~~0001077771 us-gaap:FairValueInputsLevel1Member us-gaap:InterestRateLockCommitmentsMember 2019-06-30~~

Securities and Exchange Commission

Washington, D.C. 20549



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the quarterly period ended:	~~June 30, 2019~~March 31, 2020
	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

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

☒ 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

UMPQUA HOLDINGS CORPORATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)


(in thousands, except shares)	March 31, 2020		December 31, 2019
ASSETS
Cash and due from banks (restricted cash of $112,462 and $86,507)	$	406,426	$	382,598
Interest bearing cash and temporary investments (restricted cash of $25,371 and $590)	1,251,290		980,158
Total cash and cash equivalents	1,657,716		1,362,756
Investment securities
Equity and other, at fair value	80,797		80,165
Available for sale, at fair value	2,890,475		2,814,682
Held to maturity, at amortized cost	3,200		3,260
Loans held for sale, at fair value	481,541		513,431
Loans and leases	21,251,478		21,195,684
Allowance for credit losses on loans and leases	(291,420)		(157,629)
Net loans and leases	20,960,058		21,038,055
Restricted equity securities	58,062		46,463
Premises and equipment, net	195,390		201,460
Operating lease right-of-use assets	115,485		110,718
Goodwill	2,715		1,787,651
Other intangible assets, net	17,099		18,346
Residential mortgage servicing rights, at fair value	94,346		115,010
Bank owned life insurance	322,717		320,611

Other assets	660,781		434,201
Total assets	$	27,540,382	$	28,846,809
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing	$	7,169,907	$	6,913,375
Interest bearing	15,529,468		15,568,129
Total deposits	22,699,375		22,481,504
Securities sold under agreements to repurchase	346,245		311,308
Borrowings	1,196,597		906,635
Junior subordinated debentures, at fair value	195,521		274,812
Junior subordinated debentures, at amortized cost	88,439		88,496
Operating lease liabilities	123,962		119,429
Deferred tax liability, net	51,061		52,928
Other liabilities	331,571		297,782
Total liabilities	25,032,771		24,532,894
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY
Common stock, 0 par value, shares authorized: 400,000,000 in 2020 and 2019; issued and outstanding: 220,175,120 in 2020 and 220,229,282 in 2019	3,507,680		3,514,000
(Accumulated deficit) retained earnings	(1,168,340)		770,366
Accumulated other comprehensive income	168,271		29,549
Total shareholders' equity	2,507,611		4,313,915
Total liabilities and shareholders' equity	$	27,540,382	$	28,846,809

(in thousands, except shares) June 30, 2019 December 31, 2018
ASSETS
Cash and due from banks (restricted cash of $58,911 and $37,408) $ 342,508
$ 335,419
Interest bearing cash and temporary investments (restricted cash of $2,953 and $1,232)
691,283
287,218
Total cash and cash equivalents 1,033,791
622,637
Investment securities
Equity and other, at fair value 66,358
61,841
Available for sale, at fair value 2,698,398
2,977,108
Held to maturity, at amortized cost 3,416
3,606
Loans held for sale, at fair value 356,645
166,461
Loans and leases 20,953,371
20,422,666
Allowance for loan and lease losses (151,069 ) (144,871 )
Net loans and leases 20,802,302
20,277,795
Restricted equity securities 43,063
40,268
Premises and equipment, net 210,285
227,423
Operating lease right-of-use assets 112,752
—
Goodwill 1,787,651
1,787,651
Other intangible assets, net 21,155
23,964
Residential mortgage servicing rights, at fair value 139,780
169,025
Other real estate owned 8,423
10,958
Bank owned life insurance 316,435
313,626
Other assets 385,621
257,418
Total assets $ 27,986,075
$ 26,939,781
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 6,771,087
$ 6,667,467
Interest bearing 15,047,926
14,470,019
Total deposits 21,819,013
21,137,486
Securities sold under agreements to repurchase 308,052
297,151
Term debt 821,712
751,788
Junior subordinated debentures, at fair value 277,028
300,870
Junior subordinated debentures, at amortized cost 88,610
88,724
Operating lease liabilities 121,742
—
Deferred tax liability, net 57,757
25,846
Other liabilities 263,654
281,474
Total liabilities 23,757,568
22,883,339
COMMITMENTS AND CONTINGENCIES (NOTE 6)

SHAREHOLDERS' EQUITY
Common stock, no par value, shares authorized: 400,000,000 in 2019 and 2018; issued and outstanding: 220,498,684 in 2019 and 220,255,039 in 2018 3,514,391
3,512,874
Retained earnings 695,003
602,482
Accumulated other comprehensive income (loss) 19,113
(58,914 )
Total shareholders' equity 4,228,507
4,056,442
Total liabilities and shareholders' equity $ 27,986,075
$ 26,939,781

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES


	Three Months Ended
(in thousands, except per share amounts)	March 31, 2020		March 31, 2019
INTEREST INCOME
Interest and fees on loans and leases	$	245,993	$	258,747
Interest and dividends on investment securities:
Taxable	16,605		19,956
Exempt from federal income tax	1,562		2,114
Dividends	678		517
Interest on temporary investments and interest bearing deposits	3,331		925
Total interest income	268,169		282,259
INTEREST EXPENSE
Interest on deposits	40,290		34,094
Interest on securities sold under agreement to repurchase and federal funds purchased	395		810
Interest on borrowings	4,046		3,683
Interest on junior subordinated debentures	4,903		5,987
Total interest expense	49,634		44,574
Net interest income	218,535		237,685
PROVISION FOR CREDIT LOSSES	118,085		13,684
Net interest income after provision for credit losses	100,450		224,001
NON-INTEREST INCOME
Service charges on deposits	15,638		15,278
Brokerage revenue	4,015		3,810
Residential mortgage banking revenue, net	17,540		11,231

Loss on sale of debt securities, net	(133)		—




Gain on equity securities, net	814		695
Gain on loan and lease sales, net	1,167		769

BOLI income	2,129		2,168
Other (expense) income	(525)		11,789
Total non-interest income	40,645		45,740
NON-INTEREST EXPENSE
Salaries and employee benefits	109,774		100,658
Occupancy and equipment, net	37,001		36,245
Communications	3,128		4,220
Marketing	2,530		2,726
Services	10,770		12,210
FDIC assessments	2,542		2,942

Intangible amortization	1,247		1,404

Goodwill impairment	1,784,936		—
Other expenses	10,730		11,187
Total non-interest expense	1,962,658		171,592
(Loss) income before provision for income taxes	(1,821,563)		98,149
Provision for income taxes	30,384		24,116
Net (loss) income	$	(1,851,947)	$	74,033
(Loss) earnings per common share:
Basic	($8.41)		$0.34
Diluted	($8.41)		$0.34
Weighted average number of common shares outstanding:
Basic	220,216		220,366
Diluted	220,216		220,655

(in thousands, except per share amounts) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
INTEREST INCOME
Interest and fees on loans and leases $ 264,110
$ 242,123
$ 522,857
$ 471,611
Interest and dividends on investment securities:
Taxable 10,287
8,499
30,243
24,198
Exempt from federal income tax 1,921
2,057
4,035
4,185
Dividends 574
433
1,091
901
Interest on temporary investments and interest bearing deposits 4,708
2,080
5,633
3,244
Total interest income 281,600
255,192
563,859
504,139
INTEREST EXPENSE
Interest on deposits 43,591
21,259
77,685
36,869
Interest on securities sold under agreement to repurchase and federal funds purchased 403
155
1,213
218
Interest on term debt 4,563
3,478
8,246
6,839
Interest on junior subordinated debentures 5,881
5,400
11,868
10,332
Total interest expense 54,438
30,292
99,012
54,258
Net interest income 227,162
224,900
464,847
449,881
PROVISION FOR LOAN AND LEASE LOSSES 19,352
13,319
33,036
26,975
Net interest income after provision for loan and lease losses 207,810
211,581
431,811
422,906
NON-INTEREST INCOME
Service charges on deposits 15,953
15,520
31,231
30,515
Brokerage revenue 3,980
4,161
7,790
8,355
Residential mortgage banking revenue, net 9,529
33,163
20,760
71,601
(Loss) gain on sale of debt securities, net (7,186 ) 14
(7,186 ) 14
Gain (loss) on equity securities, net 82,607
(1,432 ) 83,302
(1,432 )
Gain on loan and lease sales, net 3,333
1,348
4,102
2,578
BOLI income 2,093
2,060
4,261
4,130
Other income 11,514
16,817
23,303
34,457
Total non-interest income 121,823
71,651
167,563
150,218
NON-INTEREST EXPENSE
Salaries and employee benefits 104,049
113,340
204,707
219,891
Occupancy and equipment, net 36,032
37,584
72,277
76,245
Communications 3,906
4,447
8,126
8,880
Marketing 4,312
3,088
7,038
4,888
Services 13,227
16,627
25,437
31,688
FDIC assessments 2,837
4,692
5,779
9,172
Loss (gain) on other real estate owned, net 2,678
(92 ) 2,627
(130 )
Intangible amortization 1,405
1,542
2,809
3,083
Other expenses 11,969
14,344
23,207
27,968
Total non-interest expense 180,415
195,572
352,007
381,685
Income before provision for income taxes 149,218
87,660
247,367
191,439
Provision for income taxes 37,408
21,661
61,524
46,468
Net income $ 111,810
$ 65,999
$ 185,843
$ 144,971
Earnings per common share:
Basic $0.51 $0.30 $0.84 $0.66
Diluted $0.51 $0.30 $0.84 $0.66
Weighted average number of common shares outstanding:
Basic 220,487
220,283
220,427
220,326
Diluted 220,719
220,647
220,692
220,760

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Net (loss) income	$	(1,851,947)	$	74,033
Available for sale securities:
Unrealized gains arising during the period	107,761		33,269
Income tax expense related to unrealized gains	(27,717)		(8,557)

Reclassification adjustment for net realized losses in earnings	133		—
Income tax benefit related to realized losses	(34)		—
Net change in unrealized gains for available for sale securities	80,143		24,712






Junior subordinated debentures, at fair value:
Unrealized gains arising during the period	78,862		6,564
Income tax expense related to unrealized gains	(20,283)		(1,644)
Net change in unrealized gains for junior subordinated debentures, at fair value	58,579		4,920
Other comprehensive income, net of tax	138,722		29,632
Comprehensive (loss) income	$	(1,713,225)	$	103,665

(in thousands) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Net income $ 111,810
$ 65,999
$ 185,843
$ 144,971
Available for sale securities:
Unrealized gains (losses) arising during the period 40,760
(4,027 ) 74,029
(46,217 )
Income tax (expense) benefit related to unrealized gains (losses) (10,484 ) 1,028
(19,041 ) 11,799

Reclassification adjustment for net realized losses (gains) in earnings 7,186
(14 ) 7,186
(14 )
Income tax (benefit) expense related to realized losses (gains) (1,848 ) 4
(1,848 ) 4
Net change in unrealized gains (losses) for available for sale securities 35,614
(3,009 ) 60,326
(34,428 )

Junior subordinated debentures, at fair value:
Unrealized gains (losses) arising during the period 17,240
(1,513 ) 23,804
(3,196 )
Income tax (expense) benefit related to unrealized gains (losses) (4,459 ) 386
(6,103 ) 816
Net change in unrealized gains (losses) for junior subordinated debentures, at fair value 12,781
(1,127 ) 17,701
(2,380 )
Other comprehensive income (loss), net of tax 48,395
(4,136 ) 78,027
(36,808 )
Comprehensive income $ 160,205
$ 61,863
$ 263,870
$ 108,163

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands, except shares) Common Stock Accumulated Other Comprehensive Income (Loss)
Shares Amount Retained Earnings Total
Balance at January 1, 2018 220,148,824
$ 3,517,258
$ 477,101
$ (24,992 ) $ 3,969,367
Net income

78,972

78,972
Other comprehensive loss, net of tax

(32,672 ) (32,672 )
Stock-based compensation
1,829

1,829
Stock repurchased and retired (201,473 ) (4,340 )

(4,340 )
Issuances of common stock under stock plans 513,485
759

759
Cash dividends on common stock ($0.20 per share)

(44,149 )
(44,149 )
Junior subordinated debentures, at fair value, cumulative effect adjustment (1) (9,710 ) 9,710
—
Balance at March 31, 2018 220,460,836
$ 3,515,506
$ 502,214
$ (47,954 ) $ 3,969,766
Net income

65,999

65,999
Other comprehensive loss, net of tax

(4,136 ) (4,136 )
Stock-based compensation
1,550

1,550
Stock repurchased and retired (334,854 ) (8,167 )

(8,167 )
Issuances of common stock under stock plans 78,709
257

257
Cash dividends on common stock ($0.20 per share)

(44,182 )
(44,182 )
Balance at June 30, 2018 220,204,691
$ 3,509,146
$ 524,031
$ (52,090 ) $ 3,981,087
Net income

90,981

90,981
Other comprehensive loss, net of tax

(23,585 ) (23,585 )
Stock-based compensation
2,140

2,140
Stock repurchased and retired (17,784 ) (386 )

(386 )
Issuances of common stock under stock plans 51,324
49

49
Cash dividends on common stock ($0.21 per share)

(46,393 )
(46,393 )
Balance at September 30, 2018 220,238,231
$ 3,510,949
$ 568,619
$ (75,675 ) $ 4,003,893
Net income 80,311
80,311
Other comprehensive income, net of tax 16,761
16,761
Stock-based compensation 1,994
1,994
Stock repurchased and retired (3,537 ) (69 ) (69 )
Issuances of common stock under stock plans 20,345
—
—
Cash dividends on common stock ($0.21 per share) (46,448 ) (46,448 )
Balance at December 31, 2018 220,255,039
$ 3,512,874
$ 602,482
$ (58,914 ) $ 4,056,442

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands, except shares) Common Stock Accumulated Other Comprehensive Income (Loss)
Shares Amount Retained Earnings Total
Balance at January 1, 2019 220,255,039
$ 3,512,874
$ 602,482
$ (58,914 ) $ 4,056,442
Net income 74,033
74,033
Other comprehensive income, net of tax 29,632
29,632
Stock-based compensation 754
754
Stock repurchased and retired (108,088 ) (1,918 ) (1,918 )
Issuances of common stock under stock plans 310,257
21
21
Cash dividends on common stock ($0.21 per share) (46,394 ) (46,394 )
Leases, cumulative effect adjustment (2) (244 ) (244 )
Balance at March 31, 2019 220,457,208
$ 3,511,731
$ 629,877
$ (29,282 ) $ 4,112,326
Net income 111,810
111,810
Other comprehensive income, net of tax 48,395
48,395
Stock-based compensation 2,722
2,722
Stock repurchased and retired (4,113 ) (62 ) (62 )
Issuances of common stock under stock plans 45,589
—
—
Cash dividends on common stock ($0.21 per share) (46,684 ) (46,684 )
Balance at June 30, 2019 220,498,684
$ 3,514,391
$ 695,003
$ 19,113
$ 4,228,507

(1) The cumulative effect adjustment ~~from retained earnings to accumulated other comprehensive income (loss)~~ relates to the implementation of new accounting guidance for ~~the junior subordinated debentures that the Company previously elected to fair value~~leases on ~~a recurring basis.~~January 1, 2019.

(2) The cumulative effect adjustment relates to the implementation of new accounting guidance for ~~leases.~~the allowance for credit losses. Refer to Note 1 for discussion of the new accounting guidance.

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Six Months Ended
June 30, 2019 June 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 185,843
$ 144,971
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net 12,338
18,750
Loss (gain) on sale of investment securities, net 7,186
(14 )
Gain on sale of other real estate owned, net (107 ) (196 )
Valuation adjustment on other real estate owned 2,734
66
Provision for loan and lease losses 33,036
26,975
Change in cash surrender value of bank owned life insurance (4,267 ) (4,203 )
Depreciation, amortization and accretion 22,600
27,411
Gain on sale of premises and equipment (687 ) (1,789 )
Gain on store divestiture (1,225 ) —
Additions to residential mortgage servicing rights carried at fair value (9,379 ) (13,390 )
Change in fair value of residential mortgage servicing rights carried at fair value 38,624
324
Gain on redemption of junior subordinated debentures at amortized cost —
(1,043 )
Stock-based compensation 3,476
3,379
Net increase in equity and other investments (3,068 ) (1,504 )
(Gain) loss on equity securities, net (83,302 ) 1,432
Gain on sale of loans and leases, net (34,471 ) (33,746 )
Change in fair value of loans held for sale (7,685 ) (5,402 )
Origination of loans held for sale (1,185,240 ) (1,526,715 )
Proceeds from sales of loans held for sale 1,033,110
1,390,161
Change in other assets and liabilities:
Net increase in other assets (114,975 ) (13,585 )
Net (decrease) increase in other liabilities (12,309 ) 37,491
Net cash (used in) provided by operating activities (117,768 ) 49,373
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (322,410 ) (134,071 )
Proceeds from investment securities available for sale 662,496
227,920
Proceeds from investment securities held to maturity 282
278
Proceeds from sale of equity securities 81,853
—
Purchases of restricted equity securities (205,400 ) (45,600 )
Redemption of restricted equity securities 202,605
46,788
Net change in loans and leases (619,257 ) (687,453 )
Proceeds from sales of loans and leases 58,478
41,613
Change in premises and equipment (5,387 ) (2,820 )
Proceeds from bank owned life insurance death benefits 1,869
1,481
Proceeds from sales of other real estate owned 856
1,629
Net cash paid in store divestiture (44,646 ) —
Net cash used in investing activities $ (188,661 ) $ (550,235 )


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,851,947)	$	74,033
Adjustments to reconcile net income to net cash used in operating activities:
Goodwill impairment	1,784,936		—
Amortization of investment premiums, net	3,040		1,829
Loss on sale of investment securities, net	133		—



Provision for credit losses	118,085		13,684
Change in cash surrender value of bank owned life insurance	(2,163)		(2,135)
Depreciation, amortization and accretion	10,273		11,554
Loss (gain) on sale of premises and equipment	18		(195)
Gain on store divestiture	—		(1,225)
Additions to residential mortgage servicing rights carried at fair value	(10,023)		(3,887)
Change in fair value of residential mortgage servicing rights carried at fair value	30,687		13,966


Stock-based compensation	2,253		754
Net decrease (increase) in equity and other investments	182		(791)
Gain on equity securities, net	(814)		(695)
Gain on sale of loans and leases, net	(38,346)		(13,025)
Change in fair value of loans held for sale	(8,094)		(2,793)
Origination of loans held for sale	(1,148,184)		(487,090)
Proceeds from sales of loans held for sale	1,235,581		428,298
Change in other assets and liabilities:
Net increase in other assets	(219,221)		(57,027)
Net decrease in other liabilities	(25,117)		(28,872)
Net cash used in operating activities	(118,721)		(53,617)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(140,407)		(5,953)

Proceeds from investment securities available for sale	168,851		119,381
Proceeds from investment securities held to maturity	118		174

Purchases of restricted equity securities	(19,999)		(205,400)
Redemption of restricted equity securities	8,400		198,202
Net change in loans and leases	(109,523)		(23,252)
Proceeds from sales of loans and leases	22,038		15,848
Change in premises and equipment	(3,943)		(2,365)
Proceeds from bank owned life insurance death benefits	57		1,550

Net cash paid in store divestiture	—		(44,646)

Net cash (used in) provided by investing activities	$	(74,408)	$	53,539

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

Application of new accounting guidance

~~As of January 1, 2019, Umpqua adopted~~In June 2016, the Financial Accounting Standard Board's ("FASB") issued Accounting ~~Standard~~Standards Update ("ASU") ~~No. 2016-02,~~ ~~Leases (Topic 842)~~ as well as additional ASUs for enhancement, clarification or transition of the new lease standard (collectively "ASC 842"). ASC 842 requires lessees, among other things, to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. This update also introduces new disclosure requirements for leasing arrangements. Refer to ~~Note 11 - Leases~~ ~~for further discussion of Umpqua's accounting policies for leases within the scope of ASC 842.~~

~~Recent accounting pronouncements~~

The adoption date for the Company ~~an option~~was January 1, 2020. The guidance was applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at January 1, 2020. However, certain provisions of the guidance are only required to ~~irrevocably elect~~be applied on a prospective basis.

The Bank has elected to not include accrued interest when determining the ~~fair value option for certain financial assets previously measured at~~ amortized cost ~~basis. ASC 326~~basis of an asset. Instead, the amortized cost basis of an asset is ~~effective~~the combination of the balance, deferred fees and costs, and premium or discount. In addition, the Bank has elected to continue to present accrued interest as part of Other Assets on the consolidated balance sheets. The Bank has elected to not calculate an allowance for ~~fiscal years,~~credit losses on accrued interest and ~~interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted~~the policies related to income recognition on non-accrual loans are outlined below.

Upon adoption of CECL, the Company did not reassess whether loans previously accounted for ~~specified periods.~~as purchased credit impaired ("PCI") met the definition of a Purchased Credit-Deteriorated ("PCD") loan and therefore accounts for all such assets as PCD. The Company has elected not to retain the PCI pools previously established. Instead, the loans will now be included within the appropriate class of financing receivables which have been established based on shared risk characteristics. Changes to the allowance after adoption are recorded through provision expense.

Based on the Bank's portfolio composition as of January 1, 2020, and economic environment at that time, management recorded an ~~established cross-functional team~~initial estimate of the allowance for credit losses ("ACL") under CECL, which includes the allowance for credit losses on loans and ~~project management governance process in place to manage~~leases ("ACLLL") of $207.6 million and reserve for unfunded commitments ("RUC") of $8.3 million. The implementation of ~~this new guidance.~~ CECL resulted in a cumulative effect of an accounting change adjustment to retained earnings of $40.2 million.

The ~~team continues to work~~Company analyzed the portfolio segments and classes of financing receivables based on the implementation ~~and is finalizing model build and validation, documenting process flow and controls, and has begun parallel runs.~~of CECL. There were no necessary changes in the portfolio segments or classes of financing receivables. The ~~new guidance may result in an~~ increase in the allowance by portfolio segment is as follows:


	December 31, 2019						January 1, 2020

(in thousands)	Allowance for Loan Loss		Reserve for Unfunded Commitments		Allowance for Credit Losses on Loans and Leases		Reserve for Unfunded Commitments		$ Increase (decrease)		% Increase (decrease)
Commercial real estate, net	$	50,847	$	534	$	55,924	$	4,564	$	9,107	18	%
Commercial, net	73,820		2,539		117,829		2,052		43,522		57	%
Residential, net	24,714		149		26,813		1,416		3,366		14	%
Consumer & other, net	8,248		1,884		7,062		312		(2,758)		(27)	%
Total	$	157,629	$	5,106	$	207,628	$	8,344	$	53,237	33	%

Due to the significance of the implementation of CECL on the Company, the following significant accounting policies have been updated from the policies disclosed in prior financial statements.

Allowance for ~~loan~~Credit Losses Policy- The Bank has established an Allowance for Credit Loss Committee, which is responsible for, among other things, regularly reviewing the ACL methodology, including allowance levels and ~~lease losses; however,~~ensuring that it is designed and applied in accordance with generally accepted accounting principles. The Bank's Audit and Compliance Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis. CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Instead, management has flexibility in selecting the methodology. The expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments utilizing quantitative and qualitative factors. There are also specific considerations for Purchased Credit-Deteriorated, Troubled Debt Restructured ("TDR"), and Collateral Dependent Loans ("CDL").

The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is ~~still~~not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life using an approach that reverts to historical credit loss information for the longer-term portion of the asset's life.

The Company utilizes complex models to obtain reasonable and supportable forecasts; most of the models calculate two predictive metrics: the probability of default ("PD") and loss given default ("LGD"). The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan or lease. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.

The combination of the current expected credit loss, purchased credit deteriorated, collateral dependent loans, troubled debt restructuring, and the reserve for unfunded commitments components represent the allowance for credit losses. Management believes that the ACL was adequate as of March 31, 2020. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ACL and could possibly result in additional charges to the provision for credit losses.

Acquired Loans and Leases- Loans and leases purchased without more-than-insignificant credit deterioration, are recorded at their fair value at the acquisition date. However, loans and leases purchased with more-than-insignificant credit deterioration will be recorded with their applicable allowance for credit loss to determine the amortized cost basis.

Originated Loans and Leases- Loans are stated at the amount of unpaid principal, net of unearned income and any deferred fees or costs. All discounts and premiums are recognized over the contractual life of the loan as yield adjustments. Leases are recorded at the amount of minimum future lease payments receivable and estimated residual value of the leased equipment, net of unearned income and any deferred fees. Initial direct costs related to lease originations are deferred as part of the investment in direct financing leases and amortized over their term using the effective interest method. Unearned lease income is amortized over the term using the effective interest method.

Income Recognition on Non-Accrual Loans- Loans are classified as non-accrual if the collection of principal and interest is doubtful. Generally, this occurs when a commercial or commercial real estate loan is past due as to maturity or payment of principal or interest by 90 days or more, unless such loans are well-secured and in the process of ~~determining~~collection. Loans that are less than 90 days past due may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.

Generally, when a loan is classified as non-accrual, all uncollected accrued interest is reversed from interest income and the ~~magnitude~~accrual of interest income is terminated. In addition, any cash payments subsequently received are applied as a reduction of principal outstanding. In cases where the future collectability of the ~~change~~principal balance in full is expected, interest income may be recognized on a cash basis. A loan may be restored to accrual status when the borrower's financial condition improves so that full collection of future contractual payments is considered likely. For those loans placed on non-accrual status due to payment delinquency, return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less than six months.

Collateral Dependent Loans and ~~its~~Troubled Debt Restructurings- A loan or lease is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. The Company's classification of CDLs includes: non-homogeneous non-accrual loans and leases, non-homogeneous loans determined by individual credit review, homogeneous non-accrual leases and equipment finance agreements and homogeneous real estate secured loans that have been charged down to net realizable value or the government guarantee balance. Except for homogenous leases and equipment finance agreements, the expected credit losses for CDLs will be measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. The Company may also use the loan's observable market price, if available. If the value of the CDL is determined to be less than the recorded amount of the loan, a charge-off will be taken. To determine the expected credit loss for homogenous leases or equipment finances agreements, the LGD calculated by the CECL model will be utilized. When a homogenous lease or equipment finance agreement becomes 181 days past due, it is fully charged-off.

Loans are reported as restructured loans when, due to borrower financial difficulties, the Bank grants a concession it would not otherwise be willing to offer for a loan. Once a loan has been classified as restructured, it continues in the classification until it has paid in full or it has demonstrated six months payment performance and was determined to have been modified at a market rate. TDRs, including reasonably expected TDRs, are individually recognized and measured for expected credit loss. They are measured for expected credit loss in two ways: when a TDR meets the definition of a CDL, it is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable; otherwise, a discounted cash flow analysis is utilized to measure the expected credit loss for a TDR. The discounted cash flow for TDRs are discounted based on the pre-modification rate and the expected remaining life.

In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed, which, among other things, allows the Bank to suspend the requirements for certain loan modifications to be categorized as a TDR, including the related impairment for accounting purposes, as such, the Bank is not reporting COVID-19 related modifications as TDRs.

