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East West Bancorp (EWBC)

Filed: 6 Aug 21, 3:27pm
0001069157us-gaap:CommercialPortfolioSegmentMemberewbc:CommercialAndIndustrialLoanMemberus-gaap:FinancialAssetNotPastDueMember2020-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-24939

EAST WEST BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

95-4703316
(I.R.S. Employer Identification No.)

135 North Los Robles Ave., 7th Floor, Pasadena, California 91101
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:
(626) 768-6000

Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading
Symbol(s)
Name of each exchange
 on which registered
Common Stock, par value $0.001 per shareEWBCThe Nasdaq Global Select Market

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
    Number of shares outstanding of the issuer’s common stock on the latest practicable date: 141,877,607 shares as of July 31, 2021.



TABLE OF CONTENTS
Page
2


PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands, except shares)
(Unaudited)
June 30,
2021
December 31,
2020
(Unaudited)
ASSETS
Cash and due from banks$626,716 $592,117 
Interest-bearing cash with banks5,371,089 3,425,854 
Cash and cash equivalents5,997,805 4,017,971 
Interest-bearing deposits with banks830,279 809,728 
Assets purchased under resale agreements (“resale agreements”)2,299,184 1,460,000 
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $8,411,142 in 2021 and $5,470,523 in 2020; includes assets pledged as collateral of $618,081 in 2021 and $588,484 in 2020)8,399,460 5,544,658 
Restricted equity securities, at cost76,931 83,046 
Loans held-for-sale1,819 1,788 
Loans held-for-investment (net of allowance for loan losses of $585,724 in 2021 and $619,983 in 2020; includes assets pledged as collateral of $24,233,905 in 2021 and $23,263,517 in 2020)39,485,775 37,770,972 
Investments in qualified affordable housing partnerships, net287,432 213,555 
Investments in tax credit and other investments, net364,187 266,525 
Premises and equipment (net of accumulated depreciation of $133,972 in 2021 and $127,884 in 2020)99,290 103,251 
Goodwill465,697 465,697 
Operating lease right-of-use assets102,609 95,460 
Other assets1,444,408 1,324,262 
TOTAL$59,854,876 $52,156,913 
LIABILITIES
Deposits:
Noninterest-bearing$21,816,721 $16,298,301 
Interest-bearing30,765,854 28,564,451 
Total deposits52,582,575 44,862,752 
Short-term borrowings21,009 
Federal Home Loan Bank (“FHLB”) advances248,464 652,612 
Assets sold under repurchase agreements (“repurchase agreements”)300,000 300,000 
Long-term debt and finance lease liabilities151,997 151,739 
Operating lease liabilities110,105 102,830 
Accrued expenses and other liabilities914,187 796,796 
Total liabilities54,307,328 46,887,738 
COMMITMENTS AND CONTINGENCIES (Note 10)00
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 167,754,406 and 167,240,600 shares issued in 2021 and 2020, respectively168 167 
Additional paid-in capital1,876,079 1,858,352 
Retained earnings4,335,327 4,000,414 
Treasury stock, at cost 25,876,901 shares in 2021 and 25,675,371 shares in 2020(649,337)(634,083)
Accumulated other comprehensive (loss) income (“AOCI”), net of tax(14,689)44,325 
Total stockholders’ equity5,547,548 5,269,175 
TOTAL$59,854,876 $52,156,913 
See accompanying Notes to Consolidated Financial Statements.

3


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees$352,453 $367,393 $694,461 $779,262 
AFS debt securities34,690 21,004 63,790 41,146 
Resale agreements8,021 5,514 14,120 11,139 
Restricted equity securities541 301 1,088 747 
Interest-bearing cash and deposits with banks3,628 4,564 7,260 15,672 
Total interest and dividend income399,333 398,776 780,719 847,966 
INTEREST EXPENSE
Deposits17,998 46,399 39,820 122,802 
Short-term borrowings265 42 821 
FHLB advances2,099 3,343 5,168 7,509 
Repurchase agreements1,991 3,540 3,969 7,531 
Long-term debt and finance lease liabilities772 1,454 1,552 2,821 
Total interest expense22,860 55,001 50,551 141,484 
Net interest income before provision for credit losses376,473 343,775 730,168 706,482 
(Reversal of) provision for credit losses(15,000)102,443 (15,000)176,313 
Net interest income after provision for credit losses391,473 241,332 745,168 530,169 
NONINTEREST INCOME
Lending fees21,092 21,946 39,449 37,719 
Deposit account fees17,342 10,872 32,725 21,319 
Interest rate contracts and other derivative (loss) income(3,172)6,107 13,825 13,180 
Foreign exchange income13,007 4,562 22,533 12,381 
Wealth management fees7,951 3,091 14,862 8,444 
Net gains on sales of loans1,491 132 3,272 1,082 
Gains on sales of AFS debt securities632 9,640 824 11,169 
Other investment income (expense)7,596 (1,964)8,521 1,414 
Other income2,492 1,321 5,286 4,505 
Total noninterest income68,431 55,707 141,297 111,213 
NONINTEREST EXPENSE
Compensation and employee benefits105,426 96,955 213,234 198,915 
Occupancy and equipment expense15,377 16,217 31,299 33,293 
Deposit insurance premiums and regulatory assessments4,274 3,700 8,150 7,127 
Deposit account expense3,817 3,353 7,709 6,916 
Data processing4,035 4,480 8,513 8,306 
Computer software expense7,521 7,301 14,680 13,467 
Consulting expense1,868 1,413 3,343 2,630 
Legal expense1,975 1,530 3,477 4,727 
Other operating expense17,939 19,248 37,546 40,367 
Amortization of tax credit and other investments27,291 21,829 52,649 40,611 
Repurchase agreements’ extinguishment cost8,740 8,740 
Total noninterest expense189,523 184,766 380,600 365,099 
INCOME BEFORE INCOME TAXES270,381 112,273 505,865 276,283 
INCOME TAX EXPENSE45,639 12,921 76,129 32,107 
NET INCOME$224,742 $99,352 $429,736 $244,176 
EARNINGS PER SHARE (“EPS”)
BASIC$1.58 $0.70 $3.03 $1.71 
DILUTED$1.57 $0.70 $3.01 $1.70 
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC141,868 141,486 141,758 143,150 
DILUTED143,040 141,827 142,963 143,560 
See accompanying Notes to Consolidated Financial Statements.

4


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net income$224,742 $99,352 $429,736 $244,176 
Other comprehensive income (loss), net of tax:
Net changes in unrealized gains (losses) on AFS debt securities73,049 17,816 (60,399)45,269 
Net changes in unrealized gains (losses) on cash flow hedges68 (1,333)500 (1,333)
Foreign currency translation adjustments2,234 (230)885 (2,394)
Other comprehensive income (loss)75,351 16,253 (59,014)41,542 
COMPREHENSIVE INCOME$300,093 $115,605 $370,722 $285,718 
See accompanying Notes to Consolidated Financial Statements.

5


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except shares)
(Unaudited)

Common Stock and
Additional Paid-in Capital
Retained EarningsTreasury StockAOCI,
Net of Tax
Total
Stockholders’ Equity
SharesAmount
BALANCE, APRIL 1, 2020141,435,099 $1,833,784 $3,695,759 $(633,439)$6,881 $4,902,985 
Net income— — 99,352 — — 99,352 
Other comprehensive income— — — — 16,253 16,253 
Net activity of common stock pursuant to various stock compensation plans and agreements51,298 8,131 — (16)— 8,115 
Cash dividends on common stock ($0.275 per share)— — (39,462)— — (39,462)
BALANCE, JUNE 30, 2020141,486,397 $1,841,915 $3,755,649 $(633,455)$23,134 $4,987,243 
BALANCE, APRIL 1, 2021141,843,036 $1,866,101 $4,158,032 $(649,066)$(90,040)$5,285,027 
Net income— — 224,742 — — 224,742 
Other comprehensive income— — — — 75,351 75,351 
Net activity of common stock pursuant to various stock compensation plans and agreements34,469 10,146 — (271)— 9,875 
Cash dividends on common stock ($0.330 per share)— — (47,447)— — (47,447)
BALANCE, JUNE 30, 2021141,877,505 $1,876,247 $4,335,327 $(649,337)$(14,689)$5,547,548 
Common Stock and
Additional Paid-in Capital
Retained EarningsTreasury StockAOCI,
Net of Tax
Total
Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2020145,625,385 $1,826,512 $3,689,377 $(479,864)$(18,408)$5,017,617 
Cumulative-effect of change in accounting principle related to credit losses (1)
— — (97,967)— — (97,967)
Net income— — 244,176 — — 244,176 
Other comprehensive income— — — — 41,542 41,542 
Net activity of common stock pursuant to various stock compensation plans and agreements332,694 15,403 — (7,625)— 7,778 
Repurchase of common stock pursuant to the Stock Repurchase Program(4,471,682)— — (145,966)— (145,966)
Cash dividends on common stock ($0.550 per share)— — (79,937)— — (79,937)
BALANCE, JUNE 30, 2020141,486,397 $1,841,915 $3,755,649 $(633,455)$23,134 $4,987,243 
BALANCE, JANUARY 1, 2021141,565,229 $1,858,519 $4,000,414 $(634,083)$44,325 $5,269,175 
Net income— — 429,736 — — 429,736 
Other comprehensive loss— — — — (59,014)(59,014)
Net activity of common stock pursuant to various stock compensation plans and agreements312,276 17,728 — (15,254)— 2,474 
Cash dividends on common stock ($0.660 per share)— — (94,823)— — (94,823)
BALANCE, JUNE 30, 2021141,877,505 $1,876,247 $4,335,327 $(649,337)$(14,689)$5,547,548 
(1)Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments Credit Losses (Topic 326) on January 1, 2020.

See accompanying Notes to Consolidated Financial Statements.

6


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Six Months Ended June 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$429,736 $244,176 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization70,402 68,926 
Amortization of premiums and accretion of discount, net11,310 (18,901)
Stock compensation costs16,025 14,280 
Deferred income tax benefit2,571 (111)
(Reversal of) provision for credit losses(15,000)176,313 
Net gains on sales of loans(3,272)(1,082)
Gains on sales of AFS debt securities(824)(11,169)
Loans held-for-sale:
Originations and purchases(8,703)(21,791)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale10,353 18,386 
Proceeds from distributions received from equity method investees3,564 1,107 
Net change in accrued interest receivable and other assets(73,809)(456,374)
Net change in accrued expenses and other liabilities(44,113)257,397 
Other net operating activities5,571 (241)
Total adjustments(25,925)26,740 
Net cash provided by operating activities403,811 270,916 
CASH FLOWS FROM INVESTING ACTIVITIES  
Net (increase) decrease in:  
Investments in qualified affordable housing partnerships, tax credit and other investments(92,780)(68,884)
Interest-bearing deposits with banks(20,534)(335,497)
Resale agreements:
Proceeds from paydowns and maturities506,353 350,000 
Purchases(1,345,537)(500,000)
AFS debt securities:
Proceeds from sales164,898 484,380 
Proceeds from repayments, maturities and redemptions877,123 848,633 
Purchases(4,015,212)(1,834,087)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment248,540 144,015 
Purchases(542,839)(145,695)
Other changes in loans held-for-investment, net(1,389,832)(2,475,089)
Proceeds from distributions received from equity method investees4,983 1,948 
Other net investing activities2,388 (337)
Net cash used in investing activities(5,602,449)(3,530,613)
See accompanying Notes to Consolidated Financial Statements.

