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United States  
Securities and Exchange Commission 
Washington, D.C. 20549 
 
FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended:
September 30, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the transition period from                                        to                                       .
 
Commission File Number: 001-34624 
 
Umpqua Holdings Corporation 
(Exact Name of Registrant as Specified in Its Charter)
Oregon 93-1261319 
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)  
 
One SW Columbia Street, Suite 1200 
Portland, Oregon 97204 
(Address of Principal Executive Offices)(Zip Code) 
 
(503) 727-4100 
(Registrant's Telephone Number, Including Area Code) 

Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS TRADING SYMBOL NAME OF EXCHANGE
Common Stock UMPQ The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒   Yes   ☐   No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒   Yes   ☐   No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒   Large accelerated filer   ☐   Accelerated filer   ☐   Non-accelerated filer  
 ☐   Smaller reporting company  ☐  Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐   Yes   ☒   No 

Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date:
Common stock, no par value: 216,621,803 shares outstanding as of October 31, 2021

Table of Contents
UMPQUA HOLDINGS CORPORATION 
FORM 10-Q 
Table of Contents 
 
3
4
Item 1.
4
Item 2.
44
Item 3.
68
Item 4.
68
68
Item 1.
68
Item 1A.
68
Item 2.
70
Item 3.
71
Item 4.
71
Item 5.
71
Item 6.
72
73

2
Table of Contents
GLOSSARY OF DEFINED TERMS
ACL Allowance for credit losses
ASU Accounting Standards Update
ATM Automated teller machine
Bank Umpqua Bank
Basel III Basel capital framework (third accord)
CECL Current Expected Credit Losses
Columbia Columbia Banking System, Inc.
Company Umpqua Holdings Corporation and its subsidiaries
CVA Credit valuation adjustments
DCF Discounted cash flow
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Federal Reserve Board of Governors of the Federal Reserve System
FHLB Federal Home Loan Bank
FinPac Financial Pacific Leasing, Inc.
GAAP Generally accepted accounting principles
GDP Gross Domestic Product
GNMA Government National Mortgage Association
HELOC Home equity line of credit
LGD Loss given default
LIBOR London Inter-Bank Offered Rate
Merger
Merger Sub will merge with and into Umpqua, with Umpqua surviving
Merger Agreement
Agreement dated as of October 11, 2021, by and among Umpqua, Columbia, and Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
Merger Sub
Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
MSR Mortgage servicing rights
NOL Net operating loss
N/M Not meaningful
PD Probability of default
PPP Paycheck Protection Program
SBA Small Business Administration
SEC Securities and Exchange Commission
Surviving Entity Merger Sub will merge with and into Umpqua, with Umpqua surviving the Merger
TDR Troubled debt restructuring
USDA United States Department of Agriculture

3
Table of Contents
PART I.       FINANCIAL INFORMATION
Item 1.         Financial Statements (unaudited) 

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(UNAUDITED)
(in thousands, except shares) September 30, 2021 December 31, 2020
ASSETS    
Cash and due from banks (restricted cash of $89,006 and $92,955)
$ 395,555  $ 370,219 
Interest bearing cash and temporary investments (restricted cash of $357 and $2,574)
3,349,034  2,202,962 
Total cash and cash equivalents 3,744,589  2,573,181 
Investment securities    
Equity and other, at fair value 81,575  83,077 
Available for sale, at fair value 3,723,171  2,932,558 
Held to maturity, at amortized cost 2,795  3,034 
Loans held for sale (at fair value: $352,466 and $688,079)
352,466  766,225 
Loans and leases (at fair value: $353,912 and $0)
21,969,940  21,779,367 
Allowance for credit losses on loans and leases (257,560) (328,401)
Net loans and leases 21,712,380  21,450,966 
Restricted equity securities 10,946  41,666 
Premises and equipment, net 172,624  178,050 
Operating lease right-of-use assets 88,379  104,937 
Goodwill —  2,715 
Other intangible assets, net 9,970  13,360 
Residential mortgage servicing rights, at fair value 105,834  92,907 
Bank owned life insurance 325,646  323,470 
Deferred tax asset, net 8,402  — 
Other assets 552,702  669,029 
Total assets $ 30,891,479  $ 29,235,175 
LIABILITIES AND SHAREHOLDERS' EQUITY    
Deposits    
Non-interest bearing $ 11,121,127  $ 9,632,773 
Interest bearing 15,787,270  14,989,428 
Total deposits 26,908,397  24,622,201 
Securities sold under agreements to repurchase 467,760  375,384 
Borrowings 6,367  771,482 
Junior subordinated debentures, at fair value 299,508  255,217 
Junior subordinated debentures, at amortized cost 88,098  88,268 
Operating lease liabilities 100,557  113,593 
Deferred tax liability, net —  5,441 
Other liabilities 298,413  299,012 
Total liabilities 28,169,100  26,530,598 
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY    
Common stock, no par value, shares authorized: 400,000,000 in 2021 and 2020; issued and outstanding: 216,621,803 in 2021 and 220,226,335 in 2020
3,442,085  3,514,599 
Accumulated deficit (739,915) (932,767)
Accumulated other comprehensive income 20,209  122,745 
Total shareholders' equity 2,722,379  2,704,577 
Total liabilities and shareholders' equity $ 30,891,479  $ 29,235,175 

See notes to condensed consolidated financial statements
4
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(UNAUDITED) 
Three Months Ended Nine Months Ended
 (in thousands, except per share amounts) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
INTEREST INCOME        
Interest and fees on loans and leases $ 224,403  $ 229,457  $ 669,014  $ 710,624 
Interest and dividends on investment securities:        
Taxable 16,102  10,168  43,833  35,788 
Exempt from federal income tax 1,470  1,490  4,491  4,572 
Dividends 213  710  1,216  1,956 
Interest on temporary investments and interest bearing deposits 1,237  474  2,635  4,208 
Total interest income 243,425  242,299  721,189  757,148 
INTEREST EXPENSE        
Interest on deposits 5,100  19,121  22,794  85,633 
Interest on securities sold under agreement to repurchase and federal funds purchased 88  84  232  673 
Interest on borrowings 149  3,271  2,787  11,156 
Interest on junior subordinated debentures 3,014  3,249  9,108  12,074 
Total interest expense 8,351  25,725  34,921  109,536 
Net interest income 235,074  216,574  686,268  647,612 
(RECAPTURE) PROVISION FOR CREDIT LOSSES  (18,919) (338) (41,915) 204,832 
Net interest income after (recapture) provision for credit losses 253,993  216,912  728,183  442,780 
NON-INTEREST INCOME        
Service charges on deposits 10,941  10,405  30,898  30,635 
Card-based fees 9,111  7,118  26,759  20,436 
Brokerage revenue 31  3,686  5,081  11,506 
Residential mortgage banking revenue, net 34,150  90,377  143,626  191,794 
Gain on sale of debt securities, net —  —  4  190 
(Loss) gain on equity securities, net (343) (112) (1,045) 942 
Gain on loan and lease sales, net 4,208  1,092  10,899  3,333 
Bank owned life insurance income 2,038  2,087  6,201  6,332 
Other income 13,569  17,271  51,157  22,881 
Total non-interest income 73,705  131,924  273,580  288,049 
NON-INTEREST EXPENSE        
Salaries and employee benefits 117,636  120,337  363,343  346,787 
Occupancy and equipment, net 33,944  36,720  103,236  109,892 
Communications 2,866  2,943  8,633  9,010 
Marketing 1,651  1,859  5,077  6,148 
Services 12,017  13,193  36,279  34,319 
FDIC assessments 2,136  2,989  6,342  9,502 
Intangible amortization 1,130  1,247  3,390  3,740 
Goodwill impairment —  —  —  1,784,936 
Other expenses 12,373  10,919  34,445  30,441 
Total non-interest expense 183,753  190,207  560,745  2,334,775 
Income (loss) before provision for income taxes 143,945  158,629  441,018  (1,603,946)
Provision for income taxes 35,879  33,758  109,072  70,204 
Net income (loss) $ 108,066  $ 124,871  $ 331,946  $ (1,674,150)
Earnings (loss) per common share:        
Basic $0.49  $0.57  $1.51  ($7.60)
Diluted $0.49  $0.57  $1.51  ($7.60)
Weighted average number of common shares outstanding:        
Basic 218,416  220,221  219,791  220,216 
Diluted 218,978  220,418  220,278  220,216 

5


UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) 
 
Three Months Ended Nine Months Ended
 (in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net income (loss) $ 108,066  $ 124,871  $ 331,946  $ (1,674,150)
Available for sale securities:        
Unrealized (losses) gains arising during the period (29,009) 2,996  (93,533) 115,327 
Income tax benefit (expense) related to unrealized (losses) gains 7,463  (771) 24,058  (29,663)
Reclassification adjustment for net realized gains in earnings —  —  (4) (190)
Income tax expense related to realized gains —  —  1  49 
Net change in unrealized (losses) gains for available for sale securities (21,546) 2,225  (69,478) 85,523 
Junior subordinated debentures, at fair value:
Unrealized (losses) gains arising during the period (11,946) (14,555) (44,504) 26,857 
Income tax benefit (expense) related to unrealized gains 3,072  3,744  11,446  (6,907)
Net change in unrealized (losses) gains for junior subordinated debentures, at fair value (8,874) (10,811) (33,058) 19,950 
Other comprehensive (loss) income, net of tax (30,420) (8,586) (102,536) 105,473 
Comprehensive income (loss) $ 77,646  $ 116,285  $ 229,410  $ (1,568,677)

See notes to condensed consolidated financial statements
6
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  
(UNAUDITED)   
Common Stock Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income  
 (in thousands, except shares) Shares Amount Total
Balance at January 1, 2020 220,229,282  $ 3,514,000  $ 770,366  $ 29,549  $ 4,313,915 
Net loss     (1,851,947)   (1,851,947)
Other comprehensive income, net of tax       138,722  138,722 
Stock-based compensation   2,253      2,253 
Stock repurchased and retired (486,757) (8,573)     (8,573)
Issuances of common stock under stock plans 432,595  —      — 
Cash dividends on common stock ($0.21 per share)
    (46,578)   (46,578)
Cumulative effect adjustment (1)
(40,181) (40,181)
Balance at March 31, 2020 220,175,120  $ 3,507,680  $ (1,168,340) $ 168,271  $ 2,507,611 
Net income     52,926    52,926 
Other comprehensive loss, net of tax       (24,663) (24,663)
Stock-based compensation   2,503      2,503 
Stock repurchased and retired (3,707) (38)     (38)
Issuances of common stock under stock plans 47,694  —      — 
Balance at June 30, 2020 220,219,107  $ 3,510,145  $ (1,115,414) $ 143,608  $ 2,538,339 
Net income     124,871    124,871 
Other comprehensive loss, net of tax       (8,586) (8,586)
Stock-based compensation   2,025      2,025 
Stock repurchased and retired (1,523) (17)     (17)
Issuances of common stock under stock plans 4,614  —      — 
Cash dividends on common stock ($0.21 per share)
    (46,388)   (46,388)
Balance at September 30, 2020 220,222,198  $ 3,512,153  $ (1,036,931) $ 135,022  $ 2,610,244 
Net income 150,730  150,730 
Other comprehensive loss, net of tax (12,277) (12,277)
Stock-based compensation 2,473  2,473 
Stock repurchased and retired (2,022) (27) (27)
Issuances of common stock under stock plans 6,159  —  — 
Cash dividends on common stock ($0.21 per share)
(46,566) (46,566)
Balance at December 31, 2020 220,226,335  $ 3,514,599  $ (932,767) $ 122,745  $ 2,704,577 


7
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
(UNAUDITED) 
Common Stock Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss)  
 (in thousands, except shares) Shares Amount Total
Balance at January 1, 2021 220,226,335  $ 3,514,599  $ (932,767) $ 122,745  $ 2,704,577 
Net income     107,737    107,737 
Other comprehensive loss, net of tax       (84,613) (84,613)
Stock-based compensation   2,964      2,964 
Stock repurchased and retired (143,832) (2,315)     (2,315)
Issuances of common stock under stock plans 408,700  —      — 
Cash dividends on common stock ($0.21 per share)
    (46,481)   (46,481)
Balance at March 31, 2021 220,491,203  $ 3,515,248  $ (871,511) $ 38,132  $ 2,681,869 
Net income     116,143    116,143 
Other comprehensive income, net of tax       12,497  12,497 
Stock-based compensation   2,377      2,377 
Stock repurchased and retired (957) (18)     (18)
Issuances of common stock under stock plans 136,206  34      34 
Cash dividends on common stock ($0.21 per share)
    (46,586)   (46,586)
Balance at June 30, 2021 220,626,452  $ 3,517,641  $ (801,954) $ 50,629  $ 2,766,316 
Net income     108,066    108,066 
Other comprehensive loss, net of tax       (30,420) (30,420)
Stock-based compensation   2,765      2,765 
Stock repurchased and retired (4,011,808) (78,321)     (78,321)
Issuances of common stock under stock plans 7,159  —      — 
Cash dividends on common stock ($0.21 per share)
    (46,027)   (46,027)
Balance at September 30, 2021 216,621,803  $ 3,442,085  $ (739,915) $ 20,209  $ 2,722,379 

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

See notes to condensed consolidated financial statements
8

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 
Nine Months Ended
 (in thousands) September 30, 2021 September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ 331,946  $ (1,674,150)
Adjustments to reconcile net income to net cash used in operating activities:    
Goodwill impairment —  1,784,936 
Amortization of investment premiums, net 10,934  20,911 
Gain on sale of investment securities, net (4) (190)
(Recapture) provision for credit losses (41,915) 204,832 
Change in cash surrender value of bank owned life insurance (6,302) (6,433)
Depreciation, amortization and accretion 23,492  28,494 
Loss (gain) on sale of premises and equipment 436  (369)
Gain on store divestiture —  (5,945)
Additions to residential mortgage servicing rights carried at fair value (30,845) (37,484)
Change in fair value of residential mortgage servicing rights carried at fair value 17,918  59,246 
Stock-based compensation 8,106  6,781 
Net decrease (increase) in equity and other investments 457  (1,662)
Loss (gain) on equity securities, net 1,045  (942)
Gain on sale of loans and leases, net (124,764) (212,353)
Change in fair value of loans held for sale 21,727  (16,519)
Origination of loans held for sale (3,875,836) (4,897,068)
Proceeds from sales of loans held for sale 4,065,846  4,958,265 
Change in other assets and liabilities:    
Net decrease (increase) in other assets 161,119  (232,499)
Net decrease in other liabilities (21,816) (59,519)
Net cash provided by (used in) operating activities 541,544  (81,668)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of investment securities available for sale (1,473,840) (595,396)
Proceeds from investment securities available for sale 578,240  604,553 
Purchases of restricted equity securities (34) (20,001)
Redemption of restricted equity securities 30,754  16,402 
Net change in loans and leases (85,539) (1,343,715)
Proceeds from sales of loans and leases 182,605  60,777 
Change in premises and equipment (13,121) (11,526)
Proceeds from bank owned life insurance death benefits 3,401  57 
Net cash received from sale of Umpqua Investments, Inc. 10,781  — 
Net cash paid in store divestiture —  (81,172)
Other 1,879  1,037 
Net cash used in investing activities $ (764,874) $ (1,368,984)
9
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 
(UNAUDITED)
Nine Months Ended
 (in thousands) September 30, 2021 September 30, 2020
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net increase in deposit liabilities $ 2,286,225  $ 2,288,262 
Net increase in securities sold under agreements to repurchase 92,376  76,720 
   Proceeds from borrowings —  600,000 
Repayment of borrowings (765,000) (510,000)
Net proceeds from issuance of common stock 34  — 
Dividends paid on common stock (138,243) (138,731)
Repurchase and retirement of common stock (80,654) (8,628)
Net cash provided by financing activities 1,394,738  2,307,623 
Net increase in cash and cash equivalents 1,171,408  856,971 
Cash and cash equivalents, beginning of period 2,573,181  1,362,756 
Cash and cash equivalents, end of period $ 3,744,589  $ 2,219,727 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid during the period for:    
Interest $ 35,085  $ 115,016 
Income taxes $ 81,482  $ 105,579 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in unrealized gains and losses on investment securities available for sale, net of taxes $ (69,478) $ 85,523 
Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes $ (33,058) $ 19,950 
Cumulative effect adjustment to retained earnings $ —  $ 40,181 
Transfer of loans to loans held for sale $ —  $ 6,187 
Transfer of loans held for sale to loans $ 315,887  $ — 
Change in GNMA mortgage loans recognized due to repurchase option $ —  $ 15,617 


See notes to condensed consolidated financial statements
 
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies 
 
The accounting and financial reporting policies of Umpqua Holdings Corporation conform to accounting principles generally accepted in the United States of America. All references in this report to "Umpqua," "we," "our," or "us" or similar references mean the Company and include our consolidated subsidiaries where the context so requires. References to "Bank" refer to our subsidiary Umpqua Bank, an Oregon state-chartered commercial bank. FinPac is the Bank's wholly-owned subsidiary, a commercial equipment leasing company. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and the Bank's wholly-owned subsidiaries.  All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of the Company's accounting policies is included in the 2020 Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the 2020 Annual Report filed on Form 10-K. 

In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to September 30, 2021, for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period. Certain reclassifications of prior period amounts have been made to conform to current classifications, including the reclassification of the line items within non-interest income to add the card-based fees line item, as well as changes to the segment reporting structure.

Recent accounting pronouncements 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022. The Company will be able to use the expedients in this guidance to manage through the transition away from LIBOR, specifically for our loan portfolio.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions in Topic 848. The amendments are in effect from March 12, 2020, through December 31, 2022. This ASU does not have a material impact on the Company's consolidated financial statements.

11
Note 2 – Investment Securities 
 
The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at September 30, 2021 and December 31, 2020: 
September 30, 2021
 (in thousands)  Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Available for sale:        
U.S. Treasury and agencies $ 806,469  $ 35,304  $ (2,796) $ 838,977 
Obligations of states and political subdivisions 272,275  11,851  (717) 283,409 
Residential mortgage-backed securities and collateralized mortgage obligations
2,606,906  29,272  (35,393) 2,600,785 
Total available for sale securities $ 3,685,650  $ 76,427  $ (38,906) $ 3,723,171 
Held to maturity:        
Residential mortgage-backed securities and collateralized mortgage obligations
$ 2,795  $ 786  $ —  $ 3,581 
Total held to maturity securities $ 2,795  $ 786  $ —  $ 3,581 

December 31, 2020
 (in thousands) 
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Available for sale:        
U.S. Treasury and agencies $ 698,243  $ 64,271  $ (312) $ 762,202 
Obligations of states and political subdivisions 263,546  15,996  (31) 279,511 
Residential mortgage-backed securities and collateralized mortgage obligations
1,839,711  51,583  (449) 1,890,845 
Total available for sale securities $ 2,801,500  $ 131,850  $ (792) $ 2,932,558 
Held to maturity:        
Residential mortgage-backed securities and collateralized mortgage obligations
$ 3,034  $ 849  $ —  $ 3,883 
Total held to maturity securities $ 3,034  $ 849  $ —  $ 3,883 

The Company elected to exclude accrued interest receivable from the amortized cost basis of debt securities disclosed throughout this note. Interest accrued on investment securities totaled $12.2 million and $8.9 million as of September 30, 2021 and December 31, 2020, respectively, and is included in Other Assets.

12
Debt securities that were in an unrealized loss position as of September 30, 2021 and December 31, 2020 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

September 30, 2021
Less than 12 Months 12 Months or Longer Total
  (in thousands) 
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Available for sale:            
U.S. Treasury and agencies $ 119,093  $ 1,773  $ 18,805  $ 1,023  $ 137,898  $ 2,796 
Obligations of states and political subdivisions
53,099  717  —  —  53,099  717 
Residential mortgage-backed securities and collateralized mortgage obligations
1,500,804  34,346  23,561  1,047  1,524,365  35,393 
Total temporarily impaired securities $ 1,672,996  $ 36,836  $ 42,366  $ 2,070  $ 1,715,362  $ 38,906 

December 31, 2020
Less than 12 Months 12 Months or Longer Total
  (in thousands)
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Available for sale:            
U.S. Treasury and agencies $ 29,493  $ 312  $ —  $ —  $ 29,493  $ 312 
Obligations of states and political subdivisions
4,357  31  —  —  4,357  31 
Residential mortgage-backed securities and collateralized mortgage obligations
215,165  449  —  —  215,165  449 
Total temporarily impaired securities $ 249,015  $ 792  $ —  $ —  $ 249,015  $ 792 

These unrealized losses on the debt securities held by the Company were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not due to the underlying credit of the issuers. Management monitors the published credit ratings of the issuers of the debt securities for material rating or outlook changes. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at September 30, 2021 are issued or guaranteed by government sponsored enterprises. Because the decline in fair value of the debt securities is attributable to changes in interest rates or widening market spreads and not credit quality, these investments do not have an allowance for credit losses at September 30, 2021.

