EAST WEST BANCORP INC - Quarter Report: 2020 June (Form 10-Q)

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, 2020

☐ 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 class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, $0.001 Par Value

EWBC

The 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller 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: 141,486,780 shares as of July 31, 2020.

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION				3

	Item 1.	Consolidated Financial Statements	3
		Consolidated Balance Sheet (Unaudited)	3
		Consolidated Statement of Income (Unaudited)	4
		Consolidated Statement of Comprehensive Income (Unaudited)	5
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)	6
		Consolidated Statement of Cash Flows (Unaudited)	7
		Notes to Consolidated Financial Statements (Unaudited)	9
		1 — Basis of Presentation	9
		2 — Current Accounting Developments and Summary of Significant Accounting Policies	10
		3 — Fair Value Measurement and Fair Value of Financial Instruments	14
		4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements	24
		5 — Securities	25
		6 — Derivatives	29
		7 — Loans Receivable and Allowance for Credit Losses	35
		8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities	50
		9 — Goodwill and Other Intangible Assets	52
		10 — Commitments and Contingencies	53
		11 — Revenue from Contracts with Customers	54

		12 — Stock Compensation Plans	57
		13 — Stockholders’ Equity and Earnings Per Share	58
		14 — Accumulated Other Comprehensive Income (Loss)	59
		15 — Business Segments	60
		16 — Subsequent Events	62

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	63










	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	119

	Item 4.	Controls and Procedures	119

PART II — OTHER INFORMATION				120

	Item 1.	Legal Proceedings	120
	Item 1A.	Risk Factors	120
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	121



	Item 6.	Exhibits	122

GLOSSARY OF ACRONYMS				123

SIGNATURE				124

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, 2020		December 31, 2019
	(Unaudited)
ASSETS
Cash and due from banks	$	602,974	$	536,221
Interest-bearing cash with banks	3,930,528		2,724,928
Cash and cash equivalents	4,533,502		3,261,149
Interest-bearing deposits with banks	531,591		196,161
Securities purchased under resale agreements (“resale agreements”)	1,260,000		860,000
Securities:
Available-for-sale (''AFS'') debt securities, at fair value (amortized cost of $3,823,714 in 2020; includes assets pledged as collateral of $745,163 in 2020 and $479,432 in 2019)	3,884,574		3,317,214
Restricted equity securities, at cost	78,963		78,580
Loans held-for-sale	3,875		434
Loans held-for-investment (net of allowance for loan losses of $632,071 in 2020 and $358,287 in 2019; includes assets pledged as collateral of $27,408,027 in 2020 and $22,431,092 in 2019)	36,597,341		34,420,252
Investments in qualified affordable housing partnerships, net	201,888		207,037
Investments in tax credit and other investments, net	251,318		254,140
Premises and equipment (net of accumulated depreciation of $122,372 in 2020 and $116,790 in 2019)	110,709		118,364
Goodwill	465,697		465,697
Operating lease right-of-use assets	94,898		99,973
Other assets	1,393,237		917,095
TOTAL	$	49,407,593	$	44,196,096
LIABILITIES
Deposits:
Noninterest-bearing	$	13,940,420	$	11,080,036
Interest-bearing	26,732,258		26,244,223
Total deposits	40,672,678		37,324,259
Short-term borrowings	252,851		28,669

Federal Home Loan Bank (“FHLB”) advances	656,759		745,915
Securities sold under repurchase agreements (“repurchase agreements”)	300,000		200,000
Long-term debt and finance lease liabilities	1,580,442		152,270
Operating lease liabilities	102,708		108,083
Accrued expenses and other liabilities	854,912		619,283
Total liabilities	44,420,350		39,178,479
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 167,143,278 and 166,621,959 shares issued in 2020 and 2019, respectively	167		167
Additional paid-in capital	1,841,748		1,826,345
Retained earnings	3,755,649		3,689,377
Treasury stock, at cost — 25,656,881 shares in 2020 and 20,996,574 shares in 2019	(633,455)		(479,864)
Accumulated other comprehensive income (loss) (“AOCI”), net of tax	23,134		(18,408)
Total stockholders’ equity	4,987,243		5,017,617
TOTAL	$	49,407,593	$	44,196,096

See accompanying Notes to Consolidated Financial Statements.

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,
	2020		2019		2020		2019
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	367,393	$	434,450	$	779,262	$	857,984
AFS debt securities	21,004		15,685		41,146		31,433

Resale agreements	5,514		7,404		11,139		15,310
Restricted equity securities	301		505		747		1,218
Interest-bearing cash and deposits with banks	4,564		16,800		15,672		32,210
Total interest and dividend income	398,776		474,844		847,966		938,155
INTEREST EXPENSE
Deposits	46,399		97,964		122,802		189,969
Short-term borrowings	265		361		821		977
FHLB advances	3,343		4,011		7,509		6,990
Repurchase agreements	3,540		3,469		7,531		6,961
Long-term debt and finance lease liabilities	1,454		1,713		2,821		3,471
Total interest expense	55,001		107,518		141,484		208,368
Net interest income before provision for credit losses	343,775		367,326		706,482		729,787
Provision for credit losses	102,443		19,245		176,313		41,824
Net interest income after provision for credit losses	241,332		348,081		530,169		687,963
NONINTEREST INCOME
Lending fees	21,946		16,423		37,719		31,392
Deposit account fees	10,872		9,607		21,319		19,075
Foreign exchange income	4,562		7,286		12,381		12,301
Wealth management fees	3,091		3,800		8,444		7,574
Interest rate contracts and other derivative income	6,107		10,398		13,180		13,614
Net gains on sales of loans	132		15		1,082		930
Gains on sales of AFS debt securities	9,640		1,447		11,169		3,008


Other investment income	966		706		2,887		1,908
Other income	1,321		3,077		4,505		5,088
Total noninterest income	58,637		52,759		112,686		94,890
NONINTEREST EXPENSE
Compensation and employee benefits	96,955		100,531		198,915		202,830
Occupancy and equipment expense	16,217		17,362		33,293		34,680
Deposit insurance premiums and regulatory assessments	3,700		2,919		7,127		6,007
Legal expense	1,530		2,355		4,727		4,580
Data processing	4,480		3,460		8,306		6,617
Consulting expense	1,413		2,069		2,630		4,128
Deposit related expense	3,353		3,338		6,916		6,842
Computer software expense	7,301		6,211		13,467		12,289
Other operating expense	19,248		22,679		40,367		44,968
Amortization of tax credit and other investments	24,759		16,739		42,084		41,644
Repurchase agreements’ extinguishment cost	8,740		—		8,740		—
Total noninterest expense	187,696		177,663		366,572		364,585
INCOME BEFORE INCOME TAXES	112,273		223,177		276,283		418,268
INCOME TAX EXPENSE	12,921		72,797		32,107		103,864
NET INCOME	$	99,352	$	150,380	$	244,176	$	314,404
EARNINGS PER SHARE (“EPS”)
BASIC	$	0.70	$	1.03	$	1.71	$	2.16
DILUTED	$	0.70	$	1.03	$	1.70	$	2.15
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC	141,486		145,546		143,150		145,402
DILUTED	141,827		146,052		143,560		146,016

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	99,352	$	150,380	$	244,176	$	314,404
Other comprehensive income (loss), net of tax:
Net changes in unrealized gains on AFS debt securities	17,816		29,027		45,269		51,038
Net changes in unrealized losses on cash flow hedges	(1,333)		—		(1,333)		—
Foreign currency translation adjustments	(230)		(6,016)		(2,394)		(2,836)
Other comprehensive income	16,253		23,011		41,542		48,202
COMPREHENSIVE INCOME	$	115,605	$	173,391	$	285,718	$	362,606

See accompanying Notes to Consolidated Financial Statements.

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 Earnings		Treasury Stock		AOCI, Net of Tax		Total Stockholders’ Equity
	Shares	Amount
BALANCE, APRIL 1, 2019	145,501,301	$	1,799,124	$	3,305,054	$	(479,265)	$	(32,983)	$	4,591,930

Net income	—	—		150,380		—		—		150,380
Other comprehensive income	—	—		—		—		23,011		23,011



Net activity of common stock pursuant to various stock compensation plans and agreements	45,268	9,938		—		(133)		—		9,805
Cash dividends on common stock ($0.275 per share)	—	—		(40,533)		—		—		(40,533)
BALANCE, JUNE 30, 2019	145,546,569	$	1,809,062	$	3,414,901	$	(479,398)	$	(9,972)	$	4,734,593
BALANCE, APRIL 1, 2020	141,435,099	$	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 agreements	51,298	8,131		—		(16)		—		8,115

Cash dividends on common stock ($0.275 per share)	—	—		(39,462)		—		—		(39,462)
BALANCE, JUNE 30, 2020	141,486,397	$	1,841,915	$	3,755,649	$	(633,455)	$	23,134	$	4,987,243



	Common Stock and Additional Paid-in Capital					Retained Earnings		Treasury Stock		AOCI, Net of Tax		Total Stockholders’ Equity
	Shares	Amount
BALANCE, JANUARY 1, 2019	144,961,363	$	1,789,977	$	3,160,132	$	(467,961)	$	(58,174)	$	4,423,974
Cumulative-effect of change in accounting principle related to leases ⁽¹⁾	—	—		14,668		—		—		14,668
Net income	—	—		314,404		—		—		314,404
Other comprehensive income	—	—		—		—		48,202		48,202


Warrants exercised	180,226	1,711		—		2,732		—		4,443
Net activity of common stock pursuant to various stock compensation plans and agreements	404,980	17,374		—		(14,169)		—		3,205
Cash dividends on common stock ($0.505 per share)	—	—		(74,303)		—		—		(74,303)
BALANCE, JUNE 30, 2019	145,546,569	$	1,809,062	$	3,414,901	$	(479,398)	$	(9,972)	$	4,734,593
BALANCE, JANUARY 1, 2020	145,625,385	$	1,826,512	$	3,689,377	$	(479,864)	$	(18,408)	$	5,017,617
Cumulative-effect of change in accounting principle related to credit losses ⁽²⁾	—	—		(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 agreements	332,694	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, 2020	141,486,397	$	1,841,915	$	3,755,649	$	(633,455)	$	23,134	$	4,987,243

(1) Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and subsequent related ASUs in the first quarter of 2019.

(2) Represents the impact of the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) in the first quarter of 2020. Refer to Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q (“this Form 10-Q”) for additional information.

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

(Unaudited)



	Six Months Ended June 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	244,176	$	314,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	68,926		72,113
Accretion of discount and amortization of premiums, net	(18,901)		(9,817)
Stock compensation costs	14,280		15,525
Deferred income tax benefit	(111)		(2,110)
Provision for credit losses	176,313		41,824
Net gains on sales of loans	(1,082)		(930)
Gains on sales of AFS debt securities	(11,169)		(3,008)


Loans held-for-sale:
Originations and purchases	(21,791)		(3,339)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale	18,386		3,632


Proceeds from distributions received from equity method investees	1,107		1,538
Net change in accrued interest receivable and other assets	(456,374)		(150,154)
Net change in accrued expenses and other liabilities	257,397		10,320
Other net operating activities	(241)		3
Total adjustments	26,740		(24,403)
Net cash provided by operating activities	270,916		290,001
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in:
Investments in qualified affordable housing partnerships, tax credit and other investments	(68,884)		(61,555)
Interest-bearing deposits with banks	(315,497)		222,387
Resale agreements:
Proceeds from paydowns and maturities	350,000		50,000
Purchases	(500,000)		(25,000)
AFS debt securities:
Proceeds from sales	484,380		375,102
Proceeds from repayments, maturities and redemptions	848,633		117,325
Purchases	(1,834,087)		(316,740)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment	144,015		170,174
Purchases	(145,695)		(326,456)
Other changes in loans held-for-investment, net	(2,475,089)		(1,196,094)
Premises and equipment:
Proceeds from sales	1,883		—
Purchases	(1,846)		(4,414)




Proceeds from distributions received from equity method investees	1,948		3,636

Other net investing activities	(374)		(5,516)
Net cash used in investing activities	(3,510,613)		(997,151)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	3,355,168		1,035,650
Net increase (decrease) in short-term borrowings	225,834		(38,107)

FHLB advances:
Proceeds	10,100		1,500,000
Repayment	(100,099)		(1,082,000)
Repayment of repurchase agreements	(150,000)		—
Repurchase agreements’ extinguishment cost	(8,740)		—
Long-term debt and lease liabilities:
Proceeds from long-term debt	1,437,269		—
Repayment of long-term debt and lease liabilities	(9,320)		(435)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program	(145,965)		—
Proceeds from issuance pursuant to various stock compensation plans and agreements	1,170		1,894
Stocks tendered for payment of withholding taxes	(7,626)		(14,169)
Cash dividends paid	(80,271)		(74,949)
Net cash provided by financing activities	4,527,520		1,327,884
Effect of exchange rate changes on cash and cash equivalents	(15,470)		(497)
NET INCREASE IN CASH AND CASH EQUIVALENTS	1,272,353		620,237
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	3,261,149		3,001,377
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,533,502	$	3,621,614

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

(Unaudited)

(Continued)



	Six Months Ended June 30,
	2020		2019
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	145,723	$	203,577
Income taxes, net	$	5,609	$	76,153
Noncash investing and financing activities:

Loans transferred from held-for-investment to held-for-sale	$	143,283	$	173,394




Loans transferred to OREO	$	19,504	$	—

See accompanying Notes to Consolidated Financial Statements.

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 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, 2020, East West also has six 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. East West also owns East West Insurance Services, Inc. In 2019, the Company acquired East West Markets, LLC, a private broker dealer and also established East West Investment Management LLC, a registered investment adviser. Both East West Markets, LLC and East West Investment Management LLC are wholly-owned subsidiaries of East West.

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 statement 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 other 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, 2019, filed with the U.S. Securities and Exchange Commission on February 27, 2020 (the “Company’s 2019 Form 10-K”).

Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies

New Accounting Pronouncements Adopted

Standard

Required Date of Adoption

Description

Effect on Financial Statements

Standards Adopted in 2020

ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent related ASUs

January 1, 2020

Early adoption is permitted on January 1, 2019.

The ASU introduces a new current expected credit loss (“CECL”) model that applies to most financial assets measured at amortized cost and certain instruments, including trade and other receivables, loan receivables, AFS and held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted in each period for changes in expected lifetime credit losses. ASU 2016-13 also eliminates the guidance for purchased credit impaired (“PCI”) loans, but requires an allowance for loan losses for purchased financial assets with more than an insignificant deterioration of credit since origination. The ASU also modifies the other-than-temporary impairment (“OTTI”) model for AFS debt securities to require an allowance for credit losses instead of a direct write-down. A reversal of the allowance for credit losses is allowed in future periods based on improvements in credit performance expectations. This ASU expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses, and requires disclosure of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). The guidance should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The new guidance also allows optional relief for certain instruments measured at amortized cost with an option to irrevocably elect the fair value option under ASC Topic 825, Financial Instruments.

The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2020 without electing the fair value option on eligible financial instruments under ASU 2019-05. The adoption of this ASU increased the allowance for loan losses by $125.2 million, and allowance for unfunded credit commitments by $10.5 million and an after-tax decrease to opening retained earnings of $98.0 million on January 1, 2020. The increase to allowance for loan losses was primarily related to the commercial and industrial (“C&I”) and commercial real estate (“CRE”) loan portfolios. The Company did not record an allowance for credit losses related to the Company’s AFS debt securities as a result of this adoption. Disclosures for periods after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in the Company’s 2019 Form 10-K.

The Company has elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital for two years, followed by a three-year transition period.

ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

January 1, 2020

Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017.

The ASU simplifies the accounting for goodwill impairment. Under this guidance, an entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, an impairment loss will be recognized when the carrying amount of a reporting unit exceeds its fair value and the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance also eliminates the requirement to perform a qualitative assessment for any reporting units with a zero or negative carrying amount. This guidance should be applied prospectively.

The Company adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

January 1, 2020

The ASU amends ASC Topic 350-40 to align the accounting for costs incurred in a cloud computing arrangement with the guidance on developing internal use software. Specifically, if a cloud computing arrangement is deemed to be a service contract, certain implementation costs are eligible for capitalization. The new guidance prescribes the balance sheet and income statement presentation and cash flow classification for the capitalized costs and related amortization expense. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The Company adopted this guidance on a prospective basis on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Recent Accounting Pronouncement

Standard

Required Date of Adoption

Description

Effect on Financial Statements

Standard Not Yet Adopted

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Effective for all entities as of March 12, 2020
through December 31, 2022.

In March 2020, the FASB issued a new accounting standard related to contracts or hedging relationships that reference London interbank offered rate 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 relationship 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.

The Company has not yet made a determination on whether it will make this election and is currently tracking the exposure as of each reporting period and assessing the significance of impact towards implementing any necessary modification in consideration of the election of this amendment. The Company will continue to assess the impact as the reference rate transition occurs over the next two years.

Summary of Significant Accounting Policies

The Company has revised the following significant accounting policies.

Allowance for Loan Losses — The allowance for loan losses is established as management’s estimate of expected credit losses inherent in the Company’s lending activities and increased by the provision for credit losses and decreased by net charge-offs. Subsequent recoveries, if any, are credited to the allowance for loan losses. The allowance for loan losses is evaluated quarterly by management based on regular reviews of the collectability of the loans. The Company develops and documents the allowance for loan losses methodology at the portfolio segment level — the commercial loan portfolio is comprised of C&I, CRE, multifamily residential, and construction and land loans; and the consumer loan portfolio is comprised of single-family residential, home equity lines of credit (“HELOC”), and other consumer loans.

The allowance for loan losses represents the portion of the loan’s amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loan’s contractual life. The Company measures the expected loan losses on a collective pool basis when similar risk characteristics exist. Models consisting of quantitative and qualitative components are designed for each pool to develop the expected credit loss estimates. Reasonable and supportable forecast periods vary by loan portfolio. The collectively evaluated loans include non-classified and classified loans that have not been determined to be impaired. The Company has adopted lifetime loss rate models for the portfolios, which use historical loss rates and forecast economic variables to calculate the expected credit losses for each loan pool.

When impaired loans do not share similar risk characteristics, the Company evaluates the loan for expected credit losses on an individual basis. Impaired loans include nonaccrual and troubled debt restructuring (“TDR”) loans. The Company considers loans to be impaired if, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. For loans determined to be impaired, three different asset valuation measurement methods are available: (1) the present value of expected future cash flows, (2) the fair value of collateral less costs to sell, and (3) the loan's observable market price. The allowance for loan losses for collateral-dependent loans is determined based on the fair value of the collateral less costs to sell. For loans that are not collateral-dependent, the Company applies the present value of expected future cash flows valuation or the market value of the loan. When the loan is deemed uncollectible, the Company’s policy is to promptly charge off the estimated impaired amount.

The amortized cost of loans held-for-investment excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election to not recognize an allowance for credit losses for accrued interest receivables as the Company reverses accrued interest if a loan is on nonaccrual status.

The allowance for loan losses is reported separately on the Consolidated Balance Sheet and the Provision for credit losses is reported on the Consolidated Statement of Income.

Allowance for Unfunded Credit Commitments — The allowance for unfunded credit commitments includes reserves provided for unfunded loan commitments, letters of credit, standby letters of credit (“SBLCs”) and recourse obligations for loans sold. The Company estimates the allowance for unfunded credit commitments over the contractual period in which the entity is exposed to credit risk via a present contractual obligation to extend credit. Within the period of credit exposure, the estimate of credit losses will consider both the likelihood that funding will occur, and an estimate of the expected credit losses on the commitments that are expected to fund over their estimated lives.

The allowance for unfunded credit commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities. For all off-balance sheet instruments and commitments, the unfunded credit exposure is calculated using utilization assumptions based on the Company's historical utilization experience in related portfolio segments. Loss rates are applied to the calculated exposure balances to estimate the allowance for unfunded credit commitments. Other elements such as credit risk factors for loans outstanding, terms and expiration dates of the unfunded credit facilities, and other pertinent information are considered to determine the adequacy of the allowance.

The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. Changes to the allowance for unfunded credit commitments are included in Provision for credit losses on the Consolidated Income Statements.

Allowance for Credit Losses on Available-for-Sale Debt Securities — ASU 2016-13 modifies the OTTI model for AFS debt securities to apply an allowance approach for credit impairment as opposed to permanently writing down the cost basis of the security. For each reporting period, AFS debt securities that are in an unrealized loss position are individually analyzed as part of the Company’s ongoing assessments to determine whether a fair value below the amortized cost basis has resulted from a credit loss or other factors. The initial indicator of impairment is a decline in fair value below the amortized cost, excluding accrued interest, of the AFS debt security. The Company first considers whether there is a plan to sell the AFS debt security or it is more-likely-than-not that it will be required to sell the debt security before recovery of the amortized cost. In determining whether an impairment is due to credit related factors, the Company considers the severity of the decline in fair value, nature of the security, the underlying collateral, the financial condition of the issuer, changes in the AFS debt securities’ ratings and other qualitative factors. For securities that are fully guaranteed by the U.S. government, or certain government enterprises, the Company believes that the credit loss exposure on these securities is remote and applies a zero credit loss assumption.

When the Company does not intend to sell the impaired AFS debt security and it is more-likely-than-not that the Company will not be required to sell the impaired debt security prior to recovery of its amortized cost basis, the credit component of the unrealized loss of the impaired AFS debt security is recognized as an allowance for credit losses, with a corresponding Provision for credit losses on the Consolidated Statement of Income and the non-credit component is recognized in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income, net of applicable taxes. At each reporting period, the Company increases or decreases the allowance for credit losses as appropriate, while limiting reversals of the allowance for credit losses to the extent of the amounts previously recorded. If the Company intends to sell the impaired debt security or it is more-likely-than-not that the Company will be required to sell the impaired debt security prior to recovering its amortized cost basis, the entire impairment amount is recognized as an adjustment to the debt security’s amortized cost basis, with a corresponding Provision for credit losses on the Consolidated Statement of Income.

