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Allowance for Credit Losses

9 Months Ended

Sep. 30, 2022

Allowance for Credit Losses Methodology

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

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

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

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

The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three months ended September 30, 2022, were primarily related to changes in the economic assumptions. The Bank opted to use Moody's Analytics' August consensus economic forecast for estimating the ACL as of September 30, 2022. This scenario is based on Moody's Analytics' review of a variety of surveys of baseline forecasts of the U.S. economy. These surveys vary in date of latest vintage, number of updates per year, list of variables forecast, duration of forecast, frequency of data (quarterly or annual), and the number of respondents. In the preparation of the Moody's Analytics consensus forecast, the focus is on the next three to five years, since that is the most typical duration in the surveyed results. Moody's Analytics' approach is to give greater consideration to the most recently produced forecasts, since they will include the most up-to-date historical information, and to those variables for which the number of surveyed responses is largest.

In the consensus scenario selected, the probability that the economy will perform better than this baseline is equal to the probability that it will perform worse and included the following factors:

•U.S. real GDP average annualized growth of 1.7% in 2022, 1.3% in 2023, 1.7% in 2024, and 1.9% in 2025;

•U.S. unemployment rate average of 3.6% in 2022, 3.9% in 2023, 4.0% in 2024, and 3.9% 2025;

•The forecasted average federal funds rate is expected to be 3.2% in Q4 2022, 3.3% in 2023, 2.8% 2024 and 2.6% in 2025.

The Bank uses an additional scenario that differs in terms of severity within the variables, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The Bank selected the Moody's Analytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:

•The economy falls into a recession in the fourth quarter of 2022;

•The Russian invasion of Ukraine persists longer than anticipated. Import bans of Russian oil purchases increase the loss of oil on the global market to 3 million barrels per day, the same as in the baseline, but concerns build that there could be an even larger interruption of global oil supplies. This causes oil prices to stay elevated above $100 per barrel for several quarters longer than in the baseline, and thereby increases inflationary pressures. Higher gasoline prices cut into disposable income that would otherwise be available for other spending;

•Supply-chain issues also persist, increasing shortages of affected goods, also keeping inflation elevated;

•New cases, hospitalizations and deaths from COVID-19 start to rise again, slowing growth in spending on air travel, retail, and hotels;

•U.S real GDP average annualized growth is expected to be 1.6% in 2022, (0.5)% in 2023, 3.0% in 2024, and 3.4% in 2025;

•U.S. unemployment rate average of 3.9% in 2022, 6.1% in 2023, 4.8% in 2024, and 3.9% in 2025;

•The Federal Reserve is expected to increase the federal funds rate somewhat faster than in the baseline in the fourth quarter of 2022 and the first half of 2023.

The results using the comparison scenario in addition to changes to the macroeconomic variables subsequent to selected scenarios for sensitivity analysis were reviewed by management and were considered when evaluating the qualitative factor adjustments.

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

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

The owner-occupied commercial real-estate portfolio utilizes a top-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years and carries forward the last quarter's expected loss percentage projection 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.

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

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

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

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

Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data for the commercial real estate, commercial and industrial and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential and leases portfolios. 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 September 30, 2022, and concluded that a material adjustment to the amounts indicated by the models was not necessary as the models 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 DCF method, which is used for all loans except lines of credit and 2) the non-DCF 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-DCF method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.

The following tables summarize activity related to the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	88,983	$	131,455	$	36,586	$	4,087	$	261,111

(Recapture) provision for credit losses for loans and leases	(3,563)		26,762		4,307		1,036		28,542

Charge-offs	—		(9,459)		(4)		(929)		(10,392)
Recoveries	123		2,842		249		590		3,804
Net recoveries (charge-offs)	123		(6,617)		245		(339)		(6,588)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	7,351	$	2,232	$	2,735	$	505	$	12,823

(Recapture) provision for credit losses on unfunded commitments	(1,994)		579		304		141		(970)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918

