Coupon Rate – Art By Depaola http://artbydepaola.com/ Thu, 17 Nov 2022 06:28:45 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://artbydepaola.com/wp-content/uploads/2021/06/icon-150x150.png Coupon Rate – Art By Depaola http://artbydepaola.com/ 32 32 Climate hell, fiscal cliff, other expressions dominate at the end of 2022 https://artbydepaola.com/climate-hell-fiscal-cliff-other-expressions-dominate-at-the-end-of-2022/ Thu, 17 Nov 2022 05:45:00 +0000 https://artbydepaola.com/climate-hell-fiscal-cliff-other-expressions-dominate-at-the-end-of-2022/ UN Secretary General Antonio Guterres read the final epitaph of COP27, the Sharm el-Sheikh conference on climate change, saying climate describes the world coming to terms with the reality of the crisis climate, natural disasters, extreme temperatures, floods that define everyday life as “climate hell”. He had a lot to choose from in 2022. Pakistan, […]]]>

UN Secretary General Antonio Guterres read the final epitaph of COP27, the Sharm el-Sheikh conference on climate change, saying climate describes the world coming to terms with the reality of the crisis climate, natural disasters, extreme temperatures, floods that define everyday life as “climate hell”.

He had a lot to choose from in 2022. Pakistan, home to more than 225 million people, has seen deadly floods across the country, despite only contributing less than 1% to carbon emissions.

Australia, has wildfires. The Florida peninsula has seen numerous hurricanes land, leaving it one of the fastest growing states where retirees flee colder northern climes to warmer weather, losing all their life savings. Europe is preparing for a colder winter and tougher energy bills, only mitigated by the convergence of resources. Aid-dependent Africa is feeling the effects.

Late rains and high transport costs have increased food prices everywhere. A November 7 memo from Finance Minister Matia Kasaijja asks for 500 million euros on payday lenders’ terms.

The minister is asking for a 10-year instrument with a four-year grace period to finance the deficits of the 2022/2023 financial year.

The four-year grace period ends in 2026 if the loans are disbursed now. Any sound financial institution will insist on high loan insurance fees (which result in accommodation for third-party payments) and high coupon rates to protect against default. Mr. Kasaijja and the Treasury are simultaneously battling the payroll, pensions, arrears, Emyooga and parochial development model. URA does not meet their needs.

This fiscal cliff is everywhere, governments in power are exhausting any wiggle room that could potentially leave their successors bankrupt. In September 2022, the Minister of Finance declared an interest rate of 9.65% for savers of the NSSF, the country’s largest pension benefit entity.

The 9.65% was down from consistently reported double-digit returns. In its presentation, the NSSF said global financial markets recorded losses. In Uganda, there was a little icing on the cake, the late listing of MTN on the local stock exchange, 25 years after receiving their first license as a national operator. The NSSF chief executive struggled to explain why NSSF savers were getting 9.65% while his boss was issuing 17.5% interest yields on the 20-year bond.

The UK, after a brief period of financial calm between 2005 and 2015, finds itself struggling like many countries to cope with the costs of a generous Covid insurance package and the structural problems presented by an aging population. Prime Minister Liz Truss was quickly kicked out of Downing Street when she proposed more spending and tax cuts for the wealthy.

The fiscal cliff will have several political consequences. Outgoing governments leave empty treasuries. In Brazil, conservatives spent a record $30 billion ahead of their cliffhanger election that brought the socialists back to power. In Kenya, Jubilee-Azimio financed both a maize and fuel subsidy, also leaving its treasury empty.

The rest of Africa looks stunned as Ghana, one of its most successful democratic experiments, comes to the IMF for a bailout. Commodity price volatility is a big problem in economies that have failed to diversify by producing much wealth and poverty in equal measure. Ask Nigeria.

Coming back to servants, the average price of chapati, the most democratic foodstuff, has risen in bakeries in the city from Shs1,000 to Shs1,300 and from Shs1,000 to Shs1,500. My brother in law with great interests in a town miller, told me some stories in the middle of the year when he drove from Masaka to Kalangala with our son/nephew.

The UNBS was delaying approval of alternative foods like millet and cassava flour bread. At the time, the price of wheat flour was skyrocketing and so was the price of fuel.

Electric generators have gone into brownie mode, load shedding. Our generator and distributor Kalangala Infrastructure Services follows the terms of their license down to the word, opening – “Ba Kasitooma Baffe…”, then the dreaded word, load shedding.

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FG offers high interest savings bond for November 2022 https://artbydepaola.com/fg-offers-high-interest-savings-bond-for-november-2022/ Wed, 09 Nov 2022 09:12:55 +0000 https://artbydepaola.com/fg-offers-high-interest-savings-bond-for-november-2022/ The Nigerian government through the Debt Management Office (DMO) is offering High Yield Savings Bonds A circular from DMO indicates that the savings bonds are in two tranches, the 2-year bond and the 3-year bond The DMO said the bonds would mature in 2023 and 2025, respectively, and be charged against Nigerian government assets. PAY […]]]>
  • The Nigerian government through the Debt Management Office (DMO) is offering High Yield Savings Bonds
  • A circular from DMO indicates that the savings bonds are in two tranches, the 2-year bond and the 3-year bond
  • The DMO said the bonds would mature in 2023 and 2025, respectively, and be charged against Nigerian government assets.

PAY ATTENTION: Check the news which is chosen exactly for you ➡ find the “Recommended for you” block on the home page and enjoy!

The Debt Management Office (DMO), on behalf of the Federal Government of Nigeria, has announced the November 2022 Federal Government Savings Bond Subscription Offering.

According to a DMO circular, there are two series of issues, 2 and 3 year savings bonds, with interest rates of 12.492% and 13.492%.

Director General of DMO, Patience Oniha Credit: DMO
Source: Facebook

Fixed subscriptions for as little as N1,000

Read also

LIST: ICPC is waging a full-scale anti-corruption war in 20 key states and leaking the secret of who is behind the budget stuffing

Reports indicate that interest rates rose from 11.382% to 12.382% in October for 2- and 3-year savings bonds.

Yields on savings bonds have steadily risen since the Central Bank of Nigeria (CBN) adopted an aggressive monetary policy to fight inflation.

The CBN had raised the interest rate by 400 basis points to 15.5%, which stood at a 17-year high in September 2022.

Rising rates have pushed up interest on savings, affecting FGN bonds currently on the market.

Between May and November 2022, the interest rate of the 2-year FGN savings bond fell from 7.934% to 12.492% per annum, while the 3-year bond fell from 8.934% to 13.492% in during the same period.

The circular indicates that the subscription opening date was November 7, 2022 and closes on November 11, 2022.

Read also

Top 5 Nigerian banks generate N740.9 billion in interest income between July and September 2022

Obligations due after 2-3 years

The settlement date is November 16, 2022 and the coupon payment dates are set for February 16, May 16, August 16 and November 16 next year.

N1,000 per Unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50,000.

The breakdown shows that the 2-year savings bond will mature on November 15, 2024, at 12.492% per annum, and the 3-year FGN bond will mature on November 16, 2025, at 13.492% per annum.

A breakdown of the bonds shows that the 2-year FGN Savings Bond will mature on November 16, 2024, at 12.492% per annum, and the 3-year FGN Savings Bond will mature on November 16, 2025, at 13.492% per year.

The savings bond is backed by the full faith and credit of the Nigerian government and is drawn from the general assets of Nigeria.

Read also

CBN has spent 281 billion naira to print new banknotes as the last banknotes start circulating on December 15

Dangote set to borrow N112 billion from Nigerians to complete refinery project, 10-year repayment date

Legit.ng reported that Dangote Industries Limited has decided to borrow N112 billion from investors to complete its refinery project.

To complete the project, the company needs an additional $1.1 billion which will be partly funded by the new bond this year.

The remaining N112 billion is the N300 billion bond raised by DIL in July 2021.

Source: Legit.ng

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The evolving dynamics of debt funds https://artbydepaola.com/the-evolving-dynamics-of-debt-funds/ Sun, 06 Nov 2022 18:19:35 +0000 https://artbydepaola.com/the-evolving-dynamics-of-debt-funds/ It used to be easy to make choices on investments, if one’s risk profile is limited go for debt investment while higher risk appetite explore equity investments. But recent asset volatility due to multiple reasons, including higher inflation, currency fluctuations and the ongoing war, has added additional momentum. The idea of ​​leveraged investments or fixed […]]]>

It used to be easy to make choices on investments, if one’s risk profile is limited go for debt investment while higher risk appetite explore equity investments. But recent asset volatility due to multiple reasons, including higher inflation, currency fluctuations and the ongoing war, has added additional momentum. The idea of ​​leveraged investments or fixed income securities as it is popularly called has also undergone a sea change with induced volatility due to the above reasons.

For more than a decade, falling interest rates, particularly in advanced economies, have suppressed all volatility and investment options have become rather transparent. These measures have also rubbed off on emerging markets as well as the cost of capital has been minimized. But the sudden turn of events after the pandemic led to an initial disruption of supply and demand, the excessive injection of money (especially in advanced economies) and later, due to the ongoing war, led to large price increases.

To counter the sudden surge in inflation, the US Fed began to change its monetary policy by raising interest rates sharply. This had the effect of exporting inflation from the earlier deflationary trend which began to exacerbate the rest of the countries. Most central banks, including the Reserve Bank of India (RBI), have resorted to raising rates not only to prevent inflation from escaping, but also to provide financial stability by controlling currency depreciation.

This created a difficult situation for investors as equity markets, despite being relatively resilient against global indices, remained stable. And the fixed income space has also taken a hit compared to the Covid period, i.e. over the last three quarters. The short term retained its appeal due to the withdrawal of liquidity and the tightening of interest rates. Although returns were limited, capital was pushed into this category. As the effects of rate percolation have a lag effect, the economy has slowly begun to show the negative impact of the continued prohibitive rate regime. The tightening continued and central banks persisted in their stance of fighting inflation rather than growth, it is understood that rates would stay higher for longer than initially expected.

This also indicated an interest rate cycle close to the peak in India (and most of the world), if not the actual peak of the cycle. This makes debt funds started to attract due to favorable higher yields in an inflationary world. Thus, this creates an opportunistic period for exposure to debt funds. The RBI’s target interest rates are 2% above the upper range of the 4% range, but the reality has been consistently above those expectations. While higher foreign exchange reserves for up to a few months gave the central bank a cushion to combat currency depreciation and growing current account deficit, the situation is no longer the same. The twin deficits (budget and current account), although the former peaked during the pandemic, also add stress to the central bank’s objectives. Credit growth is a big bright spot after years of moderate pace that also point to longer periods of higher rates, if not for a higher rate. The yield curve could top over the medium term with further normalization of the short end of the curve.

Investors who would like to take advantage of this situation could resort to floating rate funds which have an automatic coupon update with rate changes. This allows investors to take advantage of rising rates with this avenue. The other category that could benefit from the current situation are low duration funds as they too use a similar short-term strategy that compensates for interest rate increases during this period. The other strategy to benefit from this scenario is dynamic bond funds where there is a judicious mix of instruments that take advantage of spreads, i.e. bonds with ratings below AAA and floating funds which could become advantageous for investors.

(The author is co-founder of “Wealocity”, a wealth management company and can be reached at [email protected])

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Zombies Run For Shelter As Federal Reserve Hawks Look To Higher Points Plot https://artbydepaola.com/zombies-run-for-shelter-as-federal-reserve-hawks-look-to-higher-points-plot/ Thu, 03 Nov 2022 21:03:55 +0000 https://artbydepaola.com/zombies-run-for-shelter-as-federal-reserve-hawks-look-to-higher-points-plot/ As expected, Jerome Powell and the Federal Reserve raised interest rates by 75 basis points for the fourth straight time this year, in the 3.75%-4% range. This was in line with market expectations as the CME’s FedWatch tool showed an over 85% probability of a three quarter percentage point hike just before the FOMC announcement. […]]]>

As expected, Jerome Powell and the Federal Reserve raised interest rates by 75 basis points for the fourth straight time this year, in the 3.75%-4% range.

This was in line with market expectations as the CME’s FedWatch tool showed an over 85% probability of a three quarter percentage point hike just before the FOMC announcement.

When it comes to the powers of the mighty central bank, Powell has certainly flexed the institution’s muscles. However, policy measures appear to have disproportionately influenced sectors of the economy that are highly vulnerable to the interest rate environment.

For example, in a recent article, I explained how real estate investor George Gammon predicted a possible 50% drop in home prices over the next two years.

Source: Bankrate.com

Since the beginning of the year, stock markets have also fallen, the floor has collapsed under bond prices, and now mortgage rates are above 7%.

At the same time, inflation remains high – in the case of the CPI and the Fed’s favorite measure, the PCE. Moreover, everyone’s core metrics have accelerated in recent months, signaling that the Fed may not have as tight a grip on inflation as it once thought.

Source: Investing.com

Hawkish Powell and dot plots

In his speech, Powell’s tone was seen as more hawkish than expected, dispelling the idea of ​​any slowdown in the rises in the near future.

The combination of high inflation, high incomes and the continued resilience of the labor market with historically low levels of unemployment, indicates that rates need to rise.

The NASDAQ composite, heavily compromised by highly leveraged technology and growth stocks, was hit hard on the news, falling 3.4% on the day.

Source: Market Observatory

Initially, the market might have expected a more dovish message, judging by the initial rise in stock prices.

Ramin Nakisa, veteran investment banker and founder of Pension Craft, said:

…a surge in the NASDAQ and S&P 500, but moments later I think the markets realized that Powell wasn’t saying anything that suggested a pivot or a downturn, in fact he was saying the opposite…and then the markets fell.

Yet the labor market continued to surge and even saw an extremely tight 1.7 vacancies per worker, now dropping to 1.9, threatening to ignite the long-term price-wage spiral (which you can read in this May article).

