|
|
|
1,909,984
|
|
Total available for sale securities
|
$
|
2,790,248
|
|
|
$
|
34,481
|
|
|
$
|
(10,047)
|
|
|
$
|
2,814,682
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
$
|
3,260
|
|
|
$
|
1,003
|
|
|
$
|
—
|
|
|
$
|
4,263
|
|
Total held to maturity securities
|
$
|
3,260
|
|
|
$
|
1,003
|
|
|
$
|
—
|
|
|
$
|
4,263
|
|
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 $8.9 million and $9.8 million as of December 31, 2020 and 2019, respectively, and is included in Other Assets.
Debt securities that were in an unrealized loss position as of December 31, 2020 and 2019 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
(in thousands)
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
$
|
29,493
|
|
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,493
|
|
|
$
|
312
|
|
Obligations of states and political subdivisions
|
4,357
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
4,357
|
|
|
31
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
215,165
|
|
|
449
|
|
|
—
|
|
|
—
|
|
|
215,165
|
|
|
449
|
|
Total temporarily impaired securities
|
$
|
249,015
|
|
|
$
|
792
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249,015
|
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
313,169
|
|
|
$
|
4,324
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
313,169
|
|
|
$
|
4,324
|
|
Obligations of states and political subdivisions
|
4,611
|
|
|
30
|
|
|
1,906
|
|
|
7
|
|
|
6,517
|
|
|
37
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
288,866
|
|
|
1,628
|
|
|
402,802
|
|
|
4,058
|
|
|
691,668
|
|
|
5,686
|
|
Total temporarily impaired securities
|
$
|
606,646
|
|
|
$
|
5,982
|
|
|
$
|
404,708
|
|
|
$
|
4,065
|
|
|
$
|
1,011,354
|
|
|
$
|
10,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These unrealized losses on the Company's debt securities are due to increases in average market interest rates and are not due to the underlying credit of the issuers. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors the published credit ratings of the Company's securities for material rating or outlook changes. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at December 31, 2020 are issued or guaranteed by government sponsored enterprises. It is expected that these securities will be settled at a price at least equal to the amortized cost of each investment. Because the decline in fair value of the Company's debt securities is attributable to changes in interest rates or widening market spreads and not credit quality, these investments do not have an allowance for credit losses at December 31, 2020.
The following table presents the contractual maturities of debt securities at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available For Sale
|
|
Held To Maturity
|
(in thousands)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Amounts maturing in:
|
|
|
|
|
|
|
|
Due within one year
|
$
|
7,369
|
|
|
$
|
7,441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
85,999
|
|
|
89,172
|
|
|
3
|
|
|
3
|
|
Due after five years through ten years
|
892,947
|
|
|
963,994
|
|
|
10
|
|
|
10
|
|
Due after ten years
|
1,815,185
|
|
|
1,871,951
|
|
|
3,021
|
|
|
3,870
|
|
Total securities
|
$
|
2,801,500
|
|
|
$
|
2,932,558
|
|
|
$
|
3,034
|
|
|
$
|
3,883
|
|
The following table presents the gross realized gains and losses on the sale of debt securities available for sale for the years ended December 31, 2020, and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(in thousands)
|
Gain
|
|
Loss
|
|
Gain
|
|
Loss
|
Obligations of states and political subdivisions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
386
|
|
|
196
|
|
|
144
|
|
|
7,345
|
|
Total gains and losses on sale of debt securities
|
$
|
386
|
|
|
$
|
196
|
|
|
$
|
161
|
|
|
$
|
7,345
|
|
The following table presents the gains and losses on equity securities for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
Unrealized gain recognized on equity securities held at the end of the period
|
$
|
769
|
|
|
$
|
1,660
|
|
Net gain recognized on equity securities sold during the period
|
—
|
|
|
81,815
|
|
Total gain on equity securities, net
|
$
|
769
|
|
|
$
|
83,475
|
|
In 2019, the Company completed the sale of all shares owned of Class B common stock of Visa Inc. resulting in a one-time gain of $81.9 million.
The following table presents, as of December 31, 2020, 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
|
$
|
260,684
|
|
|
$
|
271,661
|
|
Other securities pledged principally to secure repurchase agreements
|
569,733
|
|
|
605,466
|
|
Total pledged securities
|
$
|
830,417
|
|
|
$
|
877,127
|
|
Note 4 – Loans and Leases
The following table presents the major types of loans and leases, net of deferred fees and costs, as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Commercial real estate
|
|
|
|
Non-owner occupied term, net
|
$
|
3,505,802
|
|
|
$
|
3,545,566
|
|
Owner occupied term, net
|
2,333,945
|
|
|
2,496,088
|
|
Multifamily, net
|
3,349,196
|
|
|
3,514,774
|
|
Construction & development, net
|
828,478
|
|
|
678,740
|
|
Residential development, net
|
192,761
|
|
|
189,010
|
|
Commercial
|
|
|
|
Term, net
|
4,024,467
|
|
|
2,232,817
|
|
Lines of credit & other, net
|
862,760
|
|
|
1,212,393
|
|
Leases & equipment finance, net
|
1,456,630
|
|
|
1,465,489
|
|
Residential
|
|
|
|
Mortgage, net
|
3,871,906
|
|
|
4,215,424
|
|
Home equity loans & lines, net
|
1,136,064
|
|
|
1,237,512
|
|
Consumer & other, net
|
217,358
|
|
|
407,871
|
|
Total loans and leases, net of deferred fees and costs
|
$
|
21,779,367
|
|
|
$
|
21,195,684
|
|
The loan balances are net of deferred fees and costs. As of December 31, 2020 and 2019, the balances of the net deferred costs were $38.6 million and $71.9 million, respectively. In response to the COVID-19 crisis, the federal government created the PPP, sponsored by the SBA, under the CARES Act. The Bank participated in the PPP to originate SBA loans designated to help businesses maintain their workforce and cover other working capital needs during the COVID-19 pandemic. As of December 31, 2020, the Bank has approximately 14,800 PPP loans, totaling $1.8 billion in net loans, which are classified as commercial term loans. Net deferred costs include $26.9 million net deferred fees for the PPP loan related origination fees net of costs to originate these loans. The PPP net deferred fees are a yield adjustment over the remaining term of these loans. The loans are fully guaranteed by the SBA and the maximum term of the loans is either two or five years; however, the majority of the loan balances are expected to be forgiven by the SBA, which will accelerate the recognition of these net deferred fees at the forgiveness date.
Net loans also include net discounts on acquired loans of $17.9 million and $30.2 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, loans totaling $12.1 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 $74.8 million and $58.5 million as of December 31, 2020 and December 31, 2019, respectively, and is included in Other Assets.
The Bank, through its commercial equipment leasing subsidiary, FinPac, is a provider of commercial equipment leasing and financing throughout the United States, originating business through three distinct channels: small and mid-ticket third party originators, vendor finance, and Umpqua Bank Equipment Leasing & Finance. Direct finance leases are included within the lease and equipment finance segment within the loans and leases, net line item. These leases typically have terms of three to five years and are considered to be direct financing leases. Interest income recognized on these leases was $26.5 million and $32.8 million at December 31, 2020 and 2019, respectively.
Residual values on leases are established at the time equipment is leased based on an estimate of the value of the leased equipment when the Company expects to dispose of the equipment, typically at the termination of the lease. An annual evaluation is also performed each fiscal year by an independent valuation specialist and equipment residuals are confirmed or adjusted in conjunction with such evaluation.
The following table presents the net investment in direct financing leases as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Minimum lease payments receivable
|
$
|
349,979
|
|
|
$
|
435,574
|
|
Estimated guaranteed and unguaranteed residual values
|
79,792
|
|
|
86,633
|
|
Initial direct costs - net of accumulated amortization
|
7,228
|
|
|
9,400
|
|
Unearned income
|
(51,185)
|
|
|
(68,177)
|
|
Net investment in direct financing leases
|
$
|
385,814
|
|
|
$
|
463,430
|
|
The following table presents the scheduled minimum lease payments receivable as of December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Year
|
Amount
|
2021
|
$
|
131,133
|
|
2022
|
95,102
|
|
2023
|
57,028
|
|
2024
|
33,444
|
|
2025
|
17,052
|
|
Thereafter
|
16,220
|
|
Total minimum lease payments receivable
|
$
|
349,979
|
|
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 years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
Commercial real estate
|
|
|
|
Non-owner occupied term, net
|
$
|
26,209
|
|
|
$
|
40,496
|
|
Owner occupied term, net
|
30,945
|
|
|
25,454
|
|
Multifamily, net
|
—
|
|
|
13,849
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
Term, net
|
47,427
|
|
|
38,227
|
|
Lines of credit & other, net
|
159
|
|
|
1,619
|
|
Leases & equipment finance, net
|
43
|
|
|
54,499
|
|
Residential
|
|
|
|
Mortgage, net
|
365
|
|
|
1,849
|
|
|
|
|
|
Consumer & other, net
|
—
|
|
|
65,322
|
|
Total loans and leases sold, net
|
$
|
105,148
|
|
|
$
|
241,315
|
|
Note 5 – Allowance for Credit Losses
Allowance for Credit Losses Methodology
In accordance with CECL, the ACL represents management's estimate of lifetime credit losses for assets within its scope, specifically loans and leases and unfunded commitments. To calculate the ACL, management uses models to estimate the PD and LGD for loans utilizing inputs that include forecasted future economic conditions and that are dependent upon specific macroeconomic variables relevant to each of the Bank's loan and lease portfolios. Moody's Analytics, a third party, provided the historical and forward-looking macroeconomic data used in the development of the models used to calculate the ACL.
For ACL calculation purposes, the Bank considered the financial and economic environment at the time of assessment and economic scenarios that differed in the levels of severity and sensitivity to the ACL results. At each measurement date, the Bank selects the scenario that reflects its view of future economic conditions and is determined to be the most probable outcome.
All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results will differ from the estimate of credit losses, either in a strong economy or a recession, as the portfolio will change through time due to growth, risk mitigation actions and other factors. In addition, the scenarios used will differ and change through time as economic conditions change. Economic scenarios might not capture deterioration or improvement in the economy timely enough for the Bank to be able to adequately assess the impact to the ACL.
Select macroeconomic variables are projected over the forecast period, and they could have a material impact in determining the ACL. As the length of the forecast period increases, information about the future becomes less readily available and projections are inherently less certain.
The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the year ended December 31, 2020, were primarily related to changes in the economic assumptions. Because of the rapidly changing economic environment due to the COVID-19 pandemic, additional risk associated with payment deferrals, political uncertainty, and unknown fiscal support, the Bank opted to use Moody's Analytics proprietary baseline economic forecast which included macroeconomic developments through November 2020 for estimating the ACL as of December 31, 2020.
In the baseline scenario selected, the probability that the economy will perform better than this baseline is equal to the probability that it will perform worse and included the following factors:
•U.S. real GDP growth continues to be positive over both the short and long-term;
•U.S. unemployment rate quarterly average of 7.4% in 2021;
•U.S. Economy experiences growth at historical averages through the remainder of 2020, with sustained growth through 2021, and normalized growth thereafter;
•fourth fiscal stimulus package of $1.5 trillion expected to pass into law in early 2021;
•return to less than 5% unemployment by the second quarter of 2023.
The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics November 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:
•additional COVID-19 restrictions and disagreements in Congress delaying additional fiscal support to the economy cause a reduction in consumer and business sentiment resulting in a stalled recovery over the next several quarters;
•slow real GDP growth through the third quarter of 2021 with increases thereafter;
•U.S. unemployment rate average of 7.2% in the fourth quarter of 2020 and is expected to rise to 7.9% in the first quarter of 2021;
•U.S. economy experiences growth at historical averages through the remainder of 2020, with substantially slower growth in 2021, then gradually increasing growth thereafter;
•fourth fiscal stimulus package of $1.1 trillion expected to pass into law in early 2021;
•return to less than 5% unemployment by the second quarter of 2024.
The results using the comparison scenario for sensitivity analysis were reviewed by management, but management believes the baseline scenario better reflects the estimated economic environment.
The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models. Except as noted below, the macroeconomic variables that are inputs to the models are reasonable and supportable over the life of the loans in that they reasonably project the key economic variables in the near term and then converge to a long run equilibrium trend. These models produce reasonable and supportable estimates of loss over the life of the loans as the projected credit losses will also converge to a steady state in line with the variables applied. The Company measures the ACL using the following methods:
Commercial Real Estate: Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: Net Operating Income, Property Value, Property Type, and Location. For PD estimation, the model simulates potential future paths of Net Operating Income given commercial real estate market factors determined from macroeconomic forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP Growth, U.S. unemployment rate, and 10-Year Treasury yield. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.
The owner-occupied commercial real-estate portfolio utilizes a top down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years. 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.
Consumer: Historical net charge-off information as well as economic forecast assumptions are used to project loss rates for the Consumer segment.
All loans and leases that have not been modeled receive a loss rate via an extrapolated rate methodology. The loans and leases receiving an extrapolated rate are typically newly originated loans and leases or loans and leases without the granularity of data necessary to be modeled. Based on the vintage year, credit classification, and reporting category of the modeled loans and leases, a loss factor is calculated and applied to the non-modeled loans and leases.
Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data. Below are the nine qualitative factors considered where applicable:
•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
•Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
•Changes in the nature and volume of the portfolio and in the terms of loans and leases.
•Changes in the experience, ability, and depth of lending management and other relevant staff.
•Changes in the volume and severity of past due loans and leases, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded loans and leases.
•Changes in the quality of the Bank's credit review system.
•Changes in the value of the underlying collateral for collateral-dependent loans and leases.
•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Bank's existing portfolio.
The Company evaluated each qualitative factor as of December 31, 2020, and concluded that a material adjustment to the amounts indicated by the models was not necessary, as the models adequately reflected the significant changes in credit conditions and overall portfolio risk.
Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to difficulty of calculating an effective interest rate when lines have yet to be drawn on. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The non-discounted cash flow method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.
The following table summarizes activity related to the allowance for credit losses by portfolio segment as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(in thousands)
|
|
Commercial Real Estate
|
|
Commercial
|
|
Residential
|
|
Consumer & Other
|
|
Total
|
Allowance for credit losses on loans and leases
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
50,847
|
|
|
$
|
73,820
|
|
|
$
|
24,714
|
|
|
$
|
8,248
|
|
|
$
|
157,629
|
|
Impact of adoption CECL
|
|
5,077
|
|
|
44,009
|
|
|
2,099
|
|
|
(1,186)
|
|
|
49,999
|
|
Adjusted balance, beginning of period
|
|
55,924
|
|
|
117,829
|
|
|
26,813
|
|
|
7,062
|
|
|
207,628
|
|
Provision (recapture) for credit losses for loans and leases (1)
|
|
86,186
|
|
|
101,478
|
|
|
(190)
|
|
|
4,401
|
|
|
191,875
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
(1,413)
|
|
|
(76,488)
|
|
|
(521)
|
|
|
(6,074)
|
|
|
(84,496)
|
|
Recoveries
|
|
1,013
|
|
|
8,045
|
|
|
1,862
|
|
|
2,474
|
|
|
13,394
|
|
Net (charge-offs) recoveries
|
|
(400)
|
|
|
(68,443)
|
|
|
1,341
|
|
|
(3,600)
|
|
|
(71,102)
|
|
Balance, end of period
|
|
$
|
141,710
|
|
|
$
|
150,864
|
|
|
$
|
27,964
|
|
|
$
|
7,863
|
|
|
$
|
328,401
|
|
Reserve for unfunded commitments
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
534
|
|
|
$
|
2,539
|
|
|
$
|
149
|
|
|
$
|
1,884
|
|
|
$
|
5,106
|
|
Impact of adoption CECL
|
|
4,030
|
|
|
(487)
|
|
|
1,267
|
|
|
(1,572)
|
|
|
3,238
|
|
Adjusted balance, beginning of period
|
|
4,564
|
|
|
2,052
|
|
|
1,416
|
|
|
312
|
|
|
8,344
|
|
Provision for credit losses on unfunded commitments (1)
|
|
10,796
|
|
|
138
|
|
|
245
|
|
|
763
|
|
|
11,942
|
|
Balance, end of period
|
|
15,360
|
|
|
2,190
|
|
|
1,661
|
|
|
1,075
|
|
|
20,286
|
|
Total allowance for credit losses
|
|
$
|
157,070
|
|
|
$
|
153,054
|
|
|
$
|
29,625
|
|
|
$
|
8,938
|
|
|
$
|
348,687
|
|
(1) The total provision for credit losses as disclosed on the income statement includes a provision of $1.0 million for the year ended December 31, 2020, related to an allowance for accrued interest on loans deferred due to COVID-19.