The amortized cost of the Company’s AFS debt securities excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election to not recognize an allowance for credit losses for accrued interest receivables on AFS debt securities as the Company reverses any accrued interest if a debt security is impaired. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure.

Allowance for Collateral-Dependent Financial Assets — A financial asset is considered collateral-dependent if repayment is expected to be provided substantially through the operation or sale of the collateral. The allowance for credit losses is measured on an individual basis for collateral-dependent financial assets and determined by comparing the fair value of the collateral, minus the cost to sell, to the amortized cost basis of the related financial asset at the reporting date. Other than impaired loans, collateral-dependent financial assets could also include resale agreements. In arrangements which the borrower must continually adjust the collateral securing the asset to reflect changes in the collateral’s fair value (e.g., resale agreements), the Company estimates the expected credit losses on the basis of the unsecured portion of the amortized cost as of the balance sheet date. If the fair value of the collateral is equal to or greater than the amortized cost of the resale agreement, the expected losses would be zero. If the fair value of the collateral is less than the amortized cost of the asset, the expected losses are limited to the difference between the fair value of the collateral and the amortized cost basis of the resale agreement.

Allowance for Purchased Credit Deteriorated Assets — ASU 2016-13 replaces the concept of PCI accounting under ASC 310-30 Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality with the concept of purchased financial assets with credit deterioration. The Company adopted ASU 2016-13 using the prospective transition approach for Purchased credit deteriorated (“PCD”) assets that were previously classified as PCI assets. PCD financial assets are defined as acquired individual financial assets (or groups with similar risk characteristics) that as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination. For PCD debt securities and PCD loans, the company records the allowance for credit losses by grossing up the initial amortized cost, which includes the purchase price and the allowance for credit losses. The expected credit losses of PCD debt securities are measured at the individual security level. The expected credit losses for PCD loans are measured based on the loan’s unpaid principal balance. Beginning January 1, 2020, for any asset designated as a PCD asset at the time of acquisition, the Company estimates and records an allowance for credit losses, which is added to the purchase price to establish the initial amortized cost basis of the financial asset. Hence, there is no income statement impact from the acquisition. Subsequent changes in the allowance for credit losses on PCD assets will be recognized in Provision for credit losses on the Consolidated Statement of Income. The noncredit discount or premium will be accreted to interest income based on the effective interest rate on the PCD assets determined after the gross-up for the allowance for credit losses.

Troubled Debt Restructurings — The Company has implemented various loan modification programs to provide its borrowers relief from the economic impacts of the Coronavirus Disease 2019 (“COVID-19”). In accordance with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company has elected to not apply TDR classification to any COVID-19 related loan modifications that were performed after March 1, 2020 to borrowers who were current as of December 31, 2019. For loans modified in response to the COVID-19 pandemic that do not meet the CARES Act criteria (e.g., current payment status at December 31, 2019), the Company has applied the guidance included in “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus (Revised)” (the “Interagency Statement”) issued by the federal banking regulators on April 7, 2020. The Interagency Statement states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs. The delinquency of the loans modified under the CARES Act and Interagency Statement is frozen at the time of the modification, and interest income continues to be recognized over the contractual life of the loan. For more information on the Company's TDR accounting, see Note 1 — Summary of Significant Accounting Principles — Troubled Debt Restructurings to the Consolidated Financial Statements of the Company’s 2019 Annual Report on Form 10-K.

Paycheck Protection Program (“PPP”) — In April 2020, the Company started accepting PPP applications and began to originate loans to qualified small businesses under the PPP established by the CARES Act. These loans are included in the C&I portfolio, carry an interest rate of 1%, and are 100% guaranteed by the Small Business Administration (“SBA”). No allowance for loan losses were recorded for these loans as of June 30, 2020. As of June 30, 2020, the Company has funded over 7,200 PPP loans for customers with an outstanding loan balance totaling $1.75 billion. The majority of the Company’s PPP loans have a term of two years. The SBA pays the Company fees for processing PPP loans in the following amounts: (1) five percent for loans of not more than $350,000; (2) three percent for loans of more than $350,000 and less than $2,000,000; and (3) one percent for loans of at least $2,000,000. Loan processing fees paid to the Company by the SBA are accounted for as loan origination fees, where net deferred fees are recognized over the estimated life of the loan as a yield adjustment on the loans. Payments by borrowers on PPP loans begin ten months after the loan forgiveness covered period. Under the terms of the PPP, such loans are eligible to be forgiven if certain conditions are satisfied, in which case the SBA will make payments to the Company for the forgiven amounts. If a loan is paid off or forgiven by the SBA prior to its projected estimated life, the remaining unamortized deferred fees will be recognized as interest income in that period.

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 noted 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 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 — When available, the Company uses quoted market prices to determine the fair value of AFS debt securities, which are classified as Level 1. Level 1 AFS debt securities are comprised of U.S. Treasury securities. The fair value of other 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 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 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. These valuations are based on observable inputs in the current marketplace and 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.

Equity Securities — Equity securities consisted of mutual funds as of both June 30, 2020 and December 31, 2019. 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 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 certificates of deposit issued and certain variable interest rate borrowings. 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. As of June 30, 2020 and December 31, 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these interest rate contracts and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivative portfolios. As a result, 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. For a majority of the foreign exchange contracts entered with its customers, the Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure. 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 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, 2020 and December 31, 2019, 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 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.

Equity Contracts — As part of the loan origination process, from time to time, the Company obtains warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. As of June 30, 2020 and December 31, 2019, 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. 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. 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. Given that the Company holds long positions in all warrants, an increase in volatility assumption would generally result in an increase in fair value. A higher liquidity discount would result in a decrease in fair value. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement 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 commercial 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 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. 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. As a result, the Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 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	$	251,201		$	—		$	—		$	251,201
U.S. government agency and U.S. government- sponsored enterprise debt securities	—			442,644			—			442,644
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—			858,440			—			858,440
Residential mortgage-backed securities	—			1,280,895			—			1,280,895
Municipal securities	—			215,184			—			215,184
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—			151,368			—			151,368
Residential mortgage-backed securities	—			114,338			—			114,338
Corporate debt securities	—			30,826			—			30,826
Foreign bonds	—			204,080			—			204,080
Asset-backed securities	—			61,619			—			61,619
Collateralized loan obligations (“CLOs”)	—			273,979			—			273,979
Total AFS debt securities	$	251,201		$	3,633,373		$	—		$	3,884,574

Investments in tax credit and other investments:
Equity securities ⁽¹⁾	$	22,462		$	8,680		$	—		$	31,142
Total investments in tax credit and other investments	$	22,462		$	8,680		$	—		$	31,142

Derivative assets:
Interest rate contracts	$	—		$	613,480		$	—		$	613,480
Foreign exchange contracts	—			24,289			—			24,289
Credit contracts	—			41			—			41
Equity contracts	—			8,857			316			9,173
Commodity contracts	—			117,447			—			117,447
Gross derivative assets	$	—		$	764,114		$	316		$	764,430
Netting adjustments ⁽²⁾	$	—		$	(122,218)		$	—		$	(122,218)
Net derivative assets	$	—		$	641,896		$	316		$	642,212

Derivative liabilities:
Interest rate contracts	$	—		$	401,803		$	—		$	401,803
Foreign exchange contracts	—			19,741			—			19,741
Credit contracts	—			327			—			327
Commodity contracts	—			138,298			—			138,298
Gross derivative liabilities	$	—		$	560,169		$	—		$	560,169
Netting adjustments ⁽²⁾	$	—		$	(205,004)		$	—		$	(205,004)
Net derivative liabilities	$	—		$	355,165		$	—		$	355,165

(1)Equity securities consist of mutual funds with readily determinable fair values.

(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.



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2019
			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	$	176,422		$	—		$	—		$	176,422
U.S. government agency and U.S. government- sponsored enterprise debt securities	—			581,245			—			581,245
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—			603,471			—			603,471
Residential mortgage-backed securities	—			1,003,897			—			1,003,897
Municipal securities	—			102,302			—			102,302
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—			88,550			—			88,550
Residential mortgage-backed securities	—			46,548			—			46,548
Corporate debt securities	—			11,149			—			11,149
Foreign bonds	—			354,172			—			354,172
Asset-backed securities	—			64,752			—			64,752
CLOs	—			284,706			—			284,706
Total AFS debt securities	$	176,422		$	3,140,792		$	—		$	3,317,214

Investments in tax credit and other investments:
Equity securities ⁽¹⁾	$	21,746		$	9,927		$	—		$	31,673
Total investments in tax credit and other investments	$	21,746		$	9,927		$	—		$	31,673

Derivative assets:
Interest rate contracts	$	—		$	192,883		$	—		$	192,883
Foreign exchange contracts	—			54,637			—			54,637
Credit contracts	—			2			—			2
Equity contracts	—			993			421			1,414
Commodity contracts	—			81,380			—			81,380
Gross derivative assets	$	—		$	329,895		$	421		$	330,316
Netting adjustments ⁽²⁾	$	—		$	(125,319)		$	—		$	(125,319)
Net derivative assets	$	—		$	204,576		$	421		$	204,997

Derivative liabilities:
Interest rate contracts	$	—		$	127,317		$	—		$	127,317
Foreign exchange contracts	—			48,610			—			48,610
Credit contracts	—			84			—			84
Commodity contracts	—			80,517			—			80,517
Gross derivative liabilities	$	—		$	256,528		$	—		$	256,528
Netting adjustments ⁽²⁾	$	—		$	(159,799)		$	—		$	(159,799)
Net derivative liabilities	$	—		$	96,729		$	—		$	96,729

(1)Equity securities consist of mutual funds with readily determinable fair values.

For the three and six months ended June 30, 2020 and 2019, Level 3 fair value measurements that were measured on a recurring basis consist of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity warrants for the three and six months ended June 30, 2020 and 2019:





($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Equity Contracts
Beginning balance	$	713		$	442		$	421		$	673

Total gains included in earnings ⁽¹⁾	7,976			769			8,268			538




Issuances	—			28			—			28

Settlements	—			(847)			—			(847)
Transfers out of Level 3 ⁽²⁾	(8,373)			—			(8,373)			—
Ending balance	$	316		$	392		$	316		$	392

(1)Includes unrealized gains (losses) of $8.0 million and $(4) thousand for the three months ended June 30, 2020 and 2019, respectively, and $8.3 million and $(235) thousand for the six months ended June 30, 2020 and 2019, respectively. The realized/unrealized gains (losses) of equity warrants 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 warrant, 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, 2020 and December 31, 2019, 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 ⁽¹⁾
June 30, 2020
Derivative assets:
Equity contracts	$	316	Black-Scholes option pricing model	Equity volatility	58% — 70%	63%
				Liquidity discount	47%	47%
December 31, 2019
Derivative assets:
Equity contracts	$	421	Black-Scholes option pricing model	Equity volatility	39% — 44%	42%
				Liquidity discount	47%	47%

(1)Weighted-average is calculated based on fair value of equity warrants as of June 30, 2020 and December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

Individually Evaluated Loans — The Company typically adjusts the carrying amount of individually evaluated loans when there is evidence of probable loss and when the expected fair value of the loan is less than its carrying amount. Individually evaluated loans with specific reserves are classified as Level 3 assets. The following two methods are used to derive the fair value of individually evaluated loans:

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

•A specific reserve is established for an individually evaluated loan 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, which utilize one or more valuation techniques such as income, market and/or cost approaches.

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — As part of its monitoring process, the Company conducts ongoing due diligence on the investments in its qualified affordable housing partnerships, tax credit and other investments after the initial investment date and prior to the placed-in-service-date. After these investments are either acquired or placed into service, periodic monitoring is performed. This includes the quarterly review of the financial statements of the investment entity, the annual review of the financial statements of the guarantor (if any), the review of the annual tax returns of the investment entity, and the comparison of the actual cash distributions received against the financial projections prepared at the time when the investment was made. The Company assesses its tax credit and other investments for possible 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:

•The expected future cash flows is 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 or 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.

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, 2020 and December 31, 2019:



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of June 30, 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
Individually evaluated loans ⁽¹⁾:
Commercial:
C&I	$	—		$	—		$	53,122		$	53,122
CRE:
CRE	—			—			50,453			50,453



Total commercial	—			—			103,575			103,575
Consumer:
Residential mortgage:

HELOCs	—			—			3,338			3,338

Other consumer	—			—			2,491			2,491
Total consumer	—			—			5,829			5,829
Total individually evaluated loans	$	—		$	—		$	109,404		$	109,404

Investments in tax credit and other investments, net	$	—		$	—		$	6,216		$	6,216



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2019
			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Fair Value Measurements
Non-PCI impaired loans:
Commercial:
C&I	$	—		$	—		$	47,554		$	47,554
CRE:
CRE	—			—			753			753



Total commercial	—			—			48,307			48,307
Consumer:
Residential mortgage:

HELOCs	—			—			1,372			1,372


Total consumer	—			—			1,372			1,372
Total non-PCI impaired loans	$	—		$	—		$	49,679		$	49,679
OREO ⁽²⁾	$	—		$	—		$	125		$	125
Investments in tax credit and other investments, net	$	—		$	—		$	3,076		$	3,076
Other nonperforming assets	$	—		$	—		$	1,167		$	1,167

(1)The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans that were previously accounted for as PCI loans. Total individually evaluated loans as of June 30, 2020 considers PCD loans, if impaired, whereas the impaired loans as of December 31, 2019 include only non-PCI loans.

(2)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.

The following table presents the increase (decrease) in fair value of assets for which a nonrecurring fair value adjustment has been recognized for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
			Individually Evaluated Loans ⁽¹⁾			Non-PCI Impaired Loans			Individually Evaluated Loans ⁽¹⁾			Non-PCI Impaired Loans
Loans:
Commercial:
C&I	$	(8,846)		$	(24,001)		$	(30,372)		$	(25,823)
CRE:
CRE	(271)			2			(276)			4



Total commercial	(9,117)			(23,999)			(30,648)			(25,819)
Consumer:
Residential mortgage:

HELOCs	(64)			—			(257)			—

Other consumer	—			—			2,491			—
Total consumer	(64)			—			2,234			—
Total loans	$	(9,181)		$	(23,999)		$	(28,414)		$	(25,819)
OREO	$	—		$	(3)		$	—		$	(3)
Investments in tax credit and other investments, net	$	(733)		$	(2,892)		$	(583)		$	(9,870)
Other nonperforming assets	$	—		$	—		$	—		$	(3,000)

(1)The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans that were previously accounted for as PCI loans. Total individually evaluated loans during the three and six months ended June 30, 2020 considers PCD loans, if impaired, whereas impaired loans during the three and six months ended June 30, 2019 include only non-PCI loans.

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, 2020 and December 31, 2019:



($ in thousands)	Fair Value Measurements (Level 3)		Valuation Techniques	Unobservable Inputs	Range of Inputs	Weighted- Average of Inputs ⁽¹⁾
June 30, 2020
Individually evaluated loans ⁽²⁾	$	29,949	Discounted cash flows	Discount	4% — 15%	10%
	$	5,658	Fair value of collateral	Discount	10% — 63%	19%
	$	21,452	Fair value of collateral	Contract value	NM	NM
	$	52,345	Fair value of property	Selling cost	8%	8%


Investments in tax credit and other investments, net	$	6,216	Individual analysis of each investment	Expected future tax benefits and distributions	NM	NM


December 31, 2019
Non-PCI impaired loans	$	27,841	Discounted cash flows	Discount	4% — 15%	14%

	$	1,014	Fair value of collateral	Discount	8% — 20%	19%
	$	20,824	Fair value of collateral	Contract value	NM	NM

OREO	$	125	Fair value of property	Selling cost	8%	8%
Other nonperforming assets	$	1,167	Fair value of collateral	Contract value	NM	NM
Investments in tax credit and other investments, net	$	3,076	Individual analysis of each investment	Expected future tax benefits and distributions	NM	NM

NM — Not meaningful.

(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of June 30, 2020 and December 31, 2019.

(2)The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans that were previously accounted for as PCI loans. Total individually evaluated loans as of June 30, 2020 considers PCD loans, if impaired, whereas the impaired loans as of December 31, 2019 include only non-PCI loans.

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of June 30, 2020 and December 31, 2019, 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, 2020
			Carrying Amount			Level 1			Level 2			Level 3			Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	4,533,502		$	4,533,502		$	—		$	—		$	4,533,502
Interest-bearing deposits with banks	$	531,591		$	—		$	531,591		$	—		$	531,591
Resale agreements ⁽¹⁾	$	1,260,000		$	—		$	1,263,068		$	—		$	1,263,068

Restricted equity securities, at cost	$	78,963		$	—		$	78,963		$	—		$	78,963
Loans held-for-sale	$	3,875		$	—		$	3,875		$	—		$	3,875
Loans held-for-investment, net	$	36,597,341		$	—		$	—		$	36,714,052		$	36,714,052
Mortgage servicing rights	$	5,363		$	—		$	—		$	7,798		$	7,798
Accrued interest receivable	$	149,595		$	—		$	149,595		$	—		$	149,595
Financial liabilities:
Demand, checking, savings and money market deposits	$	31,410,130		$	—		$	31,410,130		$	—		$	31,410,130
Time deposits	$	9,262,548		$	—		$	9,295,199		$	—		$	9,295,199
Short-term borrowings	$	252,851		$	—		$	252,851		$	—		$	252,851

FHLB advances	$	656,759		$	—		$	667,996		$	—		$	667,996
Repurchase agreements ⁽¹⁾	$	300,000		$	—		$	320,361		$	—		$	320,361
Long-term debt	$	1,575,653		$	—		$	1,578,801		$	—		$	1,578,801
Accrued interest payable	$	23,007		$	—		$	23,007		$	—		$	23,007



($ in thousands)	December 31, 2019
			Carrying Amount			Level 1			Level 2			Level 3			Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	3,261,149		$	3,261,149		$	—		$	—		$	3,261,149
Interest-bearing deposits with banks	$	196,161		$	—		$	196,161		$	—		$	196,161
Resale agreements ⁽¹⁾	$	860,000		$	—		$	856,025		$	—		$	856,025

Restricted equity securities, at cost	$	78,580		$	—		$	78,580		$	—		$	78,580
Loans held-for-sale	$	434		$	—		$	434		$	—		$	434
Loans held-for-investment, net	$	34,420,252		$	—		$	—		$	35,021,300		$	35,021,300

Mortgage servicing rights	$	6,068		$	—		$	—		$	8,199		$	8,199
Accrued interest receivable	$	144,599		$	—		$	144,599		$	—		$	144,599
Financial liabilities:

Demand, checking, savings and money market deposits	$	27,109,951		$	—		$	27,109,951		$	—		$	27,109,951
Time deposits	$	10,214,308		$	—		$	10,208,895		$	—		$	10,208,895
Short-term borrowings	$	28,669		$	—		$	28,669		$	—		$	28,669
FHLB advances	$	745,915		$	—		$	755,371		$	—		$	755,371
Repurchase agreements ⁽¹⁾	$	200,000		$	—		$	232,597		$	—		$	232,597
Long-term debt	$	147,101		$	—		$	152,641		$	—		$	152,641
Accrued interest payable	$	27,246		$	—		$	27,246		$	—		$	27,246

(1)Resale and repurchase agreements are reported net pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of June 30, 2020, none of the $300.0 million of gross repurchase agreements were eligible for netting against gross resale agreements. Out of $450.0 million of gross repurchase agreements, $250.0 million were eligible for netting against gross resale agreements as of December 31, 2019.

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

Resale Agreements

Gross resale agreements were $1.26 billion and $1.11 billion as of June 30, 2020 and December 31, 2019, respectively. The weighted-average yields were 2.14% and 2.71% for the three months ended June 30, 2020 and 2019, respectively, and 2.32% and 2.77% for the six months ended June 30, 2020 and 2019, respectively.

Repurchase Agreements

As of June 30, 2020, 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 and $450.0 million as of June 30, 2020 and December 31, 2019, respectively. The weighted-average interest rates were 3.40% and 4.93% for the three months ended June 30, 2020 and 2019, respectively, and 3.76% and 4.97% for the six months ended June 30, 2020 and 2019, respectively. The Company recorded $8.7 million of charges related to the extinguishment of $150.0 million of repurchase agreements for the three and six months ended June 30, 2020. In comparison, there were no extinguishment charges recorded in 2019. As of June 30, 2020, $300.0 million of 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 provide the Company, in the event of default by the counterparty, 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 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. Collateral received or pledged in resale and repurchase agreements with other financial institutions may also be sold or re-pledged by the secured party, and is usually delivered to and held by the third-party trustees. The collateral amounts received/pledged are limited for presentation purposes to the related recognized asset/liability balance for each counterparty, and accordingly, do not include excess collateral received/pledged.

