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

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended:
June 30, 2021
or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the transition period from                                        to                                       .
 
Commission File Number: 001-34624 
 
Umpqua Holdings Corporation 
(Exact Name of Registrant as Specified in Its Charter)
Oregon93-1261319 
(State or Other Jurisdiction(I.R.S. Employer Identification Number)
of Incorporation or Organization) 
 
One SW Columbia Street, Suite 1200 
Portland, Oregon 97258 
(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 CLASSTRADING SYMBOLNAME OF EXCHANGE
Common StockUMPQThe NASDAQ Global Select Market

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

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

Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date:
Common stock, no par value: 220,133,236 shares outstanding as of July 31, 2021

Table of Contents
UMPQUA HOLDINGS CORPORATION 
FORM 10-Q 
Table of Contents 
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2
Table of Contents
GLOSSARY OF DEFINED TERMS
ACLAllowance for credit losses
ASUAccounting Standards Update
ATMAutomated teller machine
BankUmpqua Bank
Basel IIIBasel capital framework (third accord)
CECLCurrent Expected Credit Losses
CompanyUmpqua Holdings Corporation and its subsidiaries
CVACredit valuation adjustments
DCFDiscounted cash flow
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank
FinPacFinancial Pacific Leasing, Inc.
GAAPGenerally accepted accounting principles
GDPGross Domestic Product
GNMAGovernment National Mortgage Association
HELOCHome equity line of credit
LGDLoss given default
LIBORLondon Inter-Bank Offered Rate
MSRMortgage servicing rights
NOLNet operating loss
PDProbability of default
PPPPaycheck Protection Program
SBASmall Business Administration
SECSecurities and Exchange Commission
TDRTroubled debt restructured
USDAUnited States Department of Agriculture

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

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(UNAUDITED)
(in thousands, except shares)June 30, 2021December 31, 2020
ASSETS  
Cash and due from banks (restricted cash of $91,673 and $92,955)
$397,526 $370,219 
Interest bearing cash and temporary investments (restricted cash of $357 and $2,574)
2,688,285 2,202,962 
Total cash and cash equivalents3,085,811 2,573,181 
Investment securities  
Equity and other, at fair value82,099 83,077 
Available for sale, at fair value3,473,950 2,932,558 
Held to maturity, at amortized cost2,876 3,034 
Loans held for sale (at fair value: $429,052 and $688,079)
429,052 766,225 
Loans and leases (at fair value: $359,273 and $0)
22,143,739 21,779,367 
Allowance for credit losses on loans and leases(279,887)(328,401)
Net loans and leases21,863,852 21,450,966 
Restricted equity securities15,247 41,666 
Premises and equipment, net172,546 178,050 
Operating lease right-of-use assets95,030 104,937 
Goodwill — 2,715 
Other intangible assets, net11,100 13,360 
Residential mortgage servicing rights, at fair value102,699 92,907 
Bank owned life insurance324,998 323,470 
Other assets625,705 669,029 
Total assets$30,284,965 $29,235,175 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Deposits  
Non-interest bearing$10,718,921 $9,632,773 
Interest bearing15,434,632 14,989,428 
Total deposits26,153,553 24,622,201 
Securities sold under agreements to repurchase480,302 375,384 
Borrowings111,405 771,482 
Junior subordinated debentures, at fair value287,723 255,217 
Junior subordinated debentures, at amortized cost88,155 88,268 
Operating lease liabilities106,195 113,593 
Deferred tax liability, net2,497 5,441 
Other liabilities288,819 299,012 
Total liabilities27,518,649 26,530,598 
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY  
Common stock, no par value, shares authorized: 400,000,000 in 2021 and 2020; issued and outstanding: 220,626,452 in 2021 and 220,226,335 in 2020
3,517,641 3,514,599 
Accumulated deficit(801,954)(932,767)
Accumulated other comprehensive income50,629 122,745 
Total shareholders' equity2,766,316 2,704,577 
Total liabilities and shareholders' equity$30,284,965 $29,235,175 

See notes to condensed consolidated financial statements
4
Table of Contents
UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(UNAUDITED) 
Three Months EndedSix Months Ended
 (in thousands, except per share amounts)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
INTEREST INCOME    
Interest and fees on loans and leases$223,470 $235,174 $444,611 $481,167 
Interest and dividends on investment securities:    
Taxable14,619 9,015 27,731 25,620 
Exempt from federal income tax1,487 1,520 3,021 3,082 
Dividends405 568 1,003 1,246 
Interest on temporary investments and interest bearing deposits774 403 1,398 3,734 
Total interest income240,755 246,680 477,764 514,849 
INTEREST EXPENSE    
Interest on deposits7,016 26,222 17,694 66,512 
Interest on securities sold under agreement to repurchase and federal funds purchased68 194 144 589 
Interest on borrowings866 3,839 2,638 7,885 
Interest on junior subordinated debentures3,042 3,922 6,094 8,825 
Total interest expense10,992 34,177 26,570 83,811 
Net interest income229,763 212,503 451,194 431,038 
(RECAPTURE) PROVISION FOR CREDIT LOSSES (22,996)87,085 (22,996)205,170 
Net interest income after (recapture) provision for credit losses252,759 125,418 474,190 225,868 
NON-INTEREST INCOME    
Service charges on deposits10,310 8,757 19,957 20,230 
Card-based fees10,274 5,901 17,648 13,318 
Brokerage revenue1,135 3,805 5,050 7,820 
Residential mortgage banking revenue, net44,443 83,877 109,476 101,417 
Gain on sale of debt securities, net— 323 4 190 
Gain (loss) on equity securities, net4 240 (702)1,054 
Gain on loan and lease sales, net5,318 1,074 6,691 2,241 
Bank owned life insurance income2,092 2,116 4,163 4,245 
Other income17,499 9,387 37,588 5,610 
Total non-interest income91,075 115,480 199,875 156,125 
NON-INTEREST EXPENSE    
Salaries and employee benefits121,573 116,676 245,707 226,450 
Occupancy and equipment, net34,657 36,171 69,292 73,172 
Communications3,004 2,939 5,767 6,067 
Marketing2,054 1,759 3,426 4,289 
Services13,512 10,356 24,262 21,126 
FDIC assessments1,607 3,971 4,206 6,513 
Intangible amortization1,130 1,246 2,260 2,493 
Goodwill impairment— — — 1,784,936 
Other expenses11,863 8,792 22,072 19,522 
Total non-interest expense189,400 181,910 376,992 2,144,568 
Income (loss) before provision for income taxes154,434 58,988 297,073 (1,762,575)
Provision for income taxes38,291 6,062 73,193 36,446 
Net income (loss)$116,143 $52,926 $223,880 $(1,799,021)
Earnings (loss) per common share:    
Basic$0.53 $0.24 $1.02 ($8.17)
Diluted$0.53 $0.24 $1.01 ($8.17)
Weighted average number of common shares outstanding:    
Basic220,593 220,210 220,481 220,213 
Diluted221,022 220,320 220,928 220,213 

5
Table of Contents


UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) 
 
Three Months EndedSix Months Ended
 (in thousands)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net income (loss)$116,143 $52,926 $223,880 $(1,799,021)
Available for sale securities:    
Unrealized gains (losses) arising during the period22,821 4,570 (64,524)112,331 
Income tax (expense) benefit related to unrealized gains (losses)(5,870)(1,175)16,595 (28,892)
Reclassification adjustment for net realized gains in earnings— (323)(4)(190)
Income tax expense related to realized gains— 83 1 49 
Net change in unrealized gains (losses) for available for sale securities16,951 3,155 (47,932)83,298 
Junior subordinated debentures, at fair value:
Unrealized (losses) gains arising during the period(5,996)(37,450)(32,558)41,412 
Income tax benefit (expense) related to unrealized gains1,542 9,632 8,374 (10,651)
Net change in unrealized (losses) gains for junior subordinated debentures, at fair value(4,454)(27,818)(24,184)30,761 
Other comprehensive (loss) income, net of tax12,497 (24,663)(72,116)114,059 
Comprehensive income (loss)$128,640 $28,263 $151,764 $(1,684,962)

See notes to condensed consolidated financial statements
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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  
(UNAUDITED)   
Common StockRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Income 
 (in thousands, except shares)SharesAmountTotal
Balance at January 1, 2020220,229,282 $3,514,000 $770,366 $29,549 $4,313,915 
Net loss  (1,851,947) (1,851,947)
Other comprehensive income, net of tax   138,722 138,722 
Stock-based compensation 2,253   2,253 
Stock repurchased and retired(486,757)(8,573)  (8,573)
Issuances of common stock under stock plans 432,595 —   — 
Cash dividends on common stock ($0.21 per share)
  (46,578) (46,578)
Cumulative effect adjustment (1)
(40,181)(40,181)
Balance at March 31, 2020220,175,120 $3,507,680 $(1,168,340)$168,271 $2,507,611 
Net income  52,926  52,926 
Other comprehensive loss, net of tax   (24,663)(24,663)
Stock-based compensation 2,503   2,503 
Stock repurchased and retired(3,707)(38)  (38)
Issuances of common stock under stock plans47,694 —   — 
Balance at June 30, 2020220,219,107 $3,510,145 $(1,115,414)$143,608 $2,538,339 
Net income  124,871  124,871 
Other comprehensive loss, net of tax   (8,586)(8,586)
Stock-based compensation 2,025   2,025 
Stock repurchased and retired(1,523)(17)  (17)
Issuances of common stock under stock plans4,614 —   — 
Cash dividends on common stock ($0.21 per share)
  (46,388) (46,388)
Balance at September 30, 2020220,222,198 $3,512,153 $(1,036,931)$135,022 $2,610,244 
Net income150,730 150,730 
Other comprehensive loss, net of tax(12,277)(12,277)
Stock-based compensation2,473 2,473 
Stock repurchased and retired(2,022)(27)(27)
Issuances of common stock under stock plans6,159 — — 
Cash dividends on common stock ($0.21 per share)
(46,566)(46,566)
Balance at December 31, 2020220,226,335 $3,514,599 $(932,767)$122,745 $2,704,577 
Balance at January 1, 2021220,226,335 $3,514,599 $(932,767)$122,745 $2,704,577 
Net income  107,737  107,737 
Other comprehensive loss, net of tax   (84,613)(84,613)
Stock-based compensation 2,964   2,964 
Stock repurchased and retired(143,832)(2,315)  (2,315)
Issuances of common stock under stock plans408,700 —   — 
Cash dividends on common stock ($0.21 per share)
  (46,481) (46,481)
Balance at March 31, 2021220,491,203 $3,515,248 $(871,511)$38,132 $2,681,869 
Net income  116,143  116,143 
Other comprehensive income, net of tax   12,497 12,497 
Stock-based compensation 2,377   2,377 
Stock repurchased and retired(957)(18)  (18)
Issuances of common stock under stock plans136,206 34   34 
Cash dividends on common stock ($0.21 per share)
  (46,586) (46,586)
Balance at June 30, 2021220,626,452 $3,517,641 $(801,954)$50,629 $2,766,316 

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

See notes to condensed consolidated financial statements
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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 
Six Months Ended
 (in thousands)June 30, 2021June 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income (loss)$223,880 $(1,799,021)
Adjustments to reconcile net income to net cash used in operating activities:  
Goodwill impairment— 1,784,936 
Amortization of investment premiums, net8,181 12,822 
Gain on sale of investment securities, net(4)(190)
(Recapture) provision for credit losses(22,996)205,170 
Change in cash surrender value of bank owned life insurance(4,236)(4,319)
Depreciation, amortization and accretion15,769 20,015 
Loss (gain) on sale of premises and equipment593 (3)
Additions to residential mortgage servicing rights carried at fair value(22,395)(23,470)
Change in fair value of residential mortgage servicing rights carried at fair value12,603 42,124 
Stock-based compensation5,341 4,756 
Net decrease (increase) in equity and other investments276 (739)
Loss (gain) on equity securities, net702 (1,054)
Gain on sale of loans and leases, net(87,786)(119,647)
Change in fair value of loans held for sale 17,215 (14,273)
Origination of loans held for sale(2,888,555)(2,974,279)
Proceeds from sales of loans held for sale2,973,721 3,023,664 
Change in other assets and liabilities:  
Net decrease (increase) in other assets49,333 (265,107)
Net increase (decrease) in other liabilities4,755 (36,279)
Net cash provided by (used in) operating activities286,397 (144,894)
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchases of investment securities available for sale(1,023,892)(353,601)
Proceeds from investment securities available for sale408,950 401,464 
Purchases of restricted equity securities(34)(19,999)
Redemption of restricted equity securities26,453 12,400 
Net change in loans and leases(213,070)(1,566,117)
Proceeds from sales of loans and leases140,011 41,386 
Change in premises and equipment(8,822)(9,171)
Proceeds from bank owned life insurance death benefits2,708 57 
Net cash received from sale of Umpqua Investments, Inc.10,781 — 
Other1,734 938 
Net cash used in investing activities$(655,181)$(1,492,643)
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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 
(UNAUDITED)
Six Months Ended
 (in thousands)June 30, 2021June 30, 2020
CASH FLOWS FROM FINANCING ACTIVITIES:  
Net increase in deposit liabilities$1,531,374 $2,363,045 
Net increase in securities sold under agreements to repurchase104,918 87,106 
   Proceeds from borrowings— 600,000 
Repayment of borrowings(660,000)(410,000)
Net proceeds from issuance of common stock34 — 
Dividends paid on common stock(92,579)(92,485)
Repurchase and retirement of common stock(2,333)(8,611)
Net cash provided by financing activities881,414 2,539,055 
Net increase in cash and cash equivalents512,630 901,518 
Cash and cash equivalents, beginning of period2,573,181 1,362,756 
Cash and cash equivalents, end of period$3,085,811 $2,264,274 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  
Cash paid during the period for:  
Interest$26,646 $87,742 
Income taxes$78,592 $68,332 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in unrealized gains and losses on investment securities available for sale, net of taxes$(47,932)$83,298 
Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes$(24,184)$30,761 
Cumulative effect adjustment to retained earnings$— $40,181 
Transfer of loans to loans held for sale$— $9,674 
Transfer of loans held for sale to loans$315,887 $— 
Change in GNMA mortgage loans recognized due to repurchase option$— $(1,752)


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

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

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

Recent accounting pronouncements 

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

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

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Note 2 – Investment Securities 
 
The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at June 30, 2021 and December 31, 2020: 
June 30, 2021
 (in thousands) Amortized CostUnrealized GainsUnrealized LossesFair Value
Available for sale:    
U.S. Treasury and agencies$733,702 $41,980 $(1,314)$774,368 
Obligations of states and political subdivisions265,179 13,331 (384)278,126 
Residential mortgage-backed securities and collateralized mortgage obligations
2,408,539 34,789 (21,872)2,421,456 
Total available for sale securities$3,407,420 $90,100 $(23,570)$3,473,950 
Held to maturity:    
Residential mortgage-backed securities and collateralized mortgage obligations
$2,876 $814 $— $3,690 
Total held to maturity securities$2,876 $814 $— $3,690 

December 31, 2020
 (in thousands) 
Amortized CostUnrealized GainsUnrealized LossesFair Value
Available for sale:    
U.S. Treasury and agencies$698,243 $64,271 $(312)$762,202 
Obligations of states and political subdivisions263,546 15,996 (31)279,511 
Residential mortgage-backed securities and collateralized mortgage obligations
1,839,711 51,583 (449)1,890,845 
Total available for sale securities$2,801,500 $131,850 $(792)$2,932,558 
Held to maturity:    
Residential mortgage-backed securities and collateralized mortgage obligations
$3,034 $849 $— $3,883 
Total held to maturity securities$3,034 $849 $— $3,883 

The Company elected to exclude accrued interest receivable from the amortized cost basis of debt securities disclosed throughout this note. Interest accrued on investment securities totaled $9.5 million and $8.9 million as of June 30, 2021 and December 31, 2020, respectively, and is included in Other Assets.