The following table summarizes activity related to the allowance for loan and lease losses by loan and lease portfolio segment and the reserve for unfunded commitments as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in thousands)
|
|
Commercial Real Estate
|
|
Commercial
|
|
Residential
|
|
Consumer & Other
|
|
Total
|
Allowance for credit losses on loans and leases
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
47,904
|
|
|
$
|
63,957
|
|
|
$
|
22,034
|
|
|
$
|
10,976
|
|
|
$
|
144,871
|
|
Provision
|
|
7,907
|
|
|
59,651
|
|
|
3,066
|
|
|
1,891
|
|
|
72,515
|
|
Charge-offs
|
|
(5,849)
|
|
|
(62,098)
|
|
|
(862)
|
|
|
(6,896)
|
|
|
(75,705)
|
|
Recoveries
|
|
885
|
|
|
12,310
|
|
|
476
|
|
|
2,277
|
|
|
15,948
|
|
Net charge-offs
|
|
(4,964)
|
|
|
(49,788)
|
|
|
(386)
|
|
|
(4,619)
|
|
|
(59,757)
|
|
Balance, end of period
|
|
$
|
50,847
|
|
|
$
|
73,820
|
|
|
$
|
24,714
|
|
|
$
|
8,248
|
|
|
$
|
157,629
|
|
Reserve for unfunded commitments
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
628
|
|
|
$
|
2,250
|
|
|
$
|
160
|
|
|
$
|
1,485
|
|
|
$
|
4,523
|
|
(Recapture) provision for credit losses on unfunded commitments
|
|
(94)
|
|
|
289
|
|
|
(11)
|
|
|
399
|
|
|
583
|
|
Balance, end of period
|
|
534
|
|
|
2,539
|
|
|
149
|
|
|
1,884
|
|
|
5,106
|
|
Total allowance for credit losses
|
|
$
|
51,381
|
|
|
$
|
76,359
|
|
|
$
|
24,863
|
|
|
$
|
10,132
|
|
|
$
|
162,735
|
|
Summary of Reserve for Unfunded Commitments Activity
The following table presents the unfunded commitments for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Unfunded loan and lease commitments:
|
|
Total
|
December 31, 2020
|
|
$
|
5,672,009
|
|
December 31, 2019
|
|
$
|
5,726,854
|
|
Asset Quality and Non-Performing Loans and Leases
The Bank manages asset quality and controls credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.
Loans and Leases Past Due and Non-Accrual Loans and Leases
Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized no interest income on non-accrual loans and leases during the year ended December 31, 2020.
Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company has had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with the CARES Act, interagency guidance, and other government-mandated programs these loans are generally classified based on their past due status prior to their deferral period, so they are classified as performing loans that accrue interest. As of December 31, 2020, loans of approximately $533.2 million are currently deferred under various federal and state guidelines and are classified as current as their contractual payments have been deferred.
The following tables present the amortized cost basis of the loans and leases past due, by loan and lease class, as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(in thousands)
|
Greater than 30 to 59 Days Past Due
|
|
60 to 89 Days Past Due
|
|
90+ Days and Accruing
|
|
Total Past Due
|
|
Non-Accrual (1)
|
|
Current & Other
|
|
Total Loans and Leases
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
1,214
|
|
|
$
|
21,309
|
|
|
$
|
815
|
|
|
$
|
23,338
|
|
|
$
|
3,809
|
|
|
$
|
3,478,655
|
|
|
$
|
3,505,802
|
|
Owner occupied term, net
|
182
|
|
|
103
|
|
|
208
|
|
|
493
|
|
|
5,984
|
|
|
2,327,468
|
|
|
2,333,945
|
|
Multifamily, net
|
—
|
|
|
215
|
|
|
—
|
|
|
215
|
|
|
—
|
|
|
3,348,981
|
|
|
3,349,196
|
|
Construction & development, net
|
3,991
|
|
|
—
|
|
|
—
|
|
|
3,991
|
|
|
—
|
|
|
824,487
|
|
|
828,478
|
|
Residential development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
192,761
|
|
|
192,761
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
562
|
|
|
—
|
|
|
4
|
|
|
566
|
|
|
2,205
|
|
|
4,021,696
|
|
|
4,024,467
|
|
Lines of credit & other, net
|
1,491
|
|
|
2,667
|
|
|
7
|
|
|
4,165
|
|
|
336
|
|
|
858,259
|
|
|
862,760
|
|
Leases & equipment finance, net
|
14,242
|
|
|
18,220
|
|
|
4,796
|
|
|
37,258
|
|
|
18,742
|
|
|
1,400,630
|
|
|
1,456,630
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net
|
1,587
|
|
|
3,912
|
|
|
27,713
|
|
|
33,212
|
|
|
—
|
|
|
3,838,694
|
|
|
3,871,906
|
|
Home equity loans & lines, net
|
844
|
|
|
544
|
|
|
2,463
|
|
|
3,851
|
|
|
—
|
|
|
1,132,213
|
|
|
1,136,064
|
|
Consumer & other, net
|
678
|
|
|
286
|
|
|
355
|
|
|
1,319
|
|
|
—
|
|
|
216,039
|
|
|
217,358
|
|
Total, net of deferred fees and costs
|
$
|
24,791
|
|
|
$
|
47,256
|
|
|
$
|
36,361
|
|
|
$
|
108,408
|
|
|
$
|
31,076
|
|
|
$
|
21,639,883
|
|
|
$
|
21,779,367
|
|
(1) Loans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit losses of $16.7 million at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in thousands)
|
Greater than 30 to 59 Days Past Due
|
|
60 to 89 Days Past Due
|
|
90+ Days and Accruing
|
|
Total Past Due
|
|
Non-Accrual
|
|
Current & Other (1)
|
|
Total Loans and Leases
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
121
|
|
|
$
|
2,920
|
|
|
$
|
3,542,525
|
|
|
$
|
3,545,566
|
|
Owner occupied term, net
|
975
|
|
|
470
|
|
|
1
|
|
|
1,446
|
|
|
4,600
|
|
|
2,490,042
|
|
|
2,496,088
|
|
Multifamily, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,514,774
|
|
|
3,514,774
|
|
Construction & development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
678,740
|
|
|
678,740
|
|
Residential development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,010
|
|
|
189,010
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
136
|
|
|
381
|
|
|
—
|
|
|
517
|
|
|
3,458
|
|
|
2,228,842
|
|
|
2,232,817
|
|
Lines of credit & other, net
|
3,548
|
|
|
376
|
|
|
36
|
|
|
3,960
|
|
|
767
|
|
|
1,207,666
|
|
|
1,212,393
|
|
Leases & equipment finance, net
|
10,685
|
|
|
11,176
|
|
|
3,086
|
|
|
24,947
|
|
|
14,499
|
|
|
1,426,043
|
|
|
1,465,489
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net (2)
|
—
|
|
|
8,104
|
|
|
36,642
|
|
|
44,746
|
|
|
—
|
|
|
4,170,678
|
|
|
4,215,424
|
|
Home equity loans & lines, net
|
2,173
|
|
|
867
|
|
|
1,804
|
|
|
4,844
|
|
|
—
|
|
|
1,232,668
|
|
|
1,237,512
|
|
Consumer & other, net
|
2,043
|
|
|
948
|
|
|
615
|
|
|
3,606
|
|
|
—
|
|
|
404,265
|
|
|
407,871
|
|
Total, net of deferred fees and costs
|
$
|
19,560
|
|
|
$
|
22,322
|
|
|
$
|
42,305
|
|
|
$
|
84,187
|
|
|
$
|
26,244
|
|
|
$
|
21,085,253
|
|
|
$
|
21,195,684
|
|
(1) Other includes purchased credit impaired loans of $89.5 million.
(2) Includes government guaranteed GNMA mortgage loans that the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling $4.3 million at December 31, 2019.
Collateral Dependent Loans and Leases
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 December 31, 2020. 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
|
|
$
|
—
|
|
|
$
|
3,474
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,474
|
|
Owner occupied term, net
|
|
—
|
|
|
5,432
|
|
|
—
|
|
|
—
|
|
|
5,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
|
933
|
|
|
49
|
|
|
368
|
|
|
789
|
|
|
2,139
|
|
Line of credit & other, net
|
|
—
|
|
|
—
|
|
|
140
|
|
|
197
|
|
|
337
|
|
Leases & equipment finance, net
|
|
—
|
|
|
—
|
|
|
18,742
|
|
|
—
|
|
|
18,742
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net
|
|
254,248
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
254,248
|
|
Home equity loans & lines, net
|
|
2,349
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,349
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net of deferred fees and costs
|
|
$
|
257,530
|
|
|
$
|
8,955
|
|
|
$
|
19,250
|
|
|
$
|
986
|
|
|
$
|
286,721
|
|
Troubled Debt Restructurings
At December 31, 2020 and 2019, troubled debt restructured loans of $15.0 million and $18.6 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.
There were no available commitments for troubled debt restructurings outstanding as of December 31, 2020. There were $98,000 of available commitments for troubled debt restructurings outstanding as of December 31, 2019.
The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(in thousands)
|
Accrual Status
|
|
Non-Accrual Status
|
|
Total Modifications
|
|
# of Contracts
|
Commercial real estate, net
|
$
|
1,345
|
|
|
$
|
289
|
|
|
$
|
1,634
|
|
|
7
|
|
Commercial, net
|
1,231
|
|
|
—
|
|
|
1,231
|
|
|
1
|
|
Residential, net
|
12,415
|
|
|
—
|
|
|
12,415
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Total, net of deferred fees and costs
|
$
|
14,991
|
|
|
$
|
289
|
|
|
$
|
15,280
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in thousands)
|
Accrual Status
|
|
Non-Accrual Status
|
|
Total Modifications
|
|
# of Contracts
|
Commercial real estate, net
|
$
|
3,968
|
|
|
$
|
—
|
|
|
$
|
3,968
|
|
|
3
|
|
Commercial, net
|
4,105
|
|
|
—
|
|
|
4,105
|
|
|
2
|
|
Residential, net
|
10,460
|
|
|
—
|
|
|
10,460
|
|
|
54
|
|
Consumer & other, net
|
43
|
|
|
—
|
|
|
43
|
|
|
3
|
|
Total, net of deferred fees and costs
|
$
|
18,576
|
|
|
$
|
—
|
|
|
$
|
18,576
|
|
|
62
|
|
The following table presents loans that were determined to be TDRs during the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
Commercial real estate, net
|
$
|
—
|
|
|
$
|
118
|
|
Commercial, net
|
8,508
|
|
|
1,842
|
|
Residential, net
|
15,397
|
|
|
7,549
|
|
Consumer & other, net
|
74
|
|
|
43
|
|
Total, net of deferred fees and costs
|
$
|
23,979
|
|
|
$
|
9,552
|
|
For the periods presented in the table above, the outstanding recorded investment was the same pre and post modification and all modifications were combination modifications. There were $1.3 million in loans modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the year ended December 31, 2020. There were $329,000 loans modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the year ended December 31, 2019.
Credit Quality Indicators
Management regularly reviews loans and leases in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. In addition, the board reviews and approves the credit quality indicators each year. The Bank differentiates its lending portfolios into homogeneous and non-homogeneous loans and leases. Homogeneous loans and leases are risk rated on a single risk rating scale based on the past due status of the loan or lease.
The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six alphabetic ratings from A-F, where a higher rating represents higher risk. The LGD scale quantifies recovery risk associated with an event of default and predicts the amount of loss that would be incurred on a loan or lease if a borrower were to experience a major default and includes variables that may be external to the borrower, such as industry, geographic location, and credit cycle stage. It could also include variables specific to the borrower such as their probability of default and bankruptcies as well as variables specific to the loan or lease, including collateral valuation, covenant structure and debt type. The product of the borrower's PD and a loan or lease LGD is the loan or lease expected loss, expressed as a percentage. This provides a common language of credit risk across different loans.
The PD scale estimates the likelihood that a borrower will experience a major default on any of its debt obligations within a specified time period. Examples of major defaults include payments 90 days or more past due, non-accrual classification, bankruptcy filing, or a full or partial charge-off of a loan or lease. As such, the PD scale represents the credit quality indicator for non-homogeneous loans and leases.
The credit quality indicator rating categories follow regulatory classification and can be generally described by the following groupings for loans and leases:
Pass/Watch—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring. For non-homogeneous loans and leases to be classified as pass, the PD rating is from 1 through 9. For homogeneous loans and leases to be classified as pass, the loan or lease is 30 days or less past due from the required payment at month-end. 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. For non-homogeneous loans and leases to be classified as watch, the PD rating is a 10 or 11.
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. For non-homogeneous loans and leases to be classified as special mention, the PD rating is 12. For commercial homogeneous loans and leases to be classified as special mention, the loan or lease is greater than 30 to 59 days past due from the required payment date. Residential and consumer homogeneous loans are special mention when the loan is greater than 30 to 89 days past due from the required payment date.
Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. For non-homogeneous loans and leases to be classified as substandard, the PD rating is 13 or 14. Commercial homogeneous loans and leases are classified as a substandard loan or lease when the loan or lease is 60 to 89 days past due from the required payment date and is the maximum rating for loans previously charged down to net realizable value. Residential and consumer homogeneous loans are classified as a substandard loan when an open-end loan is 90 to 180 days past due from the required payment date at month-end or when a closed-end loan is 90 to 119 days past due from the required payment date.
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. A default event and the possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. For non-homogeneous loans and leases to be classified as doubtful, the PD rating is 15. Commercial homogeneous doubtful loans or leases are 90 to 179 days past due from the required payment date.
Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset even though partial or full recovery may be affected in the future. For non-homogeneous loans and leases to be classified as loss the PD rating is 16. For a commercial homogeneous loan or lease to be loss rated, the loan or lease is 180 days or more past due from the required payment date. These loans and leases are generally charged-off or charged down to net realizable value in the month in which the 180-day time period elapses. Residential and consumer homogeneous loans are classified as loss when a loan becomes past due 120 days or more from the required payment date. Residential and consumer loans secured by real estate are generally charged down to net realizable value in the month in which the loan becomes 180 days past due. All other residential and consumer homogeneous loans are generally charged-off in the month in which the 120-day period elapses.
