NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
The accounting and financial reporting policies of Umpqua Holdings Corporation conform to accounting principles generally accepted in the United States of America. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of our accounting policies is included in the
2016
Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the
2016
Annual Report filed on Form 10-K. All references in this report to "Umpqua," "we," "our," "us," the "Company" or similar references mean Umpqua Holdings Corporation, and include our consolidated subsidiaries where the context so requires. References to "Bank" refer to our subsidiary Umpqua Bank, an Oregon state-chartered commercial bank, and references to "Umpqua Investments" refer to our subsidiary Umpqua Investments, Inc., a registered broker-dealer and investment adviser. The Bank also has a wholly-owned subsidiary, Financial Pacific Leasing Inc., a commercial equipment leasing company. Pivotus Ventures, Inc., a wholly-owned subsidiary of Umpqua Holdings Corporation, focuses on advancing bank innovation by developing new bank platforms that could have a significant impact on the experience and economics of banking.
In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to
September 30, 2017
for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period. Certain reclassifications of prior period amounts have been made to conform to current classifications.
Note 2
– Investment Securities
The following tables present the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
AVAILABLE FOR SALE:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
$
|
40,026
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40,026
|
|
Obligations of states and political subdivisions
|
291,908
|
|
|
6,775
|
|
|
(889
|
)
|
|
297,794
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
2,725,745
|
|
|
5,499
|
|
|
(23,689
|
)
|
|
2,707,555
|
|
Investments in mutual funds and other equity securities
|
1,959
|
|
|
24
|
|
|
—
|
|
|
1,983
|
|
|
$
|
3,059,638
|
|
|
$
|
12,298
|
|
|
$
|
(24,578
|
)
|
|
$
|
3,047,358
|
|
HELD TO MATURITY:
|
|
|
|
|
|
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
$
|
3,905
|
|
|
$
|
1,114
|
|
|
$
|
—
|
|
|
$
|
5,019
|
|
|
$
|
3,905
|
|
|
$
|
1,114
|
|
|
$
|
—
|
|
|
$
|
5,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
AVAILABLE FOR SALE:
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
305,708
|
|
|
$
|
5,526
|
|
|
$
|
(3,537
|
)
|
|
$
|
307,697
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
2,428,387
|
|
|
3,664
|
|
|
(40,498
|
)
|
|
2,391,553
|
|
Investments in mutual funds and other equity securities
|
1,959
|
|
|
11
|
|
|
—
|
|
|
1,970
|
|
|
$
|
2,736,054
|
|
|
$
|
9,201
|
|
|
$
|
(44,035
|
)
|
|
$
|
2,701,220
|
|
HELD TO MATURITY:
|
|
|
|
|
|
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
$
|
4,216
|
|
|
$
|
1,001
|
|
|
$
|
—
|
|
|
$
|
5,217
|
|
|
$
|
4,216
|
|
|
$
|
1,001
|
|
|
$
|
—
|
|
|
$
|
5,217
|
|
Investment securities that were in an unrealized loss position as of
September 30, 2017
and
December 31, 2016
are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
AVAILABLE FOR SALE:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
13,108
|
|
|
$
|
147
|
|
|
$
|
25,256
|
|
|
$
|
742
|
|
|
$
|
38,364
|
|
|
$
|
889
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,169,351
|
|
|
10,792
|
|
|
667,296
|
|
|
12,897
|
|
|
1,836,647
|
|
|
23,689
|
|
Total temporarily impaired securities
|
$
|
1,182,459
|
|
|
$
|
10,939
|
|
|
$
|
692,552
|
|
|
$
|
13,639
|
|
|
$
|
1,875,011
|
|
|
$
|
24,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
AVAILABLE FOR SALE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
71,571
|
|
|
$
|
3,065
|
|
|
$
|
1,828
|
|
|
$
|
472
|
|
|
$
|
73,399
|
|
|
$
|
3,537
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
1,855,304
|
|
|
35,981
|
|
|
182,804
|
|
|
4,517
|
|
|
2,038,108
|
|
|
40,498
|
|
Total temporarily impaired securities
|
$
|
1,926,875
|
|
|
$
|
39,046
|
|
|
$
|
184,632
|
|
|
$
|
4,989
|
|
|
$
|
2,111,507
|
|
|
$
|
44,035
|
|
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. Management monitors the published credit ratings of these securities for material rating or outlook changes. As of
September 30, 2017
,
95%
of these securities were rated A3/A- or higher by rating agencies. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at
September 30, 2017
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.
Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities and it is not more likely than not that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, these investments are not considered other-than-temporarily impaired.
The following table presents the maturities of investment securities at
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Available For Sale
|
|
Held To Maturity
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
AMOUNTS MATURING IN:
|
|
|
|
|
|
|
|
Due within one year
|
$
|
1,786
|
|
|
$
|
1,791
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
101,898
|
|
|
102,915
|
|
|
—
|
|
|
—
|
|
Due after five years through ten years
|
416,627
|
|
|
419,502
|
|
|
18
|
|
|
19
|
|
Due after ten years
|
2,537,368
|
|
|
2,521,167
|
|
|
3,887
|
|
|
5,000
|
|
Other investment securities
|
1,959
|
|
|
1,983
|
|
|
—
|
|
|
—
|
|
|
$
|
3,059,638
|
|
|
$
|
3,047,358
|
|
|
$
|
3,905
|
|
|
$
|
5,019
|
|
The following tables present the gross realized gains and losses on the sale of securities available for sale for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Gains
|
|
Losses
|
|
Gains
|
|
Losses
|
Obligations of states and political subdivisions
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Gains
|
|
Losses
|
|
Gains
|
|
Losses
|
Obligations of states and political subdivisions
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
971
|
|
|
$
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
135
|
|
|
99
|
|
|
270
|
|
|
383
|
|
|
$
|
135
|
|
|
$
|
108
|
|
|
$
|
1,241
|
|
|
$
|
383
|
|
The following table presents, as of
September 30, 2017
, investment securities which were pledged to secure borrowings, public deposits, and repurchase agreements as permitted or required by law:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Amortized
|
|
Fair
|
|
Cost
|
|
Value
|
To the Federal Home Loan Bank to secure borrowings
|
$
|
458
|
|
|
$
|
467
|
|
To state and local governments to secure public deposits
|
926,917
|
|
|
927,182
|
|
Other securities pledged principally to secure repurchase agreements
|
426,540
|
|
|
423,854
|
|
Total pledged securities
|
$
|
1,353,915
|
|
|
$
|
1,351,503
|
|
Note 3
– Loans and Leases
The following table presents the major types of loans and leases, net of deferred fees and costs, as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
Commercial real estate
|
|
|
|
Non-owner occupied term, net
|
$
|
3,475,243
|
|
|
$
|
3,330,442
|
|
Owner occupied term, net
|
2,467,995
|
|
|
2,599,055
|
|
Multifamily, net
|
2,993,203
|
|
|
2,858,956
|
|
Construction & development, net
|
521,666
|
|
|
463,625
|
|
Residential development, net
|
186,400
|
|
|
142,984
|
|
Commercial
|
|
|
|
Term, net
|
1,819,664
|
|
|
1,508,780
|
|
LOC & other, net
|
1,134,045
|
|
|
1,116,259
|
|
Leases and equipment finance, net
|
1,137,732
|
|
|
950,588
|
|
Residential
|
|
|
|
Mortgage, net
|
3,094,361
|
|
|
2,887,971
|
|
Home equity loans & lines, net
|
1,079,931
|
|
|
1,011,844
|
|
Consumer & other, net
|
767,522
|
|
|
638,159
|
|
Total loans and leases, net of deferred fees and costs
|
$
|
18,677,762
|
|
|
$
|
17,508,663
|
|
The loan balances are net of deferred fees and costs of
$74.5 million
and
$67.7 million
as of
September 30, 2017
and
December 31, 2016
, respectively. Net loans also include discounts on acquired loans of
$13.1 million
and
$41.3 million
as of
September 30, 2017
and
December 31, 2016
, respectively. As of
September 30, 2017
, loans totaling
$10.7 billion
were pledged to secure borrowings and available lines of credit.
The outstanding contractual unpaid principal balance of purchased impaired loans, excluding acquisition accounting adjustments, was
$276.5 million
and
$368.2 million
at
September 30, 2017
and
December 31, 2016
, respectively. The carrying balance of purchased impaired loans was
$206.6 million
and
$280.4 million
at
September 30, 2017
and
December 31, 2016
, respectively.
The following tables present the changes in the accretable yield for purchased impaired loans for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance, beginning of period
|
$
|
82,306
|
|
|
$
|
111,379
|
|
|
$
|
95,579
|
|
|
$
|
132,829
|
|
Accretion to interest income
|
(10,774
|
)
|
|
(11,042
|
)
|
|
(28,905
|
)
|
|
(35,217
|
)
|
Disposals
|
(2,721
|
)
|
|
(4,209
|
)
|
|
(10,270
|
)
|
|
(15,470
|
)
|
Reclassifications from non-accretable difference
|
6,189
|
|
|
4,931
|
|
|
18,596
|
|
|
18,917
|
|
Balance, end of period
|
$
|
75,000
|
|
|
$
|
101,059
|
|
|
$
|
75,000
|
|
|
$
|
101,059
|
|
Loans and leases sold
In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Commercial real estate
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
3,596
|
|
|
$
|
1,340
|
|
|
$
|
7,519
|
|
|
$
|
18,614
|
|
Owner occupied term, net
|
10,936
|
|
|
10,380
|
|
|
38,158
|
|
|
28,283
|
|
Multifamily, net
|
—
|
|
|
49
|
|
|
—
|
|
|
129,879
|
|
Commercial
|
|
|
|
|
|
|
|
Term, net
|
5,932
|
|
|
1,809
|
|
|
12,449
|
|
|
4,729
|
|
LOC & other, net
|
187
|
|
|
—
|
|
|
187
|
|
|
—
|
|
Leases and equipment finance, net
|
19,199
|
|
|
—
|
|
|
46,312
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
Mortgage, net
|
72,493
|
|
|
103,465
|
|
|
101,286
|
|
|
239,196
|
|
Total
|
$
|
112,343
|
|
|
$
|
117,043
|
|
|
$
|
205,911
|
|
|
$
|
420,701
|
|
Note 4
– Allowance for Loan and Lease Loss and Credit Quality
The Bank's methodology for assessing the appropriateness 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 the loan and lease portfolios are simultaneously considered.
Formula Allowance
When loans and leases are originated or acquired, they are assigned a risk rating that is reassessed periodically during the term of the loan or lease through 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 a primary factor in determining an appropriate amount for the formula allowance.
The formula allowance is calculated by applying risk factors to various segments of pools of outstanding loans and leases. Risk factors are assigned to each portfolio segment based on management's evaluation of the losses inherent within each segment. Segments with greater risk of loss will therefore be assigned a higher risk factor.
Base risk
–
The portfolio is segmented into loan categories, and these categories are assigned a Base risk factor based on an evaluation of the loss inherent within each segment.
Extra risk – Additional risk factors provide for an additional allocation of ALLL based on the loan and lease risk rating system and loan delinquency, and reflect the increased level of inherent losses associated with more adversely classified loans and leases.
Risk factors may be changed periodically based on management's evaluation of the following factors: loss experience; changes in the level of non-performing loans and leases; regulatory exam results; changes in the level of adversely classified loans and leases; improvement or deterioration in economic conditions; and any other factors deemed relevant. Additionally, Financial Pacific Leasing Inc. considers the additional quantitative and qualitative factors: migration analysis; a static pool analysis of historic recoveries; and forecasting uncertainties. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency states and ultimately be charged off.
