UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended:	December 31, 2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the transition period from                                        to                                       .

Commission file number: 001-34624

Umpqua Holdings Corporation

(Exact name of registrant as specified in its charter)

Oregon	93-1261319
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)	of incorporation or organization)

One SW Columbia Street, Suite 1200 

Portland, Oregon 97204 

(Address of Principal Executive Offices)(Zip Code) 

(503) 727-4100

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐  No  ☒

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2021, based on the closing price on that date of $18.45 per share, and 139,320,191 shares held was $2,570,457,524.

The registrant had outstanding 216,626,665 shares of common stock as of January 31, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

None

UMPQUA HOLDINGS CORPORATION 

FORM 10-K CROSS REFERENCE INDEX

 

GLOSSARY		3
PART I		6
	ITEM 1. BUSINESS	6
	ITEM 1A. RISK FACTORS	20
	ITEM 1B. UNRESOLVED STAFF COMMENTS	34
	ITEM 2. PROPERTIES	34
	ITEM 3. LEGAL PROCEEDINGS	34
	ITEM 4. MINE SAFETY DISCLOSURES	35
PART II		35
	ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	35
	ITEM 6. RESERVED	37
	ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	68
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	135
	ITEM 9A. CONTROLS AND PROCEDURES	135
	ITEM 9B. OTHER INFORMATION	136
	ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	136
PART III		137
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	137
	ITEM 11. EXECUTIVE COMPENSATION	141
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	166
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	169
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	170
PART IV		171
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	171
	ITEM 16. FORM 10-K SUMMARY	171
EXHIBIT INDEX		172
SIGNATURES		174

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The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-K, including "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data."

GLOSSARY OF DEFINED TERMS
2013 Plan	The Company's 2013 Incentive Plan
ACL	Allowance for credit losses
ACLLL	Allowance for credit losses on loans and leases
ALCO	Asset/Liability Management Committee
ARRC	Alternative Reference Rates Committee
ASC	Accounting Standards Codification
ASC Topic 326	Accounting Standards Codification section also known as Current Expected Credit Losses
ASC Topic 805	Accounting Standards Codification section also known as Business Combinations
ASU	Accounting Standards Update
ATM	Automated teller machine
Bank	Umpqua Bank
Bank Merger	The proposed merger of Columbia State Bank, a Washington state-chartered bank and a wholly owned subsidiary of Columbia, with the Bank, with the Bank as the surviving bank
Basel III	Basel capital framework (third accord)
BIPOC	Black, Indigenous, and People of Color
Board	The Company's Board of Directors
CARES Act	Coronavirus Aid, Relief and Economic Security Act
CD&A	Compensation Discussion and Analysis
CDL	Collateral-dependent loans
CECL	Current Expected Credit Losses (ASU 2016-13, ASC Topic 326)
CET1	Common Equity Tier 1
CFPB	Consumer Financial Protection Bureau
Columbia	Columbia Banking System, Inc.
Company	Umpqua Holdings Corporation and its subsidiaries
COVID-19	Coronavirus Disease 2019
CRA	Community Reinvestment Act of 1977
CVA	Credit valuation adjustments
DCBS	Oregon Department of Consumer and Business Services Division of Financial Regulation
DC/SRP	Umpqua Holdings Corporation Deferred Compensation & Supplemental Retirement Plan
DCF	Discounted cash flow
DCP	Deferred compensation plan
DEI	Diversity, Equity, and Inclusion
DFAST	Dodd-Frank Act capital stress testing
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
DTA	Deferred tax assets
Economic Aid Act	Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
ERISA	Employment Retirement Income Security Act of 1974
ESG	Environmental, Social, and Governance Guidelines
Excise Tax	The excise tax imposed by Internal Revenue Code Section 4999

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GLOSSARY OF DEFINED TERMS (CONTINUED)
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FDICIA	Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Reserve	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FinPac	Financial Pacific Leasing, Inc.
FINRA	Financial Industry Regulatory Authority
Fintech	Financial technology
FOMC	Federal Open Market Committee
FRB	Federal Reserve Bank
GAAP	Generally accepted accounting principles
GDP	Gross Domestic Product
GLB Act	Gramm-Leach-Bliley Act of 1999
GNMA	Government National Mortgage Association
HELOC	Home equity line of credit
ICE	Intercontinental Exchange
KRX	KBW Nasdaq Regional Banking Index
LGD	Loss given default
LIBOR	London Inter-Bank Offered Rate
LTI	Long-term incentives
Mergers	Merger Sub will merge with and into Umpqua, with Umpqua as the surviving entity, and immediately following such merger, Umpqua will merge with and into Columbia, with Columbia as the surviving corporation.
Merger Agreement	Agreement dated as of October 11, 2021, by and among Umpqua, Columbia, and Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
Merger Sub	Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
MSR	Mortgage servicing rights
NEO	Named Executive Officer
NOL	Net operating loss
OCC	Office of the Comptroller of the Currency
OEPS	Operating earnings per share
PD	Probability of default
PGE	Portland General Electric Company
PPP	Paycheck Protection Program
PSA	Performance share awards
Riegle-Neal Act	Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
ROATCE	Return on average tangible common equity
RSA	Restricted stock awards
RSU	Restricted stock units
RUC	Reserve for unfunded commitments
SBA	Small Business Administration
SEC	Securities and Exchange Commission
SOFR	Secured Overnight Financing Rate
SRP	Supplemental retirement plan

4

GLOSSARY OF DEFINED TERMS (CONTINUED)
STI	Short-term incentives
TCJA	Tax Cuts and Jobs Act of 2017
TDR	Troubled debt restructured
TSR	Total shareholder return
Trusts	23 trusts wholly-owned by the Company
USD	United States dollar
USDA	United States Department of Agriculture
Umpqua	Umpqua Holdings Corporation and its subsidiaries
Umpqua 401(k) Plan	Umpqua Bank 401(k) and Profit Sharing Plan
Umpqua Investments	Umpqua Investments, Inc.

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PART I

ITEM 1. BUSINESS.

In this Annual Report on Form 10-K, we refer to Umpqua Holdings Corporation as the "Company," "Umpqua," "we," "us," "our," or similar references.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends," and "forecast" and words or phrases of similar meaning.

We make forward-looking statements about the benefits of the proposed transaction with Columbia; the plans, objectives, expectations, and intentions of Umpqua and Columbia; the expected timing of completion of the proposed transaction with Columbia; the projected impacts on our business operations of the COVID-19 pandemic; Next Gen 2.0 initiatives including store consolidations, new products and services, technology initiatives, operational improvements, and facilities rationalizations; LIBOR; derivatives and hedging; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of funds and the Company's liquidity position; our securities portfolio; loan sales; adequacy of our ACL, including the reserve for unfunded commitments; provision for credit losses; non-performing loans and future losses; performance of troubled debt restructuring; our commercial real estate portfolio, its collectability and subsequent charge-offs; resolution of non-accrual loans; PPP forgiveness and SBA fees; mortgage volumes and the impact of rate changes; the economic environment; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including mortgage servicing rights values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology.

Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation:

•changes in general economic, political, or industry conditions;

•the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and Umpqua's business, results of operations, and financial condition;

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

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

•volatility and disruptions in global capital and credit markets;

•movements in interest rates;

•reform of LIBOR;

•competitive pressures, including on product pricing and services;

•our ability to successfully, including on time and on budget, implement and sustain information technology product and system enhancements and operational initiatives;

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

•our ability to retain deposits, especially during store consolidations and the pendency of the Bank Merger;

•demand for financial services in our market areas;

•prolonged low interest rate environment;

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•stability, cost, and continued availability of borrowings and other funding sources, such as brokered and public deposits;

•changes in legal or regulatory requirements or the results of regulatory examinations that could increase expenses or restrict growth;

•our ability to manage climate change concerns and related regulations;

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

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

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

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

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

•competition, including from financial technology companies;

•success, impact, and timing of Umpqua's business strategies, including market acceptance of any new products or services and our ability to successfully implement efficiency initiatives;

•the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations;

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

•the outcome of legal proceedings;

•delays in completing the proposed transaction with Columbia;

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

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

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

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

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

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

•potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction;

•economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates;

•our ability to effectively manage problem credits; and

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

7

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

For a more detailed discussion of some of the risk factors, see the section entitled "Risk Factors" below. We do not intend to update any factors, except as required by SEC rules, or to publicly announce revisions to any of our forward-looking statements. Any forward-looking statement speaks only as of the date that such statement was made. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

SEC Filings

We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and other information with the SEC. You may obtain these reports and statements, and any amendments, from the SEC's website at www.sec.gov. You may obtain copies of these reports, and any amendments, through the investor relations section of our website at www.umpquabank.com. These reports are available through our website as soon as reasonably practicable after they are filed electronically with the SEC.

Introduction

Umpqua Holdings Corporation, an Oregon corporation, is a bank holding company currently designated as a financial holding company of Umpqua Bank. The Bank's wholly-owned subsidiary, Financial Pacific Leasing, Inc., is a commercial equipment leasing company.

Umpqua Bank is the largest bank with headquarters in the Pacific Northwest and is considered one of the most innovative banks in the United States, recognized nationally and internationally for its unique company culture and customer experience strategy. The Bank provides a broad range of banking, wealth management, mortgage and other financial services to corporate, institutional, and individual customers.

Business Strategy

Umpqua Bank's primary objective is to become the leading community-oriented financial services organization throughout the Western United States. We intend to increase market share, grow our assets and increase profitability and total shareholder return by differentiating ourselves from competitors.

On October 12, 2021, we announced that we and Columbia Banking System, Inc., the parent company of Columbia State Bank entered into a definitive agreement under which the companies will join together in an all-stock combination. Under the terms of the Merger Agreement, Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company. Once the transaction is completed, the combined organization will be a leading West Coast franchise with more than $50 billion in assets. The transaction is expected to close in mid-2022, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals. We believe the combination accelerates our strategic objectives, which are outlined below.

Deliver on Corporate Strategic Objectives. The Company's corporate strategic objectives branded as "Umpqua Next Gen" were designed to modernize the company, diversify and increase revenue, optimize processes and improve efficiency. Umpqua Next Gen builds on our customer-centric approach to banking, allowing us to differentiate ourselves in the marketplace and create a competitive advantage. The three pillars of Umpqua Next Gen include: Balanced Growth, Human Digital, and Operational Excellence. In late 2020, Umpqua launched "Next Gen 2.0" to build on the success achieved through the original Next Gen plan announced in late 2017, and we expect our pending combination with Columbia to further expanded these objectives.

8

•Through Our Balanced Growth Initiatives, We Focus on Banking Full Customer Relationships. The Company has invested in broader product suites to meet the needs of customers across the spectrum of our business lines. We believe that Umpqua has the products and associate expertise necessary to support current and prospective customers, and we expect our pending combination with Columbia to further enhance these capabilities post-closing. We believe Umpqua can bring the highest value to customers when internal lines of business work collaboratively to serve customers and exceed expectations. Umpqua's value proposition is to combine the product offerings of many larger competitors but deliver with a highly focused, customer-centric approach. The importance of Balanced Growth initiatives has been embedded in modernizing our internal referral and goal-driven incentive plans at Umpqua to reward collaborative behavior and growth across product categories.

•Use A Human Digital Banking Approach to Retain and Expand Customer Base. As customer preferences and behaviors evolve with technological adoption, our strategy remains consistent: deliver an extraordinary experience across all customer touchpoints. As a result, we have developed our Human Digital banking approach, which uses technology to empower deeper, even more meaningful relationships with our customers across all lines of business. We believe this favorably distinguishes Umpqua from its competitors and positions the Company well to adapt quickly as customer use of physical and digital channels evolves. Our innovative strategy remains a differentiator in this Human Digital approach as the combination of digital banking services, through platforms like Umpqua Go-To® and commercial focused applications, enhances our ability to attract a broader range of customers and expand our value proposition across all channels.

•Become A More Efficient and Effective Company Through Operational Excellence Programs. The objectives of the operational excellence programs are to reduce redundancies, simplify processes, and ultimately bring associates closer to the customer. Umpqua redesigned several key processes, including our commercial loan delivery and our deposit origination processes since the beginning of Umpqua Next Gen. In addition to combining similar functions throughout the Company, we also simplified our supplier and vendor relationships by consolidating spend to key strategic partners.

