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Fair Value Measurement
3 Months Ended
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, 2024December 31, 2023
 (in thousands)LevelCarrying ValueFair ValueCarrying ValueFair Value
Financial assets:    
Cash and cash equivalents1$2,201,117 $2,201,117 $2,162,534 $2,162,534 
Equity and other investment securities1,277,203 77,203 76,995 76,995 
Investment securities available for sale1,28,616,545 8,616,545 8,829,870 8,829,870 
Investment securities held to maturity32,247 2,939 2,300 3,025 
Loans held for sale247,201 47,201 30,715 30,715 
Loans and leases, net
2,337,228,069 35,740,658 37,001,080 35,810,989 
Restricted equity securities1116,274 116,274 179,274 179,274 
Residential mortgage servicing rights3110,444 110,444 109,243 109,243 
Bank-owned life insurance1682,293 682,293 680,948 680,948 
Derivatives2,3114,763 114,763 38,085 38,085 
Financial liabilities:    
Demand, money market, and savings deposits1$35,366,323 $35,366,323 $35,379,451 $35,379,451 
Time deposits26,339,837 6,314,381 6,227,569 6,201,519 
Securities sold under agreements to repurchase2213,573 213,573 252,119 252,119 
Borrowings23,900,000 3,893,589 3,950,000 3,950,037 
Junior subordinated debentures, at fair value3309,544 309,544 316,440 316,440 
Junior and other subordinated debentures, at amortized cost3107,838 98,867 107,895 97,695 
Derivatives2,3312,489 312,489 261,091 261,091 
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
DescriptionTotalLevel 1Level 2Level 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 trusts14,706 14,706 — — 
Investment securities available for sale    
U.S. Treasury and agencies1,467,393 372,865 1,094,528 — 
Obligations of states and political subdivisions1,051,929 — 1,051,929 — 
Mortgage-backed securities and collateralized mortgage obligations6,097,223 — 6,097,223 — 
Loans held for sale, at fair value47,201 — 47,201 — 
Loans and leases, at fair value267,806 — 267,806 — 
Residential mortgage servicing rights, at fair value110,444 — — 110,444 
Derivatives    
Interest rate lock commitments16 — — 16 
Interest rate forward sales commitments74 — 74 — 
Interest rate swaps114,347 — 114,347 — 
Foreign currency derivatives326 — 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 futures1,134 — 1,134 — 
Interest rate forward sales commitments188 — 188 — 
Interest rate swaps310,985 — 310,985 — 
Foreign currency derivatives182 — 182 — 
Total liabilities measured at fair value$622,033 $— $312,489 $309,544 
(in thousands) December 31, 2023
DescriptionTotalLevel 1Level 2Level 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 agencies1,478,392 373,664 1,104,728 — 
Obligations of states and political subdivisions1,072,105 — 1,072,105 — 
Mortgage-backed securities and collateralized mortgage obligations6,279,373 — 6,279,373 — 
Loans held for sale, at fair value30,715 — 30,715 — 
Loans and leases, at fair value275,140 — 275,140 — 
Residential mortgage servicing rights, at fair value109,243 — — 109,243 
Derivatives    
Interest rate futures3,745 — 3,745 — 
Interest rate forward sales commitments— — 
Interest rate swaps33,874 — 33,874 — 
Foreign currency derivatives457 — 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 commitments137 — — 137 
Interest rate forward sales commitments535 — 535 — 
Interest rate swaps260,064 — 260,064 — 
Foreign currency derivatives355 — 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 InstrumentFair Value
(in thousands)
Valuation TechniqueUnobservable InputRange of InputsWeighted Average
Assets:
Residential mortgage servicing rights$110,444 Discounted cash flowConstant prepayment rate
6.07% - 27.52%
6.74%
  Discount rate
9.50% - 16.08%
10.24%
  
Interest rate lock commitments, net$16 Internal pricing modelPull-through rate
64.27% - 100.00%
85.71%
Liabilities:  
Junior subordinated debentures$309,544 Discounted cash flowCredit 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 EndedThree Months Ended
March 31, 2024March 31, 2023
(in thousands)Residential mortgage servicing rightsInterest rate lock commitments, netJunior subordinated debentures, at fair valueResidential mortgage servicing rightsInterest rate lock commitments, netJunior 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 issuances1,237 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) 
TotalLevel 1Level 2Level 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) 
TotalLevel 1Level 2Level 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, 2024March 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, 2024December 31, 2023
(in thousands)Fair Value Aggregate Unpaid Principal BalanceFair Value Less Aggregate Unpaid Principal BalanceFair ValueAggregate Unpaid Principal BalanceFair 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.