This growing demand for employees may be due to the high degree of savings that many households have accumulated during the pandemic and the associated tax support schemes. In addition, soaring inflation could force some purchases forward.

In my previous article on the Fed’s September meeting, I discussed the dot chart and the direction members were seeing towards rates. Given the aggressive stance taken by Governor Powell at this point, the December dot chart could have the potential to move higher.

Source: WEC

Despite the Fed’s constant signal that it would raise December rates by 50 basis points, the CME’s FedWatch tool shows that the odds of a 50 basis point or 75 basis point hike are roughly divided by the middle.

This seems to suggest that the market perceives that a path of higher rates is quite possible in the short term.

Fed runoff

The Fed’s pace of quantitative tightening reached its expected maximum of $95 billion a month in September, thanks to a mix of government bonds and mortgage-backed securities.

Instead of reinvesting the coupon and principle, the Fed will withdraw these instruments to suck excess liquidity from the system.

Liquidity has increased significantly with the Fed’s program of injecting $120 billion a month into the economy via quantitative easing in the wake of the pandemic.

Although the effects of monetary policy and the QT are not yet evident on leading indicators such as the CPI and the Fed’s preferred PCE, the Fed’s balance sheet is starting to shrink. Since its peak on the 13e April 2022, the balance sheet decreased by 2.704% on 26e October 2022.

Due to the drying up of liquidity, the control of inflation, which is the central bank’s mouthpiece for the destruction of demand, seems to affect the borrowing and repayment conditions of small, medium and large companies .

Source: Senior Loan Officer Survey, Pension Craft

Zombie Collapse

Given the Fed’s hawkish policy and determination to keep raising rates, highly leveraged and unprofitable companies will find it increasingly difficult to stay afloat.

In a study by the Bank for International Settlements, the proportion of zombie firms in 14 selected economies rose to 15% in 2017, from 4% in the 1980s, due to easy money policies.

Swiss Re economists Jerome Haegeli and Fiona Gillespie predict that high-yield default rates of 15% could materialize if a recessionary environment occurs. This is compared to the average high yield default rate of around 4% over the past 10 years.

The authors argue that this wave of defaults would be beneficial for capital allocation and that delaying it could lead to increased stagflationary risks.

They suggest authorities should consider bailing out entities that show potential for long-term success, a job that is likely easier said than done.

Small-cap and growth stocks are likely to be particularly vulnerable and see a series of sell-offs, having only recently emerged from a prolonged and seemingly never-ending 0% rate environment.

In a previous article, I noted that Joseph Wang, a former senior free market trader at the Fed, believed that new tools, including swap lines, the repo facility, and debt buybacks, to manage Treasury market turmoil, corporate bond market volatility and banking crises, respectively, could prolong rate hikes.

In essence, he argues that the Fed will continue to rise by being able to step in strategically when cracks appear.

Thomas Hoenig, former president and CEO of the Kansas City Federal Reserve, also believes that the Fed has no end point for its rate hikes at this point, which of course would spell disaster for the majority. companies in difficulty.

While that may be true, I expect the burden of interest payments to weigh on the Fed, along with the political unpopularity of restricting lending in the economy.

Either way, the hangover and criticism of the 2018-19 pivot would be fresh in the Fed’s collective mind. The institution undoubtedly wants to restore its credibility with its opponents, and a pivot of rhetoric or action should not be expected at any time in the first quarter of 2023.

Part of the fight to restore credibility is to relentlessly signal the Fed’s willingness to crush inflation in the face of rising social and financial costs.

The 2% trap

Perhaps global central banks, in an effort to maintain credibility, have committed themselves too firmly to the 2% level.

To my knowledge, there is nothing sacred about this figure and it certainly wouldn’t make sense for it to be uniformly applicable in so many countries over the decades.

The Economist referred to the 2% target increase in these terms,

When New Zealand’s parliament decided in December 1989 on a 2% inflation target for the country’s central bank, none of the lawmakers dissented, perhaps because they were keen to go home for the Christmas holidays… owes its origin to an offhand remark by a former financial minister… Should we change the somewhat arbitrary target of 2%?

The flexibility to admit that inflation will likely have to head north, in the long term, to say 3%, may have given monetary authorities some much-needed breathing space.

However, today, inflation-targeting central banks have locked themselves in a corner, which has the potential to inflict huge costs on economies chasing that 2% figure.

Any capitulation on their part could lead to stagflationary forces and a loss of credibility.

While no immediate pivot is likely, the Fed’s 2% mandate will continue to weigh heavily on zombie firms and contribute to significant job losses in this area.

Although we are unlikely to see a pivot in the first quarter, the Fed left the backdoor open, saying,

…the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, as well as economic and financial developments.

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UMPQUA HOLDINGS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q) https://artbydepaola.com/umpqua-holdings-corp-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q/ Mon, 31 Oct 2022 10:04:10 +0000 https://artbydepaola.com/umpqua-holdings-corp-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q/ 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 […]]]>

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 proposed transaction between us and
Columbia Banking System, Inc.; 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; mortgage volumes and the impact of rate changes; the economic
environment; litigation; dividends; junior subordinated debentures; fair values
of certain assets and liabilities, including MSR values and sensitivity
analyses; tax rates; deposit pricing; and the effect of accounting
pronouncements and changes in accounting methodology.

Forward-looking statements involve substantial risks and uncertainties, many of
which are difficult to predict and are generally beyond our control. There are
many factors that could cause actual results to differ materially from those
contemplated by these forward-looking statements. Risks 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:

•changes in general economic, political, or industry conditions; the magnitude
and duration of the COVID-19 pandemic and its impact on the global economy and
financial market conditions and Umpqua's business, results of operations, and
financial condition;

•deterioration of economic conditions which could lead to an increase in losses on loans and leases, in particular the risks associated with concentrations of loans linked to real estate;


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

•volatility and disruptions in global capital and credit markets;

•changes in interest rates;

•transition from LIBOR to other indices including SOFR;

•competitive pressures, including on the prices of products and services;


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

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

•our ability to retain deposits, particularly during store consolidations and pending Mergers;

•the demand for financial services in our market areas;

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

•changes in legal or regulatory requirements or the results of regulatory reviews that may increase expenditures or limit growth;

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

• our ability to recruit and retain key officers and employees;

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

•regulatory limits on the Bank’s ability to pay dividends to the Company which could affect the timing and amount of dividends to shareholders;

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

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

• the success, impact and timing of Umpqua’s business strategies, including market acceptance of any new product or service;

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

•the outcome of legal proceedings;

• delays in completing the proposed transaction with Columbia;


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

•failure to meet any of the other conditions of the proposed transaction with Columbia in a timely manner or at all;


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

• certain restrictions during the term of the contemplated transaction with
Colombia that may impact the parties’ ability to pursue certain business opportunities or strategic transactions;

•the possibility that the contemplated transaction with Colombia may be more costly to perform than anticipated, including due to unforeseen factors or events;

• diversion of management’s attention from ongoing business operations and opportunities during the term of the mergers;

•any adverse reactions or changes in commercial or social relations, including those resulting from the completion of the transaction and the integration of the two companies and banks;


•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 loans; and

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



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, private banking, 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.

On October 12, 2021, we announced that we and Columbia, the parent company of
Columbia State Bank, entered into a definitive agreement under which the
companies will join together in an all-stock combination. Once the transaction
is completed, the combined organization will be a leading West Coast franchise
with more than $50 billion in assets. On September 17, 2022, we 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.

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. Umpqua has elected
to compare our results for the three months ended September 30, 2022 and
June 30, 2022, 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 nine months ended
September 30, 2022compared to applicable prior periods.

Financial performance

Comparison of the current quarter with the previous quarter


•Earnings per diluted common share was $0.39 for the three months ended
September 30, 2022, as compared to $0.36 for the three months ended June 30,
2022. The increase for the three months ended September 30, 2022, as compared to
the prior period, was primarily driven by an increase in net interest income due
to the rising interest rate environment. The increase was partially offset by a
decrease in non-interest income due to a decline in residential mortgage banking
revenue and a decrease in the fair value of certain loans held for investment,
with both items also reflective of the rising rate environment.

•Net interest margin, on a tax equivalent basis, was 3.88% for the three months
ended September 30, 2022, as compared to 3.41% for the three months ended
June 30, 2022. The increase for the three months ended September 30, 2022, was
due to a higher mix of loans as a percentage of earning assets as well as an
increase in individual category earning asset yields given upward interest rate
movements.

•Residential mortgage banking revenue was $17.3 million for the three months
ended September 30, 2022, as compared to $30.5 million for the three months
ended June 30, 2022. The variance for the three months ended September 30, 2022,
as compared to prior period, was primarily attributable to lower revenue from
the origination and sale of residential mortgages given lower volumes and a loss
on the MSR hedge initiated during the period, which offset the change in fair
value of MSR assets during the period. For-sale mortgage closed loan volume
decreased by 31% for the three months ended September 30, 2022, as compared to
the three months ended June 30, 2022. The gain on sale margin increased to 2.65%
for the three months ended September 30, 2022, as compared to 2.62% for the
three months ended June 30, 2022.

Comparison of the current year’s total with the period of the previous year


•Earnings per diluted common share was $1.17 for the nine months ended
September 30, 2022, as compared to earnings per diluted common share of $1.51
for the nine months ended September 30, 2021. The decrease for the nine months
ended September 30, 2022, as compared to the prior period, was primarily driven
by a decrease in non-interest income due to a decline in residential mortgage
banking revenue and a decrease in the fair value of certain loans held for
investment, as well as an increase in the provision for credit losses. The
decrease was partially offset by an increase in net interest income due to the
rising interest rate environment.

•Net interest margin, on a tax equivalent basis, was 3.48% for the nine months
ended September 30, 2022, as compared to 3.20% for the nine months ended
September 30, 2021. The increase in net interest margin for the nine months
ended September 30, 2022, primarily resulted from the rising rate environment
and a higher level of loans and securities as a percentage of earning assets.

•Residential mortgage banking revenue was $108.7 million for the nine months
ended September 30, 2022, as compared to $143.6 million for the nine months
ended September 30, 2021. The variance for the nine months ended September 30,
2022, as compared to prior periods, was primarily attributable to lower revenue
from the origination and sale of residential mortgages given lower volumes and
gain on sale margins. The decrease was partially offset by a net write-up of the
MSR asset that significantly offset the loss on the MSR hedge, that was put in
place in mid-August 2022. For-sale mortgage closed loan volume decreased by 58%
for the nine months ended September 30, 2022, as compared to the nine months
ended September 30, 2021. For the nine months ended September 30, 2022, the gain
on sale margin decreased to 2.62%, as compared to 3.46% for the nine months
ended September 30, 2021. The lower gain on sale margin for the nine months
ended September 30, 2022 as compared to the prior period reflects the adverse
impact from rising rates on the pipeline and competitive pricing pressures.
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Comparison of current period to prior year end period

•Total loans and leases were $25.5 billion as of September 30, 2022, an increase
of $3.0 billion, as compared to December 31, 2021. The increase in total loans
is primarily due to an increase in the commercial real estate balances of $1.5
billion, primarily within multifamily lending, and an increase in residential
real estate balances of $1.3 billion.

•Total deposits were $26.8 billion as of September 30, 2022, an increase of
$222.4 million, compared to December 31, 2021. The increase was due to growth in
demand deposits and savings deposits, offset partially by decreases in time
deposits.

•Total consolidated assets were $31.5 billion and $30.6 billion as of
September 30, 2022 and December 31, 2021, with the increase due to growth in
loans, offset by decreases in cash and cash equivalents and available for sale
securities.

Credit Quality

•Non-performing assets decreased to $50.8 million, or 0.16% of total assets, as
of September 30, 2022, compared to $53.1 million, or 0.17% of total assets, as
of December 31, 2021. Non-performing loans and leases were $50.8 million, or
0.20% of total loans and leases, as of September 30, 2022, compared to $51.2
million, or 0.23% of total loans and leases, as of December 31, 2021.

•The allowance for credit losses was $294.9 million as of September 30, 2022, an
increase of $33.7 million compared to December 31, 2021. The increase in the
allowance for credit losses is due to the growth of the loan portfolio, as well
as changes in the economic forecasts used in the credit models.

•The Company had a provision for credit losses of $27.6 million and $51.1
million for the three and nine months ended September 30, 2022, respectively.
This compares to a provision for credit losses of $18.7 million for the three
months ended June 30, 2022. For the nine months ended September 30, 2021, there
was a recapture of provision for credit losses of $41.9 million. The provision
for credit losses in the current periods was due to allowance requirements for
new loan generation, loan mix changes, and changes to the economic forecasts
used in credit models.

Liquidity

•Total cash and cash equivalents was $1.6 billion as of September 30, 2022, a
decrease of $1.2 billion from December 31, 2021. The decrease in cash and cash
equivalents is due to an increase in loan production, which outpaced deposit
generation for the period.

Capital and growth initiatives


•In October 2021, Umpqua and Columbia announced their entering into the Merger
Agreement under which the two companies will combine in an all-stock
transaction. On September 17,2022, a Letter of Agreement was entered into 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 Company's total risk-based capital ratio was 13.2% and its Tier 1 common to
risk-based assets ratio was 10.6% as of September 30, 2022. As of December 31,
2021, the Company's total risk-based capital ratio was 14.3% and its Tier 1
common to risk-based assets ratio was 11.6%.

•The Company paid quarterly cash dividends of $0.21 per common share to
shareholders on August 15, 2022. In addition, the Company declared a quarterly
cash dividend of $0.21 per common share on October 3, 2022, paid on October 28,
2022, to shareholders of record as of October 14, 2022.