Establish Strong Brand Awareness. We devote considerable resources to developing the "Umpqua Bank" brand through design strategy, marketing, and delivery through our customer-facing channels, as well as through active public relations, social media and community-based events and initiatives. Umpqua's goal is to connect with our customers and communities in fresh and engaging ways. The unique look and feel of our stores and interactive displays help demonstrate our commitment to being an innovative, customer-friendly provider of financial products and services, and our active community engagement and investments stand out with commercial customers. Our brand activation approach is based on actions, not just advertising, and builds strong consumer awareness of our products and services.

Prudently Manage Capital. An important part of our strategy is to continue to manage capital prudently, and to employ excess capital in a thoughtful and opportunistic manner that improves long-term shareholder returns. We accomplish this through organic growth and a top quartile dividend payout ratio for regional banks. Additionally, in 2021, we engaged more actively in share repurchase activity, although we halted our new repurchase program, which was announced in July 2021, following the announcement of the proposed combination with Columbia, as required under the Merger Agreement. In October 2021, we announced our pending combination with Columbia, which we expect to close in mid-2022. The combined company deepens the foothold in the Northwest and California as it creates a leading West Coast franchise post-closing. We expect transaction-related synergies to drive growth in loans, deposits, and fee-based products and services as anticipated cost-savings contribute to a more profitable profile that supports capital flexibility at the pro forma company.

Growth Culture. We believe strongly that by investing in the professional growth of our associates and supporting the economic growth of our communities, we will create more opportunity to provide our products and services and to create deeper customer relationships across all divisions, from retail to mortgage and wholesale. Although a successful marketing program will attract customers to visit, well-trained and experienced associates are critical to solving customer needs with the right products and services.

Products and Services

We offer an array of financial products, delivered through traditional and digital channels, to meet the banking needs of our market area and target customers. To ensure the ongoing viability of our product offerings, we regularly examine the desirability and profitability of existing and potential new products. Our customers can access our products through online banking, mobile banking applications, including Umpqua Go-To® app, and Umpquabank.com.

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Commercial Loans and Leases and Commercial Real Estate Loans. We offer specialized loans for corporate and commercial customers, including accounts receivable and inventory financing, multifamily loans, equipment loans, commercial equipment leases, international trade finance, real estate construction loans and permanent financing and Small Business Administration program financing as well as capital markets.

Treasury Management. As Umpqua focuses on banking the full customer relationship and meeting the needs of customers of all sizes, we offer treasury management products to our customers through our Global Payments & Deposits group. These products include ACH, wires, positive pay, remote deposit capture, integrated payables, commercial card, and foreign exchange related products. We also offer merchant services in coordination with a strategic partner, Worldpay.

Deposit Products. We offer deposit products, including non-interest bearing checking accounts, interest bearing checking and savings accounts, money market accounts and certificates of deposit. Interest-bearing accounts earn interest at rates established by management based on competitive market factors and management's desire to increase certain types or maturities of deposit liabilities. Our approach is to provide a streamlined customer experience that meets the customer's needs across all channels. This approach is designed to add value for the customer, increase products per household and generate related fee income.

Wealth Management. Through Umpqua's Private Bank, we serve high net worth individuals and families, and select non-profits and professional services firms, providing deposit, lending, and financial planning solutions. The Private Bank is designed to expand on Umpqua's existing high-touch customer experience and works collaboratively with other internal departments to offer a comprehensive, integrated approach designed to meet clients' financial needs.

Residential Real Estate Loans. Real estate loans are available for the construction, purchase, and refinancing of residential owner-occupied and rental properties. Borrowers can choose from a variety of fixed and adjustable rate options and terms. We sell most residential real estate loans that we originate into the secondary market. Servicing is retained on the majority of these loans.

Consumer Loans. We provide loans to individual borrowers for a variety of purposes, including secured and unsecured personal loans, home equity and personal lines of credit and motor vehicle loans.

Market Area and Competition

The geographic markets we serve are highly competitive for deposits, loans, and leases. We compete with traditional banking institutions, as well as non-bank financial service providers, such as credit unions, mortgage companies, and online based financial service providers. In our primary market areas of Oregon, Washington, California, Idaho, and Nevada, major national banks generally hold top market share positions. Competition also includes small community banks that operate in a concentrated area within our footprint and other regional banks that focus on commercial and retail banking. In 2021, we expanded our market area by adding loan production offices in Denver, Colorado and Phoenix, Arizona.

As the industry becomes increasingly oriented toward technology-driven delivery systems, permitting transactions to be conducted on mobile devices and computers, non-bank institutions are able to attract customers and provide lending and other financial services even without offices located in our primary service area. Some insurance companies and brokerage firms compete for deposits by offering rates that are higher than the weighted average market price and may be inappropriate for the Bank in relation to its asset and liability management objectives.

Credit unions present a significant competitive challenge for our banking services and products. As credit unions currently enjoy an exemption from income tax, they are able to offer higher deposit rates and lower loan rates than banks can on a comparable basis. Credit unions are also not currently subject to certain regulatory constraints, such as the Community Reinvestment Act, which, among other things, requires us to implement procedures to make and monitor loans throughout the communities we serve. Adhering to such regulatory requirements raises the costs associated with our lending activities and reduces potential operating profits. Accordingly, we seek to compete by focusing on building customer relationships, providing superior service, and offering a wide variety of commercial banking products.

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The following tables present the Bank's market share percentage for total deposits as of June 30, 2021 in each county where we have operations. The table also indicates the ranking by deposit size in each market. All information in the table was obtained from S&P Global, which compiles deposit data published by the Federal Deposit Insurance Corporation as of June 30, 2021 and updates the information for any bank mergers and acquisitions completed subsequent to the reporting date.

Oregon					Washington
County	Market Share		Market Rank	Number of Stores	County	Market Share		Market Rank	Number of Stores
Baker	29	%	1	1	Asotin	16	%	4	1
Benton	10	%	6	2	Benton	6	%	8	2
Clackamas	3	%	7	3	Clallam	5	%	7	2
Columbia	16	%	3	1	Clark	14	%	3	8
Coos	39	%	1	5	Douglas	16	%	3	1
Curry	44	%	1	2	Franklin	12	%	3	1
Deschutes	8	%	7	4	Grant	6	%	8	1
Douglas	69	%	1	8	Grays Harbor	7	%	4	1
Jackson	14	%	3	7	King	1	%	12	19
Josephine	17	%	2	3	Kittitas	13	%	4	2
Klamath	32	%	1	3	Klickitat	39	%	1	2
Lane	18	%	1	6	Lewis	11	%	2	1
Lincoln	7	%	6	1	Okanogan	16	%	3	2
Linn	15	%	4	3	Pierce	3	%	8	7
Malheur	19	%	3	1	Skamania	56	%	1	1
Marion	6	%	7	3	Snohomish	1	%	21	1
Multnomah	4	%	7	12	Spokane	7	%	7	6
Polk	6	%	6	1	Thurston	3	%	12	2
Tillamook	26	%	2	1	Walla Walla	4	%	6	1
Umatilla	5	%	6	2	Whatcom	3	%	11	3
Union	19	%	3	1	Whitman	5	%	7	1
Wallowa	24	%	2	1
Washington	7	%	6	6
Yamhill	3	%	8	1

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California					Idaho
County	Market Share		Market Rank	Number of Stores	County	Market Share		Market Rank	Number of Stores
Amador	5	%	7	1	Ada	—	%	18	2
Butte	2	%	10	1	Benewah	26	%	2	1
Calaveras	26	%	2	3	Idaho	38	%	1	1
Colusa	30	%	1	2	Kootenai	2	%	10	2
Contra Costa	1	%	16	3	Latah	24	%	2	2
El Dorado	5	%	6	3	Nez Perce	17	%	3	1
Glenn	27	%	2	2	Valley	25	%	3	2
Humboldt	24	%	1	5
Lake	24	%	2	2	Nevada
Los Angeles	—	%	64	1	Washoe	5	%	7	3
Marin	2	%	11	2
Mendocino	4	%	6	1
Napa	7	%	6	3
Orange	—	%	31	1
Placer	5	%	5	4
Sacramento	1	%	11	4
San Francisco	—	%	17	1
San Joaquin	—	%	17	1
San Luis Obispo	1	%	14	1
Santa Clara	—	%	29	1
Shasta	2	%	10	1
Solano	3	%	8	2
Sonoma	3	%	10	6
Stanislaus	1	%	15	1
Sutter	8	%	6	1
Tehama	14	%	2	2
Trinity	35	%	2	1
Tuolumne	12	%	4	1
Yolo	2	%	7	1
Yuba	23	%	3	2

Environmental, Social, and Governance

Rising to a new standard. We take pride in being a proactive partner in building stronger, more resilient, and inclusive economies. This approach is embedded in the fabric of our corporate values and culture and drives us to think very intentionally about the communities we serve. In 2021, the organization deepened our corporate responsibility performance against an emerging set of environmental, social, and governance guidelines, and we continue to align to the Global Reporting Initiative and the Sustainability Accounting Standards Board. We have also expanded the oversight of our Board's Nominating and Governance Committee to include periodic reviews of our ESG policies, practices, and disclosures. To support the Board Committee, an executive leadership management structure was developed, tasked with identifying topical priorities, developing goals, and optimizing resources.

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Our annual ESG Report is available on the Impact section of our website, but is not incorporated by reference into this document. The report provides additional detail about our evolving ESG work as it relates to the breadth of our stakeholders. The following is a brief overview:

Empowering Our Communities

We strive to help level the economic playing field. Our approach to community investment focuses on increasing the economic vitality of our communities—particularly in places where systemic challenges hinder access to financial expertise, gainful employment, and building intergenerational wealth.

•Umpqua Bank's Connect Volunteer Network™ continues to be one of the nation's leading volunteer programs, providing all associates with up to 40 hours of paid time-off each year committed to a wide range of community needs. In 2021, we maintained our virtual volunteering program to ensure nonprofit organizations continue to receive our human-powered support and technical assistance despite the health pandemic.

•Through the Umpqua Bank Charitable Foundation, we are committed to proving grant funding to all approximately 90 counties in which we have a physical presence and support our associates by offering a matching program that doubles their gifts. In 2021, we instituted a 200% giving match in support of organizations aligned with Umpqua Bank's Associate Resource Groups.

•We actively invest in economically disadvantaged communities by pooling community development investment funds with other financial institutions and investors, providing capital investment into community resources including Community Development Financial Institutions, Minority Depository Institutions, and affordable housing developers.

•We are committed to supporting local economies through increased investments in small and emerging business including grants, volunteer technical assistance, and investments in micro enterprise programs. In 2021, Umpqua Bank established a $1.0 million managed loan fund with a nonprofit to provide matched loan funding to women and BIPOC micro entrepreneurs.

•Umpqua is one of the few banks in our footprint with the operational capacity to meet the needs of Individual Development Accounts providers and savers, enabling low-income families to save towards a targeted goal and purpose.

Focusing on Customers

We're committed to helping individuals, families, and businesses thrive. At Umpqua, banking enables genuine human connection. We see technology as a vital tool to better serve our customers.

•We have prioritized financial health – for our customers and communities – and continue to find ways to provide access to financial information and solutions that matter.

•To better understand our customers and their needs, we surveyed nearly 1,200 businesses nationwide to gauge their mood, mindset, and plans for growth as the United States emerges from the depth of the pandemic. We launched our 2021 Umpqua Bank Business Barometer Report with insights from these small and middle market business leaders throughout the country.

•Umpqua Go-To® is one example of our commitment to making digital banking both personal, accessible, and convenient. This free app allows customers to connect directly and securely with bankers.

•The cost burden of housing is a challenge throughout our footprint and our home lending team is seasoned in creating access to homeownership for first-time homebuyers through responsible lending practices and education programs; our affordable housing lending team strives to meet the needs of vulnerable community members by increasing housing options at affordable prices.

Operating Sustainably

We focus on smart business operations that benefit both the environment and the company. As a financial institution, Umpqua acknowledges the economic, societal, and ecological impacts of climate change to our business and to our customers. It's our responsibility to advance smart, responsible practices that lessen our impact and contribute to the company's business goals. By taking steps to shrink the size of our operating footprint—minimizing the resources we consume and the waste we create—we can help both our communities and our bottom line.

•Umpqua's steps to align operational processes with our commitment to reduce our impact on the environment is stronger than ever.

•We established our first formal environmental commitment statement in 2021.

•We made our first green bond purchase, a priority established for 2021.

•Through the ESG report, we publicly report our Green House Gas Inventory as well as our total energy and water usage, paper usage and recycling, and business travel impacts.