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 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
Assets													Net Amount
												Collateral Received
Resale agreements	$	1,260,000	$	—	$	1,260,000	$	(1,258,866)	⁽¹⁾	$	1,134

	Gross 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
Liabilities													Net Amount
												Collateral Pledged
Repurchase agreements	$	300,000	$	—	$	300,000	$	(300,000)	⁽²⁾	$	—



($ in thousands)	December 31, 2019

	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
Assets													Net Amount
												Collateral Received
Resale agreements	$	1,110,000	$	(250,000)	$	860,000	$	(856,058)	⁽¹⁾	$	3,942

	Gross 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
Liabilities													Net Amount
												Collateral Pledged
Repurchase agreements	$	450,000	$	(250,000)	$	200,000	$	(200,000)	⁽²⁾	$	—

(1)Represents the fair value of securities the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. 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 for table presentation purposes to the amount of the recognized liability due to each counterparty. 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, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020
			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
AFS debt securities:
U.S. Treasury securities	$	250,494		$	707		$	—		$	251,201
U.S. government agency and U.S. government-sponsored enterprise debt securities	433,923			8,853			(132)			442,644
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	827,929			34,585			(4,074)			858,440
Residential mortgage-backed securities	1,246,609			34,445			(159)			1,280,895
Municipal securities	208,333			7,002			(151)			215,184
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	148,322			3,989			(943)			151,368
Residential mortgage-backed securities	113,548			804			(14)			114,338
Corporate debt securities	31,254			74			(502)			30,826
Foreign bonds	204,540			106			(566)			204,080
Asset-backed securities	64,762			—			(3,143)			61,619
CLOs	294,000			—			(20,021)			273,979
Total AFS debt securities	$	3,823,714		$	90,565		$	(29,705)		$	3,884,574



($ in thousands)	December 31, 2019
			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
AFS debt securities:
U.S. Treasury securities	$	177,215		$	—		$	(793)		$	176,422
U.S. government agency and U.S. government-sponsored enterprise debt securities	584,275			1,377			(4,407)			581,245
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	599,814			8,551			(4,894)			603,471
Residential mortgage-backed securities	998,447			6,927			(1,477)			1,003,897
Municipal securities	101,621			790			(109)			102,302
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	86,609			1,947			(6)			88,550
Residential mortgage-backed securities	46,830			3			(285)			46,548
Corporate debt securities	11,250			12			(113)			11,149
Foreign bonds	354,481			198			(507)			354,172
Asset-backed securities	66,106			—			(1,354)			64,752
CLOs	294,000			—			(9,294)			284,706
Total AFS debt securities	$	3,320,648		$	19,805		$	(23,239)		$	3,317,214

As of June 30, 2020, the amortized cost of AFS debt securities excludes accrued interest receivables of $17.8 million 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 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

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, 2020 and December 31, 2019.



($ in thousands)	June 30, 2020
			Less Than 12 Months									12 Months or More							Total
			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses
AFS debt securities:

U.S. government agency and U.S. government sponsored enterprise debt securities	$	24,868		$	(132)		$	—		$	—		$	24,868		$	(132)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	139,097			(3,477)			11,572			(597)			150,669			(4,074)
Residential mortgage-backed securities	91,491			(157)			195			(2)			91,686			(159)
Municipal securities	8,617			(151)			—			—			8,617			(151)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	59,418			(943)			—			—			59,418			(943)
Residential mortgage-backed securities	23,720			(14)			—			—			23,720			(14)
Corporate debt securities	1,002			(2)			9,500			(500)			10,502			(502)
Foreign bonds	85,274			(566)			—			—			85,274			(566)
Asset-backed securities	18,359			(483)			43,260			(2,660)			61,619			(3,143)
CLOs	273,979			(20,021)			—			—			273,979			(20,021)
Total AFS debt securities	$	725,825		$	(25,946)		$	64,527		$	(3,759)		$	790,352		$	(29,705)



($ in thousands)	December 31, 2019
			Less Than 12 Months									12 Months or More							Total
			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses
AFS debt securities:
U.S. Treasury securities	$	—		$	—		$	176,422		$	(793)		$	176,422		$	(793)
U.S. government agency and U.S. government-sponsored enterprise debt securities	310,349			(4,407)			—			—			310,349			(4,407)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	204,675			(2,346)			108,314			(2,548)			312,989			(4,894)
Residential mortgage-backed securities	325,354			(1,234)			34,337			(243)			359,691			(1,477)
Municipal securities	31,130			(109)			—			—			31,130			(109)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	7,914			(6)			—			—			7,914			(6)
Residential mortgage-backed securities	42,894			(285)			—			—			42,894			(285)
Corporate debt securities	—			—			9,888			(113)			9,888			(113)
Foreign bonds	129,074			(407)			9,900			(100)			138,974			(507)
Asset-backed securities	52,565			(902)			12,187			(452)			64,752			(1,354)
CLOs	284,706			(9,294)			—			—			284,706			(9,294)
Total AFS debt securities	$	1,388,661		$	(18,990)		$	351,048		$	(4,249)		$	1,739,709		$	(23,239)

As of June 30, 2020, the Company had 41 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of three CLOs, 19 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, and four asset-backed securities. In comparison, as of December 31, 2019, the Company had 101 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of three CLOs, 57 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, and 14 U.S. government agency and U.S. government-sponsored enterprise 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 2 — Current Accounting Developments and Summary of Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in this Form 10-Q. Prior to January 1, 2020, the Company assessed individual securities that were in an unrealized loss position for OTTI.

The gross unrealized losses across all major security types presented in the above tables were primarily attributable to yield curve movements and widened spreads arising from the negative outlook and uncertainty as a result of the COVID-19 pandemic. The increase in unrealized losses during the six months ended June 30, 2020 was primarily due to further deterioration in the market values of the following security types:

•U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities — The market value decline was primarily due to the interest rate movement. Since these securities were guaranteed or sponsored by agencies of the U.S. government, and the credit profiles were strong (rated A, AA+ and AAA by Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings (“Fitch”), respectively), the Company expects to receive all contractual interest payments on-time, and believes the credit loss exposure on these securities is remote.

•Asset-backed securities — The market value decline of these securitized student loans was primarily due to the interest rate movement and the widening in spreads. Since credit profiles of these securities were strong (rated Aa1, AA+, and AA or higher by Moody’s Investors Service, S&P and Fitch Ratings, respectively), were backed by the Federal Family Education Loan Program, and the contractual payments from these bonds have been on-time, the Company deemed that the credit loss exposure on these securities is low and no credit loss is expected.

•CLOs — The market value decline was largely due to market dislocation in this sector resulting in wider liquidity spreads. The credit profiles of the securities were strong (rated A or higher by Standard and Poor's (“S&P”)) and the contractual payments from these bonds are expected to be received on-time. Accordingly, the Company believes that credit loss exposure on these securities is remote.

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 credit performance deteriorates under the impact of the COVID-19 pandemic.

As of June 30, 2020, the Company has the intent to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it is more-likely-than-not that the Company will not have to sell these securities before 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 no allowance for credit losses as of June 30, 2020, and there were no provision for credit losses recognized for the three and six months ended June 30, 2020. In comparison, no OTTI credit loss was recognized for the three and six months ended June 30, 2019.

Realized Gains and Losses

The following table presents the proceeds, gross realized gains and tax expense related to the sales of AFS debt securities for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Proceeds from sales	$	177,917		$	223,763		$	484,380		$	375,102
Gross realized gains	$	9,640		$	1,447		$	11,169		$	3,008
Related tax expense	$	2,850		$	428		$	3,302		$	889

Contractual Maturities of Available-for-Sale Debt Securities

The following table presents the contractual maturities of AFS debt securities as of June 30, 2020. 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 Cost		Fair Value
Due within one year	$	561,935	$	562,869
Due after one year through five years	366,403		371,895
Due after five years through ten years	277,823		289,730
Due after ten years	2,617,553		2,660,080
Total AFS debt securities	$	3,823,714	$	3,884,574

As of June 30, 2020 and December 31, 2019, AFS debt securities with fair value of $745.2 million and $479.4 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, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020		December 31, 2019
Federal Reserve Bank (“FRB”) stock	$	58,781	$	58,330
FHLB stock	20,182		20,250
Total restricted equity securities	$	78,963	$	78,580

Note 6 — Derivatives

The Company uses derivatives to manage exposure to market risk, primarily interest rate risk and foreign currency risk, and 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 consist of 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 2019 Form 10-K.

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, 2020 and December 31, 2019. 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, 2020 and December 31, 2019. 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, 2020														December 31, 2019
			Notional Amount			Fair Value								Notional Amount			Fair Value
							Derivative Assets		Derivative Liabilities								Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate contracts	$	15,194		$	—		$	174	$	31,026		$	—		$	3,198
Cash flow hedges:
Interest rate contracts	275,000			—			1,483		—			—			—
Net investment hedges:
Foreign exchange contracts	77,689			245			—		86,167			—			1,586
Total derivatives designated as hedging instruments	$	367,883		$	245		$	1,657	$	117,193		$	—		$	4,784
Derivatives not designated as hedging instruments:
Interest rate contracts	$	17,170,884		$	613,480		$	400,146	$	15,489,692		$	192,883		$	124,119
Foreign exchange contracts	2,738,018			24,044			19,741		4,839,661			54,637			47,024
Credit contracts	204,498			41			327		210,678			2			84
Equity contracts	—		(1)	9,173			—		—		(1)	1,414			—
Commodity contracts	—		(2)	117,447			138,298		—		(2)	81,380			80,517
Total derivatives not designated as hedging instruments	$	20,113,400		$	764,185		$	558,512	$	20,540,031		$	330,316		$	251,744
Gross derivative assets/liabilities				$	764,430		$	560,169				$	330,316		$	256,528
Less: Master netting agreements				(110,569)			(110,569)					(121,561)			(121,561)
Less: Cash collateral received/paid				(11,649)			(94,435)					(3,758)			(38,238)
Net derivative assets/liabilities				$	642,212		$	355,165				$	204,997		$	96,729

(1)The Company held equity contracts in three public companies and 17 private companies as of June 30, 2020. In comparison, the Company held equity contracts in three public companies and 18 private companies as of December 31, 2019.

(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 6,155 thousand barrels of crude oil and 84,957 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of June 30, 2020. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 7,811 thousand barrels of crude oil and 63,773 thousand MMBTUs of natural gas as of December 31, 2019. 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 is exposed to changes in the fair value of certain certificates of deposit due to changes in the benchmark interest rates. The Company has entered into interest rate swaps, which were designated as fair value hedges. The interest rate swaps involve the exchange of variable rate payments over the life of the agreements without the exchange of the underlying notional amounts.

The following table presents the net gains (losses) recognized on the Consolidated Statement of Income related to the derivatives designated as fair value hedges for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Gains (losses) recorded in interest expense:
Recognized on interest rate swaps	$	951		$	1,634		$	2,996		$	2,854
Recognized on certificates of deposit	$	(357)		$	(1,434)		$	(1,719)		$	(2,695)

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of the hedged certificates of deposit as of June 30, 2020 and December 31, 2019:



($ in thousands)	Carrying Value ⁽¹⁾									Cumulative Fair Value Adjustment ⁽²⁾
			June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Certificates of deposit	$	(14,986)		$	(29,080)		$	(114)		$	1,604

(1)Represents the full carrying amount of the hedged certificates of deposit.

(2)For liabilities, (increase) decrease to carrying value.

Cash Flow Hedges — The Company entered into interest rate swaps that were designated and qualified as cash flow hedges in the second quarter of 2020 to hedge 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 impacts 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. As of June 30, 2020, the notional amount of the interest rate swaps that were designated as cash flow hedges was $275.0 million. Considering the interest rates, yield curve and notional amounts as of June 30, 2020, the Company expects to reclassify an estimated $183 thousand of after-tax net gains 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, 2020 and 2019. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in the Form-10-Q.



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Gains (losses) recognized in AOCI	$	(1,483)		$	—		$	(1,483)		$	—
Gains (losses) reclassified from AOCI to Interest expense	$	377		$	—		$	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 highly effective. The notional and fair value amounts of the foreign exchange forward contracts were $77.7 million and $245 thousand asset, respectively, as of June 30, 2020. In comparison, the notional and fair value amounts of the foreign exchange forward contracts, were $86.2 million and $1.6 million liability, respectively, as of December 31, 2019.

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, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Gains (losses) recognized in AOCI	$	(377)		$	(598)		$	627		$	(2,603)

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 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. Beginning in January 2018, the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments made to and received from LCH as settlements of derivatives, and not as collateral against derivatives. Included in the total notional amount of $8.60 billion of interest rates contracts entered into with financial counterparties as of June 30, 2020, was a notional amount of $2.82 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 liability fair values of $229.8 million, as of June 30, 2020. In comparison, included in the total notional amount of $7.75 billion of interest rates contracts entered into with financial counterparties as of December 31, 2019, was a notional amount of $2.53 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 $2.9 million and liability fair values of $75.1 million as of December 31, 2019.

The following tables present the notional amounts and the gross fair values of interest rate derivative contracts outstanding as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Written options	$	858,996		$	—		$	241	Purchased options	$	858,996	$	241		$	—
Sold collars and corridors	531,098			10,658			1		Collars and corridors	531,098		1			10,696
Swaps	7,179,331			601,250			—		Swaps	7,211,365		1,330			389,208
Total	$	8,569,425		$	611,908		$	242	Total	$	8,601,459	$	1,572		$	399,904



($ in thousands)	December 31, 2019
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Written options	$	1,003,558		$	—		$	66	Purchased options	$	1,003,558	$	67		$	—
Sold collars and corridors	490,852			1,971			16		Collars and corridors	490,852		17			1,996
Swaps	6,247,667			187,294			6,237		Swaps	6,253,205		3,534			115,804
Total	$	7,742,077		$	189,265		$	6,319	Total	$	7,747,615	$	3,618		$	117,800

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. For the foreign exchange contracts entered into with its customers, the Company managed its foreign exchange exposure by entering into offsetting foreign exchange contracts with third-party financial institutions and/or entering into bilateral collateral and master netting agreements with customer counterparties to manage its credit exposure. The Company also utilizes foreign exchange contracts, which are not designated as hedging instruments to mitigate the economic effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily for 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 June 30, 2020 and December 31, 2019.

The following tables present the notional amounts and the gross fair values of foreign exchange derivative contracts outstanding as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Forwards and spot	$	1,768,864		$	17,940		$	14,246	Forwards and spot	$	62,424	$	62		$	98
Swaps	7,160			—			42		Swaps	734,640		4,502			3,808

Collars	1,685			2			—		Collars	162,245		1,538			1,547
Total	$	1,777,709		$	17,942		$	14,288	Total	$	959,309	$	6,102		$	5,453



($ in thousands)	December 31, 2019
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Forwards and spot	$	3,581,036		$	45,911		$	40,591	Forwards and spot	$	207,492	$	1,400		$	507
Swaps	6,889			16			84		Swaps	702,391		6,156			4,712
Written options	87,036			127			—		Purchased options	87,036		—			127
Collars	2,244			—			14		Collars	165,537		1,027			989
Total	$	3,677,205		$	46,054		$	40,689	Total	$	1,162,456	$	8,583		$	6,335

Credit Contracts — The Company may periodically enter into RPA contracts to manage the credit exposure on interest rate contracts associated with syndicated loans and may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPAs, the Company will receive or make 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 based on the normal credit review process. The referenced entities of the RPAs were investment grade as of both June 30, 2020 and December 31, 2019. 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, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020													December 31, 2019
			Notional Amount			Fair Value							Notional Amount			Fair Value
							Assets		Liabilities							Assets	Liabilities
RPAs - protection sold	$	193,783		$	—		$	327	$	199,964	$	—		$	84
RPAs - protection purchased	10,714			41			—		10,714		2			—
Total RPAs	$	204,497		$	41		$	327	$	210,678	$	2		$	84

Assuming all underlying borrowers referenced in the interest rate contracts defaulted as of June 30, 2020 and December 31, 2019, the exposure from the RPAs with protections sold would be $778 thousand and $125 thousand, respectively. As of June 30, 2020 and December 31, 2019, the weighted-average remaining maturities of the outstanding RPAs were 1.7 years and 2.2 years, respectively.

Equity Contracts — As part of the Company’s loan origination process, from time to time, 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 three public companies and 17 private companies as of June 30, 2020, and held warrants in three public companies and 18 private companies as of December 31, 2019. The total fair value of the warrants held in both public and private companies was $9.2 million and $1.4 million in assets as of June 30, 2020 and December 31, 2019, 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 fluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions to manage the exposure with its customers. Beginning in January 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook to legally characterize variation margin payments made to and received from CME as settlements of derivatives and not as collateral against derivatives. As of June 30, 2020, the notional quantities that cleared through CME totaled 1,532 thousand barrels of crude oil and 24,895 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in reductions in gross derivative asset fair value of $25.0 million and liability fair value of $631 thousand, respectively, as of June 30, 2020, for a net asset fair value of $2.3 million. In comparison, the notional quantities that cleared through CME totaled 1,752 thousand barrels of crude oil and 6,075 thousand MMBTUs of natural gas as of December 31, 2019. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair value of $2.9 million and liability fair value of $1.5 million, respectively, as of December 31, 2019, for a net asset fair value of $986 thousand.

The following tables present the notional amounts and fair values of the commodity derivative positions outstanding as of June 30, 2020 and December 31, 2019:



($ and units in thousands)	June 30, 2020
		Customer Counterparty												($ and units in thousands)			Financial Counterparty
		Notional Unit						Fair Value							Notional Unit			Fair Value
									Assets	Liabilities								Assets	Liabilities
Crude oil:									Crude oil:
Written options	—		Barrels	$	—	$	70		Purchased options	—	Barrels	$	70		$	—
Collars	1,966		Barrels	63		20,463			Collars	2,218	Barrels	21,847			1,607
Swaps	4,189		Barrels	1,273		51,320			Swaps	4,261	Barrels	32,875			1,779
Total	6,155			$	1,336	$	71,853		Total	6,479		$	54,792		$	3,386

Natural gas:									Natural gas:
Written options	1,033		MMBTUs	$	—	$	172		Purchased Options	1,023	MMBTUs	$	157		$	—
Collars	13,066		MMBTUs	881		955			Collars	13,186	MMBTUs	883			881
Swaps	70,858		MMBTUs	29,550		31,988			Swaps	78,528	MMBTUs	29,848			29,063
Total	84,957			$	30,431	$	33,115		Total	92,737		$	30,888		$	29,944

Total				$	31,767	$	104,968		Total			$	85,680		$	33,330



($ and units in thousands)	December 31, 2019
		Customer Counterparty												($ and units in thousands)			Financial Counterparty
		Notional Unit						Fair Value							Notional Unit			Fair Value
									Assets	Liabilities								Assets	Liabilities
Crude oil:									Crude oil:
Written options	36		Barrels	$	—	$	30		Purchased options	36	Barrels	$	29		$	—
Collars	3,174		Barrels	2,673		538			Collars	3,630	Barrels	677			2,815
Swaps	4,601		Barrels	6,949		5,531			Swaps	4,721	Barrels	4,516			5,215
Total	7,811			$	9,622	$	6,099		Total	8,387		$	5,222		$	8,030

Natural gas:									Natural gas:
Written options	540		MMBTUs	$	—	$	22		Purchased options	530	MMBTUs	$	21		$	—
Collars	14,277		MMBTUs	186		522			Collars	14,517	MMBTUs	471			150
Swaps	48,956		MMBTUs	30,257		35,497			Swaps	48,779	MMBTUs	35,601			30,197
Total	63,773			$	30,443	$	36,041		Total	63,826		$	36,093		$	30,347

Total				$	40,065	$	42,140		Total			$	41,315		$	38,377

The following table presents the net (losses) gains 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, 2020 and 2019:



($ in thousands)	Classification on Consolidated Statement of Income	Three Months Ended June 30,						Six Months Ended June 30,
				2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Interest rate contracts	Interest rate contracts and other derivative income	$	(5,361)	$	(1,359)	$	(12,372)	$	(3,138)
Foreign exchange contracts	Foreign exchange income	6,201		3,495		9,062		9,821
Credit contracts	Interest rate contracts and other derivative income	(75)		(36)		(98)		47
Equity contracts	Lending fees	8,070		917		8,379		1,167
Commodity contracts	Interest rate contracts and other derivative income	(71)		(22)		(47)		(18)
Net gains		$	8,764	$	2,995	$	4,924	$	7,879

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, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that are in a net liability position totaled $136.6 million, in which $136.5 million in cash and securities collateral were posted to cover these positions. As of December 31, 2019, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that are in a net liability position totaled $56.4 million, which includes $14.4 million in derivative assets and $70.8 million in derivative liabilities. The Company posted $56.4 million in cash and securities collateral to cover these positions as of December 31, 2019. In the event that the credit rating of East West Bank had been downgraded to below investment grade, additional minimal collateral would have been required to be posted as of June 30, 2020, and December 31, 2019.

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 centrally cleared organizations, 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, 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	$	764,430	$	(110,569)	$	(11,649)	$	642,212	$	(13,447)	$	628,765

	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	$	560,169	$	(110,569)	$	(94,435)	$	355,165	$	(279,528)	$	75,637



($ in thousands)	As of December 31, 2019

	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	$	330,316	$	(121,561)	$	(3,758)	$	204,997	$	—	$	204,997

	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	$	256,528	$	(121,561)	$	(38,238)	$	96,729	$	(79,619)	$	17,110

(1)Gross amounts recognized for derivative assets include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $754.7 million and $328.7 million, respectively, as of June 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $9.7 million and $1.6 million, respectively, as of June 30, 2020 and December 31, 2019.

(2)Gross amounts recognized for derivative liabilities include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $560.0 million and $256.5 million, respectively, as of June 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $211 thousand and $20 thousand, respectively, as of June 30, 2020 and December 31, 2019.

(3)Gross cash collateral received under master netting arrangements or similar agreements were $18.1 million and $3.8 million, respectively, as of June 30, 2020 and December 31, 2019. Of the gross cash collateral received, $11.6 million and $3.8 million were used to offset against derivative assets, respectively, as of June 30, 2020 and December 31, 2019.

(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $98.9 million and $43.0 million, respectively, as of June 30, 2020 and December 31, 2019. Of the gross cash collateral pledged, $94.4 million and $38.2 million were used to offset against derivative liabilities, respectively, as of June 30, 2020 and December 31, 2019.

(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 the resale and repurchase agreements. Refer to Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements 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.