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Critical Accounting Estimates

Our critical accounting estimates are described in detail in the Critical
Accounting Estimates section of the Form 10-K for the year ended December 31,
2021, filed with the SEC on February 25, 2022. The condensed consolidated
financial statements are prepared in conformity with GAAP and follow general
practices within the financial services industry, in which the Company operates.
This preparation requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information changes, actual results could differ from the estimates,
assumptions, and judgments reflected in the financial statements. Certain
estimates inherently have a greater reliance on the use of assumptions and
judgments and, as such, have a greater possibility of producing results that
could be materially different than originally reported. Management believes that
the ACL estimate is important to the portrayal of the Company's financial
condition and results of operations and requires difficult, subjective or
complex judgments. There have been no material changes in the ACL estimate
methodology during the nine months ended September 30, 2022.

                             Results of Operations

The Company has two segments: Core Banking and Mortgage Banking, which 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 commercial, retail, private banking, as well as the
operations, technology, and administrative functions of the Bank and Holding
Company. The Mortgage Banking segment includes the revenue earned from the
production and sale of residential real estate loans, the servicing income from
our serviced loan portfolio, the quarterly changes in the MSR asset, the
quarterly changes in the MSR hedge, 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
primarily originated through the Bank's retail consumer (store) and wealth
channels. Management periodically updates the allocation methods and assumptions
within the current segment structure

Comparison of the current quarter with the previous quarter


The Core Banking segment had net income of $86.3 million for the three months
ended September 30, 2022, compared to net income of $72.5 million for the three
months ended June 30, 2022. The increase in net income is mainly attributable to
an increase in net interest income, partially offset by a decrease in
non-interest income and an increase in provision for credit losses. The increase
in net interest income is reflective of the favorable impact of higher interest
rates during the quarter, as well as the increase in average loans and leases
during the quarter. The decrease in non-interest income was due to a fair value
loss of $24.9 million for the third quarter of 2022, driven by an increase in
long-term interest rates and their effect on fair value adjustments related to
investment securities, swap derivatives, and loans carried at fair value. This
compares to a fair value loss of $9.9 million for the three months ended
June 30, 2022.

The Mortgage Banking segment had a net loss of $2.2 million for the three months
ended September 30, 2022, compared to net income of $6.1 million for the three
months ended June 30, 2022. The decrease in net income for the three months
ended September 30, 2022 for the Mortgage Banking segment, compared to the three
months ended June 30, 2022, is attributable to a decrease in non-interest income
due to lower revenue from the origination and sale of residential mortgages as
closed loan volume for-sale declined by 31%. The non-interest income decline was
also driven by a loss on the MSR hedge, which was put in place during the
quarter to reduce net income volatility related to changes in fair value of MSR
assets due to valuation inputs or assumptions.

Comparison of the current year’s total with the period of the previous year


For the nine months ended September 30, 2022, the Core Banking segment had net
income of $221.7 million, a decrease of $76.1 million, as compared to the same
period in the prior year, mainly attributable to an increase in the provision
for credit losses, a decrease in non-interest income and an increase in
non-interest expense, partially offset by an increase in net interest income.
The change in the provision is due to allowance requirements for new loan
generation, loan mix changes, and changes to the economic forecasts used in
credit models. The decrease in non-interest income was due to a fair value loss
of $51.5 million for the nine months ended September 30, 2022, driven by an
increase in long-term interest rates and their effect on fair value adjustments
related to investment securities, swap derivatives, and loans carried at fair
value. This compares to a fair value gain of $13.4 million for the nine months
ended September 30, 2021. The increase in net interest income is reflective of
the increase in loans and leases and the favorable impact of higher interest
rates during the period.

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The Mortgage Banking segment had net income of $32.1 million for the nine months
ended September 30, 2022, compared to net income of $34.2 million during the
same period of the prior year. The decrease was primarily due to lower revenue
from the origination and sale of residential mortgages given lower volumes and
gain on sale margins, and a loss on the MSR hedge that was put in place during
the third quarter of 2022 to reduce net income volatility related to changes in
fair value of MSR assets due to valuation inputs or assumptions. These changes
were offset by a net write-up of the MSR asset during the nine months ended
September 30, 2022, compared to a net write-down during the same period of the
prior year, and a decrease in non-interest expense, which is due to decreased
incentives as originations have slowed due to rising interest rates.

The following table presents the return on average assets, average common
shareholders' equity and average tangible common shareholders' equity for the
three months ended September 30, 2022 and June 30, 2022, respectively, as well
as the nine months ended September 30, 2022 and 2021. For each period presented,
the table includes the calculated ratios based on reported net income. To the
extent return on average common shareholders' equity 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 other
intangible assets, net (excluding MSR). 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 Ended                                        Nine Months Ended
 (dollars in thousands)                      September 30, 2022         June 30, 2022               September 30, 2022         September 30, 2021
Return on average assets                                 1.09  %               1.04  %                          1.11  %                    1.48  %
Return on average common shareholders'
equity                                                  12.99  %              12.20  %                         12.94  %                   16.47  %
Return on average tangible common
shareholders' equity                                    13.02  %              12.23  %                         12.98  %                   16.55  %
Calculation of average common tangible
shareholders' equity:
Average common shareholders' equity         $       2,567,266          $  2,584,836                $       2,621,725          $       2,694,968
Less: average goodwill and other intangible
assets, net                                             6,343                 7,379                            7,369                     12,922
Average tangible common shareholders'
equity                                      $       2,560,923          $  2,577,457                $       2,614,356          $       2,682,046



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
goodwill and other intangible assets, net (excluding MSR). In addition, tangible
assets are total assets less goodwill and other intangible assets, net
(excluding MSR). The tangible common equity ratio is calculated as tangible
common shareholders' equity divided by tangible assets. Tangible common equity
and the tangible common equity ratio are considered non-GAAP financial measures
and should be viewed in conjunction with 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 September 30, 2022 and December 31,
2021:
 (dollars in thousands)                                             September 30, 2022          December 31, 2021
Total shareholders' equity                                         $        2,417,514          $       2,749,270
Subtract:

Other intangible assets, net                                                    5,764                      8,840
Tangible common shareholders' equity                               $        2,411,750          $       2,740,430
Total assets                                                       $       31,471,960          $      30,640,936
Subtract:

Other intangible assets, net                                                    5,764                      8,840
Tangible assets                                                    $       31,466,196          $      30,632,096
Total shareholders' equity to total assets ratio                                 7.68  %                    8.97  %
Tangible common equity ratio                                                     7.66  %                    8.95  %



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

Comparison of the current quarter with the previous quarter


Net interest income for the three months ended September 30, 2022 was $287.6
million, an increase of $39.4 million compared to the three months ended
June 30, 2022. The increase was driven by a $44.2 million increase in the total
interest and fees on loans and leases, due to assets repricing higher in the
rising rate environment and growth in the loan portfolio, offset by an increase
of $7.8 million in interest expense due to the increase in long-term rates in
the quarter compared to the prior period.

The net interest margin (net interest income as a percentage of average
interest-earning assets) on a fully tax equivalent basis was 3.88% for the three
months ended September 30, 2022, as compared to 3.41% for the three months ended
June 30, 2022. The increase in net interest margin primarily resulted from an
increase in the average yields on interest-earning assets, due to a higher mix
of loans as a percentage of earning assets as well as an increase in individual
category earning asset yields given upward interest rate movements.

The yield on borrowings and leases for the three months ended September 30, 2022
increased by 47 basis points compared to the quarter ended June 30, 2022primarily due to the impact of rising interest rates on increased yields on variable and adjustable rate loans.

The cost of interest-bearing liabilities for the three months ended
September 30, 2022 increased by 19 basis points compared to the quarter ended June 30, 2022mainly due to rising interest rates.

Comparison of the current year’s total with the period of the previous year

Net interest income for the nine months ended September 30, 2022 has been $764.5 millionan augmentation of $78.3 million compared to the nine months ended
September 30, 2021. The increase for the nine months ended September 30, 2022
mainly due to higher interest income on loans resulting from higher rates and higher average loan and lease balances.


The net interest margin on a fully tax equivalent basis was 3.48% for the nine
months ended September 30, 2022, as compared to 3.20% for the nine months ended
September 30, 2021. The increase in net interest margin for the nine months
ended September 30, 2022, primarily resulted from an increase in the average
yields on interest-earning assets, due to a higher mix of loans as a percentage
of earning assets.

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The yield on loans and leases for the nine months ended September 30, 2022,
increased by 5 basis points as compared to the same period in 2021, primarily
attributable to the rising interest rate environment, which favorably impacted
the repricing of floating and adjustable rate loans and the coupon rate on new
loan generation.

The cost of interest-bearing liabilities decreased by 2 basis points for the
nine months ended September 30, 2022, as compared to the same period in 2021,
due to a higher mix of lower-cost deposits during the current period. 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 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 September 30, 2022 and June 30, 2022, as well as the nine
months ended September 30, 2022 and 2021, respectively:
                                                                                                           Three Months Ended
                                                                          September 30, 2022                                                   June 30, 2022
                                                                                  Interest             Average                                       Interest             Average
                                                                                 Income or            Yields or                                     Income or            Yields or
 (dollars in thousands)                                Average Balance            Expense               Rates             Average Balance            Expense               Rates
INTEREST-EARNING ASSETS:
Loans held for sale                                  $        173,397          $     2,205                5.09  %       $        264,320          $     2,742                4.15  %
Loans and leases (1)                                       24,886,203              276,625                4.41  %             23,550,796              231,932                3.94  %
Taxable securities                                          3,271,185               18,261                2.23  %              3,410,091               17,340                2.03  %
Non-taxable securities (2)                                    212,847                1,651                3.10  %                220,327                1,721                3.13  %
Temporary investments and interest-bearing cash               893,471                5,115                2.27  %              1,663,454                2,919                0.70  %
Total interest-earning assets                              29,437,103          $   303,857                4.10  %             29,108,988          $   256,654                3.53  %
Other assets                                                1,231,074                                                          1,247,915
Total assets                                         $     30,668,177                                                   $     30,356,903
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits                     $      3,829,688          $     1,705                0.18  %       $      3,896,553          $       610                0.06  %
Money market deposits                                       7,550,791                5,817                0.31  %              7,366,987                1,717                0.09  %
Savings deposits                                            2,468,187                  250                0.04  %              2,426,124                  199                0.03  %
Time deposits                                               1,501,724                1,318                0.35  %              1,618,394                1,489                0.37  %
Total interest-bearing deposits                            15,350,390                9,090                0.23  %             15,308,058                4,015                0.11  %
Repurchase agreements and federal funds purchased             509,559                  545                0.42  %                512,641                   66                0.05  %
Borrowings                                                     90,475                  798                3.50  %                  6,273                   50                3.21  %
Junior subordinated debentures                                409,151                5,491                5.33  %                393,964                4,001                4.07  %
Total interest-bearing liabilities                         16,359,575          $    15,924                0.39  %             16,220,936          $     8,132                0.20  %
Non-interest-bearing deposits                              11,250,764                                                         11,086,376
Other liabilities                                             490,572                                                            464,755
Total liabilities                                          28,100,911                                                         27,772,067
Common equity                                               2,567,266                                                          2,584,836
Total liabilities and shareholders' equity           $     30,668,177                                                   $     30,356,903
NET INTEREST INCOME                                                            $   287,933                                                        $   248,522
NET INTEREST SPREAD                                                                                       3.71  %                                                            3.33  %
NET INTEREST INCOME TO EARNING ASSETS OR NET
INTEREST MARGIN (1), (2)                                                                                  3.88  %                                                            3.41  %

(1) Unaccrued loans and leases are included in the average balance. (2) Tax-exempt income has been adjusted to tax equivalent at the rate of 21%. The amount of this adjustment was an addition to recognized revenue of approximately $329,000 for the three months ended September 30, 2022against approximately $352,000 for the three months ended June 30, 2022.

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Contents

                                                                                                  Nine Months Ended
                                                                September 30, 2022                                                September 30, 2021
                                                                       Interest             Average                                       Interest             Average
                                                                      Income or            Yields or                                     Income or            Yields or
(dollars in thousands)                       Average Balance           Expense               Rates             Average Balance            Expense               Rates
INTEREST-EARNING ASSETS:
Loans held for sale                         $      240,928          $     7,209                3.99  %       $        545,237          $    12,242                2.99  %
Loans and leases (1)                            23,676,201              720,699                4.06  %             21,866,569              656,772                4.01  %
Taxable securities                               3,445,386               54,412                2.11  %              3,199,653               45,049                1.88  %
Non-taxable securities (2)                         222,375                5,098                3.06  %                248,617                5,627                3.02  %
Temporary investments and interest bearing
cash                                             1,718,832                9,387                0.73  %              2,850,639                2,635                0.12  %
Total interest-earning assets                   29,303,722          $   796,805                3.62  %             28,710,715          $   722,325                3.36  %
Other assets                                     1,237,305                                                          1,348,054
Total assets                                $   30,541,027                                                   $     30,058,769
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits            $    3,846,202          $     2,813                0.10  %       $      3,359,865          $     1,341                0.05  %
Money market deposits                            7,519,200                8,942                0.16  %              7,593,320                4,516                0.08  %
Savings deposits                                 2,433,651                  654                0.04  %              2,152,667                  523                0.03  %
Time deposits                                    1,623,742                4,612                0.38  %              2,336,261               16,414                0.94  %
Total interest-bearing deposits                 15,422,795               17,021                0.15  %             15,442,113               22,794                0.20  %
Repurchase agreements and federal funds
purchased                                          502,998                  674                0.18  %                444,919                  232                0.07  %
Borrowings                                          34,662                  897                3.46  %                259,890                2,787                1.43  %
Junior subordinated debentures                     394,803               12,641                4.28  %                363,122                9,108                3.35  %
Total interest-bearing liabilities              16,355,258          $    31,233                0.26  %             16,510,044          $    34,921                0.28  %
Non-interest-bearing deposits                   11,115,618                                                         10,484,104
Other liabilities                                  448,426                                                            369,653
Total liabilities                               27,919,302                                                         27,363,801
Common equity                                    2,621,725                                                          2,694,968
Total liabilities and shareholders' equity  $   30,541,027                                                   $     30,058,769
NET INTEREST INCOME                                                 $   765,572                                                        $   687,404
NET INTEREST SPREAD                                                                            3.36  %                                                            3.08  %
NET INTEREST INCOME TO EARNING ASSETS OR
NET INTEREST MARGIN (1), (2)                                                                   3.48  %                                                  

3.20%

(1) Unaccrued loans and leases are included in the average balance. (2) Tax-exempt income has been adjusted to tax equivalent at the rate of 21%. The amount of this adjustment was an addition to recognized revenue of approximately
$1.0 million for the nine months ended September 30, 2022against approximately $1.1 million for the same period in 2021.