The following table presents the contractual maturities of debt securities at September 30, 2021:  

Available For Sale Held To Maturity
  (in thousands) 
Amortized Cost Fair Value Amortized Cost Fair Value
Due within one year $ 16,913  $ 17,150  $ —  $ — 
Due after one year through five years 122,809  128,548  2  2 
Due after five years through ten years 967,343  1,004,037  8  8 
Due after ten years 2,578,585  2,573,436  2,785  3,571 
Total securities $ 3,685,650  $ 3,723,171  $ 2,795  $ 3,581 

The following table presents, as of September 30, 2021, investment securities that were pledged to secure borrowings, public deposits, and repurchase agreements as permitted or required by law: 
 (in thousands) Amortized Cost Fair Value
To state and local governments to secure public deposits $ 293,931  $ 301,370 
Other securities pledged principally to secure repurchase agreements 746,122  770,020 
Total pledged securities $ 1,040,053  $ 1,071,390 

13
Note 3 – Loans and Leases  
 
The following table presents the major types of loans and leases, net of deferred fees and costs, as of September 30, 2021 and December 31, 2020: 
(in thousands) September 30, 2021 December 31, 2020
Commercial real estate    
Non-owner occupied term, net $ 3,561,764  $ 3,505,802 
Owner occupied term, net 2,330,338  2,333,945 
Multifamily, net 3,813,024  3,349,196 
Construction & development, net 882,778  828,478 
Residential development, net 177,148  192,761 
Commercial
Term, net 3,159,466  4,024,467 
Lines of credit & other, net 930,350  862,760 
Leases & equipment finance, net 1,457,248  1,456,630 
Residential
Mortgage, net 4,330,860  3,871,906 
Home equity loans & lines, net 1,133,823  1,136,064 
Consumer & other, net 193,141  217,358 
Total loans and leases, net of deferred fees and costs $ 21,969,940  $ 21,779,367 
 
As of September 30, 2021 and December 31, 2020, the net deferred costs were $47.7 million and $38.6 million, respectively. 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 September 30, 2021, the Bank had approximately 7,500 PPP loans, totaling $726.7 million in net loans, which are classified as commercial term loans in the table above. As of December 31, 2020, the Bank had approximately 15,000 PPP loans totaling $1.8 billion in net loans. Net deferred costs for the loan portfolio include the net deferred fees for the origination of PPP loans of $21.2 million and $26.9 million as of September 30, 2021 and December 31, 2020, respectively. The PPP net deferred fees and costs are a yield adjustment over the remaining term of these loans. The loans are fully guaranteed by the SBA and the maximum term of the loans is either two or five years; however, the majority of the loan balances are expected to be forgiven by the SBA, which will accelerate the recognition of these net deferred fees at the forgiveness date.

Total loans and leases also include discounts on acquired loans of $11.4 million and $17.9 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, loans totaling $14.4 billion were pledged to secure borrowings and available lines of credit. The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. Interest accrued on loans totaled $63.3 million and $74.8 million as of September 30, 2021 and December 31, 2020, respectively, and is included in Other Assets.

The Bank, through its commercial equipment leasing subsidiary, FinPac, is a provider of commercial equipment leasing and financing. Direct finance leases are included within the lease and equipment finance segment within the loans and leases, net line item. These leases typically have terms of three to five years and are considered to be direct financing leases. Interest income recognized on these leases was $6.1 million and $17.3 million for the three and nine months ended September 30, 2021, respectively, as compared to $6.7 million and $20.5 million for the three and nine months ended September 30, 2020, respectively.
14

Loans and leases sold 
 
In the course of managing the loan and lease portfolio, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the three and nine months ended September 30, 2021 and 2020: 
Three Months Ended Nine Months Ended
 (in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Commercial real estate        
Non-owner occupied term, net $ 14,828  $ 3,009  $ 38,124  $ 12,767 
Owner occupied term, net 12,692  6,138  25,115  15,330 
Multifamily, net —  —  3,776  — 
Commercial        
Term, net 10,866  8,628  39,180  28,780 
Lines of credit & other, net —  159  —  159 
Leases & equipment finance, net —  —  —  43 
Residential        
Mortgage, net —  365  1,712  365 
Consumer & other —  —  63,799  — 
Total loans and leases sold, net $ 38,386  $ 18,299  $ 171,706  $ 57,444 

Note 4 – Allowance for Credit Losses

Allowance for Credit Losses Methodology

In accordance with CECL, the ACL represents management's estimate of lifetime credit losses for assets within its scope, specifically loans and leases and unfunded commitments. To calculate the ACL, management uses models to estimate the PD and LGD for loans utilizing inputs that include forecasted future economic conditions and that are dependent upon specific macroeconomic variables relevant to each of the Bank's loan and lease portfolios. Moody's Analytics, a third party, provided the historical and forward-looking macroeconomic data utilized in the models used to calculate the ACL.

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

All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results and the timing thereof will differ from the estimate of credit losses, either in a strong economy or a recession, as the portfolio will change through time due to growth, risk mitigation actions and other factors. In addition, the scenarios used will differ and change through time as economic conditions change. Economic scenarios might not capture deterioration or improvement in the economy timely enough for the Bank to be able to adequately address the impact to the ACL.

Select macroeconomic variables are projected over the forecast period, and they could have a material impact in determining the ACL. As the length of the forecast period increases, information about the future becomes less readily available and projections are inherently less certain.

15
The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three and nine months ended September 30, 2021, were primarily related to changes in the economic assumptions. The Bank opted to use Moody's Analytics' August consensus economic forecast for estimating the ACL as of September 30, 2021. This scenario is based on Moody's Analytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's Analytics' approach is to give greater consideration to the most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.

In the consensus scenario selected, the probability that the economy will perform better than this consensus is equal to the probability that it will perform worse and included the following factors:
•U.S. real GDP average annualized growth of 4.9% through 2022;
•U.S. unemployment rate average for 2021 of 5.5%, dropping to 4.2% in 2022;
•COVID infections abate in November 2021;
•Federal Reserve to keep the target range for the Fed Funds rate at 0% to 0.25% until early 2023.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:
•The stimulus is less effective than expected because of slower consumer spending. More of the funds end up in savings, and thus fiscal multipliers are smaller than assumed in the consensus scenario;
•New cases, hospitalizations and deaths from COVID-19 rise again and then diminish more slowly than anticipated, with fewer people than expected receiving vaccines;
•U.S. real GDP average annualized growth of 3.5% through 2022;
•U.S. unemployment rate average for 2021 of 5.9% with return to less than 5.0% unemployment in 2023;
•COVID infections abate in January 2022;
•Federal Reserve to keep target range for the Fed Funds rate near 0% until mid-2024.

The results using the comparison scenario for sensitivity analysis were reviewed by management and were considered when evaluating the qualitative factor adjustments.

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

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

The owner-occupied commercial real-estate portfolio utilizes a top-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years and carries forward the last quarter's projected expected loss percentage to remaining periods. The primary economic drivers for this model are the 7-year A vs Aa corporate bond spread and S&P 500 corporate after-tax profits.

16
Commercial: Non-homogeneous commercial loans and leases and residential development loans are analyzed in a multi-step process. An initial PD is estimated using a model driven by an obligor's selected financial statement ratios, together with cycle-adjusting information based on the obligor's state and industry. An initial LGD is derived separately based on collateral type using collateral value and a haircut to reflect the loss in liquidation. Another model then applies an auto-regression technique to the initial PD and LGD metrics to estimate the PD and LGD curves according to the macroeconomic scenario over a one-year reasonable and supportable forecast. The primary economic drivers in the model are the S&P 500 Stock Price Index, S&P 500 Market Volatility Index, U.S. unemployment rate, as well as appropriate yield curves and credit spreads. This model utilizes output reversion methodology, which, after one year, reverts on a straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.

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

Residential: The models for residential real estate and home equity lines of credit utilize loan level variables, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD. The U.S. unemployment rate and home price growth rate indexes are primary economic drivers in both the residential real estate and HELOC models. In addition, the prime rate is also a primary driver in the HELOC model. The models focus on establishing an empirical relationship between default probabilities and a set of loan-level, borrower, and macroeconomic credit risk drivers. The LGD calculation for residential real estate is based on an estimate of the probability that a defaulted loan will have a loss, and then an estimate of the loss amount. HELOCs utilize the same model using residential real estate LGD values to assign loans to cohorts based on FICO scores and loan age. The model produces PD and LGD curves at the loan level for each quarter in the forecast horizon.

Consumer: Historical net charge-off information as well as economic forecast assumptions are used to project loss rates for the Consumer segment.

All loans and leases that have not been modeled receive a loss rate via an extrapolated rate methodology. The loans and leases receiving an extrapolated rate are typically newly originated loans and leases or loans and leases without the granularity of data necessary to be modeled. Based on the vintage year, credit classification, and reporting category of the modeled loans and leases, a loss factor is calculated and applied to the non-modeled loans and leases.

Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data for the commercial real estate, commercial and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential portfolio. Below are the nine qualitative factors considered where applicable:

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
•Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
•Changes in the nature and volume of the portfolio and in the terms of loans and leases.
•Changes in the experience, ability, and depth of lending management and other relevant staff.
•Changes in the volume and severity of past due loans and leases, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded loans and leases.
•Changes in the quality of the Bank's credit review system.
•Changes in the value of the underlying collateral for collateral-dependent loans and leases.
•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Bank's existing portfolio.

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The Company evaluated each qualitative factor as of September 30, 2021, and made qualitative overlay adjustments of approximately $16.9 million to increase the amounts indicated by the models as considered necessary to adequately reflect the significant changes in credit conditions and overall portfolio risk, including $13.8 million qualitative overlay increase related to loans collateralized by hotel, retail, and office properties.

Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to difficulty of calculating an effective interest rate when lines have yet to be drawn on. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The non-discounted cash flow method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.

The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, 2021
(in thousands) Commercial Real Estate Commercial Residential Consumer & Other Total
Allowance for credit losses on loans and leases
Balance, beginning of period $ 128,951  $ 121,390  $ 25,296  $ 4,250  $ 279,887 
(Recapture) provision for credit losses for loans and leases (20,141) 2,719  1,703  (413) (16,132)
Charge-offs (916) (8,521) —  (936) (10,373)
Recoveries 120  3,346  281  431  4,178 
Net (charge-offs) recoveries (796) (5,175) 281  (505) (6,195)
Balance, end of period $ 108,014  $ 118,934  $ 27,280  $ 3,332  $ 257,560 
Reserve for unfunded commitments
Balance, beginning of period $ 10,094  $ 2,145  $ 1,710  $ 590  $ 14,539 
(Recapture) provision for credit losses on unfunded commitments (3,273) 440  247  (201) (2,787)
Balance, end of period 6,821  2,585  1,957  389  11,752 
Total allowance for credit losses $ 114,835  $ 121,519  $ 29,237  $ 3,721  $ 269,312 
Nine Months Ended September 30, 2021
(in thousands) Commercial Real Estate Commercial Residential Consumer & Other Total
Allowance for credit losses on loans and leases
Balance, beginning of period $ 141,710  $ 150,864  $ 27,964  $ 7,863  $ 328,401 
(Recapture) provision for credit losses for loans and leases (33,199) 4,180  (1,212) (3,150) (33,381)
Charge-offs (1,086) (44,228) (70) (2,983) (48,367)
Recoveries 589  8,118  598  1,602  10,907 
Net (charge-offs) recoveries (497) (36,110) 528  (1,381) (37,460)
Balance, end of period $ 108,014  $ 118,934  $ 27,280  $ 3,332  $ 257,560 
Reserve for unfunded commitments
Balance, beginning of period 15,360  2,190  1,661  1,075  20,286 
(Recapture) provision for credit losses on unfunded commitments (8,539) 395  296  (686) (8,534)
Balance, end of period 6,821  2,585  1,957  389  11,752 
Total allowance for credit losses $ 114,835  $ 121,519  $ 29,237  $ 3,721  $ 269,312 
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Three Months Ended September 30, 2020
(in thousands) Commercial Real Estate Commercial Residential Consumer & Other Total
Allowance for credit losses on loans and leases
Balance, beginning of period $ 152,828  $ 152,615  $ 40,548  $ 10,754  $ 356,745 
(Recapture) provision for credit losses for loans and leases (18,834) 25,603  (5,641) 657  1,785 
Charge-offs —  (15,426) (120) (1,100) (16,646)
Recoveries 61  2,044  407  653  3,165 
Net recoveries (charge-offs) 61  (13,382) 287  (447) (13,481)
Balance, end of period $ 134,055  $ 164,836  $ 35,194  $ 10,964  $ 345,049 
Reserve for unfunded commitments
Balance, beginning of period $ 20,808  $ 2,921  $ 2,061  $ 578  $ 26,368 
(Recapture) provision for credit losses on unfunded commitments (380) (1,198) (542) 58  (2,062)
Balance, end of period 20,428  1,723  1,519  636  24,306 
Total allowance for credit losses $ 154,483  $ 166,559  $ 36,713  $ 11,600  $ 369,355 
Nine Months Ended September 30, 2020
(in thousands) Commercial Real Estate Commercial Residential Consumer & Other Total
Allowance for credit losses on loans and leases
Balance, beginning of period $ 50,847  $ 73,820  $ 24,714  $ 8,248  $ 157,629 
Impact of CECL adoption 5,077  44,009  2,099  (1,186) 49,999 
Adjusted balance, beginning of period 55,924  117,829  26,813  7,062  207,628 
Provision for credit losses for loans and leases 77,664  96,577  7,701  6,829  188,771 
Charge-offs —  (55,583) (274) (4,697) (60,554)
Recoveries 467  6,013  954  1,770  9,204 
Net recoveries (charge-offs) 467  (49,570) 680  (2,927) (51,350)
Balance, end of period $ 134,055  $ 164,836  $ 35,194  $ 10,964  $ 345,049 
Reserve for unfunded commitments
Balance, beginning of period $ 534  $ 2,539  $ 149  $ 1,884  $ 5,106 
Impact of CECL adoption 4,030  (487) 1,267  (1,572) 3,238 
Adjusted balance, beginning of period 4,564  2,052  1,416  312  8,344 
Provision (recapture) for credit losses on unfunded commitments 15,864  (329) 103  324  15,962 
Balance, end of period 20,428  1,723  1,519  636  24,306 
Total allowance for credit losses $ 154,483  $ 166,559  $ 36,713  $ 11,600  $ 369,355 

The following table presents the unfunded commitments for the period ended September 30, 2021 and 2020:
(in thousands) Total
Unfunded loan and lease commitments
September 30, 2021
$ 6,302,898 
September 30, 2020
$ 5,887,887 

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Asset Quality and Non-Performing Loans and Leases

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

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

Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized no interest income on non-accrual loans and leases during the three and nine months ended September 30, 2021 and 2020.

Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with various government-mandated programs, these loans are generally classified based on their past due status prior to their deferral period; as such, they are classified as performing loans that accrue interest. As of September 30, 2021, loans of approximately $132.5 million are currently deferred under various federal and state guidelines and are classified as current as their contractual payments have been deferred. These deferred loans do not include deferrals of delinquent repurchased GNMA loans as the credit risk of these loans are guaranteed by government programs such as Federal Housing Agency, Veterans Affairs, and USDA Rural Development. At September 30, 2021, approximately $121.0 million of GNMA repurchased loans were on deferral. At December 31, 2020, the Bank had $355.5 million in deferred loans under various federal and state guidelines, excluding GNMA repurchased loans on deferral of $177.7 million.
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The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of September 30, 2021 and December 31, 2020:
September 30, 2021
(in thousands) Greater than 30 to 59 Days Past Due 60 to 89 Days Past Due Greater than 90 Days and Accruing Total Past Due
Non-Accrual (1)
Current Total Loans and Leases
Commercial real estate
Non-owner occupied term, net $ 1,750  $ —  $ —  $ 1,750  $ 3,417  $ 3,556,597  $ 3,561,764 
Owner occupied term, net 1,416  343  1  1,760  2,535  2,326,043  2,330,338 
Multifamily, net 9,389  —  —  9,389  —  3,803,635  3,813,024 
Construction & development, net —  —  —  —  —  882,778  882,778 
Residential development, net —  —  —  —  —  177,148  177,148 
Commercial
Term, net 211  82  2  295  5,511  3,153,660  3,159,466 
Lines of credit & other, net 501  5,820  3  6,324  930  923,096  930,350 
Leases & equipment finance, net 8,502  7,347  2,449  18,298  11,759  1,427,191  1,457,248 
Residential
Mortgage, net
943  2,728  23,957  27,628  —  4,303,232  4,330,860 
Home equity loans & lines, net 1,182  414  962  2,558  —  1,131,265  1,133,823 
Consumer & other, net 455  243  116  814  —  192,327  193,141 
Total, net of deferred fees and costs $ 24,349  $ 16,977  $ 27,490  $ 68,816  $ 24,152  $ 21,876,972  $ 21,969,940 
(1) Loans and leases on non-accrual with an amortized cost basis of $24.2 million had a related allowance for credit losses of $7.3 million at September 30, 2021.
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December 31, 2020
(in thousands) Greater than 30 to 59 Days Past Due 60 to 89 Days Past Due Greater than 90 Days and Accruing Total Past Due
Non-Accrual (1)
Current and Other Total Loans and Leases
Commercial real estate
Non-owner occupied term, net $ 1,214  $ 21,309  $ 815  $ 23,338  $ 3,809  $ 3,478,655  $ 3,505,802 
Owner occupied term, net 182  103  208  493  5,984  2,327,468  2,333,945 
Multifamily, net —  215  —  215  —  3,348,981  3,349,196 
Construction & development, net 3,991  —  —  3,991  —  824,487  828,478 
Residential development, net —  —  —  —  —  192,761  192,761 
Commercial
Term, net 562  —  4  566  2,205  4,021,696  4,024,467 
Lines of credit & other, net 1,491  2,667  7  4,165  336  858,259  862,760 
Leases & equipment finance, net 14,242  18,220  4,796  37,258  18,742  1,400,630  1,456,630 
Residential
Mortgage, net
1,587  3,912  27,713  33,212  —  3,838,694  3,871,906 
Home equity loans & lines, net 844  544  2,463  3,851  —  1,132,213  1,136,064 
Consumer & other, net 678  286  355  1,319  —  216,039  217,358 
Total, net of deferred fees and costs $ 24,791  $ 47,256  $ 36,361  $ 108,408  $ 31,076  $ 21,639,883  $ 21,779,367 
(1) Loans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit losses of $16.7 million at December 31, 2020.

Collateral Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of September 30, 2021. There have been no significant changes in the level of collateralization from the prior periods.
(in thousands) Residential Real Estate Commercial Real Estate General Business Assets Other Total
Commercial real estate
  Non-owner occupied term, net $ —  $ 3,121  $ —  $ —  $ 3,121 
  Owner occupied term, net —  2,123  —  —  2,123 
Commercial
   Term, net 1,356  536  779  2,454  5,125 
   Line of credit & other, net —  —  930  1  931 
   Leases & equipment finance, net —  —  11,759  —  11,759 
Residential
   Mortgage, net 27,988  —  —  —  27,988 
   Home equity loans & lines, net 2,937  —  —  —  2,937 
Total net of deferred fees and costs $ 32,281  $ 5,780  $ 13,468  $ 2,455  $ 53,984 

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Troubled Debt Restructuring

At September 30, 2021 and December 31, 2020, troubled debt restructured loans of $9.8 million and $15.0 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of September 30, 2021 and December 31, 2020:
September 30, 2021
(in thousands) Accrual Status Non-Accrual Status Total Modification # of Contracts
Commercial real estate, net $ 1,061  $ 70  $ 1,131  5 
Residential, net 8,762  —  8,762  45 
Consumer & other, net 26  —  26  3 
Total, net of deferred fees and costs $ 9,849  $ 70  $ 9,919  53 
December 31, 2020
(in thousands) Accrual Status Non-Accrual Status Total Modification # of Contracts
Commercial real estate, net $ 1,345  $ 289  $ 1,634  7 
Commercial, net 1,231  —  1,231  1 
Residential, net 12,415  —  12,415  75 
Total, net of deferred fees and costs $ 14,991  $ 289  $ 15,280  83 

The following table presents loans that were determined to be TDRs during the three and nine months ended September 30, 2021 and 2020:
Three Months Ended Nine Months Ended
(in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Commercial, net $ —  $ —  $ —  $ 8,508 
Residential, net 1,661  7,029  5,903  13,463 
Consumer & other, net —  —  36  74 
Total, net of deferred fees and costs $ 1,661  $ 7,029  $ 5,939  $ 22,045 

Credit Quality Indicators

Management regularly reviews loans and leases in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. In addition, the board reviews and approves the credit quality indicators each year. The Bank differentiates its lending portfolios into homogeneous and non-homogeneous loans and leases. Homogeneous loans and leases are risk rated on a single risk rating scale based on the past due status of the loan or lease.