Specific Allowance
Regular credit reviews of the portfolio identify loans that are considered potentially impaired. Potentially impaired loans are referred to the ALLL Committee which reviews and approves designated loans as impaired. A loan is considered impaired when, based on current information and events, we determine that we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments. When we identify a loan as impaired, we measure the impairment using discounted cash flows or estimated note sale price, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we either recognize an impairment reserve as a specific allowance to be provided for in the allowance for loan and lease losses or charge-off 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.
The combination of the formula allowance component and the specific allowance component represents the allocated allowance for loan and lease losses. There is currently no unallocated allowance.
Management believes that the ALLL was adequate as of
September 30, 2017
. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses.
The reserve for unfunded commitments ("RUC") 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 ALLL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors. These factors include the 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.
There have been no significant changes to the Bank's ALLL methodology or policies in the periods presented.
Activity in the Allowance for Loan and Lease Losses
The following tables summarize activity related to the allowance for loan and lease losses by loan and lease portfolio segment for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended September 30, 2017
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Balance, beginning of period
|
$
|
47,414
|
|
|
$
|
60,057
|
|
|
$
|
18,051
|
|
|
$
|
11,345
|
|
|
$
|
136,867
|
|
Charge-offs
|
(503
|
)
|
|
(10,504
|
)
|
|
(128
|
)
|
|
(2,087
|
)
|
|
(13,222
|
)
|
Recoveries
|
676
|
|
|
2,121
|
|
|
287
|
|
|
777
|
|
|
3,861
|
|
(Recapture) provision
|
(696
|
)
|
|
9,900
|
|
|
755
|
|
|
2,038
|
|
|
11,997
|
|
Balance, end of period
|
$
|
46,891
|
|
|
$
|
61,574
|
|
|
$
|
18,965
|
|
|
$
|
12,073
|
|
|
$
|
139,503
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Balance, beginning of period
|
$
|
50,584
|
|
|
$
|
52,355
|
|
|
$
|
20,146
|
|
|
$
|
7,957
|
|
|
$
|
131,042
|
|
Charge-offs
|
(1,071
|
)
|
|
(8,975
|
)
|
|
(915
|
)
|
|
(2,127
|
)
|
|
(13,088
|
)
|
Recoveries
|
628
|
|
|
1,186
|
|
|
137
|
|
|
696
|
|
|
2,647
|
|
(Recapture) provision
|
(2,839
|
)
|
|
12,846
|
|
|
626
|
|
|
2,458
|
|
|
13,091
|
|
Balance, end of period
|
$
|
47,302
|
|
|
$
|
57,412
|
|
|
$
|
19,994
|
|
|
$
|
8,984
|
|
|
$
|
133,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended September 30, 2017
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Balance, beginning of period
|
$
|
47,795
|
|
|
$
|
58,840
|
|
|
$
|
17,946
|
|
|
$
|
9,403
|
|
|
$
|
133,984
|
|
Charge-offs
|
(1,651
|
)
|
|
(31,304
|
)
|
|
(745
|
)
|
|
(6,468
|
)
|
|
(40,168
|
)
|
Recoveries
|
2,533
|
|
|
5,662
|
|
|
597
|
|
|
2,569
|
|
|
11,361
|
|
(Recapture) provision
|
(1,786
|
)
|
|
28,376
|
|
|
1,167
|
|
|
6,569
|
|
|
34,326
|
|
Balance, end of period
|
$
|
46,891
|
|
|
$
|
61,574
|
|
|
$
|
18,965
|
|
|
$
|
12,073
|
|
|
$
|
139,503
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Balance, beginning of period
|
$
|
54,293
|
|
|
$
|
47,487
|
|
|
$
|
22,017
|
|
|
$
|
6,525
|
|
|
$
|
130,322
|
|
Charge-offs
|
(2,137
|
)
|
|
(23,224
|
)
|
|
(1,546
|
)
|
|
(6,713
|
)
|
|
(33,620
|
)
|
Recoveries
|
1,348
|
|
|
3,633
|
|
|
661
|
|
|
2,845
|
|
|
8,487
|
|
(Recapture) provision
|
(6,202
|
)
|
|
29,516
|
|
|
(1,138
|
)
|
|
6,327
|
|
|
28,503
|
|
Balance, end of period
|
$
|
47,302
|
|
|
$
|
57,412
|
|
|
$
|
19,994
|
|
|
$
|
8,984
|
|
|
$
|
133,692
|
|
The valuation allowance on purchased impaired loans was increased by provision expense, which includes amounts related to subsequent deterioration of purchased impaired loans of
$96,000
for the
nine months ended
September 30, 2017
, and
$1.4 million
for the
nine months ended
September 30, 2016
. There was
no
provision expense that related to subsequent deterioration of purchased impaired loans recorded during the three months ended
September 30, 2017
and 2016. The valuation allowance on purchased impaired loans was decreased by recaptured provision of
$317,000
and
$531,000
for the
three and nine
months ended
September 30, 2017
, respectively, and
$55,000
and
$902,000
for the
three and nine
months ended
September 30, 2016
, respectively.
The following tables present the allowance and recorded investment in loans and leases by portfolio segment as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Allowance for loans and leases:
|
Collectively evaluated for impairment
|
$
|
43,792
|
|
|
$
|
60,809
|
|
|
$
|
18,383
|
|
|
$
|
12,045
|
|
|
$
|
135,029
|
|
Individually evaluated for impairment
|
749
|
|
|
416
|
|
|
—
|
|
|
—
|
|
|
1,165
|
|
Loans acquired with deteriorated credit quality
|
2,350
|
|
|
349
|
|
|
582
|
|
|
28
|
|
|
3,309
|
|
Total
|
$
|
46,891
|
|
|
$
|
61,574
|
|
|
$
|
18,965
|
|
|
$
|
12,073
|
|
|
$
|
139,503
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
$
|
9,440,129
|
|
|
$
|
4,054,600
|
|
|
$
|
4,136,418
|
|
|
$
|
767,054
|
|
|
$
|
18,398,201
|
|
Individually evaluated for impairment
|
40,832
|
|
|
32,125
|
|
|
—
|
|
|
—
|
|
|
72,957
|
|
Loans acquired with deteriorated credit quality
|
163,546
|
|
|
4,716
|
|
|
37,874
|
|
|
468
|
|
|
206,604
|
|
Total
|
$
|
9,644,507
|
|
|
$
|
4,091,441
|
|
|
$
|
4,174,292
|
|
|
$
|
767,522
|
|
|
$
|
18,677,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
Commercial
|
|
|
|
|
|
Consumer
|
|
|
|
Real Estate
|
|
Commercial
|
|
Residential
|
|
& Other
|
|
Total
|
Allowance for loans and leases:
|
Collectively evaluated for impairment
|
$
|
43,473
|
|
|
$
|
55,735
|
|
|
$
|
19,225
|
|
|
$
|
8,913
|
|
|
$
|
127,346
|
|
Individually evaluated for impairment
|
1,099
|
|
|
1,327
|
|
|
—
|
|
|
—
|
|
|
2,426
|
|
Loans acquired with deteriorated credit quality
|
2,730
|
|
|
350
|
|
|
769
|
|
|
71
|
|
|
3,920
|
|
Total
|
$
|
47,302
|
|
|
$
|
57,412
|
|
|
$
|
19,994
|
|
|
$
|
8,984
|
|
|
$
|
133,692
|
|
Loans and leases:
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
$
|
9,051,925
|
|
|
$
|
3,521,571
|
|
|
$
|
3,830,060
|
|
|
$
|
624,708
|
|
|
$
|
17,028,264
|
|
Individually evaluated for impairment
|
39,737
|
|
|
22,736
|
|
|
—
|
|
|
—
|
|
|
62,473
|
|
Loans acquired with deteriorated credit quality
|
247,340
|
|
|
6,669
|
|
|
46,496
|
|
|
809
|
|
|
301,314
|
|
Total
|
$
|
9,339,002
|
|
|
$
|
3,550,976
|
|
|
$
|
3,876,556
|
|
|
$
|
625,517
|
|
|
$
|
17,392,051
|
|
Summary of Reserve for Unfunded Commitments Activity
The following table presents a summary of activity in the RUC and unfunded commitments for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance, beginning of period
|
$
|
3,816
|
|
|
$
|
3,531
|
|
|
$
|
3,611
|
|
|
$
|
3,574
|
|
Net charge to other expense
|
116
|
|
|
5
|
|
|
321
|
|
|
(38
|
)
|
Balance, end of period
|
$
|
3,932
|
|
|
$
|
3,536
|
|
|
$
|
3,932
|
|
|
$
|
3,536
|
|
|
|
|
|
|
(in thousands)
|
|
|
Total
|
Unfunded loan and lease commitments:
|
|
September 30, 2017
|
$
|
4,839,882
|
|
September 30, 2016
|
$
|
4,118,259
|
|
Asset Quality and Non-Performing Loans and Leases
We manage asset quality and control credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for loan and lease losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.
Non-Accrual Loans and Leases and Loans and Leases Past Due
The following tables summarize our non-accrual loans and leases and loans and leases past due, by loan and lease class, as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
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
|
|
Current & Other (1)
|
|
Total Loans and Leases
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
258
|
|
|
$
|
947
|
|
|
$
|
599
|
|
|
$
|
1,804
|
|
|
$
|
3,500
|
|
|
$
|
3,469,939
|
|
|
$
|
3,475,243
|
|
Owner occupied term, net
|
2,087
|
|
|
2,397
|
|
|
1
|
|
|
4,485
|
|
|
6,780
|
|
|
2,456,730
|
|
|
2,467,995
|
|
Multifamily, net
|
—
|
|
|
325
|
|
|
—
|
|
|
325
|
|
|
366
|
|
|
2,992,512
|
|
|
2,993,203
|
|
Construction & development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,091
|
|
|
520,575
|
|
|
521,666
|
|
Residential development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,153
|
|
|
180,247
|
|
|
186,400
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
131
|
|
|
973
|
|
|
—
|
|
|
1,104
|
|
|
13,081
|
|
|
1,805,479
|
|
|
1,819,664
|
|
LOC & other, net
|
583
|
|
|
169
|
|
|
505
|
|
|
1,257
|
|
|
3,700
|
|
|
1,129,088
|
|
|
1,134,045
|
|
Leases and equipment finance, net
|
5,379
|
|
|
8,072
|
|
|
2,411
|
|
|
15,862
|
|
|
9,902
|
|
|
1,111,968
|
|
|
1,137,732
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net (2)
|
—
|
|
|
5,024
|
|
|
35,532
|
|
|
40,556
|
|
|
—
|
|
|
3,053,805
|
|
|
3,094,361
|
|
Home equity loans & lines, net
|
1,235
|
|
|
1,309
|
|
|
2,023
|
|
|
4,567
|
|
|
—
|
|
|
1,075,364
|
|
|
1,079,931
|
|
Consumer & other, net
|
2,360
|
|
|
1,002
|
|
|
304
|
|
|
3,666
|
|
|
—
|
|
|
763,856
|
|
|
767,522
|
|
Total, net of deferred fees and costs
|
$
|
12,033
|
|
|
$
|
20,218
|
|
|
$
|
41,375
|
|
|
$
|
73,626
|
|
|
$
|
44,573
|
|
|
$
|
18,559,563
|
|
|
$
|
18,677,762
|
|
(1) Other includes purchased credit impaired loans of
$206.6 million
.