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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 September 30,
2022 as compared to three months ended June 30, 2022, as well as the nine months
ended September 30, 2022 and 2021, 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 completed

September 30, 2022 compared to June 30, 2022

Increase (decrease) in interest income and

                                                                             expense due to changes in
 (in thousands)                                                     Volume              Rate              Total
INTEREST-EARNING ASSETS:
Loans held for sale                                              $   (1,070)         $    533          $   (537)
Loans and leases                                                     14,318            30,375            44,693
Taxable securities                                                     (724)            1,645               921
Non-taxable securities (1)                                              (58)              (12)              (70)
Temporary investments and interest-bearing cash                      (1,859)            4,055             2,196
Total interest-earning assets (1)                                    10,607            36,596            47,203
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits                                        (10)            1,105             1,095
Money market deposits                                                    45             4,055             4,100
Savings deposits                                                          4                47                51
Time deposits                                                           (96)              (75)             (171)
Repurchase agreements and federal funds purchased                       342               137               479
Borrowings                                                              743                 5               748
Junior subordinated debentures                                          166             1,324             1,490
Total interest-bearing liabilities                                    1,194             6,598             7,792
Net increase in net interest income (1)                          $    9,413 

$29,998 $39,411
(1) Tax-exempt income has been adjusted to tax equivalent at a tax rate of 21%.

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Contents

Nine month period ended

                                                                 September 

30 2022 compared to September 30, 2021

                                                                 Increase 

(decrease) in interest income and expense

                                                                                 due to changes in
 (in thousands)                                                      Volume              Rate              Total
INTEREST-EARNING ASSETS:
Loans held for sale                                              $    (8,242)         $  3,209          $ (5,033)
Loans and leases                                                      56,160             7,767            63,927
Taxable securities                                                     3,624             5,739             9,363
Non-taxable securities (1)                                              (600)               71              (529)
Temporary investments and interest-bearing cash                       (1,431)            8,183             6,752
Total interest-earning assets (1)                                     49,511            24,969            74,480
INTEREST-BEARING LIABILITIES:
Interest bearing demand deposits                                         218             1,254             1,472
Money market deposits                                                    (45)            4,471             4,426
Savings deposits                                                          72                59               131
Time deposits                                                         (3,996)           (7,806)          (11,802)
Repurchase agreements and federal funds purchased                        372                70               442
Borrowings                                                            (3,713)            1,823            (1,890)
Junior subordinated debentures                                           847             2,686             3,533
Total interest-bearing liabilities                                    (6,245)            2,557            (3,688)
Net increase (decrease) in net interest income (1)               $    

55,756 $22,412 $78,168
(1) Tax-exempt income has been adjusted to tax equivalent at a tax rate of 21%.





Provision for Credit Losses

Comparison of the current quarter with the previous quarter


The Company had a $27.6 million provision for credit losses for the three months
ended September 30, 2022, as compared to a $18.7 million provision for credit
losses for the three months ended June 30, 2022.

The September 30, 2022 provision reflects allowance requirements for new loan
generation and loan mix changes, and changes between economic forecasts used in
credit models. As an annualized percentage of average outstanding loans and
leases, the provision for credit losses recorded for the three months ended
September 30, 2022 was 0.44%, as compared to 0.32% for the three months ended
June 30, 2022.

For the three months ended September 30, 2022the net allocations were $6.6 millioncompared to $6.2 million for the three months ended June 30, 2022. As an annualized percentage of average outstanding loans and leases, net write-offs for the three months ended September 30, 2022 were 0.11%, compared to 0.11% for the quarter ended June 30, 2022.

Comparison of the current year’s total with the period of the previous year


The Company had a $51.1 million provision for credit losses for the nine months
ended September 30, 2022, as compared to a recapture of provision for credit
losses of $41.9 million for the nine months ended September 30, 2021. The change
in the provision reflects allowance requirements for new loan generation and
loan mix changes, and changes between economic forecasts used in credit models.
As an annualized percentage of average outstanding loans and leases, the
provision (recapture) for credit losses recorded for the nine months ended
September 30, 2022 was 0.29%, compared to (0.26)% for the nine months ended
September 30, 2021.

For the nine months ended September 30, 2022, net charge-offs were $18.4
million, as compared to $37.5 million for the nine months ended September 30,
2021. As an annualized percentage of average outstanding loans and leases, net
charge-offs for the nine months ended September 30, 2022 were 0.10%, as compared
to 0.23% for the nine months ended September 30, 2021. The majority of net
charge-offs relate to leases and equipment finance loans, included within the
commercial loan portfolio.
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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 $14.6 million as of September 30, 2022 have a
related allowance for credit losses of $12.5 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


The following table presents the key components of non-interest income for the
three months ended September 30, 2022, compared to the three months ended
June 30, 2022, as well as the comparison of the nine months ended September 30,
2022 and 2021:
                                                 Three Months Ended                                                              Nine Months Ended
                         September 30,                                                                                  September 30,       September 30,                                  Change
(in thousands)               2022              June 30, 2022                 Change Amount         Change Percent           2022                2021   
          Change Amount            Percent
Service charges on
deposits                 $   12,632          $       12,011                $          621                    5  %       $   36,226          $   30,898          $        5,328                  17  %
Card-based fees               9,115                  10,530                        (1,415)                 (13) %           28,353              26,759                   1,594                   6  %
Brokerage revenue                27                      27                             -                    -  %               65               5,081                  (5,016)                (99) %
Residential mortgage
banking revenue, net         17,341                  30,544                       (13,203)                 (43) %          108,671             143,626                 (34,955)                (24) %
Gain on sale of debt
securities, net                   -                       -                             -                      nm                2                   4                      (2)                (50) %
Loss on equity
securities, net              (2,647)                 (2,075)                         (572)                  28  %           (7,383)             (1,045)                 (6,338)                    nm
Gain on loan and lease
sales, net                    1,525                   1,303                           222                   17  %            5,165              10,899                  (5,734)                (53) %

Bank owned life
insurance income              2,023                   2,110                           (87)                  (4) %            6,220               6,201                      19                   -  %
Other (losses) income       (10,571)                    785                       (11,356)                     nm          (12,670)             51,157                 (63,827)               (125) %
Total non-interest
income                   $   29,445          $       55,235                $      (25,790)                 (47) %       $  164,649          $  273,580          $     (108,931)                (40) %


Comparison of the current quarter with the previous quarter


Residential mortgage banking revenue, which is the primary source of income for
the Mortgage Banking segment, decreased as compared to three months ended
June 30, 2022. The variance for the three months ended September 30, 2022, as
compared to the three months ended June 30, 2022, was driven by rising long-term
interest rates and attributable to lower origination and sales revenue,
favorable changes in the fair value of the MSR asset, and a loss on the MSR
hedge that was put in place during the quarter. The gain on the fair value of
the MSR asset due to valuation inputs or assumptions was $16.4 million, which
was offset by the MSR hedge loss of $14.1 million, for the three months ended
September 30, 2022, compared to a fair value gain due to valuation inputs of
$10.9 million for the three months ended June 30, 2022. Revenue related to the
origination and sale of residential mortgages decreased by $4.6 million for the
three months ended September 30, 2022, as compared to the three months ended
June 30, 2022.

For-sale mortgage closed loan volume for the three months ended September 30,
2022, decreased 31%, as compared to the three months ended June 30, 2022.
However, the gain on sale margin increased to 2.65% for the three months ended
September 30, 2022, as compared to 2.62% for the three months ended June 30,
2022.

Other (losses) income for the three months ended September 30, 2022 decreased by
$11.4 million, as compared to the three months ended June 30, 2022, primarily
due to an increase in fair value loss on certain loans held for investment to
$26.4 million from $15.2 million, which reduced other income by $11.2 million. A
$3.1 million decline in the gain on swap derivatives was partially offset by a
$1.7 million increase in customer swap fee revenue, as compared to the prior
quarter.

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Comparison of current year-to-date to prior year period

Service charges on deposits increased over the nine months ended
September 30, 2021mainly due to higher customer activity.

Brokerage revenue decreased for the nine months ended September 30, 2022compared to the same period of the previous year, due to the sale of Umpqua Investments, Inc. in April 2021.


The decrease in gain on loan and lease sales income for the nine months ended
September 30, 2022, as compared to prior period, was driven by a decrease in SBA
loan sales during the period.

For the nine months ended September 30, 2022, the decrease in other (losses)
income was primarily attributable to a loss on the fair value on certain loans
held for investment of $62.7 million, as compared to a gain of $5.7 million for
the nine months ended September 30, 2021. Additionally, a one-time gain on the
sale of Umpqua Investments, Inc. of $4.4 million was recorded for the nine
months ended September 30, 2021. This was partially offset by a $9.9 million
increase in the gain on swap derivatives and a $5.0 million increase in customer
swap fee revenue, as compared to the prior period.

Residential mortgage banking revenue, which is the primary source of income for
the Mortgage Banking segment, decreased as compared to the nine months ended
September 30, 2021. The variance for the nine months ended September 30, 2022,
as compared to prior periods, was driven by rising long-term interest rates and
attributable to lower revenue from the origination and sale of residential
mortgages, favorable changes in the fair value of the MSR asset, and a loss
taken on the MSR hedge that was put in place during the third quarter of 2022.
The gain on the fair value of the MSR asset due to valuation inputs and
assumptions was $67.5 million, which was partially offset by the MSR hedge loss
of $14.1 million, for the nine months ended September 30, 2022, compared to a
fair value loss of the MSR asset due to valuation inputs of $4.3 million for the
nine months ended September 30, 2021. Revenue related to origination and sale of
residential mortgages decreased by $91.7 million for the nine months ended
September 30, 2022, as compared to the nine months ended September 30, 2021.

For the nine months ended September 30, 2022the volume of closed mortgages for sale decreased by 58% compared to the nine months ended September 30, 2021. Additionally, the gain on sales margin decreased to 2.62% for the nine months ended September 30, 2022compared to 3.46% for the nine months ended
September 30, 2021.


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. The MSR asset value is also sensitive to interest rates, and generally
falls with lower rates and rises with higher rates, resulting in fair value
losses and gains, respectively, due to changes in valuation inputs or
assumptions, where applicable. In August 2022, a MSR hedge was put in place as
we work to minimize the interest rate risk of mortgage servicing rights and
reduce net income volatility related to changes in fair value of MSR assets due
to valuation inputs or assumptions.

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The following table presents our residential mortgage banking revenue for the
three months ended September 30, 2022 and June 30, 2022, as well as the nine
months ended September 30, 2022 and 2021:
                                                            Three Months Ended                                     Nine Months Ended
                                                   September 30,
(in thousands)                                         2022             June 30, 2022                September 30, 2022         September 30, 2021
Origination and sale                               $   10,515          $      15,101                $          42,460          $         134,165
Servicing                                               9,529                  9,505                           28,174                     27,379
Change in fair value of MSR asset:
Changes due to collection/realization of expected
cash flows over time                                   (4,978)                (4,961)                         (15,286)                   (13,592)
Changes in valuation inputs or assumptions (1)         16,403                 10,899                           67,451                     (4,326)
  MSR hedge loss                                      (14,128)                     -                          (14,128)                         -

Net income from residential mortgages $17,341 $

   30,544                $         108,671          $         143,626

Loans Held for Sale Production Statistics:
Closed loan volume for-sale                        $  396,979          $     576,532                $       1,622,633          $       3,875,836
Gain on sale margin                                      2.65  %                2.62  %                          2.62  %                    3.46  %


(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

The following table presents the key elements of non-interest expense for the
three months ended September 30, 2022 and June 30, 2022, as well as the nine
months ended September 30, 2022 and 2021.
                                                   Three Months Ended                                                              Nine Months Ended
                           September 30,                                                                                  September 30,       September 30,                                  Change
 (in thousands)                2022              June 30, 2022                 Change Amount         Change Percent           2022                2021              Change Amount            Percent
Salaries and employee
benefits                   $  109,164          $      110,942                $       (1,778)                  (2) %       $  333,244          $  363,343          $      (30,099)                 (8) %
Occupancy and equipment,
net                            35,042                  34,559                           483                    1  %          104,430             103,236                   1,194                   1  %
Communications                  2,542                   2,585                           (43)                  (2) %            7,881               8,633                    (752)                 (9) %
Marketing                       1,505                   1,649                          (144)                  (9) %            5,552               5,077                     475                   9  %
Services                       13,355                  14,402                        (1,047)                  (7) %           39,094              36,279                   2,815                   8  %
FDIC assessments                3,007                   2,954                            53                    2  %           10,477               6,342                   4,135                  65  %

Intangible amortization         1,025                   1,026                            (1)                   -  %            3,076               3,390                    (314)                 (9) %
Merger related expenses           769                   2,672                        (1,903)                 (71) %            5,719                   -                   5,719                     nm
Other expenses                 11,555                   8,785                         2,770                   32  %           30,495              34,445                  (3,950)                (11) %
Total non-interest expense $  177,964          $      179,574                $       (1,610)                  (1) %       $  539,968          $  560,745          $      (20,777)                 (4) %
nm = Not meaningful


Comparison of the current quarter with the previous quarter


Merger related expenses, related to the proposed merger with Columbia decreased
$1.9 million during the three months ended September 30, 2022 as compared to the
three months ended June 30, 2022, due to reduced consulting and legal costs
incurred.