7


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
(Continued)

Six Months Ended June 30,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES  
Net increase in deposits7,708,661 3,355,168 
Net (decrease) increase in short-term borrowings(21,143)225,834 
FHLB advances:
Proceeds10,100 
  Repayment(405,000)(100,099)
Repayment of repurchase agreements(150,000)
Repurchase agreements’ extinguishment cost(8,740)
Long-term debt and lease liabilities:
Proceeds from long-term debt1,437,269 
 Repayment of long-term debt and lease liabilities(613)(9,320)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program(145,966)
Proceeds from issuance pursuant to various stock compensation plans and agreements1,180 1,170 
Stocks tendered for payment of withholding taxes(15,254)(7,625)
Cash dividends paid(95,060)(80,271)
Net cash provided by financing activities7,172,771 4,527,520 
Effect of exchange rate changes on cash and cash equivalents5,701 4,530 
NET INCREASE IN CASH AND CASH EQUIVALENTS1,979,834 1,272,353 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,017,971 3,261,149 
CASH AND CASH EQUIVALENTS, END OF PERIOD$5,997,805 $4,533,502 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest$52,228 $145,723 
Income taxes, net$114,202 $5,609 
Noncash investing and financing activities:
Loans transferred from held-for-investment to held-for-sale$247,636 $143,283 
Loans transferred to other real estate owned (“OREO”) and other foreclosed assets$13,025 $19,504 


See accompanying Notes to Consolidated Financial Statements.

8


EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 Basis of Presentation

East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Quarterly Report on Form 10-Q (“this Form 10-Q”) include the accounts of East West, East West Bank and East West’s subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of June 30, 2021, East West also has 6 wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, the Trusts are not included on the Consolidated Financial Statements.

The unaudited interim Consolidated Financial Statements are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and general practices in the banking industry. They reflect all adjustments that, in the opinion of management, are necessary for fair presentation of the interim Consolidated Financial Statements. Certain items on the Consolidated Financial Statements and notes for the prior periods have been reclassified to conform to the current period presentation.

The current period’s results of operations are not necessarily indicative of results that may be expected for any future interim period or for the year as a whole. Events subsequent to the Consolidated Balance Sheet date have been evaluated through the date the Consolidated Financial Statements are issued for inclusion in the accompanying Consolidated Financial Statements. The unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission on February 26, 2021 (the “Company’s 2020 Form 10-K”).

9


Note 2 — Current Accounting Developments

New Accounting Pronouncements Adopted
StandardRequired Date of AdoptionDescriptionEffect on Financial Statements
Standards Adopted in 2021
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent related ASU 2021-01, Reference Rate Reform (Topic 848): Scope

Effective for all entities from the dates of issuance through December 31, 2022.
In March 2020, the FASB issued an ASU related to contracts or hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued due to reference rate reform. This ASU provides temporary optional expedients and exceptions regarding the accounting requirements related to the modification of certain contracts, hedging relationships and other transactions that are affected by the reference rate reform. The guidance permits the Company to make a one-time election to sell and/or transfer qualifying held-to-maturity securities, and not to apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationships and the assessment of hedge effectiveness during the transition period. This one-time election may be made at any time after March 12, 2020, but no later than December 31, 2022. In January 2021, the FASB issued ASU 2021-01 as subsequent amendments, which expanded the scope of Topic 848 to include all affected derivatives and clarified certain optional expedients and exceptions regarding the hedge accounting for derivative contracts affected by the discounting transition.

The amendments of this guidance could be elected retrospectively or prospectively to new modifications made on or after the date of issuance of this ASU, January 7, 2021.
The Company adopted this guidance on a prospective basis in January 2021. At the time of adoption, the guidance did not have a material impact on the Company’s Consolidated Financial Statements. The Company will continue to track the exposure as of each reporting period and to assess the impact as the reference rate transition occurs through the cessation of LIBOR.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
January 1, 2021

Early adoption is permitted on January 1, 2020.
This ASU simplifies the accounting for income taxes by removing certain exceptions to the existing guidance. This includes removing exceptions to: 1) the incremental approach for intraperiod tax allocation, 2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred tax liability when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In addition, this ASU simplifies the accounting for income taxes related to franchise taxes, the tax basis of goodwill and the method for recognizing an enacted change in tax laws. This ASU also specifies that an entity is not required to allocate the consolidated amount of tax expense to a legal entity that is not subject to tax in its separate financial statements. This ASU also makes improvements in the accounting for income taxes related to employee stock ownership plans and equity method investments in qualified affordable housing projects.

This guidance should be applied on either a retrospective, modified retrospective or prospective basis depending on the amendments.
The Company adopted this guidance in January 2021 using the transition guidance prescribed by this ASU. At the time of adoption, this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

10


Note 3 — Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Determination

Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value of financial instruments, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing an asset or a liability. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy described below is based on the quality and reliability of the information used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to prices derived from data lacking transparency. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories:

Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets.
Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.
Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities on a recurring basis, as well as the general classification of these instruments pursuant to the fair value hierarchy.

Available-for-Sale Debt Securities — The fair value of AFS debt securities is generally determined by independent external pricing service providers who have experience in valuing these securities or by taking the average quoted market prices obtained from independent external brokers. The valuations provided by the third-party pricing service providers are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, prepayment expectation and reference data obtained from market research publications. Inputs used by the third-party pricing service providers in valuing collateralized mortgage obligations and other securitization structures also include new issue data, monthly payment information, whole loan collateral performance, tranche evaluation and “To Be Announced” prices. In valuing securities issued by state and political subdivisions, inputs used by third-party pricing service providers also include material event notices.

On a monthly basis, the Company validates the valuations provided by third-party pricing service providers to ensure that the fair value determination is consistent with the applicable accounting guidance and the financial instruments are properly classified in the fair value hierarchy. To perform this validation, the Company evaluates the fair values of securities by comparing the fair values provided by the third-party pricing service providers to prices from other available independent sources for the same securities. When significant variances in prices are identified, the Company further compares inputs used by different sources to ascertain the reliability of these sources. On a quarterly basis, the Company reviews the documentation received from the third-party pricing service providers regarding the valuation inputs and methodology used for each category of securities.

When available, the Company uses quoted market prices to determine the fair value of AFS debt securities that are classified as Level 1. Level 1 AFS debt securities are comprised of U.S. Treasury securities. When pricing is unavailable from third-party pricing service providers for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. In addition, the Company obtains market quotes from other official published sources. As these valuations are based on observable inputs in the current marketplace, they are classified as Level 2. The Company periodically communicates with the independent external brokers to validate their pricing methodology. Information such as pricing sources, pricing assumptions, data inputs and valuation technique are reviewed periodically.

11


Equity Securities — Equity securities consisted of mutual funds as of both June 30, 2021 and December 31, 2020. The Company invested in these mutual funds for Community Reinvestment Act (“CRA”) purposes. The Company uses net asset value (“NAV”) information to determine the fair value of these equity securities. When NAV is available periodically and the equity securities can be put back to the transfer agents at the publicly available NAV, the fair value of the equity securities is classified as Level 1. When NAV is available periodically but the equity securities may not be readily marketable at its periodic NAV in the secondary market, the fair value of these equity securities is classified as Level 2.

Interest Rate Contracts The Company enters into interest rate swap and option contracts that are not designated as hedging instruments with its borrowers to lock in attractive intermediate and long-term interest rates, resulting in the customer obtaining a synthetic fixed-rate loan. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain variable interest rate borrowings. These interest rate swap contracts with institutional counterparties were designated as cash flow hedges. The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The fair value of the interest rate options, which consist of floors and caps, is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (rise above) the strike rate of the floors (caps). In addition, to comply with the provisions of ASC 820, Fair Value Measurement, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with the Company’s derivatives utilize model-derived credit spreads, which are Level 3 inputs. The Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.

Foreign Exchange Contracts The Company enters into foreign exchange contracts to accommodate the business needs of its customers. The Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure with respect to a majority of these foreign exchange contracts. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. The fair value of foreign exchange contracts is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts are classified as Level 2. As of June 30, 2021 and December 31, 2020, the Bank held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency non-deliverable forward contracts is determined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include spot rates and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

Credit Contracts — The Company may periodically enter into credit risk participation agreements (“RPAs”) to manage the credit exposure on interest rate contracts associated with the syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. The majority of the inputs used to value the RPAs are observable; accordingly, RPAs fall within Level 2.

12


Equity Contracts — As part of the loan origination process, the Company periodically obtains warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. As of June 30, 2021, the warrants included on the Consolidated Financial Statements were from private companies. As of December 31, 2020, the warrants included on the Consolidated Financial Statements were from both public and private companies. The Company values these warrants based on the Black-Scholes option pricing model. For warrants from public companies, the model uses the underlying stock price, stated strike price, warrant expiration date, risk-free interest rate based on a duration-matched U.S. Treasury rate, and market-observable company-specific option volatility as inputs to value the warrants. Due to the observable nature of the inputs used in deriving the estimated fair value, warrants from public companies are classified as Level 2. For warrants from private companies, the model uses inputs such as the offering price observed in the most recent round of funding, stated strike price, warrant expiration date, risk-free interest rate based on duration-matched U.S. Treasury rate and option volatility. The Company applies proxy volatilities based on the industry sectors of the private companies. The model values are then adjusted for a general lack of liquidity due to the private nature of the underlying companies. Since both option volatility and liquidity discount assumptions are subject to management’s judgment, measurement uncertainty is inherent in the valuation of private companies’ warrants. Due to the unobservable nature of the option volatility and liquidity discount assumptions used in deriving the estimated fair value, warrants from private companies are classified as Level 3. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement of uncertainty analysis on the option volatility and liquidity discount assumptions is performed.

Commodity Contracts — The Company enters into energy commodity contracts in the form of swaps and options with its oil and gas loan customers to allow them to hedge against the risk of fluctuation in energy commodity prices. The fair value of the commodity option contracts is determined using the Black-Scholes model and assumptions that include expectations of future commodity price and volatility. The future commodity contract price is derived from observable inputs such as the market price of the commodity. Commodity swaps are structured as an exchange of fixed cash flows for floating cash flows. The fair value of the commodity swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) based on the market prices of the commodity. The fixed cash flows are predetermined based on the known volumes and fixed price as specified in the swap agreement. The floating cash flows are correlated with the change of forward commodity prices, which is derived from market corroborated futures settlement prices. As a result, the Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.