Reserve for Unfunded Commitments- A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb expected losses associated with the Bank's commitment to lend funds under existing agreements, such as letters or lines of credit. The RUC calculation utilizes the allowance for credit loss on loans and leases rates, probability of default risk ratings, and utilization rates based on the economic expectations over the contractual life of the commitment. The reserve is based on estimates, and ultimate losses may vary from the current estimates. These estimates are evaluated on a regular basis and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Draws on unfunded commitments that are considered uncollectible at the time funds are advanced are charged to the allowance for credit losses on loans and leases. Provisions for unfunded commitment losses are added to the reserve for unfunded commitments, which is included in the Other Liabilities section of the consolidated balance sheets.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The ASU was issued to improve the effectiveness of disclosures surrounding fair value measurements. The ASU removes numerous disclosures from Topic 820 including: transfers between level 1 and 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation process for level 3 fair value measurements. The ASU also modified and added disclosure requirements in regards to changes in unrealized gains and losses included in other comprehensive income, as well as the range and weighted average of unobservable inputs for level 3 fair value measurements. The Company adopted this ASU as of January 1, 2020, on a retrospective basis except certain provisions of the guidance are only required to be applied on a prospective basis.

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. The 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 is currently evaluating the impact of this ASU on the Company's consolidated financial statements.

Note 2 – Investment Securities


	March 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	691,066	$	59,446	$	—	$	750,512
Obligations of states and political subdivisions	242,262		10,172		(15)		252,419
Residential mortgage-backed securities and collateralized mortgage obligations	1,824,819		63,032		(307)		1,887,544

Total available for sale securities	$	2,758,147	$	132,650	$	(322)	$	2,890,475
Held to maturity:

Residential mortgage-backed securities and collateralized mortgage obligations	$	3,200	$	865	$	—	$	4,065

Total held to maturity securities	$	3,200	$	865	$	—	$	4,065

(in thousands) June 30, 2019
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
AVAILABLE FOR SALE:

U.S. Treasury and agencies $ 335,541
$ 1,701
$ (141 ) $ 337,101
Obligations of states and political subdivisions 262,859
8,262
(169 ) 270,952
Residential mortgage-backed securities and collateralized mortgage obligations 2,087,562
15,862
(13,079 ) 2,090,345
$ 2,685,962
$ 25,825
$ (13,389 ) $ 2,698,398
HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations $ 3,416
$ 1,046
$ —
$ 4,462
$ 3,416
$ 1,046
$ —
$ 4,462


	December 31, 2019
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	642,009	$	5,919	$	(4,324)	$	643,604
Obligations of states and political subdivisions	251,531		9,600		(37)		261,094
Residential mortgage-backed securities and collateralized mortgage obligations	1,896,708		18,962		(5,686)		1,909,984

Total available for sale securities	$	2,790,248	$	34,481	$	(10,047)	$	2,814,682
Held to maturity:

Residential mortgage-backed securities and collateralized mortgage obligations	$	3,260	$	1,003	$	—	$	4,263

Total held to maturity securities	$	3,260	$	1,003	$	—	$	4,263

Interest accrued on investment securities totaled $11.9 million and $9.8 million as of March 31, 2020 and December 31, 2019, respectively, and is included in Other Assets.


	March 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:

Obligations of states and political subdivisions	$	3,843	$	10	$	774	$	5	$	4,617	$	15
Residential mortgage-backed securities and collateralized mortgage obligations	—		—		22,719		307		22,719		307
Total	$	3,843	$	10	$	23,493	$	312	$	27,336	$	322

(in thousands)
June 30, 2019
Less than 12 Months 12 Months or Longer Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies $ 9,091
$ 62
$ 19,919
$ 79
$ 29,010
$ 141
Obligations of states and political subdivisions 865
1
17,516
168
18,381
169
Residential mortgage-backed securities and collateralized mortgage obligations 37,742
211
1,084,016
12,868
1,121,758
13,079
Total temporarily impaired securities $ 47,698
$ 274
$ 1,121,451
$ 13,115
$ 1,169,149
$ 13,389


	December 31, 2019
	Less than 12 Months						12 Months or Longer						Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. Treasury and agencies	$	313,169	$	4,324	$	—	$	—	$	313,169	$	4,324
Obligations of states and political subdivisions	4,611		30		1,906		7		6,517		37
Residential mortgage-backed securities and collateralized mortgage obligations	288,866		1,628		402,802		4,058		691,668		5,686

Total	$	606,646	$	5,982	$	404,708	$	4,065	$	1,011,354	$	10,047

These unrealized losses on ~~U.S. treasury and agencies~~the Company's debt securities ~~are due to increases in market interest rates and not due to the underlying credit of the issuers. The unrealized losses on obligations of states and political subdivisions~~ were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these ~~securities.~~securities and are not due to the underlying credit of the issuers. Management monitors the published credit ratings of ~~these~~the Company's securities for material rating or outlook changes.Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at ~~June 30, 2019~~March 31, 2020 are issued or guaranteed by government sponsored enterprises. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will be settled at a price at least equal to the amortized cost of each investment.


	Available For Sale						Held To Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	25,308	$	25,479	$	—	$	—
Due after one year through five years	53,243		54,215		3		3
Due after five years through ten years	851,403		908,128		11		12
Due after ten years	1,828,193		1,902,653		3,186		4,050
Total securities	$	2,758,147	$	2,890,475	$	3,200	$	4,065

(in thousands)
Available For Sale Held To Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
Due within one year $ 4,845
$ 4,884
$ —
$ —
Due after one year through five years 72,849
73,246
—
—
Due after five years through ten years 646,027
649,917
18
18
Due after ten years 1,962,241
1,970,351
3,398
4,444
$ 2,685,962
$ 2,698,398
$ 3,416
$ 4,462

~~The following table presents the gains and losses on equity securities for the three and six months ended June 30, 2019 and 2018:~~


(in thousands)	Amortized Cost		Fair Value

To state and local governments to secure public deposits	$	283,422	$	292,225
Other securities pledged principally to secure repurchase agreements	552,246		580,377
Total pledged securities	$	835,668	$	872,602

(in thousands)
Amortized Cost Fair Value
To state and local governments to secure public deposits $ 1,047,739
$ 1,053,644
Other securities pledged principally to secure repurchase agreements 429,303
431,883
Total pledged securities $ 1,477,042
$ 1,485,527

Note 3 – Loans and Leases

(in thousands) June 30, 2019 December 31, 2018
Commercial real estate
Non-owner occupied term, net $ 3,537,084
$ 3,573,065
Owner occupied term, net 2,396,674
2,480,371
Multifamily, net 3,341,547
3,304,763
Construction & development, net 732,932
736,254
Residential development, net 199,421
196,890
Commercial
Term, net 2,271,346
2,232,923
Lines of credit & other, net 1,280,587
1,169,525
Leases & equipment finance, net 1,449,579
1,330,155
Residential
Mortgage, net 3,995,643
3,635,073
Home equity loans & lines, net 1,215,215
1,176,477
Consumer & other, net 533,343
587,170
Total loans, net of deferred fees and costs $ 20,953,371
$ 20,422,666


(in thousands)	March 31, 2020		December 31, 2019
Commercial real estate
Non-owner occupied term, net	$	3,613,420	$	3,545,566
Owner occupied term, net	2,472,187		2,496,088
Multifamily, net	3,464,217		3,514,774
Construction & development, net	667,975		678,740
Residential development, net	187,594		189,010
Commercial
Term, net	2,317,573		2,232,817
Lines of credit & other, net	1,208,051		1,212,393
Leases & equipment finance, net	1,492,762		1,465,489
Residential
Mortgage, net	4,193,908		4,215,424
Home equity loans & lines, net	1,249,152		1,237,512
Consumer & other, net	384,639		407,871
Total loans and leases, net of deferred fees and costs	$	21,251,478	$	21,195,684

Interest accrued on loans and leases totaled $57.6 million and $58.5 million as of March 31, 2020 and December 31, 2019, respectively, and is included in Other Assets.

The ~~outstanding contractual unpaid principal balance of purchased impaired loans, excluding acquisition accounting adjustments, was $158.8 million and $183.7 million at~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018, respectively. The carrying balance of purchased impaired loans was $113.6 million and $134.5 million at~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018, respectively.~~

(in thousands) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Balance, beginning of period $ 51,073
$ 66,677
$ 56,564
$ 74,268
Accretion to interest income (5,433 ) (7,123 ) (10,318 ) (15,901 )
Disposals (2,230 ) (2,838 ) (4,573 ) (7,854 )
Reclassifications from non-accretable difference 2,609
6,250
4,346
12,453
Balance, end of period $ 46,019
$ 62,966
$ 46,019
$ 62,966

~~Umpqua,~~Bank, through its commercial equipment leasing subsidiary, FinPac, is a direct provider of commercial equipment leasing and financing throughout the United States, originating business through three distinct channels: small and mid-ticket ~~third party~~third-party originators, vendor finance, and Umpqua Bank Equipment Leasing & Finance. Direct finance leases are included within the lease and equipment finance segment within the loans and leases, net line item. All of these leases typically have terms of three to five years and are considered to be direct financing leases. Interest income recognized on these leases ~~is $8.1~~was $6.7 million and ~~$16.5~~$8.4 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, respectively.

Residual values on leases are established at the time equipment is leased based on an estimate of the value of the leased equipment when the Company expects to dispose of the equipment, typically at the termination of the lease. An annual evaluation is also performed each fiscal year by an independent valuation specialist and equipment residuals are confirmed or adjusted in conjunction with such evaluation.

~~The following table presents the net investment in direct financing leases as of June 30, 2019 and December 31, 2018~~:

(in thousands) June 30, 2019 December 31, 2018
Minimum lease payments receivable $ 471,092
$ 450,258
Estimated guaranteed and unguaranteed residual values 80,742
79,455
Initial direct costs - net of accumulated amortization 10,017
10,950
Unearned income (74,280 ) (79,777 )
Net investment in direct financing leases $ 487,571
$ 460,886

~~The following table presents the scheduled minimum lease payments receivable as of June 30, 2019:~~

(in thousands)
Year Amount
2019 $ 82,148
2020 142,684
2021 111,239
2022 67,966
2023 32,423
Thereafter 34,632
$ 471,092

Loans and leases sold


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Commercial real estate
Non-owner occupied term, net	$	3,385	$	4,819
Owner occupied term, net	5,766		4,710



Commercial
Term, net	11,677		5,441

Leases & equipment finance, net	43		—
Residential
Mortgage, net	—		109


Total loans and leases sold, net	$	20,871	$	15,079

(in thousands) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Commercial real estate
Non-owner occupied term, net $ 2,943
$ 763
$ 7,762
$ 5,154
Owner occupied term, net 8,261
8,542
12,971
14,092
Commercial
Term, net 10,522
9,331
15,963
19,789
Leases & equipment finance, net 17,571
—
17,571
—
Residential
Mortgage, net —
—
109
—
Total $ 39,297
$ 18,636
$ 54,376
$ 39,035

Note 4 – Allowance for ~~Loan and Lease Loss and~~ Credit ~~Quality~~ Losses

Allowance for Credit Losses Methodology

To calculate the ~~appropriateness~~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 Allowance for Loan and Lease Loss ("ALLL") consists of three key elements: 1) the formula allowance; 2) the specific allowance; and 3) the unallocated allowance. By incorporating these factors into a single allowance requirement analysis, we believe all risk-based activities within theBank's loan and lease portfolios. Moody's, a third party, provided the historical and forward-looking macroeconomic data used in the development of the models used to calculate the ACL.

The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three months ended March 31, 2020, were primarily related to changes in the economic assumptions. Because of the rapidly changing economic environment due to the COVID-19 pandemic, the Bank opted to use Moody's proprietary baseline economic forecast which included the latest macroeconomic developments throughout March 2020. The World Health Organization officially declared COVID-19 a pandemic, the Federal Reserve reacted with the implementation of its policy tools, a national state of emergency was declared in the U.S. and congress passed the CARES Act in a response to minimize the effects from the pandemic. Moody's incorporated these developments in its late March 2020 macroeconomic outlook. Based on these factors, the Bank believed the Moody's macroeconomic forecast was appropriate to use to calculate the ACL.

•the U.S. economy undergoes a recession due to the COVID-19 pandemic from the first quarter of 2020 to the second quarter of 2020;

•real GDP peak-to-trough is approximately negative 6%, on a cumulative basis;

•U.S. unemployment rate peaks near 9% in the second quarter of 2020;

•partial economic recovery in the third quarter of 2020, then slow growth thereafter and an acceleration later in 2021;

•return to full employment is achieved by 2023;

•an assumption that the direct stimulus payments to eligible taxpayers will be transitioned effectively to individuals and there will be a boost in unemployment insurance from the $2.2 trillion fiscal stimulus;

•banks, airlines and hospitals will be beneficiaries of economic stimulus legislation.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable to assess sensitivity in the ACL results and to inform qualitative adjustments. Typically, the Bank would have selected a scenario that was more unfavorable in comparison to the scenario used for the ACL calculation. However, because of the recent COVID-19 pandemic, the timing of scenarios and management judgment, the Bank selected Moody's COVID-19 severe pandemic scenario.

•real GDP peak-to-trough is approximately negative 2%, on a cumulative basis;

•U.S. unemployment rate peaks near 5% in the fourth quarter of 2020;

•a slow economic growth begins in fourth quarter of 2020;

•return to full employment is achieved by 2022.

~~Formula Allowance~~ Commercial Real Estate ("CRE"): Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: Net Operating Income ("NOI"), Property Value, Property Type, and Location. For PD estimation, the model simulates potential future paths of NOI given commercial real estate market factors determined from macroeconomic forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP Growth, U.S. unemployment rate, and 10-Year Treasury yield. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.

Commercial: Non-homogeneous commercial loans and leases and residential development loans are ~~originated or acquired, they~~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 industry and cycle-adjusting information. 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 ~~assigned~~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 reverts on a ~~risk rating that~~straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.

Residential: The models for residential real estate and Home Equity Lines of Credit ("HELOC") utilize loan ~~or lease through~~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 ~~credit review process. The Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The 10 risk rating categories are~~residential real estate and HELOC models. In addition, the prime rate is also a primary ~~factor~~driver in ~~determining~~the HELOC model. The modelsfocus on establishing an ~~appropriate amount~~empirical relationship between default probabilities and a set of loan-level, borrower, and macroeconomic credit risk drivers. The LGD calculation for ~~the formula allowance.~~

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

•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 ~~following factors: loss experience;~~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 ~~non-performing loans~~such concentrations.

•The effect of other external factors such as competition and ~~leases;~~legal and regulatory ~~exam results; changes in~~requirements on the level of ~~adversely classified loans~~estimated credit losses in the Bank's existing portfolio.

~~Specific Allowance~~

The following table summarizes activity related to the allowance for ~~loan~~credit losses on loans and ~~lease losses or charge-off~~leases by portfolio segment for the impaired balance on collateral-dependent loans if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double-count the loss exposure.three months ended March 31, 2020:


	Three Months Ended March 31, 2020
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Balance, beginning of period	$	50,847	$	73,820	$	24,714	$	8,248	$	157,629
Impact of adoption of CECL	5,077		44,009		2,099		(1,186)		49,999
Provision for credit losses for loans and leases	43,608		49,673		7,185		5,036		105,502

Charge-offs	—		(22,608)		(11)		(1,836)		(24,455)
Recoveries	246		1,713		264		522		2,745
Net (charge-offs) recoveries	246		(20,895)		253		(1,314)		(21,710)
Balance, end of period	$	99,778	$	146,607	$	34,251	$	10,784	$	291,420

The combination of the formula allowance component and the specific allowance component represents the allocated allowance for loan and lease losses. There was no unallocated allowance as of June 30, 2019 and December 31, 2018.

~~Activity in the Allowance for Loan and Lease Losses~~

~~The following tables present the allowance and recorded investment in loans and leases by portfolio segment and balances individually or collectively evaluated for impairment as of~~ ~~June 30, 2019~~ ~~and~~ ~~2018~~:

(in thousands)
June 30, 2018
Commercial Real Estate Commercial Residential Consumer & Other Total
Allowance for loans and leases:
Collectively evaluated for impairment $ 44,668
$ 65,378
$ 19,902
$ 11,190
$ 141,138
Individually evaluated for impairment 814
7
—
—
821
Loans acquired with deteriorated credit quality 1,803
380
373
41
2,597
Total $ 47,285
$ 65,765
$ 20,275
$ 11,231
$ 144,556
Loans and leases:
Collectively evaluated for impairment $ 9,776,975
$ 4,504,361
$ 4,508,961
$ 645,310
$ 19,435,607
Individually evaluated for impairment 28,786
17,225
—
—
46,011
Loans acquired with deteriorated credit quality 124,554
3,768
29,143
411
157,876
Total $ 9,930,315
$ 4,525,354
$ 4,538,104
$ 645,721
$ 19,639,494

~~Summary of Reserve for Unfunded Commitments Activity~~

(in thousands) Total
Unfunded loan and lease commitments:
June 30, 2019 $ 5,587,294
June 30, 2018 $ 5,077,579

Asset Quality and Non-Performing Loans and Leases

~~Non-Accrual Loans and Leases and~~

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

The following tables present the amortized cost basis of the loans and leases past due, by loan and lease class, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019:


	March 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		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	4,331	$	5,401	$	—	$	9,732	$	4,510	$	3,599,178	$	3,613,420
Owner occupied term, net	7,064		4,231		2,177		13,472		6,135		2,452,580		2,472,187
Multifamily, net	—		—		—		—		598		3,463,619		3,464,217
Construction & development, net	—		—		—		—		—		667,975		667,975
Residential development, net	—		—		—		—		—		187,594		187,594
Commercial
Term, net	316		1,441		213		1,970		2,407		2,313,196		2,317,573
Lines of credit & other, net	3,194		648		1		3,843		12,443		1,191,765		1,208,051
Leases & equipment finance, net	12,668		3,663		2,281		18,612		13,035		1,461,115		1,492,762
Residential
Mortgage, net⁽²⁾	9,472		163		45,647		55,282		—		4,138,626		4,193,908
Home equity loans & lines, net	3,081		728		1,728		5,537		—		1,243,615		1,249,152
Consumer & other, net	2,619		942		466		4,027		—		380,612		384,639
Total, net of deferred fees and costs	$	42,745	$	17,217	$	52,513	$	112,475	$	39,128	$	21,099,875	$	21,251,478

Current & Other ⁽¹⁾

⁽²⁾ Includes government guaranteed GNMA mortgage loans that ~~Umpqua~~the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling ~~$5.4~~$5.3 million at ~~June 30, 2019.~~March 31, 2020.

(in thousands) December 31, 2018
Greater than 30 to 59 Days Past Due 60 to 89 Days Past Due 90+ Days and Accruing Total Past Due Non-Accrual
Current & Other ⁽¹⁾
Total Loans and Leases
Commercial real estate

Non-owner occupied term, net $ 1,192
$ 1,042
$ —
$ 2,234
$ 10,033
$ 3,560,798
$ 3,573,065
Owner occupied term, net 3,920
1,372
1
5,293
8,682
2,466,396
2,480,371
Multifamily, net 107
—
—
107
4,298
3,300,358
3,304,763
Construction & development, net —
—
—
—
—
736,254
736,254
Residential development, net —
—
—
—
—
196,890
196,890
Commercial

Term, net 992
117
—
1,109
11,772
2,220,042
2,232,923
Lines of credit & other, net 1,286
143
83
1,512
2,275
1,165,738
1,169,525
Leases & equipment finance, net 8,571
8,754
3,016
20,341
13,763
1,296,051
1,330,155
Residential

Mortgage, net⁽²⁾
—
4,900
39,218
44,118
—
3,590,955
3,635,073
Home equity loans & lines, net 987
368
2,492
3,847
—
1,172,630
1,176,477
Consumer & other, net 2,711
911
551
4,173
—
582,997
587,170
Total, net of deferred fees and costs $ 19,766
$ 17,607
$ 45,361
$ 82,734
$ 50,823
$ 20,289,109
$ 20,422,666

Current and Other ⁽¹⁾

Mortgage, net⁽²⁾

⁽¹⁾ Other includes purchased credit impaired loans of ~~$134.5~~$89.5 million.

⁽²⁾ Includes government guaranteed GNMA mortgage loans that ~~Umpqua~~the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling ~~$8.9~~$4.3 million at December 31, ~~2018.~~2019.

~~Impaired~~Collateral Dependent Loans and Leases

The following ~~tables summarize our impaired~~table summarizes the amortized cost basis of the collateral dependent loans and leases by ~~loan class~~the type of collateral securing the assets as of ~~June 30, 2019~~March 31, 2020. ~~and~~ ~~December 31, 2018~~: 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	$	—	$	4,227	$	—	$	—	$	4,227
Owner occupied term, net	—		5,491		—		—		5,491
Multifamily, net	—		598		—		—		598


Commercial
Term, net	763		—		11,680		—		12,443
Line of credit & other, net	950		82		8		1,426		2,466
Leases & equipment finance, net	—		—		13,035		—		13,035
Residential
Mortgage, net	2,648		—		—		—		2,648
Home equity loans & lines, net	94,734		—		—		—		94,734

Total net of deferred fees and costs	$	99,095	$	10,398	$	24,723	$	1,426	$	135,642

(in thousands) June 30, 2019

Recorded Investment
Unpaid Principal Balance Without Allowance With Allowance Related Allowance
Commercial real estate
Non-owner occupied term, net $ 15,570
$ 8,941
$ 3,681
$ 89
Owner occupied term, net 7,394
5,238
847
78
Commercial
Term, net 12,245
5,440
46
2
Lines of credit & other, net 1,057
923
—
—
Leases & equipment finance, net 2,227
385
1,842
1
Total, net of deferred fees and costs $ 38,493
$ 20,927
$ 6,416
$ 170

~~The following tables summarize our average recorded investment and interest income recognized on impaired loans and leases by loan class for the~~ Table of Contents~~three and six~~ ~~months ended~~ ~~June 30, 2019~~ ~~and~~ ~~2018~~:

(in thousands)
Three Months Ended
June 30, 2019 June 30, 2018
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Commercial real estate
Non-owner occupied term, net $ 12,295
$ 32
$ 13,301
$ 103
Owner occupied term, net 5,929
9
11,185
10
Multifamily, net 1,313
—
3,857
30
Commercial
Term, net 8,872
53
17,515
56
Lines of credit & other, net 1,204
—
2,609
—
Leases & equipment finance, net 2,597
28
509
—
Total, net of deferred fees and costs $ 32,210
$ 122
$ 48,976
$ 199
Off Balance Sheet Credit Disclosure

(in thousands)
Six Months Ended
June 30, 2019 June 30, 2018
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Commercial real estate
Non-owner occupied term, net $ 12,717
$ 64
$ 14,172
$ 205
Owner occupied term, net 6,304
18
11,527
20
Multifamily, net 2,308
—
3,862
60
Commercial
Term, net 10,867
104
18,875
145
Lines of credit & other, net 1,491
—
3,867
—
Leases & equipment finance, net 1,871
29
339
—
Total, net of deferred fees and costs $ 35,558
$ 215
$ 52,642
$ 430

The ~~impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.~~

~~Credit Quality Indicators~~

~~As previously noted,~~following tables present a summary of activity in the ~~Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The Bank differentiates its lending portfolios into homogeneous loans~~RUC and leases and non-homogeneous loans and leases. Homogeneous loans and leases are not risk rated until they are greater than 30 days past due, and risk rating is based on the past due status of the loan or lease. The 10 risk rating categories can be generally described by the following groupings for loans and leases:

~~Minimal Risk~~—A minimal risk loan or lease, risk rated 1, is to a borrower of the highest quality. The borrower has an unquestioned ability to produce consistent profits and service all obligations and can absorb severe market disturbances with little or no difficulty.

~~Low Risk~~—A low risk loan or lease, risk rated 2, is similar in characteristics to a minimal risk loan. Margins may be smaller or protective elements may be subject to greater fluctuation. The borrower will have a strong demonstrated ability to produce profits, provide ample debt service coverage and to absorb market disturbances.

~~Modest Risk—A modest risk loan or lease, risk rated~~ 3, is a desirable loan or lease with excellent sources of repayment and no currently identifiable risk associated with collection. The borrower exhibits a very strong capacity to repay the credit in accordance with the repayment agreement. The borrower may be susceptible to economic cycles, but will have reserves to weather these cycles.

~~Average Risk—An average risk loan or lease, risk rated~~ 4, is an attractive loan or lease with sound sources of repayment and no material collection or repayment weakness evident. The borrower has an acceptable capacity to pay in accordance with the agreement. The borrower is susceptible to economic cycles and more efficient competition, but should have modest reserves sufficient to survive all but the most severe downturns or major setbacks.

~~Acceptable Risk—An acceptable risk loan or lease, risk rated~~ 5, is a loan or lease with lower than average, but still acceptable credit risk. These borrowers may have higher leverage, less certain but viable repayment sources, have limited financial reserves and may possess weaknesses that can be adequately mitigated through collateral, structural or credit enhancement. The borrower is susceptible to economic cycles and is less resilient to negative market forces or financial events. Reserves may be insufficient to survive a modest downturn.

~~Watch—A watch loan or lease, risk rated~~ 6, is still pass-rated, but represents the lowest level of acceptable 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 rating would be appropriate. The borrower should have a plausible plan, with reasonable certainty of success, to correct the problems in a short period of time.

~~Special Mention—A special mention loan or lease, risk rated~~ 7~~, has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects~~unfunded commitments for the ~~asset or the institution's credit position at some future date. They contain unfavorable characteristics~~three months ended March 31, 2020 and are generally undesirable. Loans and leases in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of a substandard classification. A special mention loan or lease has potential weaknesses, which if not checked or corrected, weaken the asset or inadequately protect the Bank's position at some future date. For commercial and commercial real estate homogeneous loans and leases to be classified as special mention, risk rated 7, the loan or lease is greater than 30 to 59 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are risk rated 7, when the loan is greater than 30 to 89 days past due from the required payment date at month-end. 2019:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Balance, beginning of period	$	5,106	$	4,523
Impact of adoption of CECL	3,238		—
Provision for credit losses on unfunded commitments	12,583		131
Balance, end of period	$	20,927	$	4,654


(in thousands)	Total
Unfunded loan and lease commitments
March 31, 2020	$	5,705,316
March 31, 2019	$	5,510,974

~~Substandard—~~
~~A substandard asset, risk rated~~ 8, is inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. Loans and leases are classified as substandard when they have unsatisfactory characteristics causing unacceptable levels of risk. A substandard loan or lease normally has one or more well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between special mention and substandard. Commercial and commercial real estate homogeneous loans and leases are classified as a substandard loan or lease, risk rated 8, when the loan or lease is 60 to 89 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are classified as a substandard loan, risk rated 8, when an open-end loan is 90 to 180 days past due from the required payment date at month-end or when a closed-end loan 90 to 120 days is past due from the required payment date at month-end.

~~Doubtful—Loans or leases classified as doubtful, risk rated~~ 9, have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, and perfection of liens on additional collateral and refinancing plans. In certain circumstances, a doubtful rating will be temporary, while the Bank is awaiting an updated collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining un-collateralized portion will be charged-off. The remaining balance, properly margined, may then be upgraded to substandard, however must remain on non-accrual. Commercial and commercial real estate homogeneous doubtful loans or leases, risk rated 9, are 90 to 179 days past due from the required payment date at month-end.