(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
$12.3 million
at
September 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
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
|
|
Current & Other (1)
|
|
Total Loans and Leases
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
718
|
|
|
$
|
1,027
|
|
|
$
|
1,047
|
|
|
$
|
2,792
|
|
|
$
|
2,100
|
|
|
$
|
3,325,550
|
|
|
$
|
3,330,442
|
|
Owner occupied term, net
|
974
|
|
|
4,539
|
|
|
1
|
|
|
5,514
|
|
|
4,391
|
|
|
2,589,150
|
|
|
2,599,055
|
|
Multifamily, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
476
|
|
|
2,858,480
|
|
|
2,858,956
|
|
Construction & development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
463,625
|
|
|
463,625
|
|
Residential development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142,984
|
|
|
142,984
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
319
|
|
|
233
|
|
|
—
|
|
|
552
|
|
|
6,880
|
|
|
1,501,348
|
|
|
1,508,780
|
|
LOC & other, net
|
1,673
|
|
|
27
|
|
|
—
|
|
|
1,700
|
|
|
4,998
|
|
|
1,109,561
|
|
|
1,116,259
|
|
Leases and equipment finance, net
|
5,343
|
|
|
6,865
|
|
|
1,808
|
|
|
14,016
|
|
|
8,920
|
|
|
927,652
|
|
|
950,588
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net (2)
|
10
|
|
|
3,114
|
|
|
33,703
|
|
|
36,827
|
|
|
—
|
|
|
2,851,144
|
|
|
2,887,971
|
|
Home equity loans & lines, net
|
289
|
|
|
848
|
|
|
2,080
|
|
|
3,217
|
|
|
—
|
|
|
1,008,627
|
|
|
1,011,844
|
|
Consumer & other, net
|
3,261
|
|
|
1,185
|
|
|
587
|
|
|
5,033
|
|
|
—
|
|
|
633,126
|
|
|
638,159
|
|
Total, net of deferred fees and costs
|
$
|
12,587
|
|
|
$
|
17,838
|
|
|
$
|
39,226
|
|
|
$
|
69,651
|
|
|
$
|
27,765
|
|
|
$
|
17,411,247
|
|
|
$
|
17,508,663
|
|
(1) Other includes purchased credit impaired loans of
$280.4 million
.
(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
$10.9 million
at
December 31, 2016
.
Impaired Loans
Loans with no related allowance reported generally represent non-accrual loans, which are also considered impaired loans. The Bank recognizes the charge-off on impaired loans in the period it arises for collateral-dependent loans. Therefore, the non-accrual loans as of
September 30, 2017
have already been written down to their estimated net realizable value and are expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on impaired loans primarily represents the impairment reserves on performing restructured loans, and is measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan's carrying value.
The following tables summarize our impaired loans by loan class as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Unpaid
|
|
Recorded Investment
|
|
|
|
Principal
|
|
Without
|
|
With
|
|
Related
|
|
Balance
|
|
Allowance
|
|
Allowance
|
|
Allowance
|
Commercial real estate
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
18,726
|
|
|
$
|
2,143
|
|
|
$
|
16,485
|
|
|
$
|
319
|
|
Owner occupied term, net
|
10,617
|
|
|
4,216
|
|
|
6,039
|
|
|
284
|
|
Multifamily, net
|
3,998
|
|
|
366
|
|
|
3,519
|
|
|
141
|
|
Construction & development, net
|
1,091
|
|
|
1,091
|
|
|
—
|
|
|
—
|
|
Residential development, net
|
6,974
|
|
|
6,153
|
|
|
820
|
|
|
5
|
|
Commercial
|
|
|
|
|
|
|
|
Term, net
|
28,340
|
|
|
16,911
|
|
|
5,044
|
|
|
113
|
|
LOC & other, net
|
11,845
|
|
|
3,518
|
|
|
6,652
|
|
|
303
|
|
Total, net of deferred fees and costs
|
$
|
81,591
|
|
|
$
|
34,398
|
|
|
$
|
38,559
|
|
|
$
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Unpaid
|
|
Recorded Investment
|
|
|
|
Principal
|
|
Without
|
|
With
|
|
Related
|
|
Balance
|
|
Allowance
|
|
Allowance
|
|
Allowance
|
Commercial real estate
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
19,797
|
|
|
$
|
278
|
|
|
$
|
19,116
|
|
|
$
|
524
|
|
Owner occupied term, net
|
8,467
|
|
|
1,768
|
|
|
6,445
|
|
|
131
|
|
Multifamily, net
|
4,015
|
|
|
476
|
|
|
3,520
|
|
|
123
|
|
Construction & development, net
|
1,091
|
|
|
—
|
|
|
1,091
|
|
|
9
|
|
Residential development, net
|
7,304
|
|
|
—
|
|
|
7,304
|
|
|
72
|
|
Commercial
|
|
|
|
|
|
|
|
Term, net
|
16,875
|
|
|
5,982
|
|
|
3,239
|
|
|
8
|
|
LOC & other, net
|
8,279
|
|
|
4,755
|
|
|
—
|
|
|
—
|
|
Total, net of deferred fees and costs
|
$
|
65,828
|
|
|
$
|
13,259
|
|
|
$
|
40,715
|
|
|
$
|
867
|
|
The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Three Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Average
|
|
Interest
|
|
Average
|
|
Interest
|
|
Recorded
|
|
Income
|
|
Recorded
|
|
Income
|
|
Investment
|
|
Recognized
|
|
Investment
|
|
Recognized
|
Commercial real estate
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
18,706
|
|
|
$
|
149
|
|
|
$
|
18,544
|
|
|
$
|
155
|
|
Owner occupied term, net
|
10,159
|
|
|
14
|
|
|
3,682
|
|
|
—
|
|
Multifamily, net
|
3,890
|
|
|
30
|
|
|
4,209
|
|
|
31
|
|
Construction & development, net
|
1,091
|
|
|
—
|
|
|
1,860
|
|
|
21
|
|
Residential development, net
|
7,096
|
|
|
13
|
|
|
7,671
|
|
|
77
|
|
Commercial
|
|
|
|
|
|
|
|
Term, net
|
19,269
|
|
|
88
|
|
|
17,884
|
|
|
67
|
|
LOC & other, net
|
7,560
|
|
|
5
|
|
|
4,536
|
|
|
20
|
|
Leases and equipment finance, net
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total, net of deferred fees and costs
|
$
|
67,908
|
|
|
$
|
299
|
|
|
$
|
58,386
|
|
|
$
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended
|
|
Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Average
|
|
Interest
|
|
Average
|
|
Interest
|
|
Recorded
|
|
Income
|
|
Recorded
|
|
Income
|
|
Investment
|
|
Recognized
|
|
Investment
|
|
Recognized
|
Commercial real estate
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
17,220
|
|
|
$
|
447
|
|
|
$
|
12,634
|
|
|
$
|
350
|
|
Owner occupied term, net
|
9,556
|
|
|
141
|
|
|
7,950
|
|
|
86
|
|
Multifamily, net
|
3,914
|
|
|
91
|
|
|
3,792
|
|
|
91
|
|
Construction & development, net
|
1,201
|
|
|
22
|
|
|
1,412
|
|
|
61
|
|
Residential development, net
|
7,270
|
|
|
163
|
|
|
7,871
|
|
|
238
|
|
Commercial
|
|
|
|
|
|
|
|
Term, net
|
16,048
|
|
|
242
|
|
|
21,223
|
|
|
180
|
|
LOC & other, net
|
6,263
|
|
|
55
|
|
|
3,686
|
|
|
60
|
|
Leases and equipment finance, net
|
185
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total, net of deferred fees and costs
|
$
|
61,657
|
|
|
$
|
1,161
|
|
|
$
|
58,568
|
|
|
$
|
1,066
|
|
The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.
Credit Quality Indicators
As previously noted, 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 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 for the asset or the institution's credit position at some future date. They contain unfavorable characteristics 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.
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
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 closed-end loan becomes past due
120
cumulative days or when an open-end retail loan that becomes past due
180
cumulative days from the contractual due date. These loans are generally charged-off in the month in which the
120
or
180
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
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Pass/Watch
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Impaired (1)
|
|
Total
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
3,381,062
|
|
|
$
|
40,560
|
|
|
$
|
34,711
|
|
|
$
|
282
|
|
|
$
|
—
|
|
|
$
|
18,628
|
|
|
$
|
3,475,243
|
|
Owner occupied term, net
|
2,374,238
|
|
|
43,483
|
|
|
39,662
|
|
|
—
|
|
|
357
|
|
|
10,255
|
|
|
2,467,995
|
|
Multifamily, net
|
2,963,655
|
|
|
16,695
|
|
|
8,968
|
|
|
—
|
|
|
—
|
|
|
3,885
|
|
|
2,993,203
|
|
Construction & development, net
|
516,139
|
|
|
1,934
|
|
|
2,502
|
|
|
—
|
|
|
—
|
|
|
1,091
|
|
|
521,666
|
|
Residential development, net
|
178,239
|
|
|
—
|
|
|
1,188
|
|
|
—
|
|
|
—
|
|
|
6,973
|
|
|
186,400
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
1,773,745
|
|
|
9,176
|
|
|
14,700
|
|
|
85
|
|
|
3
|
|
|
21,955
|
|
|
1,819,664
|
|
LOC & other, net
|
1,082,301
|
|
|
10,005
|
|
|
31,293
|
|
|
276
|
|
|
—
|
|
|
10,170
|
|
|
1,134,045
|
|
Leases and equipment finance, net
|
1,111,968
|
|
|
5,379
|
|
|
8,072
|
|
|
11,148
|
|
|
1,165
|
|
|
—
|
|
|
1,137,732
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net (2)
|
3,050,451
|
|
|
6,071
|
|
|
35,919
|
|
|
—
|
|
|
1,920
|
|
|
—
|
|
|
3,094,361
|
|
Home equity loans & lines, net
|
1,074,788
|
|
|
2,942
|
|
|
2,119
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
1,079,931
|
|
Consumer & other, net
|
763,815
|
|
|
3,367
|
|
|
302
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
767,522
|
|
Total, net of deferred fees and costs
|
$
|
18,270,401
|
|
|
$
|
139,612
|
|
|
$
|
179,436
|
|
|
$
|
11,791
|
|
|
$
|
3,565
|
|
|
$
|
72,957
|
|
|
$
|
18,677,762
|
|
(1) The percentage of impaired loans classified as pass/watch, special mention, and substandard was
5.8%
,
1.1%
and
93.1%
, respectively, as of
September 30, 2017
.