The following table represents 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 December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Term Loans Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving to Non-Revolving Loans Amortized Cost
|
|
|
|
December 31, 2020
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
Total
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
496,412
|
|
|
$
|
677,975
|
|
|
$
|
489,350
|
|
|
$
|
379,691
|
|
|
$
|
338,257
|
|
|
$
|
932,207
|
|
|
$
|
2,855
|
|
|
$
|
4,139
|
|
|
$
|
3,320,886
|
|
|
Special mention
|
13,281
|
|
|
1,432
|
|
|
40,899
|
|
|
2,800
|
|
|
31,699
|
|
|
27,167
|
|
|
—
|
|
|
—
|
|
|
117,278
|
|
|
Substandard
|
3,129
|
|
|
2,668
|
|
|
19,951
|
|
|
3,062
|
|
|
19,806
|
|
|
18,586
|
|
|
—
|
|
|
—
|
|
|
67,202
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
333
|
|
|
—
|
|
|
—
|
|
|
333
|
|
Total non-owner occupied term, net
|
$
|
512,822
|
|
|
$
|
682,075
|
|
|
$
|
550,200
|
|
|
$
|
385,553
|
|
|
$
|
389,762
|
|
|
$
|
978,396
|
|
|
$
|
2,855
|
|
|
$
|
4,139
|
|
|
$
|
3,505,802
|
|
Owner occupied term, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
284,698
|
|
|
$
|
414,715
|
|
|
$
|
321,900
|
|
|
$
|
344,606
|
|
|
$
|
257,969
|
|
|
$
|
610,893
|
|
|
$
|
6,270
|
|
|
$
|
783
|
|
|
$
|
2,241,834
|
|
|
Special mention
|
3,641
|
|
|
8,373
|
|
|
13,143
|
|
|
7,365
|
|
|
3,425
|
|
|
18,386
|
|
|
—
|
|
|
—
|
|
|
54,333
|
|
|
Substandard
|
2,657
|
|
|
1,694
|
|
|
9,868
|
|
|
2,846
|
|
|
4,356
|
|
|
14,609
|
|
|
282
|
|
|
975
|
|
|
37,287
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
430
|
|
|
—
|
|
|
—
|
|
|
430
|
|
Total owner occupied term, net
|
$
|
290,996
|
|
|
$
|
424,782
|
|
|
$
|
344,911
|
|
|
$
|
354,817
|
|
|
$
|
265,750
|
|
|
$
|
644,379
|
|
|
$
|
6,552
|
|
|
$
|
1,758
|
|
|
$
|
2,333,945
|
|
Multifamily, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
383,871
|
|
|
$
|
870,871
|
|
|
$
|
593,076
|
|
|
$
|
574,185
|
|
|
$
|
276,108
|
|
|
$
|
618,031
|
|
|
$
|
23,282
|
|
|
$
|
2,956
|
|
|
$
|
3,342,380
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,601
|
|
|
—
|
|
|
—
|
|
|
6,601
|
|
|
Substandard
|
—
|
|
|
—
|
|
|
—
|
|
|
215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
215
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total multifamily, net
|
$
|
383,871
|
|
|
$
|
870,871
|
|
|
$
|
593,076
|
|
|
$
|
574,400
|
|
|
$
|
276,108
|
|
|
$
|
624,632
|
|
|
$
|
23,282
|
|
|
$
|
2,956
|
|
|
$
|
3,349,196
|
|
Construction & development, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
146,012
|
|
|
$
|
283,052
|
|
|
$
|
255,449
|
|
|
$
|
127,564
|
|
|
$
|
—
|
|
|
$
|
372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
812,449
|
|
|
Special mention
|
1,637
|
|
|
—
|
|
|
14,392
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,029
|
|
|
Substandard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total construction & development, net
|
$
|
147,649
|
|
|
$
|
283,052
|
|
|
$
|
269,841
|
|
|
$
|
127,564
|
|
|
$
|
—
|
|
|
$
|
372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
828,478
|
|
Residential development, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
17,188
|
|
|
$
|
2,571
|
|
|
$
|
2,151
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
163,320
|
|
|
$
|
2,507
|
|
|
$
|
187,737
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,024
|
|
|
—
|
|
|
5,024
|
|
|
Substandard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total residential development, net
|
$
|
17,188
|
|
|
$
|
2,571
|
|
|
$
|
2,151
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168,344
|
|
|
$
|
2,507
|
|
|
$
|
192,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
$
|
1,352,526
|
|
|
$
|
2,263,351
|
|
|
$
|
1,760,179
|
|
|
$
|
1,442,334
|
|
|
$
|
931,620
|
|
|
$
|
2,247,779
|
|
|
$
|
201,033
|
|
|
$
|
11,360
|
|
|
$
|
10,210,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Term Loans Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving to Non-Revolving Loans Amortized Cost
|
|
|
|
December 31, 2020
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
Total
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
2,146,758
|
|
|
$
|
294,576
|
|
|
$
|
323,744
|
|
|
$
|
240,458
|
|
|
$
|
67,502
|
|
|
$
|
226,137
|
|
|
$
|
626,878
|
|
|
$
|
29,598
|
|
|
$
|
3,955,651
|
|
|
Special mention
|
4,859
|
|
|
548
|
|
|
13,395
|
|
|
1,265
|
|
|
273
|
|
|
1,416
|
|
|
1,036
|
|
|
2,259
|
|
|
25,051
|
|
|
Substandard
|
251
|
|
|
1,105
|
|
|
24,845
|
|
|
7,259
|
|
|
1,137
|
|
|
561
|
|
|
—
|
|
|
8,029
|
|
|
43,187
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
578
|
|
|
—
|
|
|
—
|
|
|
578
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total term, net
|
$
|
2,151,868
|
|
|
$
|
296,229
|
|
|
$
|
361,984
|
|
|
$
|
248,982
|
|
|
$
|
68,912
|
|
|
$
|
228,692
|
|
|
$
|
627,914
|
|
|
$
|
39,886
|
|
|
$
|
4,024,467
|
|
Lines of credit & other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
27,503
|
|
|
$
|
27,395
|
|
|
$
|
26,731
|
|
|
$
|
548
|
|
|
$
|
1,679
|
|
|
$
|
531
|
|
|
$
|
709,606
|
|
|
$
|
5,578
|
|
|
$
|
799,571
|
|
|
Special mention
|
4,033
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
77
|
|
|
299
|
|
|
42,882
|
|
|
271
|
|
|
47,563
|
|
|
Substandard
|
501
|
|
|
472
|
|
|
—
|
|
|
195
|
|
|
377
|
|
|
940
|
|
|
6,958
|
|
|
6,177
|
|
|
15,620
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Total lines of credit & other, net
|
$
|
32,037
|
|
|
$
|
27,867
|
|
|
$
|
26,731
|
|
|
$
|
744
|
|
|
$
|
2,133
|
|
|
$
|
1,770
|
|
|
$
|
759,451
|
|
|
$
|
12,027
|
|
|
$
|
862,760
|
|
Leases & equipment finance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
502,305
|
|
|
$
|
442,692
|
|
|
$
|
239,551
|
|
|
$
|
125,619
|
|
|
$
|
64,400
|
|
|
$
|
7,619
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,382,186
|
|
|
Special mention
|
2,321
|
|
|
4,918
|
|
|
7,765
|
|
|
3,797
|
|
|
1,983
|
|
|
99
|
|
|
—
|
|
|
—
|
|
|
20,883
|
|
|
Substandard
|
6,999
|
|
|
7,193
|
|
|
11,617
|
|
|
1,945
|
|
|
2,081
|
|
|
157
|
|
|
—
|
|
|
—
|
|
|
29,992
|
|
|
Doubtful
|
2,615
|
|
|
8,255
|
|
|
4,834
|
|
|
2,880
|
|
|
1,343
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
20,006
|
|
|
Loss
|
101
|
|
|
1,481
|
|
|
1,015
|
|
|
635
|
|
|
309
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
3,563
|
|
Total leases & equipment finance, net
|
$
|
514,341
|
|
|
$
|
464,539
|
|
|
$
|
264,782
|
|
|
$
|
134,876
|
|
|
$
|
70,116
|
|
|
$
|
7,976
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,456,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
$
|
2,698,246
|
|
|
$
|
788,635
|
|
|
$
|
653,497
|
|
|
$
|
384,602
|
|
|
$
|
141,161
|
|
|
$
|
238,438
|
|
|
$
|
1,387,365
|
|
|
$
|
51,913
|
|
|
$
|
6,343,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
809,232
|
|
|
$
|
1,136,220
|
|
|
$
|
393,041
|
|
|
$
|
406,069
|
|
|
$
|
424,270
|
|
|
$
|
669,862
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,838,694
|
|
|
Special mention
|
—
|
|
|
397
|
|
|
286
|
|
|
688
|
|
|
946
|
|
|
3,183
|
|
|
—
|
|
|
—
|
|
|
5,500
|
|
|
Substandard
|
335
|
|
|
1,398
|
|
|
1,822
|
|
|
4,133
|
|
|
6,381
|
|
|
11,113
|
|
|
—
|
|
|
—
|
|
|
25,182
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
1,314
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,216
|
|
|
—
|
|
|
—
|
|
|
2,530
|
|
Total mortgage, net
|
$
|
809,567
|
|
|
$
|
1,139,329
|
|
|
$
|
395,149
|
|
|
$
|
410,890
|
|
|
$
|
431,597
|
|
|
$
|
685,374
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,871,906
|
|
Home equity loans & lines, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
259
|
|
|
$
|
16,575
|
|
|
$
|
1,077,753
|
|
|
$
|
37,008
|
|
|
$
|
1,131,655
|
|
|
Special mention
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
211
|
|
|
1,537
|
|
|
198
|
|
|
1,946
|
|
|
Substandard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
254
|
|
|
233
|
|
|
530
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
182
|
|
|
1,107
|
|
|
644
|
|
|
1,933
|
|
Total home equity loans & lines, net
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
259
|
|
|
$
|
17,011
|
|
|
$
|
1,080,651
|
|
|
$
|
38,083
|
|
|
$
|
1,136,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential
|
$
|
809,607
|
|
|
$
|
1,139,329
|
|
|
$
|
395,169
|
|
|
$
|
410,890
|
|
|
$
|
431,856
|
|
|
$
|
702,385
|
|
|
$
|
1,080,651
|
|
|
$
|
38,083
|
|
|
$
|
5,007,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Term Loans Amortized Cost Basis by Origination Year
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving to Non-Revolving Loans Amortized Cost
|
|
|
|
December 31, 2020
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
Total
|
Consumer & other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass/Watch
|
$
|
24,408
|
|
|
$
|
22,802
|
|
|
$
|
11,372
|
|
|
$
|
4,170
|
|
|
$
|
2,582
|
|
|
$
|
4,101
|
|
|
$
|
143,813
|
|
|
$
|
2,789
|
|
|
$
|
216,037
|
|
|
Special mention
|
—
|
|
|
95
|
|
|
79
|
|
|
27
|
|
|
28
|
|
|
3
|
|
|
660
|
|
|
74
|
|
|
966
|
|
|
Substandard
|
—
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
205
|
|
|
110
|
|
|
342
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
3
|
|
|
—
|
|
|
13
|
|
Total consumer & other, net
|
$
|
24,408
|
|
|
$
|
22,922
|
|
|
$
|
11,451
|
|
|
$
|
4,197
|
|
|
$
|
2,612
|
|
|
$
|
4,114
|
|
|
$
|
144,681
|
|
|
$
|
2,973
|
|
|
$
|
217,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand total
|
$
|
4,884,787
|
|
|
$
|
4,214,237
|
|
|
$
|
2,820,296
|
|
|
$
|
2,242,023
|
|
|
$
|
1,507,249
|
|
|
$
|
3,192,716
|
|
|
$
|
2,813,730
|
|
|
$
|
104,329
|
|
|
$
|
21,779,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6–Premises and Equipment
The following table presents the major components of premises and equipment at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
|
Estimated useful life
|
Land
|
$
|
33,835
|
|
|
$
|
34,161
|
|
|
|
Buildings and improvements
|
206,889
|
|
|
204,639
|
|
|
7 - 39 years
|
Furniture, fixtures and equipment
|
138,295
|
|
|
136,403
|
|
|
4 - 20 years
|
Software
|
108,244
|
|
|
104,802
|
|
|
3 - 7 years
|
Construction in progress and other
|
12,137
|
|
|
16,432
|
|
|
|
Total premises and equipment
|
499,400
|
|
|
496,437
|
|
|
|
Less: Accumulated depreciation and amortization
|
(321,350)
|
|
|
(294,977)
|
|
|
|
Premises and equipment, net
|
$
|
178,050
|
|
|
$
|
201,460
|
|
|
|
Depreciation expense totaled $32.1 million, $37.3 million and $44.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 7 – Leases
The Company leases store locations, corporate office space, and equipment under non-cancelable operating leases. The following table presents the balance sheet information related to leases as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2020
|
|
December 31, 2019
|
Leases
|
|
|
Operating lease right-of-use assets
|
|
$
|
104,937
|
|
|
$
|
110,718
|
|
Operating lease liabilities
|
|
$
|
113,593
|
|
|
$
|
119,429
|
|
The following table presents the weighted-average operating lease term and weighted-average discount rate as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Weighted-average remaining lease term (years)
|
|
5.9
|
|
6.4
|
Weighted-average discount rate
|
|
3.10
|
%
|
|
3.45
|
%
|
The following table presents the components of lease expense for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Lease Costs
|
|
2020
|
|
2019
|
Operating lease costs
|
|
$
|
32,862
|
|
|
$
|
32,358
|
|
Short-term lease costs
|
|
472
|
|
|
820
|
|
Variable lease costs
|
|
(11)
|
|
|
8
|
|
Sublease income
|
|
(2,106)
|
|
|
(2,765)
|
|
Net lease costs
|
|
$
|
31,217
|
|
|
$
|
30,421
|
|
Prior to the adoption as ASC 842, rent expense for the year ended December 31, 2018 was $37.9 million and was partially offset by rent income of $2.6 million.
The following table presents the supplemental cash flow information related to leases for the year ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Cash Flows
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
32,639
|
|
|
$
|
33,004
|
|
Right of use assets obtained in exchange for new operating lease liabilities
|
|
$
|
21,746
|
|
|
$
|
27,878
|
|
The following table presents the maturities of lease liabilities as of December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Year
|
Operating Leases
|
2021
|
$
|
30,773
|
|
2022
|
25,797
|
|
2023
|
20,988
|
|
2024
|
16,392
|
|
2025
|
11,616
|
|
Thereafter
|
19,153
|
|
Total lease payments
|
124,719
|
|
Less: imputed interest
|
(11,126)
|
|
Present value of lease liabilities
|
$
|
113,593
|
|
Note 8–Goodwill and Other Intangible Assets
At December 31, 2020, goodwill totaled $2.7 million, after a goodwill impairment of $1.8 billion recorded as of March 31, 2020. Goodwill was $1.8 billion at December 31, 2019. Goodwill represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of fair value of liabilities assumed. Goodwill is required to be allocated to reporting units, which the Company has determined to be the same as its operating segments.
There was no activity for goodwill for the periods ending December 31, 2019 and 2018. The following table summarizes the change in the Company's goodwill for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
(in thousands)
|
Gross
|
|
Accumulated Impairment
|
|
Total
|
Balance, December 31, 2019
|
$
|
1,900,727
|
|
|
$
|
(113,076)
|
|
|
$
|
1,787,651
|
|
Goodwill impairment
|
—
|
|
|
(1,784,936)
|
|
|
(1,784,936)
|
|
Balance, December 31, 2020
|
$
|
1,900,727
|
|
|
$
|
(1,898,012)
|
|
|
$
|
2,715
|
|
As of December 31, 2020, 2019, and 2018, goodwill was allocated to the reporting units as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
(in thousands)
|
Wholesale Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Total
|
Allocated goodwill, December 31, 2019 and 2018
|
$
|
1,033,744
|
|
|
$
|
2,715
|
|
|
$
|
751,192
|
|
|
$
|
1,787,651
|
|
Goodwill impairment
|
(1,033,744)
|
|
|
—
|
|
|
(751,192)
|
|
|
(1,784,936)
|
|
Allocated goodwill, December 31, 2020
|
$
|
—
|
|
|
$
|
2,715
|
|
|
$
|
—
|
|
|
$
|
2,715
|
|
The Company updated its goodwill assessment for the Wholesale Bank and Retail Bank reporting units as of March 31, 2020, due to events and circumstances indicating potential impairment. Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. A goodwill impairment is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.
The Company assessed qualitative factors that indicated that it was more likely than not that goodwill was impaired as of March 31, 2020. Based on that assessment, the Company determined that for the Wholesale Bank and Retail Bank reporting units there were negative indicators that would require a quantitative assessment of goodwill due to the decline in the current economic environment, specifically interest rates and the Company's stock price, as well as decreasing cash flow projections for these reporting units based on the low interest rate environment and potentially higher credit losses.
The Company performed a quantitative analysis of the Wholesale Bank and Retail Bank reporting units, by comparing the fair value of these reporting units with their carrying amount. The Company estimated the fair value of its Wholesale Bank and Retail Bank reporting units using an income approach to estimate the fair value of both reporting units. The income approach estimates the fair value of the reporting units by discounting management's projections of the reporting units' cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, discounted using an estimated cost of capital discount rate. The Company also considered the market and cost approaches when determining the fair value of the reporting units.
The projected cash flows used to estimate fair value of the reporting units were lower than previous projections due to declining interest rate forecasts for a prolonged low-interest rate environment, due to the significant impact of the Federal Reserve's rate cuts and the impact of the COVID-19 pandemic on the economy. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires management to make assumptions and estimates regarding the Company's future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors.
