XML 30 R18.htm IDEA: XBRL DOCUMENT

Fair Value Measurement

9 Months Ended

Sep. 30, 2021

The following table presents estimated fair values of the Company's financial instruments as of September 30, 2021 and December 31, 2020, whether or not recognized or recorded at fair value in the Condensed Consolidated Balance Sheets:


		September 30, 2021				December 31, 2020
(in thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	3,744,589	$	3,744,589	$	2,573,181	$	2,573,181
Equity and other investment securities	1,2	81,575		81,575		83,077		83,077
Investment securities available for sale	2	3,723,171		3,723,171		2,932,558		2,932,558
Investment securities held to maturity	3	2,795		3,581		3,034		3,883
Loans held for sale	2	352,466		352,466		766,225		766,225
Loans and leases, net	2,3	21,712,380		21,853,775		21,450,966		21,904,189
Restricted equity securities	1	10,946		10,946		41,666		41,666
Residential mortgage servicing rights	3	105,834		105,834		92,907		92,907
Bank owned life insurance	1	325,646		325,646		323,470		323,470
Derivatives	2,3	210,688		210,688		342,510		342,510
Financial liabilities:
Deposits	1,2	$	26,908,397	$	26,911,910	$	24,622,201	$	24,641,876
Securities sold under agreements to repurchase	2	467,760		467,760		375,384		375,384
Borrowings	2	6,367		7,160		771,482		774,586
Junior subordinated debentures, at fair value	3	299,508		299,508		255,217		255,217
Junior subordinated debentures, at amortized cost	3	88,098		76,686		88,268		67,425
Derivatives	2	9,661		9,661		8,782		8,782

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 September 30, 2021 and December 31, 2020:


(in thousands)	September 30, 2021
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	69,157	$	51,820	$	17,337	$	—
Equity securities held in rabbi trusts	12,418		12,418		—		—

Investment securities available for sale
U.S. Treasury and agencies	838,977		—		838,977		—
Obligations of states and political subdivisions	283,409		—		283,409		—
Residential mortgage-backed securities and collateralized mortgage obligations	2,600,785		—		2,600,785		—

Loans held for sale, at fair value	352,466		—		352,466		—
Loans and leases, at fair value	353,912		—		353,912		—
Residential mortgage servicing rights, at fair value	105,834		—		—		105,834
Derivatives
Interest rate lock commitments	8,258		—		—		8,258
Interest rate forward sales commitments	3,367		—		3,367		—
Interest rate swaps	198,607		—		198,607		—
Foreign currency derivative	456		—		456		—
Total assets measured at fair value	$	4,827,646	$	64,238	$	4,649,316	$	114,092
Financial liabilities:
Junior subordinated debentures, at fair value	$	299,508	$	—	$	—	$	299,508
Derivatives
Interest rate forward sales commitments	374		—		374		—
Interest rate swaps	8,944		—		8,944		—
Foreign currency derivative	343		—		343		—
Total liabilities measured at fair value	$	309,169	$	—	$	9,661	$	299,508


(in thousands)	December 31, 2020
Description	Total		Level 1		Level 2		Level 3
Financial assets:
Equity and other investment securities

Investments in mutual funds and other securities	$	70,203	$	52,866	$	17,337	$	—
Equity securities held in rabbi trusts	12,814		12,814		—		—
Other investments securities (1)	60		—		60		—
Investment securities available for sale
U.S. Treasury and agencies	762,202		—		762,202		—
Obligations of states and political subdivisions	279,511		—		279,511		—
Residential mortgage-backed securities and collateralized mortgage obligations	1,890,845		—		1,890,845		—

Loans held for sale, at fair value	688,079		—		688,079		—
Residential mortgage servicing rights, at fair value	92,907		—		—		92,907
Derivatives
Interest rate lock commitments	28,144		—		—		28,144
Interest rate forward sales commitments	7		—		7		—
Interest rate swaps	313,090		—		313,090		—
Foreign currency derivative	1,269		—		1,269		—
Total assets measured at fair value	$	4,139,131	$	65,680	$	3,952,400	$	121,051
Financial liabilities:
Junior subordinated debentures, at fair value	$	255,217	$	—	$	—	$	255,217
Derivatives
Interest rate forward sales commitments	7,257		—		7,257		—
Interest rate swaps	370		—		370		—
Foreign currency derivative	1,155		—		1,155		—
Total liabilities measured at fair value	$	263,999	$	—	$	8,782	$	255,217

(1) Other investment securities includes securities held by Umpqua Investments as trading debt securities.

The following methods were used to estimate the fair value of each class of financial instrument that is carried at fair value in the tables above:

Securities— Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available. Management periodically reviews the pricing information received from the third-party pricing service and compares it to a secondary pricing service, evaluating significant price variances between services to determine an appropriate estimate of fair value to report.

Loans Held for Sale— Fair value for residential mortgage loans originated as held for sale is determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights.

Loans and leases— Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates 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. As of September 30, 2021, there were $353.9 million in mortgage loans recorded at fair value as they were previous transferred from held for sale to loans held for investment.

Residential Mortgage Servicing Rights— The fair value of the MSRs is estimated using a discounted cash flow model. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized are indicative of those that would be used by market participants.

Junior Subordinated Debentures— The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The Company periodically utilizes a valuation firm to determine or validate the reasonableness of inputs and factors that are used to determine the fair value. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.