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The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. For non-homogeneous loans and leases, PD ratings of 1 through 9 are "pass" grades, while PD ratings of 10 and 11 are "watch" grades. PD ratings of 12-16 correspond to the regulatory-defined categories of special mention (12), substandard (13-14), doubtful (15), and loss (16). The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six alphabetic ratings from A-F, where a higher rating represents higher risk. The LGD scale quantifies recovery risk associated with an event of default and predicts the amount of loss that would be incurred on a loan or lease if a borrower were to experience a major default and includes variables that may be external to the borrower, such as industry, geographic location, and credit cycle stage. It could also include variables specific to the borrower such as their probability of default and bankruptcies as well as variables specific to the loan or lease, including collateral valuation, covenant structure and debt type. The product of the borrower's PD and a loan or lease LGD is the loan or lease expected loss, expressed as a percentage. This provides a common language of credit risk across different loans.

The PD scale estimates the likelihood that a borrower will experience a major default on any of its debt obligations within a specified time period. Examples of major defaults include payments 90 days or more past due, non-accrual classification, bankruptcy filing, or a full or partial charge-off of a loan or lease. As such, the PD scale represents the credit quality indicator for non-homogeneous loans and leases.

The credit quality indicator rating categories follow regulatory classification and can be generally described by the following groupings for loans and leases:

Pass/Watch—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring. A watch loan or lease is considered pass rated but has a heightened level of unacceptable default risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower risk rating would be appropriate within a short period of time.

Special Mention—A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. These borrowers have an elevated probability of default but not to the point of a substandard classification.

Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful—Loans or leases classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable.

Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.


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The following tables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of September 30, 2021 and December 31, 2020:
(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
September 30, 2021 2021 2020 2019 2018 2017 Prior Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch $ 526,979  $ 452,318  $ 626,217  $ 451,713  $ 323,746  $ 1,017,904  $ 1,853  $ 4,060  $ 3,404,790 
Special mention 10,693  933  5,791  36,676  —  48,995  —  —  103,088 
Substandard 829  2,020  2,616  20,787  3,008  24,296  —  —  53,556 
Doubtful —  —  —  —  —  86  —  —  86 
Loss —  —  —  —  —  244  —  —  244 
Total non-owner occupied term, net $ 538,501  $ 455,271  $ 634,624  $ 509,176  $ 326,754  $ 1,091,525  $ 1,853  $ 4,060  $ 3,561,764 
Owner occupied term, net
Credit quality indicator:
Pass/Watch $ 375,653  $ 254,143  $ 390,432  $ 283,285  $ 282,030  $ 674,773  $ 5,187  $ 748  $ 2,266,251 
Special mention 550  897  7,977  11,685  9,322  19,095  —  —  49,526 
Substandard —  —  703  968  —  12,393  —  —  14,064 
Doubtful —  —  —  —  —  67  —  —  67 
Loss —  —  —  —  —  430  —  —  430 
Total owner occupied term, net $ 376,203  $ 255,040  $ 399,112  $ 295,938  $ 291,352  $ 706,758  $ 5,187  $ 748  $ 2,330,338 
Multifamily, net
Credit quality indicator:
Pass/Watch $ 1,124,021  $ 386,911  $ 794,320  $ 427,943  $ 421,530  $ 621,542  $ 23,182  $ 2,936  $ 3,802,385 
Special mention —  —  —  —  —  1,250  —  —  1,250 
Substandard —  —  —  —  9,389  —  —  —  9,389 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total multifamily, net $ 1,124,021  $ 386,911  $ 794,320  $ 427,943  $ 430,919  $ 622,792  $ 23,182  $ 2,936  $ 3,813,024 
Construction & development, net
Credit quality indicator:
Pass/Watch $ 132,710  $ 321,591  $ 275,301  $ 105,270  $ 27,688  $ 172  $ 2,380  $ —  $ 865,112 
Special mention —  1,635  —  7,600  —  —  —  —  9,235 
Substandard —  —  —  8,431  —  —  —  —  8,431 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total construction & development, net $ 132,710  $ 323,226  $ 275,301  $ 121,301  $ 27,688  $ 172  $ 2,380  $ —  $ 882,778 
Residential development, net
Credit quality indicator:
Pass/Watch $ 15,260  $ 15,391  $ —  $ —  $ —  $ —  $ 136,948  $ 9,549  $ 177,148 
Special mention —  —  —  —  —  —  —  —  — 
Substandard —  —  —  —  —  —  —  —  — 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total residential development, net $ 15,260  $ 15,391  $ —  $ —  $ —  $ —  $ 136,948  $ 9,549  $ 177,148 
Total commercial real estate $ 2,186,695  $ 1,435,839  $ 2,103,357  $ 1,354,358  $ 1,076,713  $ 2,421,247  $ 169,550  $ 17,293  $ 10,765,052 
25
(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
September 30, 2021 2021 2020 2019 2018 2017 Prior Total
Commercial:
Term, net
Credit quality indicator:
Pass/Watch $ 1,024,743  $ 511,451  $ 237,257  $ 238,367  $ 186,079  $ 238,496  $ 594,949  $ 15,062  $ 3,046,404 
Special mention 15,000  7,501  122  29,182  642  1,181  26,795  239  80,662 
Substandard 16,469  650  1,772  1,379  3,647  1,648  —  5,548  31,113 
Doubtful —  —  —  —  869  1  —  —  870 
Loss —  —  —  417  —  —  —  —  417 
Total term, net $ 1,056,212  $ 519,602  $ 239,151  $ 269,345  $ 191,237  $ 241,326  $ 621,744  $ 20,849  $ 3,159,466 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch $ 33,823  $ 11,766  $ 16,996  $ 17,615  $ 357  $ 1,888  $ 772,450  $ 2,997  $ 857,892 
Special mention 496  —  —  134  —  224  15,364  2,009  18,227 
Substandard —  476  —  —  —  1,118  47,428  5,205  54,227 
Doubtful —  —  —  —  —  —  2  —  2 
Loss —  —  —  —  —  —  1  1  2 
Total lines of credit & other, net $ 34,319  $ 12,242  $ 16,996  $ 17,749  $ 357  $ 3,230  $ 835,245  $ 10,212  $ 930,350 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch $ 468,180  $ 366,626  $ 322,365  $ 161,696  $ 58,870  $ 44,112  $ —  $ —  $ 1,421,849 
Special mention 2,193  1,980  2,349  1,869  706  170  —  —  9,267 
Substandard 1,650  6,179  2,279  4,380  741  263  —  —  15,492 
Doubtful 2,273  2,494  2,373  1,506  748  70  —  —  9,464 
Loss —  446  454  104  158  14  —  —  1,176 
Total leases & equipment finance, net $ 474,296  $ 377,725  $ 329,820  $ 169,555  $ 61,223  $ 44,629  $ —  $ —  $ 1,457,248 
Total commercial $ 1,564,827  $ 909,569  $ 585,967  $ 456,649  $ 252,817  $ 289,185  $ 1,456,989  $ 31,061  $ 5,547,064 
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch $ 1,700,114  $ 722,986  $ 702,425  $ 220,512  $ 246,799  $ 710,397  $ —  $ —  $ 4,303,233 
Special mention —  —  780  81  488  2,321  —  —  3,670 
Substandard 431  597  2,046  1,064  3,105  15,070  —  —  22,313 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  907  —  —  737  —  —  1,644 
Total mortgage, net $ 1,700,545  $ 723,583  $ 706,158  $ 221,657  $ 250,392  $ 728,525  $ —  $ —  $ 4,330,860 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch $ 135  $ 2  $ —  $ 19  $ —  $ 12,476  $ 1,086,719  $ 31,913  $ 1,131,264 
Special mention —  —  —  —  —  60  1,285  251  1,596 
Substandard —  —  —  —  —  134  321  152  607 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  36  93  227  356 
Total home equity loans & lines, net $ 135  $ 2  $ —  $ 19  $ —  $ 12,706  $ 1,088,418  $ 32,543  $ 1,133,823 
Total residential $ 1,700,680  $ 723,585  $ 706,158  $ 221,676  $ 250,392  $ 741,231  $ 1,088,418  $ 32,543  $ 5,464,683 
26
(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
September 30, 2021 2021 2020 2019 2018 2017 Prior Total
Consumer & other, net:
Credit quality indicator:
Pass/Watch $ 13,616  $ 12,411  $ 14,605  $ 6,621  $ 4,589  $ 5,729  $ 132,063  $ 2,692  $ 192,326 
Special mention —  39  58  —  175  186  203  38  699 
Substandard —  —  22  —  —  15  10  59  106 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  7  3  —  10 
Total consumer & other, net $ 13,616  $ 12,450  $ 14,685  $ 6,621  $ 4,764  $ 5,937  $ 132,279  $ 2,789  $ 193,141 
Grand total $ 5,465,818  $ 3,081,443  $ 3,410,167  $ 2,039,304  $ 1,584,686  $ 3,457,600  $ 2,847,236  $ 83,686  $ 21,969,940 

(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
December 31, 2020 2020 2019 2018 2017 2016 Prior Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch $ 496,412  $ 677,975  $ 489,350  $ 379,691  $ 338,257  $ 932,207  $ 2,855  $ 4,139  $ 3,320,886 
Special mention 13,281  1,432  40,899  2,800  31,699  27,167  —  —  117,278 
Substandard 3,129  2,668  19,951  3,062  19,806  18,586  —  —  67,202 
Doubtful —  —  —  —  —  103  —  —  103 
Loss —  —  —  —  —  333  —  —  333 
Total non-owner occupied term, net $ 512,822  $ 682,075  $ 550,200  $ 385,553  $ 389,762  $ 978,396  $ 2,855  $ 4,139  $ 3,505,802 
Owner occupied term, net
Credit quality indicator:
Pass/Watch $ 284,698  $ 414,715  $ 321,900  $ 344,606  $ 257,969  $ 610,893  $ 6,270  $ 783  $ 2,241,834 
Special mention 3,641  8,373  13,143  7,365  3,425  18,386  —  —  54,333 
Substandard 2,657  1,694  9,868  2,846  4,356  14,609  282  975  37,287 
Doubtful —  —  —  —  —  61  —  —  61 
Loss —  —  —  —  —  430  —  —  430 
Total owner occupied term, net $ 290,996  $ 424,782  $ 344,911  $ 354,817  $ 265,750  $ 644,379  $ 6,552  $ 1,758  $ 2,333,945 
Multifamily, net
Credit quality indicator:
Pass/Watch $ 383,871  $ 870,871  $ 593,076  $ 574,185  $ 276,108  $ 618,031  $ 23,282  $ 2,956  $ 3,342,380 
Special mention —  —  —  —  —  6,601  —  —  6,601 
Substandard —  —  —  215  —  —  —  —  215 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total multifamily, net $ 383,871  $ 870,871  $ 593,076  $ 574,400  $ 276,108  $ 624,632  $ 23,282  $ 2,956  $ 3,349,196 
27
(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
December 31, 2020 2020 2019 2018 2017 2016 Prior Total
Construction & development, net
Credit quality indicator:
Pass/Watch $ 146,012  $ 283,052  $ 255,449  $ 127,564  $ —  $ 372  $ —  $ —  $ 812,449 
Special mention 1,637  —  14,392  —  —  —  —  —  16,029 
Substandard —  —  —  —  —  —  —  —  — 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total construction & development, net $ 147,649  $ 283,052  $ 269,841  $ 127,564  $ —  $ 372  $ —  $ —  $ 828,478 
Residential development, net
Credit quality indicator:
Pass/Watch $ 17,188  $ 2,571  $ 2,151  $ —  $ —  $ —  $ 163,320  $ 2,507  $ 187,737 
Special mention —  —  —  —  —  —  5,024  —  5,024 
Substandard —  —  —  —  —  —  —  —  — 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  —  — 
Total residential development, net $ 17,188  $ 2,571  $ 2,151  $ —  $ —  $ —  $ 168,344  $ 2,507  $ 192,761 
Total commercial real estate $ 1,352,526  $ 2,263,351  $ 1,760,179  $ 1,442,334  $ 931,620  $ 2,247,779  $ 201,033  $ 11,360  $ 10,210,182 
Commercial:
Term, net
Credit quality indicator:
Pass/Watch $ 2,146,758  $ 294,576  $ 323,744  $ 240,458  $ 67,502  $ 226,137  $ 626,878  $ 29,598  $ 3,955,651 
Special mention 4,859  548  13,395  1,265  273  1,416  1,036  2,259  25,051 
Substandard 251  1,105  24,845  7,259  1,137  561  —  8,029  43,187 
Doubtful —  —  —  —  —  578  —  —  578 
Loss —  —  —  —  —  —  —  —  — 
Total term, net $ 2,151,868  $ 296,229  $ 361,984  $ 248,982  $ 68,912  $ 228,692  $ 627,914  $ 39,886  $ 4,024,467 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch $ 27,503  $ 27,395  $ 26,731  $ 548  $ 1,679  $ 531  $ 709,606  $ 5,578  $ 799,571 
Special mention 4,033  —  —  1  77  299  42,882  271  47,563 
Substandard 501  472  —  195  377  940  6,958  6,177  15,620 
Doubtful —  —  —  —  —  —  4  —  4 
Loss —  —  —  —  —  —  1  1  2 
Total lines of credit & other, net $ 32,037  $ 27,867  $ 26,731  $ 744  $ 2,133  $ 1,770  $ 759,451  $ 12,027  $ 862,760 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch $ 502,305  $ 442,692  $ 239,551  $ 125,619  $ 64,400  $ 7,619  $ —  $ —  $ 1,382,186 
Special mention 2,321  4,918  7,765  3,797  1,983  99  —  —  20,883 
Substandard 6,999  7,193  11,617  1,945  2,081  157  —  —  29,992 
Doubtful 2,615  8,255  4,834  2,880  1,343  79  —  —  20,006 
Loss 101  1,481  1,015  635  309  22  —  —  3,563 
Total leases & equipment finance, net $ 514,341  $ 464,539  $ 264,782  $ 134,876  $ 70,116  $ 7,976  $ —  $ —  $ 1,456,630 
Total commercial $ 2,698,246  $ 788,635  $ 653,497  $ 384,602  $ 141,161  $ 238,438  $ 1,387,365  $ 51,913  $ 6,343,857 
28
(in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving to Non-Revolving Loans Amortized Cost
December 31, 2020 2020 2019 2018 2017 2016 Prior Total
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch $ 809,232  $ 1,136,220  $ 393,041  $ 406,069  $ 424,270  $ 669,862  $ —  $ —  $ 3,838,694 
Special mention —  397  286  688  946  3,183  —  —  5,500 
Substandard 335  1,398  1,822  4,133  6,381  11,113  —  —  25,182 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  1,314  —  —  —  1,216  —  —  2,530 
Total mortgage, net $ 809,567  $ 1,139,329  $ 395,149  $ 410,890  $ 431,597  $ 685,374  $ —  $ —  $ 3,871,906 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch $ 40  $ —  $ 20  $ —  $ 259  $ 16,575  $ 1,077,753  $ 37,008  $ 1,131,655 
Special mention —  —  —  —  —  211  1,537  198  1,946 
Substandard —  —  —  —  —  43  254  233  530 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  182  1,107  644  1,933 
Total home equity loans & lines, net $ 40  $ —  $ 20  $ —  $ 259  $ 17,011  $ 1,080,651  $ 38,083  $ 1,136,064 
Total residential $ 809,607  $ 1,139,329  $ 395,169  $ 410,890  $ 431,856  $ 702,385  $ 1,080,651  $ 38,083  $ 5,007,970 
Consumer & other, net:
Credit quality indicator:
Pass/Watch $ 24,408  $ 22,802  $ 11,372  $ 4,170  $ 2,582  $ 4,101  $ 143,813  $ 2,789  $ 216,037 
Special mention —  95  79  27  28  3  660  74  966 
Substandard —  25  —  —  2  —  205  110  342 
Doubtful —  —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  10  3  —  13 
Total consumer & other, net $ 24,408  $ 22,922  $ 11,451  $ 4,197  $ 2,612  $ 4,114  $ 144,681  $ 2,973  $ 217,358 
Grand total $ 4,884,787  $ 4,214,237  $ 2,820,296  $ 2,242,023  $ 1,507,249  $ 3,192,716  $ 2,813,730  $ 104,329  $ 21,779,367 

Note 5 – Residential Mortgage Servicing Rights 
 
The Company measures its mortgage servicing rights at fair value with changes in fair value reported in residential mortgage banking revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the three and nine months ended September 30, 2021 and 2020: 
Three Months Ended Nine Months Ended
 (in thousands)  September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Balance, beginning of period $ 102,699  $ 96,356  $ 92,907  $ 115,010 
Additions for new MSR capitalized 8,450  14,014  30,845  37,484 
Changes in fair value:        
Changes due to collection/realization of expected cash flows over time (4,681) (4,878) (13,592) (15,249)
Changes due to valuation inputs or assumptions (1)
(634) (12,244) (4,326) (43,997)
Balance, end of period $ 105,834  $ 93,248  $ 105,834  $ 93,248 
(1) The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

29
Information related to the Bank's serviced loan portfolio as of September 30, 2021 and December 31, 2020 is as follows: 
(dollars in thousands) September 30, 2021 December 31, 2020
Balance of loans serviced for others $ 12,853,291  $ 13,026,720 
MSR as a percentage of serviced loans 0.82  % 0.71  %
 
The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue, was $9.2 million and $27.4 million for the three and nine months ended September 30, 2021, respectively, as compared to $8.8 million and $26.2 million for the three and nine months ended September 30, 2020, respectively.

Note 6 – Commitments and Contingencies 
 
Financial Instruments with Off-Balance-Sheet Risk — The Company's financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank's business and involve elements of credit, liquidity, and interest rate risk. 
 
The following table presents a summary of the Bank's commitments and contingent liabilities:  
 (in thousands)
September 30, 2021
Commitments to extend credit $ 6,180,820 
Forward sales commitments $ 555,170 
Commitments to originate residential mortgage loans held for sale $ 432,659 
Standby letters of credit $ 122,078 
 
The Bank is a party to financial instruments with off-balance-sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve elements of credit and interest-rate risk similar to the risk involved in on-balance sheet items. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments. 
 
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 

There were no financial guarantees in connection with standby letters of credit that the Bank was required to perform on during the three and nine months ended September 30, 2021 and 2020. At September 30, 2021, approximately $113.4 million of standby letters of credit expire within one year, and $8.7 million expire thereafter.

Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations. As of September 30, 2021, the Company had a residential mortgage loan repurchase reserve liability of $545,000.

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 consolidated 12 store locations in April 2021 and consolidated an additional 15 store locations in October and November 2021. Costs associated with these consolidations will be included in exit and disposal costs within other expenses in non-interest expense. The Next Gen 2.0 strategy involves evaluation of these consolidations and possible future consolidations.

30
On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved a Merger Agreement under which the two companies will combine in an all-stock transaction. Under the terms of the Merger Agreement, Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company. The merger is expected to close in mid-2022, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approvals from each company's shareholders. Refer to the subsequent event footnote for additional information.

Concentrations of Credit Risk— The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington, California, Idaho, and Nevada. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 75% and 71% of the Bank's loan and lease portfolio at September 30, 2021 and December 31, 2020, respectively. Commercial real estate concentrations are managed to ensure geographic and business diversity, primarily in our footprint. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general or caused by the COVID-19 pandemic, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Bank's primary market areas in particular, could have an adverse impact on the repayment of these loans.  Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing represent the primary sources of repayment for a majority of these loans. 
 
The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.
  
Note 7 – Derivatives 
 
The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. None of the Company's derivatives are designated as hedging instruments.  Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy. 

The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker-dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.  Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position.  There were no counterparty default losses on forward contracts in the three and nine months ended September 30, 2021 and 2020.  Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker-dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker-dealer equal to the increase or decrease in the market value of the forward contract. At September 30, 2021, the Bank had commitments to originate mortgage loans held for sale totaling $432.7 million and forward sales commitments of $555.2 million, which are used to hedge both on-balance sheet and off-balance sheet exposures. 
 
The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of September 30, 2021, the Bank had 914 interest rate swaps with an aggregate notional amount of $6.6 billion related to this program.  As of December 31, 2020, the Bank had 886 interest rate swaps with an aggregate notional amount of $6.2 billion related to this program.

As of September 30, 2021 and December 31, 2020, the termination value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $8.9 million and $370,000, respectively. The Bank has collateral posting requirements for initial margins with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of $89.0 million and $92.6 million as of September 30, 2021 and December 31, 2020, respectively. 