Upon completing the quantitative impairment analysis as of March 31, 2020, the Company recorded a goodwill impairment of $1.8 billion, which represented the entire amount of goodwill allocated to the Wholesale Bank and Retail Bank reporting units. The remaining goodwill of $2.7 million after the impairment relates to the Wealth Management reporting unit. As of October 31, 2020, the Company completed its annual goodwill impairment analysis for the Wealth Management reporting unit by assessing qualitative factors to determine whether the existence of events and circumstances indicated that it is more likely than not that goodwill is impaired. Based upon that assessment, the Company determined that there were no additional factors indicating impairment and no further testing was determined to be necessary as of December 31, 2020.
The following table summarizes the changes in the Company's other intangible assets for the years ended December 31, 2018, 2019 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
(in thousands)
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Balance, December 31, 2017
|
$
|
113,471
|
|
|
$
|
(83,341)
|
|
|
$
|
30,130
|
|
|
|
|
|
|
|
Amortization
|
—
|
|
|
(6,166)
|
|
|
(6,166)
|
|
Balance, December 31, 2018
|
113,471
|
|
|
(89,507)
|
|
|
23,964
|
|
|
|
|
|
|
|
Amortization
|
—
|
|
|
(5,618)
|
|
|
(5,618)
|
|
Balance, December 31, 2019
|
113,471
|
|
|
(95,125)
|
|
|
18,346
|
|
|
|
|
|
|
|
Amortization
|
—
|
|
|
(4,986)
|
|
|
(4,986)
|
|
Balance, December 31, 2020
|
$
|
113,471
|
|
|
$
|
(100,111)
|
|
|
$
|
13,360
|
|
Core deposit intangible asset values were determined by an analysis of the cost differential between the core deposits inclusive of estimated servicing costs and alternative funding sources for core deposits acquired through acquisitions. The core deposit intangible assets recorded are amortized on an accelerated basis over a period of approximately 10 years. No impairment losses separate from the scheduled amortization have been recognized in the periods presented.
The table below presents the forecasted amortization expense for intangible assets at December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Year
|
Expected Amortization
|
2021
|
$
|
4,520
|
|
2022
|
4,095
|
|
2023
|
3,686
|
|
2024
|
1,059
|
|
2025
|
—
|
|
Thereafter
|
—
|
|
Total intangible assets
|
$
|
13,360
|
|
Note 9 – Residential Mortgage Servicing Rights
The Company measures its mortgage servicing rights at fair value with changes in fair value reported in residential mortgage banking revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
Balance, beginning of period
|
$
|
115,010
|
|
|
$
|
169,025
|
|
|
$
|
153,151
|
|
Additions for new MSR capitalized
|
51,000
|
|
|
25,169
|
|
|
29,069
|
|
Sale of MSR assets
|
—
|
|
|
(34,401)
|
|
|
—
|
|
Changes in fair value:
|
|
|
|
|
|
Changes due to collection/realization of expected cash flows over time
|
(19,680)
|
|
|
(25,408)
|
|
|
(24,533)
|
|
Changes due to valuation inputs or assumptions (1)
|
(53,423)
|
|
|
(19,375)
|
|
|
11,338
|
|
Balance, end of period
|
$
|
92,907
|
|
|
$
|
115,010
|
|
|
$
|
169,025
|
|
(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.
Information related to the serviced loan portfolio as of December 31, 2020, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
Balance of loans serviced for others
|
$
|
13,026,720
|
|
|
$
|
12,276,943
|
|
|
$
|
15,978,885
|
|
MSR as a percentage of serviced loans
|
0.71
|
%
|
|
0.94
|
%
|
|
1.06
|
%
|
In 2019, Umpqua closed on the sale of $34.4 million in residential mortgage servicing rights for $3.4 billion of residential mortgage loans serviced for others.
The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue, net, was $35.7 million, $42.2 million, and $42.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Key assumptions used in measuring the fair value of MSR as of December 31, 2020, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
Constant prepayment rate
|
18.48
|
%
|
|
13.33
|
%
|
|
12.95
|
%
|
Discount rate
|
9.72
|
%
|
|
9.75
|
%
|
|
9.70
|
%
|
Weighted average life (years)
|
4.9
|
|
6.0
|
|
6.2
|
A sensitivity analysis of the current fair value to changes in discount and prepayment speed assumptions as of December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Constant prepayment rate
|
|
|
|
Effect on fair value of a 10% adverse change
|
$
|
(5,611)
|
|
|
$
|
(5,410)
|
|
Effect on fair value of a 20% adverse change
|
$
|
(10,833)
|
|
|
$
|
(10,403)
|
|
|
|
|
|
Discount rate
|
|
|
|
Effect on fair value of a 100 basis point adverse change
|
$
|
(3,339)
|
|
|
$
|
(4,366)
|
|
Effect on fair value of a 200 basis point adverse change
|
$
|
(6,448)
|
|
|
$
|
(8,418)
|
|
The sensitivity analysis presents the hypothetical effect on fair value of the MSR, due to the change in assumptions. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in an assumption to the change in fair value is not linear. Additionally, in the analysis, the impact of an adverse change in one assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.
Note 10 - Other Assets
Other assets consisted of the following at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Derivative assets
|
$
|
342,510
|
|
|
$
|
150,574
|
|
Low-income housing tax credit investments
|
108,549
|
|
|
88,215
|
|
Accrued interest receivable
|
83,804
|
|
|
70,210
|
|
Prepaid expenses
|
30,890
|
|
|
31,456
|
|
Income taxes receivable
|
23,188
|
|
|
16,274
|
|
Investment in unconsolidated trust subsidiaries
|
13,962
|
|
|
13,962
|
|
Insurance premium receivable
|
10,701
|
|
|
10,415
|
|
Commercial servicing asset
|
6,144
|
|
|
5,133
|
|
Other real estate owned
|
1,810
|
|
|
3,295
|
|
|
|
|
|
Other
|
47,471
|
|
|
44,667
|
|
Total other assets
|
$
|
669,029
|
|
|
$
|
434,201
|
|
The Company invests in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits. The Company accounts for the investments using the proportional amortization method; amortization of the investment in qualified affordable housing projects is recorded in the provision for income taxes together with the tax credits and benefits received. As of December 31, 2020, 2019 and 2018, the Company recognized $7.0 million, $3.6 million, and $2.8 million, respectively, of proportional amortization as a component of income tax expense and recognized $8.4 million, $4.3 million, and $3.3 million, respectively, in affordable housing tax credits and other tax benefits during the years. The Company's remaining capital commitments to these partnerships at December 31, 2020 and 2019 were approximately $67.0 million and $60.4 million, respectively, and are included in Other Liabilities.
Other real estate owned represents property acquired through foreclosure or other proceedings and is carried at the lower of cost or fair value, less costs to sell. The Bank's recorded investment in consumer mortgage loans collateralized by residential real estate property in process of foreclosure was $135,000 and $7.3 million as of December 31, 2020 and 2019, respectively.
Note 11 – Income Taxes
The following table presents the components of income tax provision for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Current
|
|
Deferred
|
|
Total
|
Year ended December 31, 2020:
|
|
|
|
|
|
Federal
|
$
|
96,575
|
|
|
$
|
(46,556)
|
|
|
$
|
50,019
|
|
State
|
33,368
|
|
|
(16,387)
|
|
|
16,981
|
|
Total provision for income taxes
|
$
|
129,943
|
|
|
$
|
(62,943)
|
|
|
$
|
67,000
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
Federal
|
$
|
90,227
|
|
|
$
|
(5,123)
|
|
|
$
|
85,104
|
|
State
|
28,125
|
|
|
1,579
|
|
|
29,704
|
|
Total provision for income taxes
|
$
|
118,352
|
|
|
$
|
(3,544)
|
|
|
$
|
114,808
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
Federal
|
$
|
68,651
|
|
|
$
|
11,655
|
|
|
$
|
80,306
|
|
State
|
18,960
|
|
|
7,157
|
|
|
26,117
|
|
Total provision for income taxes
|
$
|
87,611
|
|
|
$
|
18,812
|
|
|
$
|
106,423
|
|
The following table presents a reconciliation of income taxes computed at the Federal statutory rate to the actual effective rate for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Statutory Federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State tax, net of Federal benefit
|
(1.0)
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
Impairment of goodwill
|
(25.0)
|
%
|
|
—
|
%
|
|
—
|
%
|
Nondeductible FDIC premiums
|
(0.1)
|
%
|
|
0.2
|
%
|
|
0.3
|
%
|
Nondeductible executive compensation
|
—
|
%
|
|
—
|
%
|
|
0.1
|
%
|
Tax-exempt income
|
0.3
|
%
|
|
(1.2)
|
%
|
|
(1.2)
|
%
|
BOLI
|
0.2
|
%
|
|
(0.4)
|
%
|
|
(0.4)
|
%
|
|
|
|
|
|
|
Other
|
—
|
%
|
|
(0.1)
|
%
|
|
0.4
|
%
|
Effective income tax rate
|
(4.6)
|
%
|
|
24.5
|
%
|
|
25.2
|
%
|
The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax liabilities recorded in other liabilities on the consolidated balance sheets as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Deferred tax assets:
|
|
|
|
Allowance for credit losses
|
$
|
86,120
|
|
|
$
|
41,176
|
|
Operating lease liabilities
|
29,239
|
|
|
30,750
|
|
Accrued severance and deferred compensation
|
16,729
|
|
|
16,131
|
|
Accrued bonuses
|
9,002
|
|
|
6,993
|
|
Acquired loans
|
7,387
|
|
|
9,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes
|
6,707
|
|
|
5,906
|
|
Accrued reserves
|
6,193
|
|
|
2,379
|
|
|
|
|
|
Other
|
15,075
|
|
|
8,358
|
|
Total gross deferred tax assets
|
176,452
|
|
|
121,646
|
|
Deferred tax liabilities:
|
|
|
|
Unrealized gains on investment securities
|
35,234
|
|
|
8,014
|
|
Fair market value adjustment on junior subordinated debentures
|
32,251
|
|
|
27,404
|
|
Operating lease right-of-use asset
|
27,010
|
|
|
28,506
|
|
Direct financing leases
|
25,802
|
|
|
29,741
|
|
Residential mortgage servicing rights
|
25,476
|
|
|
30,901
|
|
|
|
|
|
Deferred loan fees and costs
|
19,564
|
|
|
21,450
|
|
Goodwill
|
—
|
|
|
11,703
|
|
|
|
|
|
|
|
|
|
Other
|
15,466
|
|
|
15,765
|
|
Total gross deferred tax liabilities
|
180,803
|
|
|
173,484
|
|
Valuation allowance
|
(1,090)
|
|
|
(1,090)
|
|
Net deferred tax liabilities
|
$
|
(5,441)
|
|
|
$
|
(52,928)
|
|
As of December 31, 2020 and 2019, the Company's gross deferred tax assets included $1.5 million and $1.7 million, respectively, of state NOL carryfowards expiring in tax years 2029-2031. The Company believes it is more likely than not that the benefit from certain state NOL carryforwards will not be realized and therefore has provided a valuation allowance of $1.1 million as of both December 31, 2020 and 2019, on the deferred tax assets relating to these state NOL carryforwards. The Company has determined that no other valuation allowance for the remaining deferred tax assets is required as management believes it is more likely than not that the remaining gross deferred tax assets, net of the valuation allowance, of $175.4 million and $120.6 million at December 31, 2020 and 2019, respectively, will be realized principally through future reversals of existing taxable temporary differences. Management further believes that future taxable income will be sufficient to realize the benefits of temporary deductible differences that cannot be realized through carry-back to prior years or through the reversal of future temporary taxable differences.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the majority of states and Canada. The Company is no longer subject to U.S. and Canadian tax examinations for years before 2017, and is no longer subject to state tax examinations for years prior to 2016, with the exception of California, where the statute is still open for tax years 2012 and 2013.
The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities' examinations of the Company's tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.
The Company had gross unrecognized tax benefits in the amount of $4.3 million recorded as of December 31, 2020 and 2019. If recognized, the unrecognized tax benefit would reduce the 2020 annual effective tax rate by 0.3%. Interest on unrecognized tax benefits is reported by the Company as a component of tax expense. As of December 31, 2020 and 2019, the accrued interest related to unrecognized tax benefits is $64,000 and $70,000, respectively.
During 2019, a settlement was entered into with California for the 2005 to 2011 tax years resulting in the reversal of $516,000 of gross unrecognized tax benefits. The 2019 gross unrecognized tax benefits also includes a $183,000 reversal related to a partial refund for amended returns filed with California for the 2012 and 2013 tax years, for which $1.7 million of unrecognized tax benefits was recorded in 2018.
Detailed below is a reconciliation of the Company's gross unrecognized tax benefits for the years ended December 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
Balance, beginning of period
|
$
|
4,307
|
|
|
$
|
4,971
|
|
|
|
|
|
Changes for tax positions of current year
|
10
|
|
|
34
|
|
|
|
|
|
Settlement
|
—
|
|
|
(698)
|
|
|
|
|
|
Balance, end of period
|
$
|
4,317
|
|
|
$
|
4,307
|
|
Note 12 – Interest Bearing Deposits
The following table presents the major types of interest bearing deposits at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Interest bearing demand
|
$
|
3,051,487
|
|
|
$
|
2,524,534
|
|
Money market
|
7,173,920
|
|
|
6,930,815
|
|
Savings
|
1,912,752
|
|
|
1,471,475
|
|
Time, greater than $250,000
|
899,563
|
|
|
1,231,973
|
|
Time, $250,000 or less
|
1,951,706
|
|
|
3,409,332
|
|
Total interest bearing deposits
|
$
|
14,989,428
|
|
|
$
|
15,568,129
|
|
The following table presents the scheduled maturities of all time deposits as of December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Year
|
Amount
|
2021
|
$
|
2,348,942
|
|
2022
|
359,223
|
|
2023
|
56,372
|
|
2024
|
54,187
|
|
2025
|
28,525
|
|
Thereafter
|
4,020
|
|
Total time deposits
|
$
|
2,851,269
|
|
The following table presents the remaining maturities of uninsured deposits greater than $250,000 as of December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
Amount
|
Three months or less (1)
|
$
|
402,559
|
|
Over three months through six months
|
194,589
|
|
Over six months through twelve months
|
270,118
|
|
Over twelve months
|
177,206
|
|
Uninsured deposits, greater than $250,000
|
$
|
1,044,472
|
|
(1) Included in the uninsured deposits are brokered deposits of $144.9 million.
Note 13 – Securities Sold Under Agreements to Repurchase
The following table presents information regarding securities sold under agreements to repurchase at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Repurchase Amount
|
|
Weighted Average Interest Rate
|
|
Carrying Value of Underlying Assets
|
|
Market Value of Underlying Assets
|
December 31, 2020
|
$
|
375,384
|
|
|
0.07
|
%
|
|
$
|
464,855
|
|
|
$
|
464,855
|
|
December 31, 2019
|
$
|
311,308
|
|
|
0.57
|
%
|
|
$
|
392,315
|
|
|
$
|
392,315
|
|
The securities underlying agreements to repurchase entered into by the Bank are for the same securities originally sold, with a one-day maturity. In all cases, the Bank maintains control over the securities. Securities sold under agreements to repurchase averaged approximately $370.0 million, $299.6 million, and $282.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. The maximum amount outstanding at any month end for the years ended December 31, 2020, 2019, and 2018, was $398.4 million, $336.8 million, and $315.4 million, respectively. Investment securities are pledged as collateral in an amount equal to or greater than the repurchase agreements.
Note 14 – Federal Funds Purchased
At December 31, 2020 and 2019, the Company had no outstanding federal funds purchased balances. The Bank had available lines of credit with the FHLB totaling $6.2 billion at December 31, 2020 subject to certain collateral requirements. The Bank had available lines of credit with the Federal Reserve totaling $475.3 million subject to certain collateral requirements, namely the amount of certain pledged loans at December 31, 2020. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at December 31, 2020. At December 31, 2020, the lines of credit had interest rates ranging from 0.3% to 1.5%. Availability of the lines is subject to federal funds balances available for loan and continued borrower eligibility and are reviewed and renewed periodically throughout the year. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage.