Derivative Instruments— The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2021, the Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at September 30, 2021:


Financial Instrument	Fair Value (in thousands)		Valuation Technique	Unobservable Input	Range of Inputs	Weighted Average
Residential mortgage servicing rights	$	105,834	Discounted cash flow
				Constant prepayment rate	8.20% - 72.17%	16.21%
				Discount rate	9.50% - 12.50%	9.69%
Interest rate lock commitments	$	8,258	Internal pricing model
				Pull-through rate	70.00% - 100.00%	88.03%
Junior subordinated debentures	$	299,508	Discounted cash flow
				Credit spread	1.57% - 4.42%	3.46%

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 nonperformance risk premium a willing market participant would require under current market conditions, which is an inactive market. Generally, an increase in the credit spread will result in a decrease in the estimated fair value. Conversely, a decrease in the credit spread will result in an increase in the estimated fair value.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended						Three Months Ended
	September 30, 2021						September 30, 2020
(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	$	102,699	$	13,210	$	287,723	$	96,356	$	25,537	$	232,936

Change included in earnings	(5,315)		1,301		2,344		(17,122)		3,723		2,536
Change in fair values included in comprehensive income/loss	—		—		11,946		—		—		14,555
Purchases and issuances	8,450		16,007		—		14,014		55,854		—
Sales and settlements	—		(22,260)		(2,505)		—		(56,275)		(2,982)
Ending balance	$	105,834	$	8,258	$	299,508	$	93,248	$	28,839	$	247,045
Change in unrealized gains or losses for the period included in earnings for assets and liabilities held at end of period	$	(634)	$	8,258	$	2,344	$	(12,244)	$	28,839	$	2,536
Change in unrealized gains or losses for the period included in other comprehensive income for assets and liabilities held at end of period	$	—	$	—	$	11,946	$	—	$	—	$	14,555

	Nine Months Ended						Nine Months Ended
	September 30, 2021						September 30, 2020
(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	$	92,907	$	28,144	$	255,217	$	115,010	$	7,056	$	274,812

Change included in earnings	(17,918)		199		7,087		(59,246)		10,946		9,509
Change in fair values included in comprehensive income/loss	—		—		44,504		—		—		(26,857)
Purchases and issuances	30,845		67,730		—		37,484		130,862		—
Sales and settlements	—		(87,815)		(7,300)		—		(120,025)		(10,419)
Ending Balance	$	105,834	$	8,258	$	299,508	$	93,248	$	28,839	$	247,045
Change in unrealized gains or losses for the period included in earnings for assets held at end of period	$	(4,326)	$	8,258	$	7,087	$	(43,997)	$	28,839	$	9,509
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at end of period	$	—	$	—	$	44,504	$	—	$	—	$	(26,857)

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

The change in fair value of junior subordinated debentures is attributable to the change in the instrument specific credit risk; accordingly, the unrealized losses on fair value of junior subordinated debentures of $11.9 million and $44.5 million for the three and nine months ended September 30, 2021, are recorded net of tax as an other comprehensive loss of $8.9 million and $33.1 million, respectively. Comparatively, unrealized losses of $14.6 million and unrealized gains of $26.9 million were recorded net of tax as an other comprehensive loss of $10.8 million and other comprehensive income of $20.0 million, respectively, for the three and nine months ended September 30, 2020.

Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

From time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment, typically on collateral dependent loans. The following tables present information about the Company's assets and liabilities measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported upon.


	September 30, 2021
(in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases	$	5,835	$	—	$	—	$	5,835


Total assets measured at fair value on a nonrecurring basis	$	5,835	$	—	$	—	$	5,835


	December 31, 2020
(in thousands)	Total		Level 1		Level 2		Level 3



Loans and leases	$	8,231	$	—	$	—	$	8,231

Total assets measured at fair value on a nonrecurring basis	$	8,231	$	—	$	—	$	8,231

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


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020



Loans and leases	$	8,470	$	14,797	$	43,480	$	53,336
Goodwill impairment	—		—		—		1,784,936
Total loss from nonrecurring measurements	$	8,470	$	14,797	$	43,480	$	1,838,272

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

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

The loans and leases amounts above represent collateral dependent loans and leases that have been adjusted to fair value. When a loan or non-homogeneous lease is identified as collateral dependent, the Bank measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan or lease, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little to no value. When a homogeneous lease or equipment finance agreement becomes 181 days past due, it is determined that the collateral has little to no value. If it is determined that the value of the collateral dependent loan or lease is less than its recorded investment, the Bank recognizes this impairment and adjusts the carrying value of the loan or lease to fair value, less costs to sell, through the allowance for credit losses. The loss represents charge-offs on collateral dependent loans and leases for fair value adjustments based on the fair value of collateral.

Fair Value Option

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale and loans held for investment accounted for under the fair value option as of September 30, 2021 and December 31, 2020:


	September 30, 2021						December 31, 2020
(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	$	352,466	$	340,670	$	11,796	$	688,079	$	654,555	$	33,524
Loans	$	353,912	$	340,664	$	13,248	$	—	$	—	$	—

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a component of residential mortgage banking revenue. For the three and nine months ended September 30, 2021, the Company recorded net decreases in fair value of $4.5 million and $13.5 million, respectively. For the three and nine months ended September 30, 2020, the Company recorded a net increase in fair value of $2.2 million and $16.5 million, respectively.

Certain residential mortgage loans were initially originated for sale and initially measured at fair value; after origination, the loans were transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of other income. For the three and nine months ended September 30, 2021, the Company recorded a net increase in fair value of $3.4 million and $5.7 million, respectively.

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

- 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 + Details