13


The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:
($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of June 30, 2021
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
AFS debt securities:
U.S. Treasury securities$836,940 $$$836,940 
U.S. government agency and U.S. government-sponsored enterprise debt securities1,224,511 1,224,511 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,188,640 1,188,640 
Residential mortgage-backed securities2,368,552 2,368,552 
Municipal securities454,923 454,923 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities364,172 364,172 
Residential mortgage-backed securities772,474 772,474 
Corporate debt securities552,715 552,715 
Foreign government bonds283,175 283,175 
Asset-backed securities61,829 61,829 
Collateralized loan obligations (“CLOs”)291,529 291,529 
Total AFS debt securities$836,940 $7,562,520 $0 $8,399,460 
Investments in tax credit and other investments:
Equity securities (1)
$22,345 $4,474 $$26,819 
Total investments in tax credit and other investments$22,345 $4,474 $0 $26,819 
Derivative assets:
Interest rate contracts$$329,953 $$329,953 
Foreign exchange contracts29,867 29,867 
Credit contracts
Equity contracts223 223 
Commodity contracts228,536 228,536 
Gross derivative assets$0 $588,359 $223 $588,582 
Netting adjustments (2)
$$(93,091)$$(93,091)
Net derivative assets$0 $495,268 $223 $495,491 
Derivative liabilities:
Interest rate contracts$$228,952 $$228,952 
Foreign exchange contracts20,555 20,555 
Credit contracts87 87 
Commodity contracts199,327 199,327 
Gross derivative liabilities$0 $448,921 $0 $448,921 
Netting adjustments (2)
$$(253,309)$$(253,309)
Net derivative liabilities$0 $195,612 $0 $195,612 
14


($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
AFS debt securities:
U.S. Treasury securities$50,761 $$$50,761 
U.S. government agency and U.S. government-sponsored enterprise debt securities814,319 814,319 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,153,770 1,153,770 
Residential mortgage-backed securities1,660,894 1,660,894 
Municipal securities396,073 396,073 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities239,842 239,842 
Residential mortgage-backed securities289,775 289,775 
Corporate debt securities405,968 405,968 
Foreign government bonds182,531 182,531 
Asset-backed securities63,231 63,231 
CLOs287,494 287,494 
Total AFS debt securities$50,761 $5,493,897 $0 $5,544,658 
Investments in tax credit and other investments:
Equity securities (1)
$22,548 $8,724 $$31,272 
Total investments in tax credit and other investments$22,548 $8,724 $0 $31,272 
Derivative assets:
Interest rate contracts$$489,132 $$489,132 
Foreign exchange contracts30,300 30,300 
Credit contracts13 13 
Equity contracts585 273 858 
Commodity contracts82,451 82,451 
Gross derivative assets$0 $602,481 $273 $602,754 
Netting adjustments (2)
$$(101,512)$$(101,512)
Net derivative assets$0 $500,969 $273 $501,242 
Derivative liabilities:
Interest rate contracts$$317,698 $$317,698 
Foreign exchange contracts22,759 22,759 
Credit contracts206 206 
Commodity contracts84,165 84,165 
Gross derivative liabilities$0 $424,828 $0 $424,828 
Netting adjustments (2)
$$(184,697)$$(184,697)
Net derivative liabilities$0 $240,131 $0 $240,131 
(1)Equity securities consist of mutual funds with readily determinable fair values. The Company invested in these mutual funds for CRA purposes.
(2)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

15


For the three and six months ended June 30, 2021 and 2020, Level 3 fair value measurements that were measured on a recurring basis consisted of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Equity Contracts
Beginning balance$272 $713 $273 $421 
Total gains included in earnings (1)
47 7,976 46 8,268 
Settlements(96)(96)
Transfers out of Level 3 (2)
(8,373)(8,373)
Ending balance$223 $316 $223 $316 
(1)Includes unrealized (losses) gains of $(27) thousand and $8.0 million for the three months ended June 30, 2021 and 2020, respectively, and $(29) thousand and $8.3 million for the six months ended June 30, 2021 and 2020, respectively. The realized/unrealized gains (losses) of equity contracts are included in Lending fees on the Consolidated Statement of Income.
(2)During the three and six months ended June 30, 2020, the Company transferred $8.4 million of equity contracts measured on a recurring basis out of Level 3 into Level 2 after the corresponding issuer of the equity contracts, which was previously a private company, completed its initial public offering and became a public company.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of June 30, 2021 and December 31, 2020, respectively. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.
($ in thousands)Fair Value
Measurements
(Level 3)
Valuation
Technique
Unobservable
Inputs
Range of Inputs
Weighted-
Average of Inputs (1)
June 30, 2021
Derivative assets:
Equity contracts$223 Black-Scholes option pricing modelEquity volatility41% — 53%47%
Liquidity discount47%47%
December 31, 2020
Derivative assets:
Equity contracts$273 Black-Scholes option pricing modelEquity volatility46% — 61%53%
Liquidity discount47%47%
(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of June 30, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis include certain individually evaluated loans held-for-investment, investments in qualified affordable housing partnerships, tax credit and other investments, OREO, loans held-for-sale, and other nonperforming assets. Nonrecurring fair value adjustments result from impairment on certain individually evaluated loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, write-downs of OREO and other nonperforming assets, or from the application of lower of cost or fair value on loans held-for-sale.

Individually Evaluated Loans Held-For-Investment — Individually evaluated loans held-for-investment are classified as Level 3 assets. The following two methods are used to derive the fair value of individually evaluated loans held-for-investment:

Discounted cash flow valuation techniques that consist of developing an expected stream of cash flows over the life of the loans, and then calculating the present value of the loans by discounting the expected cash flows at a designated discount rate.
16


When the repayment of an individually evaluated loan is dependent on the sale of the collateral, the fair value of the loan is determined based on the fair value of the underlying collateral, which may take the form of real estate, inventory, equipment, contracts or guarantees. The fair value of the underlying collateral is generally based on third-party appraisals, or an internal valuation if a third-party appraisal is not required by regulations, or unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches.

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company conducts due diligence on its investments in qualified affordable housing partnerships, tax credit and other investments prior to the initial investment date and through the placed-in-service date. After these investments are either acquired or placed into service, the Company continues its periodic monitoring process to ensure realizable book values and that there is no significant tax credit recapture risk. This monitoring process includes the quarterly review of the financial statements, the annual review of tax returns of the investment entity, the annual review of the financial statements of the guarantor (if any) and a comparison of the actual performance of the investment against the financial projections prepared at the time when the investment was made. The Company assesses its tax credit and other investments for possible other-than-temporary impairment (“OTTI”) on an annual basis or when events or circumstances suggest that the carrying amount of the investments may not be realizable. These circumstances can include, but are not limited to the following factors:

expected future cash flows that are less than the carrying amount of the investment;
changes in the economic, market or technological environment that could adversely affect the investee’s operations; and
other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

All available evidence is considered in assessing whether a decline in value is other-than-temporary. Generally, none of the aforementioned factors are individually conclusive and the relative importance placed on individual facts may vary depending on the situation. In accordance with ASC 323-10-35-32, an impairment charge would only be recognized in earnings for a decline in value that is determined to be other-than-temporary.

Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. These OREO properties are recorded at estimated fair value less the costs to sell at the time of foreclosure and at the lower of cost or estimated fair value less the costs to sell subsequent to acquisition. On a monthly basis, the current fair market value of each OREO property is reviewed to ensure that the current carrying value is appropriate. OREO properties are classified as Level 3.

Other Nonperforming Assets Other nonperforming assets are recorded at fair value upon transfers from loans to foreclosed assets. Subsequently, foreclosed assets are recorded at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised values of the collateral or management’s estimates of the foreclosed asset. The Company records an impairment when the foreclosed asset’s fair value declines below its carrying value. Other nonperforming assets are classified as Level 3.

17


The following tables present the carrying amounts of assets that were still held and had fair value changes measured on a nonrecurring basis as of June 30, 2021 and December 31, 2020:
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of June 30, 2021
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Measurements
Loans held-for-investment:
Commercial:
Commercial and industrial (“C&I”)$$$110,211 $110,211 
Commercial real estate (“CRE”):
CRE53,509 53,509 
Multifamily residential2,428 2,428 
Construction and land4,191 4,191 
Total commercial0 0 170,339 170,339 
Consumer:
Residential mortgage:
Single-family residential1,125 1,125 
Home equity lines of credit (“HELOCs”)3,605 3,605 
Total consumer0 0 4,730 4,730 
Total loans held-for-investment$0 $0 $175,069 $175,069 
OREO (1)
$0 $0 $14,914 $14,914 
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Measurements
Loans held-for-investment:
Commercial:
C&I$$$143,331 $143,331 
CRE:
CRE42,894 42,894 
Total commercial0 0 186,225 186,225 
Consumer:
Residential mortgage:
HELOCs1,146 1,146 
Other consumer0 0 2,491 2,491 
Total consumer0 0 3,637 3,637 
Total loans held-for-investment$0 $0 $189,862 $189,862 
Investments in tax credit and other investments, net$0 $0 $3,140 $3,140 
OREO (1)
$0 $0 $15,824 $15,824 
(1)Amounts are included in Other assets on the Consolidated Balance Sheet and represent the carrying value of OREO properties that were written down subsequent to their initial classification as OREO.
18


The following table presents the (decrease) increase in fair value of assets for which a nonrecurring fair value adjustment has been recognized for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Loans held-for-investment:
Commercial:
C&I$(6,462)$(8,846)$(15,530)$(30,372)
CRE:
CRE(275)(271)(7,336)(276)
Multifamily residential(6)
Construction and land(209)(280)
Total commercial(6,944)(9,117)(23,152)(30,648)
Consumer:
Residential mortgage:
Single-family residential(8)
HELOCs(64)(23)(257)
Other consumer(2,491)(2,491)2,491 
Total consumer(2,488)(64)(2,522)2,234 
Total loans held-for-investment$(9,432)$(9,181)$(25,674)$(28,414)
Investments in tax credit and other investments, net$877 $(733)$877 $(583)
OREO$(910)$0 $(910)$0 
Other nonperforming assets$0 $0 $(3,890)$0 

The following table presents the quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements that are measured on a nonrecurring basis as of June 30, 2021 and December 31, 2020:
($ in thousands)Fair Value
Measurements
(Level 3)
Valuation
Techniques
Unobservable
Inputs
Range of 
Inputs
Weighted-
Average of Inputs (1)
June 30, 2021
Loans held-for-investment$96,038 Discounted cash flowsDiscount4% — 20%9%
$13,638 Fair value of collateralDiscount20% — 40%34%
$65,393 Fair value of propertySelling cost7% — 8%8%
OREO$14,914 Fair value of propertySelling cost8%8%
December 31, 2020
Loans held-for-investment$104,783 Discounted cash flowsDiscount3% — 15%11%
$22,207 Fair value of collateralDiscount10% — 26%15%
$15,879 Fair value of collateralContract valueNMNM
$46,993 Fair value of propertySelling cost7% — 26%10%
Investments in tax credit and other investments, net$3,140 Individual analysis of each investmentExpected future tax benefits and distributionsNMNM
OREO$15,824 Fair value of propertySelling cost8%8%
NM — Not meaningful.
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of June 30, 2021 and December 31, 2020.

