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Fair Value Measurement | 3 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Fair Value Measurement The following table presents estimated fair values of the Company's financial instruments as of the dates presented, whether or not recognized or recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
|  |  | March 31, 2024 |  | December 31, 2023
(in thousands) | Level |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 1 |  | $ | 2,201,117 |  |  | $ | 2,201,117 |  |  | $ | 2,162,534 |  |  | $ | 2,162,534 |
Equity and other investment securities | 1,2 |  | 77,203 |  |  | 77,203 |  |  | 76,995 |  |  | 76,995 |
Investment securities available for sale | 1,2 |  | 8,616,545 |  |  | 8,616,545 |  |  | 8,829,870 |  |  | 8,829,870 |
Investment securities held to maturity | 3 |  | 2,247 |  |  | 2,939 |  |  | 2,300 |  |  | 3,025 |
Loans held for sale | 2 |  | 47,201 |  |  | 47,201 |  |  | 30,715 |  |  | 30,715 |
Loans and leases, net | 2,3 |  | 37,228,069 |  |  | 35,740,658 |  |  | 37,001,080 |  |  | 35,810,989 |
Restricted equity securities | 1 |  | 116,274 |  |  | 116,274 |  |  | 179,274 |  |  | 179,274 |
Residential mortgage servicing rights | 3 |  | 110,444 |  |  | 110,444 |  |  | 109,243 |  |  | 109,243 |
Bank-owned life insurance | 1 |  | 682,293 |  |  | 682,293 |  |  | 680,948 |  |  | 680,948 |
Derivatives | 2,3 |  | 114,763 |  |  | 114,763 |  |  | 38,085 |  |  | 38,085 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Demand, money market, and savings deposits | 1 |  | $ | 35,366,323 |  |  | $ | 35,366,323 |  |  | $ | 35,379,451 |  |  | $ | 35,379,451 |
Time deposits | 2 |  | 6,339,837 |  |  | 6,314,381 |  |  | 6,227,569 |  |  | 6,201,519 |
Securities sold under agreements to repurchase | 2 |  | 213,573 |  |  | 213,573 |  |  | 252,119 |  |  | 252,119 |
Borrowings | 2 |  | 3,900,000 |  |  | 3,893,589 |  |  | 3,950,000 |  |  | 3,950,037 |
Junior subordinated debentures, at fair value | 3 |  | 309,544 |  |  | 309,544 |  |  | 316,440 |  |  | 316,440 |
Junior and other subordinated debentures, at amortized cost | 3 |  | 107,838 |  |  | 98,867 |  |  | 107,895 |  |  | 97,695 |
Derivatives | 2,3 |  | 312,489 |  |  | 312,489 |  |  | 261,091 |  |  | 261,091 |
Fair Value of Assets and Liabilities Measured on a Recurring Basis The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of the periods presented:
(in thousands) | March 31, 2024
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |
Equity and other investment securities |  |  |  |  |  |  |
Investments in mutual funds and other securities | $ | 62,497 |  |  | $ | 44,038 |  |  | $ | 18,459 |  |  | $ | — |
Equity securities held in rabbi trusts | 14,706 |  |  | 14,706 |  |  | — |  |  | — |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury and agencies | 1,467,393 |  |  | 372,865 |  |  | 1,094,528 |  |  | — |
Obligations of states and political subdivisions | 1,051,929 |  |  | — |  |  | 1,051,929 |  |  | — |
Mortgage-backed securities and collateralized mortgage obligations | 6,097,223 |  |  | — |  |  | 6,097,223 |  |  | — |
Loans held for sale, at fair value | 47,201 |  |  | — |  |  | 47,201 |  |  | — |
Loans and leases, at fair value | 267,806 |  |  | — |  |  | 267,806 |  |  | — |
Residential mortgage servicing rights, at fair value | 110,444 |  |  | — |  |  | — |  |  | 110,444 |
Derivatives |  |  |  |  |  |  |
Interest rate lock commitments | 16 |  |  | — |  |  | — |  |  | 16 |
Interest rate forward sales commitments | 74 |  |  | — |  |  | 74 |  |  | — |
Interest rate swaps | 114,347 |  |  | — |  |  | 114,347 |  |  | — |
Foreign currency derivatives | 326 |  |  | — |  |  | 326 |  |  | — |
Total assets measured at fair value | $ | 9,233,962 |  |  | $ | 431,609 |  |  | $ | 8,691,893 |  |  | $ | 110,460 |
Financial liabilities: |  |  |  |  |  |  |
Junior subordinated debentures, at fair value | $ | 309,544 |  |  | $ | — |  |  | $ | — |  |  | $ | 309,544 |
Derivatives |  |  |  |  |  |  |
Interest rate futures | 1,134 |  |  | — |  |  | 1,134 |  |  | — |
Interest rate forward sales commitments | 188 |  |  | — |  |  | 188 |  |  | — |