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

June 30, 2021
Less than 12 Months12 Months or LongerTotal
  (in thousands) 
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Available for sale:      
U.S. Treasury and agencies$65,717 $1,314 $— $— $65,717 $1,314 
Obligations of states and political subdivisions
31,867 384 — — 31,867 384 
Residential mortgage-backed securities and collateralized mortgage obligations
1,227,877 21,872 — — 1,227,877 21,872 
Total temporarily impaired securities$1,325,461 $23,570 $— $— $1,325,461 $23,570 

December 31, 2020
Less than 12 Months12 Months or LongerTotal
  (in thousands)
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Available for sale:      
U.S. Treasury and agencies$29,493 $312 $— $— $29,493 $312 
Obligations of states and political subdivisions
4,357 31 — — 4,357 31 
Residential mortgage-backed securities and collateralized mortgage obligations
215,165 449 — — 215,165 449 
Total temporarily impaired securities$249,015 $792 $— $— $249,015 $792 

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

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

Available For SaleHeld To Maturity
  (in thousands) 
Amortized CostFair ValueAmortized CostFair Value
Due within one year$10,037 $10,095 $— $— 
Due after one year through five years106,685 111,680 2 2 
Due after five years through ten years884,024 930,794 8 8 
Due after ten years2,406,674 2,421,381 2,866 3,680 
Total securities$3,407,420 $3,473,950 $2,876 $3,690 

The following table presents, as of June 30, 2021, investment securities that were pledged to secure borrowings, public deposits, and repurchase agreements as permitted or required by law: 
 (in thousands)Amortized CostFair Value
To state and local governments to secure public deposits$319,811 $328,578 
Other securities pledged principally to secure repurchase agreements693,391 724,146 
Total pledged securities$1,013,202 $1,052,724 

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Note 3 – Loans and Leases  
 
The following table presents the major types of loans and leases, net of deferred fees and costs, as of June 30, 2021 and December 31, 2020: 
(in thousands)June 30, 2021December 31, 2020
Commercial real estate  
Non-owner occupied term, net$3,580,386 $3,505,802 
Owner occupied term, net2,398,326 2,333,945 
Multifamily, net3,553,704 3,349,196 
Construction & development, net857,866 828,478 
Residential development, net193,904 192,761 
Commercial
Term, net3,748,269 4,024,467 
Lines of credit & other, net908,518 862,760 
Leases & equipment finance, net1,437,372 1,456,630 
Residential
Mortgage, net4,145,432 3,871,906 
Home equity loans & lines, net1,118,278 1,136,064 
Consumer & other, net201,684 217,358 
Total loans and leases, net of deferred fees and costs$22,143,739 $21,779,367 
 
As of June 30, 2021 and December 31, 2020, the net deferred costs were $27.4 million and $38.6 million, respectively. The Bank participated in the PPP to originate SBA loans designated to help businesses maintain their workforce and cover other working capital needs during the COVID-19 pandemic. As of June 30, 2021, the Bank had approximately 14,000 PPP loans, totaling $1.4 billion in net loans, which are classified as commercial term loans in the table above. As of December 31, 2020, the Bank had approximately 15,000 PPP loans totaling $1.8 billion in net loans. Net deferred costs include net deferred fees for the origination of PPP loans of $36.8 million and $26.9 million as of June 30, 2021 and December 31, 2020, respectively. The PPP net deferred fees and costs are a yield adjustment over the remaining term of these loans. The loans are fully guaranteed by the SBA and the maximum term of the loans is either two or five years; however, the majority of the loan balances are expected to be forgiven by the SBA, which will accelerate the recognition of these net deferred fees at the forgiveness date.

Total loans and leases also include discounts on acquired loans of $13.4 million and $17.9 million as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, loans totaling $15.1 billion were pledged to secure borrowings and available lines of credit. The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. Interest accrued on loans totaled $71.5 million and $74.8 million as of June 30, 2021 and December 31, 2020, respectively, and is included in Other Assets.

The Bank, through its commercial equipment leasing subsidiary, FinPac, is a provider of commercial equipment leasing and financing. Direct finance leases are included within the lease and equipment finance segment within the loans and leases, net line item. These leases typically have terms of three to five years and are considered to be direct financing leases. Interest income recognized on these leases was $5.6 million and $11.2 million for the three and six months ended June 30, 2021, respectively, as compared to $7.1 million and $13.8 million for the three and six months ended June 30, 2020, respectively.
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Loans and leases sold 
 
In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the three and six months ended June 30, 2021 and 2020: 
Three Months EndedSix Months Ended
 (in thousands)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Commercial real estate    
Non-owner occupied term, net$17,866 $6,373 $23,296 $9,758 
Owner occupied term, net10,812 3,426 12,423 9,192 
Multifamily, net3,776 — 3,776 — 
Commercial    
Term, net19,321 8,475 28,314 20,152 
Leases & equipment finance, net— — — 43 
Residential    
Mortgage, net389 — 1,712 — 
Consumer & other— — 63,799 — 
Total loans and leases sold, net$52,164 $18,274 $133,320 $39,145 

Note 4 – Allowance for Credit Losses

Allowance for Credit Losses Methodology

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

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

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

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

The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three and six months ended June 30, 2021, were primarily related to changes in the economic assumptions. The Bank opted to use Moody's Analytics' May consensus economic forecast for estimating the ACL as of June 30, 2021. This scenario is based on Moody's Analytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's Analytics' approach is to give greater consideration to the most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.
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In the consensus scenario selected, the probability that the economy will perform better than this consensus is equal to the probability that it will perform worse and included the following factors:
•U.S. real GDP annualized growth of 7.4% in 2021;
•U.S. unemployment rate average of 5.5% in 2021 with return to less than 5.0% unemployment by Q4 2021;
•COVID infections abate in June 2021;
•Federal Reserve to keep target range for the Fed Funds rate at 0.0% to 0.25% until early 2023.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics' May S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:
•New cases, hospitalizations and deaths from COVID-19 diminish more slowly than anticipated, delaying the reopening of some businesses in some areas of the country;
•The stimulus is less effective than expected because of slower consumer spending. More of the funds end up in savings and thus fiscal multipliers are smaller than assumed in the consensus scenario;
•U.S. real GDP annualized growth of 5.7% in 2021;
•U.S. unemployment rate average of 6.3% in 2021 with return to less than 5.0% unemployment by Q3 2022;
•COVID infections abate in October 2021;
•Federal Reserve to keep target range for the Fed Funds rate near 0.0% until Q2 2024.

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

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

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

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

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

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

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

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

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

Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data. Below are the nine qualitative factors considered where applicable:

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

The Company evaluated each qualitative factor as of June 30, 2021, and made certain qualitative adjustments to the amounts indicated by the models as considered necessary to adequately reflected the significant changes in credit conditions and overall portfolio risk.

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

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The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30, 2021
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$154,475 $128,838 $21,090 $6,880 $311,283 
(Recapture) provision for credit losses for loans and leases (25,484)5,964 3,997 (2,252)(17,775)
Charge-offs(129)(16,093)— (857)(17,079)
Recoveries89 2,681 209 479 3,458 
Net (charge-offs) recoveries(40)(13,412)209 (378)(13,621)
Balance, end of period$128,951 $121,390 $25,296 $4,250 $279,887 
Reserve for unfunded commitments
Balance, beginning of period$15,668 $1,801 $1,288 $1,003 $19,760 
(Recapture) provision for credit losses on unfunded commitments(5,574)344 422 (413)(5,221)
Balance, end of period10,094 2,145 1,710 590 14,539 
Total allowance for credit losses$139,045 $123,535 $27,006 $4,840 $294,426 
Six Months Ended June 30, 2021
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$141,710 $150,864 $27,964 $7,863 $328,401 
(Recapture) provision for credit losses for loans and leases(13,058)1,461 (2,915)(2,737)(17,249)
Charge-offs(170)(35,707)(70)(2,047)(37,994)
Recoveries469 4,772 317 1,171 6,729 
Net recoveries (charge-offs)299 (30,935)247 (876)(31,265)
Balance, end of period$128,951 $121,390 $25,296 $4,250 $279,887 
Reserve for unfunded commitments
Balance, beginning of period15,360 2,190 1,661 1,075 20,286 
(Recapture) provision for credit losses on unfunded commitments(5,266)(45)49 (485)(5,747)
Balance, end of period10,094 2,145 1,710 590 14,539 
Total allowance for credit losses$139,045 $123,535 $27,006 $4,840 $294,426 
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Three Months Ended June 30, 2020
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$99,778 $146,607 $34,251 $10,784 $291,420 
Provision for credit losses for loans and leases52,890 21,301 6,157 1,136 81,484 
Charge-offs— (17,549)(143)(1,761)(19,453)
Recoveries 160 2,256 283 595 3,294 
Net recoveries (charge-offs)160 (15,293)140 (1,166)(16,159)
Balance, end of period$152,828 $152,615 $40,548 $10,754 $356,745 
Reserve for unfunded commitments
Balance, beginning of period$15,760 $2,927 $1,741 $499 $20,927 
Provision (recapture) for credit losses on unfunded commitments5,048 (6)320 79 5,441 
Balance, end of period20,808 2,921 2,061 578 26,368 
Total allowance for credit losses$173,636 $155,536 $42,609 $11,332 $383,113 
Six Months Ended June 30, 2020
(in thousands)Commercial Real EstateCommercialResidentialConsumer & OtherTotal
Allowance for credit losses on loans and leases
Balance, beginning of period$50,847 $73,820 $24,714 $8,248 $157,629 
Impact of CECL adoption5,077 44,009 2,099 (1,186)49,999 
Adjusted balance, beginning of period55,924 117,829 26,813 7,062 207,628 
Provision for credit losses for loans and leases96,498 70,974 13,342 6,172 186,986 
Charge-offs— (40,157)(154)(3,597)(43,908)
Recoveries406 3,969 547 1,117 6,039 
Net recoveries (charge-offs)406 (36,188)393 (2,480)(37,869)
Balance, end of period$152,828 $152,615 $40,548 $10,754 $356,745 
Reserve for unfunded commitments
Balance, beginning of period$534 $2,539 $149 $1,884 $5,106 
Impact of CECL adoption4,030 (487)1,267 (1,572)3,238 
Adjusted balance, beginning of period4,564 2,052 1,416 312 8,344 
Provision for credit losses on unfunded commitments16,244 869 645 266 18,024 
Balance, end of period20,808 2,921 2,061 578 26,368 
Total allowance for credit losses$173,636 $155,536 $42,609 $11,332 $383,113 

The following table presents the unfunded commitments for the period ended June 30, 2021 and 2020:
(in thousands)Total
Unfunded loan and lease commitments
June 30, 2021
$6,022,792 
June 30, 2020
$5,849,611 

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Asset Quality and Non-Performing Loans and Leases

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

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

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

Due to the deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company has had an increase in loan payment deferral and forbearance requests. Once a deferral or forbearance request is received, a late charge waiver is put in place and payments are suspended for an agreed-upon period. Accrued and unpaid interest during the deferral period will be collected upon the expiration of the deferral or on a regular repayment schedule at the end of the deferral period. For certain loan types, the maturity date may be extended to allow for full amortization. In accordance with various government-mandated programs, these loans are generally classified based on their past due status prior to their deferral period, so they are classified as performing loans that accrue interest. As of June 30, 2021, loans of approximately $167.3 million are currently deferred under various federal and state guidelines and are classified as current as their contractual payments have been deferred. These deferred loans do not include deferrals of delinquent repurchased GNMA loans as the credit risk of these loans are guaranteed by government programs such as Federal Housing Agency, Veterans Affairs, and USDA Rural Development. At June 30, 2021, approximately $150.6 million of GNMA repurchased loans were on deferral. At December 31, 2020, the Bank had $355.5 million in deferred loans under various federal and state guidelines, excluding GNMA repurchased loans on deferral of $177.7 million.
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The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of June 30, 2021 and December 31, 2020:
June 30, 2021
(in thousands)Greater than 30 to 59 Days Past Due60 to 89 Days Past DueGreater than 90 Days and AccruingTotal Past Due
Non-Accrual (1)
CurrentTotal Loans and Leases
Commercial real estate
Non-owner occupied term, net$— $434 $— $434 $3,563 $3,576,389 $3,580,386 
Owner occupied term, net224 1,797 1 2,022 5,471 2,390,833 2,398,326 
Multifamily, net578 — — 578 — 3,553,126 3,553,704 
Construction & development, net— — — — — 857,866 857,866 
Residential development, net— — — — — 193,904 193,904 
Commercial
Term, net265 141 8 414 3,875 3,743,980 3,748,269 
Lines of credit & other, net194 3,080 1 3,275 124 905,119 908,518 
Leases & equipment finance, net8,933 7,966 2,246 19,145 7,640 1,410,587 1,437,372 
Residential
Mortgage, net
1,422 3,117 24,888 29,427 — 4,116,005 4,145,432 
Home equity loans & lines, net1,195 141 1,760 3,096 — 1,115,182 1,118,278 
Consumer & other, net802 357 240 1,399 — 200,285 201,684 
Total, net of deferred fees and costs$13,613 $17,033 $29,144 $59,790 $20,673 $22,063,276 $22,143,739 
(1) Loans and leases on non-accrual with an amortized cost basis of $20.7 million had a related allowance for credit losses of $6.3 million at June 30, 2021.
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December 31, 2020
(in thousands)Greater than 30 to 59 Days Past Due60 to 89 Days Past DueGreater than 90 Days and AccruingTotal Past Due
Non-Accrual (1)
Current and OtherTotal Loans and Leases
Commercial real estate
Non-owner occupied term, net$1,214 $21,309 $815 $23,338 $3,809 $3,478,655 $3,505,802 
Owner occupied term, net182 103 208 493 5,984 2,327,468 2,333,945 
Multifamily, net— 215 — 215 — 3,348,981 3,349,196 
Construction & development, net3,991 — — 3,991 — 824,487 828,478 
Residential development, net— — — — — 192,761 192,761 
Commercial
Term, net562 — 4 566 2,205 4,021,696 4,024,467 
Lines of credit & other, net1,491 2,667 7 4,165 336 858,259 862,760 
Leases & equipment finance, net14,242 18,220 4,796 37,258 18,742 1,400,630 1,456,630 
Residential
Mortgage, net
1,587 3,912 27,713 33,212 — 3,838,694 3,871,906 
Home equity loans & lines, net844 544 2,463 3,851 — 1,132,213 1,136,064 
Consumer & other, net678 286 355 1,319 — 216,039 217,358 
Total, net of deferred fees and costs$24,791 $47,256 $36,361 $108,408 $31,076 $21,639,883 $21,779,367 
(1) Loans and leases on non-accrual with an amortized cost basis of $31.1 million had a related allowance for credit losses of $16.7 million at December 31, 2020.