19


Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of June 30, 2021 and December 31, 2020, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable and mortgage servicing rights that are included in Other assets, and accrued interest payable that is included in Accrued expenses and other liabilities. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheet.
($ in thousands)June 30, 2021
Carrying
Amount
Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$5,997,805 $5,997,805 $$$5,997,805 
Interest-bearing deposits with banks$830,279 $$830,279 $$830,279 
Resale agreements$2,299,184 $$2,290,097 $$2,290,097 
Restricted equity securities, at cost$76,931 $$76,931 $$76,931 
Loans held-for-sale$1,819 $$1,819 $$1,819 
Loans held-for-investment, net$39,485,775 $$$39,414,107 $39,414,107 
Mortgage servicing rights$5,373 $$$8,788 $8,788 
Accrued interest receivable$154,810 $$154,810 $$154,810 
Financial liabilities:
Demand, checking, savings and money market deposits$44,151,817 $$44,151,817 $$44,151,817 
Time deposits$8,430,758 $$8,442,834 $$8,442,834 
FHLB advances$248,464 $$250,871 $$250,871 
Repurchase agreements$300,000 $$314,315 $$314,315 
Long-term debt$147,515 $$150,232 $$150,232 
Accrued interest payable$10,279 $$10,279 $$10,279 
($ in thousands)December 31, 2020
Carrying
Amount
Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$4,017,971 $4,017,971 $$$4,017,971 
Interest-bearing deposits with banks$809,728 $$809,728 $$809,728 
Resale agreements$1,460,000 $$1,464,635 $$1,464,635 
Restricted equity securities, at cost$83,046 $$83,046 $$83,046 
Loans held-for-sale$1,788 $$1,788 $$1,788 
Loans held-for-investment, net$37,770,972 $$$37,803,940 $37,803,940 
Mortgage servicing rights$5,522 $$$8,435 $8,435 
Accrued interest receivable$150,140 $$150,140 $$150,140 
Financial liabilities:
Demand, checking, savings and money market deposits$35,862,403 $$35,862,403 $$35,862,403 
Time deposits$9,000,349 $$9,016,884 $$9,016,884 
Short-term borrowings$21,009 $$21,009 $$21,009 
FHLB advances$652,612 $$659,631 $$659,631 
Repurchase agreements$300,000 $$317,850 $$317,850 
Long-term debt$147,376 $$150,131 $$150,131 
Accrued interest payable$11,956 $$11,956 $$11,956 
20


Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements

Assets Purchased under Resale Agreements

In resale agreements, the Company is exposed to credit risk for both counterparties and the underlying collateral. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with counterparties. The relevant agreements allow for the efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. It is also the Company’s policy to take possession, where possible, of the assets underlying resale agreements. As a result of the Company’s credit risk mitigation practices with respect to resale agreements as described above, the Company did not hold any reserves for credit impairment with respect to these agreements as of both June 30, 2021 and December 31, 2020.

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $1.31 billion and $1.16 billion as of June 30, 2021 and December 31, 2020, respectively. The weighted-average yields were 1.54% and 2.14% for the three months ended June 30, 2021 and 2020, respectively; and 1.55% and 2.32% for the six months ended June 30, 2021 and 2020, respectively.

Loans Purchased under Resale Agreements — The Company participated in resale agreements collateralized with loans with multiple counterparties starting in the fourth quarter of 2020. Total loans purchased under resale agreements were $989.2 million and $300.0 million as of June 30, 2021 and December 31, 2020, respectively. The weighted-average yields were 1.47% and 1.64% for the three and six months ended June 30, 2021, respectively.

Assets Sold under Repurchase Agreements — As of June 30, 2021, the collateral for the repurchase agreements were comprised of U.S. Treasury securities and U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities. Gross repurchase agreements were $300.0 million as of both June 30, 2021 and December 31, 2020. The weighted-average interest rates were 2.63% and 3.40% for the three months ended June 30, 2021 and 2020, respectively, and 2.65% and 3.76% for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, all repurchase agreements will mature in 2023.

Balance Sheet Offsetting

The Company’s resale and repurchase agreements are transacted under legally enforceable master repurchase agreements that, in the event of default by the counterparty, provide the Company the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Company nets resale and repurchase transactions with the same counterparty on the Consolidated Balance Sheet when it has a legally enforceable master netting agreement and the transactions are eligible for netting under ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. Collateral received includes securities and loans that are not recognized on the Consolidated Balance Sheet. Collateral pledged consists of securities that are not netted on the Consolidated Balance Sheet against the related collateralized liability. Securities received or pledged as collateral in resale and repurchase agreements with other financial institutions may also be sold or re-pledged by the secured party, and are usually delivered to and held by the third-party trustees.

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021
AssetsGross
Amounts
of Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Received
Resale agreements$2,299,184 $$2,299,184 $(2,285,058)(1)$14,126 
LiabilitiesGross
Amounts
of Recognized
Liabilities
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Pledged
Repurchase agreements$300,000 $$300,000 $(300,000)(2)$
21


($ in thousands)December 31, 2020
Gross
Amounts
of Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
AssetsNet
Amount
Collateral Received
Resale agreements$1,460,000 $$1,460,000 $(1,458,700)(1)$1,300 
LiabilitiesGross
Amounts
of Recognized
Liabilities
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Pledged
Repurchase agreements$300,000 $$300,000 $(300,000)(2)$
(1)Represents the fair value of securities and loans the Company has received under resale agreements, limited to the amount of the recognized asset due from each counterparty for presentation purposes. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.
(2)Represents the fair value of securities the Company has pledged under repurchase agreements, limited to the amount of the recognized liability due to each counterparty for presentation purpose. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to derivatives. Refer to Note 6 Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

Note 5 — Securities

The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of AFS debt securities as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
AFS debt securities:
U.S. Treasury securities$841,890 $1,148 $(6,098)$836,940 
U.S. government agency and U.S. government-sponsored enterprise debt securities1,237,278 5,835 (18,602)1,224,511 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,177,949 23,374 (12,683)1,188,640 
Residential mortgage-backed securities2,375,536 18,186 (25,170)2,368,552 
Municipal securities445,028 11,532 (1,637)454,923 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities360,704 5,282 (1,814)364,172 
Residential mortgage-backed securities772,382 2,308 (2,216)772,474 
Corporate debt securities558,295 8,597 (14,177)552,715 
Foreign government bonds286,579 512 (3,916)283,175 
Asset-backed securities61,501 335 (7)61,829 
CLOs294,000 (2,471)291,529 
Total AFS debt securities$8,411,142 $77,109 $(88,791)$8,399,460 
22


($ in thousands)December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
AFS debt securities:
U.S. Treasury securities$50,310 $451 $$50,761 
U.S. government agency and U.S. government-sponsored enterprise debt securities806,814 8,765 (1,260)814,319 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,125,174 34,306 (5,710)1,153,770 
Residential mortgage-backed securities1,634,553 27,952 (1,611)1,660,894 
Municipal securities382,573 13,588 (88)396,073 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities234,965 6,107 (1,230)239,842 
Residential mortgage-backed securities288,520 1,761 (506)289,775 
Corporate debt securities406,323 3,493 (3,848)405,968 
Foreign government bonds183,828 163 (1,460)182,531 
Asset-backed securities63,463 10 (242)63,231 
CLOs294,000 (6,506)287,494 
Total AFS debt securities$5,470,523 $96,596 $(22,461)$5,544,658 

As of June 30, 2021 and December 31, 2020, the amortized cost of AFS debt securities excluded accrued interest receivables of $30.0 million and $22.3 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivable, see Note 1 — Summary of Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in the Company’s 2020 Form 10-K.

23


Unrealized Losses

The following tables present the fair value and the associated gross unrealized losses of the Company’s AFS debt securities, aggregated by investment category and the length of time that the securities have been in a continuous unrealized loss position as of June 30, 2021 and December 31, 2020.
($ in thousands)June 30, 2021
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$544,599 $(6,098)$$$544,599 $(6,098)
U.S. government agency and U.S. government sponsored enterprise debt securities782,327 (17,402)23,776 (1,200)806,103 (18,602)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities491,515 (11,487)28,399 (1,196)519,914 (12,683)
Residential mortgage-backed securities1,346,061 (25,170)1,346,061 (25,170)
Municipal securities108,695 (1,637)108,695 (1,637)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities102,043 (1,806)15,579 (8)117,622 (1,814)
Residential mortgage-backed securities464,404 (2,216)464,404 (2,216)
Corporate debt securities254,723 (11,277)57,100 (2,900)311,823 (14,177)
Foreign government bonds59,189 (3,146)92,844 (770)152,033 (3,916)
Asset-backed securities15,948 (7)15,948 (7)
CLOs291,529 (2,471)291,529 (2,471)
Total AFS debt securities$4,169,504 $(80,246)$509,227 $(8,545)$4,678,731 $(88,791)
($ in thousands)December 31, 2020
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$352,521 $(1,260)$$$352,521 $(1,260)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities292,596 (5,656)3,543 (54)296,139 (5,710)
Residential mortgage-backed securities342,561 (1,611)342,561 (1,611)
Municipal securities24,529 (88)24,529 (88)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities58,738 (1,230)7,920 66,658 (1,230)
Residential mortgage-backed securities90,156 (506)90,156 (506)
Corporate debt securities251,674 (3,645)9,798 (203)261,472 (3,848)
Foreign government bonds106,828 (1,460)106,828 (1,460)
Asset-backed securities34,104 (242)34,104 (242)
CLOs287,494 (6,506)287,494 (6,506)
Total AFS debt securities$1,519,603 $(15,456)$342,859 $(7,005)$1,862,462 $(22,461)

24


As of June 30, 2021, the Company had a total of 253 AFS debt securities in a gross unrealized loss position with 0 credit impairment that were comprised primarily of 102 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 34 U.S. government agency and U.S. government-sponsored enterprise debt securities, and 18 corporate debt securities. In comparison, as of December 31, 2020, the Company had a total of 104 AFS debt securities in a gross unrealized loss position with 0 credit impairment that were comprised primarily of 46 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities and 17 corporate debt securities.

Allowance for Credit Losses

Each reporting period, the Company assesses each AFS debt security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 1 — Summary of Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in the Company’s 2020 Form 10-K.

The gross unrealized losses presented in the above tables were primarily attributable to yield curve movements and widened liquidity spreads. Securities that were in unrealized loss positions as of June 30, 2021 were mainly comprised of the following:

U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities — The market value decline as of June 30, 2021 was primarily due to interest rate movement. These securities (issued by Fannie Mae, Ginnie Mae and Freddie Mac) are guaranteed or sponsored by agencies of the U.S. government, and the credit profiles are strong (rated Aaa, AA+ and AAA by Moody’s Investors Service (“Moody’s”), Standard and Poor's (“S&P”) and Fitch Ratings (“Fitch”), respectively). The Company expects to receive all contractual cash flows on time and believes the risk of credit losses on these securities is remote.
U.S. government agency and U.S. government-sponsored enterprise debt securities — The market value decline as of June 30, 2021 was primarily due to interest rate movement. The securities consisted of the debt securities issued by:
Federal Farm Credit Bank, Fannie Mae, Freddie Mac, and U.S. International Development Finance Corporation (rated Aaa, AA+ and AAA by Moody’s, S&P and Fitch, respectively).
FHLB debt obligations (rated Aaa and AA+ by Moody’s and S&P, respectively).
These securities are guaranteed or issued by entities sponsored by the U.S. government and the credit profiles are strong. The Company expects to receive all contractual cash flows on time and believes the risk of credit losses on these securities is remote.
Corporate debt securities The market value decline as of June 30, 2021 was primarily due to interest rate movement and spread widening. Since credit profiles of these securities are strong (rated BBB- or higher by Moody’s, S&P, Kroll Bond Rating Agency and Fitch), and the contractual payments from these bonds have been and are expected to be received on time, the Company believes that the risk of credit losses on these securities is remote.

The impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic has been reduced by the government’s aggressive monetary policy, including benchmark rate cuts, and various relief measures that contributed to the gradual and steady recovery of the market to pre-pandemic levels. Overall, the Company believes that the credit support levels of the AFS debt securities are strong and, based on current assessments and macroeconomic forecasts, expects that full contractual cash flows will be received, even if near-term credit performance could suffer from future unpredictable impacts of the COVID-19 pandemic, including new and more contagious variants.

As of June 30, 2021 and December 31, 2020, the Company had the intent to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-likely-than-not that the Company will not have to sell these securities before the recovery of their amortized cost. The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities. As a result, the Company expects to recover the entire amortized cost basis of these securities. Accordingly, there was 0 allowance for credit losses as of June 30, 2021 and December 31, 2020 provided against these securities. In addition, there was 0 provision for credit losses recognized for the three and six months ended June 30, 2021 and 2020.