Interest rate swaps | 310,985 |  |  | — |  |  | 310,985 |  |  | — |
Foreign currency derivatives | 182 |  |  | — |  |  | 182 |  |  | — |
Total liabilities measured at fair value | $ | 622,033 |  |  | $ | — |  |  | $ | 312,489 |  |  | $ | 309,544 |
(in thousands) | December 31, 2023
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |
Equity and other investment securities |  |  |  |  |  |  |
Investments in mutual funds and other securities | $ | 63,298 |  |  | $ | 44,839 |  |  | $ | 18,459 |  |  | $ | — |
Equity securities held in rabbi trusts | 13,697 |  |  | 13,697 |  |  | — |  |  | — |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury and agencies | 1,478,392 |  |  | 373,664 |  |  | 1,104,728 |  |  | — |
Obligations of states and political subdivisions | 1,072,105 |  |  | — |  |  | 1,072,105 |  |  | — |
Mortgage-backed securities and collateralized mortgage obligations | 6,279,373 |  |  | — |  |  | 6,279,373 |  |  | — |
Loans held for sale, at fair value | 30,715 |  |  | — |  |  | 30,715 |  |  | — |
Loans and leases, at fair value | 275,140 |  |  | — |  |  | 275,140 |  |  | — |
Residential mortgage servicing rights, at fair value | 109,243 |  |  | — |  |  | — |  |  | 109,243 |
Derivatives |  |  |  |  |  |  |
Interest rate futures | 3,745 |  |  | — |  |  | 3,745 |  |  | — |
Interest rate forward sales commitments | 9 |  |  | — |  |  | 9 |  |  | — |
Interest rate swaps | 33,874 |  |  | — |  |  | 33,874 |  |  | — |
Foreign currency derivatives | 457 |  |  | — |  |  | 457 |  |  | — |
Total assets measured at fair value | $ | 9,360,048 |  |  | $ | 432,200 |  |  | $ | 8,818,605 |  |  | $ | 109,243 |
Financial liabilities: |  |  |  |  |  |  |
Junior subordinated debentures, at fair value | $ | 316,440 |  |  | $ | — |  |  | $ | — |  |  | $ | 316,440 |
Derivatives |  |  |  |  |  |  |
Interest rate lock commitments | 137 |  |  | — |  |  | — |  |  | 137 |
Interest rate forward sales commitments | 535 |  |  | — |  |  | 535 |  |  | — |
Interest rate swaps | 260,064 |  |  | — |  |  | 260,064 |  |  | — |
Foreign currency derivatives | 355 |  |  | — |  |  | 355 |  |  | — |
Total liabilities measured at fair value | $ | 577,531 |  |  | $ | — |  |  | $ | 260,954 |  |  | $ | 316,577 |
The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above: Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report. Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. For loans not originated as held for sale, these loans are accounted for at lower of cost or market, with the fair value estimated based on the expected sales price. Loans and leases— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable-rate loans. The fair value of loans is calculated by discounting expected cash flows at rates at which similar loans are currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the portfolio. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. Residential Mortgage Servicing Rights— The fair value of MSR is estimated using a DCF model. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized are indicative of those that would be used by market participants. Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread. The credit risk adjusted spread represents the non-performance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction among market participants. Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement. Derivative Instruments— The fair value of the interest rate lock commitments, interest rate futures, and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a DCF technique incorporating credit valuation adjustments to reflect non-performance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2024, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap and futures derivative valuations in Level 2 of the fair value hierarchy. Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis as of March 31, 2024:
Financial Instrument |  | Fair Value (in thousands) |  | Valuation Technique |  | Unobservable Input |  | Range of Inputs |  | Weighted Average
Assets: |  |  |  |  |  |  |  |  |  |
Residential mortgage servicing rights |  | $ | 110,444 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 6.07% - 27.52% |  | 6.74%