Collateral Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of June 30, 2021. There have been no significant changes in the level of collateralization from the prior periods.
(in thousands)Residential Real EstateCommercial Real Estate General Business AssetsOtherTotal
Commercial real estate
  Non-owner occupied term, net$— $3,259 $— $— $3,259 
  Owner occupied term, net— 5,005 — — 5,005 
Commercial
   Term, net424 547 669 1,863 3,503 
   Line of credit & other, net— — 40 86 126 
   Leases & equipment finance, net— — 7,640 — 7,640 
Residential
   Mortgage, net28,116 — — — 28,116 
   Home equity loans & lines, net3,101 — — — 3,101 
Total net of deferred fees and costs$31,641 $8,811 $8,349 $1,949 $50,750 

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Troubled Debt Restructurings

At June 30, 2021 and December 31, 2020, troubled debt restructured loans of $13.1 million and $15.0 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of June 30, 2021 and December 31, 2020:
June 30, 2021
(in thousands)Accrual StatusNon-Accrual Status Total Modification# of Contracts
Commercial real estate, net$1,288 $79 $1,367 7 
Residential, net11,753 — 11,753 68 
Consumer & other, net31 — 31 5 
Total, net of deferred fees and costs$13,072 $79 $13,151 80 
December 31, 2020
(in thousands)Accrual StatusNon-Accrual StatusTotal Modification# of Contracts
Commercial real estate, net$1,345 $289 $1,634 7 
Commercial, net1,231 — 1,231 1 
Residential, net12,415 — 12,415 75 
Total, net of deferred fees and costs$14,991 $289 $15,280 83 

The following table presents loans that were determined to be TDRs during the three and six months ended June 30, 2021 and 2020:
Three Months EndedSix Months Ended
(in thousands)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Commercial, net$— $8,508 $— $8,508 
Residential, net2,532 756 4,242 6,434 
Consumer & other, net9 50 36 74 
Total, net of deferred fees and costs$2,541 $9,314 $4,278 $15,016 

Credit Quality Indicators

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

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

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

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

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

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

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

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

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


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The following tables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of June 30, 2021 and December 31, 2020:
(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
June 30, 202120212020201920182017PriorTotal
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch$367,243 $461,782 $649,801 $459,252 $344,447 $1,101,517 $1,438 $4,086 $3,389,566 
Special mention10,800 2,232 5,828 40,838 2,768 60,785 — — 123,251 
Substandard831 2,034 2,637 20,911 3,128 37,784 — — 67,325 
Doubtful— — — — — — — — — 
Loss— — — — — 244 — — 244 
Total non-owner occupied term, net$378,874 $466,048 $658,266 $521,001 $350,343 $1,200,330 $1,438 $4,086 $3,580,386 
Owner occupied term, net
Credit quality indicator:
Pass/Watch$329,351 $260,024 $389,611 $289,634 $303,909 $740,316 $5,205 $759 $2,318,809 
Special mention557 897 7,579 20,882 10,196 18,878 — — 58,989 
Substandard— — 891 2,891 211 16,027 — — 20,020 
Doubtful— — — — — 78 — — 78 
Loss— — — — — 430 — — 430 
Total owner occupied term, net$329,908 $260,921 $398,081 $313,407 $314,316 $775,729 $5,205 $759 $2,398,326 
Multifamily, net
Credit quality indicator:
Pass/Watch$603,948 $369,149 $843,505 $499,080 $495,286 $705,357 $22,941 $2,940 $3,542,206 
Special mention— — — — — 2,095 — — 2,095 
Substandard— — — — 9,403 — — — 9,403 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total multifamily, net$603,948 $369,149 $843,505 $499,080 $504,689 $707,452 $22,941 $2,940 $3,553,704 
Construction & development, net
Credit quality indicator:
Pass/Watch$47,913 $278,333 $282,973 $159,126 $67,967 $214 $— $— $836,526 
Special mention— 1,635 — 11,693 — — — — 13,328 
Substandard— — — 8,012 — — — — 8,012 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction & development, net$47,913 $279,968 $282,973 $178,831 $67,967 $214 $— $— $857,866 
Residential development, net
Credit quality indicator:
Pass/Watch$11,419 $19,512 $— $— $— $— $155,115 $7,858 $193,904 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential development, net$11,419 $19,512 $— $— $— $— $155,115 $7,858 $193,904 
Total commercial real estate$1,372,062 $1,395,598 $2,182,825 $1,512,319 $1,237,315 $2,683,725 $184,699 $15,643 $10,584,186 
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(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
June 30, 202120212020201920182017PriorTotal
Commercial:
Term, net
Credit quality indicator:
Pass/Watch$1,033,785 $962,345 $262,608 $256,230 $194,263 $261,426 $642,063 $22,184 $3,634,904 
Special mention15,000 235 — 29,674 613 1,649 27,087 1,750 76,008 
Substandard18,491 11 1,800 1,454 6,720 1,572 — 5,952 36,000 
Doubtful— 6 — 417 932 2 — — 1,357 
Loss— — — — — — — — — 
Total term, net$1,067,276 $962,597 $264,408 $287,775 $202,528 $264,649 $669,150 $29,886 $3,748,269 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch$20,553 $18,984 $17,698 $18,413 $379 $2,019 $799,448 $4,003 $881,497 
Special mention— — — 134 — 249 15,318 2,106 17,807 
Substandard— 489 441 — 85 958 3,167 4,072 9,212 
Doubtful— — — — — — — — — 
Loss— — — — — — 1 1 2 
Total lines of credit & other, net$20,553 $19,473 $18,139 $18,547 $464 $3,226 $817,934 $10,182 $908,518 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch$314,467 $404,999 $360,495 $184,314 $84,164 $49,925 $— $— $1,398,364 
Special mention1,254 1,954 3,269 3,067 731 331 — — 10,606 
Substandard893 6,407 2,394 6,947 1,012 882 — — 18,535 
Doubtful475 2,226 3,293 1,498 529 238 — — 8,259 
Loss— 355 716 293 198 46 — — 1,608 
Total leases & equipment finance, net$317,089 $415,941 $370,167 $196,119 $86,634 $51,422 $— $— $1,437,372 
Total commercial$1,404,918 $1,398,011 $652,714 $502,441 $289,626 $319,297 $1,487,084 $40,068 $6,094,159 
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch$1,156,224 $793,299 $828,396 $258,517 $280,694 $798,874 $— $— $4,116,004 
Special mention248 — 899 496 563 2,334 — — 4,540 
Substandard— 591 2,835 1,254 3,087 16,134 — — 23,901 
Doubtful— — — — — — — — — 
Loss— — 911 — — 76 — — 987 
Total mortgage, net$1,156,472 $793,890 $833,041 $260,267 $284,344 $817,418 $— $— $4,145,432 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch$123 $9 $— $19 $— $14,114 $1,066,462 $34,455 $1,115,182 
Special mention— — — — — 86 818 432 1,336 
Substandard— — — — — 55 1,083 228 1,366 
Doubtful— — — — — — — — — 
Loss— — — — — 192 2 200 394 
Total home equity loans & lines, net$123 $9 $— $19 $— $14,447 $1,068,365 $35,315 $1,118,278 
Total residential$1,156,595 $793,899 $833,041 $260,286 $284,344 $831,865 $1,068,365 $35,315 $5,263,710 
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(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
June 30, 202120212020201920182017PriorTotal
Consumer & other, net:
Credit quality indicator:
Pass/Watch$11,492 $14,519 $17,174 $8,162 $5,474 $6,812 $133,940 $2,712 $200,285 
Special mention— 11 42 7 200 165 632 101 1,158 
Substandard— — 18 30 — 33 134 16 231 
Doubtful— — — — — — — — — 
Loss— — — — — 7 3 — 10 
Total consumer & other, net$11,492 $14,530 $17,234 $8,199 $5,674 $7,017 $134,709 $2,829 $201,684 
Grand total$3,945,067 $3,602,038 $3,685,814 $2,283,245 $1,816,959 $3,841,904 $2,874,857 $93,855 $22,143,739 

(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
Pass/Watch$496,412 $677,975 $489,350 $379,691 $338,257 $932,207 $2,855 $4,139 $3,320,886 
Special mention13,281 1,432 40,899 2,800 31,699 27,167 — — 117,278 
Substandard3,129 2,668 19,951 3,062 19,806 18,586 — — 67,202 
Doubtful— — — — — 103 — — 103 
Loss— — — — — 333 — — 333 
Total non-owner occupied term, net$512,822 $682,075 $550,200 $385,553 $389,762 $978,396 $2,855 $4,139 $3,505,802 
Owner occupied term, net
Credit quality indicator:
Pass/Watch$284,698 $414,715 $321,900 $344,606 $257,969 $610,893 $6,270 $783 $2,241,834 
Special mention3,641 8,373 13,143 7,365 3,425 18,386 — — 54,333 
Substandard2,657 1,694 9,868 2,846 4,356 14,609 282 975 37,287 
Doubtful— — — — — 61 — — 61 
Loss— — — — — 430 — — 430 
Total owner occupied term, net$290,996 $424,782 $344,911 $354,817 $265,750 $644,379 $6,552 $1,758 $2,333,945 
Multifamily, net
Credit quality indicator:
Pass/Watch$383,871 $870,871 $593,076 $574,185 $276,108 $618,031 $23,282 $2,956 $3,342,380 
Special mention— — — — — 6,601 — — 6,601 
Substandard— — — 215 — — — — 215 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total multifamily, net$383,871 $870,871 $593,076 $574,400 $276,108 $624,632 $23,282 $2,956 $3,349,196 
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(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Construction & development, net
Credit quality indicator:
Pass/Watch$146,012 $283,052 $255,449 $127,564 $— $372 $— $— $812,449 
Special mention1,637 — 14,392 — — — — — 16,029 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total construction & development, net$147,649 $283,052 $269,841 $127,564 $— $372 $— $— $828,478 
Residential development, net
Credit quality indicator:
Pass/Watch$17,188 $2,571 $2,151 $— $— $— $163,320 $2,507 $187,737 
Special mention— — — — — — 5,024 — 5,024 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential development, net$17,188 $2,571 $2,151 $— $— $— $168,344 $2,507 $192,761 
Total commercial real estate$1,352,526 $2,263,351 $1,760,179 $1,442,334 $931,620 $2,247,779 $201,033 $11,360 $10,210,182 
Commercial:
Term, net
Credit quality indicator:
Pass/Watch$2,146,758 $294,576 $323,744 $240,458 $67,502 $226,137 $626,878 $29,598 $3,955,651 
Special mention4,859 548 13,395 1,265 273 1,416 1,036 2,259 25,051 
Substandard251 1,105 24,845 7,259 1,137 561 — 8,029 43,187 
Doubtful— — — — — 578 — — 578 
Loss— — — — — — — — — 
Total term, net$2,151,868 $296,229 $361,984 $248,982 $68,912 $228,692 $627,914 $39,886 $4,024,467 
Lines of credit & other, net
Credit quality indicator:
Pass/Watch$27,503 $27,395 $26,731 $548 $1,679 $531 $709,606 $5,578 $799,571 
Special mention4,033 — — 1 77 299 42,882 271 47,563 
Substandard501 472 — 195 377 940 6,958 6,177 15,620 
Doubtful— — — — — — 4 — 4 
Loss— — — — — — 1 1 2 
Total lines of credit & other, net$32,037 $27,867 $26,731 $744 $2,133 $1,770 $759,451 $12,027 $862,760 
Leases & equipment finance, net
Credit quality indicator:
Pass/Watch$502,305 $442,692 $239,551 $125,619 $64,400 $7,619 $— $— $1,382,186 
Special mention2,321 4,918 7,765 3,797 1,983 99 — — 20,883 
Substandard6,999 7,193 11,617 1,945 2,081 157 — — 29,992 
Doubtful2,615 8,255 4,834 2,880 1,343 79 — — 20,006 
Loss101 1,481 1,015 635 309 22 — — 3,563 
Total leases & equipment finance, net$514,341 $464,539 $264,782 $134,876 $70,116 $7,976 $— $— $1,456,630 
Total commercial$2,698,246 $788,635 $653,497 $384,602 $141,161 $238,438 $1,387,365 $51,913 $6,343,857 
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(in thousands)Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving to Non-Revolving Loans Amortized Cost
December 31, 202020202019201820172016PriorTotal
Residential:
Mortgage, net
Credit quality indicator:
Pass/Watch$809,232 $1,136,220 $393,041 $406,069 $424,270 $669,862 $— $— $3,838,694 
Special mention— 397 286 688 946 3,183 — — 5,500 
Substandard335 1,398 1,822 4,133 6,381 11,113 — — 25,182 
Doubtful— — — — — — — — — 
Loss— 1,314 — — — 1,216 — — 2,530 
Total mortgage, net$809,567 $1,139,329 $395,149 $410,890 $431,597 $685,374 $— $— $3,871,906 
Home equity loans & lines, net
Credit quality indicator:
Pass/Watch$40 $— $20 $— $259 $16,575 $1,077,753 $37,008 $1,131,655 
Special mention— — — — — 211 1,537 198 1,946 
Substandard— — — — — 43 254 233 530 
Doubtful— — — — — — — — — 
Loss— — — — — 182 1,107 644 1,933 
Total home equity loans & lines, net$40 $— $20 $— $259 $17,011 $1,080,651 $38,083 $1,136,064 
Total residential$809,607 $1,139,329 $395,169 $410,890 $431,856 $702,385 $1,080,651 $38,083 $5,007,970 
Consumer & other, net:
Credit quality indicator:
Pass/Watch$24,408 $22,802 $11,372 $4,170 $2,582 $4,101 $143,813 $2,789 $216,037 
Special mention— 95 79 27 28 3 660 74 966 
Substandard— 25 — — 2 — 205 110 342 
Doubtful— — — — — — — — — 
Loss— — — — — 10 3 — 13 
Total consumer & other, net$24,408 $22,922 $11,451 $4,197 $2,612 $4,114 $144,681 $2,973 $217,358 
Grand total$4,884,787 $4,214,237 $2,820,296 $2,242,023 $1,507,249 $3,192,716 $2,813,730 $104,329 $21,779,367 

Note 5 – Residential Mortgage Servicing Rights 
 
The Company measures its mortgage servicing rights at fair value with changes in fair value reported in residential mortgage banking revenue, net. The following table presents the changes in the Company's residential mortgage servicing rights for the three and six months ended June 30, 2021 and 2020: 
Three Months EndedSix Months Ended
 (in thousands) June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Balance, beginning of period$100,413 $94,346 $92,907 $115,010 
Additions for new MSR capitalized8,330 13,447 22,395 23,470 
Changes in fair value:    
Changes due to collection/realization of expected cash flows over time(4,366)(5,042)(8,911)(10,371)
Changes due to valuation inputs or assumptions (1)
(1,678)(6,395)(3,692)(31,753)
Balance, end of period$102,699 $96,356 $102,699 $96,356 
(1) The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

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Information related to the Bank's serviced loan portfolio as of June 30, 2021 and December 31, 2020 is as follows: 
(dollars in thousands)June 30, 2021December 31, 2020
Balance of loans serviced for others$12,897,032 $13,026,720 
MSR as a percentage of serviced loans0.80 %0.71 %
 
The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage banking revenue on the Condensed Consolidated Statements of Income, was $9.1 million and $18.2 million for the three and six months ended June 30, 2021, respectively, as compared to $8.5 million and $17.4 million for the three and six months ended June 30, 2020, respectively.

Note 6 – Commitments and Contingencies 
 
Financial Instruments with Off-Balance-Sheet Risk — The Company's financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank's business and involve elements of credit, liquidity, and interest rate risk. 
 
The following table presents a summary of the Bank's commitments and contingent liabilities:  
 (in thousands)
June 30, 2021
Commitments to extend credit$5,907,432 
Forward sales commitments$683,567 
Commitments to originate residential mortgage loans held for sale$534,438 
Standby letters of credit$115,360 
 
The Bank is a party to financial instruments with off-balance-sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve elements of credit and interest-rate risk similar to the risk involved in on-balance sheet items. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments. 
 
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 

There were no financial guarantees in connection with standby letters of credit that the Bank was required to perform on during the three and six months ended June 30, 2021 and 2020. At June 30, 2021, approximately $105.4 million of standby letters of credit expire within one year, and $10.0 million expire thereafter.

Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing borrower misrepresentations. As of June 30, 2021, the Company had a residential mortgage loan repurchase reserve liability of $855,000.

Legal Proceedings—The Company is involved in legal proceedings occurring in the ordinary course of business. Based on information currently available, advice of counsel and available insurance coverage, management believes that the eventual outcome of actions against the Company or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to results of operations for any particular period.

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Contingencies—In 2020, the Company launched "Next Gen 2.0," an initiative designed to continue to modernize the Bank, advance technology initiatives, and improve operating leverage. As part of this initiative, management continues to evaluate all aspects of the Company's operations. The Company consolidated 12 store locations in April 2021, with additional consolidations expected by the end of the year. Costs associated with these consolidations will be included in exit and disposal costs within other expenses in non-interest expense. The Next Gen 2.0 strategy involves evaluation of these consolidations and possible future consolidations.

Concentrations of Credit Risk— The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington, California, Idaho, and Nevada. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 73% and 71% of the Bank's loan and lease portfolio at June 30, 2021 and December 31, 2020, respectively. Commercial real estate concentrations are managed to ensure geographic and business diversity, primarily in our footprint. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general or caused by the COVID-19 pandemic, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Bank's primary market areas in particular, could have an adverse impact on the repayment of these loans.  Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing represent the primary sources of repayment for a majority of these loans. 
 
The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.
  
Note 7 – Derivatives 
 
The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. None of the Company's derivatives are designated as hedging instruments.  Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy. 

The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker-dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.  Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position.  There were no counterparty default losses on forward contracts in the three and six months ended June 30, 2021 and 2020.  Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker-dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker-dealer equal to the increase or decrease in the market value of the forward contract. At June 30, 2021, the Bank had commitments to originate mortgage loans held for sale totaling $534.4 million and forward sales commitments of $683.6 million, which are used to hedge both on-balance sheet and off-balance sheet exposures. 
 
The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of June 30, 2021, the Bank had 916 interest rate swaps with an aggregate notional amount of $6.6 billion related to this program.  As of December 31, 2020, the Bank had 886 interest rate swaps with an aggregate notional amount of $6.2 billion related to this program.

As of June 30, 2021 and December 31, 2020, the termination value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $4.9 million and $370,000, respectively. The Bank has collateral posting requirements for initial margins with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of $91.7 million and $92.6 million as of June 30, 2021 and December 31, 2020, respectively. 