Note 15 – Borrowings
The Bank had outstanding secured advances from the FHLB at December 31, 2020 and 2019 with carrying values of $771.5 million and $906.6 million, respectively. The following table summarizes the future contractual maturities of borrowed funds as of December 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Year
|
Amount
|
2021
|
$
|
765,000
|
|
2022
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
—
|
|
Thereafter
|
5,000
|
|
Total borrowed funds(1)
|
$
|
770,000
|
|
(1) Amount shows contractual borrowings, excluding acquisition accounting adjustments.
The maximum amount outstanding from the FHLB under term advances at a month end during 2020 and 2019 was $1.2 billion and $1.1 billion, respectively. The average balance outstanding during 2020 and 2019 was $1.0 billion and $895.0 million, respectively. The average contractual interest rate on the borrowings was 1.2% in 2020 and 1.9% in 2019. The FHLB requires the Bank to maintain a required level of investment in FHLB and sufficient collateral to qualify for secured advances. The Bank has pledged as collateral for these secured advances all FHLB stock, all funds on deposit with the FHLB, investment and commercial real estate portfolios, accounts, general intangibles, equipment and other property in which a security interest can be granted by the Bank to the FHLB.
Note 16 – Junior Subordinated Debentures
Following is information about the Company's wholly-owned Trusts as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Issue Date
|
|
Issued Amount
|
|
Carrying Value (1)
|
|
Rate (2)
|
|
Effective Rate (3)
|
|
Maturity Date
|
AT FAIR VALUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Umpqua Statutory Trust II
|
|
October 2002
|
|
$
|
20,619
|
|
|
$
|
16,606
|
|
|
Floating rate, LIBOR plus 3.35%, adjusted quarterly
|
|
4.43
|
%
|
|
October 2032
|
Umpqua Statutory Trust III
|
|
October 2002
|
|
30,928
|
|
|
25,145
|
|
|
Floating rate, LIBOR plus 3.45%, adjusted quarterly
|
|
4.52
|
%
|
|
November 2032
|
Umpqua Statutory Trust IV
|
|
December 2003
|
|
10,310
|
|
|
7,739
|
|
|
Floating rate, LIBOR plus 2.85%, adjusted quarterly
|
|
4.11
|
%
|
|
January 2034
|
Umpqua Statutory Trust V
|
|
December 2003
|
|
10,310
|
|
|
7,653
|
|
|
Floating rate, LIBOR plus 2.85%, adjusted quarterly
|
|
4.15
|
%
|
|
March 2034
|
Umpqua Master Trust I
|
|
August 2007
|
|
41,238
|
|
|
22,875
|
|
|
Floating rate, LIBOR plus 1.35%, adjusted quarterly
|
|
2.82
|
%
|
|
September 2037
|
Umpqua Master Trust IB
|
|
September 2007
|
|
20,619
|
|
|
14,303
|
|
|
Floating rate, LIBOR plus 2.75%, adjusted quarterly
|
|
4.28
|
%
|
|
December 2037
|
Sterling Capital Trust III
|
|
April 2003
|
|
14,433
|
|
|
11,461
|
|
|
Floating rate, LIBOR plus 3.25%, adjusted quarterly
|
|
4.36
|
%
|
|
April 2033
|
Sterling Capital Trust IV
|
|
May 2003
|
|
10,310
|
|
|
8,052
|
|
|
Floating rate, LIBOR plus 3.15%, adjusted quarterly
|
|
4.32
|
%
|
|
May 2033
|
Sterling Capital Statutory Trust V
|
|
May 2003
|
|
20,619
|
|
|
16,201
|
|
|
Floating rate, LIBOR plus 3.25%, adjusted quarterly
|
|
4.46
|
%
|
|
June 2033
|
Sterling Capital Trust VI
|
|
June 2003
|
|
10,310
|
|
|
8,006
|
|
|
Floating rate, LIBOR plus 3.20%, adjusted quarterly
|
|
4.40
|
%
|
|
September 2033
|
Sterling Capital Trust VII
|
|
June 2006
|
|
56,702
|
|
|
33,456
|
|
|
Floating rate, LIBOR plus 1.53%, adjusted quarterly
|
|
2.95
|
%
|
|
June 2036
|
Sterling Capital Trust VIII
|
|
September 2006
|
|
51,547
|
|
|
30,553
|
|
|
Floating rate, LIBOR plus 1.63%, adjusted quarterly
|
|
3.12
|
%
|
|
December 2036
|
Sterling Capital Trust IX
|
|
July 2007
|
|
46,392
|
|
|
26,116
|
|
|
Floating rate, LIBOR plus 1.40%, adjusted quarterly
|
|
2.89
|
%
|
|
October 2037
|
Lynnwood Financial Statutory Trust I
|
|
March 2003
|
|
9,279
|
|
|
7,224
|
|
|
Floating rate, LIBOR plus 3.15%, adjusted quarterly
|
|
4.37
|
%
|
|
March 2033
|
Lynnwood Financial Statutory Trust II
|
|
June 2005
|
|
10,310
|
|
|
6,500
|
|
|
Floating rate, LIBOR plus 1.80%, adjusted quarterly
|
|
3.20
|
%
|
|
June 2035
|
Klamath First Capital Trust I
|
|
July 2001
|
|
15,464
|
|
|
13,327
|
|
|
Floating rate, LIBOR plus 3.75%, adjusted semiannually
|
|
4.72
|
%
|
|
July 2031
|
Total junior subordinated debentures at fair value
|
|
379,390
|
|
|
255,217
|
|
|
|
|
|
|
|
AT AMORTIZED COST:
|
|
|
|
|
|
|
|
|
|
|
|
|
Humboldt Bancorp Statutory Trust II
|
|
December 2001
|
|
10,310
|
|
|
10,895
|
|
|
Floating rate, LIBOR plus 3.60%, adjusted quarterly
|
|
3.13
|
%
|
|
December 2031
|
Humboldt Bancorp Statutory Trust III
|
|
September 2003
|
|
27,836
|
|
|
29,432
|
|
|
Floating rate, LIBOR plus 2.95%, adjusted quarterly
|
|
2.56
|
%
|
|
September 2033
|
CIB Capital Trust
|
|
November 2002
|
|
10,310
|
|
|
10,825
|
|
|
Floating rate, LIBOR plus 3.45%, adjusted quarterly
|
|
3.09
|
%
|
|
November 2032
|
Western Sierra Statutory Trust I
|
|
July 2001
|
|
6,186
|
|
|
6,186
|
|
|
Floating rate, LIBOR plus 3.58%, adjusted quarterly
|
|
3.79
|
%
|
|
July 2031
|
Western Sierra Statutory Trust II
|
|
December 2001
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 3.60%, adjusted quarterly
|
|
3.84
|
%
|
|
December 2031
|
Western Sierra Statutory Trust III
|
|
September 2003
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 2.90%, adjusted quarterly
|
|
3.14
|
%
|
|
October 2033
|
Western Sierra Statutory Trust IV
|
|
September 2003
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 2.90%, adjusted quarterly
|
|
3.14
|
%
|
|
September 2033
|
Total junior subordinated debentures at amortized cost
|
|
85,572
|
|
|
88,268
|
|
|
|
|
|
|
|
Total junior subordinated debentures
|
|
|
|
$
|
464,962
|
|
|
$
|
343,485
|
|
|
|
|
|
|
|
(1)Includes acquisition accounting adjustments, net of accumulated amortization, for junior subordinated debentures assumed in connection with previous mergers as well as fair value adjustments related to trusts recorded at fair value.
(2)Contractual interest rate of junior subordinated debentures.
(3)Effective interest rate based upon the carrying value as of December 31, 2020.
The Trusts are reflected as junior subordinated debentures, either at fair value or at amortized cost. The common stock issued by the Trusts is recorded in other assets, and totaled $14.0 million at both December 31, 2020 and 2019. As of December 31, 2020, all of the junior subordinated debentures were redeemable at par, at their applicable quarterly or semiannual interest payment dates.
The Company selected the fair value measurement option for junior subordinated debentures originally issued by the Company (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired from Sterling Financial Corporation. Based on the implied forward curve shifting lower and an increase in the credit spread, offset by the spot curve shifting lower, the fair value of the junior subordinated debentures decreased during the year. A gain of $18.8 million for the year ended December 31, 2020, as compared to the gain of $25.9 million for the year ended December 31, 2019, were recorded in other comprehensive income (loss).
Note 17 – Employee Benefit Plans
Employee Savings Plan-Substantially all of the Company's employees are eligible to participate in the Umpqua Bank 401(k) and Profit Sharing Plan, a defined contribution and profit sharing plan sponsored by the Company. Employees may elect to have a portion of their salary contributed to the plan in conformity with Section 401(k) of the Internal Revenue Code. At the discretion of the Company's Board of Directors, the Company may elect to make matching and/or profit sharing contributions to the Umpqua 401(k) Plan based on profits of the Bank. The Company's contributions charged to expense including the match and profit sharing amounted to $11.1 million, $8.6 million, and $10.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Deferred Compensation/Supplemental Retirement Plans-The Company has established the Umpqua Holdings Corporation Deferred Compensation & Supplemental Retirement Plan, a nonqualified deferred compensation plan to help supplement the retirement income of certain highly compensated executives selected by resolution of the Company's Board of Directors. The DC/SRP has two components, a supplemental retirement plan and a deferred compensation plan. The Company may make discretionary contributions to the SRP. The SRP plan balances at December 31, 2020 and 2019 were $559,000 and $529,000, respectively, and are recorded in other liabilities. Under the DCP, eligible officers may elect to defer up to 50% of their salary into a plan account. The DCP plan balance was $10.3 million and $9.7 million at December 31, 2020 and 2019, respectively. In addition, the Company has established a supplemental retirement plan for the former Executive Chairman of the Board of Directors. The balance for this plan was $9.1 million and $9.0 million as of December 31, 2020 and 2019, respectively.
Acquired Plans- In connection with prior acquisitions, the Bank assumed liability for certain salary continuation, supplemental retirement, and deferred compensation plans for key employees, retired employees and directors of acquired institutions. Subsequent to the effective date of these acquisitions, no additional contributions were made to these plans. These plans are unfunded, and provide for the payment of a specified amount on a monthly basis for a specified period (generally 10 to 20 years) after retirement. In the event of a participant employee's death prior to or during retirement, the Bank, in certain cases, is obligated to pay to the designated beneficiary the benefits set forth under the plans. At December 31, 2020 and 2019, liabilities recorded for the estimated present value of future plan benefits totaled $28.9 million and $28.7 million, respectively, and are recorded in Other Liabilities. For the years ended December 31, 2020, 2019 and 2018, expense recorded for these benefits totaled $3.6 million, $1.5 million, and $1.0 million, respectively.
Rabbi Trusts-The Bank has established, for the DC/SRP plan noted above, and sponsors, for some deferred compensation plans assumed in connection with prior mergers, irrevocable trusts commonly referred to as "Rabbi Trusts." The trust assets (generally trading assets) are consolidated in the Company's balance sheets and the associated liability (which equals the related asset balances) is included in other liabilities. The asset and liability balances related to these trusts as of December 31, 2020 and 2019 were $12.8 million and $12.2 million, respectively.
Bank-Owned Life Insurance-The Bank has purchased, or acquired through mergers, life insurance policies in connection with the implementation of certain executive supplemental income, salary continuation and deferred compensation retirement plans. These policies provide protection against the adverse financial effects that could result from the death of a key employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank's intent to hold these policies as a long-term investment. However, there will be an income tax impact if the Bank chooses to surrender certain policies. Although the lives of individual current or former management-level employees are insured, the Bank is the owner and sole or partial beneficiary. At December 31, 2020 and 2019, the cash surrender value of these policies was $323.5 million and $320.6 million, respectively. At December 31, 2020 and 2019, the Bank also had liabilities for post-retirement benefits payable to other partial beneficiaries under some of these life insurance policies of $3.7 million and $3.4 million, respectively. The Bank is exposed to credit risk to the extent an insurance company is unable to fulfill its financial obligations under a policy. In order to mitigate this risk, the Bank uses a variety of insurance companies and regularly monitors their financial condition.
Note 18 – 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)
|
December 31, 2020
|
Commitments to extend credit
|
$
|
5,556,212
|
|
Forward sales commitments
|
$
|
1,003,221
|
|
Commitments to originate residential mortgage loans held for sale
|
$
|
821,073
|
|
Standby letters of credit
|
$
|
115,797
|
|
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 recognized in the Consolidated Balance Sheets. 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.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or condition established in the applicable contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. While most standby letters of credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral varies but may include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.
Standby letters of credit and written financial guarantees are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is deemed necessary. There were no financial guarantees in connection with standby letters of credit that the Bank was required to perform on for the years ended December 31, 2020 and 2019. At December 31, 2020, approximately $105.5 million of standby letters of credit expire within one year, and $10.3 million expire thereafter. During the years ended December 31, 2020 and 2019, the Bank recorded approximately $1.6 million and $1.5 million, respectively in fees associated with standby letters of credit.
Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations. As of December 31, 2020, the Company had a residential mortgage loan repurchase reserve liability of $1.0 million. For loans sold to GNMA, the Bank has a unilateral right but not the obligation to repurchase loans that are past due 90 days or more. As of December 31, 2020, the Bank has no recorded liability for the loans subject to this repurchase right.
Commitments — In September 2020, the Company and its wholly-owned subsidiary Umpqua Investments, entered into an agreement to sell substantially all of the assets of Umpqua Investments to Steward Partners. Umpqua Investments is included within the Company's Wealth Management segment. The acquisition is expected to close in the first half of 2021, subject to customary closing conditions.
Legal Proceedings—The Company is involved in legal proceedings occurring in the ordinary course of business. Based on information currently available, advice of counsel and available insurance coverage, management believes that the eventual outcome of actions against the Company or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to results of operations for any particular period.
Contingencies—In 2020, the Company launched "Next Gen 2.0," an initiative designed to continue to modernize the Bank, advance technology initiatives, and improve operating leverage. As part of this initiative, management continues to evaluate all aspects of the Company's operations. The Company announced the planned consolidation of 12 store locations to be completed by the end of the second quarter 2021. Costs associated with these consolidations will be included in exit and disposal costs within other expenses in non-interest expense. The Next Gen 2.0 strategy involves evaluation of these consolidations and possible future consolidations.
Concentrations of Credit Risk—The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington, California, Idaho, and Nevada. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 71% and 76% of the Bank's loan and lease portfolio for December 31, 2020 and 2019, respectively. The decrease in the real estate concentration is related to PPP loans which are not real estate secured and will likely be short-term in duration. Commercial real estate concentrations are managed to ensure geographic and business diversity, primarily in our footprint. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general or caused by the COVID-19 pandemic, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Bank's primary market areas in particular, could have an adverse impact on the repayment of these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing represent the primary sources of repayment for a majority of these loans.
The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.
Note 19 – Derivatives
The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. None of the Company's derivatives are designated as hedging instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy.
The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no counterparty default losses on forward contracts in 2020, 2019, and 2018. 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 December 31, 2020, the Bank had commitments to originate mortgage loans held for sale totaling $821.1 million and forward sales commitments of $1.0 billion, which are used to hedge both on-balance sheet and off-balance sheet exposures.
The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of December 31, 2020, the Bank had 886 interest rate swaps with an aggregate notional amount of $6.2 billion related to this program. As of December 31, 2019, the Bank had 846 interest rate swaps with an aggregate notional amount of $5.7 billion related to this program.
As of December 31, 2020 and 2019, 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 $370,000 and $7.0 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 $92.6 million and $86.2 million as of December 31, 2020 and 2019, respectively.
The Bank's interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to derivative asset and liability. As of December 31, 2020 and 2019, the variation margin adjustments were negative adjustments of $330.5 million and $144.8 million, respectively.
The Bank incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. As of December 31, 2020 and 2019, the net CVA reduced the settlement values of the Bank's net derivative assets by $18.5 million and $9.1 million, respectively. Various factors impact changes in the CVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.
The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges with other third-party banks to limit the Bank's risk exposure.