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, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020			December 31, 2019
			Amortized Cost ⁽¹⁾			Non-PCI Loans ⁽¹⁾			PCI Loans			Total ⁽¹⁾
Commercial:
C&I	$	13,422,691		$	12,149,121		$	1,810		$	12,150,931
CRE:
CRE	10,902,114			10,165,247			113,201			10,278,448
Multifamily residential	3,032,385			2,834,212			22,162			2,856,374
Construction and land	567,716			628,459			40			628,499
Total CRE	14,502,215			13,627,918			135,403			13,763,321
Total commercial	27,924,906			25,777,039			137,213			25,914,252
Consumer:
Residential mortgage:
Single-family residential	7,660,094			7,028,979			79,611			7,108,590
HELOCs	1,461,951			1,466,736			6,047			1,472,783
Total residential mortgage	9,122,045			8,495,715			85,658			8,581,373
Other consumer	182,461			282,914			—			282,914
Total consumer	9,304,506			8,778,629			85,658			8,864,287
Total loans held-for-investment	$	37,229,412		$	34,555,668		$	222,871		$	34,778,539
Allowance for loan losses	(632,071)			(358,287)			—			(358,287)
Loans held-for-investment, net	$	36,597,341		$	34,197,381		$	222,871		$	34,420,252

(1)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(72.1) million and $(43.2) million as of June 30, 2020 and December 31, 2019, respectively.

Loans held-for-investments’ accrued interest receivable was $111.8 million and $121.8 million as of June 30, 2020 and December 31, 2019, respectively. Interest income related to nonaccrual loans of approximately $1.2 million and $1.6 million were reversed during the three and six months ended June 30, 2020, respectively. Interest income of approximately $10 thousand and $12 thousand were recognized on nonaccrual loans for the three and six months ended June 30, 2020, respectively. For the accounting policy on accrued interest receivable related to loans held-for-investment, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

Loans totaling $27.41 billion and $22.43 billion as of June 30, 2020 and December 31, 2019, respectively, were pledged to secure borrowings and provide additional borrowing capacity from the FRB and the FHLB.

Credit Quality Indicators

All loans are subject to the Company’s credit review and monitoring. 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.

For the Company’s internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk rated 1 through 5 are assigned an internal risk rating of “Pass”, with loans risk rated 1 being fully secured by cash or U.S. government securities. 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 6 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 7 or 8 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 9 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 uncollectable and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating of “Loss”. The Company reviews the internal risk ratings for its loan portfolio on a regular and ongoing basis and make adjustments to the risk ratings based on changes in the borrowers’ financial status and the collectability of the loans.

The following table summarizes the Company’s loans held-for-investment as of June 30, 2020, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification.



($ in thousands)	June 30, 2020
																					Revolving Loans Amortized Cost Basis			Revolving Loans Converted to Term Loans Amortized Cost Basis

			Term Loans																								Total
			Amortized Cost Basis by Origination Year
			2020			2019			2018			2017			2016			Prior
Commercial:
C&I:
Pass	$	2,922,977		$	2,010,048		$	818,374		$	328,471		$	85,000		$	380,727		$	6,007,247		$	9,830		$	12,562,674
Special mention	525			80,449			54,144			22,757			150			6,105			251,461			—			415,591
Substandard	8,102			82,574			52,383			7,979			6,313			2,515			283,335			—			443,201
Doubtful	—			—			—			—			964			261			—			—			1,225

Total C&I	2,931,604			2,173,071			924,901			359,207			92,427			389,608			6,542,043			9,830			13,422,691

CRE:
Pass	1,249,819			2,859,844			2,410,797			1,380,086			794,228			1,722,081			170,556			10,716			10,598,127
Special mention	13,072			—			49,860			22,468			1,611			45,309			—			—			132,320
Substandard	8,303			51,944			7,711			43,914			17,213			42,582			—			—			171,667


Total CRE	1,271,194			2,911,788			2,468,368			1,446,468			813,052			1,809,972			170,556			10,716			10,902,114
Multifamily residential:
Pass	489,855			1,045,053			507,413			414,771			181,265			357,680			5,809			—			3,001,846
Special mention	—			20,433			—			—			262			1,228			—			—			21,923
Substandard	—			744			2,150			—			—			5,722			—			—			8,616


Total multifamily residential	489,855			1,066,230			509,563			414,771			181,527			364,630			5,809			—			3,032,385
Construction and land:
Pass	46,378			283,670			185,570			5,982			21,636			1,170			—			—			544,406

Substandard	3,618			—			—			—			—			19,692			—			—			23,310


Total construction and land	49,996			283,670			185,570			5,982			21,636			20,862			—			—			567,716
Total CRE	1,811,045			4,261,688			3,163,501			1,867,221			1,016,215			2,195,464			176,365			10,716			14,502,215
Total commercial	4,742,649			6,434,759			4,088,402			2,226,428			1,108,642			2,585,072			6,718,408			20,546			27,924,906
Consumer:

Single-family residential:
Pass	1,150,786			1,987,025			1,694,022			1,162,434			593,501			1,047,965			—			—			7,635,733
Special mention	—			637			1,601			836			305			1,834			—			—			5,213
Substandard	—			1,393			3,256			3,382			1,349			9,768			—			—			19,148


Total single-family residential mortgage	1,150,786			1,989,055			1,698,879			1,166,652			595,155			1,059,567			—			—			7,660,094
HELOCs:
Pass	185			836			4,417			7,949			7,511			18,097			1,239,458			168,658			1,447,111
Special mention	—			—			200			—			—			380			2			190			772
Substandard	—			151			788			4,632			1,308			4,038			—			3,151			14,068


Total HELOCs	185			987			5,405			12,581			8,819			22,515			1,239,460			171,999			1,461,951
Total residential mortgage	1,150,971			1,990,042			1,704,284			1,179,233			603,974			1,082,082			1,239,460			171,999			9,122,045
Other consumer:
Pass	3,236			4,272			3,358			1,838			—			131,825			35,372			—			179,901
Special mention	51			—			—			—			—			—			—			—			51
Substandard	2			—			—			2,491			—			3			13			—			2,509


Total other consumer	3,289			4,272			3,358			4,329			—			131,828			35,385			—			182,461
Total consumer	1,154,260			1,994,314			1,707,642			1,183,562			603,974			1,213,910			1,274,845			171,999			9,304,506
Total	$	5,896,909		$	8,429,073		$	5,796,044		$	3,409,990		$	1,712,616		$	3,798,982		$	7,993,253		$	192,545		$	37,229,412

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns. HELOCS totaling $12.1 million and $43.4 million converted to term loans during the three and six months ended June 30, 2020, respectively. There were no conversions of C&I or CRE revolving loans to term loans during the three and six months ended June 30, 2020.

The following tables present the credit risk ratings for non-PCI and PCI loans by portfolio segments as of December 31, 2019:



($ in thousands)	December 31, 2019
			Pass			Special Mention			Substandard			Doubtful			Total Non-PCI Loans
Commercial:
C&I	$	11,423,094		$	406,543		$	302,509		$	16,975		$	12,149,121
CRE:
CRE	10,003,749			83,683			77,815			—			10,165,247
Multifamily residential	2,806,475			20,406			7,331			—			2,834,212
Construction and land	603,447			—			25,012			—			628,459
Total CRE	13,413,671			104,089			110,158			—			13,627,918
Total commercial	24,836,765			510,632			412,667			16,975			25,777,039
Consumer:
Residential mortgage:
Single-family residential	7,012,522			2,278			14,179			—			7,028,979
HELOCs	1,453,207			2,787			10,742			—			1,466,736
Total residential mortgage	8,465,729			5,065			24,921			—			8,495,715
Other consumer	280,392			5			2,517			—			282,914
Total consumer	8,746,121			5,070			27,438			—			8,778,629
Total	$	33,582,886		$	515,702		$	440,105		$	16,975		$	34,555,668



($ in thousands)	December 31, 2019
			Pass			Special Mention			Substandard			Doubtful			Total PCI Loans
Commercial:
C&I	$	1,810		$	—		$	—		$	—		$	1,810
CRE:
CRE	102,257			—			10,944			—			113,201
Multifamily residential	22,162			—			—			—			22,162
Construction and land	40			—			—			—			40
Total CRE	124,459			—			10,944			—			135,403
Total commercial	126,269			—			10,944			—			137,213
Consumer:
Residential mortgage:
Single-family residential	79,517			—			94			—			79,611
HELOCs	5,849			—			198			—			6,047
Total residential mortgage	85,366			—			292			—			85,658

Total consumer	85,366			—			292			—			85,658
Total ⁽¹⁾	$	211,635		$	—		$	11,236		$	—		$	222,871

(1)Loans net of ASC 310-10 discount.

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 or guaranteed by government agencies, 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. The following table presents the aging analysis of total loans held-for-investment as of June 30, 2020:



($ in thousands)	June 30, 2020
			Current Accruing Loans			Accruing Loans 30-59 Days Past Due			Accruing Loans 60-89 Days Past Due			Total Accruing Past Due Loans			Nonaccrual Loans Less Than 90 Days Past Due			Nonaccrual Loans 90 or More Days Past Due			Total Nonaccrual Loans			Total Loans
Commercial:
C&I	$	13,277,732		$	46,774		$	13,362		$	60,136		$	54,555		$	30,268		$	84,823		$	13,422,691
CRE:
CRE	10,836,810			7,452			1,275			8,727			1,210			55,367			56,577			10,902,114
Multifamily residential	3,025,648			3,655			2,308			5,963			774			—			774			3,032,385
Construction and land	567,716			—			—			—			—			—			—			567,716
Total CRE	14,430,174			11,107			3,583			14,690			1,984			55,367			57,351			14,502,215
Total commercial	27,707,906			57,881			16,945			74,826			56,539			85,635			142,174			27,924,906
Consumer:
Residential mortgage:
Single-family residential	7,619,333			15,739			4,952			20,691			1,713			18,357			20,070			7,660,094
HELOCs	1,444,945			2,165			773			2,938			443			13,625			14,068			1,461,951
Total residential mortgage	9,064,278			17,904			5,725			23,629			2,156			31,982			34,138			9,122,045
Other consumer	165,258			14,636			59			14,695			—			2,508			2,508			182,461
Total consumer	9,229,536			32,540			5,784			38,324			2,156			34,490			36,646			9,304,506
Total	$	36,937,442		$	90,421		$	22,729		$	113,150		$	58,695		$	120,125		$	178,820		$	37,229,412

The following table presents amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of June 30, 2020:



($ in thousands)	June 30, 2020
Commercial:
C&I	$	66,109
CRE:
CRE	54,879


Total CRE	54,879
Total commercial	120,988
Consumer:
Residential mortgage:
Single-family residential	8,642
HELOCs	8,898
Total residential mortgage	17,540
Other consumer	2,491
Total consumer	20,031
Total nonaccrual loans with no related allowance for loan losses	$	141,019

The following table presents the aging analysis of non-PCI loans as of December 31, 2019:



($ in thousands)	December 31, 2019
			Current Accruing Loans			Accruing Loans 30-59 Days Past Due			Accruing Loans 60-89 Days Past Due			Total Accruing Past Due Loans			Nonaccrual Loans Less Than 90 Days Past Due			Nonaccrual Loans 90 or More Days Past Due			Total Nonaccrual Loans			Total Non-PCI Loans
Commercial:
C&I	$	12,026,131		$	31,121		$	17,034		$	48,155		$	31,084		$	43,751		$	74,835		$	12,149,121
CRE:
CRE	10,123,999			22,830			1,977			24,807			540			15,901			16,441			10,165,247
Multifamily residential	2,832,664			198			531			729			534			285			819			2,834,212
Construction and land	628,459			—			—			—			—			—			—			628,459
Total CRE	13,585,122			23,028			2,508			25,536			1,074			16,186			17,260			13,627,918
Total commercial	25,611,253			54,149			19,542			73,691			32,158			59,937			92,095			25,777,039
Consumer:
Residential mortgage:
Single-family residential	6,993,597			15,443			5,074			20,517			1,964			12,901			14,865			7,028,979
HELOCs	1,448,930			4,273			2,791			7,064			1,448			9,294			10,742			1,466,736
Total residential mortgage	8,442,527			19,716			7,865			27,581			3,412			22,195			25,607			8,495,715
Other consumer	280,386			6			5			11			—			2,517			2,517			282,914
Total consumer	8,722,913			19,722			7,870			27,592			3,412			24,712			28,124			8,778,629
Total	$	34,334,166		$	73,871		$	27,412		$	101,283		$	35,570		$	84,649		$	120,219		$	34,555,668

PCI loans were excluded from the above aging analysis table as of December 31, 2019, as the Company elected to account for these loans on a pool level basis under ASC 310-30 at the time of acquisition. As of December 31, 2019, PCI loans on nonaccrual status totaled $297 thousand.

Foreclosed Assets

The Company had $23.4 million in foreclosed assets as of June 30, 2020 compared with $1.3 million as of December 31, 2019. The Company commences the foreclosure process on consumer mortgage loans when a borrower becomes 120 days delinquent in accordance with the Consumer Finance Protection Bureau guidelines. The carrying value of consumer real estate loans that were in the process of active or suspended foreclosure was $6.3 million and $7.2 million as of June 30, 2020 and December 31, 2019, respectively. The foreclosure proceedings for these consumer real estate loans were initiated prior to the CARES Act passed by Congress in March 2020. The Company has suspended certain mortgage foreclosure activities in connection with our actions to support our customers during the COVID-19 pandemic.

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. The Company has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19 that are not considered TDRs. For additional details related to COVID-19 loan modifications, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies — Summary of Significant Accounting Policies — Troubled Debt Restructurings to the Consolidated Financial Statements.

The following tables present the additions to TDRs for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Loans Modified as TDRs During the Three Months Ended June 30,
		2020																				2019
		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&I	3		$	35,260		$	28,926		$	872		6		$	48,099		$	48,054		$	5,869





Total commercial	3		35,260			28,926			872			6		48,099			48,054			5,869
Consumer:
Residential mortgage:
Single-family residential	—		—			—			—			1		220			219			—

Total residential mortgage	—		—			—			—			1		220			219			—

Total consumer	—		—			—			—			1		220			219			—
Total	3		$	35,260		$	28,926		$	872		7		$	48,319		$	48,273		$	5,869



($ in thousands)	Loans Modified as TDRs During the Six Months Ended June 30,
		2020																				2019
		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&I	6		$	51,708		$	43,833		$	1,000		9		$	77,250		$	77,486		$	5,929





Total commercial	6		51,708			43,833			1,000			9		77,250			77,486			5,929
Consumer:
Residential mortgage:
Single-family residential	—		—			—			—			1		220			219			—

Total residential mortgage	—		—			—			—			1		220			219			—

Total consumer	—		—			—			—			1		220			219			—
Total	6		$	51,708		$	43,833		$	1,000		10		$	77,470		$	77,705		$	5,929

(1)Includes subsequent payments after modification and reflects the balance as of June 30, 2020 and 2019.

(2)The financial impact includes charge-offs and specific reserves recorded since the modification date.

The following tables present the TDR post-modification outstanding balances for the three and six months ended June 30, 2020 and 2019 by modification type:



($ in thousands)	Modification Type During the Three Months Ended June 30,
			2020													2019
			Principal ⁽¹⁾			Interest Deferments			Total			Principal ⁽¹⁾			Other ⁽²⁾				Total
Commercial:
C&I	$	11,766		$	17,160		$	28,926		$	9,909		$	38,145			$	48,054





Total commercial	11,766			17,160			28,926			9,909			38,145				48,054
Consumer:
Residential mortgage:
Single-family residential	—			—			—			—			219				219

Total residential mortgage	—			—			—			—			219				219

Total consumer	—			—			—			—			219				219
Total	$	11,766		$	17,160		$	28,926		$	9,909		$	38,364			$	48,273



($ in thousands)	Modification Type During the Six Months Ended June 30,
			2020																			2019
			Principal ⁽¹⁾			Principal and Interest ⁽³⁾			Interest Deferments			Total			Principal ⁽¹⁾			Other ⁽²⁾			Total
Commercial:
C&I	$	15,898		$	10,775		$	17,160		$	43,833		$	39,341		$	38,145		$	77,486





Total commercial	15,898			10,775			17,160			43,833			39,341			38,145			77,486
Consumer:
Residential mortgage:
Single-family residential	—			—			—			—			—			219			219

Total residential mortgage	—			—			—			—			—			219			219

Total consumer	—			—			—			—			—			219			219
Total	$	15,898		$	10,775		$	17,160		$	43,833		$	39,341		$	38,364		$	77,705

(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 funding to secure additional collateral and provides liquidity to collateral-dependent C&I loans.

(3)Includes principal and interest deferments or reductions.

Subsequent to restructuring, if a TDR that becomes delinquent, generally beyond 90 days past due, it is considered to be in default. TDRs are individually evaluated for impairment. Subsequent defaults do not generally have a significant additional impact on the allowance for loan losses. The following tables present information on loans for which a subsequent payment default occurred during the three and six months ended June 30, 2020 and 2019, respectively, which had been modified as TDR within the previous 12 months of its default, and were still in default as of June 30, 2020 and 2019:



($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended June 30,
		2020									2019
		Number of Loans			Recorded Investment			Number of Loans			Recorded Investment
Commercial:
C&I	1		$	17,160		$	1		$	1,484





Total commercial	1		17,160			1			1,484







Total	1		$	17,160		$	1		$	1,484



($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Six Months Ended June 30,
		2020									2019
		Number of Loans			Recorded Investment			Number of Loans			Recorded Investment
Commercial:
C&I	1		$	17,160		$	1		$	1,484





Total commercial	1		17,160			1			1,484







Total	1		$	17,160		$	1		$	1,484

The amount of additional funds committed to lend to borrowers whose terms have been modified as TDRs was $4.5 million and $2.2 million as of June 30, 2020 and December 31, 2019, respectively.

Impaired Loans

In connection with the adoption of ASU 2016-13 on January 1, 2020, the Company no longer provides information on impaired loans. The Company had retained impaired loans information for the period ended December 31, 2019. The following table presents information on non-PCI impaired loans as of December 31, 2019:



($ in thousands)	December 31, 2019
			Unpaid Principal Balance			Recorded Investment With No Allowance			Recorded Investment With Allowance			Total Recorded Investment			Related Allowance
Commercial:
C&I	$	174,656		$	73,956		$	40,086		$	114,042		$	2,881
CRE:
CRE	27,601			20,098			1,520			21,618			97
Multifamily residential	4,965			1,371			3,093			4,464			55
Construction and land	19,696			19,691			—			19,691			—
Total CRE	52,262			41,160			4,613			45,773			152
Total commercial	226,918			115,116			44,699			159,815			3,033
Consumer:
Residential mortgage:
Single-family residential	23,626			8,507			13,704			22,211			35
HELOCs	13,711			6,125			7,449			13,574			8
Total residential mortgage	37,337			14,632			21,153			35,785			43
Other consumer	2,517			—			2,517			2,517			2,517
Total consumer	39,854			14,632			23,670			38,302			2,560
Total non-PCI impaired loans	$	266,772		$	129,748		$	68,369		$	198,117		$	5,593

The following table presents the average recorded investment and interest income recognized on non-PCI impaired loans for the three and six months ended June 30, 2019:




($ in thousands)	Three Months Ended June 30, 2019									Six Months Ended June 30, 2019
			Average Recorded Investment			Recognized Interest Income ⁽¹⁾			Average Recorded Investment			Recognized Interest Income ⁽¹⁾
Commercial:
C&I	$	182,689		$	1,081		$	189,553		$	1,816
CRE:
CRE	29,241			135			31,456			249
Multifamily residential	5,852			61			5,883			121

Total CRE	35,093			196			37,339			370
Total commercial	217,782			1,277			226,892			2,186
Consumer:
Residential mortgage:
Single-family residential	23,247			129			24,865			258
HELOCs	13,564			38			15,321			56
Total residential mortgage	36,811			167			40,186			314
Other consumer	2,515			—			2,526			—
Total consumer	39,326			167			42,712			314
Total non-PCI impaired loans	$	257,108		$	1,444		$	269,604		$	2,500

(1)Includes interest income recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal, not as interest income.

Allowance for Loan Losses

On January 1, 2020, the Company adopted ASU 2016-13 that establishes a single allowance framework for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. It requires the measurement of the allowance for loan losses to be based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. Balance sheet information and results for reporting periods beginning with January 1, 2020 are presented under ASC 326, while prior period comparisons continue to be presented under legacy GAAP.

The process of the allowance for loan losses involves procedures to consider the unique risk characteristics of the portfolio segments. For each loan portfolio segment, the expected credit losses are estimated collectively for groups of loans with similar risk characteristics. For loans that do not share similar risk characteristics, the expected credit losses are estimated individually, which includes impaired loans.

Allowance for Collectively Evaluated Loans

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 as well as an economic outlook over the life of the loan. The Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the loans. 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, combined with and downside and upside scenarios reflecting possible worsening or improving economic conditions, respectively. A weighted average of these macroeconomic scenarios over a reasonable and supportable forecast period is incorporated into the quantitative models. If the loan’s life extends beyond the reasonable and supportable forecast period, then historical experience is considered over the remaining life of the loans in the allowance for loan losses.

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

•Loan growth trends.

•The volume and severity of past due financial assets and the volume and severity of adversely classified or rated financial assets.

•The Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices, as well as knowledge of the borrower’s operations or the borrower’s standing in the community.

•The quality of the Company’s credit review system.

•The experience, ability and depth of the Company’s management, lending staff and relevant staff.

•The effect of other external factors such as the regulatory, legal and technological environments.

•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the Company operates, including the actual and expected condition of various market segments.