(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 $
12.3 million
at
September 30, 2017
, which is included in the substandard category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Pass/Watch
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Impaired (1)
|
|
Total
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied term, net
|
$
|
3,205,241
|
|
|
$
|
55,194
|
|
|
$
|
48,699
|
|
|
$
|
1,368
|
|
|
$
|
546
|
|
|
$
|
19,394
|
|
|
$
|
3,330,442
|
|
Owner occupied term, net
|
2,466,247
|
|
|
75,189
|
|
|
46,781
|
|
|
972
|
|
|
1,653
|
|
|
8,213
|
|
|
2,599,055
|
|
Multifamily, net
|
2,828,370
|
|
|
11,903
|
|
|
14,687
|
|
|
—
|
|
|
—
|
|
|
3,996
|
|
|
2,858,956
|
|
Construction & development, net
|
458,328
|
|
|
1,712
|
|
|
2,494
|
|
|
—
|
|
|
—
|
|
|
1,091
|
|
|
463,625
|
|
Residential development, net
|
134,491
|
|
|
—
|
|
|
1,189
|
|
|
—
|
|
|
—
|
|
|
7,304
|
|
|
142,984
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term, net
|
1,458,699
|
|
|
15,716
|
|
|
24,678
|
|
|
119
|
|
|
347
|
|
|
9,221
|
|
|
1,508,780
|
|
LOC & other, net
|
1,063,305
|
|
|
10,565
|
|
|
37,387
|
|
|
3
|
|
|
244
|
|
|
4,755
|
|
|
1,116,259
|
|
Leases and equipment finance, net
|
927,378
|
|
|
5,614
|
|
|
6,866
|
|
|
9,752
|
|
|
978
|
|
|
—
|
|
|
950,588
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage, net (2)
|
2,830,547
|
|
|
1,803
|
|
|
53,607
|
|
|
—
|
|
|
2,014
|
|
|
—
|
|
|
2,887,971
|
|
Home equity loans & lines, net
|
1,006,647
|
|
|
1,490
|
|
|
2,727
|
|
|
—
|
|
|
980
|
|
|
—
|
|
|
1,011,844
|
|
Consumer & other, net
|
633,098
|
|
|
4,446
|
|
|
527
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
638,159
|
|
Total, net of deferred fees and costs
|
$
|
17,012,351
|
|
|
$
|
183,632
|
|
|
$
|
239,642
|
|
|
$
|
12,214
|
|
|
$
|
6,850
|
|
|
$
|
53,974
|
|
|
$
|
17,508,663
|
|
(1) The percentage of impaired loans classified as pass/watch, special mention, substandard and doubtful was
8.1%
,
6.5%
,
82.5%
, and
2.9%
, respectively, as of December 31, 2016.
(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 $
10.9 million
at December 31, 2016, which is included in the substandard category.
Troubled Debt Restructurings
At
September 30, 2017
and
December 31, 2016
, impaired loans of
$45.8 million
and
$40.7 million
, respectively, were classified as 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 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
$1.9 million
available commitments for troubled debt restructurings outstanding as of
September 30, 2017
and
none
as of
December 31, 2016
.
The following tables present troubled debt restructurings by accrual versus non-accrual status and by loan class as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Accrual
|
|
Non-Accrual
|
|
Total
|
|
Status
|
|
Status
|
|
Modifications
|
Commercial real estate, net
|
$
|
22,807
|
|
|
$
|
7,244
|
|
|
$
|
30,051
|
|
Commercial, net
|
16,439
|
|
|
11,654
|
|
|
28,093
|
|
Residential, net
|
6,567
|
|
|
—
|
|
|
6,567
|
|
Total, net of deferred fees and costs
|
$
|
45,813
|
|
|
$
|
18,898
|
|
|
$
|
64,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Accrual
|
|
Non-Accrual
|
|
Total
|
|
Status
|
|
Status
|
|
Modifications
|
Commercial real estate, net
|
$
|
30,563
|
|
|
$
|
—
|
|
|
$
|
30,563
|
|
Commercial, net
|
3,054
|
|
|
3,345
|
|
|
6,399
|
|
Residential, net
|
7,050
|
|
|
—
|
|
|
7,050
|
|
Total, net of deferred fees and costs
|
$
|
40,667
|
|
|
$
|
3,345
|
|
|
$
|
44,012
|
|
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.
The following tables present newly restructured loans that occurred during the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended September 30, 2017
|
|
Rate
|
|
Term
|
|
Interest Only
|
|
Payment
|
|
Combination
|
|
Total
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
Commercial real estate, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,086
|
|
|
$
|
5,086
|
|
Commercial, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,053
|
|
|
9,053
|
|
Residential, net
|
—
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187
|
|
Total, net of deferred fees and costs
|
$
|
—
|
|
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,139
|
|
|
$
|
14,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Rate
|
|
Term
|
|
Interest Only
|
|
Payment
|
|
Combination
|
|
Total
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
Commercial, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,009
|
|
|
$
|
1,009
|
|
Residential, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,117
|
|
|
2,117
|
|
Total, net of deferred fees and costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,126
|
|
|
$
|
3,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Rate
|
|
Term
|
|
Interest Only
|
|
Payment
|
|
Combination
|
|
Total
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
Commercial real estate, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,086
|
|
|
$
|
5,086
|
|
Commercial, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,846
|
|
|
21,846
|
|
Residential, net
|
—
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
1,134
|
|
|
1,321
|
|
Total, net of deferred fees and costs
|
$
|
—
|
|
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,066
|
|
|
$
|
28,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended September 30, 2016
|
|
Rate
|
|
Term
|
|
Interest Only
|
|
Payment
|
|
Combination
|
|
Total
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
|
Modifications
|
Commercial real estate, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,659
|
|
|
$
|
5,659
|
|
Commercial, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,405
|
|
|
4,405
|
|
Residential, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,845
|
|
|
2,845
|
|
Consumer & other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77
|
|
|
77
|
|
Total, net of deferred fees and costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,986
|
|
|
$
|
12,986
|
|
For the periods presented in the tables above, the outstanding recorded investment was the same pre and post modification. There were
$118,000
in financing receivables modified as troubled debt restructurings within the previous
12 months
for which there was a payment default during the
nine months ended September 30, 2017
and
$77,000
and
$304,000
for the
three and nine
months ended
September 30, 2016
. There were
no
payment defaults in the three months ended September 30, 2017.
Note 5–Goodwill and Other Intangible Assets
Goodwill totaled
$1.8 billion
as of
September 30, 2017
and
December 31, 2016
, and represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis at December 31 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or circumstances since the
December 31, 2016
annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.
The following table summarizes the changes in the Company's other intangible assets for the year ended
December 31, 2016
, and the
nine months ended September 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Other Intangible Assets
|
|
Gross
|
Accumulated Amortization
|
Net
|
Balance, December 31, 2015
|
$
|
113,471
|
|
$
|
(67,963
|
)
|
$
|
45,508
|
|
Amortization
|
—
|
|
(8,622
|
)
|
(8,622
|
)
|
Balance, December 31, 2016
|
113,471
|
|
(76,585
|
)
|
36,886
|
|
Amortization
|
—
|
|
(5,067
|
)
|
(5,067
|
)
|
Balance, September 30, 2017
|
$
|
113,471
|
|
$
|
(81,652
|
)
|
$
|
31,819
|
|
Core deposit intangible asset's values were determined by an analysis of the cost differential between the core deposits inclusive of estimated servicing costs and alternative funding sources for core deposits acquired through acquisitions. The core deposit intangible assets are amortized on an accelerated basis over a period of approximately
10 years
.
The table below presents the forecasted amortization expense for other intangible assets acquired in all mergers:
|
|
|
|
|
(in thousands)
|
|
Year
|
Expected Amortization
|
Remainder of 2017
|
$
|
1,689
|
|
2018
|
6,166
|
|
2019
|
5,618
|
|
2020
|
4,986
|
|
2021
|
4,520
|
|
Thereafter
|
8,840
|
|
|
$
|
31,819
|
|
Note 6
– Residential Mortgage Servicing Rights
The following table presents the changes in the Company's residential mortgage servicing rights ("MSR"), which are carried at fair value, for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance, beginning of period
|
$
|
141,832
|
|
|
$
|
112,095
|
|
|
$
|
142,973
|
|
|
$
|
131,817
|
|
Additions for new MSR capitalized
|
8,626
|
|
|
10,177
|
|
|
23,486
|
|
|
25,020
|
|
Changes in fair value:
|
|
|
|
|
|
|
|
Due to changes in model inputs or assumptions
(1)
|
(4,861
|
)
|
|
(5,386
|
)
|
|
(13,040
|
)
|
|
(22,473
|
)
|
Other
(2)
|
(4,372
|
)
|
|
(2,440
|
)
|
|
(12,194
|
)
|
|
(19,918
|
)
|
Balance, end of period
|
$
|
141,225
|
|
|
$
|
114,446
|
|
|
$
|
141,225
|
|
|
$
|
114,446
|
|
|
|
(1)
|
Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.
|
|
|
(2)
|
Represents changes due to collection/realization of expected cash flows over time.
|
Information related to our serviced loan portfolio as of
September 30, 2017
and
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
Balance of loans serviced for others
|
$
|
15,007,942
|
|
|
$
|
14,327,368
|
|
MSR as a percentage of serviced loans
|
0.94
|
%
|
|
1.00
|
%
|
The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue, was
$9.9 million
and
$29.6 million
for the
three and nine
months ended
September 30, 2017
, respectively, as compared to
$9.4 million
and
$25.7 million
for the
three and nine
months ended
September 30, 2016
, respectively.
Key assumptions used in measuring the fair value of the MSR as of
September 30, 2017
and
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Constant prepayment rate
|
13.20
|
%
|
|
11.43
|
%
|
Discount rate
|
9.70
|
%
|
|
9.69
|
%
|
Weighted average life (years)
|
5.9
|
|
|
6.6
|
|
A sensitivity analysis of the current fair value to changes in discount and prepayment speed assumptions as of
September 30, 2017
and
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
Constant prepayment rate
|
|
|
|
Effect on fair value of a 10% adverse change
|
$
|
(6,101
|
)
|
|
$
|
(6,075
|
)
|
Effect on fair value of a 20% adverse change
|
$
|
(11,711
|
)
|
|
$
|
(11,720
|
)
|
|
|
|
|
Discount rate
|
|
|
|
Effect on fair value of a 100 basis point adverse change
|
$
|
(5,116
|
)
|
|
$
|
(5,817
|
)
|
Effect on fair value of a 200 basis point adverse change
|
$
|
(9,868
|
)
|
|
$
|
(11,118
|
)
|
The sensitivity analysis presents the hypothetical effect on fair value of the MSR. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in an assumption to the change in fair value is not linear. Additionally, in the analysis, the impact of an adverse change in one assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.