25


Realized Gains and Losses

The following table presents the gross realized gains and tax expense related to the sales of AFS debt securities for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Gross realized gains$632 $9,640 $824 $11,169 
Related tax expense$187 $2,850 $244 $3,302 

Contractual Maturities of Available-for-Sale Debt Securities

The following table presents the contractual maturities of AFS debt securities as of June 30, 2021. Expected maturities will differ from contractual maturities on certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.
($ in thousands)Amortized CostFair Value
Due within one year$1,379,762 $1,353,523 
Due after one year through five years785,678 790,794 
Due after five years through ten years1,483,790 1,491,799 
Due after ten years4,761,912 4,763,344 
Total AFS debt securities$8,411,142 $8,399,460 

As of June 30, 2021 and December 31, 2020, AFS debt securities with fair values of $618.1 million and $588.5 million, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.

Restricted Equity Securities

The following table presents the restricted equity securities on the Consolidated Balance Sheet as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021December 31, 2020
Federal Reserve Bank of San Francisco (“FRBSF”) stock$59,681 $59,249 
FHLB stock17,250 23,797 
Total restricted equity securities$76,931 $83,046 

Note 6 — Derivatives

The Company uses derivatives to manage exposure to market risk, primarily interest rate or foreign currency risk, as well as to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly affect earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Bank’s investment in East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives serve as economic hedges. For additional information on the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

26


The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments on an aggregate basis as of June 30, 2021 and December 31, 2020. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of June 30, 2021 and December 31, 2020. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
($ in thousands)June 30, 2021December 31, 2020
Notional
Amount
Fair ValueNotional
Amount
Fair Value
Derivative
Assets 
Derivative
 Liabilities 
Derivative
Assets 
Derivative
 Liabilities 
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate contracts$275,000 $$1,184 $275,000 $$1,864 
Net investment hedges:
Foreign exchange contracts85,176 195 84,269 235 
Total derivatives designated as hedging instruments$360,176 $0 $1,379 $359,269 $0 $2,099 
Derivatives not designated as hedging instruments:
Interest rate contracts$17,836,695 $329,953 $227,768 $18,155,678 $489,132 $315,834 
Foreign exchange contracts3,756,284 29,867 20,360 3,108,488 30,300 22,524 
Credit contracts83,693 87 76,992 13 206 
Equity contracts(1)223 (1)858 
Commodity contracts(2)228,536 199,327 (2)82,451 84,165 
Total derivatives not designated as hedging instruments$21,676,672 $588,582 $447,542 $21,341,158 $602,754 $422,729 
Gross derivative assets/liabilities$588,582 $448,921 $602,754 $424,828 
Less: Master netting agreements(89,723)(89,723)(93,063)(93,063)
Less: Cash collateral received/paid(3,368)(163,586)(8,449)(91,634)
Net derivative assets/liabilities$495,491 $195,612 $501,242 $240,131 
(1)The Company held equity contracts in 14 private companies as of June 30, 2021. In comparison, the Company held equity contracts in 2 public companies and 17 private companies as of December 31, 2020.
(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 8,484 thousand barrels of crude oil and 119,921 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of June 30, 2021. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 6,321 thousand barrels of crude oil and 109,635 thousand MMBTUs of natural gas as of December 31, 2020. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

Derivatives Designated as Hedging Instruments

Fair Value Hedges — The Company entered into interest rate swaps designated as fair value hedges to hedge changes in the fair value of certain certificates of deposit due to changes in the benchmark interest rate. The interest rate swaps involved the exchange of variable-rate payments over the life of the agreements without exchanging the underlying notional amounts. During the fourth quarter of 2020, both the hedging interest rate swaps and hedged certificates of deposit were called.

As of both June 30, 2021 and December 31, 2020, there were 0 fair value hedges or hedged certificates of deposit outstanding. There were 0 gains or losses recognized on the Consolidated Statement of Income related to the derivatives designated as fair value hedges for both the three and six months ended June 30, 2021. In comparison, the net gains recognized on interest rate swaps were $951 thousand and $3.0 million, and the net losses recognized on certificates of deposit were $357 thousand and $1.7 million for the three and six months ended June 30, 2020, respectively, both of which were recorded in interest expense on the Consolidated Statement of Income.

27


Cash Flow Hedges The Company entered into interest rate swaps that were designated and qualified as cash flow hedges to limit the exposure to the variability in interest payments on certain floating rate borrowings. For cash flow hedges, the entire change in the fair value of the hedging instruments is recognized in AOCI and reclassified to earnings in the same period when the hedged cash flows impact earnings. Reclassified gains and losses on interest rate swaps are recorded in the same line item as the interest payments of the hedged long-term borrowings within Interest expense in the Consolidated Statements of Income. Considering the interest rates, yield curve and notional amounts as of June 30, 2021, the Company expected to reclassify an estimated $605 thousand of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

The following table presents the pre-tax changes in AOCI from cash flow hedges for the three and six months ended June 30, 2021 and 2020. The after-tax impact of cash flow hedges on AOCI is discussed in Note 13 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
 (Losses) gains recognized in AOCI$(106)$(1,483)$320 $(1,483)
 (Losses) gains reclassified from AOCI to interest expense$(201)$377 $(378)$377 

Net Investment Hedges ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions and ASC 815, Derivatives and Hedging, allow hedging of the foreign currency risk of a net investment in a foreign operation. The Company enters into foreign currency forward contracts to hedge a portion of the Bank’s investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The hedging instruments designated as net investment hedges involve hedging the risk of changes in the USD equivalent value of a designated monetary amount of the Bank’s net investment in East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate of the Chinese Renminbi (“RMB”). The Company may de-designate the net investment hedges when the Company expects the hedge will cease to be effective.

The following table presents the after-tax (losses) gains recognized in AOCI on net investment hedges for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(Losses) gains recognized in AOCI$(1,643)$(377)$(1,543)$627 

Derivatives Not Designated as Hedging Instruments

Interest Rate Contracts The Company enters into interest rate contracts, which include interest rate swaps and options with its customers to allow the customers to hedge against the risk of rising interest rates on their variable rate loans. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions, including central clearing organizations.

The following tables present the notional amounts and the gross fair values of interest rate derivative contracts outstanding as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount
Fair ValueNotional
Amount
Fair Value
AssetsLiabilitiesAssetsLiabilities
Written options$850,152 $$650 Purchased options$850,152 $656 $
Sold collars and corridors424,212 3,864 218 Collars and corridors424,212 214 3,910 
Swaps7,628,895 309,520 25,743 Swaps7,659,072 15,699 197,247 
Total$8,903,259 $313,384 $26,611 Total$8,933,436 $16,569 $201,157 
28


($ in thousands)December 31, 2020
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount
Fair ValueNotional
Amount
Fair Value
AssetsLiabilitiesAssetsLiabilities
Written options$957,393 $$115 Purchased options$957,393 $101 $15 
Sold collars and corridors518,477 7,673 Collars and corridors518,477 7,717 
Swaps7,586,414 479,634 1,364 Swaps7,617,524 1,724 306,623 
Total$9,062,284 $487,307 $1,479 Total$9,093,394 $1,825 $314,355 

Included in the total notional amount of $8.93 billion of interest rate contracts entered into with financial counterparties as of June 30, 2021, was a notional amount of $2.96 billion of interest rate swaps that cleared through London Clearing House (“LCH”). Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair value of $13.4 million and liability fair value of $120.0 million as of June 30, 2021. In comparison, included in the total notional amount of $9.09 billion of interest rate contracts entered into with financial counterparties as of December 31, 2020 was a notional amount of $2.98 billion of interest rate swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $1.3 million and liability fair values of $187.4 million as of December 31, 2020.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forwards, spot, swap and option contracts to accommodate the business needs of its customers. The Company enters into offsetting foreign exchange contracts with third-party financial institutions to manage its foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. The Company also utilizes foreign exchange contracts to mitigate the economic effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily foreign currency-denominated deposits offered to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both June 30, 2021 and December 31, 2020.

The following tables present the notional amounts and the gross fair values of foreign exchange derivative contracts outstanding as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount
Fair ValueNotional
Amount
Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$2,299,644 $20,026 $16,189 Forwards and spot$219,671 $1,575 $1,083 
Swaps103,086 182 651 Swaps892,913 8,052 2,405 
Written options118,350 31 Purchased options118,350 31 
Collars2,135 Collars2,135 
Total$2,523,215 $20,209 $16,871 Total$1,233,069 $9,658 $3,489 
($ in thousands)December 31, 2020
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount
Fair ValueNotional
Amount
Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$1,522,888 $17,575 $17,928 Forwards and spot$145,197 $1,230 $273 
Swaps13,590 872 91 Swaps1,191,355 10,049 3,658 
Written options117,729 574 Purchased options117,729 574 
Total$1,654,207 $18,447 $18,593 Total$1,454,281 $11,853 $3,931 

29


Credit Contracts — The Company may periodically enter into RPAs with institutional counterparties to manage the credit exposure on interest rate contracts associated with syndicated loans. The Company may enter into protection sold or protection purchased RPAs. Under the RPAs, the Company will disburse or receive a payment if a borrower defaults on the related interest rate contract. Credit risk on RPAs is managed by monitoring the credit worthiness of the borrowers and institutional counterparties, which is part of the normal credit review process. The majority of the reference entities of the protection sold RPAs were investment grade as of June 30, 2021, while all were investment grade as of December 31, 2020. Assuming the underlying borrower referenced in the interest rate contracts defaulted as of June 30, 2021 and December 31, 2020, the maximum exposure of protection sold RPAs would be $5.0 million and $6.0 million, respectively. As of June 30, 2021 and December 31, 2020, the weighted-average remaining maturities of the outstanding protection sold RPAs were 3.7 years and 3.5 years, respectively.

The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. The following table presents the notional amounts and the gross fair values of RPAs sold and purchased outstanding as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021December 31, 2020
Notional
Amount
Fair ValueNotional
Amount
Fair Value
AssetsLiabilitiesAssetsLiabilities
RPAs - protection sold$72,979 $$87 $66,278 $$206 
RPAs - protection purchased10,714 10,714 13 
Total RPAs$83,693 $3 $87 $76,992 $13 $206 

Equity Contracts — Periodically, as part of the Company’s loan origination process, the Company obtains warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The Company held warrants in 14 private companies as of June 30, 2021, and held warrants in 2 public companies and 17 private companies as of December 31, 2020. The total fair value of the warrants held in both public and private companies was $223 thousand and $858 thousand as of June 30, 2021 and December 31, 2020, respectively.

Commodity Contracts — The Company enters into energy commodity contracts in the form of swaps and options with its commercial loan customers to allow them to hedge against the risk of energy commodity price fluctuation. To economically hedge against the risk of commodity price fluctuation in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions to manage the exposure.