The following table provides key credit risk characteristics and macroeconomic variables that the Company uses to estimate the expected credit losses by portfolio segments and methodologies:

Portfolio Segment

Risk Characteristics

Macroeconomic Variables

C&I

Internal risk rating, size and credit spread at origination and time to maturity

Unemployment rate and two and ten year treasury spread

CRE, Multifamily residential, and Construction and land

Delinquency status, maturity date, collateral value, property type and geographic location

Unemployment rate, GDP and U.S. Treasury rates

Single-family residential and HELOCs

FICO, delinquency status, maturity date, collateral value and geographic location

Unemployment rate, GDP and home price index

Other consumer

Historical loss experience

Immaterial ⁽¹⁾

(1)Macroeconomic variables were measured in the qualitative estimate.

In light of the recessionary economic conditions and forecasts during the quarter, management updated its macroeconomic forecast used in the credit loss estimation process to reflect the sudden sharp and continued recession caused by the COVID-19 global pandemic, U.S. monetary and fiscal responses to the outbreak, oil price declines and other assumptions. The macroeconomic forecast used in the credit loss estimation for the quarter ended June 30, 2020 was more adverse compared to the prior quarter, as expectations for the unemployment rate and real GDP growth deteriorated and a slower recovery was expected. For the three and six months ended June 30, 2020, there were no changes to the reasonable and supportable forecast period, and reversion to historical loss experience method.

Allowance for Loan Losses for the Commercial Loan Portfolio — The Company’s C&I 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 receivables, 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 implicitly through the loan-level lifetime loss rate.

The Company’s CRE probability of default (“PD”)/loss given default (“LGD”) models estimate the probability that a loan will default and, in the event of default, estimate the expected credit losses upon default. The product of the PD/LGD determines the Company’s CECL. The PD/LGD model assumptions and variable inputs span the entire contractual life of the loans, adjusted for expected prepayments. After a reasonable and supportable period, the forecast of future economic conditions reverts to long-run historical economic trends. The loan-specific variables apply over the lifetime of a loan.

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

Allowance for Loan Losses for the Consumer Loan Portfolio — For single-family residential and HELOC loans, PD/LGD model assumptions and variable inputs span the entire contractual life of the loans, adjusted for expected prepayments. After a reasonable and supportable period, the forecast of future economic conditions reverts to long-run historical economic trends. The loan-specific variables apply over the lifetime of a loan.

For other consumer loans, the Company uses a loss rate approach. In order to estimate the life of a loan, the contractual term of the loan is adjusted for estimated prepayments, which are based on historical prepayment experience.

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 reserves that are designed to provide coverage for losses attributable to such risk. The allowance for loan losses as of June 30, 2020 also included qualitative adjustments for certain industry sectors, such as oil & gas, which are included as part of the C&I loan portfolio, that the Company views as higher risk, where quantitative models may not have captured the additional exposure related to such industry sectors.

Allowance for Individually Assessed Loans When a loan no longer shares similar risk characteristics with other loans, such as in the case for 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 present value of expected future cash flows; (2) the fair value of collateral less costs to sell; 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 to not be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan.

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, 2020, collateral-dependent commercial and consumer loans totaled $88.1 million and $23.8 million, 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 June 30, 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, except for two loans, one C&I loan and one HELOC loan, against which there was a recorded allowance of $756 thousand and $76 thousand, respectively. For the three and six months ended June 30, 2020, there was no significant deterioration or changes in the collateral securing these loans.

The following tables present summaries of activities in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020 and 2019:



($ in thousands)		Three Months Ended June 30, 2020
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family 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 recoveries		602			226			620		7		159		2		93			1,709
Total net (charge-offs) recoveries		(19,776)			(94)			620		7		159		(219)		63			(19,240)
Foreign currency translation adjustments		8			—			—		—		—		—		—			8
Allowance for loan losses, end of period		$	380,723		$	176,040		$	25,058	$	18,551	$	25,314	$	3,867	$	2,518		$	632,071



($ in thousands)		Three Months Ended June 30, 2019
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family Residential		Construction and Land		Single- Family Residential		HELOCs

Allowance for loan losses, beginning of period		$	189,757		$	39,224		$	19,169	$	22,349	$	35,759	$	7,401	$	4,235		$	317,894
Provision for (reversal of) credit losses on loans	(a)	26,140			(1,250)			58		173		(3,068)		(1,224)		(98)			20,731
Gross charge-offs		(11,745)			—			—		—		—		—		(14)			(11,759)
Gross recoveries		1,713			1,837			53		439		72		—		7			4,121
Total net (charge-offs) recoveries		(10,032)			1,837			53		439		72		—		(7)			(7,638)
Foreign currency translation adjustments		(362)			—			—		—		—		—		—			(362)
Allowance for loan losses, end of period		$	205,503		$	39,811		$	19,280	$	22,961	$	32,763	$	6,177	$	4,130		$	330,625



($ in thousands)		Six Months Ended June 30, 2020
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family 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 adoption		74,237			72,169			(8,112)		(9,889)		(3,670)		(1,798)		2,221			125,158
Allowance for loan losses, January 1, 2020		312,613			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 recoveries		2,177			9,886			1,155		28		424		4		94			13,768
Total net (charge-offs) recoveries		(30,178)			8,612			1,155		28		424		(217)		38			(20,138)
Foreign currency translation adjustments		(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



($ in thousands)		Six Months Ended June 30, 2019
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family Residential		Construction and Land		Single- Family Residential		HELOCs

Allowance for loan losses, beginning of period		$	189,117		$	40,666		$	19,885	$	20,290	$	31,340	$	5,774	$	4,250		$	311,322
Provision for (reversal of) credit losses on loans	(a)	41,404			(2,914)			(939)		2,169		1,349		401		(99)			41,371

Gross charge-offs		(28,989)			—			—		—		—		—		(28)			(29,017)
Gross recoveries		3,964			2,059			334		502		74		2		7			6,942
Total net (charge-offs) recoveries		(25,025)			2,059			334		502		74		2		(21)			(22,075)
Foreign currency translation adjustments		7			—			—		—		—		—		—			7
Allowance for loan losses, end of period		$	205,503		$	39,811		$	19,280	$	22,961	$	32,763	$	6,177	$	4,130		$	330,625

The following table presents a summary of activities in the allowance for unfunded credit commitments for the three and six months ended June 30, 2020 and 2019:



		Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)		2020		2019		2020		2019
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period		$	20,829	$	14,505	$	11,158	$	12,566
Impact of ASU 2016-13 adoption		—		—		10,457		—

Provision for (reversal of) credit losses on unfunded credit commitments	(b)	8,143		(1,486)		7,357		453
Allowance for unfunded credit commitments, end of period		$	28,972	$	13,019	$	28,972	$	13,019

Provision for credit losses	(a) + (b)	$	102,443	$	19,245	$	176,313	$	41,824

The allowance for loan losses as of June 30, 2020 was $632.1 million, an increase of $273.8 million compared with $358.3 million as of December 31, 2019. The overall increase in allowance for loan losses was primarily driven by deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic, which resulted in a provision for credit losses of $102.4 million and $176.3 million for the three and six months ended June 30, 2020, respectively, and the adoption of ASU 2016-13, which increased the allowance for loan losses by $125.2 million on January 1, 2020.

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.

The following table presents the Company’s allowance for loan losses and recorded investments by portfolio segments and impairment methodology as of December 31, 2019. This is no longer relevant after December 31, 2019, given the adoption of ASU 2016-13 on January 1, 2020, which has a single impairment methodology:



($ in thousands)	December 31, 2019
			Commercial																	Consumer		Total
			C&I			CRE											Residential Mortgage				Other Consumer
							CRE		Multifamily Residential		Construction and Land		Single- Family Residential		HELOCs
Allowance for loan losses
Individually evaluated for impairment	$	2,881		$	97		$	55	$	—	$	35	$	8	$	2,517		$	5,593
Collectively evaluated for impairment	235,495			40,412			22,771		19,404		28,492		5,257		863			352,694
Acquired with deteriorated credit quality	—			—			—		—		—		—		—			—
Total	$	238,376		$	40,509		$	22,826	$	19,404	$	28,527	$	5,265	$	3,380		$	358,287

Recorded investment in loans
Individually evaluated for impairment	$	114,042		$	21,618		$	4,464	$	19,691	$	22,211	$	13,574	$	2,517		$	198,117
Collectively evaluated for impairment	12,035,079			10,143,629			2,829,748		608,768		7,006,768		1,453,162		280,397			34,357,551
Acquired with deteriorated credit quality ⁽¹⁾	1,810			113,201			22,162		40		79,611		6,047		—			222,871
Total ⁽¹⁾	$	12,150,931		$	10,278,448		$	2,856,374	$	628,499	$	7,108,590	$	1,472,783	$	282,914		$	34,778,539

(1)Loans net of ASC 310-10 discount.

Purchased Credit-Deteriorated Loans

On January 1, 2020, the amortized cost basis of the PCD loans was adjusted to reflect the $1.2 million of allowance for loan losses. For the three and six months ended June 30, 2020, the Company did not acquire any PCD loans. For information on PCD loans, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

The following table presents the changes in accretable yield on PCI loans for the three and six months ended June 30, 2019:



($ in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Accretable yield for PCI loans, beginning of period	$	68,861	$	74,870

Accretion	(5,806)		(12,007)
Changes in expected cash flows	998		1,190
Accretable yield for PCI loans, end of period	$	64,053	$	64,053

Loans Held-for-Sale

As of June 30, 2020 and December 31, 2019, loans held-for-sale of $3.9 million and $434 thousand, respectively, 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 2019 Form 10-K for additional details related to the Company’s loans held-for-sale.

Loan Purchases, Transfers and Sales

The Company purchases and sells loans in the secondary market in the ordinary course of business. From time to time, 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 purchased for the held-for-investment portfolio, loans sold and loans transferred from held-for-investment to held-for-sale at lower of cost or fair value during the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30, 2020
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential
Loans transferred from held-for-investment to held-for-sale ⁽¹⁾	$	33,060		$	—		$	—	$	—	$	—			$	33,060

Sales ^(2)(3)(4)	$	33,060		$	—		$	—	$	—	$	13,708			$	46,768
Purchases ⁽⁵⁾	$	12,503		$	—		$	7	$	—	$	—			$	12,510



($ in thousands)	Three Months Ended June 30, 2019
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential
Loans transferred from held-for-investment to held-for-sale ⁽¹⁾	$	79,593		$	—		$	—	$	1,573	$	—			$	81,166

Sales ^(2)(3)(4)	$	76,031		$	—		$	—	$	1,573	$	1,172			$	78,776
Purchases ⁽⁵⁾	$	159,100		$	—		$	1,734	$	—	$	17,637			$	178,471



($ in thousands)	Six Months Ended June 30, 2020
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential
Loans transferred from held-for-investment to held-for-sale ⁽¹⁾	$	136,033		$	7,250		$	—	$	—	$	—			$	143,283

Sales ^(2)(3)(4)	$	136,033		$	7,250		$	—	$	—	$	18,350			$	161,633
Purchases ⁽⁵⁾	$	143,086		$	—		$	1,520	$	—	$	1,084			$	145,690



($ in thousands)	Six Months Ended June 30, 2019
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential
Loans transferred from held-for-investment to held-for-sale ⁽¹⁾	$	155,166		$	16,655		$	—	$	1,573	$	—			$	173,394

Sales ^(2)(3)(4)	$	151,677		$	16,655		$	—	$	1,573	$	3,614			$	173,519
Purchases ⁽⁵⁾	$	266,294		$	—		$	5,952	$	—	$	54,039			$	326,285

(1)The Company recorded no write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for both the three and six months ended June 30, 2020 and $317 thousand and $390 thousand for the same periods in 2019, respectively.

(2)Includes originated loans sold of $46.8 million and $161.6 million for the three and six months ended June 30, 2020, respectively, and $55.7 million and $132.2 million for the same periods in 2019, respectively. Originated loans sold were primarily C&I and single-family residential loans during the three and six months ended June 30, 2020. In comparison, originated loans sold were primarily C&I loans for the same periods in 2019.

(3)Includes none of the purchased loans sold in the secondary market for both the three and six months ended June 30, 2020 and $23.1 million and $41.3 million for the same periods in 2019, respectively.

(4)Net gains on sales of loans were $132 thousand and $1.1 million for the three and six months ended June 30, 2020, respectively, and $15 thousand and $930 thousand for the same periods in 2019, respectively.

(5)C&I loan purchases for each of the three and six months ended June 30, 2020 and 2019 were comprised primarily of syndicated C&I term loans.

Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities

The Community Reinvestment Act (“CRA”) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in low- and moderate-income neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies that qualify for CRA and tax credits. These entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. To fully utilize the available tax credits, each of these entities must meet the regulatory affordable housing requirements for a minimum 15-year compliance period. In addition to affordable housing projects, the Company also invests in New Market Tax Credit projects that qualify for CRA credits, as well as eligible projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, and the investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas.

Investments in Qualified Affordable Housing Partnerships, Net

The Company records its investments in qualified affordable housing partnerships, net, using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the amortization in Income tax expense on the Consolidated Statement of Income.

The following table presents the Company’s investments in qualified affordable housing partnerships, net, and related unfunded commitments as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020		December 31, 2019
Investments in qualified affordable housing partnerships, net	$	201,888	$	207,037
Accrued expenses and other liabilities — Unfunded commitments	$	72,655	$	80,294

The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Tax credits and other tax benefits recognized	$	11,772		$	11,506		$	22,803		$	23,332
Amortization expense included in income tax expense	$	9,148		$	9,657		$	17,532		$	18,554

Investments in Tax Credit and Other Investments, Net

Depending on the ownership percentage and the influence the Company has on the investments in tax credit and other investments, net, the Company applies the equity or cost method of accounting, or the measurement alternative as elected under ASU 2016-01 for equity investments without readily determinable fair value.

The following table presents the Company’s investments in tax credit and other investments, net, and related unfunded commitments as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020		December 31, 2019
Investments in tax credit and other investments, net	$	251,318	$	254,140
Accrued expenses and other liabilities — Unfunded commitments	$	106,969	$	113,515

Amortization of tax credit and other investments was $24.8 million and $42.1 million, respectively, for the three and six months ended June 30, 2020, as compared with $16.7 million and $41.6 million, respectively, for the same periods in 2019.

Included in Investments in tax credit and other investments, net, on the Consolidated Balance Sheet were equity securities with readily determinable fair values of $31.1 million and $31.7 million, as of June 30, 2020 and December 31, 2019, respectively. These equity securities were CRA investments measured at fair value with changes in fair value recorded in net income. The Company recorded unrealized gains on these equity securities of $720 thousand and $758 thousand during the three and six months ended June 30, 2020, respectively, and unrealized gains of $375 thousand and $767 thousand, respectively, for the same periods in 2019.

The Company held equity securities without readily determinable fair values at carrying value totaling $18.8 million and $19.1 million as of June 30, 2020 and December 31, 2019, respectively, which were measured using the measurement alternative at cost less impairment and adjusted for observable price changes. For the three and six months ended June 30, 2020 and 2019, there were no adjustments to these securities.

The Company recorded an impairment recovery of $109 thousand related to one historic tax credit investment and impairment recoveries of $259 thousand related to two historic tax credit investments for the three and six months ended June 30, 2020, respectively. During the second quarter of 2020, the Company also recorded $733 thousand OTTI charge related to one historic tax credit and one CRA investment. In comparison, the Company recorded an OTTI charge of $2.9 million and $9.9 million, respectively, and no impairment recovery for the three and six months ended June 30, 2019. OTTI charges and impairment recoveries are recorded within Amortization of tax credit and other investments on the Consolidated Statement of Income for the three and six months ended June 30, 2020 and 2019.

Variable Interest Entities

The Company invests in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, historic rehabilitation projects, wind and solar projects, of which the majority of such investments are Variable interest entities (“VIEs”). As a limited partner in these partnerships, these investments are designed to generate a return primarily through the realization of federal tax credits and tax benefits. An unrelated third party is typically the general partner or managing member who has control over the significant activities of such investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these structures due to the general partner or managing member’s ability to manage the entity, which is indicative of power over them. The Company’s maximum exposure to loss in connection with these partnerships consist of the unamortized investment balance and any tax credits claimed that may become subject to recapture.

Special purpose entities formed in connection with securitization transactions are generally considered VIEs. The Company is the servicer of the multifamily residential loans it has securitized in 2016. The Company does not consolidate the multifamily securitization entity because it does not have power and does not have a variable interest that could potentially be significant to the VIE. A CLO is a VIE that purchases a pool of assets consisting primarily of non-investment grade corporate loans and issues multiple tranches of notes to investors to fund the asset purchases and pay upfront expenses associated with forming the CLO. The Company serves as the collateral manager of a CLO that closed in the fourth quarter of 2019 and retained substantially all of the investment grade rated securities issued by the CLO. In accordance with GAAP, the Company does not consolidate the CLO as it does not hold interests that could potentially be significant to the CLO. The Company’s maximum exposure to loss from the CLO is equal to the carrying amount of the retained securities of $274.0 million and $284.7 million as of June 30, 2020 and December 31, 2019, respectively.

Note 9 — Goodwill and Other Intangible Assets

Goodwill

Total goodwill was $465.7 million as of both June 30, 2020 and December 31, 2019. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in an acquisition. The Company assesses goodwill for impairment at the reporting unit level, equivalent to the same level as the Company’s business segments. This assessment is performed on an annual basis as of December 31each year, or more frequently if events or circumstances, such as adverse changes in the economic or business environment, indicate there may be impairment. The Company organizes its operation into three reporting segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. For information on how the reporting units are identified and the components are aggregated, see Note 15 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

There was no change in the carrying amount of goodwill during the three and six months ended June 30, 2020. The following table presents changes in the carrying amount of goodwill by reporting unit during the six months ended June 30, 2019:



($ in thousands)	Consumer and Business Banking		Commercial Banking		Total
Beginning balance, January 1, 2019	$	353,321	$	112,226	$	465,547
Acquisition of East West Capital Markets, LLC	—		150		150
Ending balance, June 30, 2019	$	353,321	$	112,376	$	465,697

Impairment Analysis

The Company performed its annual impairment analysis as of December 31, 2019, and concluded that there was no goodwill impairment as the fair value of all reporting units exceeded the carrying amount of their respective reporting unit. Given the economic and market deterioration as a result of the COVID-19 outbreak and public health response to contain it, the Company further evaluated goodwill by assessing if the fair value of all reporting units exceeded the carrying amount of the respective reporting units by performing a goodwill impairment analysis as of March 31, 2020 and concluded that no impairment was warranted. While there is uncertainty in the duration of the COVID-19 impact and the reopening of the economy, the Company did not note further stressed macroeconomic conditions, adverse market conditions, deterioration of the Company’s financial performance, any other significant events, that negatively impacted the fair value of its reporting units during the three months ended June 30, 2020. Based on this, the Company concluded that there was no goodwill impairment as of June 30, 2020. Refer to Note 9 — Goodwill and Other Intangible Assets to the Consolidated Financial Statements of the Company’s 2019 Form 10-K for additional details related to the Company’s annual goodwill impairment analysis.

Core Deposit Intangibles

Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed in various acquisitions and are included in Other assets on the Consolidated Balance Sheet. These intangibles are tested for impairment on an annual basis, or more frequently as events occur or current circumstances and conditions warrant. There were no impairment write-downs on the core deposit intangibles for each of the three and six months ended June 30, 2020 and 2019.

The following table presents the gross carrying amount of core deposit intangible assets and accumulated amortization as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020		December 31, 2019
Gross balance ⁽¹⁾	$	86,099	$	86,099
Accumulated amortization ⁽¹⁾	(77,972)		(76,088)
Net carrying balance ⁽¹⁾	$	8,127	$	10,011

(1)Excludes fully amortized core deposit intangible assets.

Amortization Expense

The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $931 thousand and $1.1 million for the three months ended June 30, 2020 and 2019, respectively, and $1.9 million and $2.3 million for the six months ended June 30, 2020 and 2019, respectively.

The following table presents the estimated future amortization expense of core deposit intangibles as of June 30, 2020:



($ in thousands)	Amount
Remainder of 2020	$	1,750
2021	2,749
2022	1,865
2023	1,199
2024	553
Thereafter	11
Total	$	8,127

Note 10 — Commitments and Contingencies

Commitments to Extend Credit — In the normal course of business, the Company provides customers loan commitments on predetermined terms. These outstanding commitments to extend credit are not reflected in the accompanying Consolidated Financial Statements. While the Company does not anticipate losses as a result of these transactions, commitments to extend credit are included in determining the appropriate level of the allowance for unfunded credit commitments, and outstanding commercial and SBLCs.

The following table presents the Company’s credit-related commitments as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020		December 31, 2019
Loan commitments	$	5,131,120	$	5,330,211
Commercial letters of credit and SBLCs	$	2,005,402	$	1,860,414

Loan commitments are agreements to lend to customers provided that there are no violations of any conditions established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements.

Commercial letters of credit are issued to facilitate domestic and foreign trade transactions, while SBLCs are generally contingent upon the failure of the customers to perform according to the terms of the underlying contract with the third party. As a result, the total contractual amounts do not necessarily represent future funding requirements. The Company’s historical experience is that SBLCs typically expire without being funded. Additionally, in many cases, the Company holds collateral in various forms against these SBLCs. As part of its risk management activities, the Company monitors the creditworthiness of customers in conjunction with its SBLC exposure. Customers are obligated to reimburse the Company for any payment made on the customers’ behalf. If the customers fail to pay, the Company would, as applicable, liquidate the collateral and/or offset accounts. As of June 30, 2020, total letters of credit of $2.01 billion consisted of SBLCs of $1.93 billion and commercial letters of credit of $72.3 million.