Other expenses for the three months ended September 30, 2022 increased compared to the quarter ended June 30, 2022trained by $1.4 million in exit and disposal costs, a $923,000 increase over the previous quarter.

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Comparison of current year-to-date to prior year period

Salaries and employee benefits decreased for the nine months ended September 30,
2022, compared to the nine months ended September 30, 2021, primarily due to a
decrease in mortgage banking production related incentive pay during the period,
due to increasing rates suppressing demand for mortgage products.

Merger-related expenses, related to the proposed merger with Colombiawere $5.7 million for the nine months ended September 30, 2022compared to no such expense for the nine months ended September 30, 2021.


Other expenses decreased, as compared to prior periods, due to a decrease in
exit and disposal costs of $4.9 million for the nine months ended September 30,
2022. The prior elevated levels of exit and disposal costs was due to store
consolidations and back-office lease exits as part of Umpqua's Next Gen 2.0
strategy.
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                              FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents were $1.6 billion as of September 30, 2022, compared
to $2.8 billion as of December 31, 2021. The decrease of interest-bearing cash
and temporary investments reflects strong loan portfolio growth of $3.0 billion,
offset by increases in borrowings of $750.0 million and deposits of $222.4
million, respectively, in the period.

Investment security


Investment debt securities available for sale were $3.1 billion as of
September 30, 2022, compared to $3.9 billion at December 31, 2021. The decrease
was due to a decrease of $575.8 million in fair value of investment securities
available for sale, due to the increase in rates during the period, as well as
sales and paydowns of $328.7 million, offset partially by purchases of $175.7
million of investment securities.

The following tables present the portfolio of available-for-sale and held-to-maturity investment debt securities by major category as at September 30, 2022 and
December 31, 2021:

Marketable securities available for sale

                                                           September 30, 2022                           December 31, 2021
 (dollars in thousands)                              Fair Value                %                  Fair Value                  %
U.S. Treasury and agencies                         $    830,813                  26  %       $         918,053                  24  %
Obligations of states and political subdivisions        269,904                   9  %                 330,784                   8  %
Mortgage-backed securities and collateralized
mortgage obligations                                  2,035,674                  65  %               2,621,598                  68  %

Total available for sale securities                $  3,136,391                 100  %       $       3,870,435                 100  %


                                                                        

Marketable securities held to maturity

                                                           September 30, 2022                          December 31, 2021
 (dollars in thousands)                            Amortized Cost             %               Amortized Cost                %

Mortgage-backed securities and collateralized
mortgage obligations                               $     2,547                 100  %       $          2,744                 100  %

Total held to maturity securities                  $     2,547                 100  %       $          2,744                 100  %



We continuously review investment securities for the presence of impairment, considering current market conditions, fair value to cost, magnitude and nature of change in fair value , changes and trends in the issuer’s rating, whether we intend to sell a security or whether it is likely that we will have to sell the security before recovering our amortized cost of the investment, which may be l maturity, and other factors.


Gross unrealized losses in the available for sale investment portfolio were
$569.8 million as of September 30, 2022. This consisted primarily of unrealized
losses on mortgage-backed securities and collateralized mortgage obligations of
$430.4 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 ACL was considered necessary on these
debt securities as of September 30, 2022.

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Loans and Leases

Total loans and leases outstanding as of September 30, 2022 were $25.5 billion,
an increase of $3.0 billion as compared to December 31, 2021. The increase is
attributable to new loan and lease originations, with the majority being in
multifamily and residential mortgage loans. The loan to deposit ratio as of
September 30, 2022 is 95%, as compared to 85% as of December 31, 2021.

The following table presents the concentration distribution of the loan and
lease portfolio, net of deferred fees and costs, as of September 30, 2022 and
December 31, 2021:
                                                      September 30, 2022                              December 31, 2021
 (dollars in thousands)                           Amount                     %                    Amount                    %
Commercial real estate
Non-owner occupied term, net               $        3,846,426                  15  %       $       3,786,887                  17  %
Owner occupied term, net                            2,549,761                  10  %               2,332,422                  10  %
Multifamily, net                                    5,090,661                  20  %               4,051,202                  18  %
Construction & development, net                     1,036,931                   4  %                 890,338                   4  %
Residential development, net                          205,935                   1  %                 206,990                   1  %

Commercial

Term, net                                           3,003,424                  12  %               3,008,473                  13  %
Lines of credit & other, net                          914,507                   4  %                 910,733                   4  %
Leases & equipment finance, net                     1,669,817                   6  %               1,467,676                   7  %

Residential

Mortgage, net                                       5,470,624                  21  %               4,517,266                  20  %
Home equity loans & lines, net                      1,565,094                   6  %               1,197,170                   5  %
Consumer & other, net                                 154,771                   1  %                 184,023                   1  %
Total, net of deferred fees and costs      $       25,507,951                 100  %       $      22,553,180                 100  %



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Asset Quality and Non-Performing Assets

The following table summarizes our non-performing assets, TDR loans, ACL and asset quality ratios at September 30, 2022 and December 31, 2021:

        (dollars in thousands)                                     September 30, 2022         December 31, 2021
Loans and leases on non-accrual status
       Commercial real estate, net                                $           5,403          $          5,767
       Commercial, net                                                       18,652                    13,098
       Residential, net                                                           -                         -
       Consumer & other, net                                                      -                         -
       Total loans and leases on non-accrual status                          24,055                    18,865

Loans and leases 90 days or more past due and accrued

       Commercial real estate, net                                                1                         1
       Commercial, net                                                        5,143                     4,160
       Residential, net (1)                                                  21,411                    27,981
       Consumer & other, net                                                    152                       194

Total loans and leases past due 90 days or more and

       accruing (1)                                                          26,707                    32,336
Total non-performing loans and leases                                        50,762                    51,201
Other real estate owned                                                           -                     1,868
Total non-performing assets                                       $          50,762          $         53,069
Restructured loans (2)                                            $           7,076          $          6,694
Allowance for credit losses on loans and leases                   $         283,065          $        248,412
Reserve for unfunded commitments                                             11,853                    12,767
Allowance for credit losses                                       $         294,918          $        261,179
Asset quality ratios:
       Non-performing assets to total assets                                   0.16  %                   0.17  %
       Non-performing loans and leases to total loans and leases               0.20  %                   0.23  %
       Allowance for credit losses on loans and leases to total
       loans and leases                                                        1.11  %                   1.10  %
       Allowance for credit losses to total loans and leases                   1.16  %                   1.16  %
       Allowance for credit losses to total non-performing loans
       and leases                                                               581  %                    510  %


(1)Excludes government guaranteed GNMA mortgage loans that Umpqua has the right
but not the obligation to repurchase that are past due 90 days or more totaling
$1.0 million at September 30, 2022.
(2)Represents accruing TDR loans performing according to their restructured
terms.

A decline in the economic conditions and 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.

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Allowance for Credit Losses

The ACL totaled $294.9 million at September 30, 2022, an increase of
$33.7 million from December 31, 2021. The following table shows the activity in
the ACL for the three months ended September 30, 2022 and June 30, 2022, as well
as the nine months ended September 30, 2022 and 2021:
                                                              Three Months Ended                              Nine Months Ended
                                                     September 30,                                    September 30,       September 30,
(dollars in thousands)                                   2022             June 30, 2022                   2022                2021
Allowance for credit losses on loans and leases
Balance, beginning of period                         $  261,111          $     248,564                $  248,412          $  328,401

Allowance (recovery) for credit losses on loans and leases

                                                   28,542                 18,787                    53,025             (33,381)

Landfills

          Commercial real estate, net                         -                     (8)                       (8)             (1,086)
          Commercial, net                                (9,459)                (9,035)                  (26,352)            (44,228)
          Residential, net                                   (4)                     -                      (171)                (70)
          Consumer & other, net                            (929)                  (836)                   (2,650)             (2,983)
          Total charge-offs                             (10,392)                (9,879)                  (29,181)            (48,367)

Collections

          Commercial real estate, net                       123                     73                       221                 589
          Commercial, net                                 2,842                  2,934                     8,321               8,118
          Residential, net                                  249                    216                       638                 598
          Consumer & other, net                             590                    416                     1,629               1,602
          Total recoveries                                3,804                  3,639                    10,809              10,907

Net recoveries (debits)

          Commercial real estate, net                       123                     65                       213                (497)
          Commercial, net                                (6,617)                (6,101)                  (18,031)            (36,110)
          Residential, net                                  245                    216                       467                 528
          Consumer & other, net                            (339)                  (420)                   (1,021)             (1,381)
Total net charge-offs                                    (6,588)                (6,240)                  (18,372)            (37,460)
Balance, end of period                               $  283,065          $     261,111                $  283,065          $  257,560
Reserve for unfunded commitments
Balance, beginning of period                         $   12,823          $      12,918                $   12,767          $   20,286

(Recapture) allowance for credit losses on unfunded commitments

                                                (970)                   (95)                     (914)             (8,534)
Balance, end of period                                   11,853                 12,823                    11,853              11,752
Total allowance for credit losses                    $  294,918          $     273,934                $  294,918          $  269,312
As a percentage of average loans and leases
(annualized):
Net charge-offs                                            0.11  %                0.11  %                   0.10  %             0.23  %
Provision (recapture) for credit losses                    0.44  %                0.32  %                   0.29  %            (0.26) %
Recoveries as a percentage of charge-offs                 36.61  %               36.84  %                  37.04  %            22.55  %



The provision for credit losses includes the provision (recapture) for loan and
lease losses and the (recapture) provision for unfunded commitments. The
increase in the provision is due to organic loan growth as well as updates to
the 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 September 30, 2022 and December 31, 2021:
                                                   September 30, 2022                         December 31, 2021
                                                                 % Loans to                                % Loans to
 (dollars in thousands)                       Amount             total loans            Amount             total loans
Commercial real estate                     $   85,543                    50  %       $   99,075                    50  %
Commercial                                    151,600                    22  %          117,573                    24  %
Residential                                    41,138                    27  %           29,068                    25  %
Consumer & other                                4,784                     1  %            2,696                     1  %

Allowance for credit losses on loans and
leases                                     $  283,065                                $  248,412


The following table shows the evolution of the provision for credit losses
June 30, 2022 at September 30, 2022:

                                                                 Q3 2022 net
                                                                (charge-offs)                 Reserve              September 30,       % of Loan and leases
(dollars in thousands)                 June 30, 2022              recoveries              build/(release)              2022                outstanding
Commercial real estate                $      96,334          $             123          $          (5,557)         $   90,900                       0.71  %
Commercial                                  133,687                     (6,617)                    27,341             154,411                       2.76  %
Residential                                  39,321                        245                      4,611              44,177                       0.63  %
Consumer & Other                              4,592                       (339)                     1,177               5,430                       3.51  %
Total allowance for credit
losses                                $     273,934          $          (6,588)         $          27,572          $  294,918                       1.16  %
% of loans and leases
outstanding                                    1.12  %                                                                   1.16  %



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 third quarter
of 2022, the Bank used Moody's Analytics' August consensus economic forecast,
which shows a worsening economic situation from the forecast used in the prior
quarter. Key components include U.S. real GDP average annualized growth of 1.7%
in 2022, decreasing to 1.3% in 2023, 1.7% in 2024, and 1.9% in 2025, and an
average unemployment rate of 3.6% in 2022, 3.9% in 2023, 4.0% in 2024, and 3.9%
in 2025. The forecasted average federal funds rate is expected to be 3.2% in Q4
2022, 3.3% in 2023, 2.8% in 2024, and 2.6% in 2025. 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.

We believe that the ACL as of September 30, 2022 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, the Bank may need additional provisions for credit losses in future
periods.

Residential Mortgage Service Fees


The following table presents the changes in our residential MSR portfolio for
the three months ended September 30, 2022 and June 30, 2022, as well as the nine
months ended September 30, 2022 and 2021:
                                                            Three Months Ended                               Nine Months Ended
                                                   September 30,                                     September 30,       September 30,
 (in thousands)                                        2022              June 30, 2022                   2022                2021
Balance, beginning of period                       $  179,558          $      165,807                $  123,615          $   92,907
Additions for new MSR capitalized                       5,194                   7,813                    20,397              30,845

Changes in fair value:
Changes due to collection/realization of expected
cash flows over time                                   (4,978)                 (4,961)                  (15,286)            (13,592)
Changes due to valuation inputs or assumptions (1)     16,403                  10,899                    67,451              (4,326)
Balance, end of period                             $  196,177          $      179,558                $  196,177          $  105,834


(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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Table of Contents Information about our serviced residential loan portfolio
September 30, 2022 and December 31, 2021 was as follows: (dollars in thousands)

                   September 30, 2022       December 31, 2021
Balance of loans serviced for others    $       12,997,911       $      12,755,671
MSR as a percentage of serviced loans                 1.51  %               

0.97%




Residential MSR 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 MSR will increase as market
rates for mortgage loans rise and decrease if market rates fall. Mortgage rates
increased during the period and are expected to continue to rise, which has
caused prepayment speeds to slow.

Due to changes to inputs in the valuation model including changes in discount
rates and prepayment speeds, the fair value of the MSR asset increased by $16.4
million and $67.5 million for the three and nine months ended September 30,
2022, as compared to an increase of $10.9 million for the three months ended
June 30, 2022 and a decrease of $4.3 million for the nine months ended
September 30, 2021. The fair value of the MSR asset decreased by $5.0 million
and $15.3 million, due to the passage of time, including the impact of regularly
scheduled repayments, paydowns and payoffs during the three and nine months
ended September 30, 2022, as compared to a decrease of $5.0 million for the
three months ended June 30, 2022 and $13.6 million for the nine months ended
September 30, 2021.