~~Loss~~—Loans or leases classified as loss, risk rated 10, are considered un-collectible and of such little value that the continuance as an active Bank asset is not warranted. This rating does not mean that the loan or lease has no recovery or salvage value, but rather that the loan or lease should be charged-off now, even though partial or full recovery may be possible in the future. For a commercial or commercial real estate homogeneous loss loan or lease to be risk rated 10, the loan or lease is 180 days and more past due from the required payment date. These loans are generally charged-off in the month in which the 180 day time period elapses. Residential, consumer and other homogeneous loans are risk rated 10, when a loan becomes past due 120 cumulative days from the contractual due date. Residential and consumer loans secured by real estate are generally charged down to net realizable value in the month in which the loan becomes 180 days past due. All other residential, consumer, and other homogeneous loans are generally charged-off in the month in which the 120 day period elapses.

~~Impaired—Loans are classified as impaired~~when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original loan agreement, without unreasonable delay. This generally includes all loans classified as non-accrual and troubled debt restructurings. Impaired loans are risk rated for internal and regulatory rating purposes, but presented separately for clarification.

~~The following tables summarize our internal risk rating by loan and lease class for the loan and lease portfolio, including purchased credit impaired loans, as of~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018~~:

(in thousands) June 30, 2019
Pass/Watch Special Mention Substandard Doubtful Loss
Impaired ⁽¹⁾
Total
Commercial real estate
Non-owner occupied term, net $ 3,455,860
$ 51,231
$ 17,143
$ 228
$ —
$ 12,622
$ 3,537,084
Owner occupied term, net 2,314,355
59,795
15,863
576
—
6,085
2,396,674
Multifamily, net 3,331,275
6,838
3,434
—
—
—
3,341,547
Construction & development, net 731,015
1,917
—
—
—
—
732,932
Residential development, net 199,421
—
—
—
—
—
199,421
Commercial
Term, net 2,222,485
34,191
7,926
1,090
168
5,486
2,271,346
Lines of credit & other, net 1,202,892
62,605
13,762
405
—
923
1,280,587
Leases & equipment finance, net 1,415,475
6,813
8,835
14,280
1,949
2,227
1,449,579
Residential
Mortgage, net ⁽²⁾
3,950,673
7,840
36,846
—
284
—
3,995,643
Home equity loans & lines, net 1,210,910
1,981
1,565
—
759
—
1,215,215
Consumer & other, net 529,561
3,324
424
—
34
—
533,343
Total, net of deferred fees and costs $ 20,563,922
$ 236,535
$ 105,798
$ 16,579
$ 3,194
$ 27,343
$ 20,953,371

⁽¹⁾~~The percentage of impaired loans classified as pass/watch, special mention and substandard was 3.3%, 14.3% and 82.4%, respectively, as of June 30, 2019.~~

⁽²⁾ Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $5.4 million at June 30, 2019, which is included in the substandard category.

(in thousands) December 31, 2018
Pass/Watch Special Mention Substandard Doubtful Loss
Impaired ⁽¹⁾
Total
Commercial real estate
Non-owner occupied term, net $ 3,497,801
$ 38,346
$ 23,234
$ —
$ 122
$ 13,562
$ 3,573,065
Owner occupied term, net 2,422,351
28,447
22,136
54
327
7,056
2,480,371
Multifamily, net 3,284,445
11,481
4,539
—
—
4,298
3,304,763
Construction & development, net 734,318
—
1,936
—
—
—
736,254
Residential development, net 196,890
—
—
—
—
—
196,890
Commercial
Term, net 2,196,753
15,519
5,670
53
69
14,859
2,232,923
Lines of credit & other, net 1,103,677
42,831
20,639
313
—
2,065
1,169,525
Leases & equipment finance, net 1,296,235
8,571
8,754
14,247
1,931
417
1,330,155
Residential
Mortgage, net ⁽²⁾
3,588,976
5,169
38,766
—
2,162
—
3,635,073
Home equity loans & lines, net 1,172,040
1,878
1,418
—
1,141
—
1,176,477
Consumer & other, net 582,962
3,622
559
—
27
—
587,170
Total, net of deferred fees and costs $ 20,076,448
$ 155,864
$ 127,651
$ 14,667
$ 5,779
$ 42,257
$ 20,422,666

⁽¹⁾~~The percentage of impaired loans classified as pass/watch, special mention and substandard was 3.2%, 8.8% and 88.0%, respectively, as of December 31, 2018.~~

⁽²⁾ Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $8.9 million at December 31, 2018, which is included in the substandard category.

Troubled Debt Restructurings

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, impaired~~2019, troubled debt restructured loans of ~~$15.3~~$20.5 million and ~~$13.9~~$18.6 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial ~~difficulty,~~difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a newly restructured 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. ~~Impaired restructured loans carry a specific allowance and the allowance on impaired restructured loans is calculated consistently across the portfolios.~~

~~There were $90,000 in available commitments for troubled debt restructurings outstanding as of~~ ~~June 30, 2019~~ ~~and $338,000 as of December 31, 2018.~~

The following tables present troubled debt restructurings by accrual versus non-accrual status and by ~~loan class~~portfolio segment as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~: 2019:


	March 31, 2020
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	5,045	$	329	$	5,374	8
Commercial, net	3,600		—		3,600		2
Residential, net	11,832		—		11,832		70
Consumer & other, net	64		—		64		4
Total, net of deferred fees and costs	$	20,541	$	329	$	20,870	84

	December 31, 2019
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	3,968	$	—	$	3,968	3
Commercial, net	4,105		—		4,105		2
Residential, net	10,460		—		10,460		54
Consumer & other, net	43		—		43		3
Total, net of deferred fees and costs	$	18,576	$	—	$	18,576	62

(in thousands) June 30, 2019
Accrual Status Non-Accrual Status Total Modifications
Commercial real estate, net $ 4,036
$ 6,666
$ 10,702
Commercial, net 5,752
93
5,845
Residential, net 5,479
—
5,479
Total, net of deferred fees and costs $ 15,267
$ 6,759
$ 22,026

(in thousands) December 31, 2018
Accrual Status Non-Accrual Status Total Modifications
Commercial real estate, net $ 4,524
$ 9,290
$ 13,814
Commercial, net 3,696
8,736
12,432
Residential, net 5,704
—
5,704
Total, net of deferred fees and costs $ 13,924
$ 18,026
$ 31,950

Table of Contents

The Bank's policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank's policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

~~There were no new restructured loans during the three months ended June 30, 2018. The~~ following ~~tables present~~table presents newly restructured loans that occurred during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~the six months ended June 30, 2018:~~2019:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Commercial real estate, net	$	—	$	118
Commercial, net	—		1,842
Residential, net	5,678		—
Consumer & other, net	24		—
Total, net of deferred fees and costs	$	5,702	$	1,960

(in thousands)
Three Months Ended June 30, 2019
Rate Modifications Term Modifications Interest Only Modifications Payment Modifications Combination Modifications Total Modifications
Residential, net $ —
$ —
$ —
$ —
$ 7
$ 7
Total, net of deferred fees and costs $ —
$ —
$ —
$ —
$ 7
$ 7

(in thousands) Six Months Ended June 30, 2019
Rate Modifications Term Modifications Interest Only Modifications Payment Modifications Combination Modifications Total Modifications
Commercial real estate, net $ —
$ —
$ —
$ —
$ 118
$ 118
Commercial, net —
—
—
—
1,842
1,842
Residential, net —
—
—
—
7
7
Total, net of deferred fees and costs $ —
$ —
$ —
$ —
$ 1,967
$ 1,967

(in thousands) Six Months Ended June 30, 2018
Rate Modifications Term Modifications Interest Only Modifications Payment Modifications Combination Modifications Total Modifications
Residential, net $ —
$ —
$ —
$ —
$ 106
$ 106
Total, net of deferred fees and costs $ —
$ —
$ —
$ —
$ 106
$ 106

For the periods presented in the ~~tables~~table above, the outstanding recorded investment was the same pre and post ~~modification.~~modification and all modifications were combination modifications. There were no$890,000 financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020. There were ~~$10.2 million in~~0 financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the prior period.

Credit Quality Indicators

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

The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six ~~months ended June~~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—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring. For non-homogeneous loans and leases to be classified as pass, the PD rating is from 1 through 9. For homogeneous loans and leases to be classified as pass, the loan or lease is 30 ~~2018. There were none~~days or less past due from the required payment at month-end.

Watch—A watch loan or leaseis considered pass rated but has a heightened level of unacceptable default risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower risk rating would be appropriate within a short period of time. For non-homogeneous loans and leases to be classified as watch, the PD rating is from 10 through 11.

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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 ~~three months ended June~~asset or in the institution's credit position at some future date. These borrowers have an elevated probability of default but not to the point of a substandard classification. For non-homogeneous loans and leases to be classified as special mention, the PD rating is 12. For commercial homogeneous loans and leases to be classified as special mention, the loan or lease is greater than 30 ~~2018.~~to 59 days past due from the required payment date. Residential and consumer homogeneous loans are special mention when the loan is greater than 30 to 89 days past due from the required payment date.

Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. For non-homogeneous loans and leases to be classified as substandard, the PD rating is from 13 through 14. Commercial homogeneous loans and leases are classified as a substandard loan or lease when the loan or lease is 60 to 89 days past due from the required payment date and is the maximum rating for loans previously charged down to net realizable value. Residential and consumer homogeneous loans are classified as a substandard loan when an open-end loan is 90 to 180 days past due from the required payment date at month-end or when a closed-end loan is 90 to 119 days past due from the required payment date.

Doubtful—Loans or leases classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. A default event and the possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. For non-homogeneous loans and leases to be classified as doubtful, the PD rating is 15. Commercial homogeneous doubtful loans or leases are 90 to 179 days past due from the required payment date.

Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset even though partial or full recovery may be affected in the future. For non-homogeneous loans and leases to be classified as loss the PD rating is 16. For a commercial homogeneous loan or lease to be loss rated, the loan or lease is 180 days or more past due from the required payment date. These loans and leases are generally charged-off or charged down to net realizable value in the month in which the 180-day time period elapses. Residential and consumer homogeneous loans are classified as loss when a loan becomes past due 120 days or more from the required payment date. Residential and consumer loans secured by real estate are generally charged down to net realizable value in the month in which the loan becomes 180 days past due. All other residential and consumer homogeneous loans are generally charged-off in the month in which the 120-day period elapses.

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The following table represents the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of March 31, 2020:


(in thousands)				Term Loans Amortized Cost Basis by Origination Year																																		Revolving Loans Amortized Cost Basis	Revolving to Non-Revolving Loans Amortized Cost
	March 31, 2020	2020				2019				2018				2017				2016				Prior												Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass	$	162,764			$	736,325			$	592,092			$	398,692			$	422,735			$	1,243,342			$	3,277			$	4,216			$	3,563,443
	Special mention	—				6,777				—				8,921				406				8,756				—				—				24,860
	Substandard	874				8,026				—				—				952				11,615				—				—				21,467
	Doubtful	—				—				—				—				2,564				740				—				—				3,304
	Loss	—				—				—				—				—				346				—				—				346
Total non-owner occupied term, net				$	163,638			$	751,128			$	592,092			$	407,613			$	426,657			$	1,264,799			$	3,277			$	4,216			$	3,613,420
Owner occupied term, net
Credit quality indicator:
	Pass	$	100,193			$	443,632			$	370,834			$	378,139			$	293,050			$	805,380			$	5,299			$	815			$	2,397,342
	Special mention	3,669				4,535				7,815				753				5,909				13,214				—				—				35,895
	Substandard	—				3,635				1,742				886				5,245				24,806				—				—				36,314
	Doubtful	—				810				—				—				—				—				—				—				810
	Loss	—				—				—				—				—				1,826				—				—				1,826
Total owner occupied term, net				$	103,862			$	452,612			$	380,391			$	379,778			$	304,204			$	845,226			$	5,299			$	815			$	2,472,187
Multifamily, net
Credit quality indicator:
	Pass	$	83,557			$	877,552			$	680,886			$	658,134			$	342,644			$	760,130			$	25,342			$	2,973			$	3,431,218
	Special mention	—				—				—				—				—				32,401				—				—				32,401
	Substandard	—				—				—				—				—				598				—				—				598
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				—				—				—				—				—				—				—				—
Total multifamily, net				$	83,557			$	877,552			$	680,886			$	658,134			$	342,644			$	793,129			$	25,342			$	2,973			$	3,464,217
Construction & development, net
Credit quality indicator:
	Pass	$	1,638			$	173,393			$	253,964			$	221,121			$	15,418			$	807			$	—			$	—			$	666,341
	Special mention	—				—				1,634				—				—				—				—				—				1,634
	Substandard	—				—				—				—				—				—				—				—				—
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				—				—				—				—				—				—				—				—
Total construction & development, net				$	1,638			$	173,393			$	255,598			$	221,121			$	15,418			$	807			$	—			$	—			$	667,975
Residential development, net
Credit quality indicator:
	Pass	$	3,225			$	19,398			$	3,820			$	443			$	—			$	—			$	157,834			$	2,874			$	187,594
	Special mention	—				—				—				—				—				—				—				—				—
	Substandard	—				—				—				—				—				—				—				—				—
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				—				—				—				—				—				—				—				—
Total residential development, net				$	3,225			$	19,398			$	3,820			$	443			$	—			$	—			$	157,834			$	2,874			$	187,594

Total commercial real estate				$	355,920			$	2,274,083			$	1,912,787			$	1,667,089			$	1,088,923			$	2,903,961			$	191,752			$	10,878			$	10,405,393

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(in thousands)				Term Loans Amortized Cost Basis by Origination Year																																		Revolving Loans Amortized Cost Basis	Revolving to Non-Revolving Loans Amortized Cost
	March 31, 2020	2020				2019				2018				2017				2016				Prior												Total
Commercial:
Term, net
Credit quality indicator:
	Pass	$	114,570			$	436,486			$	377,297			$	286,267			$	96,080			$	274,444			$	660,452			$	12,656			$	2,258,252
	Special mention	—				243				177				318				7,195				4,837				15,500				—				28,270
	Substandard	—				421				10,112				5,382				1,660				2,754				5,952				3,419				29,700
	Doubtful	—				—				638				211				—				—				—				—				849
	Loss	—				—				135				154				213				—				—				—				502
Total term, net				$	114,570			$	437,150			$	388,359			$	292,332			$	105,148			$	282,035			$	681,904			$	16,075			$	2,317,573
Lines of credit & other, net
Credit quality indicator:
	Pass	$	8,791			$	30,652			$	32,363			$	4,893			$	3,929			$	1,297			$	1,045,637			$	4,342			$	1,131,904
	Special mention	—				1,401				—				—				—				—				43,033				1,555				45,989
	Substandard	—				706				—				691				669				1,750				11,695				14,646				30,157
	Doubtful	—				—				—				—				—				—				1				—				1
	Loss	—				—				—				—				—				—				—				—				—
Total lines of credit & other, net				$	8,791			$	32,759			$	32,363			$	5,584			$	4,598			$	3,047			$	1,100,366			$	20,543			$	1,208,051
Leases & equipment finance, net
Credit quality indicator:
	Pass	$	189,753			$	581,908			$	341,793			$	182,028			$	101,417			$	26,810			$	—			$	—			$	1,423,709
	Special mention	433				5,115				7,402				12,971				2,148				6,859				—				—				34,928
	Substandard	137				1,680				7,805				7,264				1,751				59				—				—				18,696
	Doubtful	—				4,593				4,456				2,740				1,232				265				—				—				13,286
	Loss	—				462				845				461				280				95				—				—				2,143
Total lease & equipment finance, net				$	190,323			$	593,758			$	362,301			$	205,464			$	106,828			$	34,088			$	—			$	—			$	1,492,762

Total commercial				$	313,684			$	1,063,667			$	783,023			$	503,380			$	216,574			$	319,170			$	1,782,270			$	36,618			$	5,018,386

Residential:
Mortgage, net
Credit quality indicator:
	Pass	$	133,745			$	1,380,067			$	598,603			$	554,168			$	587,734			$	889,637			$	—			$	—			$	4,143,954
	Special mention	—				175				533				2,949				1,195				4,783				—				—				9,635
	Substandard	—				709				2,406				8,078				9,022				18,871				—				—				39,086
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				359				378				—				—				496				—				—				1,233
Total mortgage, net				$	133,745			$	1,381,310			$	601,920			$	565,195			$	597,951			$	913,787			$	—			$	—			$	4,193,908

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(in thousands)				Term Loans Amortized Cost Basis by Origination Year																																		Revolving Loans Amortized Cost Basis	Revolving to Non-Revolving Loans Amortized Cost
	March 31, 2020	2020				2019				2018				2017				2016				Prior												Total
Home equity loans & lines, net
Credit quality indicator:
	Pass	$	—			$	127			$	22			$	—			$	383			$	21,043			$	1,179,440			$	42,597			$	1,243,612
	Special mention	—				—				—				—				—				232				2,945				633				3,810
	Substandard	—				—				22				—				—				48				655				413				1,138
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				—				—				—				—				—				403				189				592
Total home equity loans & lines, net				$	—			$	127			$	44			$	—			$	383			$	21,323			$	1,183,443			$	43,832			$	1,249,152

Total residential				$	133,745			$	1,381,437			$	601,964			$	565,195			$	598,334			$	935,110			$	1,183,443			$	43,832			$	5,443,060

Consumer & other, net:
Credit quality indicator:
	Pass	$	13,656			$	35,020			$	17,361			$	77,240			$	37,378			$	24,179			$	174,063			$	1,714			$	380,611
	Special mention	15				110				127				881				760				425				1,053				190				3,561
	Substandard	—				45				14				3				18				8				329				48				465
	Doubtful	—				—				—				—				—				—				—				—				—
	Loss	—				—				—				—				—				1				1				—				2
Total consumer & other, net				$	13,671			$	35,175			$	17,502			$	78,124			$	38,156			$	24,613			$	175,446			$	1,952			$	384,639

Grand total				$	817,020			$	4,754,362			$	3,315,276			$	2,813,788			$	1,941,987			$	4,182,854			$	3,332,911			$	93,280			$	21,251,478

Note 5 – Residential Mortgage Servicing Rights

The Company measures its residential mortgage servicing rights ("MSR") at fair value with changes in fair value reported in residential mortgage banking ~~revenue in the~~ ~~Condensed Consolidated Statements of Income~~.

revenue. The following table presents the changes in the Company's residential mortgage servicing rights ~~("MSR")~~ for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and 2019:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Balance, beginning of period	$	115,010	$	169,025
Additions for new MSR capitalized	10,023		3,887
Changes in fair value:
Changes due to collection/realization of expected cash flows over time	(5,329)		(6,431)
Changes due to valuation inputs or assumptions⁽¹⁾	(25,358)		(7,535)
Balance, end of period	$	94,346	$	158,946

⁽¹⁾~~2018~~: 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.

(in thousands) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Balance, beginning of period $ 158,946
$ 164,760
$ 169,025
$ 153,151
Additions for new MSR capitalized 5,492
6,860
9,379
13,390
Changes in fair value:
Changes due to collection/realization of expected cash flows over time (6,905 ) (5,903 ) (13,336 ) (12,101 )
Changes due to valuation inputs or assumptions⁽¹⁾
(17,753 ) 500
(25,288 ) 11,777
Balance, end of period $ 139,780
$ 166,217
$ 139,780
$ 166,217


⁽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 serviced loan portfolio as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 is as follows:

(dollars in thousands) June 30, 2019 December 31, 2018
Balance of loans serviced for others $ 15,796,102
$ 15,978,885
MSR as a percentage of serviced loans 0.88 % 1.06 %


(dollars in thousands)	March 31, 2020			December 31, 2019
Balance of loans serviced for others	$	12,533,045		$	12,276,943
MSR as a percentage of serviced loans	0.75		%	0.94		%

The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue on the Condensed Consolidated Statements of Income, was ~~$11.1~~$8.9 million and ~~$21.9~~$10.8 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively, as compared to $10.4 million and $20.9 million for the three and six months ended June 30, 2018,~~ respectively.

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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)
As of June 30, 2019
Commitments to extend credit $ 5,523,351
Forward sales commitments $ 553,648
Commitments to originate residential mortgage loans held for sale $ 292,216
Standby letters of credit $ 63,943


(in thousands)	March 31, 2020
Commitments to extend credit	$	5,604,860
Forward sales commitments	$	712,798
Commitments to originate residential mortgage loans held for sale	$	814,941
Standby letters of credit	$	100,456

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 no0 financial guarantees in connection with standby letters of credit that the Bank was required to perform on during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018.~~2019. At ~~June 30, 2019,~~March 31, 2020, approximately ~~$50.8~~$91.1 million of standby letters of credit expire within one year, and ~~$13.1~~$9.4 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 ~~June 30, 2019~~,March 31, 2020, the Company had a residential mortgage loan repurchase reserve liability of ~~$1.7~~$1.8 million. For loans sold to GNMA, the Bank has a unilateral right, but not the obligation, to repurchase loans that are past due 90 days or more. As of ~~June 30, 2019,~~March 31, 2020, the Bank has recorded a liability for the loans subject to this repurchase right of ~~$5.4~~$5.3 million, and has recorded these loans as part of the loan portfolio as if wethe Bank had repurchased these loans.

Legal Proceedings—Umpqua is involved in legal proceedings occurring in the ordinary course of business. Based on information currently available, advice of counsel and available insurance coverage, ~~we believe~~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 ~~our~~its consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to ~~our~~ results of operations for any particular period.

~~Contingencies~~—In late 2017, the Company launched "Umpqua Next Gen," an initiative designed to modernize and evolve the Bank focusing on operational excellence, balanced growth and human-digital programs. As part of this initiative, the Company evaluated every part of our operations and how we could evolve to deliver a highly differentiated and compelling banking experience. In 2018, Umpqua consolidated 31 stores. During the six months ended June 30, 2019, Umpqua consolidated 15 stores and sold 4 stores. The Next Gen strategy involves evaluation of possible future consolidations and Umpqua plans to consolidate additional stores in the last half of 2019.

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%~~76% of the Bank's loan and lease portfolio at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. Commercial real estate concentrations are managed to assure wide geographic and business diversity. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Bank's primary market areas in particular, could have an adverse impact on the repayment of these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.

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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 loan commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no0 counterparty default losses on forward contracts in the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~.2019. 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 ~~June 30, 2019,~~March 31, 2020, the Bank had commitments to originate mortgage loans held for sale totaling ~~$292.2~~$814.9 million and forward sales commitments of ~~$553.6~~$712.8 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 ~~June 30, 2019~~,March 31, 2020, the Bank had ~~785~~863 interest rate swaps with an aggregate notional amount of ~~$4.6~~$6.1 billion related to this program. As of December 31, ~~2018,~~2019, the Bank had ~~767~~846 interest rate swaps with an aggregate notional amount of ~~$4.2~~$5.7 billion related to this program.

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was ~~$5.5~~$8.1 million and ~~$12.7~~$7.0 million, respectively. The Bank has collateral posting requirements for initial margins with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of ~~$58.5~~$112.1 million and ~~$36.9~~$86.2 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

~~Umpqua's~~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. ~~Umpqua~~The Company accounts for the variation margin as an adjustment to ~~our~~ cash collateral, as well as a corresponding adjustment to ~~our~~ derivative asset and liability. As of ~~June 30,~~March 31, 2020 and December 31, 2019, the variation margin adjustment was a negative ~~adjustment~~adjustments of ~~$142.7~~$373.4 million ~~as compared to a negative adjustment of $32.5~~and $144.8 million, ~~at December 31, 2018.~~

respectively.

The Bank incorporates credit valuation adjustments ("CVA") to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. The net CVA decreased the settlement values of the Bank's net derivative assets by ~~$9.4~~$23.5 million and ~~$3.0~~$9.1 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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.

Table of Contents

The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities on the condensed consolidated balance sheet. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~: 2019:

(in thousands) Asset Derivatives Liability Derivatives
Derivatives not designated as hedging instrument June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018
Interest rate lock commitments $ 8,149
$ 6,757
$ —
$ —
Interest rate forward sales commitments 58
1
3,189
2,963
Interest rate swaps 138,826
42,276
5,529
12,746
Foreign currency derivatives 802
450
605
273
Total $ 147,835
$ 49,484
$ 9,323
$ 15,982


(in thousands)	Asset Derivatives						Liability Derivatives
Derivatives not designated as hedging instrument	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Interest rate lock commitments	$	23,727	$	7,056	$	—	$	—
Interest rate forward sales commitments	1,161		105		26,092		1,351
Interest rate swaps	358,204		142,787		8,128		7,001
Foreign currency derivatives	792		626		600		456
Total derivative assets and liabilities	$	383,884	$	150,574	$	34,820	$	8,808

The following table summarizes the types of derivatives and the gains (losses) recorded during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~: 2019:

(in thousands) Three Months Ended Six Months Ended
Derivatives not designated as hedging instrument June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Interest rate lock commitments $ (25 ) $ 908
$ 1,391
$ 2,030
Interest rate forward sales commitments (4,681 ) 500
(9,408 ) 8,744
Interest rate swaps (3,951 ) 290
(6,431 ) 1,421
Foreign currency derivatives 524
480
995
815
Total $ (8,133 ) $ 2,178
$ (13,453 ) $ 13,010


(in thousands)	Three Months Ended
Derivatives not designated as hedging instrument	March 31, 2020		March 31, 2019
Interest rate lock commitments	$	16,671	$	1,416
Interest rate forward sales commitments	(31,052)		(4,727)
Interest rate swaps	(14,306)		(2,480)
Foreign currency derivatives	424		471
Total derivative losses	$	(28,263)	$	(5,320)

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 derivatives that have a right of offset as of~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018~~:

(in thousands) Gross Amounts of Recognized Assets/Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets/Liabilities presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position
Financial Instruments Collateral Posted Net Amount
June 30, 2019
Derivative Assets
Interest rate swaps $ 138,826
$ —
$ 138,826
$ (5,529 ) $ —
$ 133,297
Foreign currency derivatives 802
—
802
—
—
802
Derivative Liabilities
Interest rate swaps $ 5,529
$ —
$ 5,529
$ (5,529 ) $ —
$ —
Foreign currency derivatives 605
—
605
—
—
605

December 31, 2018
Derivative Assets
Interest rate swaps $ 42,276
$ —
$ 42,276
$ (12,746 ) $ —
$ 29,530
Foreign currency derivatives 450
—
450
—
—
450
Derivative Liabilities
Interest rate swaps $ 12,746
$ —
$ 12,746
$ (12,746 ) $ —
$ —
Foreign currency derivatives 273
—
273
—
—
273

Note 8 – (Loss) Earnings Per Common Share

The following is a computation of basic and diluted (loss) earnings per common share for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and 2019:


	Three Months Ended
(in thousands, except per share data)	March 31, 2020		March 31, 2019
Net (loss) income	$	(1,851,947)	$	74,033

Weighted average number of common shares outstanding - basic	220,216		220,366
Effect of potentially dilutive common shares ⁽¹⁾	—		289
Weighted average number of common shares outstanding - diluted	220,216		220,655
(LOSS) EARNINGS PER COMMON SHARE:
Basic	$	(8.41)	$	0.34
Diluted	$	(8.41)	$	0.34

⁽¹⁾~~2018~~:Represents the effect of the assumed exercise of stock options, vesting of non-participating restricted shares, and vesting of restricted stock units, based on the treasury stock method.