The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities on the consolidated balance sheet. The following table summarizes the types of derivatives, separately by assets and liabilities and the fair values of such derivatives as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivatives not designated as hedging instrument
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
Interest rate lock commitments
|
|
$
|
28,144
|
|
|
$
|
7,056
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate forward sales commitments
|
|
7
|
|
|
105
|
|
|
7,257
|
|
|
1,351
|
|
Interest rate swaps
|
|
313,090
|
|
|
142,787
|
|
|
370
|
|
|
7,001
|
|
Foreign currency derivatives
|
|
1,269
|
|
|
626
|
|
|
1,155
|
|
|
456
|
|
Total derivative assets and liabilities
|
|
$
|
342,510
|
|
|
$
|
150,574
|
|
|
$
|
8,782
|
|
|
$
|
8,808
|
|
The following table summarizes the types of derivatives and the gains (losses) recorded during the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Derivatives not designated as hedging instrument
|
|
2020
|
|
2019
|
|
2018
|
Interest rate lock commitments
|
|
$
|
21,088
|
|
|
$
|
298
|
|
|
$
|
2,006
|
|
Interest rate forward sales commitments
|
|
(61,403)
|
|
|
(12,096)
|
|
|
9,144
|
|
Interest rate swaps
|
|
(9,409)
|
|
|
(6,038)
|
|
|
(1,362)
|
|
Foreign currency derivatives
|
|
2,424
|
|
|
2,078
|
|
|
1,672
|
|
Total derivative (losses) gains
|
|
$
|
(47,300)
|
|
|
$
|
(15,758)
|
|
|
$
|
11,460
|
|
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.
Note 20 – Stock Compensation and Share Repurchase Plan
Stock-Based Compensation
The compensation cost related to restricted stock, stock options and restricted stock units in Company stock granted to employees and included in salaries and employee benefits was $8.1 million, $7.0 million and $6.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. The total income tax benefit recognized related to stock-based compensation was $2.1 million, $1.8 million and $1.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.
As of December 31, 2020, there was $10.9 million of total unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-average period of 1.79 years, assuming expected performance conditions are met for certain awards.
The Company grants restricted stock periodically for the benefit of employees and directors. Restricted shares generally vest over three years, subject to time or time plus performance vesting conditions. The following table summarizes information about nonvested restricted share activity for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
(shares in thousands)
|
Restricted
Shares Outstanding
|
|
Weighted Average
Grant Date
Fair Value
|
|
Restricted Shares Outstanding
|
|
Weighted Average
Grant Date
Fair Value
|
|
Restricted
Shares Outstanding
|
|
Weighted Average
Grant Date
Fair Value
|
Balance, beginning of period
|
1,183
|
|
|
$
|
18.94
|
|
|
979
|
|
|
$
|
19.10
|
|
|
1,248
|
|
|
$
|
16.61
|
|
Granted
|
766
|
|
|
$
|
15.09
|
|
|
628
|
|
|
$
|
17.74
|
|
|
521
|
|
|
$
|
21.76
|
|
Vested/released
|
(491)
|
|
|
$
|
18.49
|
|
|
(388)
|
|
|
$
|
17.34
|
|
|
(554)
|
|
|
$
|
16.81
|
|
Forfeited/expired
|
(116)
|
|
|
$
|
17.91
|
|
|
(36)
|
|
|
$
|
19.58
|
|
|
(236)
|
|
|
$
|
17.19
|
|
Balance, end of period
|
1,342
|
|
|
$
|
17.02
|
|
|
1,183
|
|
|
$
|
18.94
|
|
|
979
|
|
|
$
|
19.10
|
|
The total fair value of restricted shares vested and released was $9.1 million, $6.7 million, and $11.9 million, for the years ended December 31, 2020, 2019 and 2018, respectively.
For the years ended December 31, 2020, 2019 and 2018, the Company received income tax benefits of $2.1 million, $1.8 million, and $3.4 million, respectively, related to the vesting of restricted shares. The tax deficiency or benefit is recorded as income tax expense or benefit in the period the shares are vested.
Share Repurchase Plan- The Company's share repurchase plan authorizes the repurchase of up to 15 million shares of common stock. The repurchase program has been extended multiple times by the board with the current expiration date of July 31, 2021. As of December 31, 2020, a total of 9.5 million shares remain available for repurchase. The Company repurchased 331,000, 300,000, and 327,000 shares under the repurchase plan in the years ended December 31, 2020, 2019, and 2018, respectively. The timing and amount of future repurchases will depend upon the market price for the Company's common stock, securities laws and regulations restricting repurchases, asset growth, earnings, and capital plan.
The Company also has restricted stock plans which provide for the payment of withholding taxes or the option exercise price by tendering previously owned or recently vested shares. Restricted shares cancelled to pay withholding taxes totaled 163,000, 115,000, and 187,000 shares during the years ended December 31, 2020, 2019 and 2018, respectively.
Note 21 – Regulatory Capital
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's operations and financial statements. Under capital adequacy guidelines, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classifications are also subject to qualitative judgments by the regulators about risk components, asset risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital and Tier 1 common to risk-weighted assets (as defined in the regulations), and of Tier 1 capital to average assets (as defined in the regulations). Management believes, as of December 31, 2020, that the Company meets all capital adequacy requirements to which it is subject.
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 Basel III at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
To be Well Capitalized
|
(dollars in thousands)
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
3,347,926
|
|
|
15.63
|
%
|
|
$
|
1,713,891
|
|
|
8.00
|
%
|
|
$
|
2,142,364
|
|
|
10.00
|
%
|
Umpqua Bank
|
$
|
3,134,116
|
|
|
14.63
|
%
|
|
$
|
1,713,809
|
|
|
8.00
|
%
|
|
$
|
2,142,262
|
|
|
10.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,636,194
|
|
|
12.31
|
%
|
|
$
|
1,285,418
|
|
|
6.00
|
%
|
|
$
|
1,713,891
|
|
|
8.00
|
%
|
Umpqua Bank
|
$
|
2,873,383
|
|
|
13.41
|
%
|
|
$
|
1,285,357
|
|
|
6.00
|
%
|
|
$
|
1,713,809
|
|
|
8.00
|
%
|
Tier 1 Common
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,636,194
|
|
|
12.31
|
%
|
|
$
|
964,064
|
|
|
4.50
|
%
|
|
$
|
1,392,536
|
|
|
6.50
|
%
|
Umpqua Bank
|
$
|
2,873,383
|
|
|
13.41
|
%
|
|
$
|
964,018
|
|
|
4.50
|
%
|
|
$
|
1,392,470
|
|
|
6.50
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,636,194
|
|
|
8.98
|
%
|
|
$
|
1,174,129
|
|
|
4.00
|
%
|
|
$
|
1,467,661
|
|
|
5.00
|
%
|
Umpqua Bank
|
$
|
2,873,383
|
|
|
9.79
|
%
|
|
$
|
1,174,065
|
|
|
4.00
|
%
|
|
$
|
1,467,581
|
|
|
5.00
|
%
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
3,104,444
|
|
|
13.96
|
%
|
|
$
|
1,779,265
|
|
|
8.00
|
%
|
|
$
|
2,224,081
|
|
|
10.00
|
%
|
Umpqua Bank
|
$
|
2,945,830
|
|
|
13.26
|
%
|
|
$
|
1,777,265
|
|
|
8.00
|
%
|
|
$
|
2,221,581
|
|
|
10.00
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,490,709
|
|
|
11.20
|
%
|
|
$
|
1,334,449
|
|
|
6.00
|
%
|
|
$
|
1,779,265
|
|
|
8.00
|
%
|
Umpqua Bank
|
$
|
2,783,095
|
|
|
12.53
|
%
|
|
$
|
1,332,949
|
|
|
6.00
|
%
|
|
$
|
1,777,265
|
|
|
8.00
|
%
|
Tier 1 Common
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,490,709
|
|
|
11.20
|
%
|
|
$
|
1,000,837
|
|
|
4.50
|
%
|
|
$
|
1,445,653
|
|
|
6.50
|
%
|
Umpqua Bank
|
$
|
2,783,095
|
|
|
12.53
|
%
|
|
$
|
999,712
|
|
|
4.50
|
%
|
|
$
|
1,444,028
|
|
|
6.50
|
%
|
Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
2,490,709
|
|
|
9.16
|
%
|
|
$
|
1,087,509
|
|
|
4.00
|
%
|
|
$
|
1,359,387
|
|
|
5.00
|
%
|
Umpqua Bank
|
$
|
2,783,095
|
|
|
10.24
|
%
|
|
$
|
1,086,999
|
|
|
4.00
|
%
|
|
$
|
1,358,749
|
|
|
5.00
|
%
|
Along with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company has elected this capital relief and will delay the estimated regulatory capital impact of adopting CECL, relative to the incurred loss methodology's effect on regulatory capital.
Note 22 – Fair Value Measurement
The following table presents estimated fair values of the Company's financial instruments as of December 31, 2020 and 2019, whether or not recognized or recorded at fair value in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(in thousands)
|
Level
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
$
|
2,573,181
|
|
|
$
|
2,573,181
|
|
|
$
|
1,362,756
|
|
|
$
|
1,362,756
|
|
Equity and other investment securities
|
1,2
|
|
83,077
|
|
|
83,077
|
|
|
80,165
|
|
|
80,165
|
|
Investment securities available for sale
|
2
|
|
2,932,558
|
|
|
2,932,558
|
|
|
2,814,682
|
|
|
2,814,682
|
|
Investment securities held to maturity
|
3
|
|
3,034
|
|
|
3,883
|
|
|
3,260
|
|
|
4,263
|
|
Loans held for sale, at fair value
|
2
|
|
766,225
|
|
|
766,225
|
|
|
513,431
|
|
|
513,431
|
|
Loans and leases, net
|
3
|
|
21,450,966
|
|
|
21,904,189
|
|
|
21,038,055
|
|
|
21,274,319
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities
|
1
|
|
41,666
|
|
|
41,666
|
|
|
46,463
|
|
|
46,463
|
|
Residential mortgage servicing rights
|
3
|
|
92,907
|
|
|
92,907
|
|
|
115,010
|
|
|
115,010
|
|
Bank owned life insurance
|
1
|
|
323,470
|
|
|
323,470
|
|
|
320,611
|
|
|
320,611
|
|
Derivatives
|
2,3
|
|
342,510
|
|
|
342,510
|
|
|
150,574
|
|
|
150,574
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,2
|
|
$
|
24,622,201
|
|
|
$
|
24,641,876
|
|
|
$
|
22,481,504
|
|
|
$
|
22,503,916
|
|
Securities sold under agreements to repurchase
|
2
|
|
375,384
|
|
|
375,384
|
|
|
311,308
|
|
|
311,308
|
|
Borrowings
|
2
|
|
771,482
|
|
|
774,586
|
|
|
906,635
|
|
|
906,160
|
|
Junior subordinated debentures, at fair value
|
3
|
|
255,217
|
|
|
255,217
|
|
|
274,812
|
|
|
274,812
|
|
Junior subordinated debentures, at amortized cost
|
3
|
|
88,268
|
|
|
67,425
|
|
|
88,496
|
|
|
70,909
|
|
Derivatives
|
2
|
|
8,782
|
|
|
8,782
|
|
|
8,808
|
|
|
8,808
|
|
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 December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
Description
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
Equity and other investment securities
|
|
|
|
|
|
|
|
Investments in mutual funds and other securities
|
$
|
70,203
|
|
|
$
|
52,866
|
|
|
$
|
17,337
|
|
|
$
|
—
|
|
Equity securities held in rabbi trusts
|
12,814
|
|
|
12,814
|
|
|
—
|
|
|
—
|
|
Other investments securities (1)
|
60
|
|
|
—
|
|
|
60
|
|
|
—
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
762,202
|
|
|
—
|
|
|
762,202
|
|
|
—
|
|
Obligations of states and political subdivisions
|
279,511
|
|
|
—
|
|
|
279,511
|
|
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,890,845
|
|
|
—
|
|
|
1,890,845
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at fair value
|
688,079
|
|
|
—
|
|
|
688,079
|
|
|
—
|
|
Residential mortgage servicing rights, at fair value
|
92,907
|
|
|
—
|
|
|
—
|
|
|
92,907
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
28,144
|
|
|
—
|
|
|
—
|
|
|
28,144
|
|
Interest rate forward sales commitments
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Interest rate swaps
|
313,090
|
|
|
—
|
|
|
313,090
|
|
|
—
|
|
Foreign currency derivatives
|
1,269
|
|
|
—
|
|
|
1,269
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
4,139,131
|
|
|
$
|
65,680
|
|
|
$
|
3,952,400
|
|
|
$
|
121,051
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Junior subordinated debentures, at fair value
|
$
|
255,217
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
255,217
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate forward sales commitments
|
7,257
|
|
|
—
|
|
|
7,257
|
|
|
—
|
|
Interest rate swaps
|
370
|
|
|
—
|
|
|
370
|
|
|
—
|
|
Foreign currency derivatives
|
1,155
|
|
|
—
|
|
|
1,155
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
263,999
|
|
|
$
|
—
|
|
|
$
|
8,782
|
|
|
$
|
255,217
|
|
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2019
|
Description
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
Equity and other investment securities
|
|
|
|
|
|
|
|
Investments in mutual funds and other securities
|
$
|
67,133
|
|
|
$
|
52,096
|
|
|
$
|
15,037
|
|
|
$
|
—
|
|
Equity securities held in rabbi trusts
|
12,147
|
|
|
12,147
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other investments securities (1)
|
885
|
|
|
—
|
|
|
885
|
|
|
—
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
643,604
|
|
|
—
|
|
|
643,604
|
|
|
—
|
|
Obligations of states and political subdivisions
|
261,094
|
|
|
—
|
|
|
261,094
|
|
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,909,984
|
|
|
—
|
|
|
1,909,984
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at fair value
|
513,431
|
|
|
—
|
|
|
513,431
|
|
|
—
|
|
Residential mortgage servicing rights, at fair value
|
115,010
|
|
|
—
|
|
|
—
|
|
|
115,010
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
7,056
|
|
|
—
|
|
|
—
|
|
|
7,056
|
|
Interest rate forward sales commitments
|
105
|
|
|
—
|
|
|
105
|
|
|
—
|
|
Interest rate swaps
|
142,787
|
|
|
—
|
|
|
142,787
|
|
|
—
|
|
Foreign currency derivatives
|
626
|
|
|
—
|
|
|
626
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
3,673,862
|
|
|
$
|
64,243
|
|
|
$
|
3,487,553
|
|
|
$
|
122,066
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Junior subordinated debentures, at fair value
|
$
|
274,812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
274,812
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate forward sales commitments
|
1,351
|
|
|
—
|
|
|
1,351
|
|
|
—
|
|
Interest rate swaps
|
7,001
|
|
|
—
|
|
|
7,001
|
|
|
—
|
|
Foreign currency derivatives
|
456
|
|
|
—
|
|
|
456
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
283,620
|
|
|
$
|
—
|
|
|
$
|
8,808
|
|
|
$
|
274,812
|
|
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities
The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above:
Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.
Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. For loans not originated as held for sale, these loans are accounted for at lower of cost or market, with the fair value estimated based on the expected sales price. As of December 31, 2020, there were $78.1 million in auto loans transferred to held for sale at the lower of cost or market.
Residential Mortgage Servicing Rights— The fair value of the MSRs is estimated using a discounted cash flow model. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized are indicative of those that would be used by market participants.
Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant inputs utilized in the estimation of fair value of these instruments are the credit risk adjusted spread and three-month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.
Derivative Instruments— The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2020, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range of Inputs
|
|
Weighted Average
|
Residential mortgage servicing rights
|
|
$
|
92,907
|
|
|
Discounted cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant prepayment rate
|
|
8.28 - 79.94%
|
|
18.48%
|
|
|
|
|
|
|
Discount rate
|
|
9.50 - 12.50%
|
|
9.72%
|
Interest rate lock commitments
|
|
$
|
28,144
|
|
|
Internal pricing model
|
|
|
|
|
|
|
|
|
|
|
|
|
Pull-through rate
|
|
35.30 - 100.00%
|
|
83.35%
|
Junior subordinated debentures
|
|
$
|
255,217
|
|
|
Discounted cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit spread
|
|
4.31 - 5.45%
|
|
4.75%
|
Generally, increases in the constant prepayment rate or the discount rate utilized in the fair value measurement of the residential mortgage servicing rights will result in a decrease in fair value. Conversely, decreases in the constant prepayment rate or the discount rate will result in an increase in fair value.