31
The Bank's interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to the derivative asset and liability. As of September 30, 2021 and December 31, 2020, the variation margin adjustments were negative adjustments of $198.7 million and $330.5 million, respectively.
 
The Bank incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. The net CVA reduced the settlement values of the Bank's net derivative assets by $9.7 million and $18.5 million as of September 30, 2021 and December 31, 2020, respectively. Various factors impact changes in the CVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.

The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges with other third-party banks to limit the Bank's risk exposure.

The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of September 30, 2021 and December 31, 2020:  
(in thousands) Asset Derivatives Liability Derivatives
Derivatives not designated as hedging instrument September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Interest rate lock commitments $ 8,258  $ 28,144  $ —  $ — 
Interest rate forward sales commitments 3,367  7  374  7,257 
Interest rate swaps 198,607  313,090  8,944  370 
Foreign currency derivatives 456  1,269  343  1,155 
Total derivative assets and liabilities $ 210,688  $ 342,510  $ 9,661  $ 8,782 
 
The gains and losses on the Company's mortgage banking derivatives are included in mortgage banking revenue. The gains and losses on the Company's interest rate swaps and foreign currency derivatives are included in other income. The following table summarizes the types of derivatives and the gains (losses) recorded during the three and nine months ended September 30, 2021 and 2020:  
(in thousands) Three Months Ended Nine Months Ended
Derivatives not designated as hedging instrument September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Interest rate lock commitments $ (4,952) $ 3,303  $ (19,886) $ 21,784 
Interest rate forward sales commitments (2,550) (11,650) 15,336  (51,952)
Interest rate swaps 1,429  1,765  8,698  (13,364)
Foreign currency derivatives 718  585  1,985  1,567 
Total derivative gains (losses) $ (5,355) $ (5,997) $ 6,133  $ (41,965)
 
32
Note 8 – Earnings (Loss) Per Common Share  
 
The following is a computation of basic and diluted earnings (loss) per common share for the three and nine months ended September 30, 2021 and 2020: 
Three Months Ended Nine Months Ended
 (in thousands, except per share data) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net income (loss) $ 108,066  $ 124,871  $ 331,946  $ (1,674,150)
       
Weighted average number of common shares outstanding - basic 218,416  220,221  219,791  220,216 
Effect of potentially dilutive common shares (1)
562  197  487  — 
Weighted average number of common shares outstanding - diluted 218,978  220,418  220,278  220,216 
Earnings (loss) per common share:        
Basic $ 0.49  $ 0.57  $ 1.51  $ (7.60)
Diluted $ 0.49  $ 0.57  $ 1.51  $ (7.60)
(1)Represents the effect of the assumed vesting of non-participating restricted shares based on the treasury stock method. 

The following table represents the weighted average outstanding restricted shares that were not included in the computation of diluted earnings (loss) per share because their effect would be anti-dilutive for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended Nine Months Ended
(in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Restricted stock awards — 763 73 1,164

Note 9 – Segment Information 
 
In the first quarter of 2021, the Company realigned its operating segments based on changes in management's focus and its internal reporting structure. The Company now reports two segments: Core Banking and Mortgage Banking. The prior periods have been restated to reflect these two segments. Management periodically updates the allocation methods and assumptions within the current segment structure.

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, and private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from the serviced loan portfolio, the quarterly changes to the MSR, and the specific expenses that are related to mortgage banking activities including variable commission expenses. Revenue and related expenses related to residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for the consumer channels and are originated through a variety of channels throughout the Company.

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Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
(in thousands)
Core Banking Mortgage Banking Consolidated Core Banking Mortgage Banking Consolidated
Net interest income $ 232,348  $ 2,726  $ 235,074  $ 212,215  $ 4,359  $ 216,574 
(Recapture) provision for credit losses (18,919) —  (18,919) (338) —  (338)
Non-interest income
Residential mortgage banking revenue:
Origination and sale —  30,293  30,293  —  98,703  98,703 
Servicing —  9,172  9,172  —  8,796  8,796 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time —  (4,681) (4,681) —  (4,878) (4,878)
Changes due to valuation inputs or assumptions —  (634) (634) —  (12,244) (12,244)
Loss on equity securities, net (343) —  (343) (112) —  (112)
Gain on swap derivatives, net 1,429  —  1,429  1,765  —  1,765 
Non-interest income (excluding above items) 38,281  188  38,469  39,678  216  39,894 
Total non-interest income 39,367  34,338  73,705  41,331  90,593  131,924 
Non-interest expense
Exit and disposal costs 3,813  —  3,813  792  —  792 
Non-interest expense (excluding above items) 146,931  33,009  179,940  148,519  40,896  189,415 
Allocated expenses, net (1)
3,680  (3,680) —  (2,976) 2,976  — 
Total non-interest expense 154,424  29,329  183,753  146,335  43,872  190,207 
Income before income taxes 136,210  7,735  143,945  107,549  51,080  158,629 
Provision for income taxes 33,945  1,934  35,879  20,988  12,770  33,758 
Net income $ 102,265  $ 5,801  $ 108,066  $ 86,561  $ 38,310  $ 124,871 
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.
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Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(in thousands)
Core Banking Mortgage Banking Consolidated Core Banking Mortgage Banking Consolidated
Net interest income $ 676,837  $ 9,431  $ 686,268  $ 636,566  $ 11,046  $ 647,612 
(Recapture) provision for credit losses (41,915) —  (41,915) 204,832  —  204,832 
Non-interest income
Residential mortgage banking revenue:
Origination and sale —  134,165  134,165  —  224,831  224,831 
Servicing —  27,379  27,379  —  26,209  26,209 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time —  (13,592) (13,592) —  (15,249) (15,249)
Changes due to valuation inputs or assumptions —  (4,326) (4,326) —  (43,997) (43,997)
Gain on sale of debt securities, net 4  —  4  190  —  190 
(Loss) gain on equity securities, net (1,045) —  (1,045) 942  —  942 
Gain (loss) on swap derivatives, net 8,698  —  8,698  (13,364) —  (13,364)
Non-interest income (excluding above items) 121,617  680  122,297  107,963  524  108,487 
Total non-interest income 129,274  144,306  273,580  95,731  192,318  288,049 
Non-interest expense
Goodwill impairment —  —  —  1,784,936  —  1,784,936 
Exit and disposal costs 9,741  —  9,741  1,864  —  1,864 
Non-interest expense (excluding above items) 438,969  112,035  551,004  437,863  110,112  547,975 
Allocated expenses, net (1)
3,860  (3,860) —  (7,992) 7,992  — 
Total non-interest expense 452,570  108,175  560,745  2,216,671  118,104  2,334,775 
Income (loss) before income taxes 395,456  45,562  441,018  (1,689,206) 85,260  (1,603,946)
Provision for income taxes 97,681  11,391  109,072  48,889  21,315  70,204 
Net income (loss) $ 297,775  $ 34,171  $ 331,946  $ (1,738,095) $ 63,945  $ (1,674,150)
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.
September 30, 2021 December 31, 2020
(in thousands)
Core Banking Mortgage Banking Consolidated Core Banking Mortgage Banking Consolidated
Total assets $ 30,419,108  $ 472,371  $ 30,891,479  $ 28,438,813  $ 796,362  $ 29,235,175 
Loans held for sale $ —  $ 352,466  $ 352,466  $ 78,146  $ 688,079  $ 766,225 
Total loans and leases $ 21,969,940  $ —  $ 21,969,940  $ 21,779,367  $ —  $ 21,779,367 
Total deposits $ 26,510,938  $ 397,459  $ 26,908,397  $ 24,200,012  $ 422,189  $ 24,622,201 
 

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Note 10 – Fair Value Measurement 
 
The following table presents estimated fair values of the Company's financial instruments as of September 30, 2021 and December 31, 2020, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:  
September 30, 2021 December 31, 2020
 (in thousands) Level Carrying Value Fair Value Carrying Value Fair Value
Financial assets:        
Cash and cash equivalents 1 $ 3,744,589  $ 3,744,589  $ 2,573,181  $ 2,573,181 
Equity and other investment securities 1,2 81,575  81,575  83,077  83,077 
Investment securities available for sale 2 3,723,171  3,723,171  2,932,558  2,932,558 
Investment securities held to maturity 3 2,795  3,581  3,034  3,883 
Loans held for sale 2 352,466  352,466  766,225  766,225 
Loans and leases, net
2,3 21,712,380  21,853,775  21,450,966  21,904,189 
Restricted equity securities 1 10,946  10,946  41,666  41,666 
Residential mortgage servicing rights 3 105,834  105,834  92,907  92,907 
Bank owned life insurance 1 325,646  325,646  323,470  323,470 
Derivatives 2,3 210,688  210,688  342,510  342,510 
Financial liabilities:        
Deposits 1,2 $ 26,908,397  $ 26,911,910  $ 24,622,201  $ 24,641,876 
Securities sold under agreements to repurchase 2 467,760  467,760  375,384  375,384 
Borrowings 2 6,367  7,160  771,482  774,586 
Junior subordinated debentures, at fair value 3 299,508  299,508  255,217  255,217 
Junior subordinated debentures, at amortized cost 3 88,098  76,686  88,268  67,425 
Derivatives 2 9,661  9,661  8,782  8,782 

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Fair Value of Assets and Liabilities Measured on a Recurring Basis 

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020: 
(in thousands) 
September 30, 2021
Description Total Level 1 Level 2 Level 3
Financial assets:
Equity and other investment securities        
Investments in mutual funds and other securities $ 69,157  $ 51,820  $ 17,337  $ — 
Equity securities held in rabbi trusts 12,418  12,418  —  — 
Investment securities available for sale        
U.S. Treasury and agencies 838,977  —  838,977  — 
Obligations of states and political subdivisions 283,409  —  283,409  — 
Residential mortgage-backed securities and collateralized mortgage obligations 2,600,785  —  2,600,785  — 
Loans held for sale, at fair value 352,466  —  352,466  — 
Loans and leases, at fair value 353,912  —  353,912  — 
Residential mortgage servicing rights, at fair value 105,834  —  —  105,834 
Derivatives        
Interest rate lock commitments 8,258  —  —  8,258 
Interest rate forward sales commitments 3,367  —  3,367  — 
Interest rate swaps 198,607  —  198,607  — 
Foreign currency derivative 456  —  456  — 
Total assets measured at fair value $ 4,827,646  $ 64,238  $ 4,649,316  $ 114,092 
Financial liabilities:
Junior subordinated debentures, at fair value $ 299,508  $ —  $ —  $ 299,508 
Derivatives        
Interest rate forward sales commitments 374  —  374  — 
Interest rate swaps 8,944  —  8,944  — 
Foreign currency derivative 343  —  343  — 
Total liabilities measured at fair value $ 309,169  $ —  $ 9,661  $ 299,508 

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(in thousands)  December 31, 2020
Description Total Level 1 Level 2 Level 3
Financial assets:
Equity and other investment securities        
Investments in mutual funds and other securities $ 70,203  $ 52,866  $ 17,337  $ — 
Equity securities held in rabbi trusts
12,814  12,814  —  — 
  Other investments securities (1)
60  —  60  — 
Investment securities available for sale
U.S. Treasury and agencies 762,202  —  762,202  — 
Obligations of states and political subdivisions 279,511  —  279,511  — 
Residential mortgage-backed securities and collateralized mortgage obligations 1,890,845  —  1,890,845  — 
Loans held for sale, at fair value 688,079  —  688,079  — 
Residential mortgage servicing rights, at fair value 92,907  —  —  92,907 
Derivatives        
Interest rate lock commitments 28,144  —  —  28,144 
Interest rate forward sales commitments 7  —  7  — 
Interest rate swaps 313,090  —  313,090  — 
Foreign currency derivative 1,269  —  1,269  — 
Total assets measured at fair value $ 4,139,131  $ 65,680  $ 3,952,400  $ 121,051 
Financial liabilities:
Junior subordinated debentures, at fair value $ 255,217  $ —  $ —  $ 255,217 
Derivatives        
Interest rate forward sales commitments 7,257  —  7,257  — 
Interest rate swaps 370  —  370  — 
Foreign currency derivative 1,155  —  1,155  — 
Total liabilities measured at fair value $ 263,999  $ —  $ 8,782  $ 255,217 
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities.

The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above: 
 
Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.
 
Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights.

Loans and leases— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates at which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. As of September 30, 2021, there were $353.9 million in mortgage loans recorded at fair value as they were previous transferred from held for sale to loans held for investment.
 
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Residential Mortgage Servicing Rights— The fair value of the MSRs is estimated using a discounted cash flow model. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized are indicative of those that would be used by market participants. 
 
Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique.  The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants.  Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.  
 
Derivative Instruments— The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate.  The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2021, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.   
 
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) 
 
The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at September 30, 2021: 
Financial Instrument Fair Value (in thousands) Valuation Technique Unobservable Input Range of Inputs Weighted Average
Residential mortgage servicing rights $ 105,834  Discounted cash flow    
    Constant prepayment rate
8.20% - 72.17%
16.21%
    Discount rate
9.50% - 12.50%
9.69%
Interest rate lock commitments $ 8,258  Internal pricing model
Pull-through rate
70.00% - 100.00%
88.03%
Junior subordinated debentures $ 299,508  Discounted cash flow    
    Credit spread
1.57% - 4.42%
3.46%

Generally, increases in the constant prepayment rate or the discount rate utilized in the fair value measurement of the residential mortgage servicing rights will result in a decrease in fair value. Conversely, decreases in the constant prepayment rate or the discount rate will result in an increase in fair value.

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate will result in a decrease in the fair value measurement.
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Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated debentures carried at fair value is indicative of the nonperformance risk premium a willing market participant would require under current market conditions, which is an inactive market. Generally, an increase in the credit spread will result in a decrease in the estimated fair value. Conversely, a decrease in the credit spread will result in an increase in the estimated fair value.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2021 and 2020: 
Three Months Ended Three Months Ended
September 30, 2021 September 30, 2020
(in thousands) Residential mortgage servicing rights Interest rate lock commitments, net Junior subordinated debentures, at fair value Residential mortgage servicing rights Interest rate lock commitments, net Junior subordinated debentures, at fair value
Beginning balance $ 102,699  $ 13,210  $ 287,723  $ 96,356  $ 25,537  $ 232,936 
Change included in earnings (5,315) 1,301  2,344  (17,122) 3,723  2,536 
Change in fair values included in comprehensive income/loss —  —  11,946  —  —  14,555 
Purchases and issuances 8,450  16,007  —  14,014  55,854  — 
Sales and settlements —  (22,260) (2,505) —  (56,275) (2,982)
Ending balance $ 105,834  $ 8,258  $ 299,508  $ 93,248  $ 28,839  $ 247,045 
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period $ (634) $ 8,258  $ 2,344  $ (12,244) $ 28,839  $ 2,536 
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period $ —  $ —  $ 11,946  $ —  $ —  $ 14,555 
Nine Months Ended Nine Months Ended
September 30, 2021 September 30, 2020
(in thousands) Residential mortgage servicing rights Interest rate lock commitments, net Junior subordinated debentures, at fair value Residential mortgage servicing rights Interest rate lock commitments, net Junior subordinated debentures, at fair value
Beginning Balance $ 92,907  $ 28,144  $ 255,217  $ 115,010  $ 7,056  $ 274,812 
Change included in earnings (17,918) 199  7,087  (59,246) 10,946  9,509 
Change in fair values included in comprehensive income/loss —  —  44,504  —  —  (26,857)
Purchases and issuances 30,845  67,730  —  37,484  130,862  — 
Sales and settlements —  (87,815) (7,300) —  (120,025) (10,419)
Ending Balance $ 105,834  $ 8,258  $ 299,508  $ 93,248  $ 28,839  $ 247,045 
Change in unrealized gains or losses for the period included in earnings for assets held at end of period $ (4,326) $ 8,258  $ 7,087  $ (43,997) $ 28,839  $ 9,509 
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period $ —  $ —  $ 44,504  $ —  $ —  $ (26,857)

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Changes in residential mortgage servicing rights carried at fair value are recorded in residential mortgage banking revenue within non-interest income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in residential mortgage banking revenue within non-interest income. The contractual interest expense on the junior subordinated debentures is recorded on an accrual basis as interest on junior subordinated debentures within interest expense. Settlements related to the junior subordinated debentures represent the payment of accrued interest that is embedded in the fair value of these liabilities. 

The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, the unrealized losses on fair value of junior subordinated debentures of $11.9 million and $44.5 million for the three and nine months ended September 30, 2021, are recorded net of tax as an other comprehensive loss of $8.9 million and $33.1 million, respectively. Comparatively, unrealized losses of $14.6 million and unrealized gains of $26.9 million were recorded net of tax as an other comprehensive loss of $10.8 million and other comprehensive income of $20.0 million, respectively, for the three and nine months ended September 30, 2020.

Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis 
 
From time to time, certain assets are measured at fair value on a nonrecurring basis.  These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans. The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period.  The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon. 
September 30, 2021
 (in thousands) Total Level 1 Level 2 Level 3
Loans and leases $ 5,835  $ —  $ —  $ 5,835 
Total assets measured at fair value on a nonrecurring basis $ 5,835  $ —  $ —  $ 5,835 
December 31, 2020
 (in thousands) 
Total Level 1 Level 2 Level 3
Loans and leases $ 8,231  $ —  $ —  $ 8,231 
Total assets measured at fair value on a nonrecurring basis $ 8,231  $ —  $ —  $ 8,231 

The following table presents the losses resulting from nonrecurring fair value adjustments for the three and nine months ended September 30, 2021 and 2020:  

Three Months Ended Nine Months Ended
  (in thousands) 
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Loans and leases $ 8,470  $ 14,797  $ 43,480  $ 53,336 
Goodwill impairment —  —  —  1,784,936 
Total loss from nonrecurring measurements $ 8,470  $ 14,797  $ 43,480  $ 1,838,272 

Goodwill was evaluated for impairment as of March 31, 2020, resulting in an impairment charge of $1.8 billion for the nine months ended September 30, 2020.

The following provides a description of the valuation technique and inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis, excluding goodwill. Unobservable inputs and qualitative information about the unobservable inputs are not presented as the fair value is determined by third-party information for loans and leases.

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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.
 
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020
(in thousands) Fair Value  Aggregate Unpaid Principal Balance Fair Value Less Aggregate Unpaid Principal Balance Fair Value Aggregate Unpaid Principal Balance Fair Value Less Aggregate Unpaid Principal Balance
  Loans held for sale $ 352,466  $ 340,670  $ 11,796  $ 688,079  $ 654,555  $ 33,524 
  Loans $ 353,912  $ 340,664  $ 13,248  $ —  $ —  $ — 

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking revenue. For the three and nine months ended September 30, 2021, the Company recorded net decreases in fair value of $4.5 million and $13.5 million, respectively. For the three and nine months ended September 30, 2020, the Company recorded a net increase in fair value of $2.2 million and $16.5 million, respectively.

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

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

Note 11 - Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as in the majority of states. As of September 30, 2021, the Company has a net deferred tax asset of $8.4 million, which includes $1.3 million of state net operating loss carry-forwards, expiring in the tax years of 2029-2031. The Company believes that it is more likely than not that the benefit from only certain state NOL carry-forwards will not be realized and therefore has provided a valuation allowance of $1.1 million against the deferred tax assets relating to these NOL carry-forwards. The Company had gross unrecognized tax benefits of $3.4 million as of September 30, 2021. If recognized, the unrecognized tax benefit would reduce the 2021 annual effective tax rate by 0.56%.

The Company's consolidated effective tax rate as a percentage of pre-tax income (loss) for the nine months ended September 30, 2021 was 24.7%, as compared to (4.4)% for the nine months ended September 30, 2020. The effective tax rate increased from the prior year primarily due to the impairment of non-deductible goodwill during the nine months ended September 30, 2020. Additionally, the effective tax rates differed from the statutory rate principally because of state taxes, non-taxable income arising from bank-owned life insurance, income on tax-exempt investment securities and tax credits arising from low-income housing investments.
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Note 12 – Subsequent Event

On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved a Merger Agreement under which the two companies will combine in an all-stock transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Umpqua, with Umpqua surviving the Merger, and immediately following the Merger and as a part of a single integrated transaction, Umpqua will merge with and into Columbia, with Columbia continuing as the surviving entity. Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company.

The completion of the Merger is subject to customary conditions, including (1) approval by Umpqua's and Columbia's shareholders, (2) approval by Columbia's shareholders of an amendment to Columbia's articles of incorporation to increase the number of authorized shares of Columbia's common stock, (3) authorization for listing on the NASDAQ of the shares of Columbia's common stock to be issued in the Merger, (4) the receipt of required regulatory approvals for the Merger from the Federal Reserve Board, Federal Deposit Insurance Corporation and Oregon and Washington state bank regulators, in each case without the imposition of any materially burdensome regulatory condition, (5) effectiveness of the registration statement on Form S-4 for Columbia's common stock to be issued in the Merger, and (6) the absence of any order, injunction or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party's obligation to complete the Merger is also subject to certain additional customary conditions. The Merger Agreement provides certain termination rights for both Umpqua and Columbia and further provides that, upon termination of the Merger Agreement under certain circumstances, Umpqua or Columbia, as applicable, will be obligated to pay the other party a termination fee of $145.0 million.