	Nine Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	99,075	$	117,573	$	29,068	$	2,696	$	248,412
(Recapture) provision for credit losses for loans and leases	(13,745)		52,058		11,603		3,109		53,025

Charge-offs	(8)		(26,352)		(171)		(2,650)		(29,181)
Recoveries	221		8,321		638		1,629		10,809
Net recoveries (charge-offs)	213		(18,031)		467		(1,021)		(18,372)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	8,461	$	2,028	$	1,957	$	321	$	12,767
(Recapture) provision for credit losses on unfunded commitments	(3,104)		783		1,082		325		(914)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918


	Three Months Ended September 30, 2021
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	128,951	$	121,390	$	25,296	$	4,250	$	279,887
(Recapture) provision for credit losses for loans and leases	(20,141)		2,719		1,703		(413)		(16,132)
Charge-offs	(916)		(8,521)		—		(936)		(10,373)
Recoveries	120		3,346		281		431		4,178
Net (charge-offs) recoveries	(796)		(5,175)		281		(505)		(6,195)
Balance, end of period	$	108,014	$	118,934	$	27,280	$	3,332	$	257,560
Reserve for unfunded commitments
Balance, beginning of period	$	10,094	$	2,145	$	1,710	$	590	$	14,539
(Recapture) provision for credit losses on unfunded commitments	(3,273)		440		247		(201)		(2,787)
Balance, end of period	6,821		2,585		1,957		389		11,752
Total allowance for credit losses	$	114,835	$	121,519	$	29,237	$	3,721	$	269,312

	Nine Months Ended September 30, 2021
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	141,710	$	150,864	$	27,964	$	7,863	$	328,401
(Recapture) provision for credit losses for loans and leases	(33,199)		4,180		(1,212)		(3,150)		(33,381)
Charge-offs	(1,086)		(44,228)		(70)		(2,983)		(48,367)
Recoveries	589		8,118		598		1,602		10,907
Net (charge-offs) recoveries	(497)		(36,110)		528		(1,381)		(37,460)
Balance, end of period	$	108,014	$	118,934	$	27,280	$	3,332	$	257,560
Reserve for unfunded commitments
Balance, beginning of period	$	15,360	$	2,190	$	1,661	$	1,075	$	20,286
(Recapture) provision for credit losses on unfunded commitments	(8,539)		395		296		(686)		(8,534)
Balance, end of period	6,821		2,585		1,957		389		11,752
Total allowance for credit losses	$	114,835	$	121,519	$	29,237	$	3,721	$	269,312

Asset Quality and Non-Performing Loans and Leases

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

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

Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized no interest income on non-accrual loans and leases during the three and nine months ended September 30, 2022 and 2021.

The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	321	$	—	$	—	$	321	$	3,282	$	3,842,823	$	3,846,426
Owner occupied term, net	282		24		1		307		2,121		2,547,333		2,549,761
Multifamily, net	—		—		—		—		—		5,090,661		5,090,661
Construction & development, net	—		—		—		—		—		1,036,931		1,036,931
Residential development, net	—		—		—		—		—		205,935		205,935
Commercial
Term, net	3,743		4,073		1		7,817		3,945		2,991,662		3,003,424
Lines of credit & other, net	778		83		6		867		86		913,554		914,507
Leases & equipment finance, net	15,628		14,952		5,136		35,716		14,621		1,619,480		1,669,817
Residential
Mortgage, net (2)	869		8,518		20,717		30,104		—		5,440,520		5,470,624
Home equity loans & lines, net	2,406		1,191		1,716		5,313		—		1,559,781		1,565,094
Consumer & other, net	420		250		152		822		—		153,949		154,771
Total, net of deferred fees and costs	$	24,447	$	29,091	$	27,729	$	81,267	$	24,055	$	25,402,629	$	25,507,951

(1) Loans and leases on non-accrual with an amortized cost basis of $24.1 million had a related allowance for credit losses of $13.1 million at September 30, 2022.

(2) Includes government guaranteed mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $1.0 million at September 30, 2022.