An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate will result in a decrease in the fair value measurement.
Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated debentures carried at fair value is indicative of the nonperformance risk premium a willing market participant would require under current market conditions, which is an inactive market. Future contractions in the instrument-specific credit risk adjusted spread relative to the spread currently utilized to measure the Company's junior subordinated debentures at fair value as of December 31, 2020, or the passage of time, will result in an increase in the estimated fair value. Generally, an increase in the credit spread will result in a decrease in the estimated fair value. Conversely, a decrease in the credit spread will result in an increase in the estimated fair value.
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(in thousands)
|
Residential mortgage servicing rights
|
|
Interest rate lock commitments, net
|
|
Junior subordinated debentures, at fair value
|
|
Residential mortgage servicing rights
|
|
Interest rate lock commitments, net
|
|
Junior subordinated debentures, at fair value
|
Beginning Balance
|
$
|
115,010
|
|
|
$
|
7,056
|
|
|
$
|
274,812
|
|
|
$
|
169,025
|
|
|
$
|
6,757
|
|
|
$
|
300,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change included in earnings
|
(73,103)
|
|
|
15,370
|
|
|
11,962
|
|
|
(44,783)
|
|
|
5,652
|
|
|
18,183
|
|
Change in fair values included in comprehensive income/loss
|
—
|
|
|
—
|
|
|
(18,842)
|
|
|
—
|
|
|
—
|
|
|
(25,855)
|
|
Purchases and issuances
|
51,000
|
|
|
176,267
|
|
|
—
|
|
|
25,169
|
|
|
29,291
|
|
|
—
|
|
Sales and settlements
|
—
|
|
|
(170,549)
|
|
|
(12,715)
|
|
|
(34,401)
|
|
|
(34,644)
|
|
|
(18,386)
|
|
Ending Balance
|
$
|
92,907
|
|
|
$
|
28,144
|
|
|
$
|
255,217
|
|
|
$
|
115,010
|
|
|
$
|
7,056
|
|
|
$
|
274,812
|
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of period
|
$
|
(53,423)
|
|
|
$
|
28,144
|
|
|
$
|
11,962
|
|
|
$
|
(19,375)
|
|
|
$
|
7,056
|
|
|
$
|
18,183
|
|
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(18,842)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(25,855)
|
|
Changes in residential mortgage servicing rights carried at fair value are recorded in residential mortgage banking revenue within non-interest income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in residential mortgage banking revenue within non-interest income. The contractual interest expense on the junior subordinated debentures is recorded on an accrual basis as interest on junior subordinated debentures within interest expense. Settlements related to the junior subordinated debentures represent the payment of accrued interest that is embedded in the fair value of these liabilities.
The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, the unrealized gains on fair value of junior subordinated debentures for the year ended December 31, 2020 of $18.8 million are recorded net of tax as other comprehensive income of $14.0 million. Comparatively, unrealized gains of $25.9 million were recorded net of tax as other comprehensive income of $19.2 million for the year ended December 31, 2019. The gain recorded for the year ended December 31, 2020 was due primarily to the implied forward curve shifting lower and an increase in the credit spread, offset by the spot curve shifting lower.
From time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans.
Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans and leases
|
$
|
8,231
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,231
|
|
Goodwill (Wholesale Bank and Retail Bank)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other real estate owned
|
1,485
|
|
|
—
|
|
|
—
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a nonrecurring basis
|
$
|
9,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans and leases
|
$
|
18,134
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,134
|
|
Other real estate owned
|
2,079
|
|
|
—
|
|
|
—
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a nonrecurring basis
|
$
|
20,213
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,213
|
|
The following table presents the losses resulting from nonrecurring fair value adjustments for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
74,297
|
|
|
$
|
67,956
|
|
|
$
|
59,727
|
|
Goodwill impairment (Wholesale Bank and Retail Bank)
|
1,784,936
|
|
|
—
|
|
|
—
|
|
Other real estate owned
|
499
|
|
|
3,013
|
|
|
1,277
|
|
|
|
|
|
|
|
Total losses from nonrecurring measurements
|
$
|
1,859,732
|
|
|
$
|
70,969
|
|
|
$
|
61,004
|
|
Goodwill was evaluated for impairment as of March 31, 2020, for the Retail Bank and Wholesale Bank reporting units. Refer to Note 8 - Goodwill and Other Intangible Assets, for discussion of the Company's goodwill impairment analysis.
The following provides a description of the valuation technique and inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis, excluding goodwill. Unobservable inputs and qualitative information about the unobservable inputs are not presented as the fair value is determined by third-party information for loans and leases and other real estate owned.
The loans and leases amounts above represent collateral dependent loans and leases that have been adjusted to fair value. When a loan or non-homogeneous lease is identified as collateral dependent, the Bank measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan or lease, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little to no value. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is determined that the collateral has little to no value. If it is determined that the value of the collateral dependent loan or lease is less than its recorded investment, the Bank recognizes this impairment and adjusts the carrying value of the loan or lease to fair value, less costs to sell, through the allowance for credit losses. The loss represents charge-offs on collateral dependent loans and leases for fair value adjustments based on the fair value of collateral.
The other real estate owned amount above represents impaired real estate that has been adjusted to fair value. Other real estate owned represents real estate which the Bank has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at the lower of the carrying amount of the loan or fair value less costs to sell, which becomes the property's new basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within other non-interest expenses. The loss represents impairments on other real estate owned for fair value adjustments based on the fair value of the real estate.
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale accounted for under the fair value option as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(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
|
$
|
688,079
|
|
|
$
|
654,555
|
|
|
$
|
33,524
|
|
|
$
|
513,431
|
|
|
$
|
496,683
|
|
|
$
|
16,748
|
|
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, net. For the years ended December 31, 2020, 2019 and 2018, the Company recorded a net increase in fair value of $16.8 million, a net increase of $10.6 million, and a net decrease of $2.6 million, respectively, representing the change in fair value reflected in earnings.
The Company selected the fair value measurement option for certain junior subordinated debentures. The remaining junior subordinated debentures were acquired through previous business combinations and were measured at fair value at the time of acquisition and subsequently measured at amortized cost.
Accounting for the selected junior subordinated debentures at fair value enables the Company to more closely align financial performance with the economic value of those liabilities. Additionally, it improves the ability to manage the market and interest rate risks associated with the junior subordinated debentures. The junior subordinated debentures measured at fair value and amortized cost are presented as separate line items on the balance sheet. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants under current market conditions as of the measurement date.
Due to inactivity in the junior subordinated debenture market and the lack of observable quotes of the Company's, or similar, junior subordinated debenture liabilities or the related trust preferred securities when traded as assets, the Company utilizes an income approach valuation technique to determine the fair value of these liabilities using estimation of market discount rate assumptions. The Company monitors activity in the trust preferred and related markets, to the extent available, evaluates changes related to the current and anticipated future interest rate environment, and considers entity-specific creditworthiness, to validate the reasonableness of the credit risk adjusted spread and effective yield utilized in the discounted cash flow model. The Company also considers changes in the interest rate environment in the valuation, specifically the absolute level and the shape of the slope of the forward swap curve.
Note 23 – (Loss) Earnings Per Common Share
The following is a computation of basic and diluted (loss) earnings per common share for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
2020
|
|
2019
|
|
2018
|
Net (loss) income
|
$
|
(1,523,420)
|
|
|
$
|
354,095
|
|
|
$
|
316,263
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
220,218
|
|
|
220,339
|
|
|
220,280
|
|
Effect of potentially dilutive common shares (1)
|
—
|
|
|
311
|
|
|
457
|
|
Weighted average number of common shares outstanding - diluted
|
220,218
|
|
|
220,650
|
|
|
220,737
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
Basic
|
$
|
(6.92)
|
|
|
$
|
1.61
|
|
|
$
|
1.44
|
|
Diluted
|
$
|
(6.92)
|
|
|
$
|
1.60
|
|
|
$
|
1.43
|
|
(1) Represents the effect of the assumed vesting of non-participating restricted shares based on the treasury stock method.
As of December 31, 2020 and 2019, respectively, there were 1.2 million and 244,000 weighted average outstanding restricted shares that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.
Note 24 – Segment Information
The Company reports four primary segments: Wholesale Bank, Wealth Management, Retail Bank, and Home Lending with the remainder as Corporate and other.
The Wholesale Bank segment includes lending, treasury and cash management services and customer risk management products to middle market corporate, commercial and business banking customers and includes the operations of FinPac, a commercial leasing company. The Wealth Management segment consists of the operations of Umpqua Investments, which offers a full range of retail brokerage and investment advisory services and products to its clients who consist primarily of individual investors, and Umpqua Private Bank, which serves high net worth individuals with liquid investable assets and provides customized financial solutions and offerings. The Retail Bank segment includes retail and small business lending and deposit services for customers served through the Bank's store network. The Home Lending segment originates, sells and services residential mortgage loans. The Corporate and other segment includes activities that are not directly attributable to one of the four principal lines of business and includes the operations of the parent company, eliminations and the economic impact of certain assets, capital and support functions not specifically identifiable within the other lines of business.
Management monitors the Company's results using an internal performance measurement accounting system, which provides line of business results and key performance measures. A primary objective of this profitability measurement system and related internal financial reporting practices are designed to produce consistent results that reflect the underlying economics of the business and to support strategic objectives and analysis based on how management views the business. Various methodologies employed within this system to measure performance are based on management's judgment or other subjective factors. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.
This system uses various techniques to assign balance sheet and income statement amounts to the business segments, including internal funds transfer pricing, allocations of income, expense, the provision for credit losses, and capital. The application and development of these management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised retrospectively. In the current period, certain business banking related departments were moved from Retail Bank to Wholesale Bank to realign with Umpqua's strategic goals. The prior periods have been revised accordingly.
Funds transfer pricing is used in the determination of net interest income reported by assigning a cost for funds used or credit for funds provided to all assets and liabilities within each business segment. In general, assets and liabilities are match-funded based on their maturity or repricing characteristics, adjusted for estimated prepayments if applicable. The value of funds provided or cost of funds used by the business segments is priced at rates that approximate wholesale market rates of the Company for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or interest rate swap rates, plus consideration of the Company's incremental credit spread/cost of borrowing. As a result, the business segments are generally insulated from changes in interest rates. This method of funds transfer pricing also serves to transfer interest rate risk to Treasury, which is contained within the Corporate & Other segment. However, the business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions that are within overall Corporate guidelines. The Corporate & Other segment reflects the recording of the deferred fees and costs on loans originated during the period, as the loan fees and costs are reflected within net interest income and non-interest expense, respectively, upon loan origination for the rest of the segments.
Non-interest income and expenses directly attributable to a business segment are directly recorded within that business unit. To better analyze the total financial performance of each business unit and to consider the total cost to support a segment, management allocates centrally provided support services and other corporate overhead to the business segments based on various methodologies. Examples of these type of expense overhead pools include information technology, operations, human resources, finance, risk management, credit administration, legal, and marketing. Expense allocations are based on actual usage where practicably calculated or by management's estimate of such usage. Example of typical expense allocation drivers include number of employees, loan or deposits average balances or counts, origination or transaction volumes, credit quality related indicators, non-interest expense, or other identified drivers.
The provision for credit losses is based on the methodology consistent with the Bank's process to estimate the consolidated allowance. The provision for credit losses incorporates the actual net charge-offs recognized related to loans contained within each business segment. The residual provision for credit losses to arrive at the consolidated provision for credit losses is included in Corporate and Other.
The provision for income taxes is typically allocated to business segments using a 25% effective tax rate. The residual income tax expense or benefit arising from tax planning strategies or other tax attributes to arrive at the consolidated effective tax rate is retained in Corporate and Other.
Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(in thousands)
|
Wholesale Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other (2)
|
|
Consolidated
|
Net interest income (expense)
|
$
|
539,454
|
|
|
$
|
23,514
|
|
|
$
|
265,703
|
|
|
$
|
68,994
|
|
|
$
|
(15,146)
|
|
|
$
|
882,519
|
|
Provision (recapture) for credit losses
|
196,363
|
|
|
2,144
|
|
|
6,667
|
|
|
(428)
|
|
|
115
|
|
|
204,861
|
|
Non-interest income
|
49,018
|
|
|
17,305
|
|
|
59,488
|
|
|
271,580
|
|
|
14,618
|
|
|
412,009
|
|
Goodwill impairment
|
1,033,744
|
|
|
—
|
|
|
751,192
|
|
|
—
|
|
|
—
|
|
|
1,784,936
|
|
Non-interest expense (excluding goodwill impairment)
|
249,546
|
|
|
33,748
|
|
|
238,169
|
|
|
180,857
|
|
|
58,831
|
|
|
761,151
|
|
(Loss) income before income taxes
|
(891,181)
|
|
|
4,927
|
|
|
(670,837)
|
|
|
160,145
|
|
|
(59,474)
|
|
|
(1,456,420)
|
|
Provision (benefit) for income taxes(1)
|
40,997
|
|
|
1,232
|
|
|
30,861
|
|
|
40,036
|
|
|
(46,126)
|
|
|
67,000
|
|
Net (loss) income
|
$
|
(932,178)
|
|
|
$
|
3,695
|
|
|
$
|
(701,698)
|
|
|
$
|
120,109
|
|
|
$
|
(13,348)
|
|
|
$
|
(1,523,420)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notable fair value adjustments included in non-interest income:
|
Residential mortgage servicing rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(73,103)
|
|
|
$
|
—
|
|
|
$
|
(73,103)
|
|
Interest rate swaps
|
$
|
(9,409)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9,409)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
16,652,657
|
|
|
$
|
833,203
|
|
|
$
|
1,546,243
|
|
|
$
|
4,119,896
|
|
|
$
|
6,083,176
|
|
|
$
|
29,235,175
|
|
Total loans and leases
|
$
|
16,340,002
|
|
|
$
|
813,463
|
|
|
$
|
1,388,752
|
|
|
$
|
3,286,092
|
|
|
$
|
(48,942)
|
|
|
$
|
21,779,367
|
|
Total deposits
|
$
|
5,375,568
|
|
|
$
|
1,296,075
|
|
|
$
|
15,644,208
|
|
|
$
|
431,568
|
|
|
$
|
1,874,782
|
|
|
$
|
24,622,201
|
|
(1) The Wholesale Bank and Retail Bank do not have the standard tax rate of 25% allocated in 2020 due to the impact of the goodwill impairment on these reporting units.