(in thousands, except per share data) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Net income $ 111,810
$ 65,999
$ 185,843
$ 144,971

Weighted average number of common shares outstanding - basic 220,487
220,283
220,427
220,326
Effect of potentially dilutive common shares ⁽¹⁾
232
364
265
434
Weighted average number of common shares outstanding - diluted 220,719
220,647
220,692
220,760
EARNINGS PER COMMON SHARE:
Basic $ 0.51
$ 0.30
$ 0.84
$ 0.66
Diluted $ 0.51
$ 0.30
$ 0.84
$ 0.66


⁽¹⁾	~~Represents the effect of the assumed exercise of stock options, vesting of non-participating restricted shares, and vesting of restricted stock units, based on the treasury stock method.~~

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

Note 9 – Segment Information

The Company reports ~~four~~4 primary segments: Wholesale Bank, Wealth Management, Retail Bank, and Home Lending with the remainder as Corporate and other.

Table of Contents

The Wholesale Bank segment includes lending, treasury and cash management services and customer risk management products to middle market corporate, commercial and business banking customers and includes the operations of ~~Financial Pacific Leasing Inc.,~~FinPac, a commercial leasing company. The Wealth Management segment consists of the operations of Umpqua Investments, which offers a full range of retail brokerage and investment advisory services and products to its clients who consist primarily of individual investors, and Umpqua Private Bank, which serves high net worth individuals with liquid investable assets and provides customized financial solutions and offerings. The Retail Bank segment includes retail and small business lending and deposit services for customers served through the Bank's store network. The Home Lending segment originates, sells and services residential mortgage loans. The Corporate and other segment includes activities that are not directly attributable to one of the ~~four~~4 principal lines of business and includes the operations of the parent company, eliminations and the economic impact of certain assets, capital and support functions not specifically identifiable within the other lines of business.

Management monitors the Company's results using an internal performance measurement accounting system, which provides line of business results and key performance measures. The application and development of these management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised retrospectively, if material.

The provision for income taxes is typically allocated to business segments using a 25% effective tax rate. The residual income tax expense or benefit arising from tax planning strategies or other tax attributes to arrive at the consolidated effective tax rate is retained in Corporate and Other.

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


	Three Months Ended March 31, 2020
(in thousands)	Wholesale Bank		Wealth Management		Retail Bank		Home Lending		Corporate & Other		Consolidated
Net interest income	$	110,680	$	5,416	$	81,048	$	14,822	$	6,569	$	218,535
Provision (recapture) for credit losses	102,379		1,940		7,760		6,022		(16)		118,085
Non-interest income	1,610		4,620		14,785		17,685		1,945		40,645
Goodwill impairment	1,033,744		—		751,192		—		—		1,784,936
Non-interest expense (excluding goodwill impairment)	56,356		8,064		64,446		37,284		11,572		177,722
(Loss) income before income taxes	(1,080,189)		32		(727,565)		(10,799)		(3,042)		(1,821,563)
Provision (benefit) for income taxes ⁽¹⁾	18,017		8		12,136		(2,700)		2,923		30,384
Net (loss) income	$	(1,098,206)	$	24	$	(739,701)	$	(8,099)	$	(5,965)	$	(1,851,947)

Notable fair value adjustments included in non-interest income:
Residential mortgage servicing rights	$	—	$	—	$	—	$	(30,687)	$	—	$	(30,687)
Interest rate swaps	(14,306)		—		—		—		—		(14,306)

⁽¹⁾ The Wholesale Bank and Retail Bank do not have the standard tax rate of 25% allocated in the current quarter due to the impact of the goodwill impairment on these reporting units.

Table of Contents


															Three Months Ended March 31, 2019
(in thousands)	Three Months Ended June 30, 2019													(in thousands)	Wholesale Bank		Wealth Management		Retail Bank		Home Lending		Corporate & Other		Consolidated
	Wholesale Bank		Wealth Management		Retail Bank		Home Lending			Corporate & Other		Consolidated
Net interest income	$	110,883	$	6,084	$	86,047	$	10,809		$	13,339	$	227,162	Net interest income	$	108,278	$	6,389	$	88,448	$	9,945	$	24,625	$	237,685
Provision for loan and lease losses	16,490		576		1,116		922			248		19,352		Provision for loan and lease losses	11,990		245		1,129		127		193		13,684
Non-interest income	14,051		4,702		15,863		9,514			77,693		121,823		Non-interest income	8,841		4,538		15,318		11,392		5,651		45,740
Non-interest expense	55,968		9,971		66,393		32,954			15,129		180,415		Non-interest expense	54,785		8,814		63,491		28,500		16,002		171,592
Income (loss) before income taxes	52,476		239		34,401		(13,553		)	75,655		149,218		Income (loss) before income taxes	50,344		1,868		39,146		(7,290)		14,081		98,149
Provision (benefit) for income taxes	13,119		60		8,601		(3,388		)	19,016		37,408		Provision (benefit) for income taxes	12,586		467		9,786		(1,823)		3,100		24,116
Net income (loss)	$	39,357	$	179	$	25,800	$	(10,165	)	$	56,639	$	111,810	Net income (loss)	$	37,758	$	1,401	$	29,360	$	(5,467)	$	10,981	$	74,033

(in thousands)	Six Months Ended June 30, 2019
Notable fair value adjustments included in non-interest income:														Notable fair value adjustments included in non-interest income:
Residential mortgage servicing rights														Residential mortgage servicing rights	$	—	$	—	$	—	$	(13,966)	$	—	$	(13,966)
Interest rate swaps														Interest rate swaps	(2,480)		—		—		—		—		(2,480)
	Wholesale Bank		Wealth Management		Retail Bank		Home Lending			Corporate & Other		Consolidated
Net interest income	$	219,161	$	12,473	$	174,495	$	20,754		$	37,964	$	464,847
Provision for loan and lease losses	28,480		821		2,245		1,049			441		33,036
Non-interest income	22,892		9,240		31,181		20,906			83,344		167,563
Non-interest expense	110,753		18,785		129,884		61,454			31,131		352,007
Income (loss) before income taxes	102,820		2,107		73,547		(20,843		)	89,736		247,367
Provision (benefit) for income taxes	25,705		527		18,387		(5,211		)	22,116		61,524
Net income (loss)	$	77,115	$	1,580	$	55,160	$	(15,632	)	$	67,620	$	185,843


	March 31, 2020
(in thousands)	Wholesale Bank		Wealth Management		Retail Bank		Home Lending		Corporate & Other		Consolidated
Total assets	$	15,018,366	$	709,672	$	2,307,676	$	4,368,330	$	5,136,338	$	27,540,382
Total loans and leases	$	14,675,878	$	692,580	$	2,205,684	$	3,734,858	$	(57,522)	$	21,251,478
Total deposits	$	4,396,075	$	1,215,952	$	14,010,375	$	372,308	$	2,704,665	$	22,699,375

(in thousands) Three Months Ended June 30, 2018
Wholesale Bank Wealth Management Retail Bank Home Lending Corporate & Other Consolidated
Net interest income $ 112,249
$ 5,536
$ 80,998
$ 10,128
$ 15,989
$ 224,900
Provision for loan and lease losses 11,276
182
594
208
1,059
13,319
Non-interest income 15,628
4,850
15,993
33,278
1,902
71,651
Non-interest expense 55,606
9,571
70,860
35,032
24,503
195,572
Income (loss) before income taxes 60,995
633
25,537
8,166
(7,671 ) 87,660
Provision (benefit) for income taxes 15,249
158
6,385
2,041
(2,172 ) 21,661
Net income (loss) $ 45,746
$ 475
$ 19,152
$ 6,125
$ (5,499 ) $ 65,999

(in thousands) Six Months Ended June 30, 2018
Wholesale Bank Wealth Management Retail Bank Home Lending Corporate & Other Consolidated
Net interest income $ 223,984
$ 11,539
$ 160,850
$ 18,973
$ 34,535
$ 449,881
Provision for loan and lease losses 24,644
349
955
700
327
26,975
Non-interest income 31,357
9,746
31,186
71,686
6,243
150,218
Non-interest expense 110,180
18,339
142,003
67,329
43,834
381,685
Income (loss) before income taxes 120,517
2,597
49,078
22,630
(3,383 ) 191,439
Provision (benefit) for income taxes 30,129
649
12,270
5,657
(2,237 ) 46,468
Net income (loss) $ 90,388
$ 1,948
$ 36,808
$ 16,973
$ (1,146 ) $ 144,971

Note 10 – Fair Value Measurement

The following table presents estimated fair values of the Company's financial instruments as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~,2019, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:


		March 31, 2020						December 31, 2019
(in thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	1,657,716	$	1,657,716	$	1,362,756	$	1,362,756
Equity and other investment securities	1,2	80,797		80,797		80,165		80,165
Investment securities available for sale	2	2,890,475		2,890,475		2,814,682		2,814,682
Investment securities held to maturity	3	3,200		4,065		3,260		4,263
Loans held for sale, at fair value	2	481,541		481,541		513,431		513,431
Loans and leases, net	3	20,960,058		21,347,804		21,038,055		21,274,319
Restricted equity securities	1	58,062		58,062		46,463		46,463
Residential mortgage servicing rights	3	94,346		94,346		115,010		115,010
Bank owned life insurance	1	322,717		322,717		320,611		320,611
Derivatives	2,3	383,884		383,884		150,574		150,574
Financial liabilities:
Deposits	1,2	$	22,699,375	$	22,754,353	$	22,481,504	$	22,503,916
Securities sold under agreements to repurchase	2	346,245		346,245		311,308		311,308
Borrowings	2	1,196,597		1,203,538		906,635		906,160
Junior subordinated debentures, at fair value	3	195,521		195,521		274,812		274,812
Junior subordinated debentures, at amortized cost	3	88,439		54,020		88,496		70,909
Derivatives	2	34,820		34,820		8,808		8,808

(in thousands) June 30, 2019 December 31, 2018
Level Carrying Value Fair Value Carrying Value Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents 1 $ 1,033,791
$ 1,033,791
$ 622,637
$ 622,637
Equity and other investment securities 1,2 66,358
66,358
61,841
61,841
Investment securities available for sale 2 2,698,398
2,698,398
2,977,108
2,977,108
Investment securities held to maturity 3 3,416
4,462
3,606
4,644
Loans held for sale, at fair value 2 356,645
356,645
166,461
166,461
Loans and leases, net
3 20,802,302
20,884,392
20,277,795
20,117,939
Restricted equity securities 1 43,063
43,063
40,268
40,268
Residential mortgage servicing rights 3 139,780
139,780
169,025
169,025
Bank owned life insurance 1 316,435
316,435
313,626
313,626
Derivatives 2,3 147,835
147,835
49,484
49,484
Visa Inc. Class B common stock⁽¹⁾
3 —
—
—
99,353
FINANCIAL LIABILITIES:
Deposits 1,2 $ 21,819,013
$ 21,837,396
$ 21,137,486
$ 21,116,852
Securities sold under agreements to repurchase 2 308,052
308,052
297,151
297,151
Term debt 2 821,712
818,289
751,788
738,107
Junior subordinated debentures, at fair value 3 277,028
277,028
300,870
300,870
Junior subordinated debentures, at amortized cost 3 88,610
71,224
88,724
76,569
Derivatives 2 9,323
9,323
15,982
15,982

⁽¹⁾ ~~In June 2019, the Company sold all 486,346 shares~~Table of the Visa Inc. Class B common stock held, an equity security that did not have a readily determinable fair value, resulting in a one-time realized gain of $81.9 million. Accordingly, the book value and fair value are zero at June 30, 2019, as the Company no longer holds this security.Contents

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019:


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

Investments in mutual funds and other securities	$	70,247	$	52,911	$	17,336	$	—
Equity securities held in rabbi trusts	10,191		10,191		—		—
Other investments securities ⁽¹⁾	359		—		359		—
Investment securities available for sale
U.S. Treasury and agencies	750,512		—		750,512		—
Obligations of states and political subdivisions	252,419		—		252,419		—
Residential mortgage-backed securities and collateralized mortgage obligations	1,887,544		—		1,887,544		—

Loans held for sale, at fair value	481,541		—		481,541		—
Residential mortgage servicing rights, at fair value	94,346		—		—		94,436
Derivatives
Interest rate lock commitments	23,727		—		—		23,727
Interest rate forward sales commitments	1,161		—		1,161		—
Interest rate swaps	358,204		—		358,204		—
Foreign currency derivative	792		—		792		—
Total assets measured at fair value	$	3,931,043	$	63,102	$	3,749,868	$	118,163
Financial liabilities:
Junior subordinated debentures, at fair value	$	195,521	$	—	$	—	$	195,521
Derivatives
Interest rate forward sales commitments	26,092		—		26,092		—
Interest rate swaps	8,128		—		8,128		—
Foreign currency derivative	600		—		600		—
Total liabilities measured at fair value	$	230,341	$	—	$	34,820	$	195,521

(in thousands)
June 30, 2019
Description Total Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Equity and other investment securities
Investments in mutual funds and other securities $ 51,924
$ 51,924
$ —
$ —
Equity securities held in rabbi trusts 12,369
12,369
—
—
Other investments securities ⁽¹⁾
2,065
—
2,065
—
Investment securities available for sale
U.S. Treasury and agencies 337,101
—
337,101
—
Obligations of states and political subdivisions 270,952
—
270,952
—
Residential mortgage-backed securities and collateralized mortgage obligations 2,090,345
—
2,090,345
—
Loans held for sale, at fair value 356,645
—
356,645
—
Residential mortgage servicing rights, at fair value 139,780
—
—
139,780
Derivatives
Interest rate lock commitments 8,149
—
—
8,149
Interest rate forward sales commitments 58
—
58
—
Interest rate swaps 138,826
—
138,826
—
Foreign currency derivative 802
—
802
—
Total assets measured at fair value $ 3,409,016
$ 64,293
$ 3,196,794
$ 147,929
FINANCIAL LIABILITIES:
Junior subordinated debentures, at fair value $ 277,028
$ —
$ —
$ 277,028
Derivatives
Interest rate forward sales commitments 3,189
—
3,189
—
Interest rate swaps 5,529
—
5,529
—
Foreign currency derivative 605
—
605
—
Total liabilities measured at fair value $ 286,351
$ —
$ 9,323
$ 277,028

⁽¹⁾ Other investment securities includes securities held by Umpqua Investments as trading debt securities.

(in thousands) December 31, 2018
Description Total Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Equity and other investment securities
Investments in mutual funds and other securities $ 50,475
$ 50,475
$ —
$ —
Equity securities held in rabbi trusts 10,918
10,918
—
—
Other investments securities ⁽¹⁾
448
—
448
—
Investment securities available for sale
U.S. Treasury and agencies 39,656
—
39,656
—
Obligations of states and political subdivisions 309,171
—
309,171
—
Residential mortgage-backed securities and collateralized mortgage obligations 2,628,281
—
2,628,281
—
Loans held for sale, at fair value 166,461
—
166,461
—
Residential mortgage servicing rights, at fair value 169,025
—
—
169,025
Derivatives
Interest rate lock commitments 6,757
—
—
6,757
Interest rate forward sales commitments 1
—
1
—
Interest rate swaps 42,276
—
42,276
—
Foreign currency derivative 450
—
450
—
Total assets measured at fair value $ 3,423,919
$ 61,393
$ 3,186,744
$ 175,782
FINANCIAL LIABILITIES:
Junior subordinated debentures, at fair value $ 300,870
$ —
$ —
$ 300,870
Derivatives
Interest rate forward sales commitments 2,963
—
2,963
—
Interest rate swaps 12,746
—
12,746
—
Foreign currency derivative 273
—
273
—
Total liabilities measured at fair value $ 316,852
$ —
$ 15,982
$ 300,870

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(in thousands)	December 31, 2019
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	67,133	$	52,096	$	15,037	$	—
Equity securities held in rabbi trusts	12,147		12,147		—		—
Other investments securities ⁽¹⁾	885		—		885		—
Investment securities available for sale
U.S. Treasury and agencies	643,604		—		643,604		—
Obligations of states and political subdivisions	261,094		—		261,094		—
Residential mortgage-backed securities and collateralized mortgage obligations	1,909,984		—		1,909,984		—

Loans held for sale, at fair value	513,431		—		513,431		—
Residential mortgage servicing rights, at fair value	115,010		—		—		115,010
Derivatives
Interest rate lock commitments	7,056		—		—		7,056
Interest rate forward sales commitments	105		—		105		—
Interest rate swaps	142,787		—		142,787		—
Foreign currency derivative	626		—		626		—
Total assets measured at fair value	$	3,673,862	$	64,243	$	3,487,553	$	122,066
Financial liabilities:
Junior subordinated debentures, at fair value	$	274,812	$	—	$	—	$	274,812
Derivatives
Interest rate forward sales commitments	1,351		—		1,351		—
Interest rate swaps	7,001		—		7,001		—
Foreign currency derivative	456		—		456		—
Total liabilities measured at fair value	$	283,620	$	—	$	8,808	$	274,812

⁽¹⁾ Other investment securities includes securities held by Umpqua Investments as trading debt securities.

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

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

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

Residential Mortgage Servicing Rights— The fair value of the ~~MSR~~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.

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Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant inputs utilized in the estimation of fair value of these instruments are the credit risk adjusted spread and three-month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, ~~we have~~the Company has classified this as a Level 3 fair value measure.

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 ~~June 30, 2019~~,March 31, 2020, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.

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

The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at ~~June 30, 2019~~: March 31, 2020:

Financial Instrument

Fair Value

Valuation Technique

Unobservable Input

Range of Inputs

Weighted Average

Residential mortgage servicing rights

94,346

Discounted cash flow

Constant prepayment rate

11.94 - 68.65%

15.53%

Discount rate

9.5 - 12.5%

9.73%

Interest rate lock commitments

23,727

Internal pricing model

~~Financial Instrument~~

~~Valuation Technique~~

~~Unobservable Input~~Pull-through rate

~~Weighted Average~~

51.36 - 100.00%

84.74%

~~Residential mortgage servicing rights~~Junior subordinated debentures

195,521

Discounted cash flow

~~Constant prepayment rate~~

~~15.09%~~

~~Discount rate~~

~~9.70%~~

~~Interest rate lock commitments~~

~~Internal pricing model~~

~~Pull-through rate~~

~~88.48%~~

~~Junior subordinated debentures~~

~~Discounted cash flow~~

Credit spread

~~5.02%~~

5.34 - 7.97%

6.96%

Generally, any significant increases in the constant prepayment rate and discount rate utilized in the fair value measurement of the residential mortgage servicing rights will result in negative fair value adjustments (and a decrease in the fair value measurement). Conversely, a decrease in the constant prepayment rate and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments (and an increase in the fair value measurement). Conversely, a decrease in the pull-through rate will result in a negative fair value adjustment (and 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, that is, the inactive market. Management attributes the change in fair value of the junior subordinated debentures during the period to market changes in the nonperformance expectations and pricing of this type of debt. The widening of the credit risk adjusted spread above the Company's contractual spreads has primarily contributed to the ~~positive~~decrease in the estimated fair ~~value adjustments.~~value. Future contractions in the instrument-specific credit risk adjusted spread relative to the spread currently utilized to measure the Company's junior subordinated debentures at fair value as of ~~June 30, 2019,~~March 31, 2020, or the passage of time, will result in ~~negative~~an increase in the estimated fair ~~value adjustments.~~value. Generally, an increase in the credit risk adjusted spread and/or the forward swap interest rate curve will result in ~~positive~~a decrease in the estimated fair ~~value adjustments (and decrease the fair value measurement).~~value. Conversely, a decrease in the credit risk adjusted spread and/or the forward swap interest rate curve will result in ~~negative~~an increase in the estimated fair ~~value adjustments (and increase the fair value measurement).~~value.

The following ~~table provides~~tables provide a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended										Three Months Ended
	March 31, 2020										March 31, 2019
(in thousands)	Residential mortgage servicing rights		Interest rate lock commitments, net		Junior subordinated debentures, at fair value		Residential mortgage servicing rights		Interest rate lock commitments, net		Junior subordinated debentures, at fair value
Beginning Balance	$	115,010	$	7,056	$	274,812	$	169,025	$	6,757	$	300,870

Change included in earnings	(30,687)		4,694		3,890		(13,966)		1,697		4,772
Change in fair values included in comprehensive income/loss	—		—		(78,862)		—		—		(6,564)
Purchases and issuances	10,023		27,001		—		3,887		5,399		—
Sales and settlements	—		(15,024)		(4,319)		—		(5,679)		(4,957)
Ending Balance	$	94,346	$	23,727	$	195,521	$	158,946	$	8,174	$	294,121
Change in unrealized gains or losses for the period included in earnings for assets held at end of period	$	(25,358)	$	23,727	$	3,890	$	(7,535)	$	8,174	$	4,772
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period	$	—	$	—	$	(78,862)	$	—	$	—	$	(6,564)

(in thousands)
Three Months Ended June 30, Beginning Balance Change included in earnings Change in fair values included in comprehensive income/loss Purchases and issuances Sales and settlements Ending Balance Net change in unrealized gains or (losses) relating to items held at end of period
2019
Residential mortgage servicing rights $ 158,946
$ (24,658 ) $ —
$ 5,492
$ —
$ 139,780
$ (17,753 )
Interest rate lock commitments, net 8,174
1,302
—
6,892
(8,219 ) 8,149
8,149
Junior subordinated debentures, at fair value 294,121
4,685
(17,240 ) —
(4,538 ) 277,028
(12,555 )

2018
Residential mortgage servicing rights $ 164,760
$ (5,403 ) $ —
$ 6,860
$ —
$ 166,217
$ 500
Interest rate lock commitments, net 5,874
249
—
8,099
(7,440 ) 6,782
6,782
Junior subordinated debentures, at fair value 278,410
4,283
1,513
—
(3,537 ) 280,669
5,796

(in thousands)
Six Months Ended June 30, Beginning Balance Change included in earnings Change in fair values included in comprehensive income/loss Purchases and issuances Sales and settlements Ending Balance Net change in unrealized gains or (losses) relating to items held at end of period
2019
Residential mortgage servicing rights $ 169,025
$ (38,624 ) $ —
$ 9,379
$ —
$ 139,780
$ (25,288 )
Interest rate lock commitment, net 6,757
2,999
—
12,291
(13,898 ) 8,149
8,149
Junior subordinated debentures, at fair value 300,870
9,457
(23,804 ) —
(9,495 ) 277,028
(14,347 )

2018

Residential mortgage servicing rights $ 153,151
$ (324 ) $ —
$ 13,390
$ —
$ 166,217
$ 11,777
Interest rate lock commitment, net 4,752
(1,004 ) —
14,532
(11,498 ) 6,782
6,782
Junior subordinated debentures, at fair value 277,155
8,058
3,196
—
(7,740 ) 280,669
11,254

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

The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk, accordingly, the unrealized gains on fair value of junior subordinated debentures for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 of ~~$17.2~~$78.9 million ~~and $23.8 million, respectively,~~ are recorded net of tax as an other comprehensive gain of ~~$12.8~~$58.6 million. Comparatively, gains of $6.6 million ~~and $17.7 million, respectively. Comparatively, losses of $1.5 million and $3.2 million, respectively,~~ were recorded net of tax as an other comprehensive ~~loss~~income of ~~$1.1~~$4.9 million ~~and $2.4 million, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The gain recorded for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was due primarily to an overall increase in the discount rates due to an increase in the credit spread, partially offset by a decrease in projected payments as compared to prior periods.

From time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans.

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

The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.


	March 31, 2020
(in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases	$	11,957	$	—	$	—	$	11,957
Goodwill (Wholesale Bank and Retail Bank)	—		—		—		—
Other real estate owned	207		—		—		207
Total assets measured at fair value on a nonrecurring basis	$	12,164	$	—	$	—	$	12,164

(in thousands) June 30, 2019
Total Level 1 Level 2 Level 3
Loans and leases $ 40,453
$ —
$ —
$ 40,453
Other real estate owned 5,178
—
—
5,178
$ 45,631
$ —
$ —
$ 45,631

(in thousands)
December 31, 2018
Total Level 1 Level 2 Level 3
Loans and leases $ 98,696
$ —
$ —
$ 98,696
Other real estate owned 7,532
—
—
7,532
$ 106,228
$ —
$ —
$ 106,228


	December 31, 2019
(in thousands)	Total		Level 1		Level 2		Level 3



Loans and leases	$	18,134	$	—	$	—	$	18,134
Other real estate owned	2,079		—		—		2,079
Total assets measured at fair value on a nonrecurring basis	$	20,213	$	—	$	—	$	20,213

The following table presents the losses resulting from nonrecurring fair value adjustments for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~: 2019:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019



Loans and leases	$	22,042	$	15,496
Goodwill impairment (Wholesale Bank and Retail Bank)	1,784,936		—
Other real estate owned	117		59
Total loss from nonrecurring measurements	$	1,807,095	$	15,555

(in thousands)
Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Loans and leases $ 15,136
$ 13,682
$ 30,632
$ 27,721
Other real estate owned 2,675
61
2,734
66
Total loss from nonrecurring measurements $ 17,811
$ 13,743
$ 33,366
$ 27,787

Goodwill was evaluated for impairment as of March 31, 2020, for the Retail Bank and Wholesale Bank reporting units. Refer to Note 11 - Goodwill, for discussion of the Company's goodwill impairment analysis.

The following provides a description of the valuation technique and inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring ~~basis.~~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.~~ information for loans and other real estate owned.

The loans and leases amounts above represent ~~impaired,~~ collateral dependent loans and leases that have been adjusted to fair value. When ~~we identify~~ a ~~collateral dependent~~ loan or lease is identified as ~~impaired, we measure~~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. If ~~we determine~~it is determines that the value of the ~~impaired~~collateral dependent loan or lease is less than its recorded investment, ~~we recognize~~the Bank recognizes this impairment and ~~adjust~~adjusts the carrying value of the loan or lease to fair value through the allowance for ~~loan and lease~~credit losses. The loss represents charge-offs or impairments on collateral dependent loans and leases for fair value adjustments based on the fair value of collateral.

The other real estate owned amount above represents impaired real estate that has been adjusted to fair value. Other real estate owned represents real estate which the Bank has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at the lower of the carrying amount of the loan or fair value less costs to sell, which becomes the property's new basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for ~~loan and lease~~credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on other real estate owned for fair value adjustments based on the fair value of the real estate.

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Fair Value Option

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale accounted for under the fair value option as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~:2019:


	March 31, 2020										December 31, 2019
(in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregate Unpaid Principal Balance		Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregate Unpaid Principal Balance
Loans held for sale	$	471,307	$	446,466	$	24,841	$	513,431	$	496,683	$	16,748

(in thousands) June 30, 2019 December 31, 2018
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 $ 356,645
$ 342,770
$ 13,875
$ 166,461
$ 160,270
$ 6,191

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking ~~revenue, net in the~~ ~~Condensed Consolidated Statements of Income~~.revenue. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019,, the Company recorded a net increase in fair value of ~~$4.9~~$8.1 million and ~~$7.7~~$2.8 million, respectively. ~~For the three and six months ended June 30, 2018, the Company recorded a net increase in fair value of $5.7 million and $5.4 million, respectively.~~

The Company selected the fair value measurement option for ~~existing~~certain junior subordinated ~~debentures (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired from Sterling.~~debentures. The remaining junior subordinated debentures were acquired through previous business combinations and were measured at fair value at the time of acquisition and subsequently measured at amortized cost.