At September 30, 2021, Columbia reported $18.6 billion in assets, including $9.4 billion in net loans and $4.8 billion in available for sale debt securities, $16.0 billion in deposits, and $2.3 billion in shareholders' equity.

The transaction is expected to close in mid-2022. A summary of the terms of the Merger Agreement and other related agreements are summarized in, and the Merger Agreement has been filed as an exhibit to, the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 12, 2021.

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Item 2.         Management's Discussion and Analysis of Financial Condition and Results of Operations 
 
Forward-Looking Statements 
 
This Report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends" and "forecast," and words or phrases of similar meaning.

We make forward-looking statements about the proposed transaction between us and Columbia Banking System, Inc.; the projected impacts on our business operations of the COVID-19 pandemic; Next Gen 2.0 initiatives including store consolidations, new products and services, technology initiatives, operational improvements, and facilities rationalizations; LIBOR; derivatives and hedging; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of funds and the Company's liquidity position; our securities portfolio; loan sales; adequacy of our ACL, including the reserve for unfunded commitments; provision for credit losses; non-performing loans and future losses; performance of troubled debt restructurings; our commercial real estate portfolio, its collectability and subsequent charge-offs; resolution of non-accrual loans; PPP forgiveness and SBA fees; mortgage volumes and the impact of rate changes; the economic environment; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including mortgage servicing rights values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation: our ability to complete the Merger with Columbia and realize the anticipated benefits of the merger; current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, and any slowdown in economic growth particularly in the western United States; the length and immediate and long-term effects of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and demand for our products; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; our ability to effectively manage problem credits; our ability to successfully implement technology, efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; and our ability to successfully negotiate with landlords or reconfigure facilities. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements, applicable law and regulations (including federal securities laws and state and federal banking laws and regulations), and other factors deemed relevant by the Company's Board of Directors, and may be subject to regulatory approval or conditions.

Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that might cause actual results to differ materially from those presented: 

•the ability to complete, or any delays in completing, the proposed transaction between us and Columbia;
•the significant risks and uncertainties for our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its influence on the economy and financial markets, the continued effectiveness of our work from home arrangements and staffing levels in operational facilities, challenges associated with our return to office plans such as maintaining a safe office environment and integrating at-home and in-office staff, the impact of market participants on which we rely and actions taken by governmental authorities and other third parties in response to the pandemic and the impact of lower equity market valuations on our service and management fee revenue;
•deterioration in economic conditions that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans;
•our ability to successfully, including on time and on budget, implement and sustain information technology product and system enhancements and operational initiatives;
•our ability to attract new deposits and loans and leases;
•our ability to retain deposits, especially during store consolidations; 
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•demand for financial services in our market areas; 
•competitive market pricing factors; 
•our ability to effectively develop and implement new technology;
•continued market interest rate volatility; 
•prolonged low interest rate environment;
•continued compression of our net interest margin; 
•stability and cost of funding sources;
•continued availability of borrowings and other funding sources such as brokered and public deposits; 
•changes in legal or regulatory requirements or the results of regulatory examinations that could increase expenses or restrict growth;
•our ability to recruit and retain key management and staff; 
•availability of, and competition for, acquisition opportunities; 
•our ability to raise capital or incur debt on reasonable terms; 
•regulatory limits on the Bank's ability to pay dividends to the Company; 
•financial services reform and the impact of legislation and implementing regulations on our business operations, including our compliance costs, interest expense, and revenue;
•a breach or failure of our operational or security systems, or those of our third-party vendors, including as a result of cyber-attacks; and
•competition, including from financial technology companies.

There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements are made as of the date of this Form 10-Q. We do not intend to update these forward-looking statements. Readers should consider any forward-looking statements in light of this explanation, and we caution readers about relying on forward-looking statements.
  
General 
The Company is an Oregon corporation and the financial holding company of the Bank. The Bank is the largest bank with headquarters in the Pacific Northwest and is considered one of the most innovative banks in the United States, recognized for its company culture and customer experience strategy. The Bank provides a broad range of banking, private banking, mortgage and other financial services to corporate, institutional, and individual customers. FinPac, a commercial equipment leasing company, is a Bank subsidiary.
On October 12, 2021, Umpqua announced entering into a definitive agreement to join together with Columbia. Once the transaction is completed, the combined organization is expected to be a leading West Coast franchise with more than $50 billion in assets. The transaction is expected to close in mid-2022, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approvals from each company's shareholders.

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

In November 2020, the SEC issued Final Rule 33-10890, Management’s Discussion and Analysis, Selected Financial Data and Supplementary Financial Information, which modernizes and simplifies certain disclosure requirements of Regulation S-K. One update to Item 303 of Regulation S-K allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. We have elected to early adopt this rule change, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison. Accordingly, we have compared the results for the three months ended September 30, 2021 and June 30, 2021, where applicable, throughout this Management's Discussion and Analysis.
  
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Executive Overview 

The following is a discussion of our results for the three and nine months ended September 30, 2021, as compared to the applicable prior periods.

Financial Performance
 
•Net income per diluted common share was $0.49 for the three months ended September 30, 2021, as compared to $0.53 for the three months ended June 30, 2021. Net income per diluted common share was $1.51 for the nine months ended September 30, 2021, as compared to a net loss per diluted common share of ($7.60) for the nine months ended September 30, 2020. The decrease for the three months ended September 30, 2021, as compared to the prior quarter, was primarily driven by a decline in non-interest income due to the decrease in residential mortgage banking revenue, as well as the decrease in recapture of the provision for credit losses in the current quarter. The decrease was offset slightly by a decrease in non-interest expense and an increase in net-interest income. The increase in net income for the nine months ended September 30, 2021 as compared to the same period in the prior year, is due mainly to the goodwill impairment taken in 2020. In addition, for the nine months ended September 30, 2021, we recorded a recapture of provision for credit losses compared to provision expense for the same period in the prior year.
 
•Net interest margin, on a tax equivalent basis, was 3.21% for the three months ended September 30, 2021, as compared to 3.20% for the three months ended June 30, 2021. Net interest margin, on a tax equivalent basis, was 3.20% for the nine months ended September 30, 2021, as compared to 3.19% for the nine months ended September 30, 2020.  The increase for the three months ended September 30, 2021 as compared to the prior quarter was driven by an increase in interest income as a result of higher non-PPP average loans and leases, as well as a decrease in interest expense due to the decline in average rates on deposits, specifically time deposits. The increase in net interest margin for the nine months ended September 30, 2021, compared to the same period in the prior year, was driven by lower costs on interest-bearing liabilities due to the decline in deposit costs. The decrease was partially offset by a decrease in yields on interest-earning assets.

•Residential mortgage banking revenue was $34.2 million for the three months ended September 30, 2021, as compared to $44.4 million for the three months ended June 30, 2021. Residential mortgage banking revenue was $143.6 million for the nine months ended September 30, 2021, as compared to $191.8 million for the nine months ended September 30, 2020.  The decrease for the three and nine months ended September 30, 2021, as compared to the prior periods, was driven by a decline in for-sale originations and in the gain on sale margin due to normalizing margins, caused by rising rates which has resulted in a slow-down in refinancing demand. The decrease for the nine months ended September 30, 2021, as compared to the previous period, was slightly offset by a lower loss on fair value on the MSR asset during the period.

•For-sale mortgage closed loan volume decreased by 21% for the three months ended September 30, 2021, as compared to the three months ended June 30, 2021. For-sale mortgage closed loan volume also decreased 21% for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. In addition, the gain on sale margin decreased to 3.07% for the three months ended September 30, 2021, as compared to 3.30% for the three months ended June 30, 2021. For the nine months ended September 30, 2021, the gain on sale margin decreased to 3.46%, as compared to 4.59% for the nine months ended September 30, 2020.

•Total loans and leases were $22.0 billion as of September 30, 2021, an increase of $190.6 million, as compared to December 31, 2020.  The increase in total loans is primarily due to an increase in the commercial real estate balances of $554.9 million, primarily within multifamily lending and an increase in residential real estate balances of $456.7 million, offset by a decrease of $796.8 million in commercial balances. The decrease in commercial balances mainly relates to the decrease in PPP loans of $1.0 billion during the period, as the majority of these loans are forgiven by the SBA, as expected.
 
•Total deposits were $26.9 billion as of September 30, 2021, an increase of $2.3 billion, compared to December 31, 2020.  This increase was due to growth in demand, money market, and savings deposits, which is attributable to customer saving habits in the current economic environment, resulting in higher average balances per deposit account. The increase in deposits is partially offset by a decline in higher cost time deposits.
 
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•Total consolidated assets were $30.9 billion as of September 30, 2021, compared to $29.2 billion at December 31, 2020. The increase was mainly due to an increase in on-balance sheet liquidity, as well as an increase in available for sale securities and loans.

Credit Quality

•Non-performing assets decreased to $53.5 million, or 0.17% of total assets, as of September 30, 2021, as compared to $69.2 million, or 0.24% of total assets, as of December 31, 2020. Non-performing loans and leases were $51.6 million, or 0.24% of total loans and leases, as of September 30, 2021, as compared to $67.4 million, or 0.31% of total loans and leases, as of December 31, 2020.

•The allowance for credit losses on loans and leases was $257.6 million, as of September 30, 2021, a decrease of $70.8 million, as compared to December 31, 2020. The reserve for unfunded commitments was $11.8 million, as of September 30, 2021, a decrease of $8.5 million, as compared to December 31, 2020. The decrease in the allowance for credit losses is due to the improvement in economic forecasts used in the credit models.

•The Company had a recapture of the provision for credit losses of $18.9 million and $41.9 million for the three and nine months ended September 30, 2021, respectively. This was compared to a recapture of the provision for credit losses of $23.0 million for the three months ended June 30, 2021. For the nine months ended September 30, 2020, the provision for credit losses was $204.8 million. The recapture of the provision for credit losses in the current periods was due to stabilization of credit quality metrics and improved economic forecasts used in credit models as of September 30, 2021.

Liquidity
•Total cash and cash equivalents was $3.7 billion as of September 30, 2021, an increase of $1.2 billion from December 31, 2020. The increase in cash and cash equivalents is consistent with the growth in deposit balances, which will provide flexibility to fund growth in the lending and investment portfolios as economic conditions permit.

Capital and Growth Initiatives

•Umpqua launched "Next Gen 2.0" as a continuation of our initiative to modernize the Bank. Like its predecessor, the Next Gen 2.0 program includes initiatives to grow revenue, invest in strategic areas for future growth, including technology and digital enhancements, and to continue to advance operational excellence goals to reduce operating costs and invest the savings in strategic growth opportunities. We have focused on continued customer and talent acquisition, converting new PPP customers to expanded relationships with additional products and services, implemented new technology to gain efficiencies and advance the customer experience, and planned consolidation of stores and back-office facilities for expense reduction. We have also launched new products to provide digital offerings, as well as consolidated payment options for commercial customers.

•The Company's total risk based capital ratio was 14.9% and its Tier 1 common to risk weighted assets ratio was 12.0% as of September 30, 2021. As of December 31, 2020, the Company's total risk based capital ratio was 15.6% and its Tier 1 common to risk weighted assets ratio was 12.3%.

•The Company repurchased 4.0 million shares for a total of $78.2 million during the quarter, under the new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The Company does not anticipate any near-term share repurchases under our existing repurchase program given our pending combination with Columbia.

•The Company paid quarterly cash dividends of $0.21 per common share to shareholders on February 26, 2021, May 28, 2021 and August 31, 2021. The Company may not increase quarterly dividends during the pendency of the Merger.



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Summary of Critical Accounting Policies 
 
Our critical accounting policies are described in detail in the Summary of Critical Accounting Policies section of the Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021. The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. The Company's critical accounting policies include the allowance for credit losses, residential mortgage servicing rights, and fair value. There have been no material changes in these policies during the nine months ended September 30, 2021. 

Results of Operations
 
Overview 
 
For the three months ended September 30, 2021, net income was $108.1 million or $0.49 per diluted common share, compared to net income of $116.1 million or $0.53 per diluted common share for the three months ended June 30, 2021. For the nine months ended September 30, 2021, net income was $331.9 million or $1.51 per diluted common share, which compares to a net loss of $1.7 billion or $7.60 per diluted common share for the nine months ended September 30, 2020.

In the first quarter of 2021, the Company realigned its operating segments based on changes in management's focus and its internal reporting structure. The Company now reports two segments: Core Banking and Mortgage Banking. This aligns with how we manage the profitability of the Company and also provides greater transparency into the financial contribution of mortgage banking activities.

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, private banking, as well as the operations, technology, and administrative functions of the Bank and Holding Company. The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from our serviced loan portfolio, the quarterly changes in the MSR asset, and the specific expenses that are related to mortgage banking activities including variable commission expenses. Revenue and related expenses related to residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for our consumer channels and are originated through a variety of channels throughout the Company. Refer to the segment information footnote for additional detail of the segments' financial statements.

The Core Banking segment had net income of $102.3 million for the three months ended September 30, 2021, compared to net income of $108.2 million for the three months ended June 30, 2021. The decrease in net income is attributable to a decrease in non-interest income, as well as a decrease in the recapture of the provision for credit losses, offset by an increase in net interest income. Net income for the Core Banking segment increased for the nine months ended September 30, 2021, as compared to the same period in the prior year, due to the impact of goodwill impairment in 2020, as well as the recapture of the provision for credit losses as economic forecasts improved in the current period.

The Mortgage Banking segment had net income of $5.8 million for the three months ended September 30, 2021, compared to net income of $8.0 million for the three months ended June 30, 2021. The decrease in net income for the three months ended September 30, 2021 for the Mortgage Banking segment, compared to the three months ended June 30, 2021, is attributable to lower for-sale mortgage originations and lower gain on sale margin. The closed loan volume declined as a result of rate changes, resulting in a slowing of loan refinance activity. The decrease in net income for the Mortgage Banking segment, for the nine months ended September 30, 2021, compared to the same period of the prior year, was primarily due to a decrease in for-sale originations and a decline in the gain on sale margin.
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The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three months ended September 30, 2021 and June 30, 2021, respectively, as well as the nine months ended September 30, 2021 and September 30, 2020, respectively. For each period presented, the table includes the calculated ratios based on reported net income. Our return on average common shareholders' equity was negatively impacted as the result of capital required to support goodwill. To the extent this performance metric is used to compare our performance with other financial institutions that do not have merger and acquisition-related intangible assets, we believe it is beneficial to also consider the return on average tangible common shareholders' equity. The return on average tangible common shareholders' equity is calculated by dividing net income by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.  

Return on Average Assets, Common Shareholders' Equity and Tangible Common Shareholders' Equity
 
Three Months Ended Nine Months Ended
 (dollars in thousands)  September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020
Return on average assets 1.40  % 1.54  % 1.48  % (7.67) %
Return on average common shareholders' equity 15.82  % 17.25  % 16.47  % (72.01) %
Return on average tangible common shareholders' equity 15.88  % 17.33  % 16.55  % (89.45) %
Calculation of average common tangible shareholders' equity:        
Average common shareholders' equity $ 2,709,641  $ 2,700,010  $ 2,694,968  $ 3,105,611 
Less: average goodwill and other intangible assets, net (10,609) (12,615) (12,922) (605,548)
Average tangible common shareholders' equity $ 2,699,032  $ 2,687,395  $ 2,682,046  $ 2,500,063 
Additionally, management believes tangible common equity and the tangible common equity ratio are meaningful measures of capital adequacy. Umpqua believes the exclusion of certain intangible assets in the computation of tangible common equity and tangible common equity ratio provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the operating results and capital of the Company.  Tangible common equity is calculated as total shareholders' equity less preferred stock and less goodwill and other intangible assets, net (excluding MSRs).  In addition, tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs).  The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets. The tangible common equity and tangible common equity ratio is considered a non-GAAP financial measure and should be viewed in conjunction with the total shareholders' equity and the total shareholders' equity ratio. 

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The following table provides a reconciliation of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP) as of September 30, 2021 and December 31, 2020: 
 (dollars in thousands) 
September 30, 2021 December 31, 2020
Total shareholders' equity $ 2,722,379  $ 2,704,577 
Subtract:    
Goodwill —  2,715 
Other intangible assets, net 9,970  13,360 
Tangible common shareholders' equity $ 2,712,409  $ 2,688,502 
Total assets $ 30,891,479  $ 29,235,175 
Subtract:
Goodwill —  2,715 
Other intangible assets, net 9,970  13,360 
Tangible assets $ 30,881,509  $ 29,219,100 
Tangible common equity ratio 8.78  % 9.20  %
 
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not reviewed or audited.  Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.
  
Net Interest Income 
 
Net interest income for the three months ended September 30, 2021 was $235.1 million, an increase of $5.3 million compared to the three months ended June 30, 2021. Net interest income for the nine months ended September 30, 2021 was $686.3 million, an increase of $38.7 million compared to the nine months ended September 30, 2020. The increase for the three months ended September 30, 2021 compared to the prior quarter was driven by an increase of $2.7 million in interest income which is a result of higher non-PPP average loan balances and taxable securities income growth, and a decrease of $2.6 million in interest expense due to the decline in high-cost time deposits and term debt in the quarter compared to the prior period. The increase for the nine months ended September 30, 2021, was due to the lower cost of interest-bearing liabilities due to lower retail and brokered time deposits as the Bank has allowed these higher-cost deposits to runoff. The decrease in interest expense was partially offset by lower average yields on interest-earning assets for the period.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.21% for the three months ended September 30, 2021, as compared to 3.20% for the three months ended June 30, 2021. The net interest margin on a fully tax equivalent basis was 3.20% for the nine months ended September 30, 2021, as compared to 3.19% for the nine months ended September 30, 2020. The increase in net interest margin for the three months ended September 30, 2021, as compared to the three months ended June 30, 2021, was driven by the increase in net interest income. The increase in net interest margin for the nine months ended September 30, 2021, primarily resulted from a decrease in the cost of interest bearing liabilities, partially offset by the decline in the average yields of interest-earning assets. The Federal Open Market Committee expects to maintain the target rates at the current levels until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The yield on loans and leases for the three months ended September 30, 2021 increased by 3 basis points as compared to the three months ended June 30, 2021, primarily attributable higher rates on average loans and leases as PPP loan balances decline. The yield on loans and leases for the nine months ended September 30, 2021 decreased by 20 basis points as compared to the same period in 2020, primarily attributable to the decrease in interest rates as compared to prior periods and lower average loans and leases. The cost of interest-bearing liabilities decreased 7 basis points, for the three months ended September 30, 2021, as compared to the three months ended June 30, 2021, due to the continued run off of higher-cost time deposits, as well as the paydown of borrowings during the period. The cost of interest-bearing liabilities decreased by 56 basis points for the nine months ended September 30, 2021, as compared to the same period in 2020, also due to the decrease in interest rates and corresponding deposit pricing strategy, as well as decreased borrowings. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, as well as changes in the yields earned on interest-earning assets and rates paid on deposits and borrowed funds. The Company continues to be "asset-sensitive." The decrease in yields on earning assets has continued to impact net interest margin, even as liabilities reprice downward.
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The following tables present condensed average balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 2021 and 2020:  
Three Months Ended
  September 30, 2021 June 30, 2021
 (dollars in thousands) Average Balance Interest Income or Expense Average Yields or Rates Average Balance Interest Income or Expense Average Yields or Rates
INTEREST-EARNING ASSETS:      
Loans held for sale $ 465,805  $ 3,672  3.15  % $ 468,960  $ 3,725  3.18  %
Loans and leases (1)
21,864,387  220,731  4.02  % 22,040,794  219,745  3.99  %
Taxable securities 3,436,895  16,315  1.90  % 3,210,771  15,024  1.87  %
Non-taxable securities (2)
245,904  1,848  3.01  % 247,282  1,864  3.02  %
Temporary investments and interest-bearing cash 3,224,846  1,237  0.15  % 2,835,474  774  0.11  %
Total interest-earning assets 29,237,837  $ 243,803  3.32  % 28,803,281  $ 241,132  3.35  %
Other assets 1,376,537  1,352,736 
Total assets $ 30,614,374  $ 30,156,017 
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 3,564,040  $ 468  0.05  % $ 3,385,336  $ 459  0.05  %
Money market deposits 7,800,144  1,492  0.08  % 7,614,474  1,533  0.08  %
Savings deposits 2,284,077  206  0.04  % 2,171,865  154  0.03  %
Time deposits 2,031,494  2,934  0.57  % 2,303,068  4,870  0.85  %
Total interest-bearing deposits 15,679,755  5,100  0.13  % 15,474,743  7,016  0.18  %
Repurchase agreements and federal funds purchased 496,822  88  0.07  % 440,881  68  0.06  %
Borrowings 31,500  149  1.88  % 214,670  866  1.62  %
Junior subordinated debentures 375,726  3,014  3.18  % 369,812  3,042  3.30  %
Total interest-bearing liabilities 16,583,803  $ 8,351  0.20  % 16,500,106  $ 10,992  0.27  %
Non-interest-bearing deposits 10,960,686  10,582,197 
Other liabilities 360,244  373,704 
Total liabilities 27,904,733  27,456,007 
Common equity 2,709,641  2,700,010 
Total liabilities and shareholders' equity $ 30,614,374  $ 30,156,017 
NET INTEREST INCOME $ 235,452  $ 230,140 
NET INTEREST SPREAD 3.12  % 3.08  %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)
3.21  % 3.20  %
(1)Non-accrual loans and leases are included in the average balance.
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $377,000 for the three months ended September 30, 2021, as compared to approximately $377,000 for the three months ended June 30, 2021.