The Company applies the same credit underwriting criteria to extend loans, commitments and conditional obligations to customers. Each customer’s creditworthiness is evaluated on a case-by-case basis. Collateral and financial guarantees may be obtained based on management’s assessment of a customer’s credit. Collateral may include cash, accounts receivable, inventory, property, plant and equipment, and income-producing commercial property.

Estimated exposure to loss from these commitments is included in the allowance for unfunded credit commitments and amounted to $28.9 million as of June 30, 2020 and $11.1 million as of December 31, 2019.

Guarantees — The Company sells or securitizes single-family and multifamily residential loans with recourse in the ordinary course of business. The recourse component of the loans sold or securitized with recourse is considered a guarantee. As the guarantor, the Company is obligated to repurchase up to the recourse component of the loans if the loans default. The following table presents the types of guarantees the Company had outstanding as of June 30, 2020 and December 31, 2019:



($ in thousands)	Maximum Potential Future Payments									Carrying Value
			June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Single-family residential loans sold or securitized with recourse	$	11,501		$	12,578		$	11,501		$	12,578
Multifamily residential loans sold or securitized with recourse	15,682			15,892			30,152			40,708
Total	$	27,183		$	28,470		$	41,653		$	53,286

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit commitments and totaled $85 thousand and $76 thousand as of June 30, 2020 and December 31, 2019, respectively. The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. The Company continues to experience minimal losses from the single-family and multifamily residential loan portfolios sold or securitized with recourse.

Litigation — The Company is a party to various legal actions arising in the course of its business. In accordance with ASC 450, Contingencies, the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses may be higher, and possibly significantly more than the amounts accrued.

Other Commitments — The Company has commitments to invest in qualified affordable housing partnerships, tax credit and other investments as discussed in Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities to the Consolidated Financial Statements in this Form 10-Q. As of June 30, 2020 and December 31, 2019, these commitments were $179.6 million and $193.8 million, respectively. These commitments are included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Note 11 — Revenue from Contracts with Customers

The following tables present revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers, and other noninterest income, segregated by operating segments for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30, 2020
			Consumer and Business Banking			Commercial Banking			Other			Total
Noninterest income:
Revenue from contracts with customers:
Deposit account fees:
Deposit service charges and related fee income	$	6,166		$	3,904		$	41		$	10,111
Card income	639			122			—			761
Wealth management fees	2,691			400			—			3,091
Total revenue from contracts with customers	$	9,496		$	4,426		$	41		$	13,963
Other sources of noninterest income ⁽¹⁾	4,447			29,461			10,766			44,674
Total noninterest income	$	13,943		$	33,887		$	10,807		$	58,637



($ in thousands)	Three Months Ended June 30, 2019
			Consumer and Business Banking			Commercial Banking			Other			Total
Noninterest income:
Revenue from contracts with customers:
Deposit account fees:
Deposit service charges and related fee income	$	5,397		$	3,299		$	10		$	8,706
Card income	747			154			—			901
Wealth management fees	3,565			235			—			3,800
Total revenue from contracts with customers	$	9,709		$	3,688		$	10		$	13,407
Other sources of noninterest income⁽¹⁾	4,794			29,968			4,590			39,352
Total noninterest income	$	14,503		$	33,656		$	4,600		$	52,759



($ in thousands)	Six Months Ended June 30, 2020
			Consumer and Business Banking			Commercial Banking			Other			Total
Noninterest income:
Revenue from contracts with customers:
Deposit account fees:
Deposit service charges and related fee income	$	11,710		$	7,703		$	47		$	19,460
Card income	1,537			322			—			1,859
Wealth management fees	7,704			740			—			8,444
Total revenue from contracts with customers	$	20,951		$	8,765		$	47		$	29,763
Other sources of noninterest income ⁽¹⁾	9,394			57,578			15,951			82,923
Total noninterest income	$	30,345		$	66,343		$	15,998		$	112,686



($ in thousands)	Six Months Ended June 30, 2019
			Consumer and Business Banking			Commercial Banking			Other			Total
Noninterest income:
Revenue from contracts with customers:
Deposit account fees:
Deposit service charges and related fee income	$	10,630		$	6,573		$	26		$	17,229
Card income	1,507			339			—			1,846
Wealth management fees	7,233			341			—			7,574
Total revenue from contracts with customers	$	19,370		$	7,253		$	26		$	26,649
Other sources of noninterest income ⁽¹⁾	8,905			50,947			8,389			68,241
Total noninterest income	$	28,275		$	58,200		$	8,415		$	94,890

(1)Primarily represents revenue from contracts with customers that are out of the scope of ASC 606, Revenue from Contracts with Customers.

Generally, the Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The Company’s performance obligations are typically satisfied as services are rendered. The Company generally records contract liabilities, or deferred revenue, when payments from customers are received or due in advance of providing services. The Company records contract assets when services are provided to customers before payment is received or before payment is due. Since the Company receives payments for its services during the period or at the time services are provided, there were no contract assets or contract liabilities as of both June 30, 2020 and December 31, 2019.

The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below:

Deposit Account Fees — Deposit Service Charges and Related Fee Income

The Company offers a range of deposit products to individuals and businesses, which includes savings, money market, checking and time deposit accounts. The deposit account services include ongoing account maintenance, as well as certain optional services such as automated teller machine usage, wire transfer services or check orders. In addition, treasury management and business account analysis services are offered to commercial deposit customers. The monthly account fees may vary with the amount of average monthly deposit balances maintained, or the Company may charge a fixed monthly account maintenance fee if certain average balances are not maintained. In addition, each time a deposit customer selects an optional service, the Company may earn transactional fees, generally recognized by the Company at the point when the transaction occurs. For business analysis accounts, commercial deposit customers receive an earnings credit based on their account balance, which can be used to offset the cost of banking and treasury management services. Business analysis accounts that are assessed fees in excess of earnings credits received are typically charged at the end of each month, after all transactions are known and the credits are calculated.

Deposit Account Fees — Card Income

Card income is comprised of merchant referral fees and interchange income. For merchant referral fees, the Company provides marketing and referral services to acquiring banks for merchant card processing services and earns variable referral fees based on transaction activities. The Company satisfies its performance obligation over time as the Company identifies, solicits, and refers business customers who are provided such services. The Company receives monthly fees net of consideration it pays to the acquiring bank performing the merchant card processing services. The Company recognizes revenue on a monthly basis when the uncertainty associated with the variable referral fees is resolved after the Company receives monthly statements from the acquiring bank. For interchange income, the Company, as a card issuer, has a stand ready performance obligation to authorize, clear, and settle card transactions. The Company earns, or pays, interchange fees, which are percentage-based on each transaction, and based on rates published by the corresponding payment network for transactions processed using their network. The Company measures its progress toward the satisfaction of its performance obligation over time, as services are rendered, and the Company provides continuous access to this service and settles transactions as its customer or the payment network requires. Interchange income is presented net of direct costs paid to the customer and entities in their distribution chain, which are transaction-based expenses such as rewards program expenses and certain network costs. Revenue is recognized when the net profit is determined by the payment networks at the end of each day.

Wealth Management Fees

The Company provides investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter-end based on actual transaction details received from the broker-dealer the Company engages.

Practical Expedients and Exemptions

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose the value of unsatisfied performance obligations as the Company’s contracts with customers generally have a term that is less than one year, are open-ended with a cancellation period that is less than one year, or allow the Company to recognize revenue in the amount to which the Company has the right to invoice.

In addition, given the short-term nature of the contracts, the Company also applies the practical expedient in ASC 606-10-32-18 and does not adjust the consideration from customers for the effects of a significant financing component, if at contract inception, the period between when the entity transfers the goods or services and when the customer pays for that good or service is one year or less.

Note 12 — Stock Compensation Plans

Pursuant to the Company’s 2016 Stock Incentive Plan, as amended, the Company may issue stocks, stock options, restricted stock, restricted stock units (“RSUs”), stock purchase warrants, stock appreciation rights, phantom stock and dividend equivalents to eligible employees, non-employee directors, consultants, and other service providers of the Company and its subsidiaries. There were no outstanding stock awards other than RSUs as of both June 30, 2020 and December 31, 2019.

The following table presents a summary of the total share-based compensation expense and the related net tax (deficiencies) benefits associated with the Company’s various employee share-based compensation plans for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Stock compensation costs	$	7,071		$	8,081		$	14,280		$	15,525
Related net tax (deficiencies) benefits for stock compensation plans	$	(9)		$	1		$	(1,575)		$	4,708

Restricted Stock Units — RSUs are granted under the Company’s long-term incentive plan at no cost to the recipient. RSUs cliff vest after three years of continued employment from the date of the grant and are authorized to settle predominantly in shares of the Company’s common stock. Certain RSUs will be settled in cash. RSUs entitle the recipient to receive cash dividend equivalents to any dividends paid on the underlying common stock during the period RSUs are outstanding. The dividends are accrued during the vesting period and are paid at the time of vesting. While a portion of RSUs are time-vesting awards, others vest subject to the attainment of specified performance goals referred to as “performance-based RSUs.” Substantially all RSUs are subject to forfeiture until vested unless otherwise specified in the employment terms.

Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of 0% and to a maximum of 200% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together as the total number of performance shares to vest. Performance-based RSUs cliff vest three years from the date of each grant.

Compensation costs for the time-based awards that will be settled in shares of the Company’s common stock are based on the quoted market price of the Company’s common stock at the grant date. Compensation costs for certain time-based awards that will be settled in cash are adjusted to fair value based on changes in the share price of the Company’s common stock up to the settlement date. Compensation costs associated with performance-based RSUs are based on grant date fair value which considers both market and performance conditions, and is subject to subsequent adjustments based on the changes in the Company’s projected outcome of the performance criteria. Compensation costs of both time-based and performance-based awards are estimated based on awards ultimately expected to vest and recognized on a straight-line basis from the grant date until the vesting date of each grant.

The following table presents a summary of the activities for the Company’s time-based and performance-based RSUs that will be settled in shares for the six months ended June 30, 2020. The number of outstanding performance-based RSUs stated below assumes the associated performance targets will be met at the target level:





	Time-Based RSUs							Performance-Based RSUs
		Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Outstanding, January 1, 2020	1,139,868		$	57.78		386,483		$	60.13
Granted	657,461		40.51			165,084		39.79
Vested	(251,526)		54.47			(131,597)		56.59
Forfeited	(100,371)		54.33			—		—
Outstanding, June 30, 2020	1,445,432		$	50.74		419,970		$	53.24

The following table presents a summary of the activities for the Company’s time-based RSUs that will be settled in cash for the six months ended June 30, 2020:




												Shares
Outstanding, January 1, 2020												11,638
Granted												11,215
Vested												(723)
Forfeited												—
Outstanding, June 30, 2020												22,130

As of June 30, 2020, there were $31.4 million and $19.6 million of total unrecognized compensation costs related to unvested time-based and performance-based RSUs, respectively. These costs are expected to be recognized over a weighted-average period of 2.04 years and 2.07 years, respectively.

Note 13 — Stockholders’ Equity and Earnings Per Share

The following table presents the basic and diluted EPS calculations for the three and six months ended June 30, 2020 and 2019. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Earnings Per Share to the Consolidated Financial Statements of the Company’s 2019 Form 10-K.



($ and shares in thousands, except per share data)	Three Months Ended June 30,									Six Months Ended June 30,
			2020			2019			2020			2019
Basic:
Net income	$	99,352		$	150,380		$	244,176		$	314,404
Basic weighted-average number of shares outstanding	141,486			145,546			143,150			145,402
Basic EPS	$	0.70		$	1.03		$	1.71		$	2.16
Diluted:
Net income	$	99,352		$	150,380		$	244,176		$	314,404
Basic weighted-average number of shares outstanding ⁽¹⁾	141,486			145,546			143,150			145,402
Diluted potential common shares ⁽²⁾	341			506			410			614
Diluted weighted-average number of shares outstanding ⁽¹⁾⁽²⁾	141,827			146,052			143,560			146,016
Diluted EPS	$	0.70		$	1.03		$	1.70		$	2.15

(1)The Company acquired MetroCorp Bancshares, Inc. (“MetroCorp”) on January 17, 2014. Prior to the acquisition, MetroCorp had outstanding warrants to purchase 771,429 shares of its common stock. Upon the acquisition, the rights of the warrant holders were converted into the rights to acquire 230,282 shares of East West’s common stock until January 16, 2019. All warrants were exercised on January 7, 2019.

(2)Includes dilutive shares from RSUs for the three and six months ended June 30, 2020 and 2019.

For the three and six months ended June 30, 2020, 1.2 million and 620 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation. In comparison, 584 thousand and 239 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation for the three and six months ended June 30, 2019.

Stock Repurchase Program — On March 3, 2020, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $500.0 million of the Company’s common stock. For the three months ended June 30, 2020, there were no share repurchases. For the six months ended June 30, 2020, the Company repurchased 4,471,682 shares at an average price of $32.64 per share and a total cost of $146.0 million. The Company did not repurchase any shares during the three and six months ended June 30, 2019.

Note 14 — Accumulated Other Comprehensive Income (Loss)

The following tables present the changes in the components of AOCI balances for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	AFS Debt Securities		Cash Flow Hedges		Foreign Currency Translation Adjustments ⁽¹⁾		Total
Balance, April 1, 2019	$	(23,810)	$	—	$	(9,173)	$	(32,983)
Net unrealized gains (losses) arising during the period	30,046		—		(6,016)		24,030
Amounts reclassified from AOCI	(1,019)		—		—		(1,019)
Changes, net of tax	29,027		—		(6,016)		23,011
Balance, June 30, 2019	$	5,217	$	—	$	(15,189)	$	(9,972)

Balance, April 1, 2020	$	25,034	$	—	$	(18,153)	$	6,881
Net unrealized gains (losses) arising during the period	24,606		(1,063)		(230)		23,313
Amounts reclassified from AOCI	(6,790)		(270)		—		(7,060)
Changes, net of tax	17,816		(1,333)		(230)		16,253
Balance, June 30, 2020	$	42,850	$	(1,333)	$	(18,383)	$	23,134



($ in thousands)	AFS Debt Securities		Cash Flow Hedges		Foreign Currency Translation Adjustments ⁽¹⁾		Total
Balance, January 1, 2019	$	(45,821)	$	—	$	(12,353)	$	(58,174)
Net unrealized gains (losses) arising during the period	53,157		—		(2,836)		50,321
Amounts reclassified from AOCI	(2,119)		—		—		(2,119)
Changes, net of tax	51,038		—		(2,836)		48,202
Balance, June 30, 2019	$	5,217	$	—	$	(15,189)	$	(9,972)
Balance, January 1, 2020	$	(2,419)	$	—	$	(15,989)	$	(18,408)
Net unrealized gains (losses) arising during the period	53,136		(1,063)		(2,394)		49,679
Amounts reclassified from AOCI	(7,867)		(270)		—		(8,137)
Changes, net of tax	45,269		(1,333)		(2,394)		41,542
Balance, June 30, 2020	$	42,850	$	(1,333)	$	(18,383)	$	23,134

(1)Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was RMB and USD, respectively.

The following tables present the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Three Months Ended June 30,
			2020															2019
			Before-Tax			Tax Effect			Net-of-Tax			Before-Tax			Tax Effect			Net-of-Tax
AFS debt securities:
Net unrealized gains arising during the period	$	34,970		$	(10,364)		$	24,606		$	44,531		$	(14,485)		$	30,046
Net realized (gains) reclassified into net income ⁽¹⁾	(9,640)			2,850			(6,790)			(1,447)			428			(1,019)
Net change	25,330			(7,514)			17,816			43,084			(14,057)			29,027
Cash flow hedges
Net unrealized (losses) arising during the period	(1,483)			420			(1,063)			—			—			—
Net realized (gains) reclassified into net income ⁽²⁾	(377)			107			(270)			—			—			—
Net change	(1,860)			527			(1,333)			—			—			—
Foreign currency translation adjustments, net of hedges:
Net unrealized (losses) arising during the period	(379)			149			(230)			(2,989)			(3,027)			(6,016)
Net change	(379)			149			(230)			(2,989)			(3,027)			(6,016)
Other comprehensive income (loss)	$	23,091		$	(6,838)		$	16,253		$	40,095		$	(17,084)		$	23,011



($ in thousands)	Six Months Ended June 30,
			2020															2019
			Before-Tax			Tax Effect			Net-of-Tax			Before-Tax			Tax Effect			Net-of-Tax
AFS debt securities:
Net unrealized gains arising during the period	$	75,463		$	(22,327)		$	53,136		$	75,469		$	(22,312)		$	53,157
Net realized (gains) reclassified into net income⁽¹⁾	(11,169)			3,302			(7,867)			(3,008)			889			(2,119)
Net change	64,294			(19,025)			45,269			72,461			(21,423)			51,038
Cash flow hedges
Net unrealized (losses) arising during the period	(1,483)			420			(1,063)			—			—			—
Net realized (gains) reclassified into net income ⁽²⁾	(377)			107			(270)			—			—			—
Net change	(1,860)			527			(1,333)			—			—			—
Foreign currency translation adjustments, net of hedges:
Net unrealized (losses) arising during the period	(2,145)			(249)			(2,394)			191			(3,027)			(2,836)
Net change	(2,145)			(249)			(2,394)			191			(3,027)			(2,836)
Other comprehensive income (loss)	$	60,289		$	(18,747)		$	41,542		$	72,652		$	(24,450)		$	48,202

(1)For the three and six months ended June 30, 2020 and 2019, pre-tax amounts were reported in Gains on sales of AFS debt securities on the Consolidated Statement of Income.

(2)For the three and six months ended June 30, 2020 and 2019, pre-tax amounts were reported in Interest expense on the Consolidated Statement of Income.

Note 15 — Business Segments

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers served, and the related products and services provided. The segments reflect how financial information is currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain balance sheet and income statement items. The information presented is not indicative of how the segments would perform if they operated as independent entities due to the interrelationships among the segments.

The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management and foreign exchange services.

The Commercial Banking segment primarily generates commercial loans and deposits. Commercial loan products include commercial business loans and lines of credit, trade finance loans and letters of credit, CRE loans, construction and land loans, affordable housing loans and letters of credit, asset-based lending, and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

The remaining centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Other segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments.

The Company utilizes an internal reporting process to measure the performance of the three operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for revenue and expenses. Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process. Noninterest income and noninterest expense directly attributable to a business segment are assigned to that segment. Indirect costs, including technology-related costs and corporate overhead, are allocated based on a segment’s estimated usage using factors including but not limited to, full-time equivalent employees, net interest income, and loan and deposit volume. Charge-offs are allocated to the segment directly associated with the loans charged off, and the remaining provision for credit losses is allocated to each segment based on loan volume. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate and indirect expenses incurred by the Other segment are allocated to the Consumer and Business Banking and the Commercial Banking segments, except certain corporate treasury-related expenses and insignificant unallocated expenses.

The corporate treasury function within the Other segment is responsible for liquidity and interest rate management of the Company. The Company’s internal FTP process is also managed by the corporate treasury function within the Other segment. The process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as to provide a reasonable and consistent basis for the measurement of its business segments’ net interest margins and profitability. The FTP process charges a cost to fund loans (“FTP charges for loans”) and allocates credits for funds provided from deposits (“FTP credits for deposits”) using internal FTP rates. FTP charges for loans are determined based on a matched cost of funds, which is tied to the pricing and term characteristics of the loans. FTP credits for deposits are based on matched funding credit rates, which are tied to the implied or stated maturity of the deposits. FTP credits for deposits reflect the long-term value generated by the deposits. The net spread between the total internal FTP charges and credits is recorded as part of net interest income in the Other segment. The FTP process transfers the corporate interest rate risk exposure to the treasury function within the Other segment, where such exposures are centrally managed.

The Company’s internal FTP assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. During the third quarter of 2019, the Company enhanced its FTP methodology related to deposits by setting a minimum floor rate using the short-term FHLB rate as a reference rate for the FTP credits paid for deposits in event of the flattened and inverted yield curve. This methodology has been retrospectively applied to segment financial results for the three and six months ended June 30, 2019, and the process is effectively reflecting the current market conditions as of June 30, 2020.