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Valuing Our Workforce

We create an environment where our associates have the chance to grow, connect, and do meaningful work together. Our people are the key to our success. In return, we strive to ensure their work experience allows them to use their skills and passions to make a difference while growing their careers and being recognized and appreciated for their diverse talents, backgrounds, and perspectives.

•We aim to foster a culture of diversity, equity, and inclusion—not just where we work, but also with our customers and in our communities. Key areas of focus include:

•Integrating DEI into daily operations and corporate culture. We are proud to publish our DEI Commitment and Human Rights Commitment statements as an anchor accomplishment in 2021.

•Deepening our external commitments to DEI particularly when engaging minority-owned, women-owned, and emerging small business suppliers and community partners.

•Advancing as an employer of choice for all associates by strengthening our inclusive appeal, retention, and advancement strategies.

•Strengthening our accountability around DEI advancement through effective metrics and measurement processes.

•We support our associates with a portfolio of programs that address their holistic needs, from physical and financial health to community connections and workplace recognition.

Stakeholder Engagement

We solicit input from our stakeholders through a variety of mechanisms.

•Customers may provide feedback to any Umpqua Bank associate, through our customer resource center, using direct access to our Chief Executive Officer through phone located at every Umpqua Bank store, and through outreach from our customer insights team.

•Associates may provide feedback through periodic engagement surveying, executive listening sessions, and all-hands and division calls.

•Communities may reach out anytime or talk directly with footprint-based Community Development Officers. In 2021, we invited 5,000 nonprofit stakeholders across the entire operating footprint to participate in a community needs survey and launched formal community listening sessions in December 2021/January 2022.

•We maintain regular contact with government entities and regulatory bodies.

•Investors may contact our Director of Investor Relations via our Investor Relations webpage (www.umpquabank.com/investor-relations/). In addition, we reach out to our significant investors on a regular basis.

Human Capital

At Umpqua, we are inspired by a shared purpose – to build economic vitality together for the greater good. We bring together the power of the collective talents, skills and expertise of our dedicated associates to realize our purpose, and to deliver on our commitment to our customers and our communities. We believe in helping businesses and families thrive, and equally, in helping our associates thrive.

The ability to attract, retain, develop, and engage a talented and diverse workforce is critical to executing our business strategy. We strive to deliver an employment experience anchored in a healthy and vibrant culture that appreciates and respects all associates. Our culture is anchored in our values: Customer-obsessed, Caring, Inspired to Learn, Results-oriented, Ethical, and Entrepreneurial.

Demographics. As of December 31, 2021, we employed nearly 4,000 employees, the majority of which were full-time associates. Our workforce is comprised of customer-facing associates across our various business lines, including our retail stores, our commercial business units, and our home lending business, as well as professionals in various support functions that enable the business, such as technology, finance, risk, audit, and human resources. Our teams are primarily in five western states.

Our workforce decreased by 8% during 2021, which was driven primarily by natural attrition. We did not have any significant reduction-in-force activities that were pandemic-related, or otherwise. Turnover rate, as calculated in our payroll system, in 2021 was 26.7%.

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Employee Health and Well-being. In response to the ongoing COVID-19 pandemic, we continue to prioritize the health and safety of our workforce. Many of our non-customer facing associates continued to work remotely in 2021. Those who worked from Umpqua locations were encouraged to be vaccinated, and required to wear face coverings, as well as adhere to safety practices including daily health attestation.

We have recognized that the COVID-19 pandemic has created changing workplace expectations for employees across all industries and companies. We have embraced a go-forward hybrid work model for many functions and roles, where associates work remotely some days and on-site on others. This model is supported by technology teaming solutions and allows our associates to have the flexibility to work remotely while also enjoying the benefits of in-person collaboration on a regular basis.

The challenges and changes of the last two years have inevitably created hardship and stress for our associates, and we have invested in programs and services to provide our people with enhanced support. These programs include enhanced mental health services, self-care and mindfulness programs, virtual care packages, volunteer programs, an employee assistance fund, and virtual gatherings to foster community and connection.

Compensation. We attract and reward our associates by providing market competitive compensation and benefit practices. Our compensation approach is designed to pay for performance and reward associate contributions. Each position has an established compensation range and associates have the opportunity to earn at the high end of their respective range for top performance. Our salary structure is informed by market data, and recognizing that the compensation environment is dynamic, we review and adjust our pay ranges regularly. This includes an ongoing practice of analyzing pay equity. In addition, many positions have incentive plans to encourage achievement of various corporate, business unit, and individual goals.

We offer competitive medical, dental, vision, life, short and long-term disability, and accident insurance, in addition to paid time off for vacation, sick time, and volunteerism. These programs are available to associates working 20 hours per week or more and are assessed regularly against market benchmarks.

On a regular basis, we conduct an associate engagement survey to gain insights into associate sentiment about various aspects of the associate experience. This feedback is used to assess the effectiveness of our people practices and prioritize enhancements to our programs.

Talent Development. We believe in the growth of our associates as individuals and as professionals. Our talent development programs provide our associates with the skills and experiences that allow them to thrive, supporting achievement of their personal career goals. We provide a best-in-class online learning catalog that is on-demand for all associates, in addition to role specific training for many roles. Our leadership development programs build key leadership capabilities, and support development of our internal leadership talent pipeline. We have available new manager programs, tuition reimbursement, banking school participation, coaching and mentoring programs. Additionally, we have a robust annual talent review and succession planning program that that is key to our overall talent management practice. This results in targeted development approaches, identification of emerging talent, and a healthy succession talent bench.

Diversity, Equity, and Inclusion. Umpqua Bank is committed to ensuring a culture of inclusion – where differences are respected, appreciated, and embraced. We strive to build teams that reflect the diversity of the clients and communities we serve. We have in place a multi-year comprehensive diversity, equity, and inclusion strategic plan, and continue to execute on key priorities within the plan. In 2021, we amplified our internal training, including extensive training for our executives and other organizational leaders. Additionally, we have continued to expand programs that support an inclusive work environment, such as our Associate Resource Groups, which are open to all associates. We currently have five resource groups: Pride, Women, Military, BIPOC, and People with Disabilities. Our Diversity Council is comprised of individuals from across the organization, who advance our diversity and inclusion initiatives.

An illustration of our commitment at the most senior level is in the diverse make-up of our eleven-member Board—chaired by a woman and including four women and three people of color.

Information about our Executive Officers

Information regarding employment agreements with our executive officers is contained in Item 11 below.

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Government Policies

The operations of the Company and our subsidiaries are affected by state and federal legislative and regulatory changes and by policies of various regulatory authorities, including, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal policy, and capital adequacy and liquidity constraints imposed by federal and state regulatory agencies.

Supervision and Regulation

General. We are extensively regulated under federal and state law. These laws and regulations are generally intended to protect depositors and customers, not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation. Any change in applicable laws or regulations may have a material effect on our business and prospects. We cannot accurately predict the nature or the extent of the effects on our business and earnings that fiscal or monetary policies, or new federal or state legislation or regulation may have in the future. Umpqua is subject to the disclosure and other requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and rules promulgated thereunder and administered by the Securities and Exchange Commission. As a listed company on NASDAQ, Umpqua is subject to NASDAQ rules for listed companies.

The Federal Reserve and the FDIC have adopted non-capital safety and soundness standards for financial institutions. These standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that it will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions.

Holding Company Regulation. We are a bank holding company registered as a financial holding company under the GLB Act, and are subject to the supervision of, and regulation by the Federal Reserve. As a bank holding company, we are examined by and file reports with the Federal Reserve. The Federal Reserve expects a bank holding company to serve as a source of financial and managerial strength to its subsidiary bank and, under appropriate circumstances, to commit resources to support the subsidiary bank.

Financial holding companies are bank holding companies that satisfy certain criteria and are permitted to engage in activities that traditional bank holding companies are not. The qualifications and permitted activities of financial holdings companies are described below under "Regulation of the Financial Services Industry."

Federal and State Bank Regulation. Umpqua Bank, as a state chartered bank with deposits insured by the FDIC, is primarily subject to the supervision and regulation of the Oregon Department of Consumer and Business Services Division of Financial Regulation, the Washington Department of Financial Institutions, the California Department of Business Oversight, the Idaho Department of Finance Banking Section, the Nevada Division of Financial Institutions, the FDIC and the Consumer Financial Protection Bureau. In addition, we are subject to regulation by the financial institution oversight authorities in the states of Arizona and Colorado. Our primary state regulator regularly examines the Bank or participates in joint examinations with the FDIC; these agencies may prohibit the Bank from engaging in what they believe constitute unsafe or unsound banking practices.

Community Reinvestment Act and Fair Lending Laws. Umpqua Bank has a responsibility under the CRA, as implemented by FDIC regulations, to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The FDIC assesses Umpqua Bank's record of compliance with the CRA through periodic examinations. We will continue to evaluate the impact of any changes to the regulations implementing CRA. As of the most recent CRA examination, the Bank's CRA rating was "Satisfactory".

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Umpqua Bank's failure to comply with these statutes could result in enforcement actions. 

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Transactions with Affiliates and Insiders. Banks are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons. Extensions of credit must be made on substantially the same terms, including interest rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not affiliated with the bank, and must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of civil monetary penalties on the affected bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist order, and other regulatory sanctions.

The Federal Reserve Act and related Regulation W limit the amount of certain loan and investment transactions between the Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of advances to third parties that may be collateralized by the securities of Umpqua or its subsidiaries. Regulation W requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving nonaffiliated companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies. Umpqua has adopted an Affiliate Transactions Policy and has entered into various affiliate agreements designed to comply with Regulation W.

Privacy. Federal and state laws designed to protect individual privacy limit the ability of banks and other financial institutions to disclose non-public information about consumers to affiliated companies and non-affiliated third parties, and impose other obligations on personal information collected by us. These rules require disclosure of privacy policies to clients and, in some circumstances, allow consumers to prevent disclosure of certain personal information to affiliates or non-affiliated third parties by means of opt-out or opt-in authorizations. Pursuant to the GLB Act and certain state laws, companies are required to notify clients of security breaches resulting in unauthorized access to their personal information. In connection with the regulations governing the privacy of consumer financial information, the federal banking agencies have also adopted guidelines for establishing information security standards and programs to protect such information.

States are also increasingly proposing or enacting legislation that relates to data privacy and data protection such as the California Consumer Privacy Act. We expect this trend of state-level activity in these areas to continue and are continually monitoring developments in the states in which our customers are located.

Federal Deposit Insurance. Substantially all deposits with Umpqua Bank are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and are subject to deposit insurance assessments to maintain the Deposit Insurance Fund. The standard maximum federal deposit insurance amount is $250,000 per qualified account.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines that the institution has engaged in or is engaging in unsafe and unsound banking practices, is in an unsafe or unsound condition or has violated any applicable law, regulation or order or any condition imposed in writing by, or pursuant to, any written agreement with the FDIC. The termination of deposit insurance for the Bank would have a material adverse effect on our financial condition and results of operations.

Dividends. Under the Oregon Bank Act and the Federal Deposit Insurance Corporation Improvement Act of 1991, the Bank is subject to restrictions on the payment of cash dividends to its parent company and may be required to receive prior approval in certain circumstances. In addition, state and federal regulatory authorities are authorized to prohibit banks and holding companies from paying dividends that would constitute an unsafe or unsound banking practice. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company's capital needs, asset quality, and overall financial condition.

The Bank currently has an accumulated deficit and is required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company.

Capital Adequacy. The federal and state bank regulatory agencies use capital adequacy guidelines in their examination and regulation of holding companies and banks. If capital falls below the minimum levels established by these guidelines, a holding company or a bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities.

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The FDIC and Federal Reserve have adopted risk-based capital guidelines for holding companies and banks. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weightings. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The capital adequacy guidelines limit the degree to which a holding company or bank may leverage its equity capital.

The Company and the Bank are each required to comply with applicable capital adequacy standards established by the Federal Reserve. The Basel III final rules, among other things, include the common equity Tier 1 capital to risk-weighted assets ratio, including a capital conservation buffer of 2.5%. The required CET1 ratio is a minimum of 7%. The minimum ratio of Tier 1 capital to risk-weighted assets is 8.5%, and the minimum leverage ratio is 5.0%. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded; however, the Company and the Bank have made a one-time permanent election to continue to exclude these items in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of the Company's securities portfolio.