The following tables present the notional amounts and fair values of the commodity derivative positions outstanding as of June 30, 2021 and December 31, 2020:
($ and units in thousands)June 30, 2021
Customer Counterparty($ and units in thousands)Financial Counterparty
Notional
Unit
Fair ValueNotional
Unit
Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Written options210 Barrels$288 $Purchased options210 Barrels$$241 
Collars2,406 Barrels28,308 35 Collars2,406 Barrels35 27,811 
Swaps5,868 Barrels92,924 27 Swaps5,868 Barrels60 76,813 
Total8,484 $121,520 $64 Total8,484 $95 $104,865 
Natural gas:Natural gas:
Written options5,336 MMBTUs$$16 Purchased options5,336 MMBTUs$16 $
Collars18,178 MMBTUs9,327 Collars23,468 MMBTUs7,879 
Swaps96,407 MMBTUs72,438 25,144 Swaps103,653 MMBTUs25,137 61,356 
Total119,921 $81,768 $25,160 Total132,457 $25,153 $69,238 
Total$203,288 $25,224 Total$25,248 $174,103 
30


($ and units in thousands)December 31, 2020
Customer Counterparty($ and units in thousands)Financial Counterparty
Notional
Unit
Fair ValueNotional
Unit
Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Collars2,022 Barrels$2,344 $2,193 Collars2,022 Barrels$2,217 $2,402 
Swaps4,299 Barrels9,282 14,283 Swaps4,299 Barrels8,220 7,135 
Total6,321 $11,626 $16,476 Total6,321 $10,437 $9,537 
Natural gas:Natural gas:
Written options597 MMBTUs$$59 Purchased options597 MMBTUs$59 $
Collars12,733 MMBTUs1,063 205 Collars16,293 MMBTUs205 813 
Swaps96,305 MMBTUs32,073 27,238 Swaps103,973 MMBTUs26,988 29,837 
Total109,635 $33,136 $27,502 Total120,863 $27,252 $30,650 
Total$44,762 $43,978 Total$37,689 $40,187 

As of June 30, 2021, the notional quantities that cleared through the Chicago Mercantile Exchange (“CME”) totaled 1,097 thousand barrels of crude oil and 26,515 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in reductions to the gross derivative asset fair value of $3.8 million and to the liability fair value of $29.2 million as of June 30, 2021, to a net fair value liability of $3.9 million. In comparison, the notional quantities that cleared through CME totaled 1,275 thousand barrels of crude oil and 29,733 thousand MMBTUs of natural gas as of December 31, 2020. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction to the gross derivative asset fair value of $7.9 million and to the liability fair value of $3.7 million, as of December 31, 2020, to a net fair value of 0.

The following table presents the net gains (losses) recognized on the Company’s Consolidated Statement of Income related to derivatives not designated as hedging instruments for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Classification on
Consolidated
Statement of Income
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Derivatives not designated as hedging instruments:
Interest rate contractsInterest rate contracts and other derivative income$(5,338)$(5,361)$8,563 $(12,372)
Foreign exchange contractsForeign exchange income11,972 6,201 22,215 9,062 
Credit contractsInterest rate contracts and other derivative income150 (75)195 (98)
Equity contractsLending fees74 8,070 385 8,379 
Commodity contractsInterest rate contracts and other derivative income(188)(71)(19)(47)
Net gains$6,670 $8,764 $31,339 $4,924 

Credit Risk-Related Contingent Features Certain over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit risk-related event. These events, which are defined by the existing derivative contracts, primarily relate to a downgrade in the credit rating of East West Bank to below investment grade. As of June 30, 2021, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $89.3 million, in which $89.1 million of collateral was posted to cover these positions. As of December 31, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $107.4 million, in which $106.8 million of collateral was posted to cover these positions. In the event that the credit rating of East West Bank had been downgraded to below investment grade, minimal additional collateral would have been required to be posted as of June 30, 2021 and December 31, 2020.
31


Offsetting of Derivatives

The following tables present the gross derivative fair values, the balance sheet netting adjustments and the resulting net fair values recorded on the Consolidated Balance Sheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements with central counterparties, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability, after the application of netting; therefore, instances of overcollateralization are not shown:
($ in thousands)As of June 30, 2021
Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet
Net Amounts
Presented
on the
Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$588,582 $(89,723)$(3,368)$495,491 $$495,491 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the
Consolidated Balance Sheet
Net Amounts
Presented
on the
Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities$448,921 $(89,723)$(163,586)$195,612 $(155,245)$40,367 
($ in thousands)As of December 31, 2020
 Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet
Net Amounts
Presented
on the
Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$602,754 $(93,063)$(8,449)$501,242 $(35)$501,207 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the Consolidated Balance SheetNet Amounts
Presented
on the
Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities$424,828 $(93,063)$(91,634)$240,131 $(221,150)$18,981 
(1)Includes $940 thousand and $1.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of June 30, 2021 and December 31, 2020, respectively.
(2)Includes $842 thousand and $220 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of June 30, 2021 and December 31, 2020, respectively.
(3)Gross cash collateral received under master netting arrangements or similar agreements were $9.8 million and $15.8 million as of June 30, 2021 and December 31, 2020, respectively. Of the gross cash collateral received, $3.4 million and $8.4 million were used to offset against derivative assets as of June 30, 2021 and December 31, 2020, respectively.
(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $163.9 million and $91.6 million as of June 30, 2021 and December 31, 2020, respectively. Of the gross cash collateral pledged, $163.6 million and $91.6 million were used to offset against derivative liabilities as of June 30, 2021 and December 31, 2020, respectively.
(5)Represents the fair value of security collateral received and pledged limited to derivative assets and liabilities that are subject to enforceable master netting arrangements or similar agreements. GAAP does not permit the netting of noncash collateral on the Consolidated Balance Sheet but requires disclosure of such amounts.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to resale and repurchase agreements. Refer to Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q for additional information. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures on derivatives.
32


Note 7 — Loans Receivable and Allowance for Credit Losses

The following table presents the composition of the Company’s loans held-for-investment as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021December 31, 2020
Commercial:
C&I (1)
$13,790,461 $13,631,726 
CRE:
CRE11,711,369 11,174,611 
Multifamily residential3,219,796 3,033,998 
Construction and land460,678 599,692 
Total CRE15,391,843 14,808,301 
Total commercial29,182,304 28,440,027 
Consumer:
Residential mortgage:
Single-family residential8,869,370 8,185,953 
HELOCs1,872,166 1,601,716 
Total residential mortgage10,741,536 9,787,669 
Other consumer147,659 163,259 
Total consumer10,889,195 9,950,928 
Total loans held-for-investment (2)
$40,071,499 $38,390,955 
Allowance for loan losses(585,724)(619,983)
Loans held-for-investment, net (2)
$39,485,775 $37,770,972 
(1)Includes Paycheck Protection Program (“PPP”) loans of $1.43 billion and $1.57 billion as of June 30, 2021 and December 31, 2020, respectively.
(2)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(67.0) million and $(58.8) million as of June 30, 2021 and December 31, 2020, respectively. Net origination fees related to PPP loans were $(25.9) million and $(12.7) million as of June 30, 2021 and December 31, 2020, respectively.

Loans held-for-investment accrued interest receivable was $103.6 million and $107.5 million as of June 30, 2021 and December 31, 2020, respectively, and is presented in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

Loans totaling $24.23 billion and $23.26 billion as of June 30, 2021 and December 31, 2020, respectively, were pledged to secure borrowings and provide additional borrowing capacity from the FRBSF and the FHLB.

Credit Quality Indicators

All loans are subject to the Company’s credit review and monitoring process. For the commercial portfolio, loans are risk rated based on an analysis of the borrower’s current payment performance or delinquency, repayment sources, financial and liquidity factors, including industry and geographic considerations. For the majority of the consumer portfolio, payment performance or delinquency is the driving indicator for the risk ratings. The Company utilizes internal credit risk ratings to assign each individual loan a risk rating of one through 10. Loans risk rated one through five are assigned an internal risk rating of “Pass.” Loans risk rated one are typically loans fully secured by cash. Pass loans have sufficient sources of repayment to repay the loan in full, in accordance with all terms and conditions. Loans assigned a risk rating of six have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating of “Special Mention.” Loans assigned a risk rating of seven or eight have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating of “Substandard.” Loans assigned a risk rating of nine have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating of “Doubtful.” Loans assigned a risk rating of 10 are uncollectible and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating of “Loss.” Exposures categorized as criticized consist of special mention, substandard, doubtful and loss categories. The Company reviews the internal risk ratings of its loan portfolio on a regular basis, and adjusts the ratings based on changes in the borrowers’ financial status and the collectability of the loans.
33


The following tables summarize the Company’s loans held-for-investment as of June 30, 2021 and December 31, 2020, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification.
June 30, 2021
Term LoansRevolving Loans
Amortized Cost Basis
Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
($ in thousands)20212020201920182017Prior
Commercial:
C&I:
Pass$2,473,716 $2,133,586 $1,062,978 $333,190 $200,711 $261,156 $6,706,592 $29,175 $13,201,104 
Criticized (accrual)63,030 115,148 87,636 13,847 3,184 4,939 218,348 506,132 
Criticized (nonaccrual)16,760 814 2,114 20,977 12,748 1,377 28,435 83,225 
Total C&I2,553,506 2,249,548 1,152,728 368,014 216,643 267,472 6,953,375 29,175 13,790,461 
CRE:
CRE:
Pass1,296,562 2,215,380 2,316,293 2,142,042 1,239,195 2,021,101 153,758 24,073 11,408,404 
Criticized (accrual)80,204 13,844 48,131 9,743 33,358 58,905 244,185 
Criticized (nonaccrual)4,500 46,829 5,868 1,583 58,780 
Total CRE1,381,266 2,229,224 2,364,424 2,198,614 1,278,421 2,081,589 153,758 24,073 11,711,369 
Multifamily residential:
Pass384,655 760,226 743,769 454,684 338,701 469,340 6,430 3,157,805 
Criticized (accrual)728 22,337 6,035 29,998 59,098 
Criticized (nonaccrual)1,189 1,704 2,893 
Total multifamily residential384,655 760,226 744,497 478,210 344,736 501,042 6,430 3,219,796 
Construction and land:
Pass54,054 120,898 130,702 111,112 1,421 418,187 
Criticized (accrual)3,440 19,151 22,591 
Criticized (nonaccrual)19,900 19,900 
Total construction and land57,494 120,898 130,702 111,112 40,472 460,678 
Total CRE1,823,415 3,110,348 3,239,623 2,787,936 1,623,157 2,623,103 160,188 24,073 15,391,843 
Total commercial4,376,921 5,359,896 4,392,351 3,155,950 1,839,800 2,890,575 7,113,563 53,248 29,182,304 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
1,526,669 2,319,273 1,567,312 1,273,541 879,004 1,282,396 8,848,195 
Criticized (accrual)397 156 1,100 1,653 
Criticized (nonaccrual) (1)
1,125 1,420 2,667 2,245 12,065 19,522 
Total single-family residential mortgage1,527,794 2,319,670 1,568,888 1,277,308 881,249 1,294,461 8,869,370 
HELOCs:
Pass1,938 1,501 1,824 4,508 11,385 1,592,348 247,174 1,860,678 
Criticized (accrual)201 600 366 1,167 
Criticized (nonaccrual)618 188 3,533 1,927 4,055 10,321 
Total HELOCs1,938 2,119 2,213 8,041 13,912 1,592,714 251,229 1,872,166 
Total residential mortgage1,527,794 2,321,608 1,571,007 1,279,521 889,290 1,308,373 1,592,714 251,229 10,741,536 
Other consumer:
Pass4,096 7,228 1,741 81,906 50,166 145,137 
Criticized (accrual)19 19 
Criticized (nonaccrual)2,491 12 2,503 
Total other consumer4,115 7,228 4,232 81,906 50,178 147,659 
Total consumer1,531,909 2,328,836 1,571,007 1,279,521 893,522 1,390,279 1,642,892 251,229 10,889,195 
Total$5,908,830 $7,688,732 $5,963,358 $4,435,471 $2,733,322 $4,280,854 $8,756,455 $304,477 $40,071,499 
34