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Nine Months Ended
September 30, 2021 September 30, 2020
(dollars in thousands) Average Balance Interest Income or Expense Average Yields or Rates Average Balance Interest Income or Expense Average Yields or Rates
INTEREST-EARNING ASSETS:
Loans held for sale $ 545,237  $ 12,242  2.99  % $ 551,583  $ 14,955  3.61  %
Loans and leases (1)
21,866,569  656,772  4.01  % 22,063,582  695,669  4.21  %
Taxable securities 3,199,653  45,049  1.88  % 2,778,460  37,744  1.81  %
Non-taxable securities (2)
248,617  5,627  3.02  % 238,059  5,608  3.14  %
Temporary investments and interest bearing cash 2,850,639  2,635  0.12  % 1,493,352  4,208  0.38  %
Total interest-earning assets 28,710,715  $ 722,325  3.36  % 27,125,036  $ 758,184  3.73  %
Other assets 1,348,054  2,024,722 
Total assets $ 30,058,769  $ 29,149,758 
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 3,359,865  $ 1,341  0.05  % $ 2,667,160  $ 5,264  0.26  %
Money market deposits 7,593,320  4,516  0.08  % 7,187,615  18,080  0.34  %
Savings deposits 2,152,667  523  0.03  % 1,635,064  618  0.05  %
Time deposits 2,336,261  16,414  0.94  % 4,159,926  61,671  1.98  %
Total interest-bearing deposits 15,442,113  22,794  0.20  % 15,649,765  85,633  0.73  %
Repurchase agreements and federal funds purchased 444,919  232  0.07  % 363,957  673  0.25  %
Borrowings 259,890  2,787  1.43  % 1,041,181  11,156  1.43  %
Junior subordinated debentures 363,122  9,108  3.35  % 322,356  12,074  5.00  %
Total interest-bearing liabilities 16,510,044  $ 34,921  0.28  % 17,377,259  $ 109,536  0.84  %
Non-interest-bearing deposits 10,484,104  8,237,095 
Other liabilities 369,653  429,793 
Total liabilities 27,363,801  26,044,147 
Common equity 2,694,968  3,105,611 
Total liabilities and shareholders' equity $ 30,058,769  $ 29,149,758 
NET INTEREST INCOME $ 687,404  $ 648,648 
NET INTEREST SPREAD 3.08  % 2.89  %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)
3.20  % 3.19  %
(1)Non-accrual loans and leases are included in the average balance.   
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $1.1 million for the nine months ended September 30, 2021, as compared to approximately $1.0 million for the same period in 2020.
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The following tables set forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three months ended September 30, 2021 as compared to three months ended June 30, 2021, as well as the nine months ended September 30, 2021 and September 30, 2020, respectively. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances. 

Three Months Ended
  September 30, 2021 compared June 30, 2021
  Increase (decrease) in interest income and expense due to changes in
  (in thousands)
Volume Rate Total
INTEREST-EARNING ASSETS:      
Loans held for sale $ (25) $ (28) $ (53)
Loans and leases (1,065) 2,051  986 
Taxable securities 1,073  218  1,291 
Non-taxable securities (1)
(10) (6) (16)
Temporary investments and interest bearing cash 120  343  463 
Total interest-earning assets (1)
93  2,578  2,671 
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits 26  (17) 9 
Money market deposits 41  (82) (41)
Savings deposits 9  43  52 
Time deposits (516) (1,420) (1,936)
Repurchase agreements 10  10  20 
Borrowings (837) 120  (717)
Junior subordinated debentures 59  (87) (28)
Total interest-bearing liabilities (1,208) (1,433) (2,641)
Net increase in net interest income (1)
$ 1,301  $ 4,011  $ 5,312 
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.
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Nine Months Ended
September 30, 2021 compared to September 30, 2020
Increase (decrease) in interest income and expense due to changes in
(in thousands) Volume Rate Total
INTEREST-EARNING ASSETS:
Loans held for sale $ (170) $ (2,543) $ (2,713)
Loans and leases (6,219) (32,678) (38,897)
Taxable securities 5,880  1,425  7,305 
Non-taxable securities (1)
243  (224) 19 
Temporary investments and interest bearing cash 2,345  (3,918) (1,573)
Total interest-earning assets (1)
2,079  (37,938) (35,859)
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits 1,099  (5,022) (3,923)
Money market 967  (14,531) (13,564)
Savings 163  (258) (95)
Time deposits (20,580) (24,677) (45,257)
Repurchase agreements 124  (565) (441)
Borrowings (8,388) 19  (8,369)
Junior subordinated debentures 1,385  (4,351) (2,966)
Total interest-bearing liabilities (25,230) (49,385) (74,615)
Net increase in net interest income (1)
$ 27,309  $ 11,447  $ 38,756 
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

Provision for Credit Losses 
 
The Company had an $18.9 million recapture of provision for credit losses for the three months ended September 30, 2021, as compared to a $23.0 million recapture of credit losses for the three months ended June 30, 2021. The Company had a $41.9 million recapture of provision for credit losses for the nine months ended September 30, 2021, as compared to a provision for credit losses of $204.8 million for the nine months ended September 30, 2020. The change for the three months ended September 30, 2021, as compared to the three months ended June 30, 2021 was attributable to the stabilizing economic forecast used in the credit models and loan mix changes, which allowed for a recapture of previous provision for credit losses. The change in the provision for credit losses for nine months ended September 30, 2021 as compared to the same prior year period, is primarily attributed to a stabilization of credit quality metrics and the improvement in economic forecasts used in credit models. The Company adopted CECL as of January 1, 2020, so there may be volatility in the provision for credit losses as CECL requires a current expected credit loss for the life of loans.

As an annualized percentage of average outstanding loans and leases, the recapture of provision for credit losses recorded for the three months ended September 30, 2021 was (0.34)% as compared to (0.42)% for the three months ended June 30, 2021. As an annualized percentage of average outstanding loans and leases, the recapture of provision for credit losses recorded for the nine months ended September 30, 2021 was (0.26)%. As an annualized percentage of average outstanding loans and leases, the provision for credit losses for the nine months ended September 30, 2020 was 1.24%. 
 
For the three months ended September 30, 2021, net charge-offs were $6.2 million, as compared to $13.6 million for the three months ended June 30, 2021. For the nine months ended September 30, 2021, net charge-offs were $37.5 million, as compared to $51.4 million for the nine months ended September 30, 2020. As an annualized percentage of average outstanding loans and leases, net charge-offs for the three months ended September 30, 2021 was 0.11%, as compared to 0.25% for the three months ended June 30, 2021. As an annualized percentage of average outstanding loans and leases, net charge-offs for the nine months ended September 30, 2021 was 0.23%, as compared to 0.31% for the nine months ended September 30, 2020.

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Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements are determined by the loss given default calculated by the CECL model, and therefore homogeneous leases and equipment finance agreements on non-accrual will have an allowance for credit loss amount until they become 181 days past due, at which time they are charged-off. The non-accrual leases and equipment finance agreements of $11.8 million as of September 30, 2021 have a related allowance for credit losses of $6.9 million, with the remaining loans written-down to the estimated fair value of the collateral, less estimated costs to sell, and are expected to be resolved with no additional material loss, absent further decline in market prices. 

Non-Interest Income 
 
Non-interest income for the three months ended September 30, 2021 was $73.7 million, a decrease of $17.4 million compared to the three months ended June 30, 2021. Non-interest income for the nine months ended September 30, 2021, was $273.6 million, a decrease of $14.5 million, compared to the nine months ended September 30, 2020. The following table presents the key components of non-interest income for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, as well as the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020:
Three Months Ended Nine Months Ended
(in thousands) September 30, 2021 June 30, 2021 Change Amount Change Percent September 30, 2021 September 30, 2020 Change Amount Change Percent
Service charges on deposits $ 10,941  $ 10,310  $ 631  6  % $ 30,898  $ 30,635  $ 263  1  %
Card-based fees 9,111  10,274  (1,163) (11) % 26,759  20,436  6,323  31  %
Brokerage revenue 31  1,135  (1,104) (97) % 5,081  11,506  (6,425) (56) %
Residential mortgage banking revenue, net 34,150  44,443  (10,293) (23) % 143,626  191,794  (48,168) (25) %
Gain on sale of debt securities, net —  —  —  N/M 4  190  (186) (98) %
(Loss) gain on equity securities, net (343) 4  (347) N/M (1,045) 942  (1,987) (211) %
Gain on loan and lease sales, net 4,208  5,318  (1,110) (21) % 10,899  3,333  7,566  227  %
Bank owned life insurance income 2,038  2,092  (54) (3) % 6,201  6,332  (131) (2) %
Other income 13,569  17,499  (3,930) (22) % 51,157  22,881  28,276  124  %
Total non-interest income $ 73,705  $ 91,075  $ (17,370) (19) % $ 273,580  $ 288,049  $ (14,469) (5) %

During the current year, the Company added the card-based fees line item, which were previously included in the service charges on deposits and other income line items. Prior periods have been reclassified to conform to the current presentation. Card-based fees are comprised of debit and credit card income, ATM fees, and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned when our customers' debit and credit cards are processed through card payment networks. The decrease for the three months ended September 30, 2021, as compared to the prior quarter, was attributable to changes in our agreement with third-party interchange vendors. The increase in the nine months ended September 30, 2021, as compared to prior periods, is attributable to increased merchant processing fees, given strengthening economic activity and lower unemployment rates in our footprint, as businesses are once again open and experiencing increased customer activity.

Brokerage revenue decreased for the three and nine months ended September 30, 2021 as compared to prior periods, due to the sale of Umpqua Investments, Inc. in April 2021.

The gain on loan and lease sales decreased for the three months ended September 30, 2021, as compared to the previous quarter, due to lower SBA loan sales during the period as the three months ended June 30, 2021 had higher than average SBA loan sales. The increase for the nine months ended September 30, 2021, as compared to prior period, was driven by an increase in SBA loan sales which increased due to higher government guarantees and incentives for borrowers.

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Other income for the three months ended September 30, 2021 decreased by $3.9 million as compared to the three months ended June 30, 2021. The decrease is primarily due to the $4.4 million dollar gain related to the sale of Umpqua Investments, Inc. and a $2.3 million advisory fee earned in the prior period, offset by miscellaneous other income items. For the nine months ended September 30, 2021, other income increased by $28.3 million, primarily due to the fluctuation in the gain on the swap derivative fair value of $22.1 million, as the gain on swap derivative fair value was $8.7 million, compared to a loss on swap derivative fair value of $13.4 million in the prior period. For nine months ended September 30, 2021, other income also includes the $4.4 million gain on sale of Umpqua Investments, Inc. during the period, as well as a $2.3 million advisory fee earned during the period. Other income for the three and nine months ended September 30, 2021, includes the gain on the changes in fair value of the held for investment mortgage loans at fair value of $3.4 million and $5.7 million, respectively.

Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, decreased $10.3 million and $48.2 million for the three and nine months ended September 30, 2021, as compared to comparison periods, due to a decrease in originations driven by a slowdown in refinancing demand as well as a decline in gain on sale margins.

For-sale mortgage closed loan volume for the three months ended September 30, 2021, decreased 21% as compared to the three months ended June 30, 2021. In addition, the gain on sale margin decreased to 3.07% for the three months ended September 30, 2021, as compared to 3.30% for the three months ended June 30, 2021. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 2.02% for the three months ended September 30, 2021, as compared to 2.03% for the three months ended June 30, 2021.

For-sale mortgage closed loan volume decreased 21% for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the gain on sale margin decreased to 3.46%, as compared to 4.59% for the nine months ended September 30, 2020. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 1.98% for the nine months ended September 30, 2021, compared to 1.92% for the nine months ended September 30, 2020.

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

Servicing income was $9.2 million for the three months ended September 30, 2021, as compared to $9.1 million for the three months ended June 30, 2021. For the nine months ended September 30, 2021 and 2020, servicing income was $27.4 million and $26.2 million, respectively.

The following table presents our residential mortgage banking revenue for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 2021 and 2020: 

Three Months Ended Nine Months Ended
(in thousands)
September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020
Origination and sale $ 30,293  $ 41,367  $ 134,165  $ 224,831 
Servicing 9,172  9,120  27,379  26,209 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time (4,681) (4,366) (13,592) (15,249)
Changes in valuation inputs or assumptions (1)
(634) (1,678) (4,326) (43,997)
Residential mortgage banking revenue, net $ 34,150  $ 44,443  $ 143,626  $ 191,794 
LHFS Production Statistics:
Closed loan volume for-sale $ 987,281  $ 1,253,023  $ 3,875,836  $ 4,897,068 
Gain on sale margin 3.07  % 3.30  % 3.46  % 4.59  %
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

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Non-Interest Expense 
 
Non-interest expense for the three months ended September 30, 2021 was $183.8 million, a decrease of $5.6 million or 3% compared to the three months ended June 30, 2021. Non-interest expense for the nine months ended September 30, 2021 was $560.7 million, a decrease of $1.8 billion or 76%, as compared to the nine months ended September 30, 2020. Excluding the goodwill impairment taken in 2020, non-interest expense for the nine months ended September 30, 2021, increased $10.9 million over the same period in the prior year. The following table presents the key elements of non-interest expense for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 2021 and 2020: 
Three Months Ended Nine Months Ended
 (in thousands) September 30, 2021 June 30, 2021 Change Amount Change Percent September 30, 2021 September 30, 2020 Change Amount Change Percent
Salaries and employee benefits $ 117,636  $ 121,573  $ (3,937) (3) % $ 363,343  $ 346,787  $ 16,556  5  %
Occupancy and equipment, net 33,944  34,657  (713) (2) % 103,236  109,892  (6,656) (6) %
Communications 2,866  3,004  (138) (5) % 8,633  9,010  (377) (4) %
Marketing 1,651  2,054  (403) (20) % 5,077  6,148  (1,071) (17) %
Services 12,017  13,512  (1,495) (11) % 36,279  34,319  1,960  6  %
FDIC assessments 2,136  1,607  529  33  % 6,342  9,502  (3,160) (33) %
Intangible amortization 1,130  1,130  —  —  % 3,390  3,740  (350) (9) %
Other expenses 12,373  11,863  510  4  % 34,445  30,441  4,004  13  %
Non-interest expense before goodwill impairment 183,753  189,400  (5,647) (3) % 560,745  549,839  10,906  2  %
Goodwill impairment —  —  —  N/M —  1,784,936  (1,784,936) N/M
Total non-interest expense $ 183,753  $ 189,400  $ (5,647) (3) % $ 560,745  $ 2,334,775  $ (1,774,030) (76) %

Goodwill impairment of $1.8 billion was recorded as of March 31, 2020, following an interim impairment analysis in the first quarter of 2020 triggered by the decline in interest rates and economic impacts of COVID-19, as well as declines in the Company's stock price. There was no impairment recorded in the current period.

Salaries and employee benefits decreased by $3.9 million for the three months ended September 30, 2021, compared to the three months ended June 30, 2021. This was primarily due to the decrease in for-sale loan origination volume resulting in a decrease in Mortgage Banking compensation of $4.2 million. Salaries and employee benefits increased for the nine months ended September 30, 2021, compared to the prior period, due to an increase in incentives and group insurance.

Occupancy and equipment, net decreased by $6.7 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The decrease is primarily attributable to a decrease in rent-related expenses due to the consolidation of store and back-office locations.

Services for the three months ended September 30, 2021, decreased by $1.5 million as compared to the three months ended June 30, 2021. Services increased by $2.0 million for the nine months ended September 30, 2021 compared to the same period in the prior year. The change is due to increased consulting and professional fees during the first half of 2021.

The FDIC assessment decreased $3.2 million for the nine months ended September 30, 2021, due to a decrease in the Bank's assessment rate.

Other expenses increased by $4.0 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The increase for the nine months ended September 30, 2021 was due to increased exit and disposal costs as the Company closed store locations and exited back-office leases as part of the Next Gen 2.0 strategy. Exit and disposal costs were $9.7 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively.
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FINANCIAL CONDITION 
 
Cash and Cash Equivalents

Cash and cash equivalents were $3.7 billion at September 30, 2021, compared to $2.6 billion at December 31, 2020. The increase of interest bearing cash and temporary investments reflects strong deposit growth in the period, outpacing loan and investment growth as well as paydowns of the Company's borrowings. An elevated on-balance sheet liquidity position enhances the Company's liquidity flexibility given the market volatility and uncertainty in the current environment.

Investment Securities 
 
Investment debt securities available for sale were $3.7 billion as of September 30, 2021, compared to $2.9 billion at December 31, 2020.  The increase was due to purchases of $1.5 billion of investment securities, offset by sales and paydowns of $578.2 million, as well as a decrease of $93.5 million in fair value of investment securities available for sale.
 
The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of September 30, 2021 and December 31, 2020: 
Investment Securities Available for Sale
  September 30, 2021 December 31, 2020
 (dollars in thousands) Fair Value % Fair Value %
U.S. Treasury and agencies $ 838,977  23  % $ 762,202  26  %
Obligations of states and political subdivisions 283,409  7  % 279,511  10  %
Residential mortgage-backed securities and collateralized mortgage obligations 2,600,785  70  % 1,890,845  64  %
Total available for sale securities $ 3,723,171  100  % $ 2,932,558  100  %
Investment Securities Held to Maturity
  September 30, 2021 December 31, 2020
 (dollars in thousands) Amortized Cost % Amortized Cost %
Residential mortgage-backed securities and collateralized mortgage obligations $ 2,795  100  % $ 3,034  100  %
Total held to maturity securities $ 2,795  100  % $ 3,034  100  %
 
 
We review investment securities on an ongoing basis for the presence of impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors.   
 
Gross unrealized losses in the available for sale investment portfolio were $38.9 million at September 30, 2021.  This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of $35.4 million. The unrealized losses were attributable to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not attributable to changes in credit quality. In the opinion of management, no allowance for credit losses was considered necessary on these debt securities as of September 30, 2021.

Restricted Equity Securities 
 
Restricted equity securities were $10.9 million at September 30, 2021 and $41.7 million at December 31, 2020, the majority of which represents the Bank's investment in the FHLB of Des Moines. The decrease is attributable to redemptions of FHLB stock during the period due to decreased FHLB borrowing activity. FHLB stock is carried at par and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions and can only be purchased and redeemed at par. 

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Loans and Leases
 
Total loans and leases outstanding at September 30, 2021 were $22.0 billion, an increase of $190.6 million as compared to December 31, 2020. The increase is attributable to new loan and lease originations, with the majority being in multifamily and residential mortgage loans, as well as the transfer of $315.9 million from loans held for sale to loans held for investment. The increase was partially offset by PPP loan forgiveness and payoffs, as well as loans sold of $171.7 million and net charge-offs of $37.5 million.

The following table presents the concentration distribution of the loan and lease portfolio, net of deferred fees and costs, as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020
  (dollars in thousands)
Amount % Amount %
Commercial real estate        
Non-owner occupied term, net $ 3,561,764  16  % $ 3,505,802  16  %
Owner occupied term, net 2,330,338  11  % 2,333,945  11  %
Multifamily, net 3,813,024  17  % 3,349,196  15  %
Construction & development, net 882,778  4  % 828,478  4  %
Residential development, net 177,148  1  % 192,761  1  %
Commercial    
Term, net 3,159,466  14  % 4,024,467  18  %
Lines of credit & other, net 930,350  4  % 862,760  4  %
Leases & equipment finance, net 1,457,248  7  % 1,456,630  7  %
Residential    
Mortgage, net 4,330,860  20  % 3,871,906  18  %
Home equity loans & lines, net 1,133,823  5  % 1,136,064  5  %
Consumer & other, net 193,141  1  % 217,358  1  %
Total, net of deferred fees and costs $ 21,969,940  100  % $ 21,779,367  100  %

As of September 30, 2021, there were $353.9 million in mortgage loans included in loans held for investment that are carried at fair value, as they were included in loans originated as held for sale that are elected to be fair valued at origination.