Failure to meet minimum capital requirements could subject a bank to a variety of enforcement actions. An institution's failure to exceed the capital conservation buffer with common equity Tier 1 capital would result in limitations on an institution's ability to make capital distributions and discretionary bonus payments. FDICIA requires federal banking regulators to take "prompt corrective action" with respect to a capital-deficient institution, including requiring a capital restoration plan and restricting certain growth activities of the institution. Umpqua could be required to guarantee any such capital restoration plan required of the Bank if the Bank became undercapitalized. Pursuant to FDICIA, regulations were adopted defining five capital levels: well capitalized, adequately capitalized, undercapitalized, severely undercapitalized and critically undercapitalized. Under the regulations, the Bank is considered "well capitalized" as of December 31, 2021.

In 2019, the OCC, the FRB, and the FDIC issued a final rule intended to simplify aspects of the regulatory capital rules for banking organizations, such as Umpqua, that are not advanced approaches banking organizations. Additionally, in 2020, federal bank regulatory agencies announced an interim final rule that allows banks that have implemented the current expected credit losses standard the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period. For purposes of calculating regulatory capital, the Company has elected to defer recognition of the estimated impact of CECL on regulatory capital for two years in accordance with the interim final rule adopted by federal bank regulatory agencies. Pursuant to the interim final rule, the estimated impact of CECL on regulatory capital will be phased in over a three-year period beginning in 2022.

Effects of Government Monetary Policy. Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy for such purposes as curbing inflation and combating recession, through its open market operations in U.S. Government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements against certain deposits. These activities influence growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty.

Regulation of the Financial Services Industry. Federal laws and regulations governing banking and financial services underwent significant changes in recent years and we believe will continue to undergo significant changes in the future. From time to time, legislation is introduced in the United States Congress that contains proposals for altering the structure, regulation, and competitive relationships of financial institutions. If enacted into law, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, and other financial institutions. Whether or in what form any such legislation may be adopted or the extent to which our business might be affected thereby cannot be predicted.

The GLB Act defines a form of holding company, known as a financial holding company, that is permitted to acquire subsidiaries that are engaged in banking, securities underwriting and dealing, and insurance underwriting. To qualify as a financial holding company, the bank holding company must be deemed to be well-capitalized and well-managed, as defined by the Federal Reserve. In addition, each subsidiary bank of a bank holding company must also be well-capitalized and well-managed and be rated at least "satisfactory" under the CRA. A bank holding company that does not qualify, or has not chosen, to become a financial holding company must limit its activities to traditional banking activities and those non-banking activities the Federal Reserve has deemed to be permissible because they are closely related to the business of banking.

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The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits interstate banking and branching, which allows banks to expand nationwide through acquisition, consolidation or merger. Under this law, an adequately capitalized bank holding company may acquire banks in any state or merge banks across state lines if permitted by state law. Further, banks may establish and operate branches in any state subject to the restrictions of applicable state law. Under Oregon law, an out-of-state bank or bank holding company may merge with or acquire an Oregon state chartered bank or bank holding company upon receipt of approval from the Director of the DCBS. The Bank has the ability to open additional de novo branches in the states of Oregon, California, Washington, Idaho, and Nevada.

Anti-Terrorism Legislation. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act prohibits banks from providing correspondent accounts directly to foreign shell banks, as well as imposes due diligence requirements on banks opening and holding accounts for foreign financial institutions or wealthy foreign individuals. Banks are also required to have effective compliance processes in place relating to anti-money laundering compliance, as well as compliance with the Bank Secrecy Act.

The Dodd-Frank Act. The Dodd-Frank Act was a sweeping overhaul of financial industry regulation. The Dodd-Frank Act created the Financial Stability Oversight Council and permanently raised the FDIC deposit insurance coverage to $250,000. In addition, the Dodd-Frank Act added additional requirements on Banks and their regulators, including additional interchange fee limits, mortgage limit requirements, and say-on-pay executive compensation requirements.

The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated interstate branching restrictions that were implemented as part of the Riegle-Neal Act, and removed many restrictions on de novo interstate branching by national and state-chartered banks. The FDIC and the Office of the Comptroller of the Currency have authority to approve applications by insured state non-member banks and national banks, respectively, to establish de novo branches in states other than the bank's home state if the law of the state in which the branch is to be located would permit establishment of the branch, if the bank were a state bank chartered by such State.

Stress Testing and Capital Planning. Initially, Umpqua was subject to annual Dodd-Frank Act capital stress testing requirements of the Federal Reserve and the FDIC. As part of the DFAST process, Umpqua was required to submit the results of the company-run stress tests to the FDIC, and Umpqua disclosed certain results from stress testing exercises.  However, the Economic Growth, Regulatory Relief, and Consumer Protection Act, modified provisions of the Dodd-Frank Act allows Umpqua to internally monitor and stress test its capital consistent with the safety and soundness expectations of its regulators.

CFPB Regulation and Supervision. The CFPB has authority to examine Umpqua for compliance with a broad range of federal consumer financial laws and regulations, including the laws and regulations that relate to credit card, deposit, mortgage and other consumer financial products and services the Bank offers. The CFPB is authorized to issue regulations and take enforcement actions to prevent and remedy acts and practices relating to consumer financial products and services that it deems to be unfair, deceptive or abusive. The agency also has authority to impose new disclosure requirements for any consumer financial product or service. In addition, the CFPB's regulations require lenders to conduct a reasonable and good faith determination at or before consummation of a residential mortgage loan that the borrower will have a reasonable ability to repay the loan.

In December 2021, the CFPB published a report providing data on banks' overdraft and non-sufficient funds fee revenues as well as observations regarding consumer protection issues relating to participation in such programs. The CFPB has indicated that it intends to pursue enforcement actions against banking organizations, and their executives, that oversee overdraft practices that are deemed to be unlawful.

Joint Agency Guidance on Incentive Compensation. Federal banking regulators joint agency guidance applies to executive and non-executive incentive compensation plans administered by banks. The guidance says that incentive compensation programs must:

•Provide employees incentives that appropriately balance risk and reward;

•Be compatible with effective controls and risk- management; and

•Be supported by strong corporate governance, including active and effective oversight by the board.

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The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of the Company and other banking organizations. The findings of the supervisory initiatives are included in reports of examination and any deficiencies will be incorporated into the Company's supervisory ratings, which can affect the Company's ability to make acquisitions and take other actions.

Regulatory Developments Related to the COVID-19 Pandemic

The U.S. Congress, the FRB and U.S. state and federal regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from the COVID-19 pandemic. The descriptions below summarize certain significant government actions taken in response to the COVID-19 pandemic.

The CARES Act. The Coronavirus Aid, Relief and Economic Security Act includes relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as TDR loans as well as a range of incentives to encourage deferment, forbearance, or modification of consumer credit and mortgage contracts. In addition to the CARES Act, bank regulatory agencies issued interagency guidance indicating that a lender could conclude that the modifications under applicable guidance are not a TDR if certain criteria are met. The guidance also provides that loans generally will not be adversely classified if the short-term modification is related to COVID-19 relief programs. The Company has followed the guidance under the CARES Act, interagency guidance and state programs related to these loan modifications.

The CARES Act also focused on economic stabilization and relief to severely distressed businesses with the Paycheck Protection Program, administered by the SBA, which provided loans for eligible small businesses for payroll obligations, emergency grants to cover immediate operating costs, and a mechanism for loan forgiveness.

The CARES Act contains additional protections for homeowners and renters of properties with federally-backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings and a 120-day moratorium on initiating eviction proceedings. Borrowers of federally-backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to COVID-19 pandemic. The Federal Housing Administration, Fannie Mae and Freddie Mac have independently extended their moratorium on foreclosures and evictions for single-family federally backed mortgages as well.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act rebooted the PPP with many of the same parameters as the first program but also included the ability for businesses that previously received a PPP loan to be eligible for a second-draw PPP loan, provided they meet certain criteria. The Act also opened up first-draw PPP loans to additional companies and set aside funds for new and smaller borrowers, low and moderate income borrowers and for community and small lenders. It also allowed additional costs to be eligible for loan forgiveness and PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period.

The American Rescue Plan Act of 2021 was designed to facilitate the recovery of the economic and health effects of the COVID-19 pandemic. The plan provided direct stimulus financial payments to individuals, extended unemployment benefits, increased financial assistance, and added an additional funding for PPP loans. The PPP ended on May 31, 2021.

Additional legislative and regulatory action may be proposed and could include requirements that could significantly impact our business practices. The impact of these legislative and regulatory initiatives on us, the economy and the U.S. consumer will depend upon a wide variety of factors some of which are yet to be identified.

ITEM 1A.   RISK FACTORS. 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed below. These factors could adversely affect our business, financial condition, liquidity, results of operations and capital position, and the value of, and return on, an investment in the Company. These factors could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends on the investment could be reduced or eliminated.

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Risks Related to the Proposed Mergers and the Bank Merger

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

Before the Mergers and the Bank Merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve Board, the FDIC, the Oregon Division of Financial Regulation, and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party's regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political, or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally. Recent transactions comparable to the Mergers have encountered abnormally lengthy delays, and the Mergers and the Bank Merger may be subject to similar atypical delays in obtaining its required approvals.

The approvals that are granted may impose terms and conditions, limitations, obligations, or costs, or place restrictions on the conduct of the combined company's business or require changes to the terms of the transactions contemplated by the Merger Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations, or restrictions and that such conditions, limitations, obligations, or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the Mergers or otherwise reducing the anticipated benefits of the Mergers if the Mergers were consummated successfully within the expected time frame. In addition, there can be no assurance that any such conditions, terms, obligations, or restrictions will not result in the delay or abandonment of the Mergers.

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

Umpqua and Columbia have operated and, until the completion of the Mergers and the Bank Merger, will continue to operate independently. The success of the proposed transaction, will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Umpqua and Columbia. To realize the anticipated benefits and cost savings, Columbia and Umpqua must successfully integrate and combine their businesses in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect the combined company's ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits and cost savings. If Umpqua experiences difficulties with the integration process, the anticipated benefits may not be realized fully or at all or may take longer to realize than expected. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on Umpqua during this transition period and for an undetermined period after completion of the Mergers and the Bank Merger on the combined company. In addition, the actual cost savings could be less than anticipated.

Termination of the Merger Agreement could negatively impact Umpqua.

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

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

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

Umpqua will incur substantial costs related to the Mergers.

Umpqua has incurred and expects to incur a number of significant non-recurring costs associated with the Mergers. These costs include legal, financial advisory, accounting, consulting, and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, financial and other printing costs, and other related costs. Some of these costs are payable regardless of whether the Mergers are completed. We may incur additional costs to maintain employee morale and retain key employees during the pendency of the Mergers. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction costs over time.

Litigation related to the proposed Mergers has been filed, which could prevent or delay the completion of the mergers, result in the payment of damages, or otherwise negatively impact our business and operations.

One of the conditions to the closing of the Mergers is that no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Mergers, the Bank Merger or any of the other transactions contemplated by the Merger Agreement be in effect. Among other remedies, litigation that has been filed seeks damages or to enjoin the transactions contemplated by the Merger Agreement. The outcome of any litigation is uncertain and any such lawsuit could prevent or delay the consummation of the Mergers and could result in substantial costs to Columbia, Umpqua, and the combined company, including any cost associated with the indemnification of directors and officers of each company. We may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the transactions contemplated by the Merger Agreement. Such litigation could have an adverse effect on the financial condition and results of operations of Umpqua and could prevent or delay the completion of the Mergers.

The Merger Agreement limits Umpqua's ability to pursue acquisition proposals.

The merger agreement prohibits Umpqua from soliciting, initiating, knowingly encouraging, or knowingly facilitating certain third‑party acquisition proposals. These provisions, which could result in a $145.0 million termination fee payable under certain circumstances, might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Umpqua from considering or proposing such an acquisition.

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COVID-19 RISK

The COVID-19 pandemic has impacted our business, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has negatively impacted the economy, changed customer behaviors, disrupted supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and stay at home/sheltering in place requirements in the states and communities we serve. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. The pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, unemployment levels continue to rise or regional economic conditions worsen. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. In response to the pandemic, we have initiated relief programs designed to support our customers and communities including payment deferral programs, deferral-related and other fee waivers, suspended residential property foreclosure sales, and other expanded assistance for customers. Future governmental actions may require additional types of customer-related responses that could negatively impact our financial results. We could be required to take capital actions in response to the COVID-19 pandemic, including reducing dividends and eliminating stock repurchases. The extent to which the COVID-19 pandemic continues to impact our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic; the effect on our customers, counterparties, employees and third party service providers; and the effect on economies and markets. To the extent that the COVID-19 pandemic continues, it may also have the effect of heightening many of the other risks.