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The Bank's interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to the derivative asset and liability. As of June 30, 2021 and December 31, 2020, the variation margin adjustments were negative adjustments of $227.1 million and $330.5 million, respectively.
 
The Bank incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurement of its derivatives. The net CVA reduced the settlement values of the Bank's net derivative assets by $11.2 million and $18.5 million as of June 30, 2021 and December 31, 2020, respectively. Various factors impact changes in the CVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.

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

The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities on the condensed consolidated balance sheet. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of June 30, 2021 and December 31, 2020:  
(in thousands)Asset DerivativesLiability Derivatives
Derivatives not designated as hedging instrumentJune 30, 2021December 31, 2020June 30, 2021December 31, 2020
Interest rate lock commitments$13,210 $28,144 $— $— 
Interest rate forward sales commitments411 7 1,295 7,257 
Interest rate swaps221,567 313,090 4,919 370 
Foreign currency derivatives830 1,269 714 1,155 
Total derivative assets and liabilities$236,018 $342,510 $6,928 $8,782 
 
The gains and losses on the Company's mortgage banking derivatives are included in mortgage banking revenue. The gains and losses on the Company's interest rate swaps and foreign currency derivatives are included in other income. The following table summarizes the types of derivatives and the gains (losses) recorded during the three and six months ended June 30, 2021 and 2020:  
(in thousands)Three Months EndedSix Months Ended
Derivatives not designated as hedging instrumentJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Interest rate lock commitments$(1,545)$1,810 $(14,934)$18,481 
Interest rate forward sales commitments(10,285)(9,250)17,886 (40,302)
Interest rate swaps(4,481)(823)7,269 (15,129)
Foreign currency derivatives712 558 1,267 982 
Total derivative gains (losses)$(15,599)$(7,705)$11,488 $(35,968)
 
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Note 8 – Earnings (Loss) Per Common Share  
 
The following is a computation of basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2021 and 2020: 
Three Months EndedSix Months Ended
 (in thousands, except per share data)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net income (loss) $116,143 $52,926 $223,880 $(1,799,021)
    
Weighted average number of common shares outstanding - basic220,593 220,210 220,481 220,213 
Effect of potentially dilutive common shares (1)
429 110 447 — 
Weighted average number of common shares outstanding - diluted221,022 220,320 220,928 220,213 
Earnings (loss) per common share:    
Basic$0.53 $0.24 $1.02 $(8.17)
Diluted$0.53 $0.24 $1.01 $(8.17)
(1)Represents the effect of the assumed vesting of non-participating restricted shares based on the treasury stock method. 

The following table represents the weighted average outstanding restricted shares that were not included in the computation of diluted earnings (loss) per share because their effect would be anti-dilutive for the three and six months ended June 30, 2021 and 2020:
Three Months EndedSix Months Ended
(in thousands)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Restricted stock awards97994621,151

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

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, wealth management, 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 to the MSR, and the specific expenses that are related to mortgage banking activities including variable commission expenses. Revenue and related expenses related to residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for our consumer channels and are originated through a variety of channels throughout the Company.

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Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
(in thousands)
Core BankingMortgage BankingConsolidatedCore BankingMortgage BankingConsolidated
Net interest income $226,915 $2,848 $229,763 $208,245 $4,258 $212,503 
(Recapture) provision for credit losses(22,996)— (22,996)87,085 — 87,085 
Non-interest income
Residential mortgage banking revenue:
Origination and sale— 41,367 41,367 — 86,781 86,781 
Servicing— 9,120 9,120 — 8,533 8,533 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time— (4,366)(4,366)— (5,042)(5,042)
Changes due to valuation inputs or assumptions— (1,678)(1,678)— (6,395)(6,395)
Gain on sale of debt securities, net— — — 323 — 323 
Gain on equity securities, net4 — 4 240 — 240 
Loss on swap derivatives, net(4,481)— (4,481)(823)— (823)
Non-interest income (excluding above items)50,933 176 51,109 31,697 166 31,863 
Total non-interest income46,456 44,619 91,075 31,437 84,043 115,480 
Non-interest expense
Exit and disposal costs4,728 — 4,728 548 — 548 
Non-interest expense (excluding above items)146,877 37,795 184,672 141,448 39,914 181,362 
Allocated expenses, net (1)
970 (970)— (1,963)1,963 — 
Total non-interest expense152,575 36,825 189,400 140,033 41,877 181,910 
Income before income taxes143,792 10,642 154,434 12,564 46,424 58,988 
Provision (benefit) for income taxes35,630 2,661 38,291 (5,544)11,606 6,062 
Net income$108,162 $7,981 $116,143 $18,108 $34,818 $52,926 
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.
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Six Months Ended June 30, 2021Six Months Ended June 30, 2020
(in thousands)
Core BankingMortgage BankingConsolidatedCore BankingMortgage BankingConsolidated
Net interest income $444,489 $6,705 $451,194 $424,351 $6,687 $431,038 
(Recapture) provision for credit losses(22,996)— (22,996)205,170 — 205,170 
Non-interest income
Residential mortgage banking revenue:
Origination and sale— 103,872 103,872 — 126,128 126,128 
Servicing— 18,207 18,207 — 17,413 17,413 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time— (8,911)(8,911)— (10,371)(10,371)
Changes due to valuation inputs or assumptions— (3,692)(3,692)— (31,753)(31,753)
Gain on sale of debt securities, net4 — 4 190 — 190 
(Loss) gain on equity securities, net(702)— (702)1,054 — 1,054 
Gain (loss) on swap derivatives, net7,269 — 7,269 (15,129)— (15,129)
Non-interest income (excluding above items)83,336 492 83,828 68,285 308 68,593 
Total non-interest income89,907 109,968 199,875 54,400 101,725 156,125 
Non-interest expense
Goodwill impairment— — — 1,784,936 — 1,784,936 
Exit and disposal costs5,928 — 5,928 1,072 — 1,072 
Non-interest expense (excluding above items)292,038 79,026 371,064 289,344 69,216 358,560 
Allocated expenses, net (1)
180 (180)— (5,016)5,016 — 
Total non-interest expense298,146 78,846 376,992 2,070,336 74,232 2,144,568 
Income (loss) before income taxes259,246 37,827 297,073 (1,796,755)34,180 (1,762,575)
Provision for income taxes63,736 9,457 73,193 27,901 8,545 36,446 
Net income (loss)$195,510 $28,370 $223,880 $(1,824,656)$25,635 $(1,799,021)
(1) Represents the internal charge of centrally provided support services and other corporate overhead to the Mortgage Banking segment, partially offset by allocations from the Mortgage Banking segment to Core Banking for new portfolio loan originations and portfolio servicing costs.
June 30, 2021December 31, 2020
(in thousands)
Core BankingMortgage BankingConsolidatedCore BankingMortgage BankingConsolidated
Total assets$29,720,182 $564,783 $30,284,965 $28,438,813 $796,362 $29,235,175 
Loans held for sale$— $429,052 $429,052 $78,146 $688,079 $766,225 
Total loans and leases$22,143,739 $— $22,143,739 $21,779,367 $— $21,779,367 
Total deposits$25,820,776 $332,777 $26,153,553 $24,200,012 $422,189 $24,622,201 
 

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Note 10 – Fair Value Measurement 
 
The following table presents estimated fair values of the Company's financial instruments as of June 30, 2021 and December 31, 2020, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:  
June 30, 2021December 31, 2020
 (in thousands)LevelCarrying ValueFair ValueCarrying ValueFair Value
Financial assets:    
Cash and cash equivalents1$3,085,811 $3,085,811 $2,573,181 $2,573,181 
Equity and other investment securities1,282,099 82,099 83,077 83,077 
Investment securities available for sale23,473,950 3,473,950 2,932,558 2,932,558 
Investment securities held to maturity32,876 3,690 3,034 3,883 
Loans held for sale2429,052 429,052 766,225 766,225 
Loans and leases, net
2,321,863,852 22,174,722 21,450,966 21,904,189 
Restricted equity securities115,247 15,247 41,666 41,666 
Residential mortgage servicing rights3102,699 102,699 92,907 92,907 
Bank owned life insurance1324,998 324,998 323,470 323,470 
Derivatives2,3236,018 236,018 342,510 342,510 
Financial liabilities:    
Deposits1,2$26,153,553 $26,160,749 $24,622,201 $24,641,876 
Securities sold under agreements to repurchase2480,302 480,302 375,384 375,384 
Borrowings2111,405 112,364 771,482 774,586 
Junior subordinated debentures, at fair value3287,723 287,723 255,217 255,217 
Junior subordinated debentures, at amortized cost388,155 65,044 88,268 67,425 
Derivatives26,928 6,928 8,782 8,782 

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Fair Value of Assets and Liabilities Measured on a Recurring Basis 

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020: 
(in thousands) 
June 30, 2021
DescriptionTotalLevel 1Level 2Level 3
Financial assets:
Equity and other investment securities    
Investments in mutual funds and other securities$69,500 $52,163 $17,337 $— 
Equity securities held in rabbi trusts12,599 12,599 — — 
Investment securities available for sale    
U.S. Treasury and agencies774,368 — 774,368 — 
Obligations of states and political subdivisions278,126 — 278,126 — 
Residential mortgage-backed securities and collateralized mortgage obligations2,421,456 — 2,421,456 — 
Loans held for sale, at fair value429,052 — 429,052 — 
Loans and leases, at fair value359,273 — 359,273 — 
Residential mortgage servicing rights, at fair value 102,699 — — 102,699 
Derivatives    
Interest rate lock commitments13,210 — — 13,210 
Interest rate forward sales commitments411 — 411 — 
Interest rate swaps221,567 — 221,567 — 
Foreign currency derivative830 — 830 — 
Total assets measured at fair value$4,683,091 $64,762 $4,502,420 $115,909 
Financial liabilities:
Junior subordinated debentures, at fair value$287,723 $— $— $287,723 
Derivatives    
Interest rate forward sales commitments1,295 — 1,295 — 
Interest rate swaps4,919 — 4,919 — 
Foreign currency derivative714 — 714 — 
Total liabilities measured at fair value$294,651 $— $6,928 $287,723 

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(in thousands) December 31, 2020
DescriptionTotalLevel 1Level 2Level 3
Financial assets:
Equity and other investment securities    
Investments in mutual funds and other securities$70,203 $52,866 $17,337 $— 
Equity securities held in rabbi trusts
12,814 12,814 — — 
  Other investments securities (1)
60 — 60 — 
Investment securities available for sale
U.S. Treasury and agencies762,202 — 762,202 — 
Obligations of states and political subdivisions279,511 — 279,511 — 
Residential mortgage-backed securities and collateralized mortgage obligations1,890,845 — 1,890,845 — 
Loans held for sale, at fair value688,079 — 688,079 — 
Residential mortgage servicing rights, at fair value92,907 — — 92,907 
Derivatives    
Interest rate lock commitments28,144 — — 28,144 
Interest rate forward sales commitments7 — 7 — 
Interest rate swaps313,090 — 313,090 — 
Foreign currency derivative1,269 — 1,269 — 
Total assets measured at fair value$4,139,131 $65,680 $3,952,400 $121,051 
Financial liabilities:
Junior subordinated debentures, at fair value$255,217 $— $— $255,217 
Derivatives    
Interest rate forward sales commitments7,257 — 7,257 — 
Interest rate swaps370 — 370 — 
Foreign currency derivative1,155 — 1,155 — 
Total liabilities measured at fair value$263,999 $— $8,782 $255,217 
(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities.

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

Loans and leases— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. As of June 30, 2021, there were $359.3 million in mortgage loans that were transferred from held for sale to loans held for investment, recorded at fair value.
 
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Residential Mortgage Servicing Rights— The fair value of the MSRs is estimated using a discounted cash flow model. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized are indicative of those that would be used by market participants. 
 
Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique.  The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants.  Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.  
 
Derivative Instruments— The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate.  The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2021, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.   
 
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) 
 
The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at June 30, 2021: 
Financial InstrumentFair Value (in thousands)Valuation TechniqueUnobservable InputRange of InputsWeighted Average
Residential mortgage servicing rights$102,699 Discounted cash flow  
  Constant prepayment rate
8.52% - 72.22%
16.75%
  Discount rate
9.50% - 12.50%
9.70%
Interest rate lock commitments$13,210 Internal pricing model
Pull-through rate
70.32% - 100.00%
86.42%
Junior subordinated debentures$287,723 Discounted cash flow  
  Credit spread
1.94% - 4.97%
3.81%

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

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

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and six months ended June 30, 2021 and 2020: 
Three Months EndedThree Months Ended
June 30, 2021June 30, 2020
(in thousands)Residential mortgage servicing rightsInterest rate lock commitments, netJunior subordinated debentures, at fair valueResidential mortgage servicing rightsInterest rate lock commitments, netJunior subordinated debentures, at fair value
Beginning balance$100,413 $14,755 $281,580 $94,346 $23,727 $195,521 
Change included in earnings(6,044)2,356 2,367 (11,437)2,529 3,083 
Change in fair values included in comprehensive income/loss— — 5,996 — — 37,450 
Purchases and issuances8,330 21,548 — 13,447 48,007 — 
Sales and settlements— (25,449)(2,220)— (48,726)(3,118)
Ending balance$102,699 $13,210 $287,723 $96,356 $25,537 $232,936 
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period$(1,678)$13,210 $2,367 $(6,395)$25,537 $3,083 
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period$— $— $5,996 $— $— $37,450 
Six Months EndedSix Months Ended
June 30, 2021June 30, 2020
(in thousands)Residential mortgage servicing rightsInterest rate lock commitments, netJunior subordinated debentures, at fair valueResidential mortgage servicing rightsInterest rate lock commitments, netJunior subordinated debentures, at fair value
Beginning Balance$92,907 $28,144 $255,217 $115,010 $7,056 $274,812 
Change included in earnings(12,603)(1,102)4,743 (42,124)7,223 6,973 
Change in fair values included in comprehensive income/loss— — 32,558 — — (41,412)
Purchases and issuances22,395 51,723 — 23,470 75,008 — 
Sales and settlements— (65,555)(4,795)— (63,750)(7,437)
Ending Balance$102,699 $13,210 $287,723 $96,356 $25,537 $232,936 
Change in unrealized gains or losses for the period included in earnings for assets held at end of period$(3,692)$13,210 $4,743 $(31,753)$25,537 $6,973 
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period$— $— $32,558 $— $— $(41,412)

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

The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, the unrealized losses on fair value of junior subordinated debentures of $6.0 million and $32.6 million for the three and six months ended June 30, 2021, are recorded net of tax as an other comprehensive loss of $4.5 million and $24.2 million, respectively. Comparatively, unrealized losses of $37.5 million and unrealized gains of $41.4 million were recorded net of tax as an other comprehensive loss of $27.8 million and other comprehensive income of $30.8 million, respectively, for the three and six months ended June 30, 2020.

Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis 
 
From time to time, certain assets are measured at fair value on a nonrecurring basis.  These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans. The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period.  The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon. 
June 30, 2021
 (in thousands)TotalLevel 1Level 2Level 3
Loans and leases$3,997 $— $— $3,997 
Total assets measured at fair value on a nonrecurring basis$3,997 $— $— $3,997 
December 31, 2020
 (in thousands) 
TotalLevel 1Level 2Level 3
Loans and leases$8,231 $— $— $8,231 
Total assets measured at fair value on a nonrecurring basis$8,231 $— $— $8,231 

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

Three Months EndedSix Months Ended
  (in thousands) 
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Loans and leases$16,697 $16,497 $35,010 $38,539 
Goodwill impairment — — — 1,784,936 
Total loss from nonrecurring measurements$16,697 $16,497 $35,010 $1,823,475 

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

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

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The loans and leases amounts above represent collateral dependent loans and leases that have been adjusted to fair value.  When a loan or non-homogeneous lease is identified as collateral dependent, the Bank measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan or lease, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little to no value.  When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is determined that the collateral has little to no value. If it is determined that the value of the collateral dependent loan or lease is less than its recorded investment, the Bank recognizes this impairment and adjusts the carrying value of the loan or lease to fair value, less costs to sell, through the allowance for credit losses. The loss represents charge-offs on collateral dependent loans and leases for fair value adjustments based on the fair value of collateral.
 