In April 2020, the Bank began originating loans to qualified small businesses under the PPP administered by the SBA. The remaining unamortized balance of the PPP-related net loan processing fees will be recognized as a yield adjustment over the remaining term of these loans, although the forgiveness of these loans by the SBA accelerates the recognition of these fees.
 (dollars in thousands)
September 30, 2021 December 31, 2020
PPP principal balance $ 747,979  $ 1,777,145 
PPP deferred fees (21,242) (26,934)
Net PPP Balance $ 726,737  $ 1,750,211 
PPP loan count 7,492  14,788 
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Asset Quality and Non-Performing Assets 

The following table summarizes our non-performing assets, TDR loans, the ACL and asset quality ratios as of September 30, 2021 and December 31, 2020:
 (dollars in thousands)
September 30, 2021 December 31, 2020
Loans and leases on non-accrual status $ 24,152  $ 31,076 
Loans and leases past due 90 days or more and accruing
27,490  36,361 
Total non-performing loans and leases 51,642  67,437 
Other real estate owned 1,868  1,810 
Total non-performing assets $ 53,510  $ 69,247 
Restructured loans (1)
$ 9,849  $ 14,991 
Allowance credit losses on loans and leases $ 257,560  $ 328,401 
Reserve for unfunded commitments 11,752  20,286 
Allowance for credit losses $ 269,312  $ 348,687 
Asset quality ratios:    
Non-performing assets to total assets 0.17  % 0.24  %
Non-performing loans and leases to total loans and leases 0.24  % 0.31  %
Allowance for credit losses on loans and leases to total loans and leases 1.17  % 1.51  %
Allowance for credit losses to total loans and leases 1.23  % 1.60  %
Allowance for credit losses to total non-performing loans and leases 521  % 517  %
(1)Represents accruing TDR loans performing according to their restructured terms. 

At September 30, 2021 and December 31, 2020, TDRs of $9.8 million and $15.0 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a modification of loan repayment terms.
  
A further decline in the economic conditions due to the COVID-19 pandemic as well as in our general market areas or other factors could adversely impact individual borrowers or the loan portfolio in general. Accordingly, there can be no assurance that loans will not become 90 days or more past due, placed on non-accrual status, restructured or transferred to other real estate owned in the future.

COVID-19 Related Payment Deferrals and Forbearance

Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with the deferral guidance at the federal and state levels, these loans are generally classified based on their past due status prior to their deferral period; as such, are classified as performing loans that accrue interest.

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A summary of outstanding loan balances with active payment deferral or forbearance as of September 30, 2021 are shown in the table below, disaggregated by major types of loans and leases:
Loans with Deferrals or Forbearances
(dollars in thousands) Number of Loans Loan Balance Outstanding % of Loan Portfolio
Commercial real estate 8 $ 58,086  1  %
Commercial 4 469  —  %
Residential 148 73,732  1  %
Consumer & other, net 12 202  —  %
Total 172 $ 132,489  1  %
Excluded from the mortgage loans with payment deferrals or forbearance in the above table are $121.0 million of repurchased GNMA loans on deferral, as the credit risk of these loans are guaranteed by government programs such as the Federal Housing Agency, Veterans Affairs, and USDA Rural Development.

The Bank continues to monitor COVID-19 deferrals and if a customer continues to experience financial difficulty after the initial deferral and further concessions are granted, the loan will be reviewed to determine if a TDR designation is appropriate.

Allowance for Credit Losses
 
The ACL totaled $269.3 million at September 30, 2021, a decrease of $79.4 million from $348.7 million at December 31, 2020. The following table shows the activity in the ACL for the three months ended September 30, 2021 and June 30, 2021, as well as for the nine months ended September 30, 2021 and 2020:
Three Months Ended Nine Months Ended
(dollars in thousands)
September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020
Allowance for credit losses on loans and leases
Balance, beginning of period $ 279,887  $ 311,283  $ 328,401  $ 157,629 
Impact of CECL adoption —  —  —  49,999 
Adjusted balance, beginning of period 279,887  311,283  328,401  207,628 
(Recapture) provision for credit losses on loans and leases (16,132) (17,775) (33,381) 188,771 
Charge-offs (10,373) (17,079) (48,367) (60,554)
Recoveries 4,178  3,458  10,907  9,204 
Net charge-offs (6,195) (13,621) (37,460) (51,350)
Balance, end of period $ 257,560  $ 279,887  $ 257,560  $ 345,049 
Reserve for unfunded commitments
Balance, beginning of period $ 14,539  $ 19,760  $ 20,286  $ 5,106 
Impact of CECL adoption —  —  —  3,238 
Adjusted balance, beginning of period 14,539  19,760  20,286  8,344 
(Recapture) provision for credit losses on unfunded commitments (2,787) (5,221) (8,534) 15,962 
Balance, end of period 11,752  14,539  11,752  24,306 
Total allowance for credit losses $ 269,312  $ 294,426  $ 269,312  $ 369,355 
As a percentage of average loans and leases (annualized):
Net charge-offs 0.11  % 0.25  % 0.23  % 0.31  %
(Recapture) provision for credit losses
(0.34) % (0.42) % (0.26) % 1.24  %
Recoveries as a percentage of charge-offs 40.28  % 20.25  % 22.55  % 15.20  %

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With the adoption of CECL on January 1, 2020, we recorded a one-time cumulative-effect pre-tax adjustment in the amount of $53.2 million. The allowance for credit losses on loans and leases increased by $50.0 million and the allowance for unfunded commitments increased by $3.2 million, resulting in a January 1, 2020, or day 1, balance of the Allowance for Credit Losses of $216.0 million.

The (recapture) provision for credit losses includes the (recapture) provision for loan and lease losses, (recapture) provision for unfunded commitments, and the provision (recapture) for credit losses related to accrued interest on loans. The recapture of the provision for credit losses was $18.9 million and $41.9 million for the three and nine months ended September 30, 2021, respectively, which is due to the stabilization of credit quality metrics and economic forecasts used in credit models.

The following table sets forth the allocation of the allowance for credit losses on loans and leases and percent of loans in each category to total loans and leases as of September 30, 2021 and December 31, 2020: 
September 30, 2021 December 31, 2020
 (dollars in thousands) Amount % Loans to total loans Amount % Loans to total loans
Commercial real estate $ 108,014  49  % $ 141,710  47  %
Commercial 118,934  25  % 150,864  29  %
Residential 27,280  25  % 27,964  23  %
Consumer & other 3,332  1  % 7,863  1  %
Allowance for credit losses on loans and leases $ 257,560    $ 328,401   

The following table shows the change in the allowance for credit losses from June 30, 2021 to September 30, 2021:
(dollars in thousands) June 30, 2021 Q3 2021 net (charge-offs) recoveries Reserve build/(release) September 30, 2021 % of Loan and Leases Outstanding
Commercial real estate $ 139,045  $ (796) $ (23,414) $ 114,835  1.07  %
Commercial 123,535  (5,175) 3,159  121,519  2.19  %
Residential 27,006  281  1,950  29,237  0.54  %
Consumer & Other 4,840  (505) (614) 3,721  1.93  %
Total allowance for credit losses $ 294,426  $ (6,195) $ (18,919) $ 269,312 
% of loans and leases outstanding 1.33  % 1.23  %

To calculate the ACL, the CECL models use a forecast of future economic conditions and are dependent upon specific macroeconomic variables that are relevant to each of the Bank's loan and lease portfolios. For the third quarter of 2021, the Bank used Moody's Analytics August consensus economic forecast. Key components include a U.S. real GDP average annualized growth of 4.9% through 2022 and average unemployment rate for 2021 of 5.5% dropping to 4.2% in 2022. The models for calculating the ACL are sensitive to changes in these and other economic variables, which could result in volatility as these assumptions change over time. In addition, the forward-looking assumptions revert to historical data when they reach the point where future assumptions are no longer estimated.

We believe that the allowance for credit losses as of September 30, 2021 is sufficient to absorb losses inherent in the loan and lease portfolio and in credit commitments outstanding as of that date based on the information available. If the economic conditions decline or are worse than economic forecasts predict, the Bank may need additional provisions for credit losses in future periods.

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Residential Mortgage Servicing Rights 
 
The following table presents the changes in our residential mortgage servicing rights portfolio for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 2021 and 2020:

Three Months Ended Nine Months Ended
  (in thousands)
September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020
Balance, beginning of period $ 102,699  $ 100,413  $ 92,907  $ 115,010 
Additions for new MSR capitalized 8,450  8,330  30,845  37,484 
Changes in fair value:
Changes due to collection/realization of expected cash flows over time (4,681) (4,366) (13,592) (15,249)
Changes due to valuation inputs or assumptions (1)
(634) (1,678) (4,326) (43,997)
Balance, end of period $ 105,834  $ 102,699  $ 105,834  $ 93,248 
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

Information related to our residential serviced loan portfolio as of September 30, 2021 and December 31, 2020 was as follows: 
(dollars in thousands) September 30, 2021 December 31, 2020
Balance of loans serviced for others $ 12,853,291  $ 13,026,720 
MSR as a percentage of serviced loans 0.82  % 0.71  %

Residential mortgage servicing rights are adjusted to fair value quarterly with the change recorded in residential mortgage banking revenue. The value of servicing rights can fluctuate based on changes in interest rates and other factors. Generally, as interest rates decline and borrowers are able to take advantage of a refinance incentive, prepayments increase, and the total value of existing servicing rights declines as expectations of future servicing fee collections decline. Historically, the fair value of our residential mortgage servicing rights will increase as market rates for mortgage loans rise and decrease if market rates fall. Mortgage refinance volumes remain elevated; however, accelerated prepayment speeds have slowed due to a flattening of long-term interest rates during the quarter.

Due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds, the fair value of the MSR asset decreased by $634,000 and $4.3 million for the three and nine months ended September 30, 2021, respectively. The fair value of the MSR asset decreased by $4.7 million and $13.6 million, respectively, due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three and nine months ended September 30, 2021.
 
Deposits 

Total deposits were $26.9 billion at September 30, 2021, an increase of $2.3 billion, as compared to December 31, 2020. The increase is mainly attributable to growth in non-interest bearing and interest bearing demand deposits and money market balances, offset by a decline in time deposits. The increase in non-maturity deposit account categories is attributable to the impact of economic assistance payments, in addition to increased customer savings rates as customers look to increase their own liquidity in this uncertain environment. The decrease in time deposits is mainly due to the runoff of higher-cost time deposits.
 
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The following table presents the deposit balances by category as of September 30, 2021 and December 31, 2020: 
September 30, 2021 December 31, 2020
 (dollars in thousands) Amount % Amount %
Non-interest bearing demand $ 11,121,127  41  % $ 9,632,773  39  %
Interest bearing demand 3,758,019  14  % 3,051,487  12  %
Money market 7,780,442  29  % 7,173,920  29  %
Savings 2,325,929  9  % 1,912,752  8  %
Time, greater than $250,000 524,752  2  % 899,563  4  %
Time, $250,000 or less 1,398,128  5  % 1,951,706  8  %
Total deposits $ 26,908,397  100  % $ 24,622,201  100  %
 
The Company's brokered deposits totaled $353.8 million at September 30, 2021, compared to $424.1 million at December 31, 2020.  

Borrowings 
 
At September 30, 2021, the Bank had outstanding $467.8 million of securities sold under agreements to repurchase, an increase of $92.4 million from December 31, 2020. The Bank had outstanding borrowings consisting of advances from the FHLB of $6.4 million at September 30, 2021, which decreased $765.1 million from December 31, 2020. The decrease is attributable to maturity payoffs during the period. The remaining FHLB advance has a fixed interest rate of 7.10% and matures in 2030.

Junior Subordinated Debentures 
 
We had junior subordinated debentures with carrying values of $387.6 million and $343.5 million at September 30, 2021 and December 31, 2020, respectively.  The increase is mainly due to the $44.5 million change in fair value for the junior subordinated debentures elected to be carried at fair value, which is due to a decrease in the discount rates caused by a decrease in the credit spread paired with an increase in the implied forward curve, partially offset by an increase in the long end of the SWAP spot curve. As of September 30, 2021, substantially all of the junior subordinated debentures had interest rates that are adjustable on a quarterly basis based on a spread over three-month LIBOR.  

Liquidity and Cash Flow 
 
The principal objective of our liquidity management program is to maintain the Bank's ability to meet the day-to-day cash flow requirements of our customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash needs. The Bank's liquidity strategy includes an elevated on-balance sheet liquidity position to grow deposit balances to provide flexibility to fund growth in lending and investment portfolios, as well as deleverage liabilities as economic conditions permit. As a result, the Company believes that it has sufficient cash and access to borrowings to effectively manage through the COVID-19 pandemic as well as meet its working capital and other needs. The Company will continue to prudently evaluate and maintain liquidity sources, including the ability to fund future loan growth and manage our borrowing sources.

We monitor the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. One source of funds includes public deposits. Individual state laws require banks to collateralize public deposits, typically as a percentage of their public deposit balance in excess of FDIC insurance.  Public deposits represented 5% of total deposits at September 30, 2021 and 7% of total deposits at December 31, 2020. The amount of collateral required varies by state and may also vary by institution within each state, depending on the individual state's risk assessment of depository institutions. Changes in the pledging requirements for uninsured public deposits may require pledging additional collateral to secure these deposits, drawing on other sources of funds to finance the purchase of assets that would be available to be pledged to satisfy a pledging requirement, or could lead to the withdrawal of certain public deposits from the Bank. In addition to liquidity from core deposits and the repayments and maturities of loans and investment securities, the Bank can utilize established uncommitted federal funds lines of credit, sell securities under agreements to repurchase, borrow on a secured basis from the FHLB or issue brokered certificates of deposit.  
 
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The Bank had available lines of credit with the FHLB totaling $8.5 billion at September 30, 2021, subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The Bank had available lines of credit with the Federal Reserve totaling $915.8 million, subject to certain collateral requirements, including eligibility and advance rates on the amount of pledged loans and investment securities. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at September 30, 2021. Availability of these lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage. 
 
The Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Company's revenues are obtained from dividends declared and paid by the Bank. There were $350.0 million of dividends paid by the Bank to the Company in the nine months ended September 30, 2021, including the special dividend of $200.0 million paid in July 2021, to fund the repurchase plan announced by the Company. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Company. The Company is required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company. The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors and regulators with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. Due to the Company's announcement of its pending merger with Columbia, Umpqua is restricted from paying quarterly cash dividends in excess of the current level and from repurchasing shares of Company common stock until the transaction is closed.
 
As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $541.5 million during the nine months ended September 30, 2021, with the difference between cash provided by operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $4.1 billion and the decrease in other assets of $161.1 million, offset by originations of loans held for sale of $3.9 billion, the gain on sale of loans of $124.8 million and recapture of provision for loan and lease losses of $41.9 million. This compares to net cash used in operating activities of $81.7 million during the nine months ended September 30, 2020, with the difference between cash used in operating activities and net loss consisting of goodwill impairment of $1.8 billion, proceeds from the sale of loans held for sale of $5.0 billion, and provision for loan and lease losses of $204.8 million, offset by originations of loans held for sale of $4.9 billion, the net increase in other assets of $232.5 million and gain on sale of loans of $212.4 million.

Net cash of $764.9 million used in investing activities during the nine months ended September 30, 2021, consisted principally of purchases of available for sale investment securities of $1.5 billion and net loan originations of $85.5 million, offset by proceeds from available for sale investment securities of $578.2 million and the proceeds from sales of loans and leases of $182.6 million. This compares to net cash of $1.4 billion used in investing activities during the nine months ended September 30, 2020, which primarily consisted of net loan originations of $1.3 billion, purchases of investment securities available for sale of $595.4 million, and net cash paid in divestiture of stores of $81.2 million, offset by proceeds from investment securities available for sale of $604.6 million and the proceeds from sales of loans of $60.8 million.

Net cash of $1.4 billion provided by financing activities during the nine months ended September 30, 2021, primarily consisted of $2.3 billion net increase in deposits and the net increase in securities sold under agreements to repurchase of $92.4 million, offset by $765.0 million repayment of borrowings, $138.2 million of dividends paid on common stock, and the repurchase and retirement of common stock of $80.7 million. This compares to net cash of $2.3 billion provided by financing activities during the nine months ended September 30, 2020, primarily consisted of $2.3 billion net increase in deposits, proceeds from borrowings of $600.0 million, offset by $510.0 million repayment of borrowings and $138.7 million of dividends paid on common stock.

Although we expect the Bank's and the Company's liquidity positions to remain satisfactory, it is possible that our deposit growth may not be maintained at previous levels due to pricing pressure, store consolidations, or customers' spending habits. In addition, in order to generate deposit growth, our pricing may need to be adjusted in a manner that results in increased interest expense on deposits. The pending merger with Columbia may have an impact on Umpqua's liquidity position and strategy in the future.
  
Off-balance-Sheet Arrangements 
 
Information regarding Off-Balance-Sheet Arrangements is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.
  
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Concentrations of Credit Risk 

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


Capital Resources 
 
Shareholders' equity at September 30, 2021 was $2.7 billion. The increase in shareholders' equity during the nine months ended September 30, 2021 was principally due to net income, offset by the other comprehensive loss, net of tax, cash dividends paid, and stock repurchased during the period.

The Company's dividend policy considers, among other things, earnings, regulatory capital levels, the overall payout ratio and expected asset growth to determine the amount of dividends declared, if any, on a quarterly basis. There is no assurance that future cash dividends on common shares will be declared or increased. We cannot predict the extent of the economic decline due to COVID-19 or other factors that could result in inadequate earnings, regulatory restrictions and limitations, changes to our capital requirements, or a decision to increase capital by retention of earnings, that may result in the inability to pay dividends at previous levels, or at all. Umpqua is restricted from paying quarterly cash dividends in excess of the current level until the Merger is closed.

The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. On August 9, 2021, the Company declared a cash dividend in the amount of $0.21 per common share based on second quarter 2021 performance, which was paid on August 31, 2021.

The following table presents cash dividends declared and dividend payout ratios (dividends declared per common share divided by basic earnings per common share) for the three months ended September 30, 2021 and June 30, 2021, as well as the nine months ended September 30, 2021 and 2020:
  Three Months Ended Nine Months Ended
  September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020
Dividend declared per common share $ 0.21  $ 0.21  $ 0.63  $ 0.42 
Dividend payout ratio 43  % 40  % 42  % (6) %

In July 2021, the Company announced that its Board of Directors approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The program replaces and supersedes the previously approved share repurchase program which was scheduled to expire on July 31, 2021. As of September 30, 2021, a total of $321.8 million remained available to repurchase shares under the new share repurchase program. During the nine months ended September 30, 2021, 4.0 million shares were repurchased under the new plan.

The repurchase program is currently halted, based on the announced merger with Columbia and in accordance with the Merger Agreement. The Company may not purchase any shares under this program until the Merger is closed. The timing and amount of future repurchases would depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, our capital plan, and bank or bank holding company regulatory approvals.  In addition, our stock plans provide that option and award holders may pay for the exercise price and tax withholdings in part or entirely by tendering previously held shares. 