Deposits

Total deposits were $26.8 billion at September 30, 2022, an increase of $222.4
million, as compared to December 31, 2021. The increase is mainly attributable
to growth in non-interest and interest bearing demand and savings accounts,
partially offset by decreases in time and money market deposits.

The following table presents the deposit balances by category at
September 30, 2022 and December 31, 2021:

                                    September 30, 2022                 December 31, 2021
 (dollars in thousands)              Amount              %             Amount              %
Non-interest bearing demand   $       11,246,358        42  %    $      11,023,724        41  %
Interest bearing demand                3,903,746        15  %            3,774,937        14  %
Money market                           7,601,506        28  %            7,611,718        29  %
Savings                                2,455,917         9  %            2,375,723         9  %
Time, greater than $250,000              410,199         2  %              480,432         2  %
Time, $250,000 or less                 1,199,381         4  %            1,328,151         5  %
Total deposits                $       26,817,107       100  %    $      26,594,685       100  %



The Company's total core deposits, which are deposits less time deposits greater
than $250,000 and all brokered deposits, were $26.3 billion at September 30,
2022, compared to $26.0 billion at December 31, 2021. The Company's brokered
deposits totaled $114.4 million at September 30, 2022, compared to $149.9
million at December 31, 2021.

Loans


At September 30, 2022, the Bank had outstanding securities sold under agreements
to repurchase of $383.6 million, a decrease of $108.7 million from December 31,
2021. The Bank had outstanding borrowings consisting of advances from the FHLB
of $756.2 million at September 30, 2022 and $6.3 million at December 31, 2021.
The increase was due to $750.0 million in short-term advances, which have fixed
rates ranging from 3.31% to 3.80% and are set to mature before the end of 2022.
The remaining advance has a fixed interest rate of 7.10% and matures in 2030.
Advances from the FHLB are secured by investment securities and loans secured by
real estate.
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Junior Subordinated Debentures

We had junior subordinated debentures with carrying values of $413.6 million and
$381.1 million at September 30, 2022 and December 31, 2021, respectively. The
increase is mainly due to the $31.8 million change in fair value for the junior
subordinated debentures elected to be carried at fair value, which is due to an
increase in the implied forward curve resulting in increased cash flows,
partially offset by an increase in the discount rate. As of September 30, 2022,
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. These instruments mature after June 2023, and we anticipate they will be
covered under pending federal legislation that will allow us to replace the
LIBOR index with SOFR under a safe-harbor provision.

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 maintaining a
sufficient on-balance sheet liquidity position to provide flexibility, to grow
deposit balances and fund growth in lending and investment portfolios, as well
as to deleverage non-deposit 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 current economic conditions, 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 manage 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% and 5% of total deposits at
September 30, 2022 and December 31, 2021, respectively. 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 $9.3 billion at
September 30, 2022, 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 $1.2 billion, 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 September 30, 2022.
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 $144.0 million of dividends
paid by the Bank to the Company in the nine months ended September 30, 2022.
There are statutory and regulatory provisions that limit the ability of the Bank
to pay dividends to the Company. FDIC and Oregon Division of Financial
Regulation approval is required for quarterly dividends from Umpqua Bank to the
Company.

As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash
provided by operating activities was $904.7 million during the nine months ended
September 30, 2022, 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 $1.8 billion, the increase in other liabilities of $248.4
million, and the decrease in other assets of $203.8 million, offset by
originations of loans held for sale of $1.6 billion. This compares to net cash
provided by operating activities of $541.5 million during the nine months ended
September 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 $4.1 billion, and the decrease in other assets of $161.1
million, offset by originations of loans held for sale of $3.9 billion, the gain
on sale of loans of $124.8 million, and the recapture of provision for loan and
lease losses of $41.9 million.

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Net cash of $2.8 billion used in investing activities during the nine months
ended September 30, 2022, consisted principally of net change in loans of $3.1
billion, purchases of available for sale investment securities of $175.7 million
and purchases of restricted equity securities of $164.3 million offset by
proceeds from available for sale investment securities of $328.7 million,
redemption of restricted equity securities of $134.3 million and the proceeds
from sales of loans and leases of $111.6 million. This compares to net cash of
$764.9 million used in investing activities during the nine months ended
September 30, 2021, consisted principally of purchases of available for sale
investment securities of $1.5 billion, and net loan originations of $85.5
million, offset by proceeds from available for sale investment securities of
$578.2 million and the proceeds from sales of loans and leases of $182.6
million.

Net cash of $723.0 million provided by financing activities during the nine
months ended September 30, 2022, primarily consisted of $750.0 million proceeds
from borrowings and $222.4 million net increase in deposit liabilities,
partially offset by $136.7 million of dividends paid on common stock and the net
decrease in securities sold under agreements to repurchase of $108.7 million.
This compares to net cash of $1.4 billion provided by financing activities
during the nine months ended September 30, 2021, primarily consisted of $2.3
billion net increase in deposits and the net increase in securities sold under
agreements to repurchase of $92.4 million, offset by $765.0 million repayment of
borrowings, $138.2 million of dividends paid on common stock, and the repurchase
and retirement of common stock of $80.7 million.

Although we expect the Bank's and the Company's liquidity positions to remain
satisfactory during 2022, it is possible that our deposit balances may not be
maintained at previous levels due to pricing pressure or customers' behavior in
the current economic environment. 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. We may utilize borrowings or other
funding sources, which are generally more costly than deposit funding, to
support our liquidity levels.

Off-balance sheet arrangements

Information regarding off-balance sheet arrangements is included in Note 6 of the Notes to the Condensed Consolidated Financial Statements.

Credit risk concentrations

Information regarding credit risk concentrations is included in note 6 of the notes to the condensed consolidated financial statements.

Capital resources


Shareholders' equity at September 30, 2022 was $2.4 billion. The decrease in
shareholders' equity during the nine months ended September 30, 2022 was
principally due to the other comprehensive loss, net of tax, of $451.3 million
and cash dividends paid of $137.4 million offset by net income of $253.8 million
during the period.

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 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. Umpqua agreed to refrain from paying quarterly cash dividends in
excess of the then-current level ($0.21 per share) at the time we entered into
the Merger Agreement.

On July 20, 2022, the Company declared a cash dividend in the amount of $0.21
per common share based on second quarter 2022 performance, which was paid on
August 15, 2022. The Company also declared a quarterly cash dividend, based on
third quarter 2022 performance, of $0.21 per common share, paid on October 28,
2022, to shareholders of record as of October 14, 2022.

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  Table of Contents
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 September 30, 2022 and June 30, 2022, and the nine
months ended September 30, 2022 and September 30, 2021:
                                                        Three Months Ended                      Nine Months Ended
                                             September 30, 2022         June 30, 2022               September 30, 2022          September 30, 2021
Dividend declared per common share          $           0.21           $       0.21                $           0.63            $           0.63
Dividend payout ratio                                     54   %                 58  %                           54    %                     42    %



In July 2021, the Company announced that its Board of Directors approved a share
repurchase program, which authorized the Company to repurchase up to $400
million of common stock 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 September 30, 2022, the
Company repurchased a total of $78.2 million in shares under the program. During
the nine months ended September 30, 2022, no shares were repurchased under the
program and the program expired July 31, 2022.

The Company halted repurchases, based on the announced merger with Columbia and
in accordance with the Merger Agreement. The timing and amount of future
repurchases would 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 award holders may pay for the exercise price and tax withholdings
in part or entirely by tendering previously held shares.


                                       67

————————————————– ——————————

Table of contents The following table presents the consolidated capital adequacy ratios of the Company and the Bank in relation to the minimum regulatory capital ratio and the minimum regulatory capital ratio necessary to qualify as a “well capitalized” institution. », as calculated according to the regulatory guidelines of Basel III to
September 30, 2022 and December 31, 2021:


                                              Actual                          For Capital Adequacy purposes                  To be Well Capitalized
  (dollars in thousands)           Amount                Ratio                 Amount                Ratio                Amount                 Ratio
September 30, 2022
Total Capital (to Risk Weighted Assets)
Consolidated                   $ 3,589,092                 13.18  %       $   2,177,922                 8.00  %       $  2,722,403                 10.00  %
Umpqua Bank                    $ 3,374,328                 12.40  %       $   2,177,601                 8.00  %       $  2,722,002                 10.00  %
Tier I Capital (to Risk Weighted Assets)
Consolidated                   $ 2,895,554                 10.64  %       $   1,633,442                 6.00  %       $  2,177,922                  8.00  %
Umpqua Bank                    $ 3,131,788                 11.51  %       $   1,633,201                 6.00  %       $  2,177,601                  8.00  %
Tier I Common (to Risk Weighted Assets)
Consolidated                   $ 2,895,554                 10.64  %       $   1,225,081                 4.50  %       $  1,769,562                  6.50  %
Umpqua Bank                    $ 3,131,788                 11.51  %       $   1,224,901                 4.50  %       $  1,769,301                  6.50  %
Tier I Capital (to Average
Assets)
Consolidated                   $ 2,895,554                  9.35  %       $   1,238,774                 4.00  %       $  1,548,467                  5.00  %
Umpqua Bank                    $ 3,131,788                 10.11  %       $   1,239,024                 4.00  %       $  1,548,780                  5.00  %
December 31, 2021
Total Capital (to Risk Weighted Assets)
Consolidated                   $ 3,429,047                 14.26  %       $   1,923,934                 8.00  %       $  2,404,917                 10.00  %
Umpqua Bank                    $ 3,085,848                 12.83  %       $   1,924,015                 8.00  %       $  2,405,019                 10.00  %
Tier I Capital (to Risk Weighted Assets)
Consolidated                   $ 2,785,794                 11.58  %       $   1,442,950                 6.00  %       $  1,923,934                  8.00  %
Umpqua Bank                    $ 2,893,593                 12.03  %       $   1,443,011                 6.00  %       $  1,924,015                  8.00  %
Tier I Common (to Risk Weighted Assets)
Consolidated                   $ 2,785,794                 11.58  %       $   1,082,213                 4.50  %       $  1,563,196                  6.50  %
Umpqua Bank                    $ 2,893,593                 12.03  %       $   1,082,258                 4.50  %       $  1,563,262                  6.50  %
Tier I Capital (to Average
Assets)
Consolidated                   $ 2,785,794                  9.01  %       $   1,236,265                 4.00  %       $  1,545,331                  5.00  %
Umpqua Bank                    $ 2,893,593                  9.36  %       $   1,236,518                 4.00  %       $  1,545,648                  5.00  %



In 2020, the federal bank regulatory authorities finalized a rule to provide
banking organizations that implemented CECL in 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 to
delay the estimated regulatory capital impact of adopting CECL, relative to the
incurred loss methodology's effect on regulatory capital. Currently, the Company
is beginning to phase out the cumulative adjustment as calculated at the end of
2021, by adjusting it by 75% through 2022, 50% in 2023, and 25% in 2024.

© Edgar Online, source Previews

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Quid Pro Quo of quantitative easing at the BoE, a politically toxic time bomb https://artbydepaola.com/quid-pro-quo-of-quantitative-easing-at-the-boe-a-politically-toxic-time-bomb/ Thu, 27 Oct 2022 10:40:06 +0000 https://artbydepaola.com/quid-pro-quo-of-quantitative-easing-at-the-boe-a-politically-toxic-time-bomb/ “This probably means that the taxpayer is responsible – big time”, – Rabobank. © Bank of England The unwinding of the Bank of England’s (BoE) quantitative easing (QE) programs begins in earnest in November and could have politically toxic implications for public finances which have so far largely slipped under the radar, with the risk […]]]>

“This probably means that the taxpayer is responsible – big time”, – Rabobank.

© Bank of England

The unwinding of the Bank of England’s (BoE) quantitative easing (QE) programs begins in earnest in November and could have politically toxic implications for public finances which have so far largely slipped under the radar, with the risk being that this drains tens of billions from the budget every year.

UK government finance and fiscal policy has risen to dominate the political conversation in recent weeks, so the costly quid pro quo of the UK Treasury’s arrangement with the Bank of England could attract more attention. Watch out as the quantitative tightening (QT) process gathers pace next month .

This will see the BoE start actively selling government bonds from a portfolio that had reached £875bn before the start of the quantitative tightening process in February with a decision not to reinvest £27.9bn. sterling of proceeds received as bonds held on its balance sheet matured in March.

“The cost of QT [quantitative tightening] is likely to be large. The blow to public finances is twofold. On the one hand, QT loses money because the Treasury takes the losses from the BoE when gilts are sold for less than paid,” says Imogen Bachra, head of UK rates strategy at Natwest Markets.

“On the other hand, although the QE gilts are not being sold, the BoE is paying the discount rate on the reserves of around £900bn it has created to buy them. Plus the rate of discount increases, the more expensive those interest charges become,” Bachra and his colleagues said in a research briefing in early October.


Source: Natwest Markets. Click on the image for a closer inspection.


The BoE is aiming to reduce its balance sheet by around £80bn over the coming year, but this process will most likely see it sell bonds in a market where prices are lower than those paid during its various periods of quantitative easing.

This means that the BoE will have no choice but to book losses as a result of its accelerated quantitative tightening program and the catch for the UK Treasury is that the taxpayer will be responsible.

The UK Treasury bill for the currently planned sales is estimated at just over £11bn, or just over 0.5% of GDP, but that’s not the only way quantitative tightening will weigh on public finances in the years to come.

“While the actual cost will depend on the realized path of the discount rate, it likely means the taxpayer is on the hook – high time,” writes Stefan Koopman, senior macro strategist at Rabobank, in a research briefing the week. last.

“Even without the negative ‘stock’ effects of actively selling gilts at values ​​well below the purchase price, the negative ‘flow’ effect would be, roughly, an additional £20 billion a year at over the next two years,” he added. .


Source: Rabobank. Click on the image for a closer inspection.