($ in thousands)December 31, 2020
Term LoansRevolving Loans
Amortized Cost Basis
Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
20202019201820172016Prior
Commercial:
C&I:
Pass$3,912,147 $1,477,740 $483,725 $245,594 $69,482 $245,615 $6,431,003 $29,487 $12,894,793 
Criticized (accrual)120,183 74,601 56,785 19,426 1,487 5,872 324,640 602,994 
Criticized (nonaccrual)2,125 25,267 22,240 18,787 4,964 1,592 58,964 133,939 
Total C&I4,034,455 1,577,608 562,750 283,807 75,933 253,079 6,814,607 29,487 13,631,726 
CRE:
CRE:
Pass2,296,649 2,402,136 2,310,748 1,328,251 732,694 1,529,681 173,267 19,064 10,792,490 
Criticized (accrual)47,459 63,654 43,447 98,259 2,094 80,662 335,575 
Criticized (nonaccrual)42,067 1,115 3,364 46,546 
Total CRE2,344,108 2,465,790 2,396,262 1,427,625 734,788 1,613,707 173,267 19,064 11,174,611 
Multifamily residential:
Pass783,671 783,589 479,959 411,945 181,213 348,751 5,895 2,995,023 
Criticized (accrual)735 22,330 6,101 264 5,877 35,307 
Criticized (nonaccrual)1,475 2,193 3,668 
Total multifamily residential783,671 784,324 503,764 418,046 181,477 356,821 5,895 3,033,998 
Construction and land:
Pass224,924 172,707 156,712 20,897 1,028 576,268 
Criticized (accrual)3,524 19,900 23,424 
Criticized (nonaccrual)
Total construction and land228,448 172,707 156,712 20,897 20,928 599,692 
Total CRE3,356,227 3,422,821 3,056,738 1,845,671 937,162 1,991,456 179,162 19,064 14,808,301 
Total commercial7,390,682 5,000,429 3,619,488 2,129,478 1,013,095 2,244,535 6,993,769 48,551 28,440,027 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
2,385,853 1,813,200 1,501,660 1,021,707 523,170 921,714 8,167,304 
Criticized (accrual)1,429 119 1,034 2,582 
Criticized (nonaccrual) (1)
226 812 1,789 1,994 11,246 16,067 
Total single-family residential mortgage2,385,853 1,814,855 1,502,472 1,023,496 525,283 933,994 8,185,953 
HELOCs:
Pass1,131 880 2,879 5,363 8,433 13,475 1,328,919 225,810 1,586,890 
Criticized (accrual)200 996 1,328 606 3,130 
Criticized (nonaccrual)151 285 4,617 164 1,962 4,517 11,696 
Total HELOCs1,131 1,031 3,364 9,980 9,593 15,437 1,330,247 230,933 1,601,716 
Total residential mortgage2,386,984 1,815,886 1,505,836 1,033,476 534,876 949,431 1,330,247 230,933 9,787,669 
Other consumer:
Pass9,531 1,830 83,255 66,136 160,752 
Criticized (accrual)16 16 
Criticized (nonaccrual)2,491 2,491 
Total other consumer9,547 4,321 83,255 66,136 163,259 
Total consumer2,396,531 1,815,886 1,505,836 1,037,797 534,876 1,032,686 1,396,383 230,933 9,950,928 
Total$9,787,213 $6,816,315 $5,125,324 $3,167,275 $1,547,971 $3,277,221 $8,390,152 $279,484 $38,390,955 
(1)As of June 30, 2021 and December 31, 2020, $647 thousand and $747 thousand of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration, respectively, were classified with a “Pass” rating.

35


Revolving loans converted to term loans presented in the table above are excluded from the term loans by vintage year columns. During the three and six months ended June 30, 2021, HELOCs totaling $20.9 million and $57.6 million, respectively, were converted to term loans. In comparison, during the three and six months ended June 30, 2020, HELOCs totaling $12.1 million and $43.4 million, respectively, were converted to term loans. During both the three and six months ended June 30, 2021 and 2020, there were 0 conversions of C&I revolving loans to term loans. There were 0 conversions of CRE revolving loans to term loans during the three months ended June 30, 2021. NaN CRE revolving loans totaling $5.0 million were converted to term loans during the six months ended June 30, 2021. In comparison, there were 0 conversions of CRE revolving loans to term loans during both the three and six months ended June 30, 2020.

Nonaccrual and Past Due Loans

Loans that are 90 or more days past due are generally placed on nonaccrual status, unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. Payment deferral activities instituted in response to the COVID-19 pandemic could delay the recognition of delinquencies for customers who otherwise would have moved into nonaccrual status. The following tables present the aging analysis of total loans held-for-investment as of June 30, 2021 and December 31, 2020:
($ in thousands)June 30, 2021
Current
Accruing
Loans (1)
Accruing
Loans
30-59  Days
Past Due
Accruing
Loans
60-89  Days
Past Due
Total
Accruing
Past Due
Loans
Total
Nonaccrual
Loans
Total
Loans
Commercial:
C&I$13,677,054 $30,148 $34 $30,182 $83,225 $13,790,461 
CRE:
CRE11,647,942 4,647 4,647 58,780 11,711,369 
Multifamily residential3,215,139 1,764 1,764 2,893 3,219,796 
Construction and land440,778 0��19,900 460,678 
Total CRE15,303,859 6,411 6,411 81,573 15,391,843 
Total commercial28,980,913 36,559 34 36,593 164,798 29,182,304 
Consumer:
Residential mortgage:
Single-family residential8,834,580 12,969 1,653 14,622 20,168 8,869,370 
HELOCs1,858,040 2,643 1,162 3,805 10,321 1,872,166 
Total residential mortgage10,692,620 15,612 2,815 18,427 30,489 10,741,536 
Other consumer144,871 265 20 285 2,503 147,659 
Total consumer10,837,491 15,877 2,835 18,712 32,992 10,889,195 
Total$39,818,404 $52,436 $2,869 $55,305 $197,790 $40,071,499 

36


($ in thousands)December 31, 2020
Current
Accruing
Loans (1)
Accruing
Loans
30-59 Days
Past Due
Accruing
Loans
60-89 Days
Past Due
Total
Accruing
Past Due
Loans
Total
Nonaccrual
Loans
Total
Loans
Commercial:
C&I$13,488,070 $8,993 $724 $9,717 $133,939 $13,631,726 
CRE:
CRE11,127,690 375 375 46,546 11,174,611 
Multifamily residential3,028,512 1,818 1,818 3,668 3,033,998 
Construction and land579,792 19,900 19,900 599,692 
Total CRE14,735,994 22,093 22,093 50,214 14,808,301 
Total commercial28,224,064 31,086 724 31,810 184,153 28,440,027 
Consumer:
Residential mortgage:
Single-family residential8,156,645 9,911 2,583 12,494 16,814 8,185,953 
HELOCs1,583,968 2,922 3,130 6,052 11,696 1,601,716 
Total residential mortgage9,740,613 12,833 5,713 18,546 28,510 9,787,669 
Other consumer160,534 217 17 234 2,491 163,259 
Total consumer9,901,147 13,050 5,730 18,780 31,001 9,950,928 
Total$38,125,211 $44,136 $6,454 $50,590 $215,154 $38,390,955 
(1)As of June 30, 2021 and December 31, 2020, loans in payment deferral programs offered in response to the COVID-19 pandemic that are performing according to their modified terms are generally not considered delinquent, and are included in the “Current Accruing Loans” column.

The following table presents the amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of both June 30, 2021 and December 31, 2020. Nonaccrual loans may not have an allowance for credit losses if the loss expectation is zero because the loan balances are supported by the collateral value.
($ in thousands)June 30, 2021December 31, 2020
Commercial:
C&I$44,110 $62,040 
CRE:
CRE58,346 45,537 
Multifamily residential2,428 2,519 
Construction and land19,900 
Total CRE80,674 48,056 
Total commercial124,784 110,096 
Consumer:
Residential mortgage:
Single-family residential8,702 6,013 
HELOCs6,871 8,076 
Total residential mortgage15,573 14,089 
Other consumer2,491 
Total consumer15,573 16,580 
Total nonaccrual loans with no related allowance for loan losses$140,357 $126,676 

37


Foreclosed Assets

Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $27.9 million in foreclosed assets as of June 30, 2021, compared with $19.7 million as of December 31, 2020. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the Consumer Financial Protection Bureau guidelines. The carrying value of consumer real estate loans that were in the process of active or suspended foreclosure was $18.2 million and $4.1 million as of June 30, 2021 and December 31, 2020, respectively. The Company suspended certain mortgage foreclosure activities in connection with our actions to support our customers during the COVID-19 pandemic. In addition, certain other foreclosures are waiting the end of government-mandated foreclosure moratoriums in certain states.

Troubled Debt Restructurings

Troubled debt restructurings (“TDRs”) are individually evaluated, and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered. Since March 2020, the Company has implemented various commercial and consumer loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic. These COVID-related modifications are generally not classified as TDRs due to the relief under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Consolidated Appropriations Act, 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), and therefore are not included in the discussion below. Assistance provided in response to the COVID-19 pandemic could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those borrowers who would have otherwise moved into past due or nonaccrual status. See Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

The following tables present the additions to TDRs for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Loans Modified as TDRs During the Three Months Ended June 30,
20212020
Number
of
Loans
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Number
of
Loans
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Commercial:
C&I4$20,375 $20,084 $2,162 3$35,260 $28,926 $872 
Total4$20,375 $20,084 $2,162 3$35,260 $28,926 $872 
($ in thousands)Loans Modified as TDRs During the Six Months Ended June 30,
20212020
Number
of
Loans
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Number
of
Loans
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Commercial:
C&I5$20,818 $20,499 $2,318 6$51,708 $43,833 $1,000 
Total5$20,818 $20,499 $2,318 6$51,708 $43,833 $1,000 
(1)Includes subsequent payments after modification and reflects the balance as of June 30, 2021 and 2020.
(2)Includes charge-offs and specific reserves recorded since the modification date.

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The following tables present the TDR post-modification outstanding balances for the three and six months ended June 30, 2021 and 2020 by modification type:
($ in thousands)Modification Type During the Three Months Ended June 30,
20212020
Principal (1)
Principal
  and Interest
Interest
Deferments
Interest Rate ReductionTotal
Principal (1)
Principal
  and Interest
Interest
Deferments
Interest Rate ReductionTotal
Commercial:
C&I$3,373 $$$16,711 $20,084 $11,766 $$17,160 $$28,926 
Total$3,373 $0 $0 $16,711 $20,084 $11,766 $0 $17,160 $0 $28,926 
($ in thousands)Modification Type During the Six Months Ended June 30,
20212020
Principal (1)
Principal
  and Interest
Interest
Deferments
Interest Rate ReductionTotal
Principal (1)
Principal
  and Interest(2)
Interest
Deferments
Interest Rate ReductionTotal
Commercial:
C&I$3,788 $$$16,711 $20,499 $15,898 $10,775 $17,160 $$43,833 
Total$3,788 $0 $0 $16,711 $20,499 $15,898 $10,775 $17,160 $0 $43,833 
(1)Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.
(2)Includes principal and interest deferments or reductions.