Accounting for the selected junior subordinated debentures at fair value enables usthe Company to more closely align ~~our~~ financial performance with the economic value of those liabilities. Additionally, ~~we believe~~ it improves ~~our~~the ability to manage the market and interest rate risks associated with the junior subordinated debentures. The junior subordinated debentures measured at fair value and amortized cost are presented as separate line items on the balance sheet. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants under current market conditions as of the measurement date.

Due to inactivity in the junior subordinated debenture market and the lack of observable quotes of ~~our,~~the Company's, or similar, junior subordinated debenture liabilities or the related trust preferred securities when traded as assets, ~~we utilize~~the Company utilizes an income approach valuation technique to determine the fair value of these liabilities using ~~our~~ estimation of market discount rate assumptions. The Company monitors activity in the trust preferred and related markets, to the extent available, evaluates changes related to the current and anticipated future interest rate environment, and considers ~~our~~ entity-specific creditworthiness, to validate the reasonableness of the credit risk adjusted spread and effective yield utilized in ~~our~~the discounted cash flow model. WeThe Company also consider changes in the interest rate environment in ~~our~~the valuation, specifically the absolute level and the shape of the slope of the forward swap curve.

Note 11 – Goodwill

~~Note 11– Leases~~

~~The Bank leases store locations, corporate office space, and equipment under non-cancelable leases. Leases with an initial term~~At March 31, 2020, goodwill totaled $2.7 million, after a goodwill impairment of ~~12 months or less are not recorded on~~$1.8 billion was taken during the ~~balance sheet.~~

~~The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all~~quarter, as compared to goodwill of ~~the leases provide~~$1.8 billion at December 31, 2019. Goodwill is required to be allocated to reporting units, which the Company ~~with one or more options~~has determined to ~~renew, with renewal terms that can extend~~be the lease term from one to 10 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.same as its operating segments.

~~We rent or sublease certain real estate to third parties. Our sublease portfolio consists of operating leases of mainly former store locations or excess space in store or corporate facilities.~~

The following table ~~presents~~summarizes the ~~balance sheet information related to leases as of June 30, 2019:~~

(in thousands)
Leases June 30, 2019
Operating lease right-of-use assets $ 112,752
Operating lease liabilities $ 121,742

~~The following table presents~~change in the ~~components of lease expense~~Company's goodwill for the three ~~and six~~ months ended ~~June 30, 2019:~~March 31, 2020:


	Goodwill
(in thousands)	Gross		Accumulated Impairment		Total
Balance, December 31, 2019	$	1,900,727	$	(113,076)	$	1,787,651
Goodwill impairment	—		(1,784,936)		(1,784,936)
Balance, March 31, 2020	$	1,900,727	$	(1,898,012)	$	2,715

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(in thousands) Three Months Ended Six Months Ended
Lease Costs June 30, 2019 June 30, 2019
Operating lease costs $ 8,116
$ 16,242
Short-term lease costs 209
476
Variable lease costs (5 ) (3 )
Sublease income (615 ) (1,402 )
Net lease costs $ 7,705
$ 15,313

~~Prior~~As of March 31, 2020 and December 31, 2019, goodwill was allocated to the ~~adoption~~reporting units as follows:


	Goodwill
(in thousands)	Wholesale Bank		Wealth Management		Retail Bank		Total
Allocated goodwill, December 31, 2019	$	1,033,744	$	2,715	$	751,192	$	1,787,651
Goodwill impairment	(1,033,744)		—		(751,192)		(1,784,936)
Allocated goodwill, March 31, 2020	$	—	$	2,715	$	—	$	2,715

The Company updated its goodwill assessment for the Wholesale Bank and Retail Bank reporting units at March 31, 2020, due to events and circumstances indicating potential impairment. Impairment of ~~ASU 2016-02, rent expense~~goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. A goodwill impairment is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

The Company assessed qualitative factors that indicated that it was more likely than not that goodwill was impaired. Based on that assessment, the Company determined that for the Wholesale Bank and Retail Bank reporting units, the qualitative analysis determined that there were negative indicators that would require a quantitative assessment of goodwill due to the decline in the current economic environment, specifically interest rates and the Company's stock price, as well as decreasing cash flow projections for these reporting units based on the low interest rate environment and potentially higher credit losses.

The Company performed a quantitative analysis of the Wholesale Bank and Retail Bank reporting units, by comparing the fair value of these reporting units with their carrying amount. The Company estimated the fair value of its Wholesale Bank and Retail Bank reporting units using an income approach to estimate the fair value of both reporting units. The income approach estimates the fair value of the reporting units by discounting management's projections of the reporting units' cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, discounted using an estimated cost of capital discount rate. The Company also considered the market and cost approaches when determining the fair value of the reporting units.

The projected cash flows used to estimate fair value of the reporting units was lower than previous projections due to declining interest rate forecasts for a prolonged low-interest rate environment, due to the significant impact of the Federal Reserve's rate cuts and the impact of the COVID-19 pandemic on the economy. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires management to make assumptions and estimates regarding the Company's future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors.

Upon completing the quantitative impairment analysis, the Company recorded a goodwill impairment of $1.8 billion, which represented the entire amount of goodwill allocated to the Wholesale Bank and Retail Bank reporting units. The remaining goodwill of $2.7 million after the impairment relates to the Wealth Management reporting unit.

Note 12 - Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as in the majority of states and in Canada. As of March 31, 2020, the Company has a net deferred tax liability of $51.1 million, which includes $2.0 million of state net operating loss ("NOL") carry-forwards, expiring in tax years 2029-2031. The Company believes that it is more likely than not that the benefit from only certain state NOL carry-forwards will not be realized and therefore has provided a valuation allowance of $1.1 million against the deferred tax assets relating to these NOL carry-forwards. The Company had gross unrecognized tax benefits of $4.3 million as of March 31, 2020. If recognized, the unrecognized tax benefit would reduce the 2020 annual effective tax rate by 0.24%.

The Company's consolidated effective tax rate as a percentage of pre-tax loss for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2020 was ~~$9.4 million and $19.0 million, respectively, and was partially offset by rent~~(1.7)%, as compared to a percentage of pre-tax net income of ~~$648,000 and $1.3 million, respectively.~~

~~The following table presents the supplemental cash flow information related to leases~~24.6% for the ~~six~~three ended March 31, 2019. The effective tax rate became negative primarily due to the impairment of non-deductible goodwill during the three months ended ~~June 30, 2019:~~March 31, 2020.

(in thousands) Six Months Ended
Cash Flows June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 16,497
Right of use assets obtained in exchange for new operating lease liabilities $ 11,869

~~The following table presents the maturities of lease liabilities as of June 30, 2019:~~

(in thousands)
Year Operating Leases
Remainder of 2019 $ 16,429
2020 28,842
2021 23,152
2022 17,969
2023 14,025
Thereafter 37,420
Total lease payments 137,837
Less: imputed interest (16,095 )
Present value of lease liabilities $ 121,742

~~The following table presents the operating lease term and discount rate as~~Table of ~~June 30, 2019:~~



	~~June 30, 2019~~
~~Weighted-average remaining lease term (years)~~	~~6.8~~
~~Weighted-average discount rate~~	~~3.64~~	%

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~~The following table sets forth, as of December 31, 2018, the future minimum lease payments under non-cancelable leases and future minimum income receivable under non-cancelable operating subleases:~~

(in thousands)
Year Leases Payments Subleases Income
2019 $ 33,948
$ 2,851
2020 29,535
2,711
2021 23,898
2,333
2022 18,250
1,718
2023 14,100
1,337
Thereafter 37,963
3,477
Total $ 157,694
$ 14,427

~~Note 12– Subsequent Event~~

On July 19, 2019, Umpqua signed an indication of interest to sell the mortgage servicing rights to approximately $3.7 billion of mortgage loans serviced for others. The transaction is expected to close in the fourth quarter of 2019, pending the negotiation and finalization of the agreement, as well as customary approvals and closing conditions.

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 ~~regarding~~about the projected impact on our business operations of the COVID-19 global pandemic; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of ~~funds;~~funds and the Company's liquidity position; ~~Next Gen initiatives; investments in data, analytics, technology, training and marketing;~~ our securities portfolio; loan sales; adequacy of our allowance for ~~loan and lease~~credit losses, ~~and~~including the reserve for unfunded commitments; provision for ~~loan and lease~~credit losses; ~~impaired~~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; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including mortgage servicing rights values and sensitivity analyses; tax ~~rates~~rates; and the effect of accounting ~~pronouncements.~~pronouncements and changes in accounting methodology. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, and any slowdown in economic growth particularly in the western United States; the effect 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; 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 efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; and changes in laws or regulations. 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. The COVID-19 coronavirus pandemic, including the governmental reaction to COVID-19 as well as the economic impacts, may materially impact our business, liquidity and financial position, results of operations, and stock price, as more fully described in Part II Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission (the "SEC") and the following factors that might cause actual results to differ materially from those presented:

~~our ability to successfully 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 during store consolidations;~~

~~demand for financial services in our market areas;~~

~~competitive market pricing factors;~~

~~our ability to effectively develop and implement new technology;~~

•continued 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 implement and sustain information technology product and system enhancements and operational initiatives;

•our ability to attract new deposits and loans and leases;

•our ability to retain deposits, especially during store consolidations;

•demand for financial services in our market areas;

•competitive market pricing factors;

•our ability to effectively develop and implement new technology;

•continued market interest rate volatility;

•prolonged low interest rate environments;

•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;

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

•availability of, and competition for, acquisition opportunities;

~~risks associated with merger and acquisition integration;~~

~~significant decline in the market value of the Company that could result in an impairment of goodwill;~~

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

•regulatory limits on the Bank's ability to pay dividends to the Company;

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

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

•competition, including from financial technology companies.

There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements are made as of the date of this Form 10-Q. We do not intend to update these forward-looking statements. Readers should consider any forward-looking statements in light of this explanation, and we caution readers about relying on forward-looking statements.

General

Umpqua Holdings Corporation, an Oregon corporation, is a financial holding company with two principal operating subsidiaries, Umpqua Bank and Umpqua Investments, Inc. The Bank's wholly-owned subsidiary, Financial Pacific Leasing, Inc., is a commercial equipment leasing company.

With headquarters located in Roseburg, Oregon, ~~the~~Umpqua Bank is considered one of the most innovative community banks in the United States, recognized nationally and internationally for its unique company culture and customer experience strategy, which we believe differentiates the Company from its competition. The Bank provides a wide range of banking, wealth management, mortgage and other financial services to corporate, institutional and individual ~~customers, and also has a wholly-owned subsidiary, Financial Pacific Leasing, Inc., a commercial equipment leasing company.~~customers.

Umpqua Investments is a registered broker-dealer and registered investment advisor with offices in Oregon, Washington, and California, and also offers products and services through Umpqua Bank stores. The firm is one of the oldest investment companies in the Northwest. Umpqua Investments offers a full range of investment products and services including: stocks, fixed income securities (municipal, corporate, and government bonds, CDs, and money market instruments), mutual funds, annuities, options, retirement planning, advisory account services, ~~goals based~~goals-based planning and insurance.

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

Executive Overview

Significant items for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were as follows:

Recent Developments – COVID 19

We expect that the COVID-19 coronavirus pandemic and the related governmental reaction will negatively impact our business including our liquidity and financial position, results of operations, and stock price among other negative impacts. These risks to our business are more fully described in Part II, item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. We are closely monitoring the impact of COVID-19 on all aspects of our business.

At this time, while we have identified risks discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q, we are unable to predict specifically how the COVID-19 coronavirus pandemic and related governmental reaction will negatively impact our business due to numerous uncertainties, including the duration of the pandemic, the impact to our customers and associates, actions that may be taken by governmental authorities, including preventing or curtailing our operations, and other consequences. To curtail the impact of COVID-19 on our business operations, we have modified our operations to comply with multiple state-level proclamations and Centers for Disease Control and Prevention ("CDC") guidance and best practices by restricting travel, maintaining remote work programs for associates, restricting lobby access to stores, increasing cleaning scope and frequency, and deploying resources for new programs such as the Payroll Protection Program ("PPP"). We have also addressed other customer needs during the pandemic by continuing to offer our Umpqua Go-To application which offers customers and associates a safe and effective way to conduct banking, payment deferrals and fee waivers, and active participation in federal relief programs including the CARES Act and Economic Injury Disaster Loan program.

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We increased our community support by announcing $2.0 million in grants and investments to organizations providing COVID-19 community relief and small business microloans, activating an associate 3:1 giving match to donations, and initiating virtual volunteerism opportunities. We enhanced associate benefits by introducing supplemental front line associate pay, providing a pandemic pay bank for associates needing additional paid time off due to COVID-19 impacts, and implementing flexible work rotations and remote work for higher-risk associates.

While we do not know and cannot quantify specific impacts, the extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic; the effect on our customers, counterparties, employees and third party service providers; and the effect on economies and markets.

The following is a discussion of our results for the quarter ended March 31, 2020 as compared to the applicable prior periods.

Financial Performance

•Net loss per diluted common share was $8.41 for the three months ended March 31, 2020, compared to net income per diluted common share ~~was $0.51 and $0.84~~of $0.34 for the three ~~and six~~ months ended ~~June 30, 2019 compared~~March 31, 2019. The significant decline relates to ~~$0.30 and $0.66~~the impact of goodwill impairment, provision for credit losses, as well as interest margin compression during the ~~three and six months~~first quarter of 2020.

•During the quarter ended ~~June 30, 2018.~~ March 31, 2020, goodwill impairment was $1.8 billion. We conducted an interim impairment analysis due to the decline in the economic environment, specifically the impact of significant decreases in interest rates, declines in the Company's stock price, as well as potentially higher credit losses. The non-cash goodwill impairment recorded does not impact tangible equity or our regulatory capital ratios.

•Net interest margin, on a tax equivalent basis, was ~~3.70% and 3.86%~~3.41% for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020, as compared to ~~3.89% and 3.96%~~4.03% for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The decrease in net interest margin for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared to the same ~~periods~~period in the prior year, was driven by ~~an increase in the cost of interest-bearing liabilities offset by higher~~lower average yields on interest-bearing assets due to the ~~loan and lease portfolio, taxable securities, and loans held for sale.~~decline in interest rates since March 31, 2019, in addition to the decline in rates during the first quarter of 2020 related to the COVID-19 global pandemic.

•Residential mortgage banking revenue was ~~$9.5 million and $20.8~~$17.5 million for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020, as compared to ~~$33.2 million and $71.6~~$11.2 million for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The ~~decrease~~increase for the three ~~and six~~ month period was primarily driven by an increase in the income from the origination and sale of residential mortgages of $25.0 million, as compared to the prior period. This reflects an increase in the closed loans for sale volume of 136% for the three months ended March 31, 2020, as compared to the same period in the prior year and the gain on sale margin increased to 3.43%, compared to 2.95% in the same period of the prior year. These increases were partially offset by a loss on fair value of the MSR asset of ~~$24.7 million and $38.6~~$30.7 million, as compared to a loss of ~~$5.4~~$14.0 million ~~and $324,000~~ for the same ~~periods~~period in ~~2018. For-sale mortgage origination volume decreased 17% and 22%, for~~2019. The increase in the ~~three and six months ended June 30, 2019, as compared~~loss on fair value was directly related to the ~~same periods~~decrease in ~~the prior year; and gain on sale margin decreased~~mortgage rates contributing to ~~3.32% and 3.17% for the three and six months ended June 30, 2019, compared to 3.35% and 3.34%,~~an increase in ~~the same periods of the prior year.~~prepayment assumptions.

The Company sold all of its holdings of Visa Inc. Class B common stock for a one-time gain of $81.9 million, which was partially offset by a $7.2 million loss on the sale of debt securities during the period.

•Total gross loans and leases were ~~$21.0~~$21.3 billion as of ~~June 30, 2019,~~March 31, 2020, an increase of ~~$530.7~~$55.8 million, as compared to December 31, ~~2018.~~2019. The increase is due to ~~strong~~ loan production in the commercial portfolio, however new commercial loan ~~and residential real estate portfolios.~~production declined late in the quarter as the pandemic was unfolding.

•Total deposits were ~~$21.8~~$22.7 billion as of ~~June 30, 2019,~~March 31, 2020, an increase of ~~$681.5~~$217.9 million, compared to December 31, ~~2018.~~2019. This increase was due to growth in non-interest bearing demand deposits and money market ~~and~~deposits, partially offset by decreases in time ~~deposit growth.~~deposits.

•Total consolidated assets were ~~$28.0~~$27.5 billion as of ~~June 30, 2019,~~March 31, 2020, compared to ~~$26.9~~$28.8 billion at December 31, ~~2018.~~2019. The ~~increase~~decrease was ~~due to strong loan and deposit growth for the first half of 2019. A portion of the increase was~~mainly due to the ~~addition~~goodwill impairment, as well as an increase in the allowance for credit losses on loans and leases, partially offset by an increase in on-balance sheet liquidity.

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•The Company has been an active participant in the Paycheck Protection Program ("PPP"), created as part of the ~~operating lease right of use assets recorded as a result~~CARES Act, offering PPP loans to both customers and non-customers throughout our footprint. As of the ~~application~~date of this filing, the Company expects to process more than 13,000 PPP loan applications and fund approximately $2.0 billion in PPP loans. The average size of each PPP loan is expected to be approximately $148,000. The PPP loans will increase loan balances temporarily and PPP specific loan balances will decline as customers complete the applicable loan forgiveness process through the Company and the Small Business Administration ("SBA"). The Company will fund the PPP loans with a mix of usual source of funds as well as the PPP lending facility offered by the Federal Reserve. The Company is awaiting additional information from the Federal Reserve and the SBA as it relates to other financial characteristics of the ~~new lease standard, ASC 842.~~ program.

Credit Quality

•Non-performing assets ~~decreased~~increased to ~~$79.1~~$89.3 million, or ~~0.28%~~0.32% of total assets, as of ~~June 30, 2019,~~March 31, 2020, as compared to ~~$98.2~~$67.5 million, or ~~0.36%~~0.23% of total assets, as of December 31, ~~2018.~~2019. Non-performing loans and leases were ~~$70.7~~$86.3 million, or ~~0.34%~~0.41% of total loans and leases, as of ~~June 30, 2019,~~March 31, 2020, as compared to ~~$87.3~~$64.2 million, or ~~0.43%~~0.30% of total loans and leases, as of December 31, ~~2018.~~2019.

•The allowance for credit losses on loans and leases was $291.4 million, an increase of $133.8 million, as compared to December 31, 2019. The reserve for unfunded commitments was $20.9 million, an increase of $15.8 million, as compared to December 31, 2019. The significant increases in the allowances for credit losses is due to the economic forecasts anticipating a continued economic downturn as a result of the COVID-19 coronavirus pandemic, as well as the implementation of CECL. The initial adjustment to the allowance for credit losses, which includes the allowance for credit losses on loans and leases and the reserve for unfunded commitments, was $53.2 million, to record the adoption of CECL as of January 1, 2020.

•The provision for ~~loan and lease~~credit losses was ~~$19.4 million and $33.0~~$118.1 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to ~~$13.3 million and $27.0~~$13.8 million for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The increase for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared to the same ~~periods~~period of the prior year, was ~~primarily~~ attributable to ~~strong growth~~the economic forecasts influenced by the COVID-19 global pandemic used in the ~~loan and lease portfolio, along with higher net charge-offs.~~CECL calculation of the allowance for credit losses. As an annualized percentage of average outstanding loans and leases, the provision for ~~loan and lease~~credit losses recorded for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~0.38% and 0.33%, respectively,~~2.24% as compared to ~~0.28%~~0.27% for the same ~~periods~~period in ~~2018.~~2019.

Capital and Growth Initiatives

•The Company's total risk based capital ratio was 13.7% and its Tier 1 common to risk weighted assets ratio was ~~11.0%~~10.7% as of ~~June 30, 2019.~~March 31, 2020. As of December 31, ~~2018,~~2019, the Company's total risk based capital ratio was ~~13.5%~~14.0% and its Tier 1 common to risk weighted assets ratio was ~~10.7%~~11.2%.

•Cash dividends declared in the ~~second~~first quarter of ~~2019~~2020 were $0.21 per common ~~share, an increase of 5% from~~share.

•Due to the ~~comparable period of~~COVID-19 global pandemic, the ~~prior year's second quarter cash dividend of $0.20 per common share.~~

WeUmpqua Go-To® application's message volumes have increased as the app provides customers and bankers a healthy and secure way to conduct transactions, initiate applicable COVID-19 relief, and get answers to critical questions. During this difficult time, we continue to ~~make progress on "Umpqua Next Gen," an initiative started in late 2017 designed to modernize and evolve the Bank. We focused~~focus on operational excellence ~~balanced growth~~ and ~~human digital programs in 2018. During~~focus on the ~~six months ended June 30, 2019, Umpqua continued store rationalization, consolidating 15 stores~~well-being of our customers, associates, and selling an additional 4 stores, as part of this initiative, with plans to consolidate additional stores by the end of the year. We have utilized the savings generated from store consolidations to reinvest in technology, data and analytics, new customer-focused technologies, associate training, a re-designed corporate website, digital marketing efforts, and new online account origination capabilities. The Company rolled out "Go-To" the industry's first human digital banking platform during the quarter and is implementing predictive analytics tools to assist bankers with serving their customers.communities.

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, ~~2018,~~2019, filed with the SEC on February ~~21, 2019.~~27, 2020. 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. During the three months ended March 31, 2020, the Company implemented CECL, due to the significance of the implementation, the following Allowance for Credit Losses Policy has been updated from the policies disclosed in our prior financial statement. The ~~Company’s~~Company's critical accounting policies also include ~~the allowance for loan and lease losses and reserve for unfunded commitments,~~ residential mortgage servicing rights, valuation of goodwill, and fair value. There have been no other material changes to the valuation techniques or models during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

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Allowance for Credit Losses Policy

The Bank has established an ACL Committee, which is responsible for, among other things, regularly reviewing the ACL methodology, including allowance levels and ensuring that it is designed and applied in accordance with generally accepted accounting principles. The Bank's Audit and Compliance Committee provides board oversight of the ACL process and reviews and approves the ACL methodology on a quarterly basis.

CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's contractual term, adjusted for prepayments, utilizing quantitative and qualitative factors.

The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions – both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life after the forecasted period, using an approach that reverts to historical credit loss information.

The Company utilizes complex models to obtain reasonable and supportable forecasts; most of the models calculate two predictive metrics, the probability of default and loss given default. The PD measures the probability that a loan will default within a given time horizon and primarily measures the adequacy of the debtor's cash flow as the primary source of repayment of the loan or lease. The LGD is the expected loss which would be realized presuming a default has occurred and primarily measures the value of the collateral or other secondary source of repayment related to the collateral.

Loans and leases deemed to be collateral dependent or reasonably expected troubled debt restructured or troubled debt restructured are individually evaluated for loss based on the underlying collateral or a discounted cash flow analysis.

Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the discounted cash flow method, which is used for all loans except lines of credit and 2) the non-discounted cash flow method which is used for lines of credit due to the difficulty of calculating an effective interest rate when lines of credit have not yet been drawn on.

The reserve for unfunded commitments is established to absorb inherent losses associated with our commitment to lend funds, such as with a letter or line of credit. The adequacy of the ACL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors. These factors include the CECL model outputs; quality of the current loan portfolio; the trend in the loan portfolio's risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information.

Management believes that the ACL was adequate as of March 31, 2020. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ACL and could result in additional provision for loan and lease losses in future periods.

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Results of Operations

Overview

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, net ~~income~~loss was ~~$111.8 million and $185.8 million,~~$1.9 billion or ~~$0.51 and $0.84~~$8.41 per diluted common share, as compared to net income of ~~$66.0 million and $145.0~~$74.0 million or ~~$0.30 and $0.66~~$0.34 per diluted common share for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The ~~increase~~decrease in net income for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared to the same ~~periods~~period of the prior year ~~was~~is attributable to goodwill impairment, a decrease in net interest income, an increase in the provision for credit losses and an increase in non-interest ~~income, a decrease in non-interest expense and an increase in net interest income, offset by an increase in income tax expense and the provision for loan and lease losses.~~

expense. The ~~increase in non-interest income~~goodwill impairment was due to ~~the one-time gain on sale of Visa Inc. Class B common stock held~~an interim impairment analysis triggered by the ~~Company, partially offset by a decrease~~deterioration in ~~residential mortgage banking revenue driven by~~ the ~~loss on fair value change of the MSR asset. The decrease in non-interest expense was driven by lower salaries and benefits expense,~~economic environment, resulting from the ~~Company's operational excellence initiatives, a reduction in consulting fees, lower occupancy and equipment expense resulting from~~COVID-19 pandemic, specifically the reduction in interest rates, the ~~number of store locations, as well as lower FDIC assessments, offset by a loss on other real estate owned~~increase in projected credit losses, and ~~higher marketing expense.~~the decline in the Company's stock price. The ~~increase~~decrease in net interest income was driven by ~~higher volume and~~lower average yields on interest-earning assets ~~specifically within~~as rates continued to decline. The increase in the ~~loan~~provision for credit losses is due to the COVID-19 global pandemic influenced economic forecast used in the calculation of the allowance for credit losses using CECL. The increase in non-interest expense was driven by an increase in salaries and ~~lease portfolio and taxable securities, offset by a higher cost of funds,~~employee benefits primarily related to an increase in home lending compensation due to higher ~~short term interest rates relative to~~originations during the ~~comparable periods of the prior year.~~period.

The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. For each ~~of the periods~~period presented, the table includes the calculated ratios based on reported net income. Our return on average common shareholders' equity is negatively impacted as the result of capital required to support goodwill. To the extent this performance metric is used to compare our performance with other financial institutions that do not have merger and acquisition-related intangible assets, we believe it is beneficial to also consider the return on average tangible common shareholders' equity. The return on average tangible common shareholders' equity is calculated by dividing net income by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.

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


	Three Months Ended
(dollars in thousands)	March 31, 2020			March 31, 2019
Return on average assets	(25.82)		%	1.12		%
Return on average common shareholders' equity	(174.94)		%	7.34		%
Return on average tangible common shareholders' equity	(301.30)		%	13.17		%
Calculation of average common tangible shareholders' equity:
Average common shareholders' equity	$	4,257,711		$	4,091,174
Less: average goodwill and other intangible assets, net ⁽¹⁾	(1,785,608)			(1,811,007)
Average tangible common shareholders' equity	$	2,472,103		$	2,280,167

⁽¹⁾ The average goodwill and other intangible assets reflects that the impairment charge was at the end of the period. In future periods, this average will reflect that the majority of goodwill has been written-off.