|  |  |  |  |  | Discount rate |  | 9.50% - 16.08% |  | 10.24%
Interest rate lock commitments, net |  | $ | 16 |  |  | Internal pricing model |  | Pull-through rate |  | 64.27% - 100.00% |  | 85.71%
Liabilities: |  |  |  |  |  |  |  |  |  |
Junior subordinated debentures |  | $ | 309,544 |  |  | Discounted cash flow |  | Credit spread |  | 2.11% - 6.13% |  | 3.79%
Generally, increases in the constant prepayment rate or the discount rate utilized in the fair value measurement of the residential mortgage servicing rights will result in a decrease in fair value. Conversely, decreases in the constant prepayment rate or the discount rate will result in an increase in fair value. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate will result in a decrease in the fair value measurement. Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated debentures carried at fair value is indicative of the non-performance risk premium a willing market participant would require under current market conditions, which is an inactive market. Generally, an increase in the credit spread will result in a decrease in the estimated fair value. Conversely, a decrease in the credit spread will result in an increase in the estimated fair value. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the periods indicated:
| Three Months Ended |  | Three Months Ended
| March 31, 2024 |  | March 31, 2023
(in thousands) | Residential mortgage servicing rights |  | Interest rate lock commitments, net |  | Junior subordinated debentures, at fair value |  | Residential mortgage servicing rights |  | Interest rate lock commitments, net |  | Junior subordinated debentures, at fair value
Beginning balance | $ | 109,243 |  |  | $ | (137) |  |  | $ | (316,440) |  |  | $ | 185,017 |  |  | $ | 32 |  |  | $ | (323,639) |
Change included in earnings | (36) |  |  | (16) |  |  | (7,583) |  |  | (7,818) |  |  | (32) |  |  | (6,679) |
Change in fair values included in comprehensive income/loss | — |  |  | — |  |  | 6,453 |  |  | — |  |  | — |  |  | 25,812 |
Purchases and issuances | 1,237 |  |  | 47 |  |  | — |  |  | 1,601 |  |  | 338 |  |  | — |
Sales and settlements | — |  |  | 122 |  |  | 8,026 |  |  | — |  |  | (201) |  |  | 6,785 |
Ending balance | $ | 110,444 |  |  | $ | 16 |  |  | $ | (309,544) |  |  | $ | 178,800 |  |  | $ | 137 |  |  | $ | (297,721) |
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period | $ | 3,117 |  |  | $ | 16 |  |  | $ | (7,583) |  |  | $ | (2,937) |  |  | $ | 137 |  |  | $ | (6,679) |
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period | $ | — |  |  | $ | — |  |  | $ | 6,453 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,812 |
Changes in residential mortgage servicing rights carried at fair value are recorded in residential mortgage banking revenue within non-interest income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in residential mortgage banking revenue within non-interest income. The contractual interest expense on the junior subordinated debentures is recorded on an accrual basis as interest on junior subordinated debentures within interest expense. Settlements related to the junior subordinated debentures represent the payment of accrued interest that is embedded in the fair value of these liabilities. The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, unrealized gains on fair value of junior subordinated debentures of $6.5 million for the three months ended March 31, 2024, were recorded net of tax as other comprehensive gains of $4.8 million. Comparatively, unrealized gains on fair value of junior subordinated debentures of $25.8 million were recorded net of tax as other comprehensive gains of $19.1 million for the three months ended March 31, 2023. The change recorded for three months ended March 31, 2024 was due to an increase in the credit spread and spot curve, partially offset by an increase in the implied forward curve. Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis From time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral-dependent loans. The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.