	December 31, 2021
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current and Other		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	388	$	1,138	$	—	$	1,526	$	3,384	$	3,781,977	$	3,786,887
Owner occupied term, net	101		65		1		167		2,383		2,329,872		2,332,422
Multifamily, net	—		—		—		—		—		4,051,202		4,051,202
Construction & development, net	—		—		—		—		—		890,338		890,338
Residential development, net	—		—		—		—		—		206,990		206,990
Commercial
Term, net	4,627		2,345		4		6,976		4,225		2,997,272		3,008,473
Lines of credit & other, net	300		2		357		659		—		910,074		910,733
Leases & equipment finance, net	6,806		8,951		3,799		19,556		8,873		1,439,247		1,467,676
Residential
Mortgage, net	802		3,668		27,249		31,719		—		4,485,547		4,517,266
Home equity loans & lines, net	1,214		491		732		2,437		—		1,194,733		1,197,170
Consumer & other, net	396		386		194		976		—		183,047		184,023
Total, net of deferred fees and costs	$	14,634	$	17,046	$	32,336	$	64,016	$	18,865	$	22,470,299	$	22,553,180

(1) Loans and leases on non-accrual with an amortized cost basis of $18.9 million had a related allowance for credit losses of $7.5 million at December 31, 2021.

Collateral Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes the amortized cost basis of the collateral dependent loans and leases by the type of collateral securing the assets as of September 30, 2022. There have been no significant changes in the level of collateralization from the prior periods.


(in thousands)	Residential Real Estate		Commercial Real Estate		General Business Assets		Other		Total
Commercial real estate
Non-owner occupied term, net	$	—	$	3,059	$	—	$	—	$	3,059
Owner occupied term, net	—		1,879		—		—		1,879



Commercial
Term, net	1,092		520		1,922		—		3,534
Line of credit & other, net	—		—		86		1		87
Leases & equipment finance, net	—		—		14,621		—		14,621
Residential
Mortgage, net	38,051		—		—		—		38,051
Home equity loans & lines, net	3,497		—		—		—		3,497

Total net of deferred fees and costs	$	42,640	$	5,458	$	16,629	$	1	$	64,728

Troubled Debt Restructuring

At September 30, 2022 and December 31, 2021, troubled debt restructured loans of $7.1 million and $6.7 million, respectively, were classified as accruing TDR loans. The TDRs were granted in response to borrower financial difficulties, and generally provide for a temporary modification of loan repayment terms. In order for a new TDR loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow.

The following tables present TDR loans by accrual versus non-accrual status and by portfolio segment as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	278	$	32	$	310	3

Residential, net	6,785		—		6,785		42
Consumer & other, net	13		—		13		2
Total, net of deferred fees and costs	$	7,076	$	32	$	7,108	47

	December 31, 2021
(in thousands)	Accrual Status		Non-Accrual Status		Total Modification		# of Contracts
Commercial real estate, net	$	1,031	$	59	$	1,090	5

Residential, net	5,641		—		5,641		35
Consumer & other, net	22		—		22		3
Total, net of deferred fees and costs	$	6,694	$	59	$	6,753	43

The following table presents loans that were determined to be TDRs during the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Commercial real estate, net	$	278	$	—	$	278	$	—

Residential, net	$	1,405	$	1,661	5,611		5,903
Consumer & other, net	—		—		—		36
Total, net of deferred fees and costs	$	1,683	$	1,661	$	5,889	$	5,939

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 Company's board of directors 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 initially risk rated on a single risk rating scale based on the past due status of the loan or lease. Homogeneous loans and leases that have risk-based modifications or forbearances enter into an alternative elevated risk rating scale that freezes the elevated risk rating and requires six consecutive months of scheduled payments without delinquency before the loan or lease can return to the delinquency-based risk rating scale. Homogeneous loans and leases with other defined risk factors such as confirmed bankruptcy, business closure, death of a guarantor or fraud will be set to a floor substandard rating.

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 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 loan or lease is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans and leases 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.