Fair Value Option
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of June 30, 2021 and December 31, 2020:
June 30, 2021December 31, 2020
(in thousands)Fair Value Aggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal BalanceFair ValueAggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal Balance
  Loans held for sale$429,052 $412,744 $16,308 $688,079 $654,555 $33,524 
  Loans $359,273 $349,457 $9,816 $— $— $— 

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking revenue. For the three and six months ended June 30, 2021, the Company recorded a net increase in fair value of $10.6 million and decrease of $9.0 million, respectively. For the three and six months ended June 30, 2020, the Company recorded a net increase in fair value of $6.2 million and $14.3 million, respectively.

Certain residential mortgage loans were initially originated for sale and initially measured at fair value; after origination, the loans were transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of other income. For the three and six months ended June 30, 2021, the Company recorded a net increase in fair value of $2.8 million.

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

Note 11 - Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as in the majority of states. As of June 30, 2021, the Company has a net deferred tax liability of $2.5 million, which includes $1.8 million of state net operating loss carry-forwards, expiring in the tax years of 2029-2031. The Company believes that it is more likely than not that the benefit from only certain state NOL carry-forwards will not be realized and therefore has provided a valuation allowance of $1.1 million against the deferred tax assets relating to these NOL carry-forwards. The Company had gross unrecognized tax benefits of $3.4 million as of June 30, 2021. If recognized, the unrecognized tax benefit would reduce the 2021 annual effective tax rate by 0.58%.

The Company's consolidated effective tax rate as a percentage of pre-tax income (loss) for the six months ended June 30, 2021 was 24.6%, as compared to (2.1)% for the six months ended June 30, 2020. The effective tax rate increased from the prior year primarily due to the impairment of non-deductible goodwill during the six months ended June 30, 2020. Additionally, the effective tax rates differed from the statutory rate principally because of state taxes, non-taxable income arising from bank-owned life insurance, income on tax-exempt investment securities, non-deductible FDIC premiums and tax credits arising from low-income housing investments.
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Note 12 – Subsequent Event

On July 21, 2021, the Company announced that its Board of Directors approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. As of August 4, 2021, the Company has repurchased 1.4 million shares for $26.2 million in open market transactions under this share repurchase plan. In future filings, share repurchases under the program will be disclosed in Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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Item 2.         Management's Discussion and Analysis of Financial Condition and Results of Operations 
 
Forward-Looking Statements 
 
This Report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends" and "forecast," and words or phrases of similar meaning.
We make forward-looking statements about the projected impact on our business operations of the COVID-19 pandemic; Next Gen 2.0 initiatives including store consolidations, new products and services, technology initiatives, operational improvements, and facilities rationalizations; LIBOR; derivatives and hedging; the results and performance of models and economic forecasts used in our calculation of the ACL; projected sources of funds and the Company's liquidity position; our securities portfolio; loan sales; adequacy of our ACL, including the reserve for unfunded commitments; provision for credit losses; non-performing loans and future losses; performance of troubled debt restructurings; our commercial real estate portfolio, its collectability and subsequent charge-offs; resolution of non-accrual loans; PPP forgiveness and SBA fees; mortgage volumes and the impact of rate changes; the economic environment; litigation; dividends; junior subordinated debentures; fair values of certain assets and liabilities, including mortgage servicing rights values and sensitivity analyses; tax rates; deposit pricing; and the effect of accounting pronouncements and changes in accounting methodology. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, and any slowdown in economic growth particularly in the western United States; the length and immediate and long-term effects of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and demand for our products; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; our ability to effectively manage problem credits; our ability to successfully implement technology, efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; and our ability to successfully negotiate with landlords or reconfigure facilities. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements, applicable law and regulations (including federal securities laws and state and federal banking laws and regulations), and other factors deemed relevant by the Company's Board of Directors, and may be subject to regulatory approval or conditions.
Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that might cause actual results to differ materially from those presented: 
•the significant risks and uncertainties for our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its influence on the economy and financial markets, the continued effectiveness of our work from home arrangements and staffing levels in operational facilities, challenges associated with our return to office plans such as maintaining a safe office environment and integrating at-home and in-office staff, the impact of market participants on which we rely and actions taken by governmental authorities and other third parties in response to the pandemic and the impact of lower equity market valuations on our service and management fee revenue;
•deterioration in economic conditions that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans;
•our ability to successfully, including on time and on budget, implement and sustain information technology product and system enhancements and operational initiatives;
•our ability to attract new deposits and loans and leases;
•our ability to retain deposits, especially during store consolidations; 
•demand for financial services in our market areas; 
•competitive market pricing factors; 
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•our ability to effectively develop and implement new technology;
•continued market interest rate volatility; 
•prolonged low interest rate environment;
•continued compression of our net interest margin; 
•stability and cost of funding sources;
•continued availability of borrowings and other funding sources such as brokered and public deposits; 
•changes in legal or regulatory requirements or the results of regulatory examinations that could increase expenses or restrict growth;
•our ability to recruit and retain key management and staff; 
•availability of, and competition for, acquisition opportunities; 
•our ability to raise capital or incur debt on reasonable terms; 
•regulatory limits on the Bank's ability to pay dividends to the Company; 
•financial services reform and the impact of legislation and implementing regulations on our business operations, including our compliance costs, interest expense, and revenue;
•a breach or failure of our operational or security systems, or those of our third-party vendors, including as a result of cyber-attacks; and
•competition, including from financial technology companies.
There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements are made as of the date of this Form 10-Q. We do not intend to update these forward-looking statements. Readers should consider any forward-looking statements in light of this explanation, and we caution readers about relying on forward-looking statements.
  
General 
The Company is an Oregon corporation and the financial holding company of the Bank. The Bank is the largest bank with headquarters in the Pacific Northwest and is considered one of the most innovative banks in the United States, recognized for its company culture and customer experience strategy. The Bank provides a broad range of banking, wealth management, mortgage and other financial services to corporate, institutional, and individual customers. FinPac, a commercial equipment leasing company, is a Bank subsidiary.

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

In November 2020, the SEC issued Final Rule 33-10890, Management’s Discussion and Analysis, Selected Financial Data and Supplementary Financial Information, which modernizes and simplifies certain disclosure requirements of Regulation S-K. One update to Item 303 of Regulation S-K allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. We have elected to early adopt this rule change, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison. Additionally, in the first filing after the adoption of this rule change, we are required to disclose a comparison of the results for the current quarter and the corresponding quarter of the preceding fiscal year. Accordingly, we have compared the results for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, where applicable, throughout this Management's Discussion and Analysis.
  
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Executive Overview 

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

Financial Performance
 
•Net income per diluted common share was $0.53 for the three months ended June 30, 2021 as compared to $0.49 and $0.24 for the three months ended March 31, 2021 and June 30, 2020, respectively. Net income per diluted common share was $1.01 for the six months ended June 30, 2021, as compared to a net loss of ($8.17) for the six months ended June 30, 2020. The increase for the three months ended June 30, 2021, as compared to the prior quarter, was primarily driven by a recapture of the provision for credit losses of $23.0 million during the quarter and an increase in net interest income of $8.3 million primarily due to higher average loan balances and lower interest expense, offset by lower non-interest income related to decreased mortgage banking revenue. The increase in net income for the six months ended June 30, 2021, is due mainly to the goodwill impairment taken in 2020 and the recapture of provision for credit losses compared to provision expense in the same period in the prior year.
 
•Net interest margin, on a tax equivalent basis, was 3.20% for the three months ended June 30, 2021, as compared to 3.18% and 3.09% for the three months ended March 31, 2021 and June 30, 2020, respectively. Net interest margin, on a tax equivalent basis, was 3.19% for the six months ended June 30, 2021, as compared to 3.25% for the six months ended June 30, 2020.  The increase for the three months ended June 30, 2021 as compared to the prior quarter was driven by the decline in average rates on deposits, specifically time deposits. The decrease in net interest margin for the six months ended June 30, 2021, compared to the same period in the prior year, was driven by lower yields on interest-earning assets due to 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.

•Residential mortgage banking revenue was $44.4 million for the three months ended June 30, 2021, as compared to $65.0 million and $83.9 million, for the three months ended March 31, 2021 and June 30, 2020, respectively. Residential mortgage banking revenue was $109.5 million for the six months ended June 30, 2021, as compared to and $101.4 million for the six months ended June 30, 2020.  The decrease for the three months ended June 30, 2021, as compared to the prior quarter, was driven by a decline in for-sale originations and the gain on sale margin, caused by rising rates which has resulted in a slow-down in refinancing demand. The increase in residential mortgage banking revenue for the six months ended June 30, 2021, was a result of a lower loss on fair value on the MSR asset during the period, offset by the decline in origination and sale revenue.

•For-sale mortgage closed loan volume decreased by 23% and 31%, for the three months ended June 30, 2021, as compared to the three months ended March 31, 2021 and June 30, 2020, respectively. For-sale mortgage closed loan volume decreased 3% for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. In addition, the gain on sale margin decreased to 3.30% for the three months ended June 30, 2021, as compared to 3.82% and 4.75% for the three months ended March 31, 2021 and June 30, 2020, respectively. For the six months ended June 30, 2021, the gain on sale margin decreased to 3.60%, as compared to 4.24% for the six months ended June 30, 2020.

•Total loans and leases were $22.1 billion as of June 30, 2021, an increase of $364.4 million, as compared to December 31, 2020.  The increase in total loans is primarily due to an increase in the commercial real estate balances of $374.0 million and an increase in residential real estate balances of $255.7 million, offset by a decrease of $249.7 million in commercial balances. The decrease in commercial balances mainly relates to the expected PPP loan forgiveness during the period.
 
•Total deposits were $26.2 billion as of June 30, 2021, an increase of $1.5 billion, compared to December 31, 2020.  This increase was due to growth in demand, money market, and savings deposits, which is attributable to customers receiving government stimulus payments driving increased average balances per deposit accounts, as well as increased customer saving. The increase in deposits is partially offset by a decline in higher cost time deposits.
 
•Total consolidated assets were $30.3 billion as of June 30, 2021, compared to $29.2 billion at December 31, 2020. The increase was mainly due to an increase in on-balance sheet liquidity, as well as an increase in loans and available for sale securities.

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Credit Quality

•Non-performing assets decreased to $50.0 million, or 0.17% of total assets, as of June 30, 2021, as compared to $69.2 million, or 0.24% of total assets, as of December 31, 2020. Non-performing loans and leases were $49.8 million, or 0.22% of total loans and leases, as of June 30, 2021, as compared to $67.4 million, or 0.31% of total loans and leases, as of December 31, 2020.

•The allowance for credit losses on loans and leases was $279.9 million, as of June 30, 2021, a decrease of $48.5 million, as compared to December 31, 2020. The reserve for unfunded commitments was $14.5 million, as of June 30, 2021, a decrease of $5.7 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, as well as net charge-offs.

•The Company had a recapture of $23.0 million in provision for credit losses for the three and six months ended June 30, 2021. This was compared to no provision for credit losses, for the three months ended March 31, 2021 and a provision of $87.1 million for the three months ended June 30, 2020. For the six months ended June 30, 2020, there was a provision for credit losses of $205.2 million. The decrease compared to the same period in 2020, was due to stabilization of credit quality metrics and economic forecasts used in credit models as of June 30, 2021.

Liquidity
•Total cash and cash equivalents was $3.1 billion as of June 30, 2021, an increase of $512.6 million from December 31, 2020. The increase in cash and cash equivalents is consistent with the Bank's current liquidity strategy to grow deposit balances to provide flexibility to fund growth in the lending and investment portfolios as economic conditions permit.

Capital and Growth Initiatives

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

•The Company's total risk based capital ratio was 15.4% and its Tier 1 common to risk weighted assets ratio was 12.4% as of June 30, 2021. As of December 31, 2020, the Company's total risk based capital ratio was 15.6% and its Tier 1 common to risk weighted assets ratio was 12.3%.
 
•The Company paid quarterly cash dividends of $0.21 per common share on February 26, 2021 and May 28, 2021.

•In July 2021, the Company announced that its Board of Directors approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The program replaces and supersedes the previously approved share repurchase program which was scheduled to expire on July 31, 2021.

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

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Results of Operations
 
Overview 
 
For the three months ended June 30, 2021, net income was $116.1 million or $0.53 per diluted common share, compared to net income of $107.7 million or $0.49 and $52.9 million or $0.24 per diluted common share, respectively, for the three months ended March 31, 2021 and June 30, 2020. For the six months ended June 30, 2021, net income was $223.9 million or $1.01 per diluted common share, which compares to a net loss of $1.8 billion or ($8.17) per diluted common share for the six months ended June 30, 2020.

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

The Core Banking segment includes all lines of business, except Mortgage Banking, including wholesale, retail, wealth management, 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.

As a result of the Company's efforts to manage through the pandemic, as well as the beginning phases of Umpqua Next Gen 2.0, we are reporting solid financial trends within the Core Banking segment, including an increase in non-interest income and lower non-interest expense. The Core Banking segment was responsible for 93% and 87% of our reported net income for the three and six months ended June 30, 2021. The increase in net income for the three months ended June 30, 2021 for the Core Banking segment, as compared to the three months ended March 31, 2021, is attributable to the recapture of the provision for credit losses and an increase in net interest income, offset by an increase in non-interest expense related to exit and disposal costs due to store consolidations and back-office lease exits. The increase for the six months ended June 30, 2021 for the Core Banking segment, as compared to the same period in the prior year, was due to the impact of goodwill impairment in 2020 and the recapture of the provision for credit losses as economic forecasts continue to improve.

The decrease in net income for the three months ended June 30, 2021 for the Mortgage Banking segment, compared to the three months ended March 31, 2021, is attributable to lower origination and sale of loans. The closed loan volume declined as a result of rates leveling out, as well as the decreasing volume of houses available to purchase in many of the housing markets in our footprint. The increase in net income for the six months ended June 30, 2021 for the Mortgage Banking segment, compared to the same period of the prior year was primarily due to an increase in non-interest income due to changes in the inputs in the fair value of the MSR asset.
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The following table presents the return on average assets, average common shareholders' equity and average tangible common shareholders' equity for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, as well as the six months ended June 30, 2021 and June 30, 2020, respectively. For each period presented, the table includes the calculated ratios based on reported net income. Our return on average common shareholders' equity was negatively impacted as the result of capital required to support goodwill. To the extent this performance metric is used to compare our performance with other financial institutions that do not have merger and acquisition-related intangible assets, we believe it is beneficial to also consider the return on average tangible common shareholders' equity. The return on average tangible common shareholders' equity is calculated by dividing net income by average shareholders' common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common shareholders' equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on average common shareholders' equity.  

Return on Average Assets, Common Shareholders' Equity and Tangible Common Shareholders' Equity
 
Three Months EndedSix Months Ended
 (dollars in thousands) June 30, 2021March 31, 2021June 30, 2020June 30, 2021June 30, 2020
Return on average assets1.54 %1.49 %0.73 %1.52 %(12.49)%
Return on average common shareholders' equity17.25 %16.33 %8.46 %16.80 %(106.99)%
Return on average tangible common shareholders' equity17.33 %16.43 %8.53 %16.89 %(145.65)%
Calculation of average common tangible shareholders' equity:    
Average common shareholders' equity$2,700,010 $2,674,871 $2,514,754 $2,687,510 $3,381,417 
Less: average goodwill and other intangible assets, net (12,615)(15,598)(19,253)(14,098)(897,551)
Average tangible common shareholders' equity$2,687,395 $2,659,273 $2,495,501 $2,673,412 $2,483,866 
Additionally, management believes tangible common equity and the tangible common equity ratio are meaningful measures of capital adequacy. Umpqua believes the exclusion of certain intangible assets in the computation of tangible common equity and tangible common equity ratio provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the operating results and capital of the Company.  Tangible common equity is calculated as total shareholders' equity less preferred stock and less goodwill and other intangible assets, net (excluding MSRs).  In addition, tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs).  The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets. The tangible common equity and tangible common equity ratio is considered a non-GAAP financial measure and should be viewed in conjunction with the total shareholders' equity and the total shareholders' equity ratio. 

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The following table provides a reconciliation of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP) as of June 30, 2021 and December 31, 2020: 
 (dollars in thousands) 
June 30, 2021December 31, 2020
Total shareholders' equity$2,766,316 $2,704,577 
Subtract:  
Goodwill— 2,715 
Other intangible assets, net11,100 13,360 
Tangible common shareholders' equity$2,755,216 $2,688,502 
Total assets$30,284,965 $29,235,175 
Subtract:
Goodwill— 2,715 
Other intangible assets, net11,100 13,360 
Tangible assets$30,273,865 $29,219,100 
Tangible common equity ratio9.10 %9.20 %
 
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not reviewed or audited.  Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.
  
