Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, United uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). United has processes in place to review the significant valuation inputs and to reassess how the instruments are classified in the valuation framework.

Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

In instances when the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Debt securities available-for-sale and equity securities with readily determinable fair values are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds, corporate debt securities and asset-backed securities and are valued based on observable inputs that include: quoted market prices for similar assets, quoted market prices that are not in an active market, or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the securities. Securities classified as Level 3 include those traded in less liquid markets and are valued based on estimates obtained from broker-dealers that are not directly observable.

Included in other assets in the consolidated balance sheet are assets related to employee deferred compensation plans. The assets associated with these plans are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which mirrors the fair value of the invested assets and is included in other liabilities in the consolidated balance sheet.

United has elected the fair value option for most of its newly originated mortgage loans held for sale in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the value of derivative instruments used to economically hedge them. The fair value of mortgage loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).

United uses derivatives to manage interest rate risk. The valuation of these instruments is typically determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. United also uses best effort and mandatory delivery forward loan sale commitments to hedge risk in its mortgage lending business.

United incorporates credit valuation adjustments as necessary to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.

Although management has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments 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, management had assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Derivatives classified as Level 3 included structured derivatives for which broker quotes, used as a key valuation input, were not observable consistent with a Level 2 disclosure. The fair value of risk participations incorporates Level 3 inputs to evaluate the likelihood of customer default. The fair value of interest rate lock commitments, which is related to mortgage loan commitments, is categorized as Level 3 based on unobservable inputs for commitments that United does not expect to fund.

United recognizes servicing rights upon the sale of residential and SBA/USDA loans sold with servicing retained. Management has elected to carry these assets at fair value. Given the nature of these assets, the key valuation inputs are unobservable and management classifies these assets as Level 3.



March 31, 2020	Level 1		Level 2		Level 3		Total
Assets:
Debt securities available-for-sale:
U.S. Treasuries	$	158,964	$	—	$	—	$	158,964
U.S. Government agencies	—		2,967		—		2,967
State and political subdivisions	—		227,681		—		227,681
Residential mortgage-backed securities	—		1,297,591		—		1,297,591
Commercial mortgage-backed securities	—		267,789		—		267,789
Corporate bonds	—		190,785		—		190,785
Asset-backed securities	—		104,099		—		104,099
Equity securities with readily available fair values	1,338		—		—		1,338
Mortgage loans held for sale	—		89,959		—		89,959
Deferred compensation plan assets	7,537		—		—		7,537
Servicing rights for SBA/USDA loans	—		—		6,290		6,290
Residential mortgage servicing rights	—		—		11,059		11,059
Derivative financial instruments	—		75,307		7,361		82,668
Total assets	$	167,839	$	2,256,178	$	24,710	$	2,448,727

Liabilities:
Deferred compensation plan liability	$	7,549	$	—	$	—	$	7,549
Derivative financial instruments	—		24,632		2,717		27,349
Total liabilities	$	7,549	$	24,632	$	2,717	$	34,898



December 31, 2019	Level 1		Level 2		Level 3		Total
Assets:
Debt securities available-for-sale
U.S. Treasuries	$	154,618	$	—	$	—	$	154,618
U.S. Agencies	—		3,035		—		3,035
State and political subdivisions	—		226,490		—		226,490
Residential mortgage-backed securities	—		1,299,025		—		1,299,025
Commercial mortgage-backed securities	—		284,953		—		284,953
Corporate bonds	—		202,093		998		203,091
Asset-backed securities	—		103,369		—		103,369
Equity securities with readily available fair values	1,973		—		—		1,973
Mortgage loans held for sale	—		58,484		—		58,484
Deferred compensation plan assets	8,133		—		—		8,133
Servicing rights for SBA/USDA loans	—		—		6,794		6,794
Residential mortgage servicing rights	—		—		13,565		13,565
Derivative financial instruments	—		27,769		7,238		35,007
Total assets	$	164,724	$	2,205,218	$	28,595	$	2,398,537

Liabilities:
Deferred compensation plan liability	$	8,132	$	—	$	—	$	8,132
Derivative financial instruments	—		6,957		8,559		15,516
Total liabilities	$	8,132	$	6,957	$	8,559	$	23,648