The following tables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of September 30, 2022 and December 31, 2021:


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	611,283	$	779,385	$	394,345	$	572,015	$	396,511	$	1,003,038	$	1,015	$	4,502	$	3,762,094
	Special mention	893		18,188		373		4,628		4,028		10,825		—		—		38,935
	Substandard	2,559		797		1,960		—		33,202		6,583		—		—		45,101
	Doubtful	—		—		—		—		—		52		—		—		52
	Loss	—		—		—		—		—		244		—		—		244
Total non-owner occupied term, net		$	614,735	$	798,370	$	396,678	$	576,643	$	433,741	$	1,020,742	$	1,015	$	4,502	$	3,846,426
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	558,055	$	562,282	$	188,825	$	333,328	$	214,471	$	641,716	$	4,532	$	119	$	2,503,328
	Special mention	2,103		—		—		3,483		12,163		11,688		—		—		29,437
	Substandard	—		1,658		404		660		1,362		12,808		—		—		16,892
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		104		—		—		104
Total owner occupied term, net		$	560,158	$	563,940	$	189,229	$	337,471	$	227,996	$	666,316	$	4,532	$	119	$	2,549,761
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	1,641,219	$	1,619,672	$	366,586	$	656,951	$	236,674	$	541,995	$	24,649	$	2,915	$	5,090,661
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total multifamily, net		$	1,641,219	$	1,619,672	$	366,586	$	656,951	$	236,674	$	541,995	$	24,649	$	2,915	$	5,090,661
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	133,105	$	471,095	$	247,657	$	112,484	$	27,875	$	18,228	$	2,390	$	—	$	1,012,834
	Special mention	—		12,571		—		11,526		—		—		—		—		24,097
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total construction & development, net		$	133,105	$	483,666	$	247,657	$	124,010	$	27,875	$	18,228	$	2,390	$	—	$	1,036,931
Residential development, net
Credit quality indicator:
	Pass/Watch	$	27,328	$	18,597	$	1,250	$	—	$	—	$	—	$	158,760	$	—	$	205,935
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total residential development, net		$	27,328	$	18,597	$	1,250	$	—	$	—	$	—	$	158,760	$	—	$	205,935

Total commercial real estate		$	2,976,545	$	3,484,245	$	1,201,400	$	1,695,075	$	926,286	$	2,247,281	$	191,346	$	7,536	$	12,729,714


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	639,802	$	719,847	$	186,897	$	174,050	$	136,346	$	297,180	$	698,264	$	45,295	$	2,897,681
	Special mention	—		3,459		23		94		1,612		30,388		—		869		36,445
	Substandard	—		3,099		8,123		7		26,854		2,448		26,880		813		68,224
	Doubtful	—		—		657		—		—		—		—		—		657
	Loss	—		—		—		—		417		—		—		—		417
Total term, net		$	639,802	$	726,405	$	195,700	$	174,151	$	165,229	$	330,016	$	725,144	$	46,977	$	3,003,424
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	41,018	$	8,347	$	4,909	$	15,459	$	8,967	$	1,298	$	793,610	$	16,818	$	890,426
	Special mention	—		—		—		—		—		—		7,637		273		7,910
	Substandard	—		356		—		—		—		1,103		7,933		6,779		16,171
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total lines of credit & other, net		$	41,018	$	8,703	$	4,909	$	15,459	$	8,967	$	2,401	$	809,180	$	23,870	$	914,507
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	662,587	$	413,258	$	224,418	$	176,694	$	79,557	$	47,081	$	—	$	—	$	1,603,595
	Special mention	4,797		6,434		2,334		2,953		1,146		1,171		—		—		18,835
	Substandard	6,292		7,367		3,388		2,502		1,687		294		—		—		21,530
	Doubtful	6,053		10,491		3,665		3,299		893		223		—		—		24,624
	Loss	414		476		163		130		38		12		—		—		1,233
Total leases & equipment finance, net		$	680,143	$	438,026	$	233,968	$	185,578	$	83,321	$	48,781	$	—	$	—	$	1,669,817

Total commercial		$	1,360,963	$	1,173,134	$	434,577	$	375,188	$	257,517	$	381,198	$	1,534,324	$	70,847	$	5,587,748

Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	1,267,843	$	2,376,164	$	491,918	$	478,631	$	148,352	$	678,634	$	—	$	—	$	5,441,542
	Special mention	433		595		1,546		901		1,016		4,896		—		—		9,387
	Substandard	—		2,246		1,081		2,858		1,936		11,098		—		—		19,219
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		233		—		237		—		6		—		—		476
Total mortgage, net		$	1,268,276	$	2,379,238	$	494,545	$	482,627	$	151,304	$	694,634	$	—	$	—	$	5,470,624

Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	1,028	$	652	$	—	$	—	$	17	$	8,243	$	1,519,724	$	30,115	$	1,559,779
	Special mention	—		—		—		—		—		63		2,955		580		3,598
	Substandard	—		—		—		—		—		133		625		484		1,242
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		52		193		230		475
Total home equity loans & lines, net		$	1,028	$	652	$	—	$	—	$	17	$	8,491	$	1,523,497	$	31,409	$	1,565,094

Total residential		$	1,269,304	$	2,379,890	$	494,545	$	482,627	$	151,321	$	703,125	$	1,523,497	$	31,409	$	7,035,718


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	September 30, 2022	2022		2021		2020		2019		2018		Prior						Total
Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	14,687	$	8,542	$	7,593	$	7,282	$	3,139	$	5,076	$	106,881	$	753	$	153,953
	Special mention	10		9		21		33		24		182		364		28		671
	Substandard	—		—		2		7		27		23		66		15		140
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		7		—		—		7
Total consumer & other, net		$	14,697	$	8,551	$	7,616	$	7,322	$	3,190	$	5,288	$	107,311	$	796	$	154,771

Grand total		$	5,621,509	$	7,045,820	$	2,138,138	$	2,560,212	$	1,338,314	$	3,336,892	$	3,356,478	$	110,588	$	25,507,951


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	901,230	$	434,875	$	618,879	$	431,098	$	308,872	$	942,501	$	1,313	$	3,679	$	3,642,447
	Special mention	—		1,311		1,411		12,252		844		38,268		—		—		54,086
	Substandard	19,270		2,214		2,605		53,312		2,990		9,641		—		—		90,032
	Doubtful	—		—		—		—		—		78		—		—		78
	Loss	—		—		—		—		—		244		—		—		244
Total non-owner occupied term, net		$	920,500	$	438,400	$	622,895	$	496,662	$	312,706	$	990,732	$	1,313	$	3,679	$	3,786,887
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	594,677	$	237,814	$	369,483	$	245,707	$	227,201	$	601,934	$	5,017	$	737	$	2,282,570
	Special mention	—		—		7,445		10,739		4,936		12,219		—		—		35,339
	Substandard	—		897		674		1,815		—		10,697		—		—		14,083
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		430		—		—		430
Total owner occupied term, net		$	594,677	$	238,711	$	377,602	$	258,261	$	232,137	$	625,280	$	5,017	$	737	$	2,332,422
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	1,700,221	$	380,506	$	748,207	$	346,192	$	334,688	$	510,385	$	26,475	$	2,931	$	4,049,605
	Special mention	—		—		—		—		—		1,597		—		—		1,597
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total multifamily, net		$	1,700,221	$	380,506	$	748,207	$	346,192	$	334,688	$	511,982	$	26,475	$	2,931	$	4,051,202


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	264,489	$	310,207	$	237,435	$	48,911	$	18,375	$	136	$	2,382	$	—	$	881,935
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		8,403		—		—		—		—		8,403
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total construction & development, net		$	264,489	$	310,207	$	237,435	$	57,314	$	18,375	$	136	$	2,382	$	—	$	890,338
Residential development, net
Credit quality indicator:
	Pass/Watch	$	28,744	$	15,623	$	—	$	—	$	—	$	—	$	156,587	$	6,036	$	206,990
	Special mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		—		—		—		—
Total residential development, net		$	28,744	$	15,623	$	—	$	—	$	—	$	—	$	156,587	$	6,036	$	206,990