The problem for HM Treasury is that as the BoE discount rate rises above its end-October level of 2.25%, the bank will have to pay the difference between that rising interest rate and the bond yield. of British state that it holds. its balance sheet.

This is likely to add to the book losses booked by the BoE and, as the bank is indemnified by the UK Treasury, against any losses arising from its quantitative easing activities, these additional losses will also have to be reimbursed from the Chancellor’s budget.

The exact cost of this is difficult for economists and analysts to estimate, as it will depend heavily on the increase in the Bank Rate and how the UK government bond market reacts to any further increases, although many consider the cost could exceed £20 billion. per year.

These costs are the quid pro quo for an arrangement that has benefited HM Treasury to the tune of £120 billion over the past decade when interest rates have remained low because the BoE has repaid the Exchequer all interest payments made in relation to debts held on the bank’s balance sheet.

“The rapid rise in the Bank Rate means that these payments to the Treasury are about to reverse. Interest paid on reserves will now exceed coupon interest income earned. It is uncertain to what extent – it depends both on how big and how fast the discount rate goes up, but also how fast the BoE reduces its holdings of gilts,” Natwest’s Bachra said recently.


Source: Natwest Markets. Click on the image for a closer inspection.


“The heatmap shows the cumulative net interest expense by the end of 2026 (in billions of pounds sterling) under different scenarios of discount rates and active sales,” she added in reference to the graph below. above.

The bill for more than a decade of QE is set to arrive at Her Majesty’s Treasury door just as the government seeks tens of billions in budget savings to put national finances on a more sustainable path .

This will in all likelihood require wider and deeper cuts in public spending, which could be politically toxic for an already struggling government.

Quantitative easing has been used repeatedly by the BoE over a period of more than a decade when its main monetary policy tool, the discount rate, was already at record highs and near lows. from zero and as part of an effort to ensure the economy delivers on the medium-term 2% inflation target.

It was a period in which inflation spent much of its time below the 2% target and involved purchases of what were mainly government bonds, although since then rising inflation rates forced the BoE and other central banks to reverse course and start tightening monetary policy.

So far, this has involved raising the Bank Rate from 0.1% to 2.25% and allowing the QE-induced expansion of its balance sheet to partially reverse by no longer reinvesting the money received from maturing bonds he holds.

]]>
BCV: Deep Discount May Present Opportunity (NYSE:BCV) https://artbydepaola.com/bcv-deep-discount-may-present-opportunity-nysebcv/ Sun, 23 Oct 2022 12:04:00 +0000 https://artbydepaola.com/bcv-deep-discount-may-present-opportunity-nysebcv/ Kanawat TH Written by Nick Ackerman, co-produced by Stanford Chemist. This article was originally published to members of the CEF/ETF Income Laboratory on October 21, 2022. Bancroft Fund (NYSE: BCV) is pushing towards its historically deep discount. It trades at a bigger discount than the average of the last decade. Either way, this is a […]]]>

Kanawat TH

Written by Nick Ackerman, co-produced by Stanford Chemist. This article was originally published to members of the CEF/ETF Income Laboratory on October 21, 2022.

Bancroft Fund (NYSE: BCV) is pushing towards its historically deep discount. It trades at a bigger discount than the average of the last decade. Either way, this is a fund that regularly trades at a discount. I suspect the distribution policy of this lower regular quarterly distribution fund with a big year-end to top off their minimum policy is to blame. Investors generally want high distributions all the time, even throughout the year.

In recent years it was starting to get rid of this discount when convertibles were doing well. Some of the convertible bonds that have been issued in recent years have zero or near zero yields. In a rapidly rising rate environment, this means that the bulk of returns should come from appreciation. Now that growth no longer matters to investors, the fund has struggled with collapsing asset prices.

For a longer-term investor, this could still present an opportunity, but it could take some time. Essentially, we are waiting for the Fed to get data that shows it can pivot and stop being aggressive. At this point, the current discount may or may not be available. An added benefit to the fund could be that as these convertible bonds mature, they should receive a par return to be reinvested in higher yielding investments once the portfolio begins to turn around.

Since we last hedged the fund, the discount had fallen from nearly 9% back then to just over 14% today. This is usually a natural occurrence in closed-end funds during times of volatility. As interest rates rise, the costs of leverage used by CEFs may also rise. This may therefore be a reason to reduce a CEF as well.

For BCV, however, they carry 5.375% Series A Cumulative Fixed Rate Preferred Shares (BCV.PA) as leverage. Although this is a high cost of capital, it is fixed, meaning there is no impact from the Fed’s rate hike.

However, this widening discount may explain some of the underperformance between the fund and the broader market since our last update. Of course, the S&P 500 is not a benchmark, but it can help provide context. Heavier allocations to more growth-oriented companies – those that would be able to find buyers over the past couple of years for their growth prospects – are another big driver of the kind of performance we’re seeing.

BCV performance since previous update

BCV performance since previous update (Looking for Alpha)

The basics

  • Z-score over 1 year: -1.29
  • Discount: 14.04%
  • Distribution yield: 7.74%
  • Expense ratio: 1.16%
  • Leverage: 22.04%
  • Assets under management: $142.36 million
  • Structure: Perpetual

BCV’s investment objectives are “…to provide income and the potential for capital appreciation; objectives which the Fund considers to be relatively equal over the long term.” Their approach is quite simple; they “operate as a closed-end, diversified management investment company and invest primarily in convertible securities…”

With BCV, we must always emphasize the small size of the fund. This can make it harder for large retail investors to take large positions – at least if one is trying to take a large position all at once. The average daily trading volume is approximately 12.5k per day. This would then also mean that the exit door is quite small when trying to exit a position as well.

In addition, the fund’s leverage ratio is now high. This has been a function of the declines we have seen in the fund since the start of the year. However, this is still a rather modest level of leverage, relatively speaking. As we touched on above, this is also fixed rate leverage, so no surprises on leverage costs are coming for this fund.

Performance – Significant Discount

One of the most interesting prospects for this fund, and the main reason to focus on CEFs, is the fund’s discount. At this current level, we are now trading at a deeper average discount than seen over the past decade. Of course, we can see that a 16% discount around 2013 to 2016 was quite widespread. In the COVID Crash, we even see the usual discount spike we’ve seen from so many other funds.

Chart

Y-Charts

The last decade may not be the most appropriate period, given the new interest rate regime. Luckily, BCV is an old fund, and we can see a bit of history through the 90s and exactly where the average discount was at that time.

Chart

Y-Charts

Of course, they were coming out of higher interest rates in the 80s. Presumably, the convertible bonds they held then were still yielding significant rates at that time. So it’s not a perfect comparison, but it can provide a bit more context behind the fund and how it has traded even in decades other than the last decade. Below is a table of effective federal funds rates. I think this just underlines that no time period is really the same.

Chart

Y-Charts

For historical annualized comparisons, the fund has performed well against the benchmarks it has selected. Of course, last year it meant really bad results. In the longer term, the results are comparable. Again, equities have performed well over the past decade to contribute to these results.

BCV annualized returns

BCV annualized returns (Gabelle)

Distribution – 5% minimum policy

One of BCV’s operating methods is this minimum distribution policy. Several of the Gabelli funds operate with this approach. For BCV, this is a minimum 5% policy that it will distribute annually to investors. Sometimes it’s much higher, but it’s the lowest. It is achieved through generally smaller quarterly distributions and then a longer year-end.

BCV distribution history

BCV distribution history (CEFConnect)

On that date, the share price payout rate was 7.74%, with an NAV rate of 6.66%. Therefore, we have already exceeded this minimum policy at this time. This could mean that unless there is a clear rebound or they make some big gains that they have to pay for, the minimum could already be hit.

Given that their latest available semi-annual report shows that they have not covered the distribution to shareholders, this suggests that having too many realized gains will not be a problem this year. That being said, this period also reflects the large year-end payment of the previous year.

At $2.85 and approximately 5,517,786 shares outstanding at the end of October 2021, that would represent a significant $15.726 million of the $19.375 million paid out. An adjustment for this big year-end would suggest that the capital gains covered the regular payment.

The low net investment income reflects the low yield of convertible bonds.

BCV half-year report

BCV half-year report (Gabelle)

All this could suggest that no end of the year could arrive. At the same time, the declines also make the current distribution that would have been considered low before, more attractive.

BCV portfolio

BCV is not only a pure-play convertible fund, but it is strongly oriented towards convertibles. The breakdown in the latest holdings report was: 84.5% convertible corporate bonds, 0.3% convertible preferred stock, 11% convertible mandatory, 2.8% common stock and 1.4% in US government bonds. Overall, the portfolio is more skewed towards technology-focused sectors such as “IT software and services”, which is the largest industry.

BCV sector exposure

BCV sector exposure (Gabelle)

By looking at the top positions, we can better understand the types of holdings they hold, as well as the paltry returns. Ridiculous returns at the moment, as companies could previously sell convertibles on these types of terms. With current interest rates, this is not the case.

BCV Top Ten Holdings

BCV Top Ten Holdings (Gabelle)

Right in the top ten, we note that the BCV holds a Ford convertible bond (F) with a coupon of 0%. We also have Perficient, Inc. (PRFT) at 0.125% and Lumentum Holdings (LITE) at 0.5%. Most investors are probably pretty sure about Ford’s business; they produce at least two vehicles per year (1.9 million vehicles in 2021, which was a drop due to supply chain issues.)

PRFT is a technology company that provides digital consulting services and solutions. LITE is a technology company that manufactures and sells optical and photonic products worldwide.

Although I am a shareholder of Ford, the share price has obviously not performed well, and this has an impact on the valuation of the underlying convertible held by BCV. Here is the performance of the share price over the last year of these.

Chart

Y-Charts

At the end of April 30, 2022, the cost of the bonds was $3,844,711, with a market value of $3,732,750. Unfortunately, the principal amount is only $3.5 million. Since that time, the value of these would have fallen further.

On the other hand, the Perficient cost was $3,643,519 with a market value of $3,238,125 and a principal amount of $3.75 million. The good news here is that this means there is still an advantage if held to maturity at the end of 2026. Unfortunately, there isn’t much of an advantage over the cost of the fund. Given the length of time the fund has held this position, unless the stock goes up again, it could mean that little return has been generated. It is certainly possible, but it seems unlikely in the current context.

While this is an example of a convertible not maturing until 2026, other holdings expire earlier in 2023 and 2024. When these do, they have a good chance of returning that principal. to work in higher yielding instruments, or we could be out of this bear market. It would also help the fund as stock prices appreciate.

Conclusion

Heading into 2022, BCV and other convertible funds found that their portfolios were paring much of the gains they had seen in previous years when convertibles were booming. They were booming because growth was taking off. Now that has reversed and growth is no longer in fashion, with interest rates rising significantly. While that doesn’t mean there’s no more pain ahead, it’s starting to look attractive as holdings drop below face value.

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British pensions did not understand what they were buying https://artbydepaola.com/british-pensions-did-not-understand-what-they-were-buying/ Fri, 21 Oct 2022 06:38:38 +0000 https://artbydepaola.com/british-pensions-did-not-understand-what-they-were-buying/ Comment this story Comment I have no memory of former British Prime Minister Liz Truss or her government. But given the government’s collapse, it’s worth asking whether the apparent pension crisis that led to all this scandal was actually caused by these proposed tax cuts. As far as I know, the answer is no. It […]]]>

Comment

I have no memory of former British Prime Minister Liz Truss or her government. But given the government’s collapse, it’s worth asking whether the apparent pension crisis that led to all this scandal was actually caused by these proposed tax cuts. As far as I know, the answer is no. It was only the denouement of a drama that had been unfolding for months and the script written by governments, pension fund managers, companies and regulators of all political persuasions for many years. Despite all the headlines to the contrary, it’s worth pointing out that the fallout in financial markets was a liquidity crisis, not a solvency crisis. Although the former could quickly turn into the latter and the Bank of England was right to intervene, the recent problems in pensions and the markets have ironically arisen because their health has improved considerably.

There have been two underlying problems for corporate defined benefit pension funds. The first is that companies don’t want them because they increase earnings volatility and have been underfunded for many years, often requiring a cash injection. The second is that successive governments have used pensions as a piggy bank. Between the removal of the dividend tax break in 1997 and the announcement of a 2020 change in the calculation of inflation for inflation-linked bonds to a method that suppressed reported inflation numbers, the government was very happy to stuff savers, pension funds included, with quantitative easing. The result was that falling long-term interest rates massively increased the present value of pension fund liabilities.

Hence the resumption of investments based on the liabilities of pension funds. The idea was simple: in addition to asking companies for more funds to make up for any lack of funding, pension funds were borrowing money to buy assets. From an actuarial and regulatory point of view, the assets they needed were various combinations of very long-term bonds, mainly conventional government debt and inflation-linked bonds (called linkers in the UK). Pension funds typically only compensate pensioners for inflation below 5%. This still gives them a potentially significant responsibility. Hence the huge demand for linkers.

Frankly, I’m not convinced that anyone – fund managers, trustees, consultants, regulators, companies or the wave of large and small investors who thought it was a good way to hedge against rising inflation – knew what he was buying. One clue is that investors were picking up long-term linkers even when real returns were extremely negative. Yields bottomed late last year when the real yield on five-year bonds fell below minus 4% and that on 30-year bonds fell below minus 2.5%.

Let me explain to you why this is absolutely insane. Using this last example, this means that investors pay the government 2.5% every year for 30 years to receive this payment from inflation. But they don’t really get the rate of inflation in return, at least not initially. That is not how these bonds work. What they get is the bond’s coupon rate plus, very roughly, the last reading of the inflation index divided by the inflation index at the time the bond was issued. What they also likely get is an increase in the face value of the bonds by an amount that also depends on this inflation index ratio. (In the US, holders of TIPS, the equivalent of flashcarts, do not benefit from the coupon adjustment, but they do have some downside protection, since TIPS are redeemed at par).