After a loan is modified as TDR, the Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent and result in payment default (generally 90 days past due) subsequent to restructuring. The following tables present information on loans for which a subsequent payment default occurred during the three and six months ended June 30, 2021 and 2020, respectively, which had been modified as TDR within the previous 12 months of their default, and which were still in default as of June 30, 2021 and 2020.
($ in thousands)Loans Modified as TDRs that Subsequently Defaulted
During the Three Months Ended June 30,
20212020
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
Commercial:
C&I$$17,160 
Total0 $0 1 $17,160 
($ in thousands)Loans Modified as TDRs that Subsequently Defaulted
During the Six Months Ended June 30,
20212020
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
Commercial:
C&I$11,431 $17,160 
Total1 $11,431 1 $17,160 

The amount of additional funds committed to lend to borrowers whose terms have been modified as TDRs was $10.2 million and $3.0 million as of June 30, 2021 and December 31, 2020, respectively.

Allowance for Credit Losses

The Company has an allowance framework under ASU 2016-13 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets.

39


The allowance for credit losses is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred fees and costs, and escrow advances. Subsequent changes in expected credit losses are recognized in net income as a provision for, or a reversal of, credit loss expense.

The process of the allowance for credit losses involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively evaluated. The collectively evaluated loans cover performing risk-rated loans and unfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the Company generally estimates expected credit losses on an individual basis. The individually assessed loans cover loans modified in a TDR and collateral-dependent loans, as well as, risk-rated loans that have been placed on nonaccrual status.

Allowance for Collectively Evaluated Loans

The allowance for collectively evaluated loans consists of a quantitative component that assesses many different risk factors that we consider in our models and a qualitative component that considers risk factors external to the models. Each of these components are described below.

Quantitative Component — The allowance for loan losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the loans. The forward-looking information is limited to the reasonable and supportable period. These macroeconomic scenarios include variables that are considered key drivers of increases and decreases in credit losses. The Company utilizes a probability-weighted multiple scenario forecast approach. These scenarios may consist of a base forecast representing management's view of the most likely outcome, and downside or upside scenarios reflecting possible worsening or improving economic conditions. The quantitative models incorporate a probability-weighted calculation of these macroeconomic scenarios over a reasonable and supportable forecast period. If the loans’ lives extend beyond the reasonable and supportable forecast period, then historical experience, or long-run macroeconomic trends, are considered over the remaining lives of the loans to estimate allowance for loan losses.

Qualitative Component — The Company also considers the following qualitative factors in the determination of the collectively evaluated allowance, if these factors have not already been captured by the quantitative model. Such qualitative factors may include, but are not limited to:

Loan growth trends;
The volume and severity of past due financial assets, and the volume and severity of adversely classified financial assets;
The Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices;
Knowledge of a borrower’s operations;
The quality of the Company’s credit review system;
The experience, ability and depth of the Company’s management, lending associates and other relevant associates;
The effect of other external factors such as the regulatory and legal environments and changes in technology;
Actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates; and
Risk factors in certain industry sectors not captured by the quantitative models.

The magnitude of the impact of these factors on the Company’s qualitative assessment of the allowance for credit losses changes from period to period according to changes made by management in its assessment of these factors. The extent to which these factors change may be dependent on whether they are already reflected in quantitative loss estimates during the current period and the extent to which changes in these factors diverge from period to period. For both the three and six months ended June 30, 2021 and 2020, there were no changes to the reasonable and supportable forecast period and reversion to historical loss experience method.

40


The following table provides key credit risk characteristics and macroeconomic variables that the Company uses to estimate the expected credit losses by portfolio segment:
Portfolio SegmentRisk CharacteristicsMacroeconomic Variables
C&IInternal risk rating, size and credit spread at origination, and time to maturityUnemployment rate, and two- and ten-year U.S. Treasury spread
CRE, Multifamily residential, and Construction and landDelinquency status, maturity date, collateral value, property type, and geographic locationUnemployment rate, GDP, and U.S. Treasury rates
Single-family residential and HELOCsFICO score, delinquency status, maturity date, collateral value, and geographic locationUnemployment rate, GDP, and home price index
Other consumerHistorical loss experience
Immaterial (1)
(1)Macroeconomic variables are included in the qualitative estimate.

Allowance for Loan Losses for the Commercial Loan Portfolio — The Company’s C&I loan lifetime loss rate model estimates credit losses by estimating a loss rate expected over the life of a loan. This loss rate is applied to the amortized cost basis, excluding accrued interest receivable, to determine expected credit losses. The lifetime loss rate model’s reasonable and supportable period spans eight quarters, thereafter immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate.

For CRE, multifamily residential, and construction and land loans, projected probability of defaults (“PDs”) and loss given defaults (“LGDs”) are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. After the reasonable and supportable period, the forecast of future economic conditions returns to long-run historical economic trends.

In order to estimate the life of a loan under both models, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience.

Allowance for Loan Losses for the Consumer Loan Portfolio — For single-family residential and HELOC loans, projected PDs and LGDs are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. After the reasonable and supportable period, the forecast of future economic conditions returns to long-run historical economic trends. For other consumer loans, the Company uses a loss rate approach.

In order to estimate the life of a loan for the consumer portfolio, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience.

Qualitative Allowance for Collectively Evaluated Loans — While the Company’s allowance methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. The Company may hold additional qualitative reserves that are designed to provide coverage for losses attributable to such risk.

Allowance for Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual or TDR loans, the Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and their fair value. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; and (3) the loan's observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan.

41


Collateral-Dependent Loans — When a loan is collateral-dependent, the allowance is measured on an individual loan basis and is limited to the difference between the recorded value and fair value of the collateral less cost of disposal or sale. As of June 30, 2021, collateral-dependent commercial and consumer loans totaled $107.2 million and $18.8 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $97.2 million and $17.3 million as of December 31, 2020, respectively. The Company's commercial collateral-dependent loans were secured by real estate or other collateral. The Company's consumer collateral-dependent loans were all residential mortgage loans, secured by the underlying real estate. As of both June 30, 2021 and December 31, 2020, the collateral value of the properties securing each of these collateral-dependent loans, net of selling costs, exceeded the recorded value of the individual loans.

The following tables summarize the activity in the allowance for loan losses by portfolio segments for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential
Construction
and Land
Single-
Family
Residential
HELOCs
Allowance for loan losses, beginning of period$394,084 $146,399 $27,407 $19,089 $15,839 $2,670 $2,018 $607,506 
(Reversal of) provision for credit losses on loans(a)(22,586)19,375 (5,385)(3,243)609 250 2,209 (8,771)
Gross charge-offs(10,572)(4,134)(113)(209)(32)(15,060)
Gross recoveries1,338 322 16 82 18 1,785 
Total net (charge-offs) recoveries(9,234)(3,812)(97)(203)82 18 (29)(13,275)
Foreign currency translation adjustment264 264 
Allowance for loan losses, end of period$362,528 $161,962 $21,925 $15,643 $16,530 $2,938 $4,198 $585,724 
($ in thousands)Three Months Ended June 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential
Construction
and Land
Single-
Family
Residential
HELOCs
Allowance for loan losses, beginning of period$362,629 $132,819 $16,530 $11,018 $26,822 $3,881 $3,304 $557,003 
Provision for (reversal of) credit losses on loans(a)37,862 43,315 7,908 7,526 (1,667)205 (849)94,300 
Gross charge-offs(20,378)(320)(221)(30)(20,949)
Gross recoveries602 226 620 159 93 1,709 
Total net (charge-offs) recoveries(19,776)(94)620 159 (219)63 (19,240)
Foreign currency translation adjustment
Allowance for loan losses, end of period$380,723 $176,040 $25,058 $18,551 $25,314 $3,867 $2,518 $632,071 
42


($ in thousands)Six Months Ended June 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential
Construction
and Land
Single-
Family
Residential
HELOCs
Allowance for loan losses, beginning of period$398,040 $163,791 $27,573 $10,239 $15,520 $2,690 $2,130 $619,983 
(Reversal of) provision for credit losses on loans(a)(18,747)9,098 (6,776)5,349 985 272 2,096 (7,723)
Gross charge-offs(19,008)(11,329)(130)(280)(134)(45)(33)(30,959)
Gross recoveries2,098 402 1,258 335 159 21 4,278 
Total net (charge-offs) recoveries(16,910)(10,927)1,128 55 25 (24)(28)(26,681)
Foreign currency translation adjustment145 145 
Allowance for loan losses, end of period$362,528 $161,962 $21,925 $15,643 $16,530 $2,938 $4,198 $585,724 
($ in thousands)Six Months Ended June 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential
Construction
and Land
Single-
Family
Residential
HELOCs
Allowance for loan losses, beginning of period$238,376 $40,509 $22,826 $19,404 $28,527 $5,265 $3,380 $358,287 
Impact of ASU 2016-13 adoption74,237 72,169 (8,112)(9,889)(3,670)(1,798)2,221 125,158 
Allowance for loan losses, January 1, 2020312,613 112,678 14,714 9,515 24,857 3,467 5,601 483,445 
Provision for (reversal of) credit losses on loans(a)98,480 54,750 9,189 9,008 33 617 (3,121)168,956 
Gross charge-offs(32,355)(1,274)(221)(56)(33,906)
Gross recoveries2,177 9,886 1,155 28 424 94 13,768 
Total net (charge-offs) recoveries(30,178)8,612 1,155 28 424 (217)38 (20,138)
Foreign currency translation adjustment(192)(192)
Allowance for loan losses, end of period$380,723 $176,040 $25,058 $18,551 $25,314 $3,867 $2,518 $632,071 

The following table summarizes the activities in the allowance for unfunded credit commitments for the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$32,529 $20,829 $33,577 $11,158 
Impact of ASU 2016-13 adoption10,457 
(Reversal of) provision for credit losses on unfunded credit commitments(b)(6,229)8,143 (7,277)7,357 
Allowance for unfunded credit commitments, end of period26,300 28,972 26,300 28,972 
(Reversal of) provision for credit losses(a) + (b)$(15,000)$102,443 $(15,000)$176,313 

The allowance for credit losses as of June 30, 2021, was $612.0 million, a decrease of $41.6 million compared with $653.6 million as of December 31, 2020. The change in the allowance for credit losses was comprised of a net decrease of $34.3 million in the allowance for loan losses and a $7.3 million decrease in the allowance for unfunded credit commitments. An improved macroeconomic outlook resulted in an overall decrease in the required allowance for credit losses as of June 30, 2021, leading to a $15.0 million reversal of credit losses for the three and six months ended June 30, 2021.
43


The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. See Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit commitments.

Loans Held-for-Sale

As of June 30, 2021, loans held-for-sale of $1.8 million consisted of $1.5 million and $326 thousand of C&I and single-family residential loans, respectively. As of December 31, 2020, loans held-for-sale of $1.8 million consisted of single-family residential loans. Refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements of the Company’s 2020 Form 10-K for additional details related to the Company’s loans held-for-sale.

Loan Transfers, Sales and Purchases

The Company purchases and sells loans in the secondary market in the ordinary course of business. Purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information about the carrying value of loans transferred, loans sold and purchased for the held-for-investment portfolio, during the three and six months ended June 30, 2021 and 2020:
($ in thousands)Three Months Ended June 30, 2021
CommercialConsumerTotal
C&ICREResidential Mortgage
CRESingle-Family
Residential
Loans transferred from held-for-investment to held-for-sale (1)
$84,745 $17,019 $$101,764 
Sales (2)(3)(4)
$84,503 $17,019 $2,658 $104,180 
Purchases (5)
$66,415 $$165,163 $231,578 
($ in thousands)Three Months Ended June 30, 2020
CommercialConsumerTotal
C&ICRE