Net Interest Income 
 
Net interest income for the three months ended June 30, 2021 was $229.8 million, an increase of $8.3 million and $17.3 million compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Net interest income for the six months ended June 30, 2021 was $451.2 million, an increase of $20.2 million compared to the six months ended June 30, 2020. The increase for the three months ended June 30, 2021 compared to the sequential prior quarter was driven by an increase of $3.7 million in interest income as a result of higher average loan balances, and a decrease of $4.6 million in interest expense due to the decline in high-cost time deposits in the quarter compared to the prior period. The increase for the six months ended June 30, 2021, was due to the lower cost of interest-bearing liabilities due to lower retail and brokered time deposits as the Bank has allowed these higher-cost deposits to runoff. The decrease in interest expense was partially offset by lower average yields on interest-earning assets for the period.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent basis was 3.20% for the three months ended June 30, 2021, as compared to 3.18% and 3.09% for the three months ended March 31, 2021 and June 30, 2020, respectively. The net interest margin on a fully tax equivalent basis was 3.19% for the six months ended June 30, 2021, as compared to 3.25% for the six months ended June 30, 2020. The increase in net interest margin for the three months ended June 30, 2021, as compared to the three months ended March 31, 2021, was primarily driven by the decrease in interest expense due to the decline in deposit costs. The decrease in net interest margin for the six months ended June 30, 2021, primarily resulted from a decrease in the average yields on interest-earning assets, partially offset by the decline in the cost of interest-bearing liabilities. The Federal Open Market Committee expects to maintain the target rates at the current levels until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Key interest rate declines experienced over the past year have negatively impacted the Company's net interest margin.

The yield on loans and leases for the three months ended June 30, 2021 decreased by 3 basis points as compared to the three months ended March 31, 2021, primarily attributable to an increase in average loans and leases with lower rates. The yield on loans and leases for the six months ended June 30, 2021 decreased by 32 basis points as compared to the same period in 2020, primarily attributable to the decrease in short and long-term interest rates. The cost of interest-bearing liabilities decreased 11 basis points, for the three months ended June 30, 2021, as compared to the three months ended March 31, 2021, due to the continued run off of higher-cost time deposits. The cost of interest-bearing liabilities decreased by 63 basis points for the six months ended June 30, 2021, as compared to the same period in 2020, also due to the decrease in interest rates and corresponding deposit pricing strategy.Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, as well as changes in the yields earned on interest-earning assets and rates paid on deposits and borrowed funds. The Company continues to be "asset-sensitive." The decrease in yields on earning assets has compressed the net interest margin, even as liabilities reprice downward.
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The following tables present condensed average balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, as well as the six months ended June 30, 2021 and 2020:  
Three Months Ended
 June 30, 2021March 31, 2021June 30, 2020
 (dollars in thousands)Average BalanceInterest Income or ExpenseAverage Yields or RatesAverage BalanceInterest Income or ExpenseAverage Yields or RatesAverage BalanceInterest Income or ExpenseAverage Yields or Rates
INTEREST-EARNING ASSETS:      
Loans held for sale$468,960 $3,725 3.18 %$703,557 $4,845 2.75 %$577,773 $5,443 3.77 %
Loans and leases (1)
22,040,794 219,745 3.99 %21,692,639 216,296 4.02 %22,428,142 229,731 4.11 %
Taxable securities3,210,771 15,024 1.87 %2,945,896 13,710 1.86 %2,777,154 9,583 1.38 %
Non-taxable securities (2)
247,282 1,864 3.02 %252,741 1,915 3.03 %235,934 1,868 3.17 %
Temporary investments and interest-bearing cash2,835,474 774 0.11 %2,483,451 624 0.10 %1,563,753 403 0.10 %
Total interest-earning assets28,803,281 $241,132 3.35 %28,078,284 $237,390 3.41 %27,582,756 $247,028 3.59 %
Other assets1,352,736 1,314,206 1,484,019 
Total assets$30,156,017 $29,392,490 $29,066,775 
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits$3,385,336 $459 0.05 %$3,125,398 $414 0.05 %$2,649,331 $1,148 0.17 %
Money market deposits7,614,474 1,533 0.08 %7,360,512 1,491 0.08 %7,275,041 4,037 0.22 %
Savings deposits2,171,865 154 0.03 %1,998,927 163 0.03 %1,628,276 198 0.05 %
Time deposits2,303,068 4,870 0.85 %2,681,361 8,610 1.30 %4,250,947 20,839 1.97 %
Total interest-bearing deposits15,474,743 7,016 0.18 %15,166,198 10,678 0.29 %15,803,595 26,222 0.67 %
Repurchase agreements and federal funds purchased440,881 68 0.06 %395,946 76 0.08 %375,098 194 0.21 %
Borrowings214,670 866 1.62 %539,077 1,772 1.33 %1,163,065 3,839 1.33 %
Junior subordinated debentures369,812 3,042 3.30 %343,473 3,052 3.60 %284,130 3,922 5.55 %
Total interest-bearing liabilities16,500,106 $10,992 0.27 %16,444,694 $15,578 0.38 %17,625,888 $34,177 0.78 %
Non-interest-bearing deposits10,582,197 9,897,749 8,484,684 
Other liabilities373,704 375,176 441,449 
Total liabilities27,456,007 26,717,619 26,552,021 
Common equity2,700,010 2,674,871 2,514,754 
Total liabilities and shareholders' equity$30,156,017 $29,392,490 $29,066,775 
NET INTEREST INCOME$230,140 $221,812 $212,851 
NET INTEREST SPREAD3.08 %3.03 %2.81 %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)
3.20 %3.18 %3.09 %
(1)Non-accrual loans and leases are included in the average balance
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $377,000 for the three months ended June 30, 2021, as compared to $381,000 and $348,000 for the three months ended March 31, 2021 and June 30, 2020, respectively.

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Six Months Ended
June 30, 2021June 30, 2020
(dollars in thousands)Average BalanceInterest Income or ExpenseAverage Yields or RatesAverage BalanceInterest Income or ExpenseAverage Yields or Rates
INTEREST-EARNING ASSETS:
Loans held for sale$585,611 $8,570 2.93 %$492,577 $9,707 3.94 %
Loans and leases (1)
21,867,678 436,041 4.01 %21,815,966 471,460 4.33 %
Taxable securities3,079,065 28,734 1.87 %2,768,853 26,866 1.94 %
Non-taxable securities (2)
249,996 3,779 3.02 %238,505 3,763 3.15 %
Temporary investments and interest bearing cash2,660,435 1,398 0.11 %1,325,627 3,734 0.56 %
Total interest-earning assets28,442,785 $478,522 3.38 %26,641,528 $515,530 3.88 %
Other assets1,333,577 2,314,860 
Total assets$29,776,362 $28,956,388 
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits$3,256,085 $873 0.05 %$2,560,935 $4,691 0.37 %
Money market deposits7,488,195 3,024 0.08 %7,191,796 15,796 0.44 %
Savings deposits2,085,874 317 0.03 %1,557,118 439 0.06 %
Time deposits2,491,169 13,480 1.09 %4,439,902 45,586 2.06 %
Total interest-bearing deposits15,321,323 17,694 0.23 %15,749,751 66,512 0.85 %
Repurchase agreements and federal funds purchased418,538 144 0.07 %356,550 589 0.33 %
Borrowings375,977 2,638 1.41 %1,035,553 7,885 1.53 %
Junior subordinated debentures356,715 6,094 3.44 %322,842 8,825 5.49 %
Total interest-bearing liabilities16,472,553 $26,570 0.33 %17,464,696 $83,811 0.96 %
Non-interest-bearing deposits10,241,863 7,687,002 
Other liabilities374,436 423,273 
Total liabilities27,088,852 25,574,971 
Common equity2,687,510 3,381,417 
Total liabilities and shareholders' equity$29,776,362 $28,956,388 
NET INTEREST INCOME$451,952 $431,719 
NET INTEREST SPREAD3.05 %2.92 %
NET INTEREST INCOME TO EARNING ASSETS OR NET INTEREST MARGIN (1), (2)
3.19 %3.25 %
(1)Non-accrual loans and leases are included in the average balance.   
(2)Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustment was an addition to recorded income of approximately $758,000 for the six months ended June 30, 2021, as compared to $681,000 for the same period in 2020
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The following tables set forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three months ended June 30, 2021 as compared to three months ended March 31, 2021 and June 30, 2020, respectively, as well as the six months ended June 30, 2021 and June 30, 2020, respectively. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances. 

Three Months EndedThree Months Ended
 June 30, 2021 compared March 31, 2021June 30, 2021 compared to June 30, 2020
 Increase (decrease) in interest income and expense due to changes inIncrease (decrease) in interest income and expense due to changes in
  (in thousands)
VolumeRateTotalVolumeRateTotal
INTEREST-EARNING ASSETS:   
Loans held for sale$(1,771)$651 $(1,120)$(937)$(781)$(1,718)
Loans and leases4,403 (954)3,449 (3,806)(6,180)(9,986)
Taxable securities1,246 68 1,314 1,664 3,777 5,441 
Non-taxable securities (1)
(41)(10)(51)87 (91)(4)
Temporary investments and interest bearing cash98 52 150 346 25 371 
Total interest-earning assets (1)
3,935 (193)3,742 (2,646)(3,250)(5,896)
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits39 6 45 256 (945)(689)
Money market deposits62 (20)42 180 (2,684)(2,504)
Savings deposits14 (23)(9)54 (98)(44)
Time deposits(1,078)(2,662)(3,740)(7,118)(8,851)(15,969)
Repurchase agreements9 (17)(8)29 (155)(126)
Borrowings(1,228)322 (906)(3,670)697 (2,973)
Junior subordinated debentures240 (250)(10)981 (1,861)(880)
Total interest-bearing liabilities(1,942)(2,644)(4,586)(9,288)(13,897)(23,185)
Net increase in net interest income (1)
$5,877 $2,451 $8,328 $6,642 $10,647 $17,289 
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.
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Six Months Ended
June 30, 2021 compared to June 30, 2020
Increase (decrease) in interest income and expense due to changes in
(in thousands)VolumeRateTotal
INTEREST-EARNING ASSETS:
Loans held for sale$1,635 $(2,772)$(1,137)
Loans and leases1,160 (36,579)(35,419)
Taxable securities2,897 (1,029)1,868 
Non-taxable securities (1)
176 (160)16 
Temporary investments and interest bearing cash2,068 (4,404)(2,336)
Total interest-earning assets (1)
7,936 (44,944)(37,008)
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits1,012 (4,830)(3,818)
Money market625 (13,397)(12,772)
Savings120 (242)(122)
Time deposits(15,484)(16,622)(32,106)
Repurchase agreements88 (533)(445)
Borrowings(4,682)(565)(5,247)
Junior subordinated debentures840 (3,571)(2,731)
Total interest-bearing liabilities(17,481)(39,760)(57,241)
Net increase (decrease) in net interest income (1)
$25,417 $(5,184)$20,233 
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 21% tax rate.

Provision for Credit Losses 
 
The Company had a $23.0 million recapture of provision for credit losses for the three and six three months ended June 30, 2021. This was compared to no provision for credit losses for the three months ended March 31, 2021 and a provision of $87.1 million for the three months ended June 30, 2020. The provision for credit losses was $205.2 million for the six months ended June 30, 2020. The change for the three months ended June 30, 2021, as compared to the three months ended March 31, 2021 and June 30, 2020, was attributable to the improving economic forecast used in the credit models which allowed for a recapture of previous provision for credit losses. The change in the provision for credit losses for six months ended June 30, 2021 as compared to the same prior year period, is primarily attributed to a stabilization of credit quality metrics and economic forecasts used in credit models in the current quarter. The Company adopted CECL as of January 1, 2020, so there may be volatility in the provision for credit losses as CECL requires a current expected credit loss for the life of loans.

As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the three months ended June 30, 2021 was (0.42)% as compared to zero for the three months ended March 31, 2021 and 1.56% for the three months ended June 30, 2020. As an annualized percentage of average outstanding loans and leases, the provision for credit losses recorded for the six months ended June 30, 2021 was (0.21)%, as compared to 1.89% for the six months ended June 30, 2020. 
 
For the three months ended June 30, 2021, net charge-offs were $13.6 million, as compared to $17.6 million for the three months ended March 31, 2021 and $16.2 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, net charge-offs were $31.3 million, as compared to $37.9 million for the six months ended June 30, 2020. As an annualized percentage of average outstanding loans and leases, net charge-offs for the three months ended June 30, 2021 was 0.25%, as compared to 0.33% for the three months ended March 31, 2021 and 0.29% for the three months ended June 30, 2020. As an annualized percentage of average outstanding loans and leases, net charge-offs for the six months ended June 30, 2021 was 0.29%, as compared to 0.35% for the six months ended June 30, 2020.

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Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements are determined by the loss given default calculated by the CECL model, and therefore homogeneous leases and equipment finance agreements on non-accrual will have an allowance for credit loss amount until they become 181 days past due, at which time they are charged-off. The non-accrual leases and equipment finance agreements of $7.6 million as of June 30, 2021 have a related allowance for credit losses of $6.0 million, with the remaining loans written-down to the estimated fair value of the collateral, less estimated costs to sell, and are expected to be resolved with no additional material loss, absent further decline in market prices. 

Non-Interest Income 
 
Non-interest income for the three months ended June 30, 2021 was $91.1 million, a decrease of $17.7 million and $24.4 million, compared to three months ended March 31, 2021 and June 30, 2020, respectively. Non-interest income for the six months ended June 30, 2021, was $199.9 million, an increase of $43.8 million, for the six months ended June 30, 2020. The following table presents the key components of non-interest income for the three months ended June 30, 2021 compared to the three months ended March 31, 2021 and June 30, 2020, respectively, as well as the six months ended June 30, 2021 compared to the six months ended June 30, 2020:
Three Months EndedSequential QuarterYear over Year
(in thousands)June 30, 2021March 31, 2021June 30, 2020Change AmountChange PercentChange AmountChange Percent
Service charges on deposits$10,310 $9,647 $8,757 $663 7 %$1,553 18 %
Card-based fees10,274 7,374 5,901 2,900 39 %4,373 74 %
Brokerage revenue1,135 3,915 3,805 (2,780)(71)%(2,670)(70)%
Residential mortgage banking revenue, net44,443 65,033 83,877 (20,590)(32)%(39,434)(47)%
Gain on sale of debt securities, net— 4 323 (4)(100)%(323)(100)%
Gain (loss) on equity securities, net 4 (706)240 710 (101)%(236)(98)%
Gain on loan and lease sales, net5,318 1,373 1,074 3,945 287 %4,244 395 %
Bank owned life insurance income2,092 2,071 2,116 21 1 %(24)(1)%
Other income17,499 20,089 9,387 (2,590)(13)%8,112 86 %
Total non-interest income$91,075 $108,800 $115,480 $(17,725)(16)%$(24,405)(21)%
Six Months Ended
(in thousands)June 30, 2021June 30, 2020Change AmountChange Percent
Service charges on deposits$19,957 $20,230 $(273)(1)%
Card-based fees17,648 13,318 4,330 33 %
Brokerage revenue5,050 7,820 (2,770)(35)%
Residential mortgage banking revenue, net109,476 101,417 8,059 8 %
Gain on sale of debt securities, net4 190 (186)(98)%
(Loss) gain on equity securities, net(702)1,054 (1,756)(167)%
Gain on loan and lease sales, net6,691 2,241 4,450 199 %
Bank owned life insurance income4,163 4,245 (82)(2)%
Other income37,588 5,610 31,978 570 %
Total non-interest income$199,875 $156,125 $43,750 28 %

During the period, the Company added the card-based fees line item, which were previously included in service charges on deposits and other income line items. Prior periods have been reclassified to conform to the current presentation. Card-based fees are comprised of debit and credit card income, ATM fees, and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned when our customers' debit and credit cards are processed through card payment networks. The increase in the three and six months ended June 30, 2021, as compared to prior periods, is attributable to increased merchant processing fees, given strengthening economic activity and lower unemployment rates in our footprint, businesses are once again open and experiencing increased customer activity.
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Brokerage revenue decreased for the three and six months dated June 30, 2021 as compared to prior periods, due to the sale of Umpqua Investments, Inc. in April 2021.

The gain on loan and lease sales increased for the three and six months ended June 30, 2021, as compared to prior periods, which was driven by an increase in SBA loan sales which increased due to higher government guarantees and incentives for borrowers.