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three and six months ended June 30, 2020 and 2019:



($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Three Months Ended June 30, 2020






Net interest income before provision for credit losses	$	124,926	$	183,796	$	35,053	$	343,775
Provision for credit losses	5,590		96,853		—		102,443
Noninterest income	13,943		33,887		10,807		58,637
Noninterest expense	80,164		64,900		42,632		187,696
Segment income before income taxes	53,115		55,930		3,228		112,273

Segment net income	$	38,058	$	40,178	$	21,116	$	99,352
As of June 30, 2020

Segment assets	$	12,666,938	$	26,984,013	$	9,756,642	$	49,407,593



($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Three Months Ended June 30, 2019






Net interest income before provision for credit losses	$	180,911	$	158,941	$	27,474	$	367,326
Provision for credit losses	1,616		17,629		—		19,245
Noninterest income	14,503		33,656		4,600		52,759
Noninterest expense	83,656		67,303		26,704		177,663
Segment income before income taxes	110,142		107,665		5,370		223,177

Segment net income (loss)	$	78,741	$	76,885	$	(5,246)	$	150,380
As of June 30, 2019

Segment assets	$	11,013,898	$	25,001,894	$	6,876,566	$	42,892,358



($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Six Months Ended June 30, 2020






Net interest income before provision for credit losses	$	277,517	$	367,297	$	61,668	$	706,482
Provision for credit losses	13,378		162,935		—		176,313
Noninterest income	30,345		66,343		15,998		112,686
Noninterest expense	167,128		135,026		64,418		366,572
Segment income before income taxes	127,356		135,679		13,248		276,283

Segment net income	$	91,253	$	97,309	$	55,614	$	244,176
As of June 30, 2020

Segment assets	$	12,666,938	$	26,984,013	$	9,756,642	$	49,407,593



($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Six Months Ended June 30, 2019






Net interest income before provision for credit losses	$	365,970	$	311,649	$	52,168	$	729,787
Provision for credit losses	4,629		37,195		—		41,824
Noninterest income	28,275		58,200		8,415		94,890
Noninterest expense	171,562		137,847		55,176		364,585
Segment income before income taxes	218,054		194,807		5,407		418,268

Segment net income	$	155,887	$	139,219	$	19,298	$	314,404
As of June 30, 2019

Segment assets	$	11,013,898	$	25,001,894	$	6,876,566	$	42,892,358

Note 16 — Subsequent Events

On July 23, 2020, the Company’s Board of Directors declared third quarter 2020 cash dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share is payable on August 17, 2020 to stockholders of record as of August 4, 2020.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


		Page
Overview			64
Selected Financial Data			67
Financial Highlights			68
Results of Operations			70
	Net Interest Income	70
	Noninterest Income	74
	Noninterest Expense	75
	Income Taxes	76
	Operating Segment Results	77
Balance Sheet Analysis			81
	Selected Consolidated Balance Sheet Data	81
	Debt Securities	82
	Loan Portfolio	85
	Foreign Outstandings	92
	Capital	93
	Deposits and Other Sources of Funds	94
	Regulatory Capital and Ratios	95
Other Matters			96
Off-Balance Sheet Arrangements			97
Risk Management			98
	Credit Risk Management	98
	Liquidity Risk Management	106
	Market Risk Management	109
Critical Accounting Policies and Estimates			114
Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures			114
Forward-Looking Statements			117

Overview

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”, “EWBC” or “we”), and its subsidiaries, including its subsidiary bank, East West Bank and its subsidiaries (referred to herein as “East West Bank” or the “Bank”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes presented elsewhere in this report, and the Company’s annual report on Form 10-K for the year ended December 31, 2019, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 27, 2020 (the “Company’s 2019 Form 10-K”).

Company Overview

East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the Bank Holding Company Act of 1956, as amended. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California that has a strong focus on the financial service needs of the Chinese-American community. Through over 125 locations in the U.S. and Greater China, the Company provides a full range of consumer and commercial products and services through three business segments: Consumer and Business Banking, Commercial Banking, with the remaining operations included in Other. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is principally derived from the difference between interest earned on loans and debt securities and interest paid on deposits and other funding sources. As of June 30, 2020, the Company had $49.41 billion in assets and approximately 3,200 full-time equivalent employees. For additional information on products and services provided by the Bank, see Item 1. Business — Banking Services of the Company’s 2019 Form 10-K.

Corporate Strategy

We are committed to enhancing long-term shareholder value by executing on the fundamentals of growing loans, deposits and revenue, improving profitability, and investing for the future while managing risk, expenses and capital. Our business model is built on customer loyalty and engagement, understanding of our customers’ financial goals, and meeting our customers’ financial needs through our diverse products and services. The Company’s approach is concentrated on seeking out and deepening client relationships that meet our risk/return measures. This focus guides our decision-making across every aspect of our operations: the products we develop, the expertise we cultivate and the infrastructure we build to help our customers conduct businesses. We expect our relationship-focused business model to continue to generate organic growth and to expand our targeted customer bases. On an ongoing basis, we invest in technology related to critical business infrastructure and streamlining core processes, in the context of maintaining appropriate expense management. Our risk management activities are focused on ensuring that the Company identifies and manages risks to maintain safety and soundness while maximizing profitability.

Coronavirus Disease 2019 Global Pandemic

The Coronavirus Disease 2019 (“COVID-19”) pandemic has caused significant, unprecedented disruption around the world, as well as economic and financial market deterioration, which did not exist at the beginning of the year. The recession resulting from government-mandated closures of certain businesses and “stay-at-home” orders has significantly impacted businesses, investments in those businesses and consumer spending, and heightened volatility in the global financial markets. These economic and operating conditions caused by the COVID-19 pandemic have created financial difficulties for many of the Company’s commercial and consumer customers and, as a result, some borrowers may not be able to satisfy their obligations to us. As many of the Company’s loans are secured by real estate, a potential decline in the real estate markets could also negatively impact the Company’s business, financial condition and the credit quality of the Company’s loan portfolio. As a result of the ongoing COVID-19 pandemic, the provision for credit losses was elevated during the second quarter of 2020.

Regulatory Developments Relating to COVID-19 Pandemic

Coronavirus Aid, Relief, and Economic Security Act — The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 to address the economic impact to individuals and businesses as a result of the COVID-19 pandemic. As part of the CARES Act, various initiatives to protect individuals, businesses and local economies, such as the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) and the Main Street Lending Program were established in an effort to lessen the impact of COVID-19 on consumers and businesses. As part of our commitment to support our customers, the Bank participated as a lender in the PPP. During the second quarter of 2020, the Company funded over 7,200 SBA 7(a) approved PPP loans for customers with an outstanding loan balance totaling $1.75 billion as of June 30, 2020. The SBA guarantees 100% of the PPP loans made to eligible borrowers and if used for qualified expenditures, the PPP loans are forgivable. These loans are included in our commercial and industrial (“C&I”) portfolio, have an interest rate of 1% and a maturity of two or five years. The Board of Governors of the Federal Reserve system (“Federal Reserve”) has established the PPP Liquidity Facility (“PPPLF”) to enable Federal Reserve Banks (“FRB”) to extend credit to financial institutions that originate PPP loans, while taking the PPP loans as collateral. As of June 30, 2020, we have drawn down $1.43 billion from the Federal Reserve PPPLF and pledged the same amount in PPP loans as collateral. The Bank is also a participating lender in the Main Street Lending Program, which was established by the Federal Reserve system, to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

In addition, the CARES Act requires mortgage servicers to grant, on a borrower’s request, forbearance for up to 180 days (which can be extended for an additional 180 days) on a federally-backed single-family mortgage loan or forbearance up to 30 days (which can be extended for two additional 30-day periods) on a federally-backed multi-family mortgage loan when the borrowers experience financial hardship due to COVID-19.

Loan Modifications — The CARES Act also includes an option for financial institutions to suspend the U.S. generally accepted accounting principles (“GAAP”) requirements and regulatory determinations for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructuring (“TDR”) from March 1, 2020, through the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or December 31, 2020. On April 7, 2020, the federal banking regulators issued the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus (Revised)” (the “Interagency Statement”). The Interagency Statement also provides financial institutions the option to suspend the application of the TDR accounting guidance for short-term modifications (i.e., six months or less) made on a good faith basis in response to COVID-19 to borrowers who were current at the time of modification. Given that nonaccrual loans are more heavily risk-weighted for capital purposes, this TDR relief allows a capital benefit in the form of reduced risk-weighted assets since the aging of such loans were frozen at the time of modification. We are granting loan modifications to our customers in the form of maturity extensions, payment deferrals and forbearance. For a summary of the loans that we have modified in response to COVID-19, please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Risk Management — Credit Risk Management in this Form 10-Q.

Regulatory Capital — On March 31, 2020, the U.S. federal banking agencies issued an interim final rule that provided the option to temporarily delay the effects of current expected credit losses (“CECL”) on regulatory capital for two years, followed by a three-year transition period (“CECL Capital Transition”). The Company has elected to apply the CECL Capital Transition during the first quarter of 2020.

Reserve Requirements — On March 26, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent, eliminating the reserve requirement for all depository institutions, an action that provides liquidity in the banking system to support lending to households and businesses.

Our Response to COVID-19

In response to the COVID-19 pandemic, we have been working diligently to protect employee safety while continuing to carry out our role as a provider of critical and essential services to the public. We have taken comprehensive steps to help our employees, customers and communities as follows:

•Employees:

For employees with jobs that are required to be performed on-site, we have taken significant actions to ensure employee safety by adopting social distancing measures, implementing an enhanced cleaning program and installing plexiglass panels and requiring temperature screenings and the wearing of masks for all employees physically at on-site locations. We have further provided support to our employees by granting an increase in flexibility by temporarily adjusting vacation policies.

•Customers:

We offered assistance to our commercial, consumer and small business clients affected by the COVID-19 pandemic, which includes payment deferrals, pausing foreclosures on certain residential mortgage loans and participation in the SBA PPP and the Main Street Lending Program under the CARES Act as discussed above. We intend to evaluate participation in additional new government-sponsored programs, as they are established.

Given the continuous unprecedented uncertainty and rapidly evolving socioeconomic impacts of the COVID-19 pandemic, the Company continues to closely monitor its impacts on the Company’s business and loan portfolio. The pandemic had a significant impact on the Company’s second quarter and first half of 2020 provision for credit losses. Although we are uncertain of the full magnitude and duration of the business and economic impact from the unprecedented public health efforts to contain and combat the spread of COVID-19, we could experience material declines in revenues, profitability and/or cash flows in one or more periods in 2020, compared to the corresponding prior-year periods and compared to our expectations at the beginning of the 2020 fiscal year. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided below under Part II, Item 1A - Risk Factors in this Form 10-Q.

Selected Financial Data



($ and shares in thousands, except per share, ratio and headcount data)	Three Months Ended																				Six Months Ended
				June 30, 2020				March 31, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Summary of operations:
Interest and dividend income ⁽¹⁾	$	398,776			$	449,190			$	474,844			$	847,966			$	938,155
Interest expense	55,001				86,483				107,518				141,484				208,368
Net interest income before provision for credit losses	343,775				362,707				367,326				706,482				729,787
Provision for credit losses	102,443				73,870				19,245				176,313				41,824
Net interest income after provision for credit losses	241,332				288,837				348,081				530,169				687,963
Noninterest income	58,637				54,049				52,759				112,686				94,890
Noninterest expense ⁽²⁾	187,696				178,876				177,663				366,572				364,585
Income before income taxes	112,273				164,010				223,177				276,283				418,268
Income tax expense⁽³⁾	12,921				19,186				72,797				32,107				103,864

Net income ^(1)(2)(3)	$	99,352			$	144,824			$	150,380			$	244,176			$	314,404

Per common share:
Basic earnings	$	0.70			$	1.00			$	1.03			$	1.71			$	2.16
Diluted earnings	$	0.70			$	1.00			$	1.03			$	1.70			$	2.15
Dividends declared	$	0.28			$	0.28			$	0.28			$	0.55			$	0.51
Book value	$	35.25			$	34.67			$	32.53			$	35.25			$	32.53

Non-GAAP tangible common equity per share ⁽⁴⁾	$	31.86			$	31.27			$	29.20			$	31.86			$	29.20
Weighted-average number of shares outstanding:
Basic	141,486				144,814				145,546				143,150				145,402
Diluted	141,827				145,285				146,052				143,560				146,016
Common shares outstanding at period-end	141,486				141,435				145,547				141,486				145,547

At period end:
Total assets	$	49,407,593			$	45,948,545			$	42,892,358			$	49,407,593			$	42,892,358
Total loans	$	37,233,287			$	35,894,987			$	33,734,256			$	37,233,287			$	33,734,256
Available-for-sale (“AFS”) debt securities	$	3,884,574			$	3,695,943			$	2,592,913			$	3,884,574			$	2,592,913
Total deposits	$	40,672,678			$	38,686,958			$	36,477,542			$	40,672,678			$	36,477,542
Long-term debt and finance lease liabilities ⁽⁵⁾	$	1,580,442			$	152,162			$	152,506			$	1,580,442			$	152,506
Federal Home Loan Bank (“FHLB”) advances	$	656,759			$	646,336			$	745,074			$	656,759			$	745,074
Stockholders’ equity ⁽⁶⁾	$	4,987,243			$	4,902,985			$	4,734,593			$	4,987,243			$	4,734,593

Non-GAAP tangible common equity ⁽⁴⁾	$	4,508,056			$	4,422,519			$	4,249,944			$	4,508,056			$	4,249,944
Head count (full-time equivalent)	3,249				3,285				3,261				3,249				3,261
Performance metrics:
Return on average assets (“ROA”)	0.83		%		1.30		%		1.45		%		1.06		%		1.54		%
Return on average equity (“ROE”)	8.02		%		11.60		%		12.88		%		9.82		%		13.75		%
Net interest margin	3.04		%		3.44		%		3.73		%		3.24		%		3.76		%
Efficiency ratio ⁽⁷⁾	46.64		%		42.92		%		42.29		%		44.75		%		44.21		%
Non-GAAP efficiency ratio ⁽⁴⁾	38.09		%		38.54		%		38.03		%		38.31		%		38.88		%
Credit quality metrics:
Allowance for loan losses	$	632,071			$	557,003			$	330,625			$	632,071			$	330,625
Allowance for loan losses to loans held-for-investment	1.70		%		1.55		%		0.98		%		1.70		%		0.98		%
Nonperforming assets to total assets	0.41		%		0.33		%		0.28		%		0.41		%		0.28		%
Annualized net charge-offs to average loans held-for-investment	0.21		%		0.01		%		0.09		%		0.11		%		0.14		%

Selected metrics:
Total average equity to total average assets	10.33		%		11.22		%		11.28		%		10.76		%		11.21		%
Common dividend payout ratio	39.72		%		27.95		%		26.95		%		32.74		%		23.63		%
Loan-to-deposit ratio	91.54		%		92.78		%		92.48		%		91.54		%		92.48		%

EWBC capital ratios:


Common Equity Tier 1 (“CET1”) capital	12.7		%		12.4		%		12.5		%		12.7		%		12.5		%
Tier 1 capital	12.7		%		12.4		%		12.5		%		12.7		%		12.5		%
Total capital	14.4		%		13.9		%		13.9		%		14.4		%		13.9		%
Tier 1 leverage capital	9.7		%		10.2		%		10.4		%		9.7		%		10.4		%

(1)Includes $21.3 million of interest income related to PPP loans for the second quarter of 2020.

(2)Includes $8.7 million of securities sold under repurchase agreements’ (“repurchase agreements”) extinguishment cost for the second quarter of 2020.

(3)Includes $30.1 million of additional tax expense to reverse certain previously claimed tax credits related to the DC Solar tax credit investments (“DC Solar”) during the second quarter of 2019.

(4)For a discussion of tangible common equity, tangible common equity per share and non-GAAP efficiency ratio, refer to Item 2. MD&A — Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

(5)Includes $1.43 billion of advances from the PPPLF.

(6)On January 1, 2020, the Company adopted Accounting Standards Codification (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments using the modified retrospective approach. The Company recorded an after-tax decrease to opening retained earnings of $98.0 million as of January 1, 2020.

(7)The efficiency ratio is noninterest expense divided by total revenue (net interest income before provision for credit losses and noninterest income).

Financial Highlights

Noteworthy items about the Company’s performance for the second quarter and first half of 2020 included:

•Earnings: Second quarter 2020 net income was $99.4 million or $0.70 in diluted earnings per share (“EPS”), compared with second quarter of 2019 net income of $150.4 million or diluted EPS of $1.03, a decrease of $51.0 million or 34% in net income. Net income for the first half of 2020 was $244.2 million or $1.70 in diluted EPS, compared with net income of $314.4 million or $2.15 in diluted EPS for the first half of 2019, a decrease of $70.2 million or 22% in net income. These decreases in both periods were primarily due to higher provision for credit losses resulting from the deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic and the recently adopted CECL methodology, and lower net interest income resulting from lower interest rates, partially offset by a decrease in income tax expense. Provision for credit losses of $176.3 million for the first half of 2020 increased by 322% compared to the same period a year ago.

•Adjusted Earnings: There were no adjustments for non-recurring items during the second quarter and first half of 2020 that affected non-GAAP net income and diluted EPS. Non-GAAP net income and non-GAAP diluted EPS for the second quarter of 2019 were $180.5 million and $1.24, respectively. Non-GAAP net income and non-GAAP diluted EPS for the first half of 2019 were $349.4 million and $2.39, respectively. During the first and second quarters of 2019, the Company recorded a $7.0 million pre-tax impairment charge and reversed $30.1 million of certain previously claimed tax credits related to the DC Solar, respectively. Refer to reconciliations of non-GAAP measures presented under Item 2. MD&A — Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Revenue: Revenue, or the sum of net interest income before provision for credit losses and noninterest income, was $402.4 million for the second quarter of 2020, compared with $420.1 million for the second quarter of 2019, a decrease of $17.7 million or 4%. Revenue for the first half of 2020 was $819.2 million, compared with $824.7 million for the first half of 2019, a decrease of $5.5 million or 1%. These decreases were primarily due to lower net interest income, partially offset by an increase in noninterest income.

•Net Interest Income and Net Interest Margin: Second quarter 2020 net interest income was $343.8 million, compared with second quarter 2019 net interest income of $367.3 million, a decrease of $23.5 million or 6%. Second quarter 2020 net interest margin was 3.04%, a 69 basis point decrease from 3.73% for the second quarter of 2019. Net interest income for the first half of 2020 was $706.5 million, compared with $729.8 million for the first half of 2019, a decrease of $23.3 million or 3%. Net interest margin was 3.24% for the first half of 2020, a decrease of 52 basis points from 3.76% for the first half of 2019. The decreases in the net interest income and net interest margin reflected lower interest rates year-over-year, including a cumulative 225 basis point reduction of the federal funds target rate from the second half of 2019 through the second quarter of 2020.

•Operating Efficiency: Efficiency ratio, calculated as noninterest expense divided by revenue, was 46.64% and 42.29% for the second quarters of 2020 and 2019, respectively. The efficiency ratio was 44.75% for the first half of 2020, compared with 44.21% for the first half of 2019. Adjusting for the amortization of tax credit and other investments, amortization of core deposit intangibles, and repurchase agreements’ extinguishment cost, non-GAAP efficiency ratio for the second quarter of 2020 was 38.09%, a six basis point increase from 38.03% for the second quarter of 2019. For the first half of 2020, non-GAAP efficiency ratio was 38.31%, a 57 basis point improvement from 38.88% for the first half of 2019. For additional detail, see the reconciliations of non-GAAP measures presented under Item 2. MD&A — Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Tax: Income tax expense was $12.9 million and the effective tax rate was 11.5% for the second quarter of 2020, compared with income tax expense of $72.8 million and an effective tax rate of 32.6% for the second quarter of 2019. Income tax expense was $32.1 million and the effective tax rate was 11.6% for the first half of 2020, compared with income tax expense of $103.9 million and an effective tax rate of 24.8% for the first half of 2019.

•Profitability: ROA for the second quarters of 2020 and 2019 were 0.83% and 1.45%, respectively. ROA for the first half of 2020 and 2019 were 1.06% and 1.54%, respectively. ROE for the second quarters of 2020 and 2019 were 8.02% and 12.88%, respectively. ROE for the first half of 2020 and 2019 were 9.82% and 13.75%, respectively. Adjusting for non-recurring items related to DC Solar which occurred in 2019, non-GAAP ROA and non-GAAP ROE for the second quarter of 2019 were 1.74% and 15.45%, respectively. Non-GAAP ROA and non-GAAP ROE for the first half of 2019 were 1.71% and 15.28%, respectively. For additional detail, see the reconciliations of non-GAAP measures presented under Item 2. MD&A — Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.)

•Loans: Total loans were $37.23 billion as of June 30, 2020, an increase of $2.45 billion or 7% from $34.78 billion as of December 31, 2019. Loan growth was well-diversified across each of the Company’s major loan portfolios, with the strongest growth from C&I, driven by PPP loan funding, commercial real estate (“CRE”) and single-family residential loans.

•Deposits: Total deposits were $40.67 billion as of June 30, 2020, an increase of $3.35 billion or 9% from $37.32 billion as of December 31, 2019. This increase was primarily driven by growth in noninterest-bearing demand deposits and money market accounts, partially offset by a decrease in time deposits.

•Asset Quality Metrics: The allowance for loan losses was $632.1 million or 1.70% of loans held-for-investment, as of June 30, 2020, compared with $358.3 million or 1.03% of loans held-for-investment, as of December 31, 2019. The increase in the allowance for loan losses was primarily due to the deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic; and the adoption of ASU 2016-13, which increased the allowance for loan losses by $125.2 million. Nonperforming assets were $202.2 million or 0.41% of total assets, as of June 30, 2020, an increase from $121.5 million, or 0.27% of total assets, as of December 31, 2019. Second quarter 2020 net charge-offs were $19.2 million, or an annualized 0.21% of average loans held-for-investment, compared with $7.6 million, or an annualized 0.09% of average loans held-for-investment for the second quarter of 2019. For the first half of 2020, net charge-offs were $20.1 million or annualized 0.11% of average loans held-for-investment, compared with $22.1 million or annualized 0.14% of average loans held-for-investment for the first half of 2019.

•Capital Levels: Our capital levels are strong. As of June 30, 2020, all of the Company’s and the Bank’s regulatory capital ratios were well above the regulatory requirements to be considered well-capitalized. See Item 2. MD&A — Balance Sheet Analysis — Regulatory Capital and Ratios in this Form 10-Q for more information regarding capital. On March 3, 2020, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $500.0 million of the Company’s common stock. During the first quarter of 2020, the Company repurchased 4,471,682 shares at an average price of $32.64 per share and a total cost of $146.0 million. There were no share repurchases during the second quarter of 2020 or the full year 2019.

•Cash Dividends: The quarterly cash common stock dividend for both the second quarters of 2020 and 2019 was $0.275 per share. Cash dividends of $39.5 million during the second quarter of 2020 and $79.9 million the first half of 2020 were retuned to stockholders, compared with $40.5 million and $74.3 million during the same periods in 2019, respectively.