| March 31, 2024
(in thousands) | Total |  | Level 1 |  | Level 2 |  | Level 3
Loans and leases | $ | 1,059 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,059 |
Total assets measured at fair value on a nonrecurring basis | $ | 1,059 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,059 |
| December 31, 2023
(in thousands) | Total |  | Level 1 |  | Level 2 |  | Level 3
Loans and leases | $ | 5,036 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,036 |
Total assets measured at fair value on a nonrecurring basis | $ | 5,036 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,036 |
The following table presents the losses resulting from nonrecurring fair value adjustments for the periods indicated:
|  |  | Three Months Ended
(in thousands) |  |  |  |  | March 31, 2024 |  | March 31, 2023
Loans and leases |  |  |  |  | $ | 28,174 |  |  | $ | 18,734 |
Total losses from nonrecurring measurements |  |  |  |  | $ | 28,174 |  |  | $ | 18,734 |
The following provides a description of the valuation technique and inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis. Unobservable inputs and qualitative information about the unobservable inputs are not presented as the fair value is determined by third-party information for loans and leases. The loans and leases amounts above represent collateral-dependent loans and leases that have been adjusted to fair value. When a loan or non-homogeneous lease is identified as collateral-dependent, the Bank measures the impairment using the current fair value of the collateral, less estimated selling costs. Depending on the characteristics of a loan or lease, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases the value of the collateral may be estimated as having little to no value. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is determined that the collateral has little to no value. If it is determined that the value of the collateral-dependent loan or lease is less than its recorded investment, the Bank recognizes this impairment and adjusts the carrying value of the loan or lease to fair value, less costs to sell, through the ACL. The loss represents charge-offs on collateral-dependent loans and leases for fair value adjustments based on the fair value of collateral. Fair Value Option The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of the dates presented:
| March 31, 2024 |  | December 31, 2023
(in thousands) | Fair Value |  | Aggregate Unpaid Principal Balance |  | Fair Value Less Aggregate Unpaid Principal Balance |  | Fair Value |  | Aggregate Unpaid Principal Balance |  | Fair Value Less Aggregate Unpaid Principal Balance
Loans held for sale | $ | 47,201 |  |  | $ | 45,926 |  |  | $ | 1,275 |  |  | $ | 30,715 |  |  | $ | 29,629 |  |  | $ | 1,086 |
Loans | $ | 267,806 |  |  | $ | 315,435 |  |  | $ | (47,629) |  |  | $ | 275,140 |  |  | $ | 320,397 |  |  | $ | (45,257) |
The Bank elected to measure certain residential mortgage loans held for sale under the fair value option, with interest income on these loans held for sale reported in interest and fees on loans and leases on the Condensed Consolidated Statements of Operations. This reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking revenue. For the three months ended March 31, 2024, the Company recorded a net increase in fair value of $189,000. For the three months ended March 31, 2023, the Company recorded a net increase in fair value of $81,000. Management's intent to sell certain residential mortgage loans classified as held for sale may change over time due to factors including changes in overall market liquidity or changes in characteristics specific to certain loans held for sale. Consequently, these loans may be reclassified as loans held for investment and maintained in the Bank's loan portfolio. In the event that loans currently classified as held for sale are reclassified as loans held for investment, the loans will continue to be measured at fair value. Gains and losses from changes in fair value for these loans are reported in earnings as a component of other income and interest income on these loans are reported in interest and fees on loans and leases on the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2024, the Company recorded a net decrease in fair value of $2.4 million, as compared to a net increase in fair value of $9.5 million for the three months ended March 31, 2023, respectively. The Company selected the fair value measurement option for certain junior subordinated debentures originally issued by UHC prior to the Merger (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired by UHC from Sterling Financial Corporation prior to the Merger, with changes in fair value recognized as a component of other comprehensive income. The remaining junior subordinated debentures were acquired through business combinations and were measured at fair value at the time of acquisition and subsequently measured at amortized cost.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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