Other income for the three months ended June 30, 2021 decreased by $2.6 million as compared to the sequential quarter, and increased by $8.1 million, when compared to the same period in the prior year. The decrease as compared to sequential quarter, is due to a loss of $4.5 million on the swap derivative fair value for the three months ended June 30, 2021, which is a quarter over quarter change of $16.2 million on the swap derivative fair value. For the six months ended June 30, 2021, other income increased by $32.0 million, the increase was primarily due to the fluctuation in the gain on the swap derivative fair value of $22.4 million, as the gain on swap derivative fair value was $7.3 million, as compared to a loss on swap derivative fair value of $15.1 million in the prior period. For the three and six months ended June 30, 2021, other income also includes the $4.5 million gain on sale of Umpqua Investments, Inc. during the period, as well as a $2.3 million M&A advisory fee earned during the period.

Residential mortgage banking revenue, which is the primary source of income for the Mortgage Banking segment, decreased for the three months ended June 30, 2021, as compared to prior periods, due to a decrease in originations driven by a slow down in refinancing demand. For the six months ended June 30, 2021, as compared to the same period of 2020, income for the Mortgage Banking segment increased by $8.1 million. The increase was primarily driven by the change in fair value of the MSR asset due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds.

For-sale mortgage closed loan volume for the three months ended June 30, 2021, decreased 23% and 31% as compared to the three months ended March 31, 2021 and June 30, 2020, respectively. In addition, the gain on sale margin decreased to 3.30% for the three months ended June 30, 2021, as compared to 3.82% and 4.75% for the three months ended March 31, 2021 and June 30, 2020, respectively. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 2.03% for the three months ended June 30, 2021, as compared to 1.90% and 1.87% for the three months ended March 31, 2021 and June 30, 2020, respectively.

For-sale mortgage closed loan volume decreased 3% for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. For the six months ended June 30, 2021, the gain on sale margin decreased to 3.60%, as compared to 4.24% for the six months ended June 30, 2020. Direct expense related to the origination of for-sale mortgage loans as a percentage of loan production was 1.96% for the six months ended June 30, 2021, which is comparable to the 1.95% for the six months ended June 30, 2020.

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

Servicing income was $9.1 million for the three months ended June 30, 2021, as compared to $9.1 million and $8.5 million for the three months ended March 31, 2021 and June 30, 2020, respectively. For the six months ended June 31, 2021 and 2020, servicing income was $18.2 million and $17.4 million, respectively.
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The following table presents our residential mortgage banking revenue for the three and six months ended June 30, 2021 and 2020:

Three Months EndedSix Months Ended
(in thousands)
June 30, 2021March 31, 2021June 30, 2020June 30, 2021June 30, 2020
Origination and sale$41,367 $62,505 $86,781 $103,872 $126,128 
Servicing9,120 9,087 8,533 18,207 17,413 
Change in fair value of MSR asset:
Changes due to collection/realization of expected cash flows over time(4,366)(4,545)(5,042)(8,911)(10,371)
Changes in valuation inputs or assumptions (1)
(1,678)(2,014)(6,395)(3,692)(31,753)
Residential mortgage banking revenue, net$44,443 $65,033 $83,877 $109,476 $101,417 
LHFS Production Statistics:
Closed loan volume for-sale$1,253,023 $1,635,532 $1,826,095 $2,888,555 $2,974,279 
Gain on sale margin3.30 %3.82 %4.75 %3.60 %4.24 %
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

Non-Interest Expense 
 
Non-interest expense for the three months ended June 30, 2021 was $189.4 million, an increase of $1.8 million or 1% and $7.5 million or 4% compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Non-interest expense for the six months ended June 30, 2021 was $377.0 million, a decrease of $1.8 billion or 82%, as compared to the six months ended June 30, 2020. Excluding the goodwill impairment taken in 2020, non-interest expense for the six months ended June 30, 2021, increased $17.4 million over the same period in the prior year. The following table presents the key elements of non-interest expense for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020 as well as the six months ended June 30, 2021 and 2020: 
Three Months EndedSequential QuarterYear over Year
 (in thousands)June 30, 2021March 31, 2021June 30, 2020Change AmountChange PercentChange AmountChange Percent
Salaries and employee benefits$121,573 $124,134 $116,676 $(2,561)(2)%$4,897 4 %
Occupancy and equipment, net34,657 34,635 36,171 22 — %(1,514)(4)%
Communications3,004 2,763 2,939 241 9 %65 2 %
Marketing2,054 1,372 1,759 682 50 %295 17 %
Services13,512 10,750 10,356 2,762 26 %3,156 30 %
FDIC assessments1,607 2,599 3,971 (992)(38)%(2,364)(60)%
Intangible amortization1,130 1,130 1,246 — — %(116)(9)%
Other expenses11,863 10,209 8,792 1,654 16 %3,071 35 %
Total non-interest expense$189,400 $187,592 $181,910 $1,808 1 %$7,490 4 %
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Six Months Ended
(in thousands)June 30, 2021June 30, 2020Change AmountChange Percent
Salaries and employee benefits$245,707 $226,450 $19,257 9 %
Occupancy and equipment, net69,292 73,172 (3,880)(5)%
Communications5,767 6,067 (300)(5)%
Marketing3,426 4,289 (863)(20)%
Services24,262 21,126 3,136 15 %
FDIC assessments4,206 6,513 (2,307)(35)%
Intangible amortization2,260 2,493 (233)(9)%
Other expenses22,072 19,522 2,550 13 %
Non-interest expense before goodwill impairment376,992 359,632 17,360 5 %
Goodwill impairment— 1,784,936 (1,784,936)nm
Total non-interest expense$376,992 $2,144,568 $(1,767,576)(82)%
nm = Not meaningful

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

Salaries and employee benefits decreased by $2.6 million for the three months ended June 30, 2021, compared to the three months ended March 31, 2021. This was primarily due to the decrease in for-sale loan origination volume resulting in a decrease in Mortgage Banking compensation of $2.8 million. Salaries and employee benefits increased for the three months ended June 30, 2021 when compared to the same period in the prior year, which is due to an increase of $4.3 million in group insurance costs in the current period as compared to the same period of 2020. Salaries and employee benefits increased for the six months ended June 30, 2021, compared to the prior period, due to an increase in incentives and group insurance.

Services for the three months ended June 30, 2021, increased by $2.8 million and $3.2 million as compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Services also increased by $3.1 million for the six months ended June 30, 2021 compared to the same period in the prior year. The increase compared to these prior periods is due to an increase in consulting and professional fees.

Other expenses for the three months ended June 30, 2021, increased by $1.7 million and $3.1 million, as compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Other expenses also increased by $2.6 million for the six months ended June 30, 2021, compared to the same period in the prior year. These increases were due to increased exit and disposal costs as the Company closed store locations and exited back-office leases as part of the Next Gen 2.0 strategy. Exit and disposal costs were $4.7 million, $1.2 million and $548,000, for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively. Exit and disposal costs were $5.9 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.
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FINANCIAL CONDITION 
 
Cash and Cash Equivalents

Cash and cash equivalents were $3.1 billion at June 30, 2021, compared to $2.6 billion at December 31, 2020. The increase of interest bearing cash and temporary investments reflects strong deposit growth in the quarter, outpacing loan and investment growth and borrowing declines. An elevated on-balance sheet liquidity position enhances the Company's liquidity flexibility given the market volatility and uncertainty in the current environment.

Investment Securities 
 
Investment debt securities available for sale were $3.5 billion as of June 30, 2021, compared to $2.9 billion at December 31, 2020.  The increase was due to purchases of $1.0 billion of investment securities, offset by sales and paydowns of $409.0 million, as well as a decrease of $64.5 million in fair value of investment securities available for sale.
 
The following tables present the available for sale and held to maturity investment debt securities portfolio by major type as of June 30, 2021 and December 31, 2020: 
Investment Securities Available for Sale
 June 30, 2021December 31, 2020
 (dollars in thousands)Fair Value%Fair Value%
U.S. Treasury and agencies$774,368 22 %$762,202 26 %
Obligations of states and political subdivisions278,126 8 %279,511 10 %
Residential mortgage-backed securities and collateralized mortgage obligations2,421,456 70 %1,890,845 64 %
Total available for sale securities$3,473,950 100 %$2,932,558 100 %
Investment Securities Held to Maturity
 June 30, 2021December 31, 2020
 (dollars in thousands)Amortized Cost%Amortized Cost%
Residential mortgage-backed securities and collateralized mortgage obligations$2,876 100 %$3,034 100 %
Total held to maturity securities$2,876 100 %$3,034 100 %
 
 
We review investment securities on an ongoing basis for the presence of impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors.   
 
Gross unrealized losses in the available for sale investment portfolio were $23.6 million at June 30, 2021.  This consisted primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of $21.9 million. The unrealized losses were attributable to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities and are not attributable to changes in credit quality. In the opinion of management, no allowance for credit losses was considered necessary on these debt securities as of June 30, 2021.

Restricted Equity Securities 
 
Restricted equity securities were $15.2 million at June 30, 2021 and $41.7 million at December 31, 2020, the majority of which represents the Bank's investment in the FHLB of Des Moines. The decrease is attributable to redemptions of FHLB stock during the period due to decreased FHLB borrowing activity. FHLB stock is carried at par and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions and can only be purchased and redeemed at par. 

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Loans and Leases
 
Total loans and leases outstanding at June 30, 2021 were $22.1 billion, an increase of $364.4 million as compared to December 31, 2020. The increase is attributable to new loan and lease originations, which increased due to organic growth throughout the loan portfolios, offset by PPP loan forgiveness and payoffs, as well as the transfer of $315.9 million from loans held for sale to loans held for investment. The increase was partially offset by loans sold of $133.3 million and net charge-offs of $31.3 million.

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

June 30, 2021December 31, 2020
  (dollars in thousands)
Amount%Amount%
Commercial real estate    
Non-owner occupied term, net$3,580,386 16 %$3,505,802 16 %
Owner occupied term, net2,398,326 11 %2,333,945 11 %
Multifamily, net3,553,704 16 %3,349,196 15 %
Construction & development, net857,866 4 %828,478 4 %
Residential development, net193,904 1 %192,761 1 %
Commercial  
Term, net3,748,269 17 %4,024,467 18 %
Lines of credit & other, net908,518 4 %862,760 4 %
Leases & equipment finance, net1,437,372 6 %1,456,630 7 %
Residential  
Mortgage, net4,145,432 19 %3,871,906 18 %
Home equity loans & lines, net1,118,278 5 %1,136,064 5 %
Consumer & other, net201,684 1 %217,358 1 %
Total, net of deferred fees and costs$22,143,739 100 %$21,779,367 100 %

As of June 30, 2021, there were $359.3 million in mortgage loans included in loans held for investment that are carried at fair value, as they were included in loans originated as held for sale that are elected to be fair valued at origination.

In April 2020, the Bank began originating loans to qualified small businesses under the PPP administered by the SBA. The remaining unamortized balance of the PPP-related net loan processing fees will be recognized as a yield adjustment over the remaining term of these loans, although the forgiveness of these loans by the SBA accelerates the recognition of these fees.
 (dollars in thousands)
June 30, 2021December 31, 2020
PPP principal balance$1,417,022 $1,777,145 
PPP deferred fees(36,810)(26,934)
Net PPP Balance$1,380,212 $1,750,211 
PPP loan count14,119 14,788 
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Asset Quality and Non-Performing Assets 

The following table summarizes our non-performing assets and TDR loans as of June 30, 2021 and December 31, 2020:
 (dollars in thousands)
June 30, 2021December 31, 2020
Loans and leases on non-accrual status$20,673 $31,076 
Loans and leases past due 90 days or more and accruing
29,144 36,361 
Total non-performing loans and leases49,817 67,437 
Other real estate owned181 1,810 
Total non-performing assets$49,998 $69,247 
Restructured loans (1)
$13,072 $14,991 
Allowance credit losses on loans and leases $279,887 $328,401 
Reserve for unfunded commitments14,539 20,286 
Allowance for credit losses$294,426 $348,687 
Asset quality ratios:  
Non-performing assets to total assets0.17 %0.24 %
Non-performing loans and leases to total loans and leases0.22 %0.31 %
Allowance for credit losses on loans and leases to total loans and leases1.26 %1.51 %
Allowance for credit losses to total loans and leases1.33 %1.60 %
Allowance for credit losses to total non-performing loans and leases591 %517 %
(1)Represents accruing TDR loans performing according to their restructured terms. 

At June 30, 2021 and December 31, 2020, troubled debt restructurings of $13.1 million and $15.0 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a modification of loan repayment terms.
  
A further decline in the economic conditions due to the COVID-19 pandemic as well as in our general market areas or other factors could adversely impact individual borrowers or the loan portfolio in general. Accordingly, there can be no assurance that loans will not become 90 days or more past due, placed on non-accrual status, restructured or transferred to other real estate owned in the future. Umpqua is committed to helping borrowers during this unprecedented time of uncertainty and is working with customers on payment deferrals, forbearances, and other loan modifications.

COVID-19 Related Payment Deferrals and Forbearance

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

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A summary of outstanding loan balances with active payment deferral or forbearance as of June 30, 2021 are shown in the table below, disaggregated by major types of loans and leases:
Loans with Deferrals or Forbearances
(dollars in thousands)Number of LoansLoan Balance Outstanding% of Loan Portfolio
Commercial real estate8$59,715 1 %
Commercial221,382 — %
Residential198105,995 2 %
Consumer & other, net13219 — %
Total241$167,311 1 %
Excluded from the mortgage loans with payment deferrals or forbearance in the above table are $150.6 million of repurchased GNMA loans on deferral, as the credit risk of these loans are guaranteed by government programs such as the Federal Housing Agency, Veterans Affairs, and USDA Rural Development.

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

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Allowance for Credit Losses
 
The ACL totaled $294.4 million at June 30, 2021, a decrease of $54.3 million from $348.7 million at December 31, 2020. The following table shows the activity in the ACL for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, as well as for the six months ended June 30, 2021 and 2020:
Three Months EndedSix Months Ended
(dollars in thousands)
June 30, 2021March 31, 2021June 30, 2020June 30, 2021June 30, 2020
Allowance for credit losses on loans and leases
Balance, beginning of period$311,283 $328,401 $291,420 $328,401 $157,629 
Impact of CECL adoption — — — — 49,999 
Adjusted balance, beginning of period311,283 328,401 291,420 328,401 207,628 
(Recapture) provision for credit losses on loans and leases (17,775)526 81,484 (17,249)186,986 
Charge-offs(17,079)(20,915)(19,453)(37,994)(43,908)
Recoveries3,458 3,271 3,294 6,729 6,039 
Net charge-offs(13,621)(17,644)(16,159)(31,265)(37,869)
Balance, end of period$279,887 $311,283 $356,745 $279,887 $356,745 
Reserve for unfunded commitments
Balance, beginning of period$19,760 $20,286 $20,927 $20,286 $5,106 
Impact of CECL adoption — — — — 3,238 
Adjusted balance, beginning of period19,760 20,286 20,927 20,286 8,344 
(Recapture) provision for credit losses on unfunded commitments(5,221)(526)5,441 (5,747)18,024 
Balance, end of period14,539 19,760 26,368 14,539 26,368 
Total allowance for credit losses$294,426 $331,043 $383,113 $294,426 $383,113 
As a percentage of average loans and leases (annualized):
Net charge-offs0.25 %0.33 %0.29 %0.29 %0.35 %
(Recapture) provision for credit losses
(0.42)%— %1.56 %(0.21)%1.89 %
Recoveries as a percentage of charge-offs20.25 %15.64 %16.93 %17.71 %13.75 %

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

The (recapture) provision for credit losses includes the (recapture) provision for loan and lease losses, (recapture) provision for unfunded commitments, and the provision (recapture) for credit losses related to accrued interest on loans. There was a $23.0 million recapture of the provision of credit losses for the three and six months ended June 30, 2021, which is due to the stabilization of credit quality metrics and economic forecasts used in credit models.
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The following table sets forth the allocation of the allowance for credit losses on loans and leases and percent of loans in each category to total loans and leases as of June 30, 2021 and December 31, 2020: 
June 30, 2021December 31, 2020
 (dollars in thousands)Amount% Loans to total loansAmount% Loans to total loans
Commercial real estate$128,951 48 %$141,710 47 %
Commercial121,390 27 %150,864 29 %
Residential25,296 24 %27,964 23 %
Consumer & other4,250 1 %7,863 1 %
Allowance for credit losses on loans and leases$279,887  $328,401  

The following table shows the change in the allowance for credit losses from March 31, 2021 to June 30, 2021:
(dollars in thousands)March 31, 2021Q2 2021 net (charge-offs)Reserve build/(release)June 30, 2021% of Loan and Leases Outstanding
Commercial real estate$170,143 $(40)$(31,058)$139,045 1.31 %
Commercial130,639 (13,412)6,308 123,535 2.03 %
Residential22,378 209 4,419 27,006 0.51 %
Consumer & Other7,883 (378)(2,665)4,840 2.40 %
Total allowance for credit losses$331,043 $(13,621)$(22,996)$294,426 
% of loans and leases outstanding1.49 %1.33 %

To calculate the ACL, the CECL models use a forecast of future economic conditions and are dependent upon specific macroeconomic variables that are relevant to each of the Bank's loan and lease portfolios. For the second quarter of 2021, the Bank used Moody's Analytics May consensus economic forecast. Key components include a U.S. real GDP annualized growth of 7.4% in 2021 and unemployment rate of 5.5% in 2021 with a return to less than 5% unemployment by the fourth quarter of 2021. The models for calculating the ACL are sensitive to changes in these and other economic variables, which could result in volatility as these assumptions change over time. In addition, the forward-looking assumptions revert to historical data when they reach the point where future assumptions are no longer estimated.