CREDIT RISK

The majority of our assets are loans, which if not repaid would result in losses to the Bank.

The Bank and its operating subsidiary are subject to credit risk, which is the risk of losing principal or interest due to borrowers' failure to repay loans or leases in accordance with their terms. Underwriting and documentation controls cannot mitigate all credit risk. A downturn in the economy or the real estate market in our market areas or a rapid increase in interest rates could have a negative effect on collateral values and borrowers' ability to repay. To the extent loans are not paid timely by borrowers, the loans are placed on non-accrual status, thereby reducing interest income. Further, under these circumstances, an additional provision for loan and lease losses or unfunded commitments may be required. Risk of borrower default may arise from events or circumstances that are difficult to detect or foresee.

We maintain an allowance for credit losses on loans and leases, which is a reserve established through a provision for credit losses charged to expense, that represents management's best estimate of current expected credit losses over the life of the loan or lease within the existing portfolio of loans and leases. The allowance for credit losses on loans and leases, in the judgment of management, is necessary to reserve for current expected credit losses and risks in the loan and lease portfolio. The level of the allowance for credit losses on loans and leases is an estimate that reflects management's consideration of relevant available information, including historical credit loss experience, current conditions, and reasonable and supportable forecasts. The determination of the appropriate level of the allowance for credit losses on loans and leases inherently involves a high degree of subjectivity and requires us to make significant estimates of current expected credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans and leases, identification of additional problem loans and leases, and other factors, both within and outside of our control, may require an increase in the allowance for credit losses on loans and leases.

In addition, bank regulatory agencies periodically review our allowance for credit losses on loans and leases and may require an increase in the provision for credit losses or the recognition of additional loan charge offs, based on judgments different than those of management. An increase in the allowance for credit losses on loans and leases would result in a decrease in net income, and possibly risk-based capital, and could have a material adverse effect on our financial condition and results of operations.

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We are subject to lending concentration risks.

As of December 31, 2021, approximately 74% of our loan portfolio consisted of commercial and industrial, real estate construction, commercial real estate loans, and lease financing. Commercial loans are generally viewed as having more inherent risk of default than residential mortgage loans or other consumer loans. Also, the commercial loan balance per borrower is typically larger than that for residential mortgage loans and other consumer loans, implying higher potential losses on an individual loan basis. Because our loan portfolio contains a number of commercial loans with balances over $20 million, the deterioration of one or a few of these loans could cause a significant increase in nonaccrual loans, which could have a material adverse effect on our financial condition and results of operations.

Deterioration in the real estate market or other segments of our loan portfolio would lead to additional losses, which could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2021, approximately 76% of our total loan portfolio is secured by real estate, the majority of which is commercial real estate located in the five Western states in our footprint. Our success depends in part on economic conditions in the western United States and adverse changes in markets where our real estate collateral is located could adversely affect our business. Increases in delinquency rates or declines in real estate market values would require increased net charge-offs and increases in the allowance for credit losses on loans and leases, which could have a material adverse effect on our business, financial condition and results of operations and prospects.

The CECL accounting for the ACL may create volatility in our provision for credit losses and could have a material impact on our financial condition or results of operations.

Under the CECL model, we are required to present loans and leases, as well as certain other financial assets, carried at amortized cost at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter. The CECL model creates more volatility in the level of our allowance for credit losses on loans and leases. We expect to incur ongoing costs in maintaining the additional CECL models and methodology along with acquiring forecasts used within the models, and that the methodology will result in increased costs. The CECL process involves significant management judgment in determining the overall adequacy of the ACL. Management considers various qualitative factors including changes within the portfolio, changes to Bank policies and processes, as well as external factors, which may result in qualitative overlays to the model results.

MARKET AND INTEREST RATE RISK

Difficult or volatile market conditions or weak economic conditions may adversely affect our business.

Our business and financial performance are vulnerable to weak economic conditions, primarily in the United States and especially in the western United States. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events. A deterioration in economic conditions in our primary market areas could result in the following consequences, any of which could materially and adversely affect our business: increased loan delinquencies; problem assets and foreclosures; significant write-downs of asset values; volatile financial markets; lower demand for our products and services; reduced low cost or noninterest bearing deposits; intangible asset impairment; and collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers' borrowing power, and reducing the value of assets and collateral associated with our existing loans. Additional issues surrounding weakening economic conditions and volatile markets that could adversely impact us include:

•Increased regulation of our industry, and resulting increased costs associated with regulatory compliance and potential limits on our ability to pursue business opportunities.

•Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future performance.

•The process we use to estimate current expected credit losses in our loan portfolio requires difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of accurate estimation and may, in turn, impact its reliability.

•Downward pressure on our stock price.

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A rapid change in interest rates, or maintenance of rates at historically high or low levels for an extended period, could make it difficult to improve or maintain our current interest income spread and could result in reduced earnings.

Our earnings are largely derived from net interest income, which is interest income and fees earned on loans and investments, less interest paid on deposits and other borrowings. Interest rates are highly sensitive to many factors that are beyond the control of our management, including general economic conditions and the policies of various governmental and regulatory authorities. The actions of the Federal Reserve influence the rates of interest that we charge on loans and pay on borrowings and interest-bearing deposits. We cannot predict the nature or timing of future changes in monetary, tax and other policies or the effects that they may have on our activities and financial results.

As interest rates change, net interest income is affected. With fixed rate assets (such as fixed rate loans and most investment securities) and liabilities (such as certificates of deposit), the effect on net interest income depends on the cash flows associated with the maturity of the asset or liability. Asset/liability management policies may not be successfully implemented and from time to time our risk position is not balanced. An unanticipated rapid decrease or increase in interest rates could have an adverse effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore on the level of net interest income. For instance, any rapid increase in interest rates in the future could result in interest expense increasing faster than interest income because of fixed rate loans and longer-term investments. Historically low rates for an extended period of time result in reduced returns from the investment and loan portfolios. The current low interest rate environment could affect consumer and business behavior in ways that are adverse to us and negatively impact our ability to increase our net interest income. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth than previously experienced.

Shorter-term and longer-term interest rates remain below historical averages, as well as the yield curve, which has been relatively flat. A flat yield curve combined with low interest rates generally leads to lower revenue and reduced margins because it tends to limit our ability to increase the spread between asset yields and funding costs. Sustained periods of time with a flat yield curve coupled with low interest rates could have a material adverse effect on our earnings and our net interest margin.

Interest rate volatility and credit risk adjusted rate spreads may impact our financial assets and liabilities measured at fair value.

Our investment portfolio consists of mortgage backed securities and collateralized mortgage obligations, the nature of these securities is such that changes in market interest rates impact the value of the assets. In addition, the MSR are measured at fair value and changes in the interest rates may also impact their value. The widening of the credit risk adjusted rate spreads on potential new issuances of junior subordinated debentures above our contractual spreads and reductions in three-month LIBOR rates have contributed to the cumulative positive fair value adjustment in our junior subordinated debentures carried at fair value. Tightening of these credit risk adjusted rate spreads and interest rate volatility may result in recognizing negative fair value adjustments in the future.

It is possible the Company may accelerate redemption of the existing junior subordinated debentures to support regulatory total capital levels. This could result in adjustments to the fair value of these instruments including the acceleration of accumulated losses on junior subordinated debentures carried at fair value.

We rely on the soundness of other financial institutions and government sponsored enterprises.

Financial services institutions and government sponsored enterprises are interrelated as a result of trading, clearing, processing, lending, counterparty, guarantor and other relationships. We have exposure to many different industries and counterparties in financial services, including brokers and dealers, commercial banks, bankers banks, correspondent banks, investment banks, mutual and hedge funds, institutions involved in the mortgage business and others. Transactions with these entities expose us to risk in the event of default of our counterparty, including due to their failure or financial difficulty. Our ability to engage in funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions, including if there is a default by, or rumors about, one or more financial services institutions. Our credit risk could also be impacted when the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us.

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We may be impacted by the retirement of LIBOR as a reference rate.

In November 2020, the ICE Benchmark Administration, the London Interbank Offered Rate administrator, announced its intention to continue publishing most tenors of U.S. dollar LIBOR until June 30, 2023. The Financial Conduct Authority announced support for this development, signaling an extension from its prior communication that it would no longer require panel banks to submit rates for LIBOR after 2021. The Alternative Reference Rates Committee was convened in the U.S. to explore alternative reference rates and supporting processes. The ARRC is made up of financial and capital market institutions, is convened by the Federal Reserve Board and the Federal Reserve Bank of New York, and includes participation by various regulators. The ARRC identified a potential successor rate to LIBOR in the Secured Overnight Financing Rate and crafted the Paced Transition Plan to facilitate the transition. However, there are conceptual and technical differences between LIBOR and SOFR.

A significant portion of our loans, approximately 39%, and all of the related derivative contracts within the Commercial & Industrial, Commercial Real Estate, and Residential Mortgage portfolios reference LIBOR. We have not yet determined the optimal replacement reference rate(s) that will ultimately replace LIBOR in current contracts maturing after LIBOR cessation. We have introduced SOFR as an option for use in our variable or adjustable rate credit products going forward. We have organized an internal transition program to identify system, operational, and contractual impacts, assess our risks, manage the transition, facilitate communication with our customers, and monitor the program progress. The LIBOR retirement is a significant shift in the industry. A transition away from LIBOR could impact our pricing and interest rate risk models, our loan product structures, our hedging strategies, and communication with our customers.

The market transition away from LIBOR could:

•adversely affect the interest rates paid or received on our floating rate obligations, loans, deposits, derivatives and other financial instruments tied to LIBOR

•adversely affect the value of our financial instruments tied to LIBOR

•result in additional regulatory scrutiny of our preparedness for the transition away from LIBOR and increased compliance and operational costs related to the transition;

•result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of fallback or replacement index language in LIBOR-based instruments and securities;

•cause customer confusion and negatively impact our relationships with borrowers; and

•require the transition to or development of appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on an alternative benchmark.

LIQUIDITY RISK

Deposits are a critical source of funds for our continued growth and profitability.

Our business strategy calls for continued growth. Our ability to continue to grow depends primarily on our ability to successfully attract deposits to fund loan growth. Core deposits are a low cost and generally stable source of funding and a significant source of funds for our lending activities. Our inability to retain or attract such funds could adversely affect our liquidity. If we are forced to seek other sources of funds, such as additional brokered deposits or borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our deposits, which would adversely impact our net income, and such sources of funding may be more volatile and unavailable to us.

Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets due to market conditions could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. An adverse regulatory action against us could detrimentally impact our access to liquidity sources. Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services industry as a whole as evidenced by turmoil in the domestic and worldwide credit markets.

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Our wholesale funding sources may prove insufficient to support our future growth or an unexpected reduction in deposits.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. If we grow more rapidly than any increase in our deposit balances, we are likely to become more dependent on these sources, which include brokered deposits, Federal Home Loan Bank advances, proceeds from the sale of loans and liquidity resources at the holding company. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs, and our profitability would be adversely affected.

MORTGAGE BANKING RISK

Changes in interest rates could reduce the value of mortgage servicing rights.

We acquire MSR when we keep servicing rights after we sell originated residential mortgage loans. We sell the majority of our originated residential mortgage loans with servicing retained. We measure MSR at fair value. Fair value is the present value of estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood of prepayment by borrowers. Changes in interest rates can affect prepayment assumptions and consequently MSR fair value. When interest rates fall, borrowers are usually more likely to prepay their mortgage loans by refinancing them at a lower rate. As the likelihood of prepayment increases, MSR fair value can decrease, which reduces earnings in the period in which the decrease occurs.

A low interest rate environment increases our exposure to prepayment risk in our mortgage portfolio and the mortgage-backed securities in our investment portfolio. Increased prepayments, refinancing or other factors that impact loan balances could reduce expected revenue associated with mortgage assets and could also lead to a reduction in the value of our mortgage servicing rights, which could have a negative impact on our financial results.

Our mortgage banking revenue can fluctuate significantly.

We earn revenue from fees received for originating, selling and servicing mortgage loans. Generally, if interest rates rise, the demand for mortgage loans tends to fall, reducing the revenue we receive from originations and sales of mortgage loans. At the same time, mortgage banking revenue can increase through increases in fair value of MSR. When interest rates decline, originations tend to increase and the value of MSR tends to decline, also with some offsetting revenue effect. The negative effect on revenue from a decrease in the fair value of residential MSR is immediate, but any offsetting revenue benefit from more originations and the MSR relating to new loans accrues over time. It is also possible that even if interest rates were to fall, mortgage originations may also fall or any increase in mortgage originations may not be enough to offset the decrease in the MSR value caused by the lower rates.