Note 7
– Junior Subordinated Debentures
Following is information about the Company's wholly-owned trusts ("Trusts") as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Issued
|
|
Carrying
|
|
|
|
Effective
|
|
|
Trust Name
|
Issue Date
|
|
Amount
|
|
Value (1)
|
|
Rate (2)
|
|
Rate (3)
|
|
Maturity Date
|
AT FAIR VALUE:
|
|
|
|
|
|
|
|
|
|
|
|
Umpqua Statutory Trust II
|
October 2002
|
|
$
|
20,619
|
|
|
$
|
16,015
|
|
|
Floating rate, LIBOR plus 3.35%, adjusted quarterly
|
|
6.00%
|
|
October 2032
|
Umpqua Statutory Trust III
|
October 2002
|
|
30,928
|
|
|
24,172
|
|
|
Floating rate, LIBOR plus 3.45%, adjusted quarterly
|
|
6.10%
|
|
November 2032
|
Umpqua Statutory Trust IV
|
December 2003
|
|
10,310
|
|
|
7,641
|
|
|
Floating rate, LIBOR plus 2.85%, adjusted quarterly
|
|
5.60%
|
|
January 2034
|
Umpqua Statutory Trust V
|
December 2003
|
|
10,310
|
|
|
7,585
|
|
|
Floating rate, LIBOR plus 2.85%, adjusted quarterly
|
|
5.67%
|
|
March 2034
|
Umpqua Master Trust I
|
August 2007
|
|
41,238
|
|
|
25,650
|
|
|
Floating rate, LIBOR plus 1.35%, adjusted quarterly
|
|
4.29%
|
|
September 2037
|
Umpqua Master Trust IB
|
September 2007
|
|
20,619
|
|
|
14,593
|
|
|
Floating rate, LIBOR plus 2.75%, adjusted quarterly
|
|
5.75%
|
|
December 2037
|
Sterling Capital Trust III
|
April 2003
|
|
14,433
|
|
|
11,664
|
|
|
Floating rate, LIBOR plus 3.25%, adjusted quarterly
|
|
5.64%
|
|
April 2033
|
Sterling Capital Trust IV
|
May 2003
|
|
10,310
|
|
|
8,245
|
|
|
Floating rate, LIBOR plus 3.15%, adjusted quarterly
|
|
5.58%
|
|
May 2033
|
Sterling Capital Statutory Trust V
|
May 2003
|
|
20,619
|
|
|
16,500
|
|
|
Floating rate, LIBOR plus 3.25%, adjusted quarterly
|
|
5.72%
|
|
June 2033
|
Sterling Capital Trust VI
|
June 2003
|
|
10,310
|
|
|
8,208
|
|
|
Floating rate, LIBOR plus 3.20%, adjusted quarterly
|
|
5.68%
|
|
September 2033
|
Sterling Capital Trust VII
|
June 2006
|
|
56,702
|
|
|
36,457
|
|
|
Floating rate, LIBOR plus 1.53%, adjusted quarterly
|
|
4.42%
|
|
June 2036
|
Sterling Capital Trust VIII
|
September 2006
|
|
51,547
|
|
|
33,384
|
|
|
Floating rate, LIBOR plus 1.63%, adjusted quarterly
|
|
4.55%
|
|
December 2036
|
Sterling Capital Trust IX
|
July 2007
|
|
46,392
|
|
|
29,095
|
|
|
Floating rate, LIBOR plus 1.40%, adjusted quarterly
|
|
4.30%
|
|
October 2037
|
Lynnwood Financial Statutory Trust I
|
March 2003
|
|
9,279
|
|
|
7,362
|
|
|
Floating rate, LIBOR plus 3.15%, adjusted quarterly
|
|
5.65%
|
|
March 2033
|
Lynnwood Financial Statutory Trust II
|
June 2005
|
|
10,310
|
|
|
6,937
|
|
|
Floating rate, LIBOR plus 1.80%, adjusted quarterly
|
|
4.64%
|
|
June 2035
|
Klamath First Capital Trust I
|
July 2001
|
|
15,464
|
|
|
13,367
|
|
|
Floating rate, LIBOR plus 3.75%, adjusted semiannually
|
|
6.02%
|
|
July 2031
|
|
|
|
$
|
379,390
|
|
|
$
|
266,875
|
|
|
|
|
|
|
|
AT AMORTIZED COST:
|
|
|
|
|
|
|
|
|
|
|
|
HB Capital Trust I
|
March 2000
|
|
$
|
5,310
|
|
|
$
|
6,008
|
|
|
10.875%
|
|
8.68%
|
|
March 2030
|
Humboldt Bancorp Statutory Trust I
|
February 2001
|
|
5,155
|
|
|
5,673
|
|
|
10.200%
|
|
8.58%
|
|
February 2031
|
Humboldt Bancorp Statutory Trust II
|
December 2001
|
|
10,310
|
|
|
11,070
|
|
|
Floating rate, LIBOR plus 3.60%, adjusted quarterly
|
|
4.10%
|
|
December 2031
|
Humboldt Bancorp Statutory Trust III
|
September 2003
|
|
27,836
|
|
|
29,856
|
|
|
Floating rate, LIBOR plus 2.95%, adjusted quarterly
|
|
3.55%
|
|
September 2033
|
CIB Capital Trust
|
November 2002
|
|
10,310
|
|
|
10,967
|
|
|
Floating rate, LIBOR plus 3.45%, adjusted quarterly
|
|
4.08%
|
|
November 2032
|
Western Sierra Statutory Trust I
|
July 2001
|
|
6,186
|
|
|
6,186
|
|
|
Floating rate, LIBOR plus 3.58%, adjusted quarterly
|
|
4.89%
|
|
July 2031
|
Western Sierra Statutory Trust II
|
December 2001
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 3.60%, adjusted quarterly
|
|
4.92%
|
|
December 2031
|
Western Sierra Statutory Trust III
|
September 2003
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 2.90%, adjusted quarterly
|
|
4.20%
|
|
September 2033
|
Western Sierra Statutory Trust IV
|
September 2003
|
|
10,310
|
|
|
10,310
|
|
|
Floating rate, LIBOR plus 2.90%, adjusted quarterly
|
|
4.20%
|
|
September 2033
|
|
|
|
96,037
|
|
|
100,690
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
475,427
|
|
|
$
|
367,565
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes acquisition accounting adjustments, net of accumulated amortization, for junior subordinated debentures assumed in connection with previous mergers as well as fair value adjustments related to trusts recorded at fair value.
|
|
|
(2)
|
Contractual interest rate of junior subordinated debentures.
|
|
|
(3)
|
Effective interest rate based upon the carrying value as of
September 30, 2017
.
|
The Trusts are reflected as junior subordinated debentures in the
Condensed Consolidated Balance Sheets
. The common stock issued by the Trusts is recorded in other assets in the
Condensed Consolidated Balance Sheets
, and totaled
$14.3 million
at
September 30, 2017
and
December 31, 2016
. As of
September 30, 2017
, all of the junior subordinated debentures were redeemable at par, at their applicable quarterly or semiannual interest payment dates.
The Company selected the fair value measurement option for junior subordinated debentures originally issued by the Company (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired from Sterling Financial Corporation ("Sterling"). Refer to Note 14 for discussion of the rationale for election of fair value and the approach used to fair value the selected junior subordinated debentures.
Absent changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these instruments, the discounts will reverse over time in a manner similar to the effective interest rate method as if these instruments were accounted for under the amortized cost method. Losses recorded resulting from the change in the fair value of these instruments was
$1.6 million
and
$4.7 million
for the
three and nine
months ended
September 30, 2017
, respectively, and
$1.6 million
and
$4.7 million
for the
three and nine
months ended
September 30, 2016
, respectively.
Note 8 – Commitments and Contingencies
Lease Commitments
— As of
September 30, 2017
, the Bank leased
237
sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term.
Rent expense for the
three and nine
months ended
September 30, 2017
was
$9.7 million
and
$28.9 million
, respectively, and for the
three and nine
months ended
September 30, 2016
was
$9.8 million
and
$29.0 million
, respectively. Rent expense was partially offset by rent income of
$529,000
and
$1.5 million
for the
three and nine
months ended
September 30, 2017
, respectively, and
$508,000
and
$1.5 million
for the
three and nine
months ended
September 30, 2016
, respectively.
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 September 30, 2017
|
Commitments to extend credit
|
$
|
4,768,577
|
|
Forward sales commitments
|
$
|
625,308
|
|
Commitments to originate residential mortgage loans held for sale
|
$
|
405,786
|
|
Standby letters of credit
|
$
|
71,305
|
|
The Bank is a party to financial instruments with off-balance-sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve elements of credit and interest-rate risk similar to the risk involved in on-balance sheet items recognized in the
Condensed Consolidated Balance Sheets
. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or condition established in the applicable contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. While most standby letters of credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral varies but may include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is deemed necessary. There were
no
financial guarantees that the Bank was required to perform on during the
three and nine
months ended
September 30, 2017
and
September 30, 2016
. At
September 30, 2017
, approximately
$51.5 million
of standby letters of credit expire within one year, and
$19.8 million
expire thereafter. Upon issuance, the Bank recognizes a liability equivalent to the amount of fees received from the customer for these standby letter of credit commitments. The Bank recorded approximately
$218,000
and
$682,000
in fees associated with standby letters of credit during the
three and nine
months ended
September 30, 2017
, respectively, compared to
$235,000
and
$608,000
for the
three and nine
months ended
September 30, 2016
, respectively.
Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations. As of
September 30, 2017
, the Company had a residential mortgage loan repurchase reserve liability of
$1.2 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 September 30, 2017, the Bank has recorded a liability for the loans subject to this repurchase right of
$12.3 million
, and has recorded these loans as part of the loan portfolio as if we 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 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 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 October 2017, the Company announced a plan to consolidate approximately
30
store locations to be completed by the end of the first quarter of 2018.
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%
of the Bank's loan and lease portfolio at
September 30, 2017
and
76%
at
December 31, 2016
. 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.
Note 9
– 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
no
counterparty default losses on forward contracts in the
three and nine
months ended
September 30, 2017
and
2016
. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker/dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker/dealer equal to the increase or decrease in the market value of the forward contract. At
September 30, 2017
, the Bank had commitments to originate mortgage loans held for sale totaling
$405.8 million
and forward sales commitments of
$625.3 million
, which are used to hedge both on-balance sheet and off-balance sheet exposures.
The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of
September 30, 2017
, the Bank had
613
interest rate swaps with an aggregate notional amount of
$2.8 billion
related to this program. As of
December 31, 2016
, the Bank had
516
interest rate swaps with an aggregate notional amount of
$2.3 billion
related to this program.
As of
September 30, 2017
and
December 31, 2016
, 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
$4.4 million
and
$34.9 million
, respectively. The Bank has collateral posting requirements for initial margin with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of
$32.0 million
and
$50.3 million
as of
September 30, 2017
and
December 31, 2016
, respectively.
Effective in the first quarter of 2017, the Chicago Mercantile Exchange and London Clearing House amended their respective rulebooks
to legally characterize variation margin payments, for derivative contracts that are referred to as settled-to-market (STM), as settlements of the derivative’s mark-to-market exposure and not collateral. Based on these changes, Umpqua has treated the variation margin as a settlement, which has resulted in a decrease in our cash collateral, and a corresponding decrease in our derivative asset and liability. As of
September 30, 2017
, the variation margin was
$32.7 million
. The change was applied prospectively so prior period balances have not been adjusted.
The Bank incorporates credit valuation adjustments ("CVA") to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. As of
September 30, 2017
and
December 31, 2016
, the net CVA decreased the settlement values of the Bank's net derivative assets by
$1.9 million
and
$241,000
, respectively.
The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges with other third-party banks to limit the Bank's risk exposure.
The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivatives not designated
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
December 31,
|
as hedging instrument
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate lock commitments
|
|
$
|
4,781
|
|
|
$
|
4,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate forward sales commitments
|
|
964
|
|
|
8,054
|
|
|
807
|
|
|
1,318
|
|
Interest rate swaps
|
|
35,320
|
|
|
34,701
|
|
|
4,394
|
|
|
34,871
|
|
Foreign currency derivatives
|
|
670
|
|
|
670
|
|
|
610
|
|
|
874
|
|
Total
|
|
$
|
41,735
|
|
|
$
|
47,501
|
|
|
$
|
5,811
|
|
|
$
|
37,063
|
|
The following table summarizes the types of derivatives and the gains (losses) recorded during the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended
|
|
Nine Months Ended
|
Derivatives not designated
|
|
September 30,
|
|
September 30,
|
as hedging instrument
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate lock commitments
|
|
$
|
36
|
|
|
$
|
(451
|
)
|
|
$
|
706
|
|
|
$
|
6,947
|
|
Interest rate forward sales commitments
|
|
(4,337
|
)
|
|
(5,865
|
)
|
|
(10,942
|
)
|
|
(26,885
|
)
|
Interest rate swaps
|
|
(153
|
)
|
|
182
|
|
|
(1,636
|
)
|
|
(3,104
|
)
|
Foreign currency derivatives
|
|
387
|
|
|
307
|
|
|
1,152
|
|
|
900
|
|
Total
|
|
$
|
(4,067
|
)
|
|
$
|
(5,827
|
)
|
|
$
|
(10,720
|
)
|
|
$
|
(22,142
|
)
|
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
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
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
|
|
Net Amounts of Assets/Liabilities presented in the Statement of Financial Position
|
|
Financial Instruments
|
|
Collateral Posted
|
|
Net Amount
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
35,320
|
|
|
$
|
—
|
|
|
$
|
35,320
|
|
|
$
|
(4,394
|
)
|
|
$
|
—
|
|
|
$
|
30,926
|
|
Foreign currency derivatives
|
|
670
|
|
|
—
|
|
|
670
|
|
|
—
|
|
|
—
|
|
|
670
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
4,394
|
|
|
$
|
—
|
|
|
$
|
4,394
|
|
|
$
|
(4,394
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency derivatives
|
|
610
|
|
|
—
|
|
|
610
|
|
|
—
|
|
|
—
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
34,701
|
|
|
$
|
—
|
|
|
$
|
34,701
|
|
|
$
|
(11,225
|
)
|
|
$
|
—
|
|
|
$
|
23,476
|
|
Foreign currency derivatives
|
|
670
|
|
|
—
|
|
|
670
|
|
|
—
|
|
|
—
|
|
|
670
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
34,871
|
|
|
$
|
—
|
|
|
$
|
34,871
|
|
|
$
|
(11,225
|
)
|
|
$
|
(23,646
|
)
|
|
$
|
—
|
|
Foreign currency derivatives
|
|
874
|
|
|
—
|
|
|
874
|
|
|
—
|
|
|
—
|
|
|
874
|
|
The above table represents the impact of the changes to the derivative clearing rules that treat the variation margin as a settlement.