This causes some problems. When coupons and real yields are very low, the performance of the inflation-linked bond will be dominated by long-term interest rates — and the duration of inflation-linked bonds is very high. (Duration is simply a much more accurate way than maturity of seeing how well a bond’s price responds to a change in interest rates. The longer the duration, the more they fluctuate.) Even after the huge sale, the current duration of the iShares UK index fund, for example, is the same as that of a 20-year UK government bond. And when you start with roughly zero inflation, a sharp rise in inflation will have a huge impact on the assumed inflation rate at the time of repayment. This is why higher inflation actually leads to greater supply. In English, more obligations.

As a result, the initial pension fund portfolios were both incredibly valued and leveraged, which is generally not a lucrative proposition. Still, given pressure from administrators and regulators to improve funding levels, this should come as no surprise. But while the rise in longer-term yields quickly improved pension funding positions, it also meant that the leverage they had applied to their bond portfolios meant they suddenly had too much money. obligations. This meant they had to sell. It’s not too difficult with normal gilts. But who do they sell linkers to? Pension funds are pretty much the ones that set prices in the inflation-indexed market on both sides of the pond. Since they’ve all been in the same boat, there really wasn’t anyone to fill the void, so the sale spawned more sales until the Bank of England showed up.

Besides the perils of ignorance, three things flow from this saga. The first is that the acute phase of the pension problem can turn into a chronic phase. Inflation shows no signs of abating. Both short-term and long-term interest rates are headed higher, meaning even more adjustments in repo bond portfolios (read: sell). Also, I can’t help but think that rational people would cash in their pensions, which means less money for pensions to invest and even more to sell. That 5% inflation cap now looks very meager compared to buying inflation-linked bonds outright. Linkers have gone down so much that you can now buy them with positive real returns and until 2030 you get the highest RPI.

Which brings us to the third point. While many will object that the markets believe inflation will fall dramatically, there’s a pretty good reason why market expectations have told you next to nothing about where inflation is headed. These inflation expectations on the markets are called the equilibrium rate. They are simply the yield of, say, a normal 10-year bond minus the actual yield of the inflation-linked bond. If aggregate bond yields are suppressed by all the things I’ve talked about before, and real yields have risen, equilibrium rates will fall by definition – and therefore can’t tell you anything interesting about future inflation .

More from Bloomberg Opinion:

Gilts Care More About Supply Than Tenant #10: Marcus AshworthTories Belly Up to the Last Chance Saloon: Therese Raphael

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Richard Cookson was Head of Research and Fund Manager at Rubicon Fund Management. Previously, he was Chief Investment Officer at Citi Private Bank and Head of Asset Allocation Research at HSBC.

More stories like this are available at bloomberg.com/opinion

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The Kingdom’s first green bond is not accepted by the government https://artbydepaola.com/the-kingdoms-first-green-bond-is-not-accepted-by-the-government/ Sun, 16 Oct 2022 13:12:43 +0000 https://artbydepaola.com/the-kingdoms-first-green-bond-is-not-accepted-by-the-government/ Phnom Penh’s VTrust Tower – owned by GT – received Cambodia’s first EDGE (Excellence in Design for Greater Efficiencies) green building certification for commercial office projects by the IFC on October 8. Photo provided The government has agreed in principle to allow Golden Tree Co Ltd (GT) to list a “green bond” of around $3 […]]]>

Phnom Penh’s VTrust Tower – owned by GT – received Cambodia’s first EDGE (Excellence in Design for Greater Efficiencies) green building certification for commercial office projects by the IFC on October 8. Photo provided

The government has agreed in principle to allow Golden Tree Co Ltd (GT) to list a “green bond” of around $3 million on the Cambodia Stock Exchange (CSX) which has been certified as compliant with the standards of the ASEAN, through a show CSX officials said they could run as soon as next month.

The Board of the Non-Banking Financial Services Authority (NBFSA) gave the nod in principle to GT on October 12, a week after CSX did the same. The company must now complete a set of formal issuance procedures, as specified by the Securities and Exchange Regulator of Cambodia (SERC).

The SERC commented in a statement that the green bond would be the first of its kind in the Kingdom and described GT as a veteran in areas such as commercial office space leasing, property management and real estate consultancy. .

CSX CEO Hong Sok Hour told the Post last week that the green bond is expected to carry a seven percent coupon rate and a five-year term. He also suggested that the debt security could be issued as early as November.

According to SERC Managing Director Sou Socheat, the green bond’s compliance with ASEAN standards and other eligibility requirements has been certified by the Asian Development Bank (ADB).

Socheat told the Post on Oct. 16 that the NBFSA’s decision clears the way for GT to continue the listing process, which he pointed out requires the company to issue notices of key dates.

“The issuance of green bonds represents the next step in the development of our securities industry, which means that from now on we will not only have ordinary bonds, but also green bonds in line with ASEAN principles.

“Once listed on the stock exchange, the company will receive the ASEAN Green Bond label, promoting its name throughout ASEAN,” he said in the statement, believing that the company would be better able to persuade investors. foreign players to invest in its future projects, or in the green sector in general.

On October 8, the International Finance Corporation (IFC), a member of the World Bank Group, awarded Cambodia’s first EDGE (Excellence in Design for Greater Efficiencies) green building certification for commercial office projects at VTrust Tower in Phnom Penh, which belongs to GT.

Speaking at the award ceremony, GT Executive Vice President Judy Tan said the international certification was a testament to her company’s dedication to aligning with the government to reduce CO2 emissions.

“Beyond environmental stewardship, GT is also committed to [the] ESG [environmental, social and governance] Standard. We would like to do more, continue to improve on the ESG issues that we and the industry as a whole are currently facing.

“We believe this initiative would help us design and implement long-term, sustainable policies that can support GT’s growth and strengthen our competitive advantages in terms of improving risk management, quality of service and operational excellence for our tenants, teammates, partners and all stakeholders,” she said.

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What are they and how you can buy them https://artbydepaola.com/what-are-they-and-how-you-can-buy-them/ Fri, 14 Oct 2022 01:57:33 +0000 https://artbydepaola.com/what-are-they-and-how-you-can-buy-them/ One of the easiest ways to keep your excess savings is to leave it in your bank savings account. But that may not give you enough returns to beat inflation in the long run, especially since some savings accounts may only give 0.05% interest per annum (pa). On the other hand, savings accounts with higher […]]]>


One of the easiest ways to keep your excess savings is to leave it in your bank savings account. But that may not give you enough returns to beat inflation in the long run, especially since some savings accounts may only give 0.05% interest per annum (pa).

On the other hand, savings accounts with higher interest rates, such as multiplier savings accounts, may not only give you less interest as you save more, but they may also make you jump through more hoops to get higher interest rates.

One option to get a higher return on your excess money is to invest in Singapore government-issued treasury bills. These debt securities allow you to earn a higher return depending on the current market environment.

Here’s what you need to know about treasury bills (T-bills) and how you can buy them in Singapore.

Also Read: Best Savings Accounts in Singapore – If You Don’t Want to Keep Jumping Through Hoops


Treasury Bills (T-Bills) are one of the four types of Singapore Government Securities (SGS)

Debt securities issued by the Singapore government are collectively known as Singapore Government Securities (SGS). These SGSs are considered safe investments as they are fully backed by the Singapore government, which has the highest credit rating granted by international credit rating agencies, meaning lower risk of default.

Rating agency Local currency Foreign currency
Moody’s Aaa Aaa
S&P AAA AAA
Fitch AAA AAA
R&I AAA AAA

Source: MAS

There are four types of SGS: Treasury Bills (T-bills), SGS Bonds, Singapore Savings Bonds (SSB) and Cash Management Treasury Bills (CMTB).

Treasury bills (T-bills) are short term bills which are offered either in a period of 6 months or 1 year. They are also called “zero coupon bonds” because they pay no interest during the life of the bond. Instead, they are sold at a discount to face valuewhich the investor will recover at its full value at maturity.

For example, if you successfully applied for $1,000 of one-year treasury bills at 2% interest per annum, you would only have to pay around $980. When the bond matures, you will receive the full lump sum of $1,000, which includes interest of $20.

Read also : [2022 Edition] Complete Guide to Buying Singapore Savings Bonds (SSB)

Treasury Bills (T-Bills) are issued to develop Singapore’s debt markets

Treasury bills and SGS (Market Development) bonds are issued by the government primarily to develop local debt markets. The issuance of these bonds responds to three main reasons.

The first is to create a liquid SGS market to provide a robust government yield curve as a benchmark for pricing private debt securities.

Second, it is about fostering the growth of an active secondary market for cash transactions and derivatives to enable effective risk management.

And the third reason is to bring domestic and foreign issuers and investors to participate in the Singapore bond market.

Characteristics of treasury bills

Treasury Bills (T-Bills) have their own unique characteristics, and here’s what you need to know.

Treasury bills can be purchased by institutions and individuals, including non-residents, over the age of 18.

The minimum investment amount in treasury bills is $1,000, with subsequent increases of $1,000. There is no maximum amount an individual can hold, but there are limits – up to $1 million in non-competitive bids – for each auction.

Treasury bills are sold using a uniform price auction method, which requires settlement within T+3 days.

Treasury bills and SGS bonds are sold using a uniform price auction method

Unlike the Singapore Savings Bond (SSB), which is based on a “cap quantity” format, SGS and T-bills are issued through a uniform price auction. The offers or applications selected will be distributed on a uniform basis, which is the highest yield accepted (or limit yield) competitive bids selected for auction.

When applying for treasury bills or SGS bonds, investors will have to choose between making a competitive or non-competitive offer.

Competitive offer vs non-competitive offer

A tender is the one that requires you to specify the price (to be expressed in terms of a percentage yield, up to two decimal places) that you are willing to pay for the SGS bonds or treasury bills. A lower yield represents a more competitive offer.

A non-competitive offer is one in which you do not need to specify a price and instead will be awarded SGS bonds or treasury bills at a uniform yield based on the results of competitive tenders. It might be a better choice for retail investors, who might not know enough to make a competitive offer.

Additionally, all non-competitive bids will be satisfied first, before the balance is then awarded to those who submitted competitive bids. You are more likely to get your award with a non-competitive bid.

Also Read: How Is The Interest Rate Derived For Singapore Savings Bonds (SSB) And Why Is It Rising?

Historical rates for 6-month and 1-year Treasury bills

Here’s a look at historic rates for 6-month treasury bills from September 2019 to September 2022. Short-term interest rates started to rise in 2022 when the U.S. Federal Reserve started raising rates of interest.

Here is an overview of historical rates for 1-year Treasury bills from September 2019 to September 2022. 1-year rates follow a similar path to 6-month interest rates.

The next issue of Treasury bonds will take place on:

ISIN code: SGXZ27657782
announcement date: October 19, 2022
Auction date: October 27, 2022
Date of issue: November 1, 2022
Tenor: 6 months

ISIN code: SGXZ52032836
announcement date: November 3, 2022
Auction date: November 10, 2022
Date of issue: November 15, 2022
Tenor: 6 months

Should you invest in treasury bonds?

Since individual investors can buy different types of bonds, here are some things to consider if you want to add treasuries to your portfolio.

Treasury bills are a safe short-term investment option that can be used for diversification of your investment portfolio. It allows you to receive a fixed interest payment At maturity.

However, investments in treasury bills or bonds can generally do not generate sufficient returns beat long-term inflation. Therefore, treasury bills should be considered together with your other assets rather than being the only investment choice.

Moreover, since interest rates are determined on the basis of a uniform price auction, there is no certainty about the interest rate that you will receive when applying for Treasury bonds. In the worst case, you may have to accept treasury bills bearing negative interest.

Finally, sell treasury bills before maturity can lead to losses because bond prices can fluctuate depending on the market interest rate environment.

Also read: 6 investments in Singapore that offer guaranteed capital and returns

How to Buy Treasury Bonds in Singapore

6-month treasury bills are issued every two weeks, while 1-year treasury bills are issued every three months. See the Auctions and Issuance Calendar for details on the latest treasury bill issues.

You can buy the treasury bills in cash, in funds from the Supplementary Retirement Scheme (SRS) or in funds from the CPFIS investment scheme. Here is the process using the three methods.

Cash requests

To buy treasury bills in cash, you need a bank account with one of the three local banks (DBS/POSB, OCBC and UOB). You will also need an Individual Central Deposit Account (CDP) with direct credit services enabled. This allows your coupon and principal payments to be credited directly to your bank account.

Once prepared, you can apply for the treasury bills through ATMs and online banking portals of local banks.

If successful, the transaction will be reflected on your CDP statement.

Also Read: Step by Step Guide to Open a CDP Account in Singapore

SRS requests

To buy T-bills using SRS, you need an SRS account with one of the three SRS operators (DBS/POSB, OCBC and UOB). After that, you can apply for T-bills through your SRS operator’s online banking portal.

If successful, the transaction would be reflected in statements issued by your SRS operator.

Also read: Step-by-step guide to opening your Supplementary Pension Plan (SRS) account

CPFIS requests

To buy treasury bills using CPFIS-OA investments, you would need a CPF investment account with one of the three CPFIS agent banks (DBS/POSB, OCBC and UOB). Unlike the options above, you will need to submit an application in person at any branch of the CPFIS bond brokers (DBS/POSB, OCBC and UOB) when purchasing using your CPFIS-OA account.

If successful, the transaction will be reflected on your CPFIS statement sent by your banking agent.

Also Read: 7 Types of Investments You Can Make Using Your CPF OA Funds Through CPFIS-OA

How to sell treasury bills in Singapore

If you need to sell your treasury bills before the maturity date, you can do so at any of the three local banks by visiting their main branches.

However, note that depending on market conditions, the price of SGS treasury bills may be higher or lower than what you paid.

Read also: 4 investments that naturally protect against inflation in Singapore

This article was first published on September 21, 2022 and has been updated with the latest information on treasury bills (T-bills).

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