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The following table shows the Company's consolidated and the Bank's capital adequacy ratios compared to the regulatory minimum capital ratio and the regulatory minimum capital ratio needed to qualify as a "well-capitalized" institution, as calculated under regulatory guidelines of the Basel III at September 30, 2021 and December 31, 2020: 
 

Actual For Capital Adequacy purposes To be Well Capitalized
   (dollars in thousands) 
Amount Ratio Amount Ratio Amount Ratio
September 30, 2021            
Total Capital            
(to Risk Weighted Assets)            
Consolidated $ 3,391,310  14.88  % $ 1,823,052  8.00  % $ 2,278,815  10.00  %
Umpqua Bank $ 3,048,815  13.38  % $ 1,823,416  8.00  % $ 2,279,269  10.00  %
Tier I Capital            
(to Risk Weighted Assets)            
Consolidated $ 2,742,229  12.03  % $ 1,367,289  6.00  % $ 1,823,052  8.00  %
Umpqua Bank $ 2,850,732  12.51  % $ 1,367,562  6.00  % $ 1,823,416  8.00  %
Tier I Common
(to Risk Weighted Assets)
Consolidated $ 2,742,229  12.03  % $ 1,025,467  4.50  % $ 1,481,230  6.50  %
Umpqua Bank $ 2,850,732  12.51  % $ 1,025,671  4.50  % $ 1,481,525  6.50  %
Tier I Capital            
(to Average Assets)            
Consolidated $ 2,742,229  8.96  % $ 1,223,942  4.00  % $ 1,529,927  5.00  %
Umpqua Bank $ 2,850,732  9.31  % $ 1,224,669  4.00  % $ 1,530,836  5.00  %
December 31, 2020            
Total Capital            
(to Risk Weighted Assets)            
Consolidated $ 3,347,926  15.63  % $ 1,713,891  8.00  % $ 2,142,364  10.00  %
Umpqua Bank $ 3,134,116  14.63  % $ 1,713,809  8.00  % $ 2,142,262  10.00  %
Tier I Capital            
(to Risk Weighted Assets)            
Consolidated $ 2,636,194  12.31  % $ 1,285,418  6.00  % $ 1,713,891  8.00  %
Umpqua Bank $ 2,873,383  13.41  % $ 1,285,357  6.00  % $ 1,713,809  8.00  %
Tier I Common
(to Risk Weighted Assets)
Consolidated $ 2,636,194  12.31  % $ 964,064  4.50  % $ 1,392,536  6.50  %
Umpqua Bank $ 2,873,383  13.41  % $ 964,018  4.50  % $ 1,392,470  6.50  %
Tier I Capital            
(to Average Assets)            
Consolidated $ 2,636,194  8.98  % $ 1,174,129  4.00  % $ 1,467,661  5.00  %
Umpqua Bank $ 2,873,383  9.79  % $ 1,174,065  4.00  % $ 1,467,581  5.00  %

In 2020, the federal bank regulatory authorities finalized a rule to provide banking organizations that implemented CECL in 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company elected this capital relief and will delay the estimated regulatory capital impact of adopting CECL, relative to the incurred loss methodology's effect on regulatory capital.

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Item 3.             Quantitative and Qualitative Disclosures about Market Risk 
 
Our assessment of market risk as of September 30, 2021 indicates there are no material changes in the qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4.             Controls and Procedures 
 
Our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has concluded that our disclosure controls and procedures are effective in timely alerting them to information relating to us that is required to be included in our periodic filings with the SEC. The disclosure controls and procedures were last evaluated by management as of September 30, 2021. 

No change in internal control over financial reporting occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Part II. OTHER INFORMATION 

Item 1.      Legal Proceedings 

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
 
Item 1A.   Risk Factors 
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in our Form 10-K for the year ended December 31, 2020. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. 

As a result of Umpqua entering into a merger agreement with Columbia, certain risk factors have been identified:

Umpqua may not be able to complete the merger with Columbia, as the completion is contingent upon the satisfaction of a number of conditions, some of which are beyond both Umpqua's and Columbia's control.

Adoption of the merger agreement is subject to customary closing conditions, including the receipt of regulatory approvals and the requisite approvals of both Umpqua's and Columbia's shareholders. Conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, or Umpqua or Columbia may unilaterally elect to terminate the merger agreement. If the merger agreement is terminated under certain circumstances, Umpqua may be required to pay a $145.0 million termination fee to Columbia.

Umpqua and Columbia may also be subject to lawsuits challenging the merger, and adverse rulings in these lawsuits may delay or prevent the merger from being completed or require Umpqua or Columbia to incur significant costs to defend or settle these lawsuits. Any delay in completing the merger could cause Umpqua not to realize, or be delayed in realizing, some or all of the benefits that the Company expects to achieve if the merger is successfully completed within the anticipated time frame.



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Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the Merger and the bank merger may be completed, Umpqua and Columbia must obtain approvals from the Federal Reserve Board, the FDIC, the Director of the Oregon Department of Consumer and Business Services and the Director of the Washington Department of Financial Institutions. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party's regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. Regulators may impose conditions on the completion of the Merger or the bank merger or require changes to the terms of the Merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the Merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the Merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.

Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

Umpqua and Columbia have operated and, until the completion of the Merger, will continue to operate independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of Umpqua and Columbia in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company's ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect Umpqua's ability to successfully conduct its business, which could have an adverse effect on Umpqua's financial results and the value of its common stock. If Umpqua experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause Umpqua or Columbia to lose customers or cause customers to remove their accounts from Umpqua or Columbia and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Umpqua and Columbia during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings of the Merger could be less than anticipated.

Termination of the merger agreement could negatively impact Umpqua.

If the merger agreement is terminated, there may be various consequences. For example, Umpqua's businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the merger. Also, Umpqua has devoted significant internal resources to the pursuit of the Merger and the expected benefit of those resource allocations would be lost if the Merger is not completed. Additionally, if the merger agreement is terminated, the market price of Umpqua's common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, Umpqua may be required to pay to Columbia a termination fee of $145.0 million.

Umpqua will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect our business and operations.

Uncertainty about the effect of the Merger on employees, customers and other persons Umpqua has a business relationship with may have an adverse effect on Umpqua's business, operations, and stock price. These uncertainties may impair Umpqua's ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with Umpqua to seek to change existing business relationships. Retention of certain employees by Umpqua may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Umpqua. These retention challenges could require Umpqua to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Umpqua, Umpqua's business could be harmed. In addition, subject to certain exceptions, each of Umpqua and Columbia has agreed to operate its business in the ordinary course prior to closing and to refrain from taking certain actions. Umpqua may delay or abandon projects and other business decisions could be deferred during the pendency of the merger.

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Umpqua will incur substantial expenses related to the merger.

Both Umpqua and Columbia will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. Many of the expenses related to integration of the two companies are difficult to accurately estimate and could exceed anticipated cost savings the companies expect to achieve. If the Merger is not completed, Umpqua would have to recognize transactions costs and other expenses in connection with the Merger without realizing the expected benefits of the Merger. There are many factors beyond the Company's control that could affect the total amount or the timing of charges to earnings.

The merger agreement limits Umpqua's ability to pursue acquisition proposals.

The merger agreement prohibits Umpqua from soliciting, initiating, knowingly encouraging or knowingly facilitating certain third‑party acquisition proposals. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Umpqua from considering or proposing such an acquisition.

The other risk factors that could affect the Company's financial condition or operating results remain unchanged from those previously disclosed in Umpqua's Annual Report on Form 10-K for the year ended December 31, 2020.


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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds  
 
(a)Not applicable  
 
(b)Not applicable 

(c)The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2021: 
Period
Total number of Common Shares Purchased (1)
Average Price Paid per Common Share
Total Number of Shares Purchased as Part of Publicly Announced Plan (2)
Maximum Dollar Value of Shares that May be Purchased at Period End under the Plan
7/1/21 - 7/31/21 862,127  $ 18.86  860,828  $ 383,765,495 
8/1/21 - 8/31/21 3,148,950  $ 19.68  3,148,891  $ 321,797,719 
9/1/21 - 9/30/21 731  $ 19.28  —  $ 321,797,719 
Total for quarter 4,011,808  $ 19.50  4,009,719   
 
(1)Common shares repurchased by the Company during the quarter consist of cancellation of 2,089 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended September 30, 2021, 4.0 million shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

(2)As of July 21, 2021, the Company approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. This effectively ended the previous share repurchase plan. As of September 30, 2021, a total of $321.8 million remained available to repurchase shares. The timing and amount of future repurchases will depend upon the market price for our common stock, laws and regulations restricting repurchases, asset growth, earnings, our capital plan and bank or bank holding company regulatory approvals. In addition, the repurchase program was halted with the announcement of the proposed merger with Columbia and as required under the Merger Agreement.
  
Item 3.            Defaults upon Senior Securities
 
Not applicable 

Item 4.            Mine Safety Disclosures 

Not applicable 

Item 5.            Other Information

Not applicable  

71
Table of Contents

Item 6.            Exhibits  
 
Exhibit # Description
2.1
3.1
3.2
4.1
4.2 The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.
10.1*
31.1
31.2
31.3
32
101.INS Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (included in Exhibit 101)
*
Compensatory plan or arrangement
(a) Incorporated by reference to Exhibit 2.1 to Form 8-K filed October 15, 2021
(b)
Incorporated by reference to Exhibit 3.1 to Form 8-K filed April 23, 2018
(c)
Incorporated by reference to Exhibit 99.2 to Form 8-K filed March 24, 2020
(d)
Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (No. 333-77259) filed April 28, 1999

72
SIGNATURES 
 
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 
UMPQUA HOLDINGS CORPORATION
(Registrant) 
Dated November 4, 2021
/s/ Cort L. O'Haver                                           
  Cort L. O'Haver
President and Chief Executive Officer  
Dated November 4, 2021 /s/ Ronald L. Farnsworth
  Ronald L. Farnsworth  
Executive Vice President/Chief Financial Officer and 
Principal Financial Officer
Dated November 4, 2021 /s/ Lisa M. White
 
Lisa M. White                                    
Senior Vice President/Corporate Controller and 
Principal Accounting Officer

73

Exhibit 10.1
UMPQUA HOLDINGS CORPORATION NOTICE OF PERFORMANCE SHARE AWARD
“Participant”:    <Participant Name>
# of Shares subject to this Award (“Shares”):    <Number of Awards Granted>
“Grant Date”:    <Grant Date>

Effective <Grant Date>, you have been granted a Performance Share Award ("Award") for the number of Shares listed above. This Notice of Performance Share Award ("Notice") together with the Umpqua Holdings Corporation 2013 Incentive Plan (“Plan”) and the corresponding Restricted Stock Award Agreement ("RSA Agreement," together with this Notice and the Plan, the "PSA Documents") delivered to you and in effect as of the Grant Date contain the terms of your Award. The Plan and the RSA Agreement are hereby incorporated by reference and made a part of this Notice, and capitalized terms not defined herein have the meaning given in the Plan or the Agreement.
Vesting Conditions. No Shares subject to this Award will vest after the occurrence of any Forfeiture Event. Shares subject to this Award that have not vested pursuant to the Early Vesting provisions set forth below or in accordance with the vesting conditions set forth on Exhibit A are referred to as “Unvested Shares.” Except as otherwise provided in Early Vesting, the number of Shares that vest, if any, is based on the Company’s performance against Performance Goals during the Performance Period as determined by the Committee in accordance with Exhibit A, and is subject to the Participant’s continued employment with, or service to, the Company through the end of the Performance Period. The terms Performance Goals and Performance Period are defined in Exhibit A.
Early Vesting. Notwithstanding the foregoing: (i) upon death or Disability of Participant prior to the Determination Date (defined below), a percentage of the Unvested Shares shall vest as of the date of such event (in the case of Disability upon termination of Participant’s Continuous Service) and shall be distributed in accordance with Section 4.2 of the RSA Agreement, with such percentage equal to the number of days of service by the Participant during the three-year period starting on the Grant Date divided by 1,095; and (ii) in the event of a Change in Control, if Participant’s Continuous Service with the Company is terminated by the Company or successor entity without Cause or by the Participant for Good Reason (as defined in Participant’s employment agreement with the Company) within eighteen months following the occurrence of a Change in Control, all Unvested Shares shall vest as of the date of such event and shall be distributed in accordance with Section 4.2 of the RSA Agreement.
No Current Payment of Dividends. Any and all cash dividends, stock dividends or other distributions with respect to Unvested Shares shall be withheld by the Company for your account. The cash dividends, stock dividends or other distributions so withheld and attributable to any particular Unvested Share shall be distributed upon the vesting of such Share, and to the extent any Unvested Share is forfeited, dividends or distributions attributable to such Unvested Share will also be forfeited.
Acknowledgement and Agreement. By acknowledging and agreeing to the Award on the terms set forth in the PSA Documents, you represent and warrant to the Company that: (a) you have received a copy of the PSA Documents, read and reviewed such documents in their entirety, and fully understand all provisions of the PSA Documents; (b) you hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan regarding any questions arising under the PSA Documents; (c) your rights to any shares underlying this Award are conditioned upon you satisfying the vesting conditions in this Notice and the terms of the PSA Documents; (d) nothing in the PSA Documents bestows upon you any right to continue your current employment or consulting relationship with the Company for any period of time, nor does it interfere in any way with your right or the Company’s right to terminate that relationship at any time, for any reason, with or without cause; and (e) you agree, unless otherwise paid back to the Company by you, that the Company shall have the right to offset the amount of the Award that is to be forfeited or repaid under Section 16, Clawback, of the Plan against any current amounts due to you, including, but not limited to, salary, incentive compensation, Awards under the Plan, severance, deferred compensation or any other funds due to you from Company. I hereby acknowledge receipt of, and accept, this Award granted on the date shown above, which has been issued to me under the terms and conditions of the PSA Documents, and I hereby agree to the terms and conditions of such PSA Documents, including the offset provision provided in paragraph (e) above. I further acknowledge receipt of the Plan Prospectus.

ROATCE Performance Share Award Agreement - 2021

Exhibit 10.1
EXHIBIT A

1.Performance Goals. The number of Shares that vest under the Award will be determined based on the Company’s achievement of Threshold, Target or Maximum levels (“Performance Goals”) of ROATCE Performance (defined below) as follows:

Performance Goals
ROATCE Performance
Percentage of Target Award Earned
(straight-line interpolation between Threshold and Target; and Target and Maximum)
Minimum
Below 50%
0%
Threshold
At 50%
50%
Target
At 100%
100%
Maximum
At or above 150%
150%

For ROATCE Performance: (A) should the Company fail to achieve at least Threshold, zero percent (0%) of the Award shall vest; (B) should the Company achieve (i) Threshold, fifty percent (50%) of the Award shall vest, (ii) Target, one hundred percent (100%) of the Award shall vest, or (iii) Maximum or greater, one hundred fifty percent (150%) of the Award shall vest; and (C) should the Company achieve a ROATCE Performance level that falls between Threshold and Target or between Target and Maximum, the percentage of the Award that vests will be based upon straight-line interpolation between such Performance Goals, rounded to the nearest whole share of common stock. For example, ROATCE Performance of 80% or 111% will result in 80% or 111%, respectively, of the Award vesting.

“ROATCE Performance” is equal to the quotient resulting from dividing Company Average ROATCE by the Peer Group Average ROATCE.

“Company Average ROATCE” is equal to quotient resulting from dividing (A) the sum of the Company’s ROATCE for 2021, Company’s ROATCE for 2022 and Company’s ROATCE for 2023 by (B) three (3).

“Peer Group Average ROATCE” means the sum of each Peer Company’s Peer ROATCE divided by the number of Peer Companies.

“Peer ROATCE” is equal to quotient resulting from dividing (A) the sum of a Peer Company’s ROATCE for 2021, such Peer Company’s ROATCE for 2022 and such Peer Company’s ROATCE for 2023 by (B) three (3).

“ROATCE” means return on average Tangible Common Equity and, for purposes of this measure, equates (i) for the Company, to Operating Earnings as a percentage of average Tangible Common Equity, and (ii) for each Peer Company, to after-tax net income reported in such Peer Company’s periodic filings with the SEC adjusted in a manner consistent with the calculation of Operating Earnings for the Company (which adjustment may be based on information reported on S&P Market Intelligence or similar nationally recognized financial reporting aggregator if not available in the Peer Company’s periodic filings with the SEC) as a percentage of average Tangible Common Equity.

“Operating Earnings” means the Company’s after-tax net income adjusted to exclude the impact during the Performance Period of: (i) gains or losses on our junior subordinated debentures carried at fair value resulting from changes in interest rates and the estimated market credit risk adjusted spread; (ii) gains or losses from the change in fair value of the Company’s mortgage servicing rights; (iii) gains or losses from the change in fair value of swap derivatives; (v) net gains or losses on investment securities; (iv) exit or disposal costs and other charges related to business combinations such as goodwill impairment charges or bargain purchase gains; and (v) other special, unusual or non-recurring items as determined by the Compensation Committee in its sole discretion.

“Tangible Common Equity” means common stockholder’s equity less goodwill and intangible assets.
ROATCE Performance Share Award Agreement - 2021

Exhibit 10.1
“Peer Group” means the group of companies selected by the Committee as adjusted during the Performance Period in the Committee’s discretion, and as of the Grant Date is as set forth in Section 2 below.

“Peer Company” has the meaning set forth in Section 2 below.

“Performance Period” means the three fiscal year period commencing January 1, 2021 and ending December 31, 2023.

2.Peer Group. The following are the companies (each a “Peer Company”) comprising the Peer Group as of the Grant Date: Associated Banc-Corp; Bank of Hawaii Corporation; BOK Financial Corporation; Commerce Bancshares, Inc.; Cullen/Frost Bankers, Inc.; East West Bancorp, Inc.; Fulton Financial Corporation; Signature Bank; Hancock Whitney Corporation; Prosperity Bancshares, Inc.; Synovus Financial Corp.; Trustmark Corporation; UMB Financial Corporation; Valley National Bancorp; Pacwest Bancorp; Cadence Bancorp; Webster Financial Corporation; Western Alliance Bancorp; First Midwest Bancorp; FNB Corporation; BankUnited, Inc.; Wintrust Financial Corporation; and Old National Bancorp.

The Peer Group will be adjusted as follows in the event of certain corporate events:

Merger with Company in Peer Group
In the event of a merger, acquisition or business combination transaction of a Peer Company with or by another Peer Company, the surviving entity shall remain a Peer Company.
Merger with Company not in Peer Group where Peer Company survives
In the event of a merger of a Peer Company with an entity that is not a Peer Company, or the acquisition or business combination transaction of a Peer Company by an entity that is not a Peer Company, in each case where the Peer Company is the surviving entity and remains publicly traded, the surviving entity shall remain a Peer Company.
Merger with Company not in Peer Group where Peer Company is not the survivor
In the event of a merger or acquisition or business combination transaction of a Peer Company by or with an entity that is not a Peer Company, where the Peer Company is not the surviving entity the company shall no longer be a Peer Company, provided that the Committee retains discretion to determine that the surviving company may be added to the Peer Group in the circumstances (for example, a merger of equals).
Bankruptcy, Liquidation or Delisting
In the event of a bankruptcy, liquidation or delisting of a Peer Company at any time during the Performance Period, such company shall remain a Peer Company and be assigned an ROATCE of 0%. Delisting shall mean that a company ceases to be publicly traded on a national securities exchange as a result of any involuntary failure to meet the listing requirements of such national securities exchange, but shall not include delisting as a result of any voluntary going private or similar transaction.

3.Determination and Approval of Final Award. Within seventy-five (75) days following the last day of the Performance Period, the Committee shall determine achievement in respect of the Performance Goals (the date of such determination, the “Determination Date”) and shall calculate and approve the final Award amount for vesting. Any Shares that are determined not to be earned by the Committee under an Award will be permanently and irrevocably forfeited as of the Determination Date and the Participant will have no further rights to such Shares. The Committee, in its sole discretion, shall make all determinations regarding the Performance Goals, including, but not limited to, the extent of achievement, and any adjustments to the calculation of ROATCE of the Company, a Peer Company or the Peer Group, as necessary or appropriate. Determinations made by the Committee will be final and binding on all parties and will be given the maximum discretion permitted by law.
ROATCE Performance Share Award Agreement - 2021

EXHIBIT 31.1 
CERTIFICATION OF 
CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Cort L. O'Haver, certify that:  
1.I have reviewed this quarterly report on Form 10-Q of Umpqua Holdings Corporation; 
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function): 
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.  
Date: November 4, 2021
/s/ Cort L. O'Haver
Cort L. O'Haver
President and Chief Executive Officer
Umpqua Holdings Corporation



EXHIBIT 31.2 
CERTIFICATION OF 
PRINCIPAL FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald L. Farnsworth, certify that:  
1.I have reviewed this quarterly report on Form 10-Q of Umpqua Holdings Corporation; 
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function): 
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 
Date: November 4, 2021
/s/ Ronald L. Farnsworth
Ronald L. Farnsworth
Executive Vice President/Chief Financial Officer and
Principal Financial Officer
Umpqua Holdings Corporation



EXHIBIT 31.3 
CERTIFICATION OF 
PRINCIPAL ACCOUNTING OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Lisa M. White, certify that:  
1.I have reviewed this quarterly report on Form 10-Q of Umpqua Holdings Corporation; 
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function): 
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 
Date: November 4, 2021
/s/ Lisa M. White
Lisa M. White
Senior Vice President/Corporate Controller and 
Principal Accounting Officer
Umpqua Holdings Corporation



Exhibit 32 
CERTIFICATION OF 
CHIEF EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 
This certification is given by the undersigned Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer of Umpqua Holdings Corporation (the "registrant") pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Each of the undersigned hereby certifies, with respect to the registrant's quarterly report on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), that: 
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. 

/s/ Cort L. O'Haver
Cort L. O'Haver
President and Chief Executive Officer
Umpqua Holdings Corporation
 
/s/ Ronald L. Farnsworth
Ronald L. Farnsworth
Executive Vice President/Chief Financial Officer and
Principal Financial Officer
Umpqua Holdings Corporation
 
/s/ Lisa M. White
Lisa M. White
Senior Vice President/Corporate Controller and
Principal Accounting Officer
Umpqua Holdings Corporation
November 4, 2021