(dollars in thousands) Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Return on average assets 1.62 % 1.02 % 1.37 % 1.13 %
Return on average common shareholders' equity 10.80 % 6.64 % 9.09 % 7.34 %
Return on average tangible common shareholders' equity 19.14 % 12.18 % 16.21 % 13.50 %
Calculation of average common tangible shareholders' equity:
Average common shareholders' equity $ 4,153,175
$ 3,988,825
$ 4,122,346
$ 3,981,948
Less: average goodwill and other intangible assets, net (1,809,583 ) (1,815,529 ) (1,810,291 ) (1,816,294 )
Average tangible common shareholders' equity $ 2,343,592
$ 2,173,296
$ 2,312,055
$ 2,165,654

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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~: 2019:

~~Reconciliations of Total Shareholders' Equity to Tangible Common Shareholders' Equity and Total Assets to Tangible Assets~~


(dollars in thousands)	June 30, 2019			December 31, 2018			(dollars in thousands)	March 31, 2020			December 31, 2019
Total shareholders' equity	$	4,228,507		$	4,056,442		Total shareholders' equity	$	2,507,611		$	4,313,915
Subtract:							Subtract:
Goodwill	1,787,651			1,787,651			Goodwill	2,715			1,787,651
Other intangible assets, net	21,155			23,964			Other intangible assets, net	17,099			18,346
Tangible common shareholders' equity	$	2,419,701		$	2,244,827		Tangible common shareholders' equity	$	2,487,797		$	2,507,918
Total assets	$	27,986,075		$	26,939,781		Total assets	$	27,540,382		$	28,846,809
Subtract:							Subtract:
Goodwill	1,787,651			1,787,651			Goodwill	2,715			1,787,651
Other intangible assets, net	21,155			23,964			Other intangible assets, net	17,099			18,346
Tangible assets	$	26,177,269		$	25,128,166		Tangible assets	$	27,520,568		$	27,040,812
Tangible common equity ratio	9.24		%	8.93		%	Tangible common equity ratio	9.04		%	9.27		%

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 ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$227.2~~$218.5 million, ~~and $464.8~~a decrease of $19.2 million ~~respectively, an increase of $2.3 million and $15.0 million, respectively,~~ compared to the same ~~periods~~period in ~~2018.~~2019. The ~~increase~~decrease in net interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 as compared to the same ~~periods~~period in ~~2018,~~2019, was driven by ~~growth in~~lower yields on interest-earning assets ~~specifically~~offset by higher volume, due to the ~~loan and lease portfolio, reflecting strong growth~~interest rate cuts that the Federal Reserve instituted during the ~~period, along with higher average yields on loans and leases, taxable securities, and loans held for sale related~~quarter as a response to ~~higher interest rates during~~ the ~~period. The increase was partially offset by~~COVID-19 global pandemic, in addition to rate decreases in the second half of 2019. Average interest-bearing liabilities also increased, ~~volumes~~although the cost of interest-bearing liabilities ~~and an increase in the average cost of funds due to competitive pricing in the current rate environment.~~was relatively flat.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was ~~3.70% and 3.86%, respectively,~~3.41% for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, a decrease of 1962 basis points ~~and 10 basis points, respectively,~~ as compared to the same ~~periods~~period in ~~2018.~~2019. The decrease in net interest margin for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, primarily resulted from ~~an increase~~a decrease in the ~~cost~~average yields on interest-earning assets and higher average volume of interest-bearing liabilities, ~~which was~~ partially offset by ~~higher average yields on the~~ loan and lease portfolio. The cost of interest bearing liabilities increased 51 basis points and 50 basis points, respectively, for the three and six months ended June 30, 2019, as compared to the same periods in 2018. The increase is due to increasing competition in an increasing interest rate environment.growth. The yield on loans and leases ~~increased~~decreased by 1648 basis points ~~and 20 basis points, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to the same ~~periods~~period in ~~2018.~~2019, primarily attributable to the decrease in short-term interest rates. The cost of interest-bearing deposits increased 6 basis points for the three months ended March 31, 2020, as compared to the same period in 2019, due to the growth in higher cost time deposits.

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." ~~In a declining~~As interest ~~rate environment, a~~rates have declined, the decrease in ~~both cost of funds and~~ yields on earning assets, ~~could further compress~~coupled with little or no change in cost of funds, has compressed the net interest margin. Further rate changes will continue to have an impact on our net interest margin.

Table of Contents

The following ~~tables present~~table presents condensed average balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~:

~~Average Rates and Balances~~2019:


	Three Months Ended
	March 31, 2020										March 31, 2019
(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	$	406,434	$	4,264	4.20	%	$	187,656	$	2,790	5.95	%
Loans and leases⁽¹⁾	21,196,989		241,729		4.58	%	20,388,988		255,957		5.06	%
Taxable securities	2,760,461		17,283		2.50	%	2,757,644		20,473		2.96	%
Non-taxable securities ⁽²⁾	241,105		1,894		3.14	%	287,366		2,580		3.59	%
Temporary investments and interest-bearing cash	1,084,854		3,331		1.23	%	153,347		925		2.44	%
Total interest-earning assets	25,689,843		268,501		4.19	%	23,775,001		282,725		4.79	%
Other assets	3,154,930��						3,036,620
Total assets	$	28,844,773					$	26,811,621
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits	$	2,471,556	$	3,543	0.58	%	$	2,319,718	$	2,640	0.46	%
Money market deposits	7,107,626		11,759		0.66	%	6,391,721		11,017		0.70	%
Savings deposits	1,485,171		241		0.07	%	1,488,530		270		0.07	%
Time deposits	4,630,956		24,747		2.15	%	4,104,356		20,167		1.99	%
Total interest-bearing deposits	15,695,309		40,290		1.03	%	14,304,325		34,094		0.97	%
Repurchase agreements and federal funds purchased	337,796		395		0.47	%	371,336		810		0.88	%
Borrowings	906,624		4,046		1.79	%	793,797		3,683		1.88	%
Junior subordinated debentures	361,983		4,903		5.45	%	389,103		5,987		6.24	%
Total interest-bearing liabilities	17,301,712		49,634		1.15	%	15,858,561		44,574		1.14	%
Non-interest-bearing deposits	6,880,457						6,505,615
Other liabilities	404,893						356,271
Total liabilities	24,587,062						22,720,447
Common equity	4,257,711						4,091,174
Total liabilities and shareholders' equity	$	28,844,773					$	26,811,621
NET INTEREST INCOME			$	218,867					$	238,151
NET INTEREST SPREAD					3.04	%					3.65	%
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN ^{(1), (2)}					3.41	%					4.03	%

(dollars in thousands) Three Months Ended
June 30, 2019 June 30, 2018
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 $ 264,445
$ 3,326
5.03 % $ 326,427
$ 3,967
4.86 %
Loans and leases (1) 20,605,963
260,784
5.07 % 19,387,537
238,156
4.91 %
Taxable securities 2,683,472
10,861
1.62 % 2,723,406
8,932
1.31 %
Non-taxable securities (2) 271,633
2,325
3.42 % 279,158
2,539
3.64 %
Temporary investments and interest-bearing cash 783,703
4,708
2.41 % 458,133
2,080
1.82 %
Total interest-earning assets 24,609,216
$ 282,004
4.59 % 23,174,661
$ 255,674
4.41 %
Other assets 3,100,094
2,901,481

Total assets $ 27,709,310
$ 26,076,142

INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 2,332,535
$ 2,798
0.48 % $ 2,322,359
$ 1,565
0.27 %
Money market deposits 6,747,290
15,351
0.91 % 6,332,372
5,896
0.37 %
Savings deposits 1,454,908
410
0.11 % 1,456,625
252
0.07 %
Time deposits 4,534,465
25,032
2.21 % 3,633,733
13,546
1.50 %
Total interest-bearing deposits 15,069,198
43,591
1.16 % 13,745,089
21,259
0.62 %
Repurchase agreements and federal funds purchased 292,057
403
0.55 % 285,338
155
0.22 %
Term debt 903,164
4,563
2.03 % 801,768
3,478
1.74 %
Junior subordinated debentures 382,530
5,881
6.17 % 367,705
5,400
5.89 %
Total interest-bearing liabilities 16,646,949
$ 54,438
1.31 % 15,199,900
$ 30,292
0.80 %
Non-interest-bearing deposits 6,556,090
6,645,689

Other liabilities 353,096
241,728

Total liabilities 23,556,135
22,087,317

Common equity 4,153,175
3,988,825

Total liabilities and shareholders' equity $ 27,709,310
$ 26,076,142

NET INTEREST INCOME $ 227,566
$ 225,382

NET INTEREST SPREAD 3.28 % 3.61 %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) 3.70 % 3.89 %
(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 $332,000 for the three months ended March 31, 2020, as compared to $466,000 for the same period in 2019.

~~(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 $404,000 for the three months ended June 30, 2019, as compared to $482,000 for the same period in 2018.

(dollars in thousands) Six Months Ended
June 30, 2019 June 30, 2018
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 $ 226,263
$ 6,116
5.41 % $ 296,992
$ 6,782
4.57 %
Loans and leases (1) 20,498,075
516,741
5.07 % 19,239,586
464,829
4.87 %
Taxable securities 2,720,353
31,334
2.30 % 2,758,235
25,099
1.82 %
Non-taxable securities (2) 279,456
4,905
3.51 % 282,860
5,179
3.66 %
Temporary investments and interest bearing cash 470,266
5,633
2.42 % 381,328
3,244
1.72 %
Total interest-earning assets 24,194,413
$ 564,729
4.69 % 22,959,001
$ 505,133
4.44 %
Other assets 3,068,532
2,897,689

Total assets $ 27,262,945
$ 25,856,690

INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 2,326,162
$ 5,438
0.47 % $ 2,322,793
$ 2,775
0.24 %
Money market deposits 6,570,488
26,368
0.81 % 6,618,629
11,609
0.35 %
Savings deposits 1,471,626
680
0.09 % 1,459,824
414
0.06 %
Time deposits 4,320,599
45,199
2.11 % 3,218,477
22,071
1.38 %
Total interest-bearing deposits 14,688,875
77,685
1.07 % 13,619,723
36,869
0.55 %
Repurchase agreements and federal funds purchased 331,477
1,213
0.74 % 294,150
218
0.15 %
Term debt 848,783
8,246
1.96 % 802,031
6,839
1.72 %
Junior subordinated debentures 385,798
11,868
6.20 % 370,556
10,332
5.62 %
Total interest-bearing liabilities 16,254,933
$ 99,012
1.23 % 15,086,460
$ 54,258
0.73 %
Non-interest-bearing deposits 6,530,992
6,548,566

Other liabilities 354,674
239,716

Total liabilities 23,140,599
21,874,742

Common equity 4,122,346
3,981,948

Total liabilities and shareholders' equity $ 27,262,945
$ 25,856,690

NET INTEREST INCOME $ 465,717
$ 450,875

NET INTEREST SPREAD 3.46 % 3.71 %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2) 3.86 % 3.96 %

~~(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 $870,000 for the six months ended June 30, 2019, as compared to $1.0 million for the same period in 2018.

Table of Contents

The following ~~tables set~~table sets forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 as compared to the same ~~periods~~period in ~~2018~~.2019. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances.

~~Rate/Volume Analysis~~


	Three Months Ended March 31,
	2020 compared to 2019
	Increase (decrease) in interest income and expense due to changes in
(in thousands)	Volume		Rate		Total
INTEREST-EARNING ASSETS:
Loans held for sale	$	2,470	$	(996)	$	1,474
Loans and leases	10,140		(24,368)		(14,228)
Taxable securities	20		(3,210)		(3,190)
Non-taxable securities⁽¹⁾	(386)		(300)		(686)
Temporary investments and interest bearing cash	3,072		(666)		2,406
Totalinterest-earning assets ⁽¹⁾	15,316		(29,540)		(14,224)
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits	188		715		903
Money market deposits	1,273		(531)		742
Savings deposits	—		(29)		(29)
Time deposits	2,842		1,738		4,580
Repurchase agreements	(219)		(196)		(415)
Borrowings	530		(167)		363
Junior subordinated debentures	(384)		(700)		(1,084)
Total interest-bearing liabilities	4,230		830		5,060
Net increase (decrease) in net interest income ⁽¹⁾	$	11,086	$	(30,370)	$	(19,284)

(in thousands)
Three Months Ended June 30,
2019 compared to 2018
Increase (decrease) in interest income and expense due to changes in
Volume Rate Total
INTEREST-EARNING ASSETS:
Loans held for sale $ (775 ) $ 134
$ (641 )
Loans and leases 14,933
7,695
22,628
Taxable securities (132 ) 2,061
1,929
Non-taxable securities⁽¹⁾
(67 ) (147 ) (214 )
Temporary investments and interest bearing cash 1,807
821
2,628
Total⁽¹⁾
15,766
10,564
26,330
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits 7
1,226
1,233
Money market deposits 410
9,045
9,455
Savings deposits —
158
158
Time deposits 3,907
7,579
11,486
Repurchase agreements (33 ) 281
248
Term debt 471
614
1,085
Junior subordinated debentures 223
258
481
Total 4,985
19,161
24,146
Net increase in net interest income ⁽¹⁾
$ 10,781
$ (8,597 ) $ 2,184
⁽¹⁾ Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

⁽¹⁾

~~Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.~~

(in thousands) Six Months Ended June 30,
2019 compared to 2018
Increase (decrease) in interest income and expense due to changes in
Volume Rate Total
INTEREST-EARNING ASSETS:
Loans held for sale $ (1,771 ) $ 1,105
$ (666 )
Loans and leases 31,813
20,099
51,912
Taxable securities (344 ) 6,579
6,235
Non-taxable securities ⁽¹⁾
(62 ) (212 ) (274 )
Temporary investments and interest bearing cash 869
1,520
2,389
Total ⁽¹⁾
30,505
29,091
59,596
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits 4
2,659
2,663
Money market (85 ) 14,844
14,759
Savings 3
263
266
Time deposits 9,125
14,003
23,128
Repurchase agreements 372
623
995
Term debt 415
992
1,407
Junior subordinated debentures 438
1,098
1,536
Total 10,272
34,482
44,754
Net increase in net interest income ⁽¹⁾
$ 20,233
$ (5,391 ) $ 14,842

⁽¹⁾

~~Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.~~

Provision for ~~Loan and Lease~~Credit Losses

The provision for credit losses was $118.1 million for the three months ended March 31, 2020, as compared to $13.8 million (which includes both the provision for loan and lease losses ~~was $19.4 million~~ and ~~$33.0 million, respectively,~~the provision for reserve for unfunded commitments) for the three ~~and six~~ months ended ~~June 30, 2019, as compared to $13.3 million and $27.0 million, respectively, for the three and six months ended June 30, 2018.~~March 31, 2019. The increase in the provision for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 as compared to the same prior year ~~periods~~period is primarily attributable to ~~growth in~~economic forecasts related to the ~~loan~~COVID-19 global pandemic and ~~lease portfolio, as well as~~ an increase in net charge-offs. As an annualized percentage of average outstanding loans and leases, the provision for ~~loan and lease~~credit losses recorded for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~0.38% and 0.33%, respectively,~~2.24% as compared to ~~0.28%~~0.27% for the same ~~periods~~period in ~~2018.~~2019.

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, net charge-offs were ~~$13.2~~$21.7 million ~~and $26.8 million, respectively,~~ or ~~0.26%,~~0.41% of average loans and leases (annualized) ~~for both periods,~~, as compared to ~~$10.7~~$13.7 million ~~and $23.0 million, respectively,~~ or ~~0.22% and 0.24%, respectively,~~0.27% of average loans and leases (annualized), for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The ~~majority of~~increase in net charge-offs ~~relate~~for the quarter was primarily due to ~~losses realized~~a single charge-off on a syndicated national credit to a regional air transportation lessor whose financial conditions and prospects were adversely impacted by COVID-19.

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 ~~lease~~net realizable value for homogeneous leases and equipment ~~finance portfolio,~~financing are determined by the loss given default calculated by the CECL model, and therefore homogenous leases and equipment financing on non-accrual will have an allowance for credit loss amount until they become 181 days past due, at which ~~is included in the commercial loan portfolio.~~

~~The Company recognizes the charge-off of impairment reserves on impaired loans in the period~~time they ~~arise for collateral-dependent loans.~~are charged-off. Therefore, the non-accrual loans of ~~$35.0~~$39.1 million as of ~~June 30, 2019~~March 31, 2020 have ~~been~~a related allowance for credit losses of $11.6 million, with the remaining loans written-down to their estimated fair value, less estimated costs to sell, and are expected to be resolved with no additional material loss, absent further decline in market prices.

Table of Contents

Non-Interest Income

Non-interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$121.8~~$40.6 million, ~~and $167.6~~a decrease of $5.1 million ~~respectively, an increase of $50.2 million and $17.3 million, respectively,~~ or ~~70% and 12%, respectively,~~11% as compared to the same ~~periods~~period in ~~2018~~.2019. The following table presents the key components of non-interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and 2019: ~~and~~ ~~2018~~:


	Three Months Ended
	March 31,
(in thousands)	2020		2019		Change Amount		Change Percent
Service charges on deposits	$	15,638	$	15,278	$	360	2	%
Brokerage revenue	4,015		3,810		205		5	%
Residential mortgage banking revenue, net	17,540		11,231		6,309		56	%
Loss on sale of debt securities, net	(133)		—		(133)		nm
Gain on equity securities, net	814		695		119		17	%
Gain on loan and lease sales, net	1,167		769		398		52	%

BOLI income	2,129		2,168		(39)		(2)	%
Other (expense) income	(525)		11,789		(12,314)		(104)	%
Total non-interest income	$	40,645	$	45,740	$	(5,095)	(11)	%
nm = Not meaningful

~~Non-Interest Income~~

(in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 Change Amount Change Percent 2019 2018 Change Amount Change Percent
Service charges on deposits $ 15,953
$ 15,520
$ 433
3 % $ 31,231
$ 30,515
$ 716
2 %
Brokerage revenue 3,980
4,161
(181 ) (4 )% 7,790
8,355
(565 ) (7 )%
Residential mortgage banking revenue, net 9,529
33,163
(23,634 ) (71 )% 20,760
71,601
(50,841 ) (71 )%
(Loss) gain on sale of debt securities, net (7,186 ) 14
(7,200 ) nm
(7,186 ) 14
(7,200 ) nm
Gain (loss) on equity securities, net 82,607
(1,432 ) 84,039
nm
83,302
(1,432 ) 84,734
nm
Gain on loan sales, net 3,333
1,348
1,985
147 % 4,102
2,578
1,524
59 %
BOLI income 2,093
2,060
33
2 % 4,261
4,130
131
3 %
Other income 11,514
16,817
(5,303 ) (32 )% 23,303
34,457
(11,154 ) (32 )%
Total $ 121,823
$ 71,651
$ 50,172
70 % $ 167,563
$ 150,218
$ 17,345
12 %
nm = Not meaningful

The loss on sale of debt securities for the three and six months ended June 30, 2019, increased $7.2 million as compared to the same periods of the prior year due to a strategic restructuring of our available for sale debt securities portfolio to reduce interest rate sensitivity for a potentially decreasing interest rate environment, increase operational efficiency, and improve the cash liquidity position of the Company.

Gain on equity securities for the three and six months ended June 30, 2019, compared to the same periods in the prior year increased due primarily to the one-time gain on sale of all of the owned shares of Visa Inc. Class B common stock held by the Company.

~~The gain on loan sales for the three and six months ended June 30, 2019, increased by $2.0 million and $1.5 million, respectively, due to the mix and volume of loans sold during the periods.~~

Other income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in the prior year decreased by ~~$5.3 million and $11.2 million, respectively.~~$12.3 million. The decrease ~~for both periods~~ was primarily related to a loss on the swap derivative fair value ~~decrease~~ of ~~$4.2~~$14.3 million ~~and $7.9 million, respectively,~~ attributable to the decrease in short and long-term interest rates during the period, as ~~well~~compared to a loss of $2.5 million in the prior year.

Residential mortgage banking revenue for the three months ended March 31, 2020, as ~~a decrease~~compared to the same period of ~~debt capital market swap fee revenue of $1.7 million and $4.6 million, respectively,~~2019, increased by $6.3 million. The increase for the three month period was primarily driven by an increase in originations during the periods due to lower interest rates, offset by a higher loss on fair value of the ~~timing~~MSR asset of ~~production.~~

$30.7 million as compared to a loss on fair value of $14.0 million for the same period in 2019. In addition, the closed loans for sale volume for the three months ended March 31, 2020, increased 136% and the gain on sale margin increased 48 basis points to 3.43%, compared to 2.95% in the same period of the prior year. The following table presents our residential mortgage banking revenues for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Origination and sale	$	39,347	$	14,373
Servicing	8,880		10,824
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time	(5,329)		(6,431)
Changes in valuation inputs or assumptions⁽¹⁾	(25,358)		(7,535)
Balance, end of period	$	17,540	$	11,231

~~Summary of Residential Mortgage Banking Revenues~~

(in thousands)
Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Origination and sale $ 23,151
$ 28,159
$ 37,524
$ 50,996
Servicing 11,036
10,407
21,860
20,929
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time (6,905 ) (5,903 ) (13,336 ) (12,101 )
Changes in valuation inputs or assumptions⁽¹⁾
(17,753 ) 500
(25,288 ) 11,777
Balance, end of period $ 9,529
$ 33,163
$ 20,760
$ 71,601


⁽¹⁾⁽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.~~

Residential mortgage banking revenue for the three and six months ended June 30, 2019, as compared to the same periods of 2018 decreased by $23.6 million and $50.8 million, respectively. The decrease for the three and six month periods was primarily driven by a higher loss on fair value of the MSR asset of $24.7 million and $38.6 million, respectively, as compared to a loss on fair value of $5.4 million and $324,000 for the same periods in 2018. This decrease was due to decreased interest rates during the three and six months ended June 30, 2019 which caused prepayment speeds to rise as well as changes to inputs and assumptions principally reflect changes in ~~the valuation model. In addition, the closed loans for sale volume for the three~~discount rates and ~~six months ended June 30, 2019, decreased 17% and 22%, respectively, due to a slowdown~~prepayment speeds, which are primarily affected by changes in refinance activity. The gain on sale margin decreased to 3.32% and 3.17% for the three and six months ended June 30, 2019, respectively, compared to 3.35% and 3.34%, respectively, in the same periodsinterest rates.

Table of ~~the prior year.~~Contents

Non-Interest Expense

Non-interest expense for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$180.4 million and $352.0 million, respectively a decrease~~$2.0 billion, an increase of ~~$15.2 million and $29.7 million, respectively,~~$1.8 billion or ~~8% for both periods~~1,044% as compared to the same ~~periods~~period in ~~2018.~~2019. Excluding the goodwill impairment, non-interest expense increased $6.1 million over the same period in the prior year. The following table presents the key elements of non-interest expense for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended
	March 31,
(in thousands)	2020		2019		Change Amount		Change Percent
Salaries and employee benefits	$	109,774	$	100,658	$	9,116	9	%
Occupancy and equipment, net	37,001		36,245		756		2	%
Communications	3,128		4,220		(1,092)		(26)	%
Marketing	2,530		2,726		(196)		(7)	%
Services	10,770		12,210		(1,440)		(12)	%
FDIC assessments	2,542		2,942		(400)		(14)	%

Intangible amortization	1,247		1,404		(157)		(11)	%

Other expenses	10,730		11,187		(457)		(4)	%
Non-interest expense before goodwill impairment	177,722		171,592		6,130		4	%
Goodwill impairment	1,784,936		—		1,784,936		nm
Total non-interest expense	$	1,962,658	$	171,592	$	1,791,066	1,044	%
nm = Not meaningful

~~Non-Interest Expense~~

Goodwill impairment of $1.8 billion was recorded for the three months ended March 31, 2020 due to an interim impairment analysis triggered by the decline in interest rates and economic impacts of COVID-19, as well as declines in the Company's stock price. The impairment was a result of market volatility and forecasts for a prolonged low interest rate environment, as well as estimated higher credit losses expected due to the economic downturn.

(in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 Change Amount Change Percent 2019 2018 Change Amount Change Percent
Salaries and employee benefits $ 104,049
$ 113,340
$ (9,291 ) (8 )% $ 204,707
$ 219,891
$ (15,184 ) (7 )%
Occupancy and equipment, net 36,032
37,584
(1,552 ) (4 )% 72,277
76,245
(3,968 ) (5 )%
Communications 3,906
4,447
(541 ) (12 )% 8,126
8,880
(754 ) (8 )%
Marketing 4,312
3,088
1,224
40 % 7,038
4,888
2,150
44 %
Services 13,227
16,627
(3,400 ) (20 )% 25,437
31,688
(6,251 ) (20 )%
FDIC assessments 2,837
4,692
(1,855 ) (40 )% 5,779
9,172
(3,393 ) (37 )%
Loss (gain) on other real estate owned, net 2,678
(92 ) 2,770
nm
2,627
(130 ) 2,757
nm
Intangible amortization 1,405
1,542
(137 ) (9 )% 2,809
3,083
(274 ) (9 )%
Other expenses 11,969
14,344
(2,375 ) (17 )% 23,207
27,968
(4,761 ) (17 )%
Total $ 180,415
$ 195,572
$ (15,157 ) (8 )% $ 352,007
$ 381,685
$ (29,678 ) (8 )%
nm = Not meaningful

Salaries and employee benefits ~~decreased~~increased by ~~$9.3 million and $15.2~~$9.1 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020 as compared to the same ~~periods~~period in the prior year. The ~~decrease~~increase in salaries and employee benefits for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, is primarily related to ~~lower~~an increase in home lending compensation ~~payroll taxes, and employee severance, resulting from the Company's operational efficiency initiatives as well as lower group insurance rates~~of $8.1 million related to higher origination volumes during the period.

~~Occupancy and equipment~~Communications expense decreased by ~~$1.6~~$1.1 million ~~and $4.0 million, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to the same ~~periods in the prior year resulting from the reduction in the number of store locations.~~

~~Marketing expense increased by $1.2 million and $2.2 million, respectively, for the three and six months ended June 30, 2019, as compared to the same periods~~period in the prior year due to a decrease in data processing costs during the ~~marketing efforts to drive our strategic~~period as the Company has executed on its operating expense initiatives, including ~~to gain traction with wholesale~~improved procurement and ~~middle-market customers and to promote our Go-To app, which launched in April 2019,~~contract renegotiation, as well as ~~digital marketing for new customers.~~fewer stores in the footprint.

Services expense decreased by ~~$3.4~~$1.4 million ~~and $6.3 million, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to the same ~~periods~~period in the prior ~~year,~~year. The decrease primarily ~~related~~relates to lower consulting fees related to consulting fees in the same period of the prior year to assist with the identification and implementation of ~~organizational simplification and~~operational efficiencies that did not recur in the ~~same periods~~first quarter of ~~the prior year.~~

~~FDIC assessments decreased by $1.9 million and $3.4 million for the three and six months ended June 30, 2019,~~2020. In addition, current consulting engagements have been put on hold in some cases due to ~~the discontinuation of the large-institution surcharge that had been included in the assessment in the prior periods.~~COVID-19 related stay-home orders.

~~The increased loss on other real estate owned for both the three and six months ended June 30, 2019, was due to a valuation adjustment on one property held.~~

Other non-interest expense decreased by $2.4 million and $4.8 million for the three and six months ended June 30, 2019, as compared to the same periods in the prior year. The decrease is primarily related to a decrease in exit and disposal costs during the three and six months ended June 30, 2019.

Income Taxes

The Company's consolidated effective tax rate as a percentage of pre-tax ~~income~~loss for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, was ~~25.1% and 24.9%,~~(1.7)% as compared to ~~24.7% and 24.3%~~the percentage of pre-tax income of 24.6% for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The effective tax rate for the three months ended March 31, 2020, became negative primarily due to the impairment of non-deductible goodwill. Additionally, the effective tax rates differed from the statutory rate principally because of state taxes, the relative amount of income earned in each state jurisdiction, non-taxable income arising from bank-owned life insurance, income on tax-exempt investment securities, non-deductible FDIC premiums and tax credits arising from low income housing investments.