(2) The Corporate and Other segment reflects the recording of the deferral of the fees and costs on loans originated during the period, and such fees and costs are reflected within net interest income and non-interest expense, respectively, upon loan origination for the Wholesale Bank, Retail Bank, home Lending, and Wealth Management segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(in thousands)
|
Wholesale Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
447,449
|
|
|
$
|
23,240
|
|
|
$
|
332,725
|
|
|
$
|
46,603
|
|
|
$
|
70,617
|
|
|
$
|
920,634
|
|
Provision for credit losses
|
65,550
|
|
|
804
|
|
|
3,719
|
|
|
2,033
|
|
|
409
|
|
|
72,515
|
|
Non-interest income
|
65,975
|
|
|
18,658
|
|
|
62,856
|
|
|
102,239
|
|
|
90,096
|
|
|
339,824
|
|
Non-interest expense
|
233,516
|
|
|
36,976
|
|
|
255,632
|
|
|
135,168
|
|
|
57,748
|
|
|
719,040
|
|
Income before income taxes
|
214,358
|
|
|
4,118
|
|
|
136,230
|
|
|
11,641
|
|
|
102,556
|
|
|
468,903
|
|
Provision for income taxes
|
53,589
|
|
|
1,030
|
|
|
34,058
|
|
|
2,910
|
|
|
23,221
|
|
|
114,808
|
|
Net income
|
$
|
160,769
|
|
|
$
|
3,088
|
|
|
$
|
102,172
|
|
|
$
|
8,731
|
|
|
$
|
79,335
|
|
|
$
|
354,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notable fair value adjustments included in non-interest income:
|
Residential mortgage servicing rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(44,783)
|
|
|
$
|
—
|
|
|
$
|
(44,783)
|
|
Interest rate swaps
|
$
|
(6,038)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,038)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
15,404,164
|
|
|
$
|
710,873
|
|
|
$
|
1,753,682
|
|
|
$
|
4,423,869
|
|
|
$
|
6,554,221
|
|
|
$
|
28,846,809
|
|
Total loans and leases
|
$
|
15,119,857
|
|
|
$
|
693,569
|
|
|
$
|
1,671,472
|
|
|
$
|
3,768,584
|
|
|
$
|
(57,798)
|
|
|
$
|
21,195,684
|
|
Total deposits
|
$
|
4,462,630
|
|
|
$
|
1,221,869
|
|
|
$
|
13,548,089
|
|
|
$
|
279,226
|
|
|
$
|
2,969,690
|
|
|
$
|
22,481,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
(in thousands)
|
Wholesale Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
453,291
|
|
|
$
|
24,346
|
|
|
$
|
337,402
|
|
|
$
|
39,897
|
|
|
$
|
83,703
|
|
|
$
|
938,639
|
|
Provision (recapture) for loan and lease losses
|
50,110
|
|
|
1,025
|
|
|
3,343
|
|
|
1,628
|
|
|
(201)
|
|
|
55,905
|
|
Non-interest income
|
59,129
|
|
|
19,434
|
|
|
63,429
|
|
|
119,538
|
|
|
17,887
|
|
|
279,417
|
|
Non-interest expense
|
226,758
|
|
|
36,162
|
|
|
272,454
|
|
|
130,384
|
|
|
73,707
|
|
|
739,465
|
|
Income before income taxes
|
235,552
|
|
|
6,593
|
|
|
125,034
|
|
|
27,423
|
|
|
28,084
|
|
|
422,686
|
|
Provision for income taxes
|
59,308
|
|
|
1,648
|
|
|
31,482
|
|
|
6,856
|
|
|
7,129
|
|
|
106,423
|
|
Net income
|
$
|
176,244
|
|
|
$
|
4,945
|
|
|
$
|
93,552
|
|
|
$
|
20,567
|
|
|
$
|
20,955
|
|
|
$
|
316,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notable fair value adjustments included in non-interest income:
|
Residential mortgage servicing rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(13,195)
|
|
|
$
|
—
|
|
|
$
|
(13,195)
|
|
Interest rate swaps
|
$
|
(1,362)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,362)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
14,973,789
|
|
|
$
|
536,024
|
|
|
$
|
1,962,005
|
|
|
$
|
3,680,005
|
|
|
$
|
5,787,958
|
|
|
$
|
26,939,781
|
|
Total loans and leases
|
$
|
14,770,562
|
|
|
$
|
521,988
|
|
|
$
|
1,881,568
|
|
|
$
|
3,320,634
|
|
|
$
|
(72,086)
|
|
|
$
|
20,422,666
|
|
Total deposits
|
$
|
3,776,049
|
|
|
$
|
1,068,025
|
|
|
$
|
13,016,974
|
|
|
$
|
219,584
|
|
|
$
|
3,056,854
|
|
|
$
|
21,137,486
|
|
Note 25 – Related Party Transactions
In the ordinary course of business, the Bank has made loans to its directors and executive officers (and their associated and affiliated companies). All such loans have been made in accordance with regulatory requirements.
The following table presents a summary of aggregate activity involving related party borrowers for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
Loans outstanding at beginning of year
|
$
|
10,540
|
|
|
$
|
9,079
|
|
|
$
|
8,983
|
|
New loans and advances
|
594
|
|
|
4,943
|
|
|
2,951
|
|
Less loan repayments
|
(1,741)
|
|
|
(3,482)
|
|
|
(2,854)
|
|
Reclassification (1)
|
—
|
|
|
—
|
|
|
(1)
|
|
Loans outstanding at end of year
|
$
|
9,393
|
|
|
$
|
10,540
|
|
|
$
|
9,079
|
|
(1) Represents loans that were once considered related party but are no longer considered related party, or loans that were not related party that subsequently became related party loans.
At December 31, 2020 and 2019, deposits of related parties amounted to $33.7 million and $27.2 million, respectively.
Note 26 – Parent Company Financial Statements
Summary financial information for Umpqua Holdings Corporation is as follows:
Condensed Balance Sheets
December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
ASSETS
|
|
|
|
Non-interest bearing deposits with subsidiary bank
|
$
|
136,745
|
|
|
$
|
130,368
|
|
Investments in:
|
|
|
|
Bank subsidiary
|
2,913,649
|
|
|
4,590,888
|
|
Non-bank subsidiaries
|
30,266
|
|
|
29,126
|
|
Other assets
|
523
|
|
|
518
|
|
Total assets
|
$
|
3,081,183
|
|
|
$
|
4,750,900
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Payable to bank subsidiary
|
$
|
98
|
|
|
$
|
91
|
|
Other liabilities
|
33,023
|
|
|
73,586
|
|
Junior subordinated debentures, at fair value
|
255,217
|
|
|
274,812
|
|
Junior subordinated debentures, at amortized cost
|
88,268
|
|
|
88,496
|
|
Total liabilities
|
376,606
|
|
|
436,985
|
|
Shareholders' equity
|
2,704,577
|
|
|
4,313,915
|
|
Total liabilities and shareholders' equity
|
$
|
3,081,183
|
|
|
$
|
4,750,900
|
|
Condensed Statements of Operations
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
INCOME
|
|
|
|
|
|
Dividends from subsidiaries
|
$
|
213,464
|
|
|
$
|
219,143
|
|
|
$
|
212,457
|
|
Other income (loss)
|
11
|
|
|
(18)
|
|
|
1,154
|
|
Total income
|
213,475
|
|
|
219,125
|
|
|
213,611
|
|
EXPENSES
|
|
|
|
|
|
Management fees paid to subsidiaries
|
1,165
|
|
|
1,144
|
|
|
1,014
|
|
Other expenses
|
17,894
|
|
|
25,311
|
|
|
23,725
|
|
Total expenses
|
19,059
|
|
|
26,455
|
|
|
24,739
|
|
Income before income tax benefit and equity in undistributed earnings of subsidiaries
|
194,416
|
|
|
192,670
|
|
|
188,872
|
|
Income tax benefit
|
(4,245)
|
|
|
(5,742)
|
|
|
(5,052)
|
|
Net income before equity in undistributed earnings of subsidiaries
|
198,661
|
|
|
198,412
|
|
|
193,924
|
|
Equity in undistributed (losses) earnings of subsidiaries
|
(1,722,081)
|
|
|
155,683
|
|
|
122,339
|
|
Net (loss) income
|
$
|
(1,523,420)
|
|
|
$
|
354,095
|
|
|
$
|
316,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net (loss) income
|
$
|
(1,523,420)
|
|
|
$
|
354,095
|
|
|
$
|
316,263
|
|
Adjustment to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Gain on Pivotus divestiture
|
—
|
|
|
—
|
|
|
(5,778)
|
|
Equity in undistributed losses (earnings) of subsidiaries
|
1,722,081
|
|
|
(155,683)
|
|
|
(122,339)
|
|
Depreciation, amortization and accretion
|
(228)
|
|
|
(228)
|
|
|
(244)
|
|
|
|
|
|
|
|
Net (increase) decrease in other assets
|
(5)
|
|
|
7,960
|
|
|
(1,696)
|
|
Net increase (decrease) in other liabilities
|
1,262
|
|
|
79
|
|
|
1,581
|
|
Net cash provided by operating activities
|
199,690
|
|
|
206,223
|
|
|
187,787
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
Change in advances to subsidiaries
|
315
|
|
|
69
|
|
|
(211)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
315
|
|
|
69
|
|
|
(211)
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
Net increase in advances from subsidiaries
|
5
|
|
|
179
|
|
|
163
|
|
Dividends paid on common stock
|
(184,978)
|
|
|
(185,101)
|
|
|
(173,914)
|
|
Repurchases and retirement of common stock
|
(8,655)
|
|
|
(7,268)
|
|
|
(12,962)
|
|
Repayment of junior subordinated debentures at amortized cost
|
—
|
|
|
—
|
|
|
(10,598)
|
|
Proceeds from stock options exercised
|
—
|
|
|
21
|
|
|
1,065
|
|
Net cash used in financing activities
|
(193,628)
|
|
|
(192,169)
|
|
|
(196,246)
|
|
Net increase (decrease) in cash and cash equivalents
|
6,377
|
|
|
14,123
|
|
|
(8,670)
|
|
Cash and cash equivalents, beginning of year
|
130,368
|
|
|
116,245
|
|
|
124,915
|
|
Cash and cash equivalents, end of year
|
$
|
136,745
|
|
|
$
|
130,368
|
|
|
$
|
116,245
|
|
Note 27 – Quarterly Financial Information (Unaudited)
The following tables present the summary results for the four quarters ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(in thousands, except per share information)
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
Four Quarters
|
Interest income
|
$
|
255,479
|
|
|
$
|
242,299
|
|
|
$
|
246,680
|
|
|
$
|
268,169
|
|
|
$
|
1,012,627
|
|
Interest expense
|
20,572
|
|
|
25,725
|
|
|
34,177
|
|
|
49,634
|
|
|
130,108
|
|
Net interest income
|
234,907
|
|
|
216,574
|
|
|
212,503
|
|
|
218,535
|
|
|
882,519
|
|
Provision (recapture) for credit losses
|
29
|
|
|
(338)
|
|
|
87,085
|
|
|
118,085
|
|
|
204,861
|
|
Non-interest income
|
123,960
|
|
|
131,924
|
|
|
115,480
|
|
|
40,645
|
|
|
412,009
|
|
Non-interest expense
|
211,312
|
|
|
190,207
|
|
|
181,910
|
|
|
1,962,658
|
|
|
2,546,087
|
|
Income (loss) before provision for income taxes
|
147,526
|
|
|
158,629
|
|
|
58,988
|
|
|
(1,821,563)
|
|
|
(1,456,420)
|
|
(Benefit) provision for income taxes
|
(3,204)
|
|
|
33,758
|
|
|
6,062
|
|
|
30,384
|
|
|
67,000
|
|
Net income (loss)
|
$
|
150,730
|
|
|
$
|
124,871
|
|
|
$
|
52,926
|
|
|
$
|
(1,851,947)
|
|
|
$
|
(1,523,420)
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.68
|
|
|
$
|
0.57
|
|
|
$
|
0.24
|
|
|
$
|
(8.41)
|
|
|
|
Diluted earnings per common share
|
$
|
0.68
|
|
|
$
|
0.57
|
|
|
$
|
0.24
|
|
|
$
|
(8.41)
|
|
|
|
Cash dividends declared per common share
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
—
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(in thousands, except per share information)
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
Four Quarters
|
Interest income
|
$
|
282,030
|
|
|
$
|
285,187
|
|
|
$
|
281,600
|
|
|
$
|
282,259
|
|
|
$
|
1,131,076
|
|
Interest expense
|
55,216
|
|
|
56,214
|
|
|
54,438
|
|
|
44,574
|
|
|
210,442
|
|
Net interest income
|
226,814
|
|
|
228,973
|
|
|
227,162
|
|
|
237,685
|
|
|
920,634
|
|
Provision for loan and lease losses
|
16,252
|
|
|
23,227
|
|
|
19,352
|
|
|
13,684
|
|
|
72,515
|
|
Non-interest income
|
83,749
|
|
|
88,512
|
|
|
121,823
|
|
|
45,740
|
|
|
339,824
|
|
Non-interest expense
|
183,443
|
|
|
183,590
|
|
|
180,415
|
|
|
171,592
|
|
|
719,040
|
|
Income before provision for income taxes
|
110,868
|
|
|
110,668
|
|
|
149,218
|
|
|
98,149
|
|
|
468,903
|
|
Provision for income taxes
|
27,118
|
|
|
26,166
|
|
|
37,408
|
|
|
24,116
|
|
|
114,808
|
|
Net income
|
$
|
83,750
|
|
|
$
|
84,502
|
|
|
$
|
111,810
|
|
|
$
|
74,033
|
|
|
$
|
354,095
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.51
|
|
|
$
|
0.34
|
|
|
|
Diluted earnings per common share
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.51
|
|
|
$
|
0.34
|
|
|
|
Cash dividends declared per common share
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
|
Note 28 – Revenue from Contracts with Customers
The Company records revenue when control of the promised products or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those products or services. All of the Company's revenue from contracts with customers in the scope of ASC 606 is recognized in non-interest income.
The following table presents the Company's sources of non-interest income for the years ended December 31, 2020, 2019 and 2018. Items outside of the scope of ASC 606 are noted as such.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2018
|
Non-interest income:
|
|
|
|
|
|
Service charges on deposits
|
|
|
|
|
|
Account maintenance fees
|
$
|
22,497
|
|
|
$
|
20,672
|
|
|
$
|
17,378
|
|
Transaction-based and overdraft service charges
|
18,341
|
|
|
24,944
|
|
|
25,636
|
|
Debit/ATM interchange fees
|
17,723
|
|
|
18,898
|
|
|
19,110
|
|
Total service charges on deposits
|
58,561
|
|
|
64,514
|
|
|
62,124
|
|
Brokerage revenue
|
15,599
|
|
|
15,877
|
|
|
16,480
|
|
Residential mortgage banking revenue, net (a)
|
270,822
|
|
|
101,810
|
|
|
118,235
|
|
Gain (loss) on sale of debt securities, net (a)
|
190
|
|
|
(7,184)
|
|
|
14
|
|
Gain on equity securities, net (a)
|
769
|
|
|
83,475
|
|
|
(1,484)
|
|
Gain on loan and lease sales, net (a)
|
6,707
|
|
|
10,467
|
|
|
7,834
|
|
BOLI income (a)
|
8,399
|
|
|
8,406
|
|
|
8,297
|
|
Other income
|
|
|
|
|
|
Merchant fee income
|
3,200
|
|
|
5,207
|
|
|
4,565
|
|
Credit card and interchange income and expenses
|
7,267
|
|
|
8,946
|
|
|
7,392
|
|
Remaining other income (a)
|
40,495
|
|
|
48,306
|
|
|
55,960
|
|
Total other income
|
50,962
|
|
|
62,459
|
|
|
67,917
|
|
Total non-interest income
|
$
|
412,009
|
|
|
$
|
339,824
|
|
|
$
|
279,417
|
|
(a) The revenue is not impacted by ASC 606 accounting guidance and continues to be recognized when earned in accordance with the Company's existing policies.
Service charges on deposits
The Company earns fees from its deposit customers for account maintenance, transaction-based and overdraft services. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-based fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient funds fees, overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.
Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders' debit card. Certain expenses directly associated with the credit and debit card are recorded on a net basis with the interchange income.
Brokerage revenue
As of December 31, 2020, 2019 and 2018, the Company had revenues of $15.6 million, $15.9 million and $16.5 million, respectively, for the performance of brokerage and advisory services for its clients through Umpqua Investments. Brokerage fees consist of fees earned from advisory asset management, trade execution and administrative fees from investments. Advisory asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and asset flows. Advisory asset management fees are recognized quarterly and are based on the portfolio values at the end of each quarter. Brokerage accounts are charged commissions at the time of a transaction and the commission schedule is based upon the type of security and quantity. In addition, revenues are earned from selling insurance and annuity policies. The amount of revenue earned is determined by the value and type of each instrument sold and is recognized at the time the policy or contract is written.
Merchant fee income
Merchant fee income represents fees earned by the Bank for card payment services provided to its merchant customers. The Bank outsources these services to a third party to provide card payment services to these merchants. Income is earned upon a revenue share agreement with the third party based on the dollar volume and number of transactions processed on a monthly basis.
Credit card and interchange income and expenses
Credit card interchange income represent fees earned when a credit card issued by the Bank is used. Similar to the debit card interchange, the Bank earns an interchange fee for each transaction made with the Bank's branded credit cards. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders' credit card. Certain expenses and rebates directly related to the credit card interchange contract are recorded net to the interchange income.
Note 29 – Subsequent Events
On February 1, 2021, the Company declared a quarterly cash dividend in the amount of $0.21 per common share based on fourth quarter 2020 performance. The dividend is payable on February 26, 2021, to shareholders of record as of February 16, 2021.