We depend upon programs administered by Fannie Mae, Freddie Mac and Ginnie Mae.

Our ability to generate revenues in our home lending group depends on programs administered by government-sponsored entities that play an important role in the residential mortgage industry. During 2021, 56% of mortgage loans were originated for sale to, or through programs sponsored by Fannie Mae, Freddie Mac or Ginnie Mae. We service loans on behalf of Fannie Mae and Freddie Mac, as well as loans that have been securitized pursuant to securitization programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae.  A majority of our mortgage servicing rights and loans serviced through subservicing agreements relate to these servicing activities. These entities establish the base service fee to compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed upon us for failing to meet servicing standards. Our status as a Fannie Mae, Freddie Mac and Ginnie Mae approved seller and servicer is subject to compliance with guidelines and failure to meet such guidelines could result in the unilateral termination of our status as an approved seller or servicer.  Changes in the existing government-sponsored mortgage programs or servicing eligibility standards through legislation or otherwise, or our failure to maintain a relationship with each of Fannie Mae, Freddie Mac and Ginnie Mae, could materially and adversely affect our business, financial position, results of operations and cash flows through negative impact on the pricing of mortgage related assets in the secondary market, higher mortgage rates to borrowers, or lower mortgage origination volumes and margins. 

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LEGAL, REGULATORY AND COMPLIANCE RISK

We are subject to extensive government regulation and supervision.

Umpqua and its subsidiaries, primarily Umpqua Bank, are subject to extensive federal and state regulation and supervision including by the FDIC, Oregon Division of Financial Regulation, Federal Reserve Board, CFPB, the SEC and FINRA, the primary focus of which is to protect customers, depositors, the deposit insurance fund and the safety and soundness of the banking system as a whole, and not shareholders. The quantity and scope of applicable federal and state regulations may place banks and brokerage firms at a competitive disadvantage compared to less regulated competitors such as financial technology companies, finance companies, credit unions, mortgage banking companies and leasing companies. These laws and regulations apply to almost every aspect of our business, and affect our lending practices and procedures, capital structure, investment activities, deposit gathering activities, our services and products, risk management practices, dividend policy and growth, including through acquisitions.

Legislation and regulation with respect to our industry has increased in recent years, and we expect that supervision and regulation will continue to expand in scope and complexity. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways, and could subject us to additional costs, restrict our growth, limit the services and products we may offer or limit the pricing of banking services and products. In addition, establishing systems and processes to achieve compliance with laws and regulation increases our costs and could limit our ability to pursue business opportunities.

If we receive less than satisfactory results on regulatory examinations, we could be subject to damage to our reputation, significant fines and penalties, requirements to increase compliance and risk management activities and related costs and restriction on acquisitions, new locations, new lines of business, or continued growth. Future changes in federal and state banking and brokerage regulations could adversely affect our operating results and ability to continue to compete effectively. For example, the Dodd-Frank Act and related regulations subject us to additional restrictions, oversight and reporting obligations, which have significantly increased costs. And over the last several years, state and federal regulators have focused on enhanced risk management practices, compliance with the Bank Secrecy Act and anti-money laundering laws, data integrity and security, use of service providers, and fair lending and other consumer protection issues, which has increased our need to build additional processes and infrastructure. Government agencies charged with adopting and interpreting laws, rules and regulations, may do so in an unforeseen manner, including in ways that potentially expand the reach of the laws, rules or regulations more than initially contemplated or currently anticipated. We cannot predict the substance or impact of pending or future legislation or regulation, or the application thereof. Compliance with such current and potential regulation and scrutiny could significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner. Our success depends on our ability to maintain compliance with both existing and new laws and regulations.

We are required to comply with stringent capital requirements.

We are required to maintain a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8%, and a leverage ratio of 4%.  In addition, we must maintain an additional capital conservation buffer of 2.5% of total risk weighted assets or be subject to limitations on dividends and other capital distributions, as well as limiting discretionary bonus payments to executive officers. The capital rules may require us to raise more common capital or other capital that qualifies as Tier 1 capital. Maintaining higher levels of capital may reduce our profitability and otherwise adversely affect our business, financial condition, or results of operations. The application of more stringent capital requirements could, among other things, result in lower returns on invested capital and result in regulatory actions if we were to be unable to comply with such requirements.

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We may be required to raise additional capital in the future, but that capital may not be available when it is needed, or it may only be available on unacceptable terms, which could adversely affect our financial condition and results of operations.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we may not be able to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations and pursue our growth strategy could be materially impaired. We and the Bank are currently well capitalized under applicable regulatory guidelines. However, our business could be negatively affected if we or the Bank failed to remain well capitalized. For example, because Umpqua Bank is well capitalized, and we otherwise qualify as a financial holding company, we are permitted to engage in a broader range of activities than are permitted to a bank holding company. Loss of financial holding company status could require that we cease these broader activities. The banking regulators are authorized (and sometimes required) to impose a wide range of requirements, conditions, and restrictions on banks, thrifts, and bank holding companies that fail to maintain adequate capital levels.

We have risk related to legal proceedings.

We are involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities. We establish reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may incur costs for a legal matter even if we have not established a reserve, and the actual costs of resolving a legal matter may substantially exceed any established reserves for the matter. Our insurance may not cover all claims that may be asserted against us. Any claim asserted against us, regardless of merit or eventual outcome, could harm our reputation. The ultimate resolution of a pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition.

As a bank holding company that conducts substantially all of our operations through the Bank, our ability to pay dividends, repurchase our shares or to repay our indebtedness depends upon liquid assets held by the holding company and the results of operations of our subsidiaries.

The Company is a separate and distinct legal entity from our subsidiaries and it receives substantially all of its revenue from dividends paid from the Bank. There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, us. Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.

Our net income depends primarily upon the Bank's net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earning assets (primarily interest paid on deposits). The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans. All of those factors affect the Bank's ability to pay dividends to the Company.

Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval. The Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the "adequately capitalized" level in accordance with regulatory capital requirements. It is also possible that, depending upon the financial condition of the Bank and other factors, regulatory authorities could conclude that payment of dividends or other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit such payments.

Under Oregon law, the Bank may not pay dividends in excess of unreserved retained earnings, deducting there from, to the extent not already charged against earnings or reflected in a reserve, the following: (1) all bad debts, which are debts on which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection; (2) all other assets charged-off as required by Oregon bank regulators or a state or federal examiner; and (3) all accrued expenses, interest and taxes of the institution. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company's capital needs, asset quality and overall financial condition.

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We are currently required to seek prior regulatory approval for dividends from the Bank to Umpqua and from Umpqua to shareholders. Our regulators have broad discretion whether to approve (or to not object to) dividends and when they will respond to our requests.

TECHNOLOGY RISK

We face significant cyber, data and information security risk.

Cyber attacks and other data security risks and breaches include computer viruses, malicious or destructive code, denial of service or information attacks, hacking, ransomware, social engineering attacks targeting our associates and customers, improper access by associates or vendors, malware intrusion and data corruption attempts, and identity theft that could result in the disclosure or destruction of confidential or proprietary information.

Cyberattack techniques can be very sophisticated and difficult to prevent and promptly detect, change regularly, and can originate from a wide variety of sources including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Cyber security risk management programs are expensive to maintain and as cyber threats continue to grow and evolve we may be required to expend significant additional resources to continue to modify or enhance protective measures or to investigate and remediate information security vulnerabilities or incidents. Although we have programs in place related to business continuity, disaster recovery and information and cyber security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, we may not timely detect disruptions and disruptions may still give rise to interruptions in service to customers and loss or liability to us, including loss of customer data.

Cyber risks increase as we continue to develop and grow our mobile and other internet-based product offerings and expand our internal usage of web-based products and applications.

Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause serious negative consequences that could adversely impact its results of operations, liquidity and financial condition, including:

•loss of customers and business opportunities;

•costs associated with maintaining business relationships after an attack or breach;

•significant business disruption to our operations;

•misappropriation, exposure, or destruction of our confidential information, intellectual property, funds, or those of our customers;

•damage to computers or systems;

•violation of applicable privacy and other laws;

•litigation;

•regulatory fines, penalties or intervention;

•loss of confidence in our security measures;

•reimbursement or other compensatory costs; and

•additional compliance costs.

Our cybersecurity insurance may not provide sufficient coverage in the event of a breach or may not be available in the future on acceptable terms.

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Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.

As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank regulatory agencies have proposed enhanced cyber risk management standards, focusing on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience and situational awareness. Several states have proposed or adopted cybersecurity legislation and regulations, which require, among other things, notification to affected individuals when there has been a security breach of their personal data. We receive, maintain and store non-public personal information of our customers and counterparties, including, but not limited to, personally identifiable information and personal financial information. The sharing, use, disclosure and protection of this information are governed by federal and state law. Both personally identifiable information and personal financial information is increasingly subject to legislation and regulation, the intent of which is to protect the privacy of personal information that is collected and handled. For example, in June of 2018, the Governor of California signed into law the California Consumer Privacy Act, which became effective on January 1, 2020, and Californians approved the California Privacy Rights Act in November 2020. We may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and personal financial information or of any other information we may store or maintain. We could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with our current practices, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change its business practices, policies or systems in a manner that adversely impacts our operating results.

The failure to understand and adapt to continual technological changes could negatively impact our business.

The financial services industry is undergoing rapid technological change with frequent introductions of new technology-driven products and services by depository institutions and fintech companies. Technological changes are often designed to eliminate banks as intermediaries which could result in the loss of income and customer deposits. New technology-driven products and services are often introduced and adopted, including innovative ways that customers can make payments, access products and manage accounts. We could be required to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services or those new products may not achieve market acceptance. We could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases if we do not effectively develop and implement new technology. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. In addition, advances in technology such as digital, mobile, telephone, text, and on-line banking; e-commerce; and self-service automatic teller machines and other equipment, as well as changing customer preferences to access our products and services through digital channels, could decrease the value of our store network and other assets. We may close or sell certain stores and restructure or reduce our remaining stores and work force. These actions could lead to losses on assets, expense to reconfigure stores and loss of customers in certain markets. As a result, our business, financial condition or results of operations may be adversely affected.

We may not be able to successfully implement current or future information technology system enhancements and operational initiatives.

We are investing significant resources in information technology system enhancements and operational initiative to provide functionality, new and enhanced products and services, more efficient internal operations, meet regulatory requirements and streamline our customer experience. We may not be able to successfully implement and integrate such system enhancements and related operational initiatives or do so within budgets and on time. We may incur significant training, licensing, maintenance, consulting and amortization expenses during and after implementation, and may not realize the anticipated long-term benefits.

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Our business is highly reliant on technology and our ability to manage the operational risks associated with technology.

Our business involves storing, transmitting, retrieving and processing sensitive consumer and business customer data. We depend on internal systems and outsourced technology to support these data storage and processing operations in a secure manner. Despite our efforts to ensure the security and integrity of our systems, we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all cyber security breaches. A cyber security breach or cyberattack could persist for a long time before being detected and could result in theft of sensitive data or disruption of our transaction processing systems. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. Our customers and other third parties may use personal mobile devices or computing devices that are outside of its network environment and are subject to their own cybersecurity risks to access our network, products and services.

We depend on our ability to manage the operational risks associated with technology to avoid losses and reputational damage.

Our business involves storing and processing sensitive consumer and business customer data. We depend on internal systems and outsourced technology to support these data storage and processing operations. Despite our efforts to ensure the security and integrity of our systems, we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all cyber security breaches. A cyber security breach or cyberattack could persist for a long time before being detected and could result in theft of sensitive data or disruption of our transaction processing systems. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. 

OPERATIONAL RISK

Our business is highly reliant on third party vendors (and their vendors) and our ability to manage the operational risks associated with outsourcing those services.

We rely on third parties to provide services that are integral to our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts. We cannot be sure that we will be able to maintain these relationships on favorable terms. In addition, some of our data processing services are provided by companies associated with our competitors. The loss of these vendor relationships could disrupt the services we provide to our customers and cause us to incur significant expense in connection with replacing these services.

Our non-interest income includes revenues related to overdraft and non-sufficient funds fees and may be subject to increased scrutiny.