Table of Contents

FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents were $1.7 billion at March 31, 2020, compared to $1.4 billion at December 31, 2019. The increase is mainly in interest bearing cash and temporary investments and reflects management's strategy to adopt an elevated on-balance sheet, high quality liquid asset position to enhance liquidity flexibility given market volatility and uncertainty as a result of COVID-19.

Investment Securities

Equity and other securities were ~~$66.4~~$80.8 million at ~~June 30, 2019,~~March 31, 2020, up from ~~$61.8~~$80.2 million at December 31, ~~2018.~~2019.

Investment debt securities available for sale were ~~$2.7~~$2.9 billion as of ~~June 30, 2019,~~March 31, 2020, compared to ~~$3.0~~$2.8 billion at December 31, ~~2018.~~2019. The ~~decrease~~increase was due to ~~sales and paydowns of $662.5 million, partially offset by~~ purchases of ~~$322.4~~$140.4 million of investment securities as well as an increase of ~~$81.2~~$107.6 million in fair value of investment securities available for ~~sale.~~

~~Investment securities held to maturity were $3.4 million as~~sale, partially offset by sales and paydowns of ~~June 30, 2019, comparable to $3.6 million at December 31, 2018.~~$168.9 million.

The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019:


	Investment Securities Available for Sale
	March 31, 2020						December 31, 2019
(dollars in thousands)	Fair Value		%		Fair Value		%
U.S. Treasury and agencies	$	750,512	26	%	$	643,604	23	%
Obligations of states and political subdivisions	252,419		9	%	261,094		9	%
Residential mortgage-backed securities and collateralized mortgage obligations	1,887,544		65	%	1,909,984		68	%

Total available for sale securities	$	2,890,475	100	%	$	2,814,682	100	%

~~Investment Securities Composition~~

(dollars in thousands) Investment Securities Available for Sale
June 30, 2019 December 31, 2018
Fair Value % Fair Value %
U.S. Treasury and agencies $ 337,101
13 % $ 39,656
1 %
Obligations of states and political subdivisions 270,952
10 % 309,171
10 %
Residential mortgage-backed securities and collateralized mortgage obligations 2,090,345
77 % 2,628,281
89 %
Total $ 2,698,398
100 % $ 2,977,108
100 %


										Investment Securities Held to Maturity
										March 31, 2020						December 31, 2019
(dollars in thousands)	Investment Securities Held to Maturity								(dollars in thousands)	Amortized Cost		%		Amortized Cost		%
	June 30, 2019				December 31, 2018
Residential mortgage-backed securities and collateralized mortgage obligations									Residential mortgage-backed securities and collateralized mortgage obligations	$	3,200	100	%	$	3,260	100	%
	Amortized Cost		%		Amortized Cost		%
Residential mortgage-backed securities and collateralized mortgage obligations	$	3,416	100	%	$	3,606	100	%
Total	$	3,416	100	%	$	3,606	100	%
Total held to maturity securities									Total held to maturity securities	$	3,200	100	%	$	3,260	100	%

We review investment securities on an ongoing basis for the presence of other-than-temporary impairment ~~("OTTI")~~ or permanent 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.

In June 2019, the Company completed a strategic restructuring of a portion of the available for sale debt securities portfolio. This restructuring resulted in the sale of certain securities at a gross loss of $7.3 million. This was a tactical effort to reduce interest rate sensitivity for a potentially decreasing interest rate environment, increase operational efficiency, and improve the cash liquidity position of the Company.

Gross unrealized losses in the available for sale investment portfolio were ~~$13.4 million~~$322,000 at ~~June 30, 2019.~~March 31, 2020. This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of ~~$13.1 million.~~$307,000. 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 securities ~~are considered only temporarily impaired due to these changes in market interest rates.~~as of March 31, 2020.

Restricted Equity Securities

Restricted equity securities were ~~$43.1~~$58.1 million at ~~June 30, 2019~~March 31, 2020 and ~~$40.3~~$46.5 million at December 31, ~~2018,~~2019, the majority of which represents the Bank's investment in the FHLB of Des Moines. The increase is attributable to purchases of FHLB stock during the period due to additional 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.

Table of Contents

Loans and Leases

~~Loans andLeases, net~~

Total loans and leases outstanding at ~~June 30, 2019~~March 31, 2020 were ~~$21.0~~$21.3 billion, an increase of ~~$530.7~~$55.8 million as compared to December 31, ~~2018.~~2019. The increase is attributable to net new loan and lease originations of ~~$619.3~~$109.5 million, partially offset by loans sold of ~~$54.4~~$20.9 million, net charge-offs of $21.7 million, and ~~charge-offs~~transfers to loans held for sale of ~~$33.9~~$10.2 million.

The following table presents the concentration distribution of the loan and lease portfolio, net of deferred fees and costs, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019:


	March 31, 2020						December 31, 2019
(dollars in thousands)	Amount		Percentage		Amount		Percentage
Commercial real estate
Non-owner occupied term, net	$	3,613,420	17	%	$	3,545,566	17	%
Owner occupied term, net	2,472,187		12	%	2,496,088		12	%
Multifamily, net	3,464,217		16	%	3,514,774		16	%
Construction & development, net	667,975		3	%	678,740		3	%
Residential development, net	187,594		1	%	189,010		1	%
Commercial
Term, net	2,317,573		11	%	2,232,817		10	%
Lines of credit & other, net	1,208,051		5	%	1,212,393		6	%
Leases & equipment finance, net	1,492,762		7	%	1,465,489		7	%
Residential
Mortgage, net	4,193,908		20	%	4,215,424		20	%
Home equity loans & lines, net	1,249,152		6	%	1,237,512		6	%
Consumer & other, net	384,639		2	%	407,871		2	%
Total, net of deferred fees and costs	$	21,251,478	100	%	$	21,195,684	100	%

~~Loan and Lease Concentrations~~

(dollars in thousands)
June 30, 2019 December 31, 2018
Amount Percentage Amount Percentage
Commercial real estate
Non-owner occupied term, net $ 3,537,084
16.9 % $ 3,573,065
17.5 %
Owner occupied term, net 2,396,674
11.4 % 2,480,371
12.1 %
Multifamily, net 3,341,547
15.9 % 3,304,763
16.2 %
Construction & development, net 732,932
3.5 % 736,254
3.6 %
Residential development, net 199,421
1.0 % 196,890
1.0 %
Commercial
Term, net 2,271,346
10.9 % 2,232,923
10.9 %
Lines of credit & other, net 1,280,587
6.1 % 1,169,525
5.7 %
Leases & equipment finance, net 1,449,579
6.9 % 1,330,155
6.5 %
Residential
Mortgage, net 3,995,643
19.1 % 3,635,073
17.8 %
Home equity loans & lines, net 1,215,215
5.8 % 1,176,477
5.8 %
Consumer & other, net 533,343
2.5 % 587,170
2.9 %
Total, net of deferred fees and costs $ 20,953,371
100.0 % $ 20,422,666
100.0 %

Table of Contents

Asset Quality and Non-Performing Assets

~~Non-Performing Assets~~

The following table summarizes our non-performing assets and restructured loans as of ~~June 30, 2019~~ ~~and~~ ~~December~~March 31, ~~2018~~:

(dollars in thousands)
June 30, 2019 December 31, 2018
Loans and leases on non-accrual status $ 35,022
$ 50,823
Loans and leases past due 90 days or more and accruing ⁽¹⁾
35,700
36,444
Total non-performing loans and leases 70,722
87,267
Other real estate owned 8,423
10,958
Total non-performing assets $ 79,145
$ 98,225
Restructured loans ⁽²⁾
$ 15,267
$ 13,924
Allowance for loan and lease losses $ 151,069
$ 144,871
Reserve for unfunded commitments 4,857
4,523
Allowance for credit losses $ 155,926
$ 149,394
Asset quality ratios:
Non-performing assets to total assets 0.28 % 0.36 %
Non-performing loans and leases to total loans and leases 0.34 % 0.43 %
Allowance for loan and leases losses to total loans and leases 0.72 % 0.71 %
Allowance for credit losses to total loans and leases 0.74 % 0.73 %
Allowance for credit losses to total non-performing loans and leases 220 % 171 %


⁽¹⁾	Excludes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more totaling $5.4 million and $8.9 million at June 30, 2019 and December 31, 2018, respectively.


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

~~The purchased non-credit impaired loans had remaining discount that is expected to accrete into interest income over the life of the loans of $19.0 million and $24.7 million, as of June 30, 2019~~2020 and December 31, ~~2018, respectively. The purchased credit impaired loan pools had remaining discounts of $22.3~~2019:


(dollars in thousands)	March 31, 2020			December 31, 2019
Loans and leases on non-accrual status	$	39,128		$	26,244
Loans and leases past due 90 days or more and accruing ⁽¹⁾	47,185			37,969
Total non-performing loans and leases	86,313			64,213
Other real estate owned	3,020			3,295
Total non-performing assets	$	89,333		$	67,508
Restructured loans ⁽²⁾	$	20,541		$	18,576
Allowance credit losses on loans and leases	$	291,420		$	157,629
Reserve for unfunded commitments	20,927			5,106
Allowance for credit losses	$	312,347		$	162,735
Asset quality ratios:
Non-performing assets to total assets	0.32		%	0.23		%
Non-performing loans and leases to total loans and leases	0.41		%	0.30		%
Allowance for credit losses on loans and leases to total loans and leases	1.37		%	0.74		%
Allowance for credit losses to total loans and leases	1.47		%	0.77		%
Allowance for credit losses to total non-performing loans and leases	362		%	253		%

⁽¹⁾Excludes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more totaling $5.3 million and ~~$24.9~~$4.3 million ~~as of June 30, 2019~~at March 31, 2020 and December 31, ~~2018,~~2019, respectively.

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

Loans acquired with deteriorated credit quality are accounted for as purchased credit impaired pools. Typically, this would include loans that were considered non-performing or restructured as of acquisition date. Accordingly, subsequent to acquisition, loans included in the purchased credit impaired pools are not reported as non-performing loans based upon their individual performance status, so the categories of nonaccrual, impaired and 90 days past due and accruing do not include any purchased credit impaired loans.

~~Restructured Loans~~

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, impaired loans~~2019, troubled debt restructurings of ~~$15.3~~$20.5 million and ~~$13.9~~$18.6 million, respectively, were classified as ~~performing~~accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms. In order for a new restructured loan to be considered performing and on accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan must be current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

A further decline in the economic conditions due to the COVID-19 global 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, ~~become impaired or~~ placed on non-accrual status, restructured or transferred to other real estate owned in the future. Umpqua is committed to helping borrowers during this unprecedented time of uncertainty and is working with customers on payment deferrals and other loan modifications.

Table of Contents

Allowance for ~~Loan and Lease~~Credit Losses ~~and Reserve for Unfunded Commitments~~

The ~~ALLL~~ACL totaled ~~$151.1~~$291.4 million at ~~June 30, 2019,~~March 31, 2020, an increase of ~~$6.2~~$133.8 million from ~~$144.9~~$157.6 million at December 31, ~~2018.~~2019. The following table shows the activity in the ~~ALLL~~ACL for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


		Three Months Ended
(dollars in thousands)					March 31, 2020						March 31, 2019
Allowance for credit losses
	Beginning allowance for credit losses for loans and leases	$	157,629					$	144,871
	Beginning reserve for unfunded commitments	5,106						4,523
Beginning allowance for credit losses					162,735						149,394
Impact of adoption of CECL					53,237						—
Provision for credit losses⁽¹⁾					118,085						13,815
Loans charged-off:
Charge-offs					(24,455)						(17,152)
Recoveries					2,745						3,469
Net charge-offs					(21,710)						(13,683)
	Ending allowance for credit losses for loans and leases	291,420						144,872
	Ending reserve for unfunded commitments	20,927						4,654
Ending allowance for credit losses					$	312,347					$	149,526
As a percentage of average loans and leases (annualized):
	Net charge-offs	0.41		%				0.27		%
	Provision for credit losses	2.24		%				0.27		%
Recoveries as a percentage of charge-offs					11.22		%				20.23		%

⁽¹⁾ For comparability, the provision for credit losses includes both the provision for loan and lease losses and the provision for unfunded commitments in prior periods.

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

(dollars in thousands)
Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Balance, beginning of period $ 144,872
$ 141,933
$ 144,871
$ 140,608
Loans charged-off:
Charge-offs (16,707 ) (14,815 ) (33,859 ) (30,627 )
Recoveries 3,552
4,119
7,021
7,600
Net charge-offs (13,155 ) (10,696 ) (26,838 ) (23,027 )
Provision for loan and lease losses 19,352
13,319
33,036
26,975
Balance, end of period $ 151,069
$ 144,556
$ 151,069
$ 144,556
As a percentage of average loans and leases (annualized):
Net charge-offs 0.26 % 0.22 % 0.26 % 0.24 %
Provision for loan and lease losses 0.38 % 0.28 % 0.33 % 0.28 %
Recoveries as a percentage of charge-offs 21.26 % 27.80 % 20.74 % 24.81 %

The ~~increase in allowance~~provision for credit losses was $118.1 million for the three months ended March 31, 2020, which includes both the provision for loan and lease losses as ~~of June 30,~~well as the provision for unfunded commitments. The increase from $13.8 million for the three months ended March 31, 2019, ~~compared~~was principally attributable to the ~~same period~~COVID-19 pandemic and its impact on the forecasts used to determine the expected credit losses of ~~the prior year was primarily attributable to growth in~~ the loan and lease portfolio. ~~Additional discussion on the change in provision for loan and lease losses is provided under the heading~~ ~~Provision for Loan and LeaseLosses~~ ~~above.~~

The following table sets forth the allocation of the allowance for ~~loan~~credit losses on loans and ~~lease losses~~leases and percent of loans in each category to total loans and leases as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019:


	March 31, 2020						December 31, 2019
(dollars in thousands)	Amount		% Loans to total loans		Amount		% Loans to total loans
Commercial real estate	$	99,778	49	%	$	50,847	49	%
Commercial	146,607		23	%	73,820		23	%
Residential	34,251		26	%	24,714		26	%
Consumer & other	10,784		2	%	8,248		2	%

Allowance for credit losses on loans and leases	$	291,420			$	157,629

Table of Contents

(dollars in thousands) June 30, 2019 December 31, 2018
Amount % Loans to total loans Amount % Loans to total loans
Commercial real estate $ 48,997
48.7 % $ 47,904
50.4 %
Commercial 68,353
23.9 % 63,957
23.1 %
Residential 23,654
24.9 % 22,034
23.6 %
Consumer & other 10,065
2.5 % 10,976
2.9 %
Allowance for loan and lease losses $ 151,069
$ 144,871

~~At June 30, 2019,~~To calculate the ~~recorded investment in loans classified as impaired totaled $27.3 million, with~~ACL, the models use a ~~corresponding valuation allowance (included in~~forecast of future economic conditions and are dependent upon specific macroeconomic variables that are relevant to each of the ~~allowance for~~Bank's loan and lease ~~losses) of $170,000. The valuation allowance on impaired loans represents~~portfolios. As such, the impairment reserves on performing current and former restructured loans and nonaccrual loans. At December 31, 2018, the total recorded investment in impaired loans was $42.3 million, with a corresponding valuation allowance (includedeconomic variables in the ~~allowance for loan and lease losses)~~models we use to determine the ACL 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. The below table displays several of ~~$180,000.~~

~~The following table presents a summary of activity~~the key economic assumptions used in the ~~RUC:~~ credit loss models for January 1, 2020 (used to determine the day 1 adjustment) and March 31, 2020 (used to determine the first quarter provision), which are pre and post COVID-19 and its related economic impacts.

~~Summary of Reserve for Unfunded Commitments Activity~~

(in thousands) Three months ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Balance, beginning of period $ 4,654
$ 4,129
$ 4,523
$ 3,963
Net charge to other expense 203
1
334
167
Balance, end of period $ 4,857
$ 4,130
$ 4,857
$ 4,130


	Units	First Quarter 2020	Second Quarter 2020	Third Quarter 2020	Fourth Quarter 2020	2020	2021	2022	2023
Change in Gross Domestic Product
January 1, 2020	% AR	0.9	1.9	1.8	1.8	1.6	1.8	1.8	1.8
March 31, 2020	% AR	-2.5	-18.3	10.9	2.4	-2.2	2.7	4.7	3.4
Unemployment Rate
January 1, 2020	%	3.6	3.7	3.8	3.8	3.7	3.9	4	4.2
March 31, 2020	%	3.8	8.7	6.3	6.5	6.3	6.6	5.2	4.3
Median Existing-Home Price
January 1, 2020	$ 000s	277.7	279.6	281.5	283.6	280.6	289	297.8	307.1
March 31, 2020	$ 000s	284.3	284.3	281.7	277.6	282	280.1	293.6	309.8
Consumer Price Index
January 1, 2020	% AR	1.9	2	2.6	1.6	2	2.1	2	2
March 31, 2020	% AR	0.7	-4.3	3.1	2	0.7	2.8	2.7	2.4
Treasury Yield: 10-Yr Bond
January 1, 2020	%	1.68	1.73	1.8	1.82	1.76	2.03	2.36	2.67
March 31, 2020	%	1.3	0.42	0.63	0.77	0.78	1.39	2.26	3.09
S&P 500
January 1, 2020	1941=1	3047.3	3077.6	3103.5	3134.8	3090.8	3212.4	3344.7	3469
March 31, 2020	1941=1	3103.2	2625.4	2472.1	2410.5	2652.8	2704.6	3101.6	3254.6
CRE Price Index
January 1, 2020	index	306.2	307.3	308.4	309.3	309.3	312.7	318.1	326.3
March 31, 2020	index	309.7	287.2	271.4	265.5	265.5	284.7	318.3	340.2

We believe that the ~~ALLL and RUC~~allowance for credit losses at ~~June 30, 2019~~ ~~are~~March 31, 2020 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. ~~This assessment, based in part on historical levels of net charge-offs, loan and lease growth, and a detailed review of~~If the ~~quality of~~economic conditions continue to decline, the ~~loan and lease portfolio, involves uncertainty and judgment. Therefore, the adequacy of the ALLL and RUC cannot be determined with precision and~~Bank may ~~be subject to change~~need additional provisions for credit losses in future periods. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review.

Residential Mortgage Servicing Rights

The following table presents the ~~key elements of~~changes in our residential mortgage servicing rights portfolio for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and 2019: ~~and~~ ~~2018~~:


	Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Balance, beginning of period	$	115,010	$	169,025

Additions for new MSR capitalized	10,023		3,887
Changes in fair value:
Changes due to collection/realization of expected cash flows over time	(5,329)		(6,431)
Changes due to valuation inputs or assumptions⁽¹⁾	(25,358)		(7,535)
Balance, end of period	$	94,346	$	158,946

~~Summary of Residential Mortgage Servicing Rights~~ ⁽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.

(in thousands)
Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Balance, beginning of period $ 158,946
$ 164,760
$ 169,025
$ 153,151
Additions for new MSR capitalized 5,492
6,860
9,379
13,390
Changes in fair value:
Changes due to collection/realization of expected cash flows over time (6,905 ) (5,903 ) (13,336 ) (12,101 )
Changes due to valuation inputs or assumptions⁽¹⁾
(17,753 ) 500
(25,288 ) 11,777
Balance, end of period $ 139,780
$ 166,217
$ 139,780
$ 166,217


⁽¹⁾ Table of Contents	~~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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was as follows:


(dollars in thousands)	March 31, 2020			December 31, 2019
Balance of loans serviced for others	$	12,533,045		$	12,276,943
MSR as a percentage of serviced loans	0.75		%	0.94		%

(dollars in thousands) June 30, 2019 December 31, 2018
Balance of loans serviced for others $ 15,796,102
$ 15,978,885
MSR as a percentage of serviced loans 0.88 % 1.06 %

Mortgage servicing rights are adjusted to fair value quarterly with the change recorded in 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 loans~~borrowers are ~~prepaid~~able to take advantage of a refinance incentive, prepayments increase and the total value of existing servicing rights declines as ~~no further~~expectations of future servicing fees ~~are collected.~~collections decline. Mortgage rates decreased during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020, which caused prepayment speed assumptions to rise.

The fair value of the MSR ~~portfolio~~asset decreased ~~$17.8~~by $25.4 million ~~and $25.3 million, respectively,~~ due to changes to inputs to the valuation model including changes in discount rates and prepayment speeds, ~~and~~which was due to decreases in the long term interest rates during the period. The fair value of the MSR asset decreased ~~$6.9~~$5.3 million ~~and $13.3 million, respectively,~~ due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three ~~and six~~ months ended June 30, 2019. The decrease in the fair value of the MSR portfolio for the three and six months ended June 30, 2018, due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs were $5.9 million and $12.1 million, respectively, offset by an increase of $500,000 and $11.8 million, respectively, due to changes in the valuation inputs and assumptions.March 31, 2020.

Goodwill ~~and Other Intangible Assets~~

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had goodwill of $2.7 million and $1.8 ~~billion.~~billion, respectively. Goodwill is recorded in connection with business combinations and represents the excess of the purchase price over the estimated fair value of the net assets acquired. ~~There were no changes to goodwill during~~Goodwill impairment of $1.8 billion was recorded for the ~~six~~three months ended ~~June 30, 2019.~~

~~At June 30, 2019, we had other intangible assets~~March 31, 2020 due to an interim impairment analysis triggered by the decline in interest rates and economic impacts of ~~$21.2 million, compared to $24.0 million at December 31, 2018. As part~~COVID-19, as well as declines in the Company's stock price. The impairment was a result of market volatility and forecasts for a ~~business acquisition, the fair value of identifiable intangible assets such~~prolonged low interest rate environment, as core deposits, which include all deposits except certificates of deposit, are recognized at the acquisition date. Intangible assets with definite useful lives are amortized to their estimated residual values over their respective estimated useful lives, and are also reviewed for impairment. We amortize other intangible assets on an accelerated or straight-line basis over an estimated ten year life. The decrease from December 31, 2018 relateswell as forecasted higher credit losses expected due to the ~~amortization of the other intangible assets of $2.8 million for the six months ended June 30, 2019.~~forecasted economic downturn.

��

Deposits

Total deposits were ~~$21.8~~$22.7 billion at ~~June 30, 2019,~~March 31, 2020, an increase of ~~$681.5~~$217.9 million, as compared to December 31, ~~2018.~~2019. The increase is attributable to growth in ~~time deposits, money market deposits and~~ non-interest bearing demand and money market deposits.

The following table presents the deposit balances by major category as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~: 2019:


										March 31, 2020						December 31, 2019
(dollars in thousands)	June 30, 2019				December 31, 2018				(dollars in thousands)	Amount		Percentage		Amount		Percentage
	Amount		Percentage		Amount		Percentage
Non-interest bearing demand	$	6,771,087	31	%	$	6,667,467	32	%	Non-interest bearing demand	$	7,169,907	32	%	$	6,913,375	31	%
Interest bearing demand	2,355,473		11	%	2,340,471		11	%	Interest bearing demand	2,482,908		11	%	2,524,534		11	%
Money market	6,789,036		31	%	6,645,390		31	%	Money market	7,082,011		31	%	6,930,815		31	%
Savings	1,446,332		7	%	1,492,685		7	%	Savings	1,486,909		7	%	1,471,475		7	%
Time, $100,000 or greater	3,289,216		15	%	2,947,084		14	%	Time, $100,000 or greater	3,265,147		14	%	3,420,446		15	%
Time, less than $100,000	1,167,869		5	%	1,044,389		5	%	Time, less than $100,000	1,212,493		5	%	1,220,859		5	%
Total	$	21,819,013	100	%	$	21,137,486	100	%
Total deposits									Total deposits	$	22,699,375	100	%	$	22,481,504	100	%

The Company's brokered deposits totaled ~~$1.6~~$1.0 billion at ~~June 30, 2019,~~March 31, 2020, compared to ~~$1.4~~$1.2 billion at December 31, ~~2018. The increase in brokered deposits serves to support our on-balance-sheet liquidity position.~~2019.

Borrowings

At ~~June 30, 2019,~~March 31, 2020, the Bank had outstanding ~~$308.1~~$346.2 million of securities sold under agreements to repurchase, an increase of ~~$10.9~~$34.9 million from December 31, ~~2018. At both June 30, 2019 and December 31, 2018, there were no outstanding federal funds purchased balances.~~2019. The Bank had outstanding ~~term debt~~borrowings consisting of advances from the FHLB of ~~$821.7 million~~$1.2 billion at ~~June 30, 2019,~~March 31, 2020, which increased ~~$69.9~~$290.0 million from December 31, ~~2018.~~2019 as the Company increased on balance sheet liquidity. The FHLB advances are secured by investment securities and loans secured by real estate. The FHLB advances have fixed interest rates ranging from ~~1.40%~~0.60% to 7.10% and mature in ~~2019~~2020 through 2030.

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Junior Subordinated Debentures

We had junior subordinated debentures with carrying values of ~~$365.6~~$284.0 million and ~~$389.6~~$363.3 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The decrease is due to the ~~change~~$78.9 million decrease in fair value for the junior subordinated debentures elected to be carried at fair value. The decline is due to mostly to an increase in the credit spread, in addition to the implied forward curve shifting lower. As of ~~June 30, 2019,~~March 31, 2020, 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 was adjusted to adopt an elevated on-balance sheet liquidity position to further enhance flexibility due to the increased market volatility and uncertainty as a result of the COVID-19 pandemic.

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 8% of total deposits at ~~June 30, 2019~~March 31, 2020 and 9% of total deposits at December 31, ~~2018~~.2019. The amount of collateral required varies by state and may also vary by institution within each state, depending on the individual state's risk assessment of depository institutions. Changes in the pledging requirements for uninsured public deposits may require pledging additional collateral to secure these deposits, drawing on other sources of funds to finance the purchase of assets that would be available to be pledged to satisfy a pledging requirement, or could lead to the withdrawal of certain public deposits from the Bank. In addition to liquidity from core deposits and the repayments and maturities of loans and investment securities, the Bank can utilize established uncommitted federal funds lines of credit, sell securities under agreements to repurchase, borrow on a secured basis from the FHLB or issue brokered certificates of deposit.

The Bank had available lines of credit with the FHLB totaling ~~$7.3~~$6.7 billion at ~~June 30, 2019,~~March 31, 2020, 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 ~~$637.3~~$569.7 million, subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at ~~June 30, 2019.~~March 31, 2020. 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 ~~$113.0~~$61.5 million of dividends paid by the Bank to the Company in the ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to the Company. We believe that such restrictions will not have an adverse impact on the ability of the Company to fund its quarterly cash dividend distributions to common shareholders and meet its ongoing cash obligations, which consist principally of debt service on the outstanding junior subordinated debentures.

As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash used in operating activities was ~~$117.8~~$118.7 million during the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, with the difference between cash used in operating activities and net ~~income~~loss consisting of goodwill impairment of $1.8 billion, originations of loans held for sale of ~~$1.2~~$1.1 billion, the net increase in other assets of ~~$115.0 million, gain on equity securities of $83.3~~$219.2 million, and gain on sale of loans of ~~$34.5~~$38.3 million, offset by proceeds from the sale of loans held for sale of ~~$1.0~~$1.2 billion, provision for loan and lease losses of $118.1 million, and a loss on fair value of residential mortgage servicing rights carried at fair value of ~~$38.6 million, provision for loan and lease losses of $33.0 million, and depreciation, amortization and accretion of $22.6~~$30.7 million. This compares to net cash ~~provided by~~used in operating activities of ~~$49.4~~$53.6 million during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, with the difference between cash provided by operating activities and net income ~~largely~~ consisting of originations of loans held for sale of ~~$1.5 billion,~~$487.1 million, the net increase in other assets of $57.0 million and net decrease in other liabilities of $28.9 million, offset by proceeds from the sale of loans held for sale of ~~$1.4 billion.~~$428.3 million.