Total commercial real estate		$	3,508,631	$	1,383,447	$	1,986,139	$	1,158,429	$	897,906	$	2,128,130	$	191,774	$	13,383	$	11,267,839

Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	1,102,310	$	306,969	$	200,352	$	179,217	$	206,405	$	215,105	$	699,230	$	14,075	$	2,923,663
	Special mention	—		4,454		97		28,971		587		825		27,909		1,501		64,344
	Substandard	1,217		9,827		—		1,095		2,648		1,264		—		3,189		19,240
	Doubtful	—		—		—		—		809		—		—		—		809
	Loss	—		—		—		417		—		—		—		—		417
Total term, net		$	1,103,527	$	321,250	$	200,449	$	209,700	$	210,449	$	217,194	$	727,139	$	18,765	$	3,008,473
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	31,836	$	9,170	$	16,529	$	10,945	$	334	$	1,605	$	812,207	$	8,498	$	891,124
	Special mention	—		—		—		—		—		—		8,830		752		9,582
	Substandard	714		414		—		—		—		1,118		3,238		4,540		10,024
	Doubtful	—		—		—		—		—		—		1		—		1
	Loss	—		—		—		—		—		—		1		1		2
Total lines of credit & other, net		$	32,550	$	9,584	$	16,529	$	10,945	$	334	$	2,723	$	824,277	$	13,791	$	910,733
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	599,301	$	325,379	$	282,101	$	138,627	$	43,950	$	38,965	$	—	$	—	$	1,428,323
	Special mention	2,512		1,965		1,782		1,690		572		130		—		—		8,651
	Substandard	4,280		7,333		2,682		1,448		578		160		—		—		16,481
	Doubtful	3,781		3,232		3,238		1,343		663		636		—		—		12,893
	Loss	614		258		187		84		179		6		—		—		1,328
Total leases & equipment finance, net		$	610,488	$	338,167	$	289,990	$	143,192	$	45,942	$	39,897	$	—	$	—	$	1,467,676

Total commercial		$	1,746,565	$	669,001	$	506,968	$	363,837	$	256,725	$	259,814	$	1,551,416	$	32,556	$	5,386,882


(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	2,252,704	$	606,671	$	585,923	$	190,673	$	209,990	$	639,585	$	—	$	—	$	4,485,546
	Special mention	372		—		555		81		632		2,830		—		—		4,470
	Substandard	—		1,379		4,430		1,147		3,098		15,692		—		—		25,746
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		907		—		—		597		—		—		1,504
Total mortgage, net		$	2,253,076	$	608,050	$	591,815	$	191,901	$	213,720	$	658,704	$	—	$	—	$	4,517,266

Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	972	$	—	$	—	$	18	$	—	$	10,973	$	1,151,063	$	31,708	$	1,194,734
	Special mention	—		—		—		—		—		102		1,355		248		1,705
	Substandard	—		—		—		—		—		96		280		213		589
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		36		42		64		142
Total home equity loans & lines, net		$	972	$	—	$	—	$	18	$	—	$	11,207	$	1,152,740	$	32,233	$	1,197,170

Total residential		$	2,254,048	$	608,050	$	591,815	$	191,919	$	213,720	$	669,911	$	1,152,740	$	32,233	$	5,714,436

Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	15,375	$	10,955	$	12,167	$	5,395	$	3,983	$	5,070	$	128,264	$	1,835	$	183,044
	Special mention	—		23		41		1		113		113		391		101		783
	Substandard	—		3		15		—		17		25		55		71		186
	Doubtful	—		—		—		—		—		—		—		—		—
	Loss	—		—		—		—		—		7		3		—		10
Total consumer & other, net		$	15,375	$	10,981	$	12,223	$	5,396	$	4,113	$	5,215	$	128,713	$	2,007	$	184,023

Grand total		$	7,524,619	$	2,671,479	$	3,097,145	$	1,719,581	$	1,372,464	$	3,063,070	$	3,024,643	$	80,179	$	22,553,180