Recently, there has been a heightened interest in bank overdraft protection programs and the related fees earned by banks. In response to increased interest and scrutiny, and in anticipation of enhanced supervision and enforcement of overdraft protection practices in the future, certain banking organizations have begun to modify their overdraft protection programs, including discontinuation of charging their customers overdraft transaction fees. Competitive pressures from our peers, as well as any new rules or supervisory guidance or more aggressive examination and enforcement policies in respect of banks' overdraft protection practices, could cause Umpqua to change our practices in ways that may have a negative impact on our revenue and earnings, which could have an adverse effect on our financial condition and results of operations.

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Damage to our brand and reputation could significantly harm our business and prospects.

Our brand and reputation are important assets. Our relationship with many of our customers is predicated upon our reputation as a high-quality provider of financial services that adheres to the highest standards of ethics, service quality and regulatory compliance. We believe that our brand has been, and continues to be, well received in our industry, with current and potential customers, investors and employees. Our ability to attract and retain customers, investors and employees depends upon external perceptions of us. Damage to our reputation among existing and potential customers, investors and employees could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, lending practices, inadequate protection of customer information, sales and marketing efforts, compliance failures, unethical behavior and the misconduct of employees. Adverse developments with respect to our industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us.

We and our customers are susceptible to fraud.

Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer, associate, vendor or member of the general public. We are most subject to fraud risk with the origination of loans, ACH and wire transactions, ATM transactions and checking transactions. Fraud risk within digital channels is challenging to detect and prevent and we are expanding our business more deeply into these channels. We rely on financial and other data from customers when we accept them as new customers and when they conduct transactions, which information could be fraudulent and expose us to losses that negatively impact our net income especially when delivered through digital channels. Our operational controls to prevent and detect such fraud may be ineffective in preventing new methods of fraud. If our customers experience fraud, theft or a cyber attack on their systems that results in loss of funds held at the Bank, they will often look to the Bank to make them whole regardless of fault, which can increase our costs to defend threatened litigation and result in loss of customer relationships.

STRATEGIC AND OTHER BUSINESS RISKS

The financial services industry is highly competitive.

We face pricing competition for loans and deposits. We also face competition with respect to customer convenience, product lines, accessibility of service and service capabilities. Our most direct competition comes from other banks, brokerages, mortgage companies and savings institutions, but more recently has also come from fintech companies that rely on technology to provide financial services. We also face competition from credit unions, government-sponsored enterprises, mutual fund companies, insurance companies and other non-bank businesses. The significant competition in attracting and retaining deposits and making loans, as well as providing other financial services throughout our market area may impact future earnings and growth. Our success depends, in part, on the ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices, which can reduce net interest income and non-interest income from fee-based products and services.

Climate change and related legislative and regulatory initiatives may materially adversely affect the Company's business and results of operations.

The effects of climate change continue to create concern for the state of the global environment. The impacts of climate change, such as extreme weather conditions, natural disasters and rising sea levels, could impact our operations as well as those of our customers and our third party vendors. Increased regulation related to climate change could have an adverse effect on our business and our customers. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

The principal properties of Umpqua Holdings Corporation are leased corporate offices located in the Portland, Oregon metro area. The Bank's headquarters, located in Roseburg, Oregon, is owned. At December 31, 2021, the Bank conducted commercial and retail banking activities at 234 locations, including 202 store locations, in Oregon, Washington, California, Idaho and Nevada. Our 234 locations include 96 owned and 138 leased locations. As of December 31, 2021, the Bank also operated 28 facilities for the purpose of administrative and other functions, such as back-office support, of which two are owned and 26 are leased. The Company has reduced and will continue to evaluate its facilities, as the Company continues to adapt to a more remote or hybrid workforce.

ITEM 3. LEGAL PROCEEDINGS.

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of all of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Six purported holders of Umpqua common stock filed complaints relating to the proposed Mergers in the U.S. District Court for the Southern District of New York: Neely v. Umpqua Holdings Corporation et al., No. 1:21-cv-10171 (filed November 30, 2021) ("Neely"); Wang v. Umpqua Holdings Corporation et al., No. 1:21-cv-10143 (filed November 30, 2021) ("Wang"); Mackie v. Umpqua Holdings Corporation et al., No. 1:21-cv-10237 (filed December 1, 2021) ("Mackie"); Mason v. Umpqua Holdings Corporation et al., No. 1:21-cv-10912 (filed December 20, 2021) ("Mason"); Wilson v. Umpqua Holdings Corporation et al., No. 1:22-cv-00090 (filed January 5, 2022) ("Wilson"); and Jones v. Umpqua Holdings Corporation et al., No. 1:22-cv-00122 (filed January 6, 2022) ("Jones"). Two additional purported holders of Umpqua common stock filed complaints relating to the proposed Mergers in the U.S. District Court for the Eastern District of New York (Green v. Umpqua Holdings Corporation et al., No. 1:21-cv-06729 (filed December 4, 2021) ("Green")), and in the U.S. District Court for the Eastern District of Pennsylvania (Ciccotelli v. Umpqua Holdings Corporation et al., No. 2:21-cv-05610 (filed December 23, 2021 ("Ciccotelli")). The Neely, Wang, Mackie, Mason, Green, Ciccotelli, Wilson and Jones complaints named Umpqua and its directors as defendants. In addition, a purported holder of Columbia common stock filed a complaint relating to the proposed Mergers in the Superior Court for the State of Washington, King County (Delman v. Clint E. Stein et al., No. 21-2-16297-1 SEA (filed December 13, 2021) ("Delman")). The Delman complaint named Columbia and its directors as defendants, and also named Umpqua as a defendant. A purported holder of Umpqua common stock filed a complaint related to the proposed Mergers in the Circuit Court of the State of Oregon for the County of Multnomah (Martin Siegel v. Umpqua Holdings Corporation, No. 22CV03612 (filed January 28, 2022) ("Siegel")). The Siegel complaint names Umpqua as the defendant and seeks to compel inspection of records.

The federal complaints generally alleged that the Joint Proxy Statement/Prospectus filed with the SEC on December 3, 2021, contains material omissions in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-9 promulgated thereunder, and the state complaint alleged state law claims of breach of fiduciary duty, aiding and abetting such breach of fiduciary duty, and fraudulent and negligent misrepresentation. The complaints sought various legal and equitable relief, generally including, among other things, orders (i) enjoining the defendants from proceeding with, consummating or closing the proposed Mergers until the allegedly omitted information was disclosed, (ii) rescinding the Mergers if consummated, or awarding rescissory damages, (iii) directing the Umpqua board of directors to file a corrected Joint Proxy Statement/Prospectus, and (iv) awarding plaintiffs' costs, including attorneys' fees. We believe that the claims asserted in the complaints are without merit and specifically deny that any supplemental disclosure was or is required under applicable law. However, in order to moot certain of the plaintiffs' disclosure claims in the complaints, to avoid nuisance, potential expense and delay, and to provide additional information to shareholders of Umpqua, and without admitting any liability or wrongdoing, Umpqua voluntarily provided additional disclosures. Umpqua and the other named defendants deny that they have violated any laws or breached any duties to Umpqua's shareholders, as applicable.

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The Mason complaint was voluntarily dismissed on January 21, 2022; the Ciccotelli, Jones, Mackie, Wang, and Wilson complaints were voluntarily dismissed on January 28, 2022; the Neely complaint was voluntarily dismissed on January 31, 2022; and the Green complaint was dismissed on February 1, 2022. The Delman complaint was dismissed with prejudice on January 28, 2022.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable 

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a)Our common stock is traded on The NASDAQ Global Select Market under the symbol "UMPQ." As of December 31, 2021, our common stock was held by 4,131 shareholders of record, a number that does not include beneficial owners who hold shares in "street name," or shareholders from previously acquired companies that have not exchanged their stock. At December 31, 2021, a total of 1.4 million shares of unvested restricted equity awards were outstanding.

During 2021, Umpqua's Board approved a cash dividend of $0.21 for each quarter. The Company declares a dividend after earnings for each quarter are released to provide the Board and, when applicable, banking regulators have had the opportunity to review final quarterly financial results and financial projections prior to approval of any dividends. On February 4, 2022, the Company declared a cash dividend in the amount of $0.21 per common share, which will be paid on February 25, 2022.

These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings, regulatory capital levels, the overall payout ratio and expected asset growth. We expect that the dividend rate will be reassessed on a quarterly basis by the Board in accordance with the dividend policy. The Merger Agreement restricts Umpqua from paying quarterly cash dividends in excess of the current level.

The payment of future cash dividends is at the discretion of our Board and subject to a number of factors, including results of operations, general business conditions, growth, financial condition and other factors deemed relevant by the Board. Further, our ability to pay future cash dividends is subject to certain regulatory requirements and restrictions discussed in the Supervision and Regulation section in Item 1 above.

We have a dividend reinvestment plan through our transfer agent that permits shareholder participants to purchase shares at the then-current market price in lieu of the receipt of cash dividends. Shares issued in connection with the dividend reinvestment plan are purchased in open market transactions.

(b)Not applicable.

(c)The following table provides information about repurchases of common stock by the Company during the quarter ended December 31, 2021:

Period	Total number of Common Shares Purchased (1)	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (2)	Maximum Dollar Value of Shares that May be Purchased at Period End under the Plan
10/01/21 - 10/31/21	1,329	$	20.45	—	321,797,719
11/01/21 - 11/30/21	461	$	19.26	—	321,797,719
12/01/21 - 12/31/21	—	$	—	—	321,797,719
Total for quarter	1,790	$	20.14	—

(1)Common shares repurchased by the Company during the quarter consist of cancellation of 1,790 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended December 31, 2021, no shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

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(2)On July 21, 2021, the Company approved a new share repurchase program, which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. This effectively ended the previous share repurchase plan. As of December 31, 2021, a total of $321.8 million remained available to repurchase shares. Under the repurchase plans, the Company repurchased 4.0 million shares during 2021, 331,000 shares in 2020, and 300,000 shares in 2019. The timing and amount of future repurchases will depend upon the market price for our common stock, laws and regulations restricting repurchases, asset growth, earnings, our capital plan and bank or bank holding company regulatory approvals. In addition, the Company halted repurchases under the program with the announcement of the proposed merger with Columbia and as required under the Merger Agreement.

Restricted shares cancelled to pay withholding taxes totaled 149,000 and 163,000 shares during the years ended December 31, 2021 and 2020, respectively.

Information relating to compensation plans under which the Company's equity securities are authorized for issuance is set forth in "Part III—Item 12" of this Report.

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Stock Performance Graph

The following chart, which is furnished as part of our annual report to shareholders and not filed, compares the yearly percentage changes in the cumulative shareholder return on our common stock during the five fiscal years ended December 31, 2021, with (i) the Total Return Index for The NASDAQ Stock Market (U.S. Companies) (ii) the Standard and Poor's 500 and (iii) the NASDAQ Bank Index. This comparison assumes $100.00 was invested on December 31, 2016, in our common stock and the comparison indices, and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. Price information from December 31, 2016 to December 31, 2021, was obtained by using the NASDAQ closing prices as of the last trading day of each year.

	Period Ending
	12/31/2016	12/31/2017	12/31/2018	12/31/2019	12/31/2020	12/31/2021
Umpqua Holdings Corporation	$100.00	$110.76	$84.93	$94.89	$80.62	$102.45
NASDAQ U.S.	$100.00	$128.24	$122.32	$167.31	$239.42	$290.63
S&P 500	$100.00	$119.42	$111.03	$144.72	$167.77	$212.89
NASDAQ Bank	$100.00	$103.51	$84.52	$102.99	$92.07	$128.61

ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS AND RISK FACTORS 

See the discussion of forward-looking statements and risk factors in Part I Item 1 and Item 1A of this report.

The following discussion and analysis of our financial condition and results of operations constitutes management's review of the factors that affected our financial and operating performance for the years ended December 31, 2021 and 2020. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report. For a discussion of the year ended December 31, 2019, including a comparison to the year ended December 31, 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, on Registrant's Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 25, 2021.

EXECUTIVE OVERVIEW

COVID-19 Update

We continue to manage our response to the pandemic by adapting to the recommendations of healthcare officials in order to provide a safe environment for our customers and associates. To limit the impact of COVID-19 on our business operations, we have incorporated remote work programs for associates, where possible, as well as social distancing, enhanced cleaning practices, and face coverings. We also continue to encourage customers to utilize our mobile banking app and online access to address their needs.