Note 10
– Shareholders' Equity and Stock Compensation
The Company has a share repurchase plan, which allows the Company to repurchase shares from time to time subject to a maximum number of shares over the life of the plan. In May 2017, the Company repurchased
225,000
shares for a total of
$3.9 million
.
Stock-Based Compensation
The compensation cost related to stock options, restricted stock and restricted stock units in Company stock granted to employees and included in salaries and employee benefits was
$2.2 million
and
$5.9 million
, respectively, for the
three and nine
months ended
September 30, 2017
, as compared to
$2.0 million
and
$6.7 million
, respectively, for the
three and nine
months ended
September 30, 2016
. The total income tax benefit recognized related to stock-based compensation was
$834,000
and
$2.3 million
, respectively, for the
three and nine
months ended
September 30, 2017
, as compared to
$774,000
and
$2.6 million
, respectively, for the
three and nine
months ended
September 30, 2016
.
The following table summarizes information about stock option activity for the
nine months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
Weighted-Avg
|
|
|
|
Options
|
|
Weighted-Avg
|
|
Remaining Contractual
|
|
Aggregate
|
|
Outstanding
|
|
Exercise Price
|
|
Term (Years)
|
|
Intrinsic Value
|
Balance, beginning of period
|
219
|
|
|
$
|
15.74
|
|
|
|
|
|
Granted/assumed
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
(42
|
)
|
|
$
|
13.20
|
|
|
|
|
|
Forfeited/expired
|
(50
|
)
|
|
$
|
26.12
|
|
|
|
|
|
Balance, end of period
|
127
|
|
|
$
|
12.48
|
|
|
2.62
|
|
$
|
894
|
|
Options exercisable, end of period
|
123
|
|
|
$
|
12.50
|
|
|
2.54
|
|
$
|
864
|
|
The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of options exercised during the
three and nine
months ended
September 30, 2017
was
$52,000
and
$193,000
, respectively, as compared to the
three and nine
months ended
September 30, 2016
of
$81,000
and
$259,000
, respectively.
During the
three and nine
months ended
September 30, 2017
, the amount of cash received from the exercise of stock options was
$85,000
and
$354,000
, respectively, as compared to the
three and nine
months ended
September 30, 2016
of
$365,000
and
$432,000
, respectively. Total consideration was
$85,000
and
$548,000
, respectively, for the
three and nine
months ended
September 30, 2017
as compared to the
three and nine
months ended
September 30, 2016
of
$322,000
and
$1.1 million
, respectively.
The Company grants restricted stock periodically for the benefit of employees and directors. Restricted shares generally vest over a three year period, subject to time or time plus performance vesting conditions. The following table summarizes information about nonvested restricted share activity for the
nine months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
Nine Months Ended September 30, 2017
|
|
Restricted
|
|
Weighted
|
|
Shares
|
|
Average Grant
|
|
Outstanding
|
|
Date Fair Value
|
Balance, beginning of period
|
1,096
|
|
|
$
|
15.61
|
|
Granted
|
611
|
|
|
$
|
18.15
|
|
Vested/released
|
(297
|
)
|
|
$
|
16.25
|
|
Forfeited/expired
|
(79
|
)
|
|
$
|
16.68
|
|
Balance, end of period
|
1,331
|
|
|
$
|
16.57
|
|
The total fair value of restricted shares vested and released during the
three and nine
months ended
September 30, 2017
was
$193,000
and
$5.4 million
, respectively, as compared to the
three and nine
months ended
September 30, 2016
of
$331,000
and
$11.6 million
, respectively.
The Company granted restricted stock units in connection with the acquisition of Sterling as replacement awards. Restricted stock unit grants may be subject to performance-based vesting as well as other approved vesting conditions. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the performance and service conditions set forth in the grant agreements.
The following table summarizes information about nonvested restricted stock unit activity for the
nine months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
Nine Months Ended September 30, 2017
|
|
Restricted
|
|
Weighted
|
|
Stock Units
|
|
Average Grant
|
|
Outstanding
|
|
Date Fair Value
|
Balance, beginning of period
|
78
|
|
|
$
|
18.58
|
|
Assumed
|
—
|
|
|
$
|
—
|
|
Released
|
(50
|
)
|
|
$
|
18.58
|
|
Forfeited/expired
|
(4
|
)
|
|
$
|
18.58
|
|
Balance, end of period
|
24
|
|
|
$
|
18.58
|
|
The total fair value of restricted stock units vested and released during the
three and nine
months ended
September 30, 2017
was
$80,000
and
$891,000
, respectively, as compared to the
three and nine
months ended
September 30, 2016
of
$65,000
and
$2.2 million
, respectively.
As of
September 30, 2017
, there was
$3,000
of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of
0.21
years. As of
September 30, 2017
, there was
$10.7 million
of total unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-average period of
1.54
years, assuming expected performance conditions are met for certain awards. As of
September 30, 2017
, there was
$504,000
of total unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted-average period of
0.49
years.
For the
three and nine
months ended
September 30, 2017
, the Company received income tax benefits of
$126,000
and
$2.5 million
, respectively, as compared to the
three and nine
months ended
September 30, 2016
of
$185,000
and
$5.4 million
, respectively, related to the exercise of non-qualified employee stock options, disqualifying dispositions on the exercise of incentive stock options, the vesting of restricted shares and the vesting of restricted stock units. The tax deficiency or benefit is recorded as income tax expense or benefit in the period the shares are vested.
Note 11
– Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as in the majority of states and in Canada. As of
September 30, 2017
, the Company has a net deferred tax liability of
$51.4 million
, which is net of certain deferred tax assets. The Company has a deferred tax asset of
$3.3 million
for state net operating loss ("NOL") carry-forwards. The Company believes that it is more likely than not that the benefit from the state NOL and tax credit 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 and tax credit carry-forwards.
The Company had gross unrecognized tax benefits of
$3.1 million
as of
September 30, 2017
. If recognized, the unrecognized tax benefit would reduce the
2017
annual effective tax rate by
0.6%
. During the
three and nine
months ended
September 30, 2017
, the Company reversed
$29,000
and
$2,000
, respectively, of interest relating to its liability for unrecognized tax benefits. Interest on unrecognized tax benefits is reported by the Company as a component of tax expense. As of
September 30, 2017
, the accrued interest related to unrecognized tax benefits was
$352,000
.
Note 12
– Earnings Per Common Share
Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company's nonvested restricted stock awards qualify as participating securities.
Net earnings is allocated between the common stock and participating securities pursuant to the two-class method.
Basic earnings per common share
is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares.
Diluted earnings per common share
is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares, excluding the participating securities, were issued using the treasury stock method. For all periods presented, stock options, restricted stock awards and restricted stock units are the only potentially dilutive non-participating instruments issued by the Company. Next, we determine and include in diluted earnings per common share calculation the more dilutive effect of the participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not contractually obligated to share in the losses of the Company.
The following is a computation of basic and diluted earnings per common share for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
NUMERATORS:
|
|
|
|
|
|
|
|
Net income
|
$
|
61,333
|
|
|
$
|
61,809
|
|
|
$
|
164,148
|
|
|
$
|
163,665
|
|
Less:
|
|
|
|
|
|
|
|
Dividends and undistributed earnings allocated to participating securities
(1)
|
14
|
|
|
31
|
|
|
40
|
|
|
92
|
|
Net earnings available to common shareholders
|
$
|
61,319
|
|
|
$
|
61,778
|
|
|
$
|
164,108
|
|
|
$
|
163,573
|
|
DENOMINATORS:
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
220,215
|
|
|
220,291
|
|
|
220,270
|
|
|
220,313
|
|
Effect of potentially dilutive common shares
(2)
|
540
|
|
|
460
|
|
|
523
|
|
|
623
|
|
Weighted average number of common shares outstanding - diluted
|
220,755
|
|
|
220,751
|
|
|
220,793
|
|
|
220,936
|
|
EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
|
$
|
0.28
|
|
|
$
|
0.75
|
|
|
$
|
0.74
|
|
Diluted
|
$
|
0.28
|
|
|
$
|
0.28
|
|
|
$
|
0.74
|
|
|
$
|
0.74
|
|
|
|
(1)
|
Represents dividends paid and undistributed earnings allocated to certain nonvested restricted stock awards.
|
|
|
(2)
|
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.
|
The following table presents the weighted average outstanding securities that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive for the
three and nine
months ended
September 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock options
|
—
|
|
|
50
|
|
|
12
|
|
|
104
|
|
Note 13
– Segment Information
In the first quarter of 2017, the Company realigned its operating segments based on changes in its internal reporting structure to align with the change in the Company's Chief Operating Decision Maker. The Company now reports
four
primary segments: Commercial Bank, Wealth Management, Retail Bank, and Home Lending with the remainder as Corporate and other. The prior periods have been restated to reflect current presentation of segments.
The Commercial Bank segment includes lending, treasury and cash management services and customer risk management products to small businesses, middle market and larger commercial customers and includes the operations of Financial Pacific Leasing Inc., 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 lending and deposit services for customers served through the Bank's store network. The Home Lending segment originates, sells and services residential mortgage loans. The Corporate and other segment includes activities that are not directly attributable to one of the
four
principal lines of business and includes the operations of Pivotus Ventures, Inc. and the parent company, eliminations and the economic impact of certain assets, capital and support functions not specifically identifiable within the other lines of business.
Management monitors the Company's results using an internal performance measurement accounting system, which provides line of business results and key performance measures. A primary objective of this profitability measurement system and related internal financial reporting practices are designed to produce consistent results that reflect the underlying economics of the businesses, and to support strategic objectives and analysis based on how management views the business. Various methodologies employed within this system to measure performance are based on management's judgment or other subjective factors. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.
This system uses various techniques to assign balance sheet and income statement amounts to the business segments, including internal funds transfer pricing, allocations of income, expense, the provision for credit losses, and capital. The application and development of these management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised retrospectively, if material.