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

Residential Mortgage Servicing Rights 
 
The following table presents the changes in our residential mortgage servicing rights portfolio for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020 as well as the six months ended June 30, 2021 and 2020:

Three Months EndedSix Months Ended
  (in thousands)
June 30, 2021March 31, 2021June 30, 2020June 30, 2021June 30, 2020
Balance, beginning of period$100,413 $92,907 $94,346 $92,907 $115,010 
Additions for new MSR capitalized8,330 14,065 13,447 22,395 23,470 
Changes in fair value:
Changes due to collection/realization of expected cash flows over time(4,366)(4,545)(5,042)(8,911)(10,371)
Changes due to valuation inputs or assumptions (1)
(1,678)(2,014)(6,395)(3,692)(31,753)
Balance, end of period$102,699 $100,413 $96,356 $102,699 $96,356 
(1)The changes in valuation inputs and assumptions principally reflect changes in discount rates and prepayment speeds, which are primarily affected by changes in interest rates.

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Information related to our residential serviced loan portfolio as of June 30, 2021 and December 31, 2020 was as follows: 
(dollars in thousands)June 30, 2021December 31, 2020
Balance of loans serviced for others$12,897,032 $13,026,720 
MSR as a percentage of serviced loans0.80 %0.71 %

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

The fair value of the MSR asset due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds by $1.7 million and $3.7 million for the three and six months ended June 30, 2021, respectively, due to changes to inputs in the valuation model including changes in discount rates and prepayment speeds. The fair value of the MSR asset decreased by $4.4 million and $8.9 million, respectively, due to the passage of time, including the impact of regularly scheduled repayments, paydowns and payoffs during the three and six months ended June 30, 2021.
 
Deposits 

Total deposits were $26.2 billion at June 30, 2021, an increase of $1.5 billion, as compared to December 31, 2020. The increase is mainly attributable to growth in interest bearing and non-interest bearing demand deposits and savings balances, offset by a decline in time deposits. The increase in non-maturity deposit account categories is attributable to the impact of economic assistance payments, in addition to increased customer savings rates as customers look to increase their own liquidity in this uncertain environment. The decrease in time deposits is mainly due to the runoff of higher-cost time deposits.
 
The following table presents the deposit balances by category as of June 30, 2021 and December 31, 2020: 
June 30, 2021December 31, 2020
 (dollars in thousands)Amount%Amount%
Non-interest bearing demand$10,718,921 41 %$9,632,773 39 %
Interest bearing demand3,466,251 13 %3,051,487 12 %
Money market7,559,621 29 %7,173,920 29 %
Savings2,221,524 8 %1,912,752 8 %
Time, greater than $250,000672,209 3 %899,563 4 %
Time, $250,000 or less1,515,027 6 %1,951,706 8 %
Total deposits$26,153,553 100 %$24,622,201 100 %
 
The Company's brokered deposits totaled $358.5 million at June 30, 2021, compared to $424.1 million at December 31, 2020.  

Borrowings 
 
At June 30, 2021, the Bank had outstanding $480.3 million of securities sold under agreements to repurchase, an increase of $104.9 million from December 31, 2020. The Bank had outstanding borrowings consisting of advances from the FHLB of $111.4 million at June 30, 2021, which decreased $660.1 million from December 31, 2020. The decrease is attributable to maturity payoffs during the quarter. The FHLB advances are secured by loans and have fixed interest rates ranging from 1.42% to 7.10% that mature in 2021 through 2030.

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Junior Subordinated Debentures 
 
We had junior subordinated debentures with carrying values of $375.9 million and $343.5 million at June 30, 2021 and December 31, 2020, respectively.  The increase is mainly due to the $32.6 million change in fair value for the junior subordinated debentures elected to be carried at fair value, which is due to a decrease in the discount rates caused by a decrease in the credit spread paired with a decrease in the long end of the SWAP spot curve, which results in a higher fair value, offset by the implied forward curve shifting lower resulting in a decrease in estimated future interest cashflows. As of June 30, 2021, substantially all of the junior subordinated debentures had interest rates that are adjustable on a quarterly basis based on a spread over three-month LIBOR.  

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

We monitor the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. One source of funds includes public deposits. Individual state laws require banks to collateralize public deposits, typically as a percentage of their public deposit balance in excess of FDIC insurance.  Public deposits represented 6% of total deposits at June 30, 2021 and 7% of total deposits at December 31, 2020. The amount of collateral required varies by state and may also vary by institution within each state, depending on the individual state's risk assessment of depository institutions. Changes in the pledging requirements for uninsured public deposits may require pledging additional collateral to secure these deposits, drawing on other sources of funds to finance the purchase of assets that would be available to be pledged to satisfy a pledging requirement, or could lead to the withdrawal of certain public deposits from the Bank. In addition to liquidity from core deposits and the repayments and maturities of loans and investment securities, the Bank can utilize established uncommitted federal funds lines of credit, sell securities under agreements to repurchase, borrow on a secured basis from the FHLB or issue brokered certificates of deposit.  
 
The Bank had available lines of credit with the FHLB totaling $8.8 billion at June 30, 2021, subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The Bank had available lines of credit with the Federal Reserve totaling $946.6 million, subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $460.0 million at June 30, 2021. Availability of these lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage. 
 
The Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Company's revenues are obtained from dividends declared and paid by the Bank. There were $100.0 million of dividends paid by the Bank to the Company in the six months ended June 30, 2021.  In July 2021, the Bank paid the Company a special dividend of $200.0 million to fund the repurchase plan announced by the Company in July 2021. There are statutory and regulatory provisions that limit the ability of the Bank to pay dividends to the Company. The Company is required to seek FDIC and Oregon Division of Financial Regulation approval for quarterly dividends from Umpqua Bank to the Company. The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors and regulators with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. The Company expects to continue this cadence in future quarters.
 
As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $286.4 million during the six months ended June 30, 2021, with the difference between cash provided by operating activities and net income consisting primarily of proceeds from the sale of loans held for sale of $3.0 billion, and the decrease in other assets of $49.3 million, offset by originations of loans held for sale of $2.9 billion and the gain on sale of loans of $87.8 million. This compares to net cash used in operating activities of $144.9 million during the six months ended June 30, 2020, with the difference between cash used in operating activities and net loss consisting of goodwill impairment of $1.8 billion, proceeds from the sale of loans held for sale of $3.0 billion, provision for loan and lease losses of $205.2 million, and the net increase in other assets of $265.1 million, offset by originations of loans held for sale of $3.0 billion, and gain on sale of loans of $119.6 million.

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Net cash of $655.2 million used in investing activities during the six months ended June 30, 2021, consisted principally of purchases of available for sale investment securities of $1.0 billion, and net loan originations of $213.1 million, offset by proceeds from available for sale investment securities of $409.0 million and the proceeds from sales of loans and leases of $140.0 million. This compares to net cash of $1.5 billion used in investing activities during the six months ended June 30, 2020, which primarily of net loan originations of $1.6 billion, due to our participation in the PPP, and purchases of investment securities available for sale of $353.6 million, offset by proceeds from investment securities available for sale of $401.5 million.

Net cash of $881.4 million provided by financing activities during the six months ended June 30, 2021, primarily consisted of $1.5 billion net increase in deposits and the net increase in securities sold under agreements to repurchase of $104.9 million, offset by $660.0 million repayment of borrowings and $92.6 million of dividends paid on common stock. This compares to net cash of $2.5 billion provided by financing activities during the six months ended June 30, 2020, primarily consisted of $2.4 billion net increase in deposits and proceeds from borrowings of $600.0 million, offset by $410.0 million repayment of borrowings and $92.5 million of dividends paid on common stock.

Although we expect the Bank's and the Company's liquidity positions to remain satisfactory during 2021, it is possible that our deposit growth may not be maintained at previous levels due to pricing pressure, store consolidations, or customers' spending habits. In addition, in order to generate deposit growth, our pricing may need to be adjusted in a manner that results in increased interest expense on deposits.
  
Off-balance-Sheet Arrangements 
 
Information regarding Off-Balance-Sheet Arrangements is included in Note 6 of the Notes to Condensed Consolidated Financial Statements.
  
Concentrations of Credit Risk 

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


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Capital Resources 
 
Shareholders' equity at June 30, 2021 was $2.8 billion. The increase in shareholders' equity during the six months ended June 30, 2021 was principally due to net income, offset by the other comprehensive loss, net of tax, and cash dividends paid.

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

The timing of the quarterly dividend is after each quarter's earnings release to provide the Company's Board of Directors with the opportunity to review final quarterly financial results and financial projections, prior to the announcement of any dividend. The Company expects to continue this cadence in future quarters. On May 5, 2021, the Company declared a cash dividend in the amount of $0.21 per common share based on first quarter 2021 performance, which was paid on May 28, 2021.

The following table presents cash dividends declared and dividend payout ratios (dividends declared per common share divided by basic earnings per common share) for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, as well as the six months ended June 30, 2021 and 2020:
 Three Months EndedSix Months Ended
 June 30, 2021March 31, 2021June 30, 2020June 30, 2021June 30, 2020
Dividend declared per common share$0.21 $0.21 $— $0.42 $0.21 
Dividend payout ratio40 %43 %— %42 %(3)%

As of June 30, 2021, a total of 9.5 million shares are available for repurchase under the Company's share repurchase plan, which was effectively retired by the Board of Directors in July 2021. During the six months ended June 30, 2021, no shares were repurchased under this plan.

In July 2021, the Company announced that its Board of Directors approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. The program replaces and supersedes the previously approved share repurchase program which was scheduled to expire on July 31, 2021.

The timing and amount of future repurchases will depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, our capital plan, and bank or bank holding company regulatory approvals.  In addition, our stock plans provide that option and award holders may pay for the exercise price and tax withholdings in part or entirely by tendering previously held shares. 

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

ActualFor Capital Adequacy purposesTo be Well Capitalized
   (dollars in thousands) 
AmountRatioAmountRatioAmountRatio
June 30, 2021      
Total Capital      
(to Risk Weighted Assets)      
Consolidated$3,431,331 15.41 %$1,781,728 8.00 %$2,227,160 10.00 %
Umpqua Bank$3,212,055 14.42 %$1,782,141 8.00 %$2,227,676 10.00 %
Tier I Capital      
(to Risk Weighted Assets)      
Consolidated$2,760,930 12.40 %$1,336,296 6.00 %$1,781,728 8.00 %
Umpqua Bank$2,992,652 13.43 %$1,336,605 6.00 %$1,782,141 8.00 %
Tier I Common
(to Risk Weighted Assets)
Consolidated$2,760,930 12.40 %$1,002,222 4.50 %$1,447,654 6.50 %
Umpqua Bank$2,992,652 13.43 %$1,002,454 4.50 %$1,447,989 6.50 %
Tier I Capital      
(to Average Assets)      
Consolidated$2,760,930 9.16 %$1,206,304 4.00 %$1,507,881 5.00 %
Umpqua Bank$2,992,652 9.92 %$1,206,693 4.00 %$1,508,366 5.00 %
December 31, 2020      
Total Capital      
(to Risk Weighted Assets)      
Consolidated$3,347,926 15.63 %$1,713,891 8.00 %$2,142,364 10.00 %
Umpqua Bank$3,134,116 14.63 %$1,713,809 8.00 %$2,142,262 10.00 %
Tier I Capital      
(to Risk Weighted Assets)      
Consolidated$2,636,194 12.31 %$1,285,418 6.00 %$1,713,891 8.00 %
Umpqua Bank$2,873,383 13.41 %$1,285,357 6.00 %$1,713,809 8.00 %
Tier I Common
(to Risk Weighted Assets)
Consolidated$2,636,194 12.31 %$964,064 4.50 %$1,392,536 6.50 %
Umpqua Bank$2,873,383 13.41 %$964,018 4.50 %$1,392,470 6.50 %
Tier I Capital      
(to Average Assets)      
Consolidated$2,636,194 8.98 %$1,174,129 4.00 %$1,467,661 5.00 %
Umpqua Bank$2,873,383 9.79 %$1,174,065 4.00 %$1,467,581 5.00 %

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

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

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

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

Part II. OTHER INFORMATION 

Item 1.      Legal Proceedings 

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
 
Item 1A.   Risk Factors 
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in our Form 10-K for the year ended December 31, 2020. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes from the risk factors described in our Form 10-K.


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

(c)The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2021: 
Period
Total number of Common Shares Purchased (1)
Average Price Paid per Common Share
Total Number of Shares Purchased as Part of Publicly Announced Plan (2)
Maximum Number of Remaining Shares that May be Purchased at Period End under the Plan
4/1/21 - 4/30/21741 $18.34 — 9,524,429 
5/1/21 - 5/31/2132 $19.28 — 9,524,429 
6/1/21 - 6/30/21184 $19.18 — 9,524,429 
Total for quarter957 $18.53 —  
 
(1)Common shares repurchased by the Company during the quarter consist of cancellation of 957 shares to be issued upon vesting of restricted stock awards to pay withholding taxes. During the three months ended June 30, 2021, no shares were repurchased pursuant to the Company's publicly announced corporate stock repurchase plan described in (2) below.

(2)The Company's share repurchase plan, which was first approved by its Board of Directors and announced in August 2003, was amended on September 29, 2011 to increase the number of common shares available for repurchase under the plan to 15 million shares.  As of June 30, 2021, a total of 9.5 million shares remained available for repurchase. As of July 21, 2021, the Company approved a new share repurchase program which authorizes the Company to repurchase up to $400 million of common stock over the next twelve months from time to time in open market transactions, accelerated share repurchases, or in privately negotiated transactions as permitted under applicable rules and regulations. This effectively ended the previous share repurchase plan. 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.
  
Item 3.            Defaults upon Senior Securities
 
Not applicable 

Item 4.            Mine Safety Disclosures 

Not applicable 

Item 5.            Other Information

Not applicable  

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Item 6.            Exhibits  
 
Exhibit #Description
3.1
3.2
4.1
4.2The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.
10.1*
10.2*
31.1
31.2
31.3
32
101.INSInline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included in Exhibit 101)
*
Compensatory plan or arrangement
(a)
Incorporated by reference to Exhibit 3.1 to Form 8-K filed April 23, 2018
(b)
Incorporated by reference to Exhibit 99.2 to Form 8-K filed March 24, 2020
(c)
Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (No. 333-77259) filed April 28, 1999
(d)
Incorporated by reference to Exhibit 10.1 to Form 8-K filed April 6, 2021
(e)
Incorporated by reference to Exhibit 10.2 to Form 8-K filed April 6, 2021

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SIGNATURES 
 
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 
UMPQUA HOLDINGS CORPORATION
(Registrant) 
DatedAugust 5, 2021
/s/ Cort L. O'Haver                                           
 Cort L. O'Haver
President and Chief Executive Officer  
DatedAugust 5, 2021/s/ Ronald L. Farnsworth
 Ronald L. Farnsworth  
Executive Vice President/Chief Financial Officer and 
Principal Financial Officer
DatedAugust 5, 2021/s/ Lisa M. White
 
Lisa M. White                                    
Senior Vice President/Corporate Controller and 
Principal Accounting Officer

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