While we do not know and cannot quantify all of the specific impacts, the extent to which the COVID-19 pandemic continues to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, continues to depend on future developments, which are highly uncertain and cannot be predicted, including the continued scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic, including vaccinations; the effect on our customers, counterparties, employees and third party service providers; and the effect on the economy and markets. The risks to our business are more fully described in Part I, item 1A "Risk Factors" of this Annual Report on Form 10-K. We are closely monitoring the impact of COVID-19 on all aspects of our business.

Financial Performance 

•Earnings per diluted common share were $1.91 for the year ended December 31, 2021, compared to net loss per diluted common share of $6.92 for the year ended December 31, 2020.  The increase in net income for the year ended December 31, 2021, as compared to the prior year, is due mainly to the goodwill impairment of $1.8 billion taken in 2020. There is no goodwill impairment recorded in the current period. In addition, we recorded a recapture of the provision for credit losses of $42.7 million for the year ended December 31, 2021, as compared to a provision for credit losses of $204.9 million for the year ended December 31, 2020.

•Net interest income was $919.6 million for the year ended December 31, 2021, compared to $882.5 million for the year ended December 31, 2020. The increase in net interest income compared to the prior year was primarily due to a decrease in interest expense as the Bank allowed higher cost deposits to run off and decreased borrowings during the year, with the impact partially offset by loans and leases repricing to lower interest rates.

•Net interest margin, on a tax equivalent basis, was 3.18% for the year ended December 31, 2021, compared to 3.23% for the year ended December 31, 2020.  The decrease in net interest margin compared to the prior year was driven by lower yields on interest-earning assets, as rates continue to remain low based on the interest rate cuts that the Federal Reserve instituted as a response to the COVID-19 pandemic. The decrease was partially offset by a reduction in the cost of interest-bearing liabilities from the Company's management of the cost of our funding sources.

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•Non-interest income was $356.3 million for the year ended December 31, 2021, compared to $412.0 million for the year ended December 31, 2020. The decline was due primarily to the decrease in residential mortgage banking revenue, as discussed below, and a decrease in brokerage revenue of $10.5 million, due to the April 2021 sale of Umpqua Investments. The decrease was partially offset by a $17.8 million increase in swap derivative gain (loss) recorded in other income.

•Residential mortgage banking revenue was $186.8 million for the year ended December 31, 2021, compared to $270.8 million for year ended December 31, 2020. The decrease in residential mortgage banking revenue was primarily driven by a decline in for-sale originations and in the gain on sale margin due to normalizing margins, caused by rising rates that resulted in a slow-down in refinancing demand. In addition, in mid-2021, the Company strategically shifted a portion of residential mortgage production to portfolio loans. The decrease was partially offset by a lower loss on fair value of the MSR asset for the year ended December 31, 2021, as compared to the prior year.

•For-sale mortgage closed loan volume decreased by 29% in 2021, as compared to 2020. In addition, the gain on sale margin decreased to 3.32%, for the year ended December 31, 2021, as compared to 4.62% for the year ended December 31, 2020.

•Non-interest expense was $760.5 million for the year ended December 31, 2021, compared to $2.5 billion for the year ended December 31, 2020. The decrease in non-interest expense compared to the prior year was driven by the $1.8 billion goodwill impairment that was recorded in the first quarter of 2020. In addition, the Bank had a decrease in occupancy and equipment expense, offset by an increase in merger related expenses due to the pending merger with Columbia. The efficiency ratio for the year ended December 31, 2021 is 60%, as compared to 196% for the year ended December 31, 2020, with the decrease due to goodwill impairment taken in 2020.

•Total gross loans and leases were $22.6 billion as of December 31, 2021, an increase of $773.8 million, or 4%, compared to December 31, 2020.  The increase in total loans is primarily due to an increase in commercial real estate balances of $1.1 billion, mostly within multifamily lending, and an increase in residential real estate balances of $706.5 million. The increase was offset by a decrease of $957.0 million in commercial balances, due to the decrease in PPP loans of $1.4 billion during the period, as the majority of these loans were forgiven by the SBA, as expected.

•Total deposits were $26.6 billion as of December 31, 2021, an increase of $2.0 billion, or 8%, from December 31, 2020. This increase was due to growth in demand, money market, and savings deposits of $2.1 billion, $437.8 million, and $463.0 million, respectively. The increases are mainly attributable to customer saving habits in the current economic environment, resulting in higher average balances per deposit account. The increase in total deposits also includes a decline in higher cost time deposits of $1.0 billion.

•Total consolidated assets were $30.6 billion as of December 31, 2021, compared to $29.2 billion at December 31, 2020. The increase was mainly due to an increase in available for sale securities and loans during the period.

Credit Quality

•Non-performing assets decreased to $53.1 million, or 0.17% of total assets, as of December 31, 2021, compared to $69.2 million, or 0.24% of total assets, as of December 31, 2020.  Non-performing loans were $51.2 million, or 0.23% of total loans and leases, as of December 31, 2021, compared to $67.4 million, or 0.31% of total loans and leases, as of December 31, 2020.

•The allowance for credit losses on loans and leases was $248.4 million, as of December 31, 2021, a decrease of $80.0 million, as compared to December 31, 2020. The reserve for unfunded commitments was $12.8 million, as of December 31, 2021, a decrease of $7.5 million, as compared to December 31, 2020. The decrease in the allowance for credit losses is due to the improvement in economic forecasts used in the credit models.

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•The Company had a recapture of the provision for credit losses of $42.7 million for the year ended December 31, 2021. The recapture of the provision for credit losses in the current period was due to stabilization of credit quality metrics and improved economic forecasts used in credit models as of December 31, 2021. As an annualized percentage of average outstanding loans and leases, the provision for credit losses for the year ended December 31, 2021 was (0.19)%, as compared to 0.92% for the prior year.  

Liquidity

•Total cash and cash equivalents was $2.8 billion as of December 31, 2021, an increase of $188.4 million from December 31, 2020. The increase in cash and cash equivalents is consistent with the growth in deposit balances, which will provide flexibility to fund continued growth in the lending and investment portfolios.

Capital and Growth Initiatives

•In October 2021, Umpqua and Columbia announced their Merger Agreement under which the two companies will combine in an all-stock transaction, which is expected to close in mid-2022.

•Umpqua's Next Gen 2.0 is a continuation of our initiative to modernize the Bank. Like its predecessor, the Next Gen 2.0 program includes initiatives to grow revenue, invest in strategic areas for future growth—including technology and digital enhancements—and advance operational excellence goals to reduce operating costs and invest the savings in strategic growth opportunities. We continue to focus on the successful acquisition of customers and talent, as well as the implementation of new technology to gain efficiencies and advance the customer experience. The consolidation of stores and back-office facilities, as well as other related cost-savings initiatives, resulted in expense reduction. We consolidated 99 stores under Next Gen and Next Gen 2.0, which represents the rationalization of one-third of our footprint over the past four years. Since we launched our original Next Gen plans in late 2017, our deposit balances are up $6.7 billion or 34%; and the number of demand deposit accounts has grown by 4.1% between September 30, 2017 and December 31, 2021.

•The Company's total risk based capital was 14.3% and its Tier 1 common to risk weighted assets ratio was 11.6% as of December 31, 2021. As of December 31, 2020, the Company's total risk based ratio was 15.6% and its Tier 1 common to risk weighted assets ratio was 12.3%.

•The Company repurchased 4.0 million shares for a total of $78.2 million during the year ended December 31, 2021, under the new share repurchase program, which authorizes the Company to repurchase up to $400 million of common stock through July 2022, from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The Company does not anticipate any additional share repurchases under our existing repurchase program given our pending combination with Columbia.

•The Company declared cash dividends of $0.84 per common share during the year ended December 31, 2021.

CRITICAL ACCOUNTING ESTIMATES

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. The estimate that is particularly susceptible to significant change is the determination of the ACL.

The consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry, in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following estimate is both important to the portrayal of the Company's financial condition and results of operations and requires difficult, subjective or complex judgments and, therefore, management considers the following to be a critical accounting estimate.

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Allowance for Credit Losses

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

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

The Company utilizes complex models to obtain reasonable and supportable forecasts of future economic conditions dependent upon specific macroeconomic variables related to each of the Company's loan and lease portfolios. Loans and leases deemed to be collateral dependent, or loans deemed to be reasonably expected to become troubled debt restructured or are troubled debt restructured, are individually evaluated for loss based on the value of the underlying collateral or a discounted cash flow analysis.

The adequacy of the ACL is monitored on a regular basis and is based on management's evaluation of numerous factors, including: the CECL model outputs; quality of the current loan portfolio; the trend in the loan portfolio's risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information. As of December 31, 2021, the Bank used Moody's Analytics November consensus scenario to estimate the ACL. To assess the sensitivity in the ACL results and to inform qualitative adjustments, the Bank used a second scenario, Moody's Analytics November S2 scenario, that differs in terms of severity within the variables, both favorable and unfavorable. For additional information related to the Company's ACL, see Note 5 in the Notes to Consolidated Financial Statements in Item 8 of this report.

Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Management believes that the ACL was adequate as of December 31, 2021.

RECENT ACCOUNTING PRONOUNCEMENTS 

Information regarding Recent Accounting Pronouncements is included in Note 1 of the Notes to Consolidated Financial Statements in Item 8 below.

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RESULTS OF OPERATIONS

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

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

The Core Banking segment had net income of $372.0 million for the year ended December 31, 2021, compared to a net loss of $1.6 billion for the year ended December 31, 2020. Net income for the Core Banking segment increased for the year ended December 31, 2021, as compared to the same period in the prior year, due to the impact of goodwill impairment in 2020 of $1.8 billion and a provision for credit losses of $204.9 million in 2020. In 2021, the Core Banking segment had a recapture of the provision for credit losses of $42.7 million, as economic forecasts improved.

The Mortgage Banking segment had net income of $48.3 million for the year ended December 31, 2021, compared to net income of $94.9 million for the year ended December 31, 2020. The decrease in net income for the Mortgage Banking segment was primarily due to a decrease in for-sale origination revenue from $308.2 million in 2020 to $157.8 million in the current period, due to a decline in the gain on sale margin from 4.62% in the prior year to 3.32% in the current period, as well as a decrease in the volume of loans sold for 2021. The closed loan volume declined as a result of rate changes which rose during the year, resulting in a slowing of loan refinance activity and the decision to place a higher percentage of production into the loan portfolio in order to support interest earning asset growth.

The following table presents the returns on average assets, average common shareholders' equity and average tangible common shareholders' equity for the years ended December 31, 2021, 2020, and 2019. For each of the periods presented, the table includes the calculated ratios based on reported net income (loss). Our return on average common shareholders' equity prior to 2021 was negatively impacted as the result of capital required to support goodwill. To the extent this performance metric is used to compare our historical performance with other financial institutions that did not have merger and acquisition-related intangible assets, we believe it is beneficial to also consider the return on average tangible common shareholders' equity. The return on average tangible common shareholders' equity is calculated by dividing net income (loss) by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.  

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

For the Years Ended December 31, 2021, 2020, and 2019

 

(dollars in thousands)	2021			2020			2019
Return on average assets	1.39		%	(5.22)		%	1.27		%
Return on average common shareholders' equity	15.56		%	(51.08)		%	8.42		%
Return on average tangible common shareholders' equity	15.63		%	(60.34)		%	14.77		%
Calculation of average common tangible shareholders' equity:
Average common shareholders' equity	$	2,700,711		$	2,982,458		$	4,206,380
Less: average goodwill and other intangible assets, net	(12,057)			(457,550)			(1,808,879)
Average tangible common shareholders' equity	$	2,688,654		$	2,524,908		$	2,397,501

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Additionally, management believes tangible common equity and the tangible common equity ratio are meaningful measures of capital adequacy. Umpqua believes the exclusion of certain intangible assets in the computation of tangible common equity and tangible common equity ratio provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the operating results and capital of the Company. Tangible common equity is calculated as total shareholders' equity less preferred stock and less goodwill and other intangible assets, net (excluding MSRs). In addition, tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs).  The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets. The tangible common equity and tangible common equity ratio is considered a non-GAAP financial measure and should be viewed in conjunction with the total shareholders' equity and the total shareholders' equity ratio.

The following table provides a reconciliation of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP) as of December 31, 2021, and 2020: 

(dollars in thousands)	December 31, 2021		December 31, 2020
Total shareholders' equity	$	2,749,270	$	2,704,577
Subtract:
Goodwill	—		2,715
Other intangible assets, net	8,840		13,360
Tangible common shareholders' equity	$	2,740,430	$	2,688,502
Total assets	$	30,640,936	$	29,235,175
Subtract:
Goodwill	—		2,715
Other intangible assets, net	8,840