Funds transfer pricing is used in the determination of net interest income reported by assigning a cost for funds used or credit for funds provided to all assets and liabilities within each business segment. In general, assets and liabilities are match-funded based on their maturity or repricing characteristics, adjusted for estimated prepayments if applicable. The value of funds provided or cost of funds used by the business segments is priced at rates that approximate wholesale market rates of the Company for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or interest rate swap rates, plus consideration of the Company’s incremental credit spread/cost of borrowing. As a result, the business segments are generally insulated from changes in interest rates. This method of funds transfer pricing also serves to transfer interest rate risk to Treasury, which is contained within the Corporate & Other segment. However, the business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions that are within overall Corporate guidelines.
Noninterest income and expenses directly attributable to a business segment are directly recorded within that business unit. To better analyze the total financial performance of each business unit and to consider the total cost to support a segment, management allocates centrally provided support services and other corporate overhead to the business segments based on various methodologies. Examples of these type of expense overhead pools include information technology, operations, human resources, finance, risk management, credit administration, legal, and marketing. Expense allocations are based on actual usage where practicably calculated or by management’s estimate of such usage. Example of typical expense allocation drivers include number of employees, loan or deposits average balances or counts, origination or transaction volumes, credit quality related indicators, noninterest expense, or other identified drivers.
The provision for loan and lease losses is based on the methodology consistent with our process to estimate our consolidated allowance. The provision for credit losses incorporates the actual net charge-offs recognized related to loans contained within each business segment. The residual provision for credit losses to arrive at the consolidated provision for credit losses is included in Corporate and Other.
The provision for income taxes is allocated to business segments using a
37%
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended September 30, 2017
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
110,499
|
|
|
$
|
5,609
|
|
|
$
|
72,529
|
|
|
$
|
10,191
|
|
|
$
|
21,636
|
|
|
$
|
220,464
|
|
Provision (recapture) for loan and lease losses
|
9,166
|
|
|
107
|
|
|
1,999
|
|
|
855
|
|
|
(130
|
)
|
|
11,997
|
|
Non-interest income
|
12,703
|
|
|
4,462
|
|
|
16,038
|
|
|
38,855
|
|
|
3,344
|
|
|
75,402
|
|
Non-interest expense
|
53,830
|
|
|
8,723
|
|
|
69,159
|
|
|
37,454
|
|
|
19,188
|
|
|
188,354
|
|
Income before income taxes
|
60,206
|
|
|
1,241
|
|
|
17,409
|
|
|
10,737
|
|
|
5,922
|
|
|
95,515
|
|
Provision for income taxes
|
22,276
|
|
|
459
|
|
|
6,443
|
|
|
3,973
|
|
|
1,031
|
|
|
34,182
|
|
Net income
|
$
|
37,930
|
|
|
$
|
782
|
|
|
$
|
10,966
|
|
|
$
|
6,764
|
|
|
$
|
4,891
|
|
|
$
|
61,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended September 30, 2017
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
320,561
|
|
|
$
|
16,251
|
|
|
$
|
208,482
|
|
|
$
|
29,461
|
|
|
$
|
64,512
|
|
|
$
|
639,267
|
|
Provision (recapture) for loan and lease losses
|
26,059
|
|
|
482
|
|
|
6,667
|
|
|
1,142
|
|
|
(24
|
)
|
|
34,326
|
|
Non-interest income
|
40,163
|
|
|
13,689
|
|
|
46,539
|
|
|
100,372
|
|
|
5,983
|
|
|
206,746
|
|
Non-interest expense
|
160,040
|
|
|
25,570
|
|
|
215,534
|
|
|
110,634
|
|
|
43,311
|
|
|
555,089
|
|
Income before income taxes
|
174,625
|
|
|
3,888
|
|
|
32,820
|
|
|
18,057
|
|
|
27,208
|
|
|
256,598
|
|
Provision for income taxes
|
64,611
|
|
|
1,438
|
|
|
12,144
|
|
|
6,681
|
|
|
7,576
|
|
|
92,450
|
|
Net income
|
$
|
110,014
|
|
|
$
|
2,450
|
|
|
$
|
20,676
|
|
|
$
|
11,376
|
|
|
$
|
19,632
|
|
|
$
|
164,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended September 30, 2016
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
105,827
|
|
|
$
|
5,442
|
|
|
$
|
63,568
|
|
|
$
|
11,177
|
|
|
$
|
23,878
|
|
|
$
|
209,892
|
|
Provision for loan and lease losses
|
9,054
|
|
|
234
|
|
|
2,732
|
|
|
829
|
|
|
242
|
|
|
13,091
|
|
Non-interest income
|
9,478
|
|
|
4,800
|
|
|
16,301
|
|
|
48,292
|
|
|
1,839
|
|
|
80,710
|
|
Non-interest expense
|
50,237
|
|
|
8,760
|
|
|
71,169
|
|
|
40,688
|
|
|
10,333
|
|
|
181,187
|
|
Income before income taxes
|
56,014
|
|
|
1,248
|
|
|
5,968
|
|
|
17,952
|
|
|
15,142
|
|
|
96,324
|
|
Provision for income taxes
|
20,725
|
|
|
462
|
|
|
2,208
|
|
|
6,642
|
|
|
4,478
|
|
|
34,515
|
|
Net income
|
$
|
35,289
|
|
|
$
|
786
|
|
|
$
|
3,760
|
|
|
$
|
11,310
|
|
|
$
|
10,664
|
|
|
$
|
61,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended September 30, 2016
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Net interest income
|
$
|
313,832
|
|
|
$
|
16,010
|
|
|
$
|
187,168
|
|
|
$
|
30,369
|
|
|
$
|
89,413
|
|
|
$
|
636,792
|
|
Provision (recapture) for loan and lease losses
|
21,830
|
|
|
602
|
|
|
6,310
|
|
|
(1,669
|
)
|
|
1,430
|
|
|
28,503
|
|
Non-interest income
|
29,748
|
|
|
14,519
|
|
|
46,932
|
|
|
104,980
|
|
|
5,141
|
|
|
201,320
|
|
Non-interest expense
|
149,737
|
|
|
27,060
|
|
|
220,804
|
|
|
116,596
|
|
|
39,490
|
|
|
553,687
|
|
Income before income taxes
|
172,013
|
|
|
2,867
|
|
|
6,986
|
|
|
20,422
|
|
|
53,634
|
|
|
255,922
|
|
Provision for income taxes
|
63,645
|
|
|
1,061
|
|
|
2,585
|
|
|
7,556
|
|
|
17,410
|
|
|
92,257
|
|
Net income
|
$
|
108,368
|
|
|
$
|
1,806
|
|
|
$
|
4,401
|
|
|
$
|
12,866
|
|
|
$
|
36,224
|
|
|
$
|
163,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Total assets
|
$
|
13,594,329
|
|
|
$
|
456,114
|
|
|
$
|
2,060,076
|
|
|
$
|
3,436,392
|
|
|
$
|
6,148,752
|
|
|
$
|
25,695,663
|
|
Total loans and leases
|
$
|
13,414,523
|
|
|
$
|
441,727
|
|
|
$
|
1,977,641
|
|
|
$
|
2,855,875
|
|
|
$
|
(12,004
|
)
|
|
$
|
18,677,762
|
|
Total deposits
|
$
|
3,737,068
|
|
|
$
|
1,023,661
|
|
|
$
|
12,471,328
|
|
|
$
|
332,686
|
|
|
$
|
2,287,167
|
|
|
$
|
19,851,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Commercial Bank
|
|
Wealth Management
|
|
Retail Bank
|
|
Home Lending
|
|
Corporate & Other
|
|
Consolidated
|
Total assets
|
$
|
12,829,249
|
|
|
$
|
437,058
|
|
|
$
|
1,893,433
|
|
|
$
|
3,243,600
|
|
|
$
|
6,409,779
|
|
|
$
|
24,813,119
|
|
Total loans and leases
|
$
|
12,640,383
|
|
|
$
|
415,737
|
|
|
$
|
1,806,554
|
|
|
$
|
2,685,181
|
|
|
$
|
(39,192
|
)
|
|
$
|
17,508,663
|
|
Total deposits
|
$
|
3,288,837
|
|
|
$
|
1,011,454
|
|
|
$
|
12,032,906
|
|
|
$
|
229,358
|
|
|
$
|
2,458,430
|
|
|
$
|
19,020,985
|
|
Note 14
– Fair Value Measurement
The following table presents estimated fair values of the Company's financial instruments as of
September 30, 2017
and
December 31, 2016
, whether or not recognized or recorded at fair value in the
Condensed Consolidated Balance Sheets
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Level
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
$
|
845,566
|
|
|
$
|
845,566
|
|
|
$
|
1,449,432
|
|
|
$
|
1,449,432
|
|
Trading securities
|
1,2
|
|
11,919
|
|
|
11,919
|
|
|
10,964
|
|
|
10,964
|
|
Investment securities available for sale
|
2
|
|
3,047,358
|
|
|
3,047,358
|
|
|
2,701,220
|
|
|
2,701,220
|
|
Investment securities held to maturity
|
3
|
|
3,905
|
|
|
5,019
|
|
|
4,216
|
|
|
5,217
|
|
Loans held for sale
|
2
|
|
417,470
|
|
|
417,470
|
|
|
387,318
|
|
|
387,318
|
|
Loans and leases, net
|
3
|
|
18,538,259
|
|
|
18,492,760
|
|
|
17,374,679
|
|
|
17,385,156
|
|
Restricted equity securities
|
1
|
|
45,509
|
|
|
45,509
|
|
|
45,528
|
|
|
45,528
|
|
Residential mortgage servicing rights
|
3
|
|
141,225
|
|
|
141,225
|
|
|
142,973
|
|
|
142,973
|
|
Bank owned life insurance assets
|
1
|
|
305,572
|
|
|
305,572
|
|
|
299,673
|
|
|
299,673
|
|
Derivatives
|
2,3
|
|
41,735
|
|
|
41,735
|
|
|
47,501
|
|
|
47,501
|
|
Visa Class B common stock
|
3
|
|
—
|
|
|
79,728
|
|
|
—
|
|
|
59,107
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,2
|
|
$
|
19,851,910
|
|
|
$
|
19,846,636
|
|
|
$
|
19,020,985
|
|
|
$
|
19,016,330
|
|
Securities sold under agreements to repurchase
|
2
|
|
321,542
|
|
|
321,542
|
|
|
352,948
|
|
|
352,948
|
|
Term debt
|
2
|
|
852,306
|
|
|
846,390
|
|
|
852,397
|
|
|
844,377
|
|
Junior subordinated debentures, at fair value
|
3
|
|
266,875
|
|
|
266,875
|
|
|
262,209
|
|
|
262,209
|
|
Junior subordinated debentures, at amortized cost
|
3
|
|
100,690
|
|
|
79,013
|
|
|
100,931
|
|
|
77,640
|
|
Derivatives
|
2
|
|
5,811
|
|
|
5,811
|
|
|
37,063
|
|
|
37,063
|
|
Fair Value of Assets and Liabilities Measured on a Recurring Basis
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
Description
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
268
|
|
|
$
|
—
|
|
Equity securities
|
11,651
|
|
|
11,651
|
|
|
—
|
|
|
—
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
40,026
|
|
|
—
|
|
|
40,026
|
|
|
—
|
|
Obligations of states and political subdivisions
|
297,794
|
|
|
—
|
|
|
297,794
|
|
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
2,707,555
|
|
|
—
|
|
|
2,707,555
|
|
|
—
|
|
Investments in mutual funds and other equity securities
|
1,983
|
|
|
—
|
|
|
1,983
|
|
|
—
|
|
Loans held for sale, at fair value
|
417,470
|
|
|
—
|
|
|
417,470
|
|
|
—
|
|
Residential mortgage servicing rights, at fair value
|
141,225
|
|
|
—
|
|
|
—
|
|
|
141,225
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
4,781
|
|
|
—
|
|
|
—
|
|
|
4,781
|
|
Interest rate forward sales commitments
|
964
|
|
|
—
|
|
|
964
|
|
|
—
|
|
Interest rate swaps
|
35,320
|
|
|
—
|
|
|
35,320
|
|
|
—
|
|
Foreign currency derivative
|
670
|
|
|
—
|
|
|
670
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
3,659,707
|
|
|
$
|
11,651
|
|
|
$
|
3,502,050
|
|
|
$
|
146,006
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
Junior subordinated debentures, at fair value
|
$
|
266,875
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
266,875
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate forward sales commitments
|
807
|
|
|
—
|
|
|
807
|
|
|
—
|
|
Interest rate swaps
|
4,394
|
|
|
—
|
|
|
4,394
|
|
|
—
|
|
Foreign currency derivative
|
610
|
|
|
—
|
|
|
610
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
272,686
|
|
|
$
|
—
|
|
|
$
|
5,811
|
|
|
$
|
266,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
Description
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
662
|
|
|
$
|
—
|
|
|
$
|
662
|
|
|
$
|
—
|
|
Equity securities
|
10,302
|
|
|
10,302
|
|
|
—
|
|
|
—
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
307,697
|
|
|
—
|
|
|
307,697
|
|
|
—
|
|
Residential mortgage-backed securities and collateralized mortgage obligations
|
2,391,553
|
|
|
—
|
|
|
2,391,553
|
|
|
—
|
|
Investments in mutual funds and other equity securities
|
1,970
|
|
|
—
|
|
|
1,970
|
|
|
—
|
|
Loans held for sale, at fair value
|
387,318
|
|
|
—
|
|
|
387,318
|
|
|
—
|
|
Residential mortgage servicing rights, at fair value
|
142,973
|
|
|
—
|
|
|
—
|
|
|
142,973
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
4,076
|
|
|
—
|
|
|
—
|
|
|
4,076
|
|
Interest rate forward sales commitments
|
8,054
|
|
|
—
|
|
|
8,054
|
|
|
—
|
|
Interest rate swaps
|
34,701
|
|
|
—
|
|
|
34,701
|
|
|
—
|
|
Foreign currency derivative
|
670
|
|
|
—
|
|
|
670
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
3,289,976
|
|
|
$
|
10,302
|
|
|
$
|
3,132,625
|
|
|
$
|
147,049
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
Junior subordinated debentures, at fair value
|
$
|
262,209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
262,209
|
|
Derivatives
|
|
|
|
|
|
|
|
Interest rate forward sales commitments
|
1,318
|
|
|
—
|
|
|
1,318
|
|
|
—
|
|
Interest rate swaps
|
34,871
|
|
|
—
|
|
|
34,871
|
|
|
—
|
|
Foreign currency derivative
|
874
|
|
|
—
|
|
|
874
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
299,272
|
|
|
$
|
—
|
|
|
$
|
37,063
|
|
|
$
|
262,209
|
|
The following methods were used to estimate the fair value of each class of financial instrument in the tables above:
Cash and Cash Equivalents
— For short-term instruments, including noninterest bearing cash and interest bearing cash, the carrying amount is a reasonable estimate of fair value.
