Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

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)	September 30, 2022
Commitments to extend credit	$	8,021,552
Forward sales commitments	$	247,469
Commitments to originate residential mortgage loans held for sale	$	131,443
Standby letters of credit	$	125,320

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 nine months ended September 30, 2022 and 2021. At September 30, 2022, approximately $115.6 million of standby letters of credit expire within one year, and $9.7 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.

Legal Proceedings and Regulatory Matters—We are subject to litigation in court and arbitral proceedings, as well as proceedings, investigations, examinations, and other actions brought or considered by governmental and self-regulatory agencies. We are a party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which involve claims for substantial or uncertain amounts.

On September 29, 2022, the United States District Court for the Northern District of California heard oral arguments on the Bank’s motion for summary judgment in the civil class action lawsuit, Camenisch et al v. Umpqua Bank. The case was filed on August 21, 2020, on behalf of a class of investor-victims of decedent Kenneth J. Casey and a Ponzi scheme he effectuated through his companies Professional Financial Investors, Inc. or Professional Investors Security Fund, Inc. Plaintiffs claim that the companies banked with the Bank and, therefore, the Bank allegedly knew that Mr. Casey was defrauding investors. Plaintiffs' claims against the Bank include aiding and abetting fraud and aiding and abetting breach of fiduciary duty. The cases follow an SEC non-public investigation into this matter on May 28, 2020.

At least quarterly, we assess liabilities and contingencies in connection with all outstanding or new legal matters, utilizing the most recent information available. If we determine that a loss from a matter is probable and the amount of the loss can be reasonably estimated, we establish an accrual for the loss. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments in the specific legal matter. It is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Actual losses may be in excess of any established accrual or the range of reasonably possible loss. Management's estimate will change from time to time. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established. The Company does not have any amounts accrued related to legal matters as of September 30, 2022.

Resolution and the outcome of legal claims is unpredictable, exacerbated by the following: damages sought are unsubstantiated or indeterminate; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; discovery or motion practice is not complete; the proceeding is not yet in its final stages; the matters present legal uncertainties; there are significant facts in dispute; there are a large number of parties, including multiple defendants; or there is a wide range of potential results. Any estimate or determination relating to the future resolution of legal and regulatory matters is uncertain and involves significant judgment. We usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the process.

Although there can be no assurance as to the ultimate outcome of specific legal matter, we believe we have meritorious defenses to the claims asserted against us in our currently outstanding legal matters, and we intend to continue to vigorously defend ourselves. We will consider settlement of legal matters when, in management's judgment, it is in the best interests of the Company and its shareholders.

Based on information currently available, advice of counsel, available insurance coverage, and established reserves, the Company believes that the eventual outcome of the actions against us will not have a material adverse effect on the Company's consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to the Company's results of operations for any particular period.

Contingencies—On October 12, 2021, Umpqua and Columbia announced that their boards of directors unanimously approved the Merger Agreement under which the two companies will combine in an all-stock transaction. Under the terms of the Merger Agreement, Umpqua shareholders will receive 0.5958 of a share of Columbia stock for each Umpqua share they own. Upon completion of the transaction, Umpqua shareholders will own approximately 62% and Columbia shareholders will own approximately 38% of the combined company. On September 17, 2022, Umpqua and Columbia entered into a Letter of Agreement with the Department of Justice, which stipulates that in order to obtain regulatory approvals necessary to complete the transaction, ten Columbia State Bank branches will need to be divested. On October 25, 2022, Columbia received regulatory approval from the Board of Governors of the Federal Reserve System to complete the proposed merger with Umpqua. The transaction is expected to close following the satisfaction of customary closing conditions, including receipt of remaining regulatory approvals. The Merger Agreement provides certain termination rights for both Umpqua and Columbia and further provides that, if termination of the Merger Agreement under certain circumstances, Umpqua or Columbia, as applicable, will be obligated to pay the other party a termination fee of $145.0 million.

Concentrations of Credit Risk— The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers in Oregon, Washington, California, Idaho, Nevada, Arizona, and Colorado. In management's judgment, a concentration exists in real estate-related loans, which represented approximately 78% and 76% of the Bank's loan and lease portfolio at September 30, 2022 and December 31, 2021, 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, 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.