	2020														2019
	Derivative Asset		Derivative Liability			Servicing rights for SBA/USDA loans			Residential mortgage servicing rights			Debt Securities Available-for-Sale			Derivative Asset			Derivative Liability			Servicing rights for SBA/USDA loans			Residential mortgage servicing rights			Debt Securities Available-for-Sale
Three Months Ended March 31,
Balance at beginning of period	$	7,238	$	8,559		$	6,794		$	13,565		$	998		$	11,841		$	15,732		$	7,510		$	11,877		$	995
Additions	—		—			95			2,115			—			—			—			375			863			—
Sales and settlements	—		—			(307		)	(493		)	(1,000		)	(1,135		)	(2,330		)	(363		)	(150		)	—
Other comprehensive income	—		—			—			—			2			—			—			—			—			—
Amounts included in earnings - fair value adjustments	123		(5,842		)	(292		)	(4,128		)	—			(1,145		)	(1,958		)	(121		)	(1,143		)	—
Balance at end of period	$	7,361	$	2,717		$	6,290		$	11,059		$	—		$	9,561		$	11,444		$	7,401		$	11,447		$	995



	Fair Value						Weighted Average
Level 3 Assets and Liabilities	March 31, 2020		December 31, 2019		Valuation Technique		March 31, 2020		December 31, 2019
Level 3 Assets and Liabilities	March 31, 2020		December 31, 2019		Valuation Technique	Unobservable Inputs	March 31, 2020		December 31, 2019
Servicing rights for SBA/USDA loans	$	6,290	$	6,794	Discounted cash flow	Discount rate	12.0	%	12.3	%
						Prepayment rate	17.1	%	16.5	%
Residential mortgage servicing rights	11,059		13,565		Discounted cash flow	Discount rate	10.0	%	10.0	%
						Prepayment rate	19.3	%	14.1	%
Corporate bonds	—		998		Indicative bid provided by a broker	Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company	N/A		N/A
Derivative assets - mortgage	7,361		1,970		Internal model	Pull through rate	80.5	%	83.6	%
Derivative assets - other	—		5,268		Dealer priced	Dealer priced	N/A		N/A
Derivative liabilities - risk participations	28		12		Internal model	Probable exposure rate	0.15	%	0.36	%
						Probability of default rate	1.80	%	1.80	%
Derivative liabilities - other	2,689		8,547		Dealer priced	Dealer priced	N/A		N/A

At March 31, 2020, mortgage loans held for sale for which the fair value option was elected had an aggregate fair value and outstanding principal balance of $90.0 million and $86.4 million, respectively. At December 31, 2019, mortgage loans held for sale for which the fair value option was elected had an aggregate fair value and outstanding principal balance of $58.5 million and $56.6 million, respectively. Interest income on these loans is calculated based on the note rate of the loan and is recorded in interest revenue. During the three months ended March 31, 2020 and 2019, changes in fair value of these loans resulted in net gains of $1.73 million and $306,000, respectively. Gains and losses resulting from the change in fair value of these loans are recorded in mortgage loan and other related fees. These changes in fair value were mostly offset by hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of the lower of the amortized cost or fair value accounting or write-downs of individual assets due to impairment. The following table presents the fair value hierarchy and carrying value of all assets that were still held as of March 31, 2020 and December 31, 2019, for which a nonrecurring fair value adjustment was recorded during the year-to-date periods presented (in thousands).

Loans that are reported above as being measured at fair value on a nonrecurring basis are generally impaired loans that have either been partially charged off or have specific reserves assigned to them. Nonaccrual impaired loans that are collateral dependent are generally written down to 80% of appraised value which considers the estimated costs to sell. Specific reserves are established for impaired loans based on appraised value of collateral or discounted cash flows, although only those specific reserves based on the fair value of collateral are considered nonrecurring fair value adjustments. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amount that United would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of United’s entire holdings. All estimates are inherently subjective in nature. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the mortgage banking operation, brokerage network, deferred income taxes, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Off-balance sheet instruments (commitments to extend credit and standby letters of credit) for which draws can be reasonably predicted are generally short-term in maturity and are priced at variable rates. Therefore, the estimated fair value associated with these instruments is immaterial.



			Fair Value Level
	Carrying Amount		Level 1		Level 2		Level 3		Total
March 31, 2020
Assets:
Securities held-to-maturity	$	290,404	$	—	$	301,595	$	—	$	301,595
Loans and leases, net	8,853,519		—		—		8,690,538		8,690,538

Liabilities:
Deposits	11,034,926		—		11,037,183		—		11,037,183
Long-term debt	212,849		—		—		213,940		213,940

December 31, 2019
Assets:
Securities held-to-maturity	$	283,533	$	—	$	287,904	$	—	$	287,904
Loans and leases, net	8,750,464		—		—		8,714,592		8,714,592

Liabilities:
Deposits	10,897,244		—		10,897,465		—		10,897,465
Long-term debt	212,664		—		—		217,665		217,665