Securities
— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.
Loans Held for Sale
— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. For loans not originated as held for sale, these loans are accounted for at lower of cost or market, with the fair value estimated based on the expected sales price.
Loans and Leases
— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio.
Restricted Equity Securities
— The carrying value of restricted equity securities approximates fair value as the shares can only be redeemed by the issuing institution at par.
Residential Mortgage Servicing Rights
— The fair value of mortgage servicing rights 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 external 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.
Bank Owned Life Insurance Assets
— Fair values of insurance policies owned are based on the insurance contract's cash surrender value.
Visa Inc. Class B Common Stock
— The fair value of Visa Class B common stock is estimated by applying a
5%
discount to the value of the unredeemed Class A equivalent shares. The discount primarily represents the risk related to the further potential reduction of the conversion ratio between Class B and Class A shares and a liquidity risk premium.
Deposits
— The fair value of deposits with no stated maturity, such as non-interest bearing deposits, savings and interest checking accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Securities Sold under Agreements to Repurchase
— For short-term instruments, including securities sold under agreements to repurchase and federal funds purchased, the carrying amount is a reasonable estimate of fair value.
Term Debt
— The fair value of term notes is calculated based on the discounted value of the contractual cash flows using current rates at which such borrowings can currently be obtained.
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 an external 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 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
September 30, 2017
, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at
September 30, 2017
:
|
|
|
|
|
Financial Instrument
|
Valuation Technique
|
Unobservable Input
|
Weighted Average
|
Residential mortgage servicing rights
|
Discounted cash flow
|
|
|
|
|
Constant Prepayment Rate
|
13.20%
|
|
|
Discount Rate
|
9.70%
|
Interest rate lock commitment
|
Internal Pricing Model
|
|
|
|
|
Pull-through rate
|
86.48%
|
Junior subordinated debentures
|
Discounted cash flow
|
|
|
|
|
Credit Spread
|
5.26%
|
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).
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, and not as a result of changes to our entity-specific credit risk. The widening of the credit risk adjusted spread above the Company's contractual spreads has primarily contributed to the positive fair value adjustments. Future contractions in the credit risk adjusted spread relative to the spread currently utilized to measure the Company's junior subordinated debentures at fair value as of
September 30, 2017
, or the passage of time, will result in negative fair value adjustments. Generally, an increase in the credit risk adjusted spread and/or the forward swap interest rate curve will result in positive fair value adjustments (and decrease the fair value measurement). Conversely, a decrease in the credit risk adjusted spread and/or the forward swap interest rate curve will result in negative fair value adjustments (and increase the fair value measurement).
The following 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 nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Beginning
Balance
|
|
Change
included in
earnings
|
|
Purchases and issuances
|
|
Sales and settlements
|
|
Ending
Balance
|
|
Net change in
unrealized gains
or (losses) relating
to items held at
end of period
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage servicing rights
|
$
|
141,832
|
|
|
$
|
(9,233
|
)
|
|
$
|
8,626
|
|
|
$
|
—
|
|
|
$
|
141,225
|
|
|
$
|
(4,730
|
)
|
Interest rate lock commitment, net
|
4,746
|
|
|
884
|
|
|
10,028
|
|
|
(10,877
|
)
|
|
4,781
|
|
|
4,781
|
|
Junior subordinated debentures, at fair value
|
265,423
|
|
|
5,043
|
|
|
—
|
|
|
(3,591
|
)
|
|
266,875
|
|
|
5,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage servicing rights
|
$
|
112,095
|
|
|
$
|
(7,826
|
)
|
|
$
|
10,177
|
|
|
$
|
—
|
|
|
$
|
114,446
|
|
|
$
|
(3,424
|
)
|
Interest rate lock commitment, net
|
11,028
|
|
|
1,585
|
|
|
19,503
|
|
|
(21,539
|
)
|
|
10,577
|
|
|
10,577
|
|
Junior subordinated debentures, at fair value
|
258,660
|
|
|
4,486
|
|
|
—
|
|
|
(3,032
|
)
|
|
260,114
|
|
|
4,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Beginning
Balance
|
|
Change
included in
earnings
|
|
Purchases and issuances
|
|
Sales and settlements
|
|
Ending
Balance
|
|
Net change in
unrealized gains
or (losses) relating
to items held at
end of period
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage servicing rights
|
$
|
142,973
|
|
|
$
|
(25,234
|
)
|
|
$
|
23,486
|
|
|
$
|
—
|
|
|
$
|
141,225
|
|
|
$
|
(12,954
|
)
|
Interest rate lock commitment, net
|
4,076
|
|
|
2,261
|
|
|
31,992
|
|
|
(33,548
|
)
|
|
4,781
|
|
|
4,781
|
|
Junior subordinated debentures, at fair value
|
262,209
|
|
|
14,595
|
|
|
—
|
|
|
(9,929
|
)
|
|
266,875
|
|
|
14,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage servicing rights
|
$
|
131,817
|
|
|
$
|
(42,391
|
)
|
|
$
|
25,020
|
|
|
$
|
—
|
|
|
$
|
114,446
|
|
|
$
|
(35,386
|
)
|
Interest rate lock commitment, net
|
3,631
|
|
|
5,306
|
|
|
50,785
|
|
|
(49,145
|
)
|
|
10,577
|
|
|
10,577
|
|
Junior subordinated debentures, at fair value
|
255,457
|
|
|
13,160
|
|
|
—
|
|
|
(8,503
|
)
|
|
260,114
|
|
|
13,160
|
|
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. Gains (losses) on junior subordinated debentures carried at fair value are recorded in 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.
Additionally, from time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans.
Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans and leases
|
$
|
58,976
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,976
|
|
Other real estate owned
|
68
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
$
|
59,044
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans and leases
|
$
|
25,753
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,753
|
|
Other real estate owned
|
2,612
|
|
|
—
|
|
|
—
|
|
|
2,612
|
|
|
$
|
28,365
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,365
|
|
The following table presents the losses resulting from nonrecurring fair value adjustments for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Loans and leases
|
$
|
11,138
|
|
|
$
|
6,472
|
|
|
$
|
34,294
|
|
|
$
|
19,642
|
|
Other real estate owned
|
39
|
|
|
139
|
|
|
146
|
|
|
1,601
|
|
Total loss from nonrecurring measurements
|
$
|
11,177
|
|
|
$
|
6,611
|
|
|
$
|
34,440
|
|
|
$
|
21,243
|
|
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. Unobservable inputs and qualitative information about the unobservable inputs are not presented as the fair value is determined by third-party information. The loans and leases amounts above represent impaired, collateral dependent loans that have been adjusted to fair value. When we identify a collateral dependent loan as impaired, we measure the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we recognize this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease losses. The loss represents charge-offs or impairments on collateral dependent loans 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 losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on other real estate owned for fair value adjustments based on the fair value of the real estate.
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale accounted for under the fair value option as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Fair Value
|
|
|
|
Aggregate
|
|
Less Aggregate
|
|
|
|
Aggregate
|
|
Less Aggregate
|
|
|
|
Unpaid
|
|
Unpaid
|
|
|
|
Unpaid
|
|
Unpaid
|
|
Fair
|
|
Principal
|
|
Principal
|
|
Fair
|
|
Principal
|
|
Principal
|
|
Value
|
|
Balance
|
|
Balance
|
|
Value
|
|
Balance
|
|
Balance
|
Loans held for sale
|
$
|
417,470
|
|
|
$
|
401,915
|
|
|
$
|
15,555
|
|
|
$
|
387,318
|
|
|
$
|
378,974
|
|
|
$
|
8,344
|
|
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
. For the
three and nine
months ended
September 30, 2017
, the Company recorded a net increase in fair value of
$136,000
and
$7.2 million
, respectively. For the
three and nine
months ended
September 30, 2016
, the Company recorded a net decrease in fair value of
$254,000
and a net increase of
$13.6 million
, respectively.
The Company selected the fair value measurement option for existing junior subordinated debentures (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired from Sterling. 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 us to more closely align our financial performance with the economic value of those liabilities. Additionally, we believe it improves our 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, or similar, junior subordinated debenture liabilities or the related trust preferred securities when traded as assets, we utilize 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 discounted cash flow model. We also consider changes in the interest rate environment in our valuation, specifically the absolute level and the shape of the slope of the forward swap curve.