Net cash of ~~$188.7~~$74.4 million used in investing activities during the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, consisted principally of ~~net loan originations of $619.3 million,~~ purchases of investment securities available for sale of ~~$322.4~~$140.4 million, ~~purchase~~net loan originations of $109.5 million, and purchases of restricted equity securities of $20.0 million, offset by proceeds from investment securities available for sale of $168.9 million, and proceeds from sales of loans of $22.0 million. This compares to net cash of $53.5 million provided by investing activities during the three months ended March 31, 2019, which consisted principally of redemption of restricted equity securities of $198.2 million and proceeds from investment securities available for sale of $119.4 million, offset by purchases of restricted equity securities of $205.4 million, and net cash paid inon divestiture of ~~stores~~a store of $44.6 million, offset by proceeds from investment securities available for sale of $662.5 million, redemption of restricted equity securities of $202.6 million, proceeds from sale of Visa Inc. Class B common stock of $81.9 million, and proceeds from sales of loans of $58.5 million. This compares to net cash of $550.2 million used in investing activities during the six months ended June 30, 2018, which consisted principally of net loan originations of $687.5 million, purchases of investment securities available for sale of $134.1 million and purchases of restricted equity securities of $45.6 million, offset by proceeds from investment securities available for sale of $227.9 million, redemption of restricted equity securities of $46.8 million and proceeds from the sale of loans and leases of $41.6 million.

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Net cash of ~~$717.6~~$488.1 million provided by financing activities during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020, primarily consisted of ~~$731.2~~proceeds from borrowings of $600.0 million and $218.0 million net increase in deposits, ~~proceeds from term debt borrowings of $330.7 million and a net increase in securities sold under agreements to repurchase of $10.9 million,~~ offset by ~~$260.7~~$310.0 million repayment of ~~term debt~~borrowings and ~~$92.6~~$46.2 million of dividends paid on common stock. This compares to net cash of ~~$669.6~~$280.2 million provided by financing activities during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, which consisted primarily of ~~$796.6~~proceeds from borrowings of $230.7 million and $155.9 million net increase in deposits, ~~and proceeds from term debt borrowings of~~offset by $50.0 million ~~offset by $83.7~~repayment of borrowings and $46.3 million of dividends paid on common stock, $50.7 million repayment of term debt, a net decrease in securities sold under agreements to repurchase of $20.6 million, $12.5 million in the repurchase and retirement of common stock and $10.6 million repayment on junior subordinated debentures.

stock.

Although we expect the Bank's and the Company's liquidity positions to remain satisfactory during ~~2019~~,2020, it is possible that our deposit growth for ~~2019~~2020 may not be maintained at previous levels due to pricing pressure or store consolidations. In addition, in order to generate deposit growth, our pricing may need to be adjusted in a manner that results in increased interest expense on deposits.

Off-balance-Sheet Arrangements

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

Concentrations of Credit Risk

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

Capital Resources

Shareholders' equity at ~~June 30, 2019~~March 31, 2020 was ~~$4.2~~$2.5 billion, ~~an increase~~a decrease of ~~$172.1 million~~$1.8 billion from December 31, ~~2018.~~2019. The ~~increase~~decrease in shareholders' equity during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was principally due to the net ~~income and other comprehensive income for~~loss during the ~~period, offset by declared common dividends.~~quarter, related mainly to the goodwill impairment during the quarter.

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. 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 ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~ 2019:

~~Cash Dividends and Payout Ratios per Common Share~~


	Three Months Ended
	March 31, 2020			March 31, 2019
Dividend declared per common share	$	0.21		$	0.21
Dividend payout ratio	(2)		%	62		%

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Dividend declared per common share $ 0.21
$ 0.20
$ 0.42
$ 0.40
Dividend payout ratio 41 % 67 % 50 % 61 %

As of ~~June 30, 2019,~~March 31, 2020, a total of ~~10.2~~9.5 million shares are available for repurchase under the Company's current share repurchase plan. During the ~~six~~three months ended ~~June 30, 2019, no~~March 31, 2020, 331,000 shares were repurchased under this plan. The Board of Directors approved an extension of the repurchase plan to July 31, 2021. The timing and amount of future repurchases will depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, and our capital plan. In addition, our stock plans provide that option and award holders may pay for the exercise price and tax withholdings in part or ~~whole~~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 Committee on Banking Supervision to the Basel capital framework ("Basel III") at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~: 2019:


														Actual						For Capital Adequacy purposes						To be Well Capitalized
(dollars in thousands)	Actual				For Capital Adequacy purposes				To be Well Capitalized				(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2019
March 31, 2020													March 31, 2020
Total Capital													Total Capital
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	3,019,856	13.72	%	$	1,760,936	8.00	%	$	2,201,169	10.00	%	Consolidated	$	3,069,321	13.72	%	$	1,789,571	8.00	%	$	2,236,964	10.00	%
Umpqua Bank	$	2,859,453	13.01	%	$	1,758,676	8.00	%	$	2,198,346	10.00	%	Umpqua Bank	$	2,906,354	13.01	%	$	1,787,497	8.00	%	$	2,234,371	10.00	%
Tier I Capital													Tier I Capital
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	2,412,930	10.96	%	$	1,320,702	6.00	%	$	1,760,936	8.00	%	Consolidated	$	2,382,879	10.65	%	$	1,342,178	6.00	%	$	1,789,571	8.00	%
Umpqua Bank	$	2,703,566	12.30	%	$	1,319,007	6.00	%	$	1,758,676	8.00	%	Umpqua Bank	$	2,671,903	11.96	%	$	1,340,623	6.00	%	$	1,787,497	8.00	%
Tier I Common													Tier I Common
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	2,412,930	10.96	%	$	990,526	4.50	%	$	1,430,760	6.50	%	Consolidated	$	2,382,879	10.65	%	$	1,006,634	4.50	%	$	1,454,026	6.50	%
Umpqua Bank	$	2,703,566	12.30	%	$	989,255	4.50	%	$	1,428,925	6.50	%	Umpqua Bank	$	2,671,903	11.96	%	$	1,005,467	4.50	%	$	1,452,341	6.50	%
Tier I Capital													Tier I Capital
(to Average Assets)													(to Average Assets)
Consolidated	$	2,412,930	9.31	%	$	1,036,514	4.00	%	$	1,295,642	5.00	%	Consolidated	$	2,382,879	8.25	%	$	1,155,518	4.00	%	$	1,444,397	5.00	%
Umpqua Bank	$	2,703,566	10.44	%	$	1,035,739	4.00	%	$	1,294,674	5.00	%	Umpqua Bank	$	2,671,903	9.25	%	$	1,155,379	4.00	%	$	1,444,224	5.00	%
December 31, 2018
December 31, 2019													December 31, 2019
Total Capital													Total Capital
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	2,916,143	13.51	%	$	1,727,280	8.00	%	$	2,159,100	10.00	%	Consolidated	$	3,104,444	13.96	%	$	1,779,265	8.00	%	$	2,224,081	10.00	%
Umpqua Bank	$	2,765,748	12.83	%	$	1,724,757	8.00	%	$	2,155,946	10.00	%	Umpqua Bank	$	2,945,830	13.26	%	$	1,777,265	8.00	%	$	2,221,581	10.00	%
Tier I Capital													Tier I Capital
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	2,315,750	10.73	%	$	1,295,460	6.00	%	$	1,727,280	8.00	%	Consolidated	$	2,490,709	11.20	%	$	1,334,449	6.00	%	$	1,779,265	8.00	%
Umpqua Bank	$	2,616,456	12.14	%	$	1,293,568	6.00	%	$	1,724,757	8.00	%	Umpqua Bank	$	2,783,095	12.53	%	$	1,332,949	6.00	%	$	1,777,265	8.00	%
Tier I Common													Tier I Common
(to Risk Weighted Assets)													(to Risk Weighted Assets)
Consolidated	$	2,315,750	10.73	%	$	971,595	4.50	%	$	1,403,415	6.50	%	Consolidated	$	2,490,709	11.20	%	$	1,000,837	4.50	%	$	1,445,653	6.50	%
Umpqua Bank	$	2,616,456	12.14	%	$	970,176	4.50	%	$	1,401,365	6.50	%	Umpqua Bank	$	2,783,095	12.53	%	$	999,712	4.50	%	$	1,444,028	6.50	%
Tier I Capital													Tier I Capital
(to Average Assets)													(to Average Assets)
Consolidated	$	2,315,750	9.31	%	$	994,905	4.00	%	$	1,243,631	5.00	%	Consolidated	$	2,490,709	9.16	%	$	1,087,509	4.00	%	$	1,359,387	5.00	%
Umpqua Bank	$	2,616,456	10.53	%	$	994,268	4.00	%	$	1,242,835	5.00	%	Umpqua Bank	$	2,783,095	10.24	%	$	1,086,999	4.00	%	$	1,358,749	5.00	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Simulation Impact on Net Interest Income


	March 31, 2020		December 31, 2019		December 31, 2018
Up 300 basis points	7.4	%	5.9	%	4.9	%
Up 200 basis points	4.8	%	4.1	%	3.3	%
Up 100 basis points	2.2	%	2.2	%	1.7	%
Down 100 basis points	(2.0)	%	(3.8)	%	(2.8)	%
Down 200 basis points	(2.5)	%	(7.4)	%	(6.3)	%
Down 300 basis points	(2.7)	%	(9.4)	%	(9.5)	%

Item 4. Controls and Procedures

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

We have adopted new accounting guidance, specifically CECL, to account for our credit losses that may be more volatile and may adversely impact our financial statements when forecasted market conditions change.

In January 2020, the Company adopted the FASB accounting standard update, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the previous "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as CECL. Under CECL, we will be required to present certain financial assets carried at amortized cost, such as loans and leases held for investment, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model, which delays recognition until it is probable a loss has been incurred. CECL may create more volatility in the level of our allowance for credit losses.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)The following table provides information about repurchases of common stock by the Company during the quarter ended ~~June 30, 2019~~:March 31, 2020:

(1)Common shares repurchased by the Company during the quarter consist of cancellation of 155,757 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended March 31, 2020, 331,000 shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

(2)The Company's share repurchase plan, which was first approved by its Board of Directors and announced in August 2003, was amended on September 29, 2011 to increase the number of common shares available for repurchase under the plan to 15 million shares. The repurchase program has been extended multiple times by the board with the current expiration date of July 31, 2021. As of March 31, 2020, a total of 9.5 million shares remained available for repurchase. The timing and amount of future repurchases will depend upon the market price for our common stock, laws and regulations restricting repurchases, asset growth, earnings, and our capital plan.

Item 3. Defaults upon Senior Securities

Item 4. Mine Safety Disclosures

Item 5. Other Information


Exhibit #		Description

~~Exhibit #~~		~~Description~~

3.1	(a) Restated Articles of Incorporation, as amended

3.2		(b) Bylaws, as amended

4.1		(c) Specimen Common Stock Certificate

4.2		The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.

10.1*31.1		~~Form Amendment to executive officer Employment Agreements with Ron Farnsworth, David Shotwell, Neal McLaughlin and Andrew Ognall dated effective July 18, 2019 (filed herewith)~~

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

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

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

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

101.INS		Inline XBRL Instance Document - – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019,~~March 31, 2020, formatted in Inline XBRL (included in Exhibit 101)

~~Neal T. McLaughlin~~Lisa M. White



Oregon			93-1261319
(State or Other Jurisdiction			(I.R.S. Employer Identification Number)
of Incorporation or Organization)



TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EXCHANGE
Common Stock	UMPQ	The NASDAQ Global Select Market


UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)	UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)						UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
								Three Months Ended
(in thousands)	Six Months Ended						(in thousands)	March 31, 2020		March 31, 2019
	June 30, 2019			June 30, 2018
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	731,192		$	796,618		Net increase in deposit liabilities	$	217,973	$	155,937
Net increase (decrease) in securities sold under agreements to repurchase	10,901			(20,633		)	Net increase (decrease) in securities sold under agreements to repurchase	34,937		(8,207)
Proceeds from term debt borrowings	330,670			50,000
Repayment of term debt borrowings	(260,670		)	(50,652		)
Repayment of junior subordinated debentures at amortized cost	—			(10,598		)
Proceeds from borrowings							Proceeds from borrowings	600,000		230,670
Repayment of borrowings							Repayment of borrowings	(310,000)		(50,000)

Dividends paid on common stock	(92,551		)	(83,650		)	Dividends paid on common stock	(46,248)		(46,254)
Proceeds from stock options exercised	21			1,016			Proceeds from stock options exercised	—		21
Repurchase and retirement of common stock	(1,980		)	(12,507		)	Repurchase and retirement of common stock	(8,573)		(1,918)
Net cash provided by financing activities	717,583			669,594			Net cash provided by financing activities	488,089		280,249
Net increase in cash and cash equivalents	411,154			168,732			Net increase in cash and cash equivalents	294,960		280,171
Cash and cash equivalents, beginning of period	622,637			634,280			Cash and cash equivalents, beginning of period	1,362,756		622,637
Cash and cash equivalents, end of period	$	1,033,791		$	803,012		Cash and cash equivalents, end of period	$	1,657,716	$	902,808

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:							SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:							Cash paid during the period for:
Interest	$	96,766		$	51,048		Interest	$	53,213	$	44,026
Income taxes	$	58,827		$	38,029		Income taxes	$	38,732	$	34,383
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:							SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gains on investment securities available for sale, net of taxes	$	60,326		$	(34,428	)
Change in unrealized gains on junior subordinated debentures carried at fair value, net of taxes	$	17,701		$	(2,380	)
Junior subordinated debentures, at fair value, cumulative effect adjustment	$	—		$	9,710
Changes in unrealized gains and losses on investment securities available for sale, net of taxes							Changes in unrealized gains and losses on investment securities available for sale, net of taxes	$	80,143	$	24,712

Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes							Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes	$	58,579	$	4,920
Cumulative effect adjustment to retained earnings							Cumulative effect adjustment to retained earnings	$	40,181	$	244
Cash dividend declared on common stock and payable after period-end	$	46,305		$	44,012		Cash dividend declared on common stock and payable after period-end	$	46,237	$	46,297
Transfer of loans to loans held for sale							Transfer of loans to loans held for sale	$	10,234	$	—
Change in GNMA mortgage loans recognized due to repurchase option	$	(3,470	)	$	(3,223	)	Change in GNMA mortgage loans recognized due to repurchase option	$	992	$	(8,760)
Transfer of loans to other real estate owned	$	948		$	1,866



PART I. FINANCIAL INFORMATION			3
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4441
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6560
Item 4.	Controls and Procedures	6661
Part II. OTHER INFORMATION			6661
Item 1.	Legal Proceedings	6661
Item 1A.	Risk Factors	6661
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6662
Item 3.	Defaults Upon Senior Securities	6763
Item 4.	Mine Safety Disclosures	6763
Item 5.	Other Information	6763
Item 6.	Exhibits	6764

SIGNATURES			6865


	Common Stock					Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)
(in thousands, except shares)	Shares	Amount								Total
Balance at January 1, 2019	220,255,039	$	3,512,874	$	602,482	$	(58,914)	$	4,056,442
Net income				74,033				74,033
Other comprehensive income, net of tax						29,632		29,632
Stock-based compensation		754						754
Stock repurchased and retired	(108,088)	(1,918)						(1,918)
Issuances of common stock under stock plans	310,257	21						21
Cash dividends on common stock ($0.21 per share)				(46,394)				(46,394)
Cumulative effect adjustment (1)				(244)				(244)
Balance at March 31, 2019	220,457,208	$	3,511,731	$	629,877	$	(29,282)	$	4,112,326
Net income				111,810				111,810
Other comprehensive income, net of tax						48,395		48,395
Stock-based compensation		2,722						2,722
Stock repurchased and retired	(4,113)	(62)						(62)
Issuances of common stock under stock plans	45,589	—						—
Cash dividends on common stock ($0.21 per share)				(46,684)				(46,684)
Balance at June 30, 2019	220,498,684	$	3,514,391	$	695,003	$	19,113	$	4,228,507
Net income				84,502				84,502
Other comprehensive income, net of tax						25,851		25,851
Stock-based compensation		2,350						2,350
Stock repurchased and retired	(300,719)	(5,248)						(5,248)
Issuances of common stock under stock plans	14,169	—						—
Cash dividends on common stock ($0.21 per share)				(46,446)				(46,446)
Balance at September 30, 2019	220,212,134	$	3,511,493	$	733,059	$	44,964	$	4,289,516
Net income				83,750				83,750
Other comprehensive loss, net of tax						(15,415)		(15,415)
Stock-based compensation		2,547						2,547
Stock repurchased and retired	(2,483)	(40)						(40)
Issuances of common stock under stock plans	19,631	—						—
Cash dividends on common stock ($0.21 per share)				(46,443)				(46,443)
Balance at December 31, 2019	220,229,282	$	3,514,000	$	770,366	$	29,549	$	4,313,915



(in thousands)
Year	Amount
2019	$	82,148
2020	142,684
2021	111,239
2022	67,966
2023	32,423
Thereafter	34,632
	$	471,092



(in thousands)	Total
Unfunded loan and lease commitments:
June 30, 2019	$	5,587,294
June 30, 2018	$	5,077,579



(in thousands)	June 30, 2019
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Related Allowance
Commercial real estate
Non-owner occupied term, net	$	15,570	$	8,941	$	3,681	$	89
Owner occupied term, net	7,394		5,238		847		78
Commercial
Term, net	12,245		5,440		46		2
Lines of credit & other, net	1,057		923		—		—
Leases & equipment finance, net	2,227		385		1,842		1
Total, net of deferred fees and costs	$	38,493	$	20,927	$	6,416	$	170



(in thousands)	June 30, 2019
	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Impaired ⁽¹⁾		Total
Commercial real estate
Non-owner occupied term, net	$	3,455,860	$	51,231	$	17,143	$	228	$	—	$	12,622	$	3,537,084
Owner occupied term, net	2,314,355		59,795		15,863		576		—		6,085		2,396,674
Multifamily, net	3,331,275		6,838		3,434		—		—		—		3,341,547
Construction & development, net	731,015		1,917		—		—		—		—		732,932
Residential development, net	199,421		—		—		—		—		—		199,421
Commercial
Term, net	2,222,485		34,191		7,926		1,090		168		5,486		2,271,346
Lines of credit & other, net	1,202,892		62,605		13,762		405		—		923		1,280,587
Leases & equipment finance, net	1,415,475		6,813		8,835		14,280		1,949		2,227		1,449,579
Residential
Mortgage, net ⁽²⁾	3,950,673		7,840		36,846		—		284		—		3,995,643
Home equity loans & lines, net	1,210,910		1,981		1,565		—		759		—		1,215,215
Consumer & other, net	529,561		3,324		424		—		34		—		533,343
Total, net of deferred fees and costs	$	20,563,922	$	236,535	$	105,798	$	16,579	$	3,194	$	27,343	$	20,953,371



(in thousands)	Three Months Ended June 30, 2019
	Rate Modifications		Term Modifications		Interest Only Modifications		Payment Modifications		Combination Modifications		Total Modifications
Residential, net	$	—	$	—	$	—	$	—	$	7	$	7
Total, net of deferred fees and costs	$	—	$	—	$	—	$	—	$	7	$	7



(in thousands)	As of June 30, 2019
Commitments to extend credit	$	5,523,351
Forward sales commitments	$	553,648
Commitments to originate residential mortgage loans held for sale	$	292,216
Standby letters of credit	$	63,943



(in thousands)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets/Liabilities presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments			Collateral Posted		Net Amount
June 30, 2019
Derivative Assets
Interest rate swaps	$	138,826	$	—	$	138,826	$	(5,529	)	$	—	$	133,297
Foreign currency derivatives	802		—		802		—			—		802
Derivative Liabilities
Interest rate swaps	$	5,529	$	—	$	5,529	$	(5,529	)	$	—	$	—
Foreign currency derivatives	605		—		605		—			—		605

December 31, 2018
Derivative Assets
Interest rate swaps	$	42,276	$	—	$	42,276	$	(12,746	)	$	—	$	29,530
Foreign currency derivatives	450		—		450		—			—		450
Derivative Liabilities
Interest rate swaps	$	12,746	$	—	$	12,746	$	(12,746	)	$	—	$	—
Foreign currency derivatives	273		—		273		—			—		273



(in thousands)	Three Months Ended June 30, 2018
	Wholesale Bank		Wealth Management		Retail Bank		Home Lending		Corporate & Other			Consolidated
Net interest income	$	112,249	$	5,536	$	80,998	$	10,128	$	15,989		$	224,900
Provision for loan and lease losses	11,276		182		594		208		1,059			13,319
Non-interest income	15,628		4,850		15,993		33,278		1,902			71,651
Non-interest expense	55,606		9,571		70,860		35,032		24,503			195,572
Income (loss) before income taxes	60,995		633		25,537		8,166		(7,671		)	87,660
Provision (benefit) for income taxes	15,249		158		6,385		2,041		(2,172		)	21,661
Net income (loss)	$	45,746	$	475	$	19,152	$	6,125	$	(5,499	)	$	65,999

(in thousands)	Six Months Ended June 30, 2018
	Wholesale Bank		Wealth Management		Retail Bank		Home Lending		Corporate & Other			Consolidated
Net interest income	$	223,984	$	11,539	$	160,850	$	18,973	$	34,535		$	449,881
Provision for loan and lease losses	24,644		349		955		700		327			26,975
Non-interest income	31,357		9,746		31,186		71,686		6,243			150,218
Non-interest expense	110,180		18,339		142,003		67,329		43,834			381,685
Income (loss) before income taxes	120,517		2,597		49,078		22,630		(3,383		)	191,439
Provision (benefit) for income taxes	30,129		649		12,270		5,657		(2,237		)	46,468
Net income (loss)	$	90,388	$	1,948	$	36,808	$	16,973	$	(1,146	)	$	144,971



(in thousands)
Three Months Ended June 30,	Beginning Balance		Change included in earnings			Change in fair values included in comprehensive income/loss			Purchases and issuances		Sales and settlements			Ending Balance		Net change in unrealized gains or (losses) relating to items held at end of period
2019
Residential mortgage servicing rights	$	158,946	$	(24,658	)	$	—		$	5,492	$	—		$	139,780	$	(17,753	)
Interest rate lock commitments, net	8,174		1,302			—			6,892		(8,219		)	8,149		8,149
Junior subordinated debentures, at fair value	294,121		4,685			(17,240		)	—		(4,538		)	277,028		(12,555		)

2018
Residential mortgage servicing rights	$	164,760	$	(5,403	)	$	—		$	6,860	$	—		$	166,217	$	500
Interest rate lock commitments, net	5,874		249			—			8,099		(7,440		)	6,782		6,782
Junior subordinated debentures, at fair value	278,410		4,283			1,513			—		(3,537		)	280,669		5,796



(in thousands)
Six Months Ended June 30,	Beginning Balance		Change included in earnings			Change in fair values included in comprehensive income/loss			Purchases and issuances		Sales and settlements			Ending Balance		Net change in unrealized gains or (losses) relating to items held at end of period
2019
Residential mortgage servicing rights	$	169,025	$	(38,624	)	$	—		$	9,379	$	—		$	139,780	$	(25,288	)
Interest rate lock commitment, net	6,757		2,999			—			12,291		(13,898		)	8,149		8,149
Junior subordinated debentures, at fair value	300,870		9,457			(23,804		)	—		(9,495		)	277,028		(14,347		)

2018
Residential mortgage servicing rights	$	153,151	$	(324	)	$	—		$	13,390	$	—		$	166,217	$	11,777
Interest rate lock commitment, net	4,752		(1,004		)	—			14,532		(11,498		)	6,782		6,782
Junior subordinated debentures, at fair value	277,155		8,058			3,196			—		(7,740		)	280,669		11,254



(in thousands)
Leases	June 30, 2019
Operating lease right-of-use assets	$	112,752
Operating lease liabilities	$	121,742



(in thousands)	Six Months Ended
Cash Flows	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	16,497
Right of use assets obtained in exchange for new operating lease liabilities	$	11,869



(in thousands)
Year	Operating Leases
Remainder of 2019	$	16,429
2020	28,842
2021	23,152
2022	17,969
2023	14,025
Thereafter	37,420
Total lease payments	137,837
Less: imputed interest	(16,095		)
Present value of lease liabilities	$	121,742



(in thousands)
Year	Leases Payments		Subleases Income
2019	$	33,948	$	2,851
2020	29,535		2,711
2021	23,898		2,333
2022	18,250		1,718
2023	14,100		1,337
Thereafter	37,963		3,477
Total	$	157,694	$	14,427



(in thousands)	Three Months Ended June 30,
	2019 compared to 2018
	Increase (decrease) in interest income and expense due to changes in
	Volume			Rate			Total
INTEREST-EARNING ASSETS:
Loans held for sale	$	(775	)	$	134		$	(641	)
Loans and leases	14,933			7,695			22,628
Taxable securities	(132		)	2,061			1,929
Non-taxable securities⁽¹⁾	(67		)	(147		)	(214		)
Temporary investments and interest bearing cash	1,807			821			2,628
Total⁽¹⁾	15,766			10,564			26,330
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits	7			1,226			1,233
Money market deposits	410			9,045			9,455
Savings deposits	—			158			158
Time deposits	3,907			7,579			11,486
Repurchase agreements	(33		)	281			248
Term debt	471			614			1,085
Junior subordinated debentures	223			258			481
Total	4,985			19,161			24,146
Net increase in net interest income ⁽¹⁾	$	10,781		$	(8,597	)	$	2,184



Period		Total number of Common Shares Purchased (1)	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (2)	Maximum Number of Remaining Shares that May be Purchased at Period End under the Plan
4/1/19 - 4/30/19		1,797	$	17.33	—	10,155,429
5/1/19 - 5/31/19	��	1,849	$	16.65	—	10,155,429
6/1/19 - 6/30/19		—	$	—	—	10,155,429
Total for quarter		3,646	$	16.98	—


~~(1)~~	Common shares repurchased by the Company during the quarter consist of cancellation of 3,646 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended June 30, 2019, no shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.


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


~~(b)~~	~~Incorporated by reference to Exhibit 3.2 to Form 8-K filed April 21, 2017~~


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


				UMPQUA HOLDINGS CORPORATION
				(Registrant)

Dated				~~UMPQUA HOLDINGS CORPORATION~~
		~~(Registrant)~~

~~Dated~~	~~August 6, 2019~~May 7, 2020	/s/ Cort L. O'Haver
				Cort L. O'Haver President and Chief Executive Officer

Dated			~~August 6, 2019~~May 7, 2020	/s/ Ronald L. Farnsworth
				Ronald L. Farnsworth Executive Vice President/Chief Financial Officer and Principal Financial Officer

Dated			~~August 6, 2019~~May 7, 2020	/s/ ~~Neal T. McLaughlin~~Lisa M. White
				~~Neal T. McLaughlin~~Lisa M. White ~~Executive~~Senior Vice President/~~Treasurer~~Corporate Controller and Principal Accounting Officer