Results of Operations

Net Interest Income

The Company’s primary source of revenue is net interest income, which is the interest income earned on interest-earning assets less interest expense paid on interest-bearing liabilities. Net interest margin is the ratio of net interest income to average interest-earning assets. Net interest income and net interest margin are impacted by several factors, including changes in average balances and composition of interest-earning assets and funding sources, market interest rate fluctuations and the slope of the yield curve, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities, volume of noninterest-bearing sources of funds, and asset quality.

Second quarter 2020 net interest income was $343.8 million, a decrease of $23.5 million or 6%, compared with $367.3 million for the second quarter of 2019. For the first half of 2020, net interest income was $706.5 million, a decrease of $23.3 million or 3%, compared with $729.8 million for the first half of 2019. The decreases in net interest income were due to a decrease in interest-earning asset yields which reflected the drop in the average Prime and London Interbank Offered Rates (“LIBOR”), partially offset by decreases in the cost of funds. Second quarter 2020 net interest margin was 3.04%, a 69 basis point decrease from 3.73% for the second quarter of 2019. For the first half of 2020, net interest margin was 3.24%, a 52 basis point decrease from 3.76% for the first half of 2019.

The average loan yield for the second quarter of 2020 was 3.98%, a 130 basis point decrease from 5.28% for the second quarter of 2019. For the first half of 2020, the average loan yield was 4.34%, a 95 basis point decrease from 5.29% for the first half of 2019. These decreases, compared with the same periods in 2019, reflected materially lower interest rates, which resulted from a cumulative 225 basis point reduction of the federal funds target rate. Approximately 65% and 70% of loans were comprised of variable-rate or hybrid loans that were in the adjustable rate period as of June 30, 2020 and 2019, respectively. Second quarter of 2020 average loans were $37.14 billion, an increase of $4.16 billion or 13% from $32.98 billion for the second quarter of 2019. For the first half of 2020, average loans were $36.15 billion, an increase of $3.45 billion or 11% from $32.70 billion for the first half of 2019. The year-over-year increase stemmed from broad-based growth across CRE, C&I, and single-family residential loans.

Second quarter of 2020 average interest-earning assets was $45.41 billion, an increase of $5.95 billion or 15% from $39.46 billion for the second quarter of 2019. This was primarily due to increases of $4.16 billion in average loans and $1.17 billion in AFS debt securities. For the first half of 2020, average interest-earning assets was $43.89 billion, an increase of $4.78 billion or 12% from $39.11 billion for first half of 2019. This was primarily due to increases of $3.45 billion in average loans and $900.4 million in AFS debt securities.

Deposits are an important source of funds and impact both net interest income and net interest margin. Average noninterest-bearing demand deposits totaled $13.53 billion for the second quarter of 2020, compared with $10.24 billion for the second quarter of 2019, an increase of $3.29 billion or 32%. Average noninterest-bearing demand deposits comprised 34% and 29% of average total deposits for the second quarters of 2020 and 2019, respectively. Average noninterest-bearing demand deposits was $12.33 billion for the first half of 2020, compared with $10.16 billion for the first half of 2019, an increase of $2.17 billion or 21%. Average noninterest-bearing demand deposits made up 32% and 29% of average total deposits for first half of 2020 and 2019, respectively. Average interest-bearing deposits of $26.37 billion for the second quarter of 2020 increased by $1.28 billion or 5% from $25.09 billion for the second quarter of 2019. Average interest-bearing deposits of $26.36 billion for the first half of 2020 increased by $1.39 billion or 6%, from $24.97 billion for the first half of 2019.

The average cost of funds was 0.53% for the second quarter of 2020, a decrease of 66 basis points from 1.19% for the second quarter of 2019. For the first half of 2020, the average cost of funds was 0.71%, a decrease of 46 basis points from 1.17% for the first half of 2019. The decreases in the average cost of funds reflected the cumulative 225 basis point reduction of the target federal funds rate from the second half of 2019 through the second quarter of 2020. The average cost of deposits was 0.47% for the second quarter of 2020, a decrease of 64 basis points from 1.11% for the second quarter of 2019. The average cost of deposits was 0.64% for the first half of 2020, a decrease of 45 basis points from 1.09% for the first half of 2019.

The average cost of interest-bearing deposits was 0.71% for the second quarter of 2020, a decrease of 86 basis points from 1.57% for the second quarter of 2019. For the first half of 2020, the average cost of interest-bearing deposits decreased 59 basis points to 0.94%, from 1.53% for the first half of 2019. Other sources of funding included in the calculation of the average cost of funds consist of short-term borrowings, FHLB advances, repurchase agreements and long-term debt.

The Company utilizes various tools to manage interest rate risk. Refer to Item 2. MD&A — Risk Management — Market Risk Management in this Form 10-Q.

The following table presents the interest spread, net interest margin, average balances, interest income and expense, and the average yield/rate by asset and liability component for the second quarters of 2020 and 2019:



($ in thousands)	Three Months Ended June 30,
			2020															2019
			Average Balance			Interest			Average Yield/ Rate ⁽¹⁾			Average Balance			Interest			Average Yield/ Rate ⁽¹⁾
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks	$	3,435,920		$	4,564		0.53	%		$	2,852,060		$	16,800		2.37	%
Securities purchased under resale agreements (“Resale agreements”) ⁽²⁾	1,037,473			5,514			2.14	%		999,835			7,404			2.98	%
AFS debt securities ⁽³⁾⁽⁴⁾	3,719,209			21,004			2.27	%		2,551,383			15,685			2.47	%
Loans⁽⁵⁾⁽⁶⁾	37,141,773			367,393			3.98	%		32,981,374			434,450			5.28	%
Restricted equity securities	78,867			301			1.54	%		76,449			505			2.65	%
Total interest-earning assets	$	45,413,242		$	398,776		3.53	%		$	39,461,101		$	474,844		4.83	%
Noninterest-earning assets:
Cash and due from banks	498,908									439,449
Allowance for loan losses	(566,473)									(321,335)
Other assets	2,883,237									1,966,226
Total assets	$	48,228,914								$	41,545,441
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits	$	4,687,178		$	5,404		0.46	%		$	5,221,110		$	15,836		1.22	%
Money market deposits	9,893,816			8,093			0.33	%		7,856,055			28,681			1.46	%
Savings deposits	2,149,965			1,445			0.27	%		2,106,626			2,477			0.47	%
Time deposits	9,634,696			31,457			1.31	%		9,904,726			50,970			2.06	%
Short-term borrowings	242,185			265			0.44	%		35,575			361			4.07	%
FHLB advances	653,665			3,343			2.06	%		533,841			4,011			3.01	%
Repurchase agreements ⁽²⁾	418,681			3,540			3.40	%		50,000			3,469			27.83	%
Long-term debt and finance lease liabilities	682,432			1,454			0.86	%		152,608			1,713			4.50	%
Total interest-bearing liabilities	$	28,362,618		$	55,001		0.78	%		$	25,860,541		$	107,518		1.67	%
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits	13,534,873									10,237,868
Accrued expenses and other liabilities	1,348,977									762,684
Stockholders’ equity	4,982,446									4,684,348
Total liabilities and stockholders’ equity	$	48,228,914								$	41,545,441
Interest rate spread							2.75	%								3.16	%
Net interest income and net interest margin				$	343,775		3.04	%					$	367,326		3.73	%

(1)Annualized.

(2)There was no netting of repurchase agreements against resale agreements for the second quarter of 2020. Average balances of resale and repurchase agreements for the three months ended June 30, 2019 have been reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.14% and 2.71% for the second quarters of 2020 and 2019, respectively. The weighted-average interest rates of gross repurchase agreements were 3.40% and 4.93% for the second quarters of 2020 and 2019, respectively.

(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

(4)Includes the amortization of premiums on debt securities of $5.9 million and $2.9 million for the second quarters of 2020 and 2019, respectively.

(5)Average balances include nonperforming loans and loans held-for-sale.

(6)Loans include the accretion of net deferred loan fees, unearned fees and amortization of premiums, which totaled $21.1 million and $8.8 million for the second quarters of 2020 and 2019, respectively.



($ in thousands)	Six Months Ended June 30,
			2020															2019
			Average Balance			Interest			Average Yield/ Rate ⁽¹⁾			Average Balance			Interest			Average Yield/ Rate ⁽¹⁾
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks	$	3,204,463		$	15,672		0.98	%		$	2,716,128		$	32,210		2.38	%
Resale agreements ⁽²⁾	959,807			11,139			2.33	%		1,017,320			15,310			3.03	%
AFS debt securities ⁽³⁾⁽⁴⁾	3,496,974			41,146			2.37	%		2,596,590			31,433			2.44	%
Loans⁽⁵⁾⁽⁶⁾	36,147,871			779,262			4.34	%		32,699,644			857,984			5.29	%
Restricted equity securities	78,771			747			1.91	%		75,348			1,218			3.26	%
Total interest-earning assets	$	43,887,886		$	847,966		3.89	%		$	39,105,030		$	938,155		4.84	%
Noninterest-earning assets:
Cash and due from banks	504,710									453,725
Allowance for loan losses	(529,385)									(317,909)
Other assets	2,629,000									1,903,306
Total assets	$	46,492,211								$	41,144,152
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits	$	4,844,425		$	15,650		0.65	%		$	5,245,845		$	30,091		1.16	%
Money market deposits	9,453,599			30,341			0.65	%		7,967,831			58,915			1.49	%
Savings deposits	2,113,118			3,262			0.31	%		2,099,058			4,704			0.45	%
Time deposits	9,949,351			73,549			1.49	%		9,658,181			96,259			2.01	%
Short-term borrowings	151,081			821			1.09	%		47,939			977			4.11	%
FHLB advances	673,511			7,509			2.24	%		436,475			6,990			3.23	%
Repurchase agreements ⁽²⁾	375,549			7,531			4.03	%		50,000			6,961			28.07	%
Long-term debt and finance lease liabilities	417,345			2,821			1.36	%		152,485			3,471			4.59	%
Total interest-bearing liabilities	$	27,977,979		$	141,484		1.02	%		$	25,657,814		$	208,368		1.64	%
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits	12,326,291									10,155,079
Accrued expenses and other liabilities	1,185,715									720,028
Stockholders’ equity	5,002,226									4,611,231
Total liabilities and stockholders’ equity	$	46,492,211								$	41,144,152
Interest rate spread							2.87	%								3.20	%
Net interest income and net interest margin				$	706,482		3.24	%					$	729,787		3.76	%

(1)Annualized.

(2)Average balances of resale and repurchase agreements have been reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.32% and 2.77% for the first half of 2020 and 2019, respectively. The weighted-average interest rates of gross repurchase agreements were 3.76% and 4.97% for the first half of 2020 and 2019, respectively.

(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

(4)Includes the amortization of premiums on debt securities of $9.2 million and $6.0 million for the first half of 2020 and 2019, respectively.

(5)Average balances include nonperforming loans and loans held-for-sale.

(6)Loans include the accretion of net deferred loan fees, unearned fees and amortization of premiums, which totaled $29.1 million and $16.8 million for the first half of 2020 and 2019, respectively.

The following table summarizes the extent to which changes in (1) interest rates; and (2) average interest-earning assets and average interest-bearing liabilities affected the Company’s net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and interest rates. Changes that are not solely due to either volume or rate are allocated proportionally based on the absolute value of the change related to average volume and average rate.



($ in thousands)	Three Months Ended June 30,													Six Months Ended June 30,
			2020 vs. 2019													2020 vs. 2019
			Total Change			Changes Due to							Total Change			Changes Due to
							Volume		Yield/Rate							Volume	Yield/Rate
Interest-earning assets:
Interest-bearing cash and deposits with banks	$	(12,236)		$	2,882		$	(15,118)	$	(16,538)	$	4,994		$	(21,532)
Resale agreements	(1,890)			269			(2,159)		(4,171)		(826)			(3,345)
AFS debt securities	5,319			6,642			(1,323)		9,713		10,702			(989)
Loans	(67,057)			49,689			(116,746)		(78,722)		85,564			(164,286)
Restricted equity securities	(204)			15			(219)		(471)		54			(525)
Total interest and dividend income	$	(76,068)		$	59,497		$	(135,565)	$	(90,189)	$	100,488		$	(190,677)
Interest-bearing liabilities:
Checking deposits	$	(10,432)		$	(1,479)		$	(8,953)	$	(14,441)	$	(2,146)		$	(12,295)
Money market deposits	(20,588)			5,958			(26,546)		(28,574)		9,511			(38,085)
Savings deposits	(1,032)			50			(1,082)		(1,442)		32			(1,474)
Time deposits	(19,513)			(1,360)			(18,153)		(22,710)		2,859			(25,569)
Short-term borrowings	(96)			473			(569)		(156)		956			(1,112)
FHLB advances	(668)			775			(1,443)		519		3,074			(2,555)
Repurchase agreements	71			5,491			(5,420)		570		11,069			(10,499)
Long-term debt and finance lease liabilities	(259)			2,033			(2,292)		(650)		3,024			(3,674)
Total interest expense	$	(52,517)		$	11,941		$	(64,458)	$	(66,884)	$	28,379		$	(95,263)
Change in net interest income	$	(23,551)		$	47,556		$	(71,107)	$	(23,305)	$	72,109		$	(95,414)

Noninterest Income

The following table presents the components of noninterest income for the second quarter and first half of 2020 and 2019:



($ in thousands)	Three Months Ended June 30,															Six Months Ended June 30,
			2020			2019			% Change			2020			2019			% Change
Lending fees	$	21,946		$	16,423		34	%		$	37,719		$	31,392		20	%
Deposit account fees	10,872			9,607			13	%		21,319			19,075			12	%
Foreign exchange income	4,562			7,286			(37)	%		12,381			12,301			1	%
Wealth management fees	3,091			3,800			(19)	%		8,444			7,574			11	%
Interest rate contracts and other derivative income	6,107			10,398			(41)	%		13,180			13,614			(3)	%
Net gains on sales of loans	132			15			780	%		1,082			930			16	%
Gains on sales of AFS debt securities	9,640			1,447			566	%		11,169			3,008			271	%


Other investment income	966			706			37	%		2,887			1,908			51	%
Other income	1,321			3,077			(57)	%		4,505			5,088			(11)	%
Total noninterest income	$	58,637		$	52,759		11	%		$	112,686		$	94,890		19	%

Noninterest income comprised 15% and 14% of total revenue for the second quarter and the first half of 2020, respectively, compared with 13% and 12% for the second quarter and the first half of 2019, respectively. Second quarter 2020 noninterest income was $58.6 million, an increase of $5.9 million or 11%, compared with $52.8 million for the same period in 2019. This increase was primarily due to increases in gains on sale of AFS debt securities and lending fees, partially offset by decreases in interest rate contracts and other derivative income, foreign exchange income and other income. First half 2020 noninterest income was $112.7 million, an increase of $17.8 million or 19%, compared with $94.9 million for the first half of 2019. This increase was primarily due to increases in gains on sale of AFS debt securities and lending fees, partially offset by decreases in other income and interest rate contracts and other derivative income. The following discussion provides the composition of the major changes in noninterest income:

Lending fees increased by $5.5 million or 34% to $21.9 million for the second quarter of 2020, and increased by $6.3 million or 20% to $37.7 million for the first half of 2020, as compared with the same periods in 2019. These increases primarily reflected an increase in the valuation of warrants received as part of lending relationships.

Foreign exchange income decreased by $2.7 million or 37% to $4.6 million for the second quarter of 2020, and was essentially flat at $12.4 million for the first half of 2020, as compared with the same periods in 2019. The decrease in the second quarter of 2020 was primarily driven by the unfavorable revaluation of certain foreign currency-denominated balance sheet items and a decrease in customer-driven transactions.

Interest rate contracts and other derivative income decreased $4.3 million or 41% to $6.1 million for the second quarter of 2020, and decreased by $434 thousand or 3% to $13.2 million for the first half of 2020, as compared with the same periods in 2019. These decreases primarily reflected the impact of negative credit valuation adjustments due to higher loss probabilities for borrowers impacted by COVID-19.

Gains on sales of AFS debt securities increased by $8.2 million or 566% to $9.6 million for the second quarter of 2020, and increased by $8.2 million or 271% to $11.2 million for the first half of 2020, as compared with the same periods in 2019. These increases were primarily driven by $131.6 million in sales of municipal bonds during the second quarter of 2020.

Other income decreased by $1.8 million or 57% to $1.3 million for the second quarter of 2020, and decreased by $583 thousand or 11% to $4.5 million for the first half of 2020, as compared with the same periods in 2019. These decreases primarily reflected losses recognized on the cash surrender value of bank-owned life insurance policies.

Noninterest Expense

The following table presents the components of noninterest expense for the second quarters and first half of 2020 and 2019:



($ in thousands)	Three Months Ended June 30,															Six Months Ended June 30,
			2020			2019			% Change			2020			2019			% Change
Compensation and employee benefits	$	96,955		$	100,531		(4)	%		$	198,915		$	202,830		(2)	%
Occupancy and equipment expense	16,217			17,362			(7)	%		33,293			34,680			(4)	%
Deposit insurance premiums and regulatory assessments	3,700			2,919			27	%		7,127			6,007			19	%
Legal expense	1,530			2,355			(35)	%		4,727			4,580			3	%
Data processing	4,480			3,460			29	%		8,306			6,617			26	%
Consulting expense	1,413			2,069			(32)	%		2,630			4,128			(36)	%
Deposit related expense	3,353			3,338			0	%		6,916			6,842			1	%
Computer software expense	7,301			6,211			18	%		13,467			12,289			10	%
Other operating expense	19,248			22,679			(15)	%		40,367			44,968			(10)	%
Amortization of tax credit and other investments	24,759			16,739			48	%		42,084			41,644			1	%
Repurchase agreements’ extinguishment cost	8,740			—			100	%		8,740			—			100	%

Total noninterest expense	$	187,696		$	177,663		6	%		$	366,572		$	364,585		1	%

Second quarter 2020 noninterest expense was $187.7 million, an increase of $10.0 million or 6%, compared with $177.7 million for the same period in 2019. This increase was primarily due to repurchase agreements’ extinguishment cost and the amortization of tax credit and other investments, partially offset by decreases in compensation and employee benefits and other operating expenses. First half 2020 noninterest expense was $366.6 million, an increase of $2.0 million or 1%, compared with $364.6 million for the first half of 2019. This increase was primarily due to repurchase agreements’ extinguishment cost and additional data processing expense, partially offset by decreases in other operating expenses and compensation and employee benefits.

Compensation and employee benefits decreased by $3.6 million or 4% to $97.0 million for the second quarter of 2020, and decreased by $3.9 million or 2% to $198.9 million for the first half of 2020, as compared with the same periods in 2019. These decreases were primarily driven by increased deferred loan costs as a result of increased loan originations and a reduction in bonus accruals, partially offset by annual merit increases and greater temporary staffing costs.

Data processing increased by $1.0 million or 29% to $4.5 million for the second quarter of 2020, and increased by $1.7 million or 26% to $8.3 million for the first half of 2020, as compared with the same periods in 2019. These increases were primarily driven by an increase in electronic data processing fees.

Other operating expense primarily consists of telecommunications and postage, loan related expenses, charitable contributions, marketing, travel, and other miscellaneous expense categories. Other operating expense decreased by $3.4 million or 15% to $19.2 million for the second quarter of 2020, and decreased by $4.6 million or 10% to $40.4 million for the first half of 2020, as compared with the same periods in the 2019. These decreases were primarily driven by decreases in travel, marketing and other miscellaneous expense categories, largely due to COVID-19.

Amortization of tax credit and other investments increased $8.0 million or 48% to $24.8 million for the second quarter of 2020, compared with the second quarter of 2019, and increased by $440 thousand or 1% to $42.1 million for the first half of 2020, as compared with the same periods in 2019. These increases were mainly attributable to a reduction in value for investments accounted for under the equity method and an increase in amortization expense from tax credit investments placed in service in 2020, partially offset by a decrease in impairment charges. In the first quarter of 2019, the Company fully wrote off the tax credit investments related to DC Solar and recorded a $7.0 million impairment charge. In the second quarter of 2019, the Company recorded $2.9 million of other-than-temporary impairment (“OTTI”) charges related to a historic tax credit investment and a Community Reinvestment Act investment. In comparison, $624 thousand and $474 thousand of impairment charges net of recoveries were recorded in the second quarter and first half of 2020, respectively.

During the second quarter of 2020, the Company prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million. No such expense was incurred in the second quarter and first half of 2019.

Income Taxes



($ in thousands)	Three Months Ended June 30,																			Six Months Ended June 30,
				2020				2019			% Change				2020				2019			% Change
Income before income taxes	$	112,273			$	223,177			(50)	%		$	276,283			$	418,268			(34)	%
Income tax expense	$	12,921			$	72,797			(82	%)		$	32,107			$	103,864			(69	%)
Effective tax rate	11.5		%		32.6		%		(65	%)		11.6		%		24.8		%		(53	%)

The income tax expense was $12.9 million and the effective tax rate was 11.5% in the second quarter of 2020, compared with an income tax expense of $72.8 million and an effective tax rate of 32.6% for the same period in 2019. The income tax expense was $32.1 million and the effective tax rate was 11.6% in the first half of 2020, compared with an income tax expense of $103.9 million and an effective tax rate of 24.8% for the same period in 2019. The higher effective tax rates of 32.6% and 24.8% during the second quarter and first half of 2019, respectively, were primarily due to $30.1 million of additional income tax expense recorded to reverse certain previously claimed tax credits related to the Company’s investment in DC Solar. Excluding this $30.1 million of additional income tax expense, non-GAAP effective tax rates for the second quarter and first half of 2019 were 19.1% and 17.6%, respectively. For more details, see reconciliations of non-GAAP measures presented under Item 2. MD&A — Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures in this Form 10-Q. The year-over-year decrease in the effective tax rate was primarily due to the decreases in pre-tax income during the second quarter and first half of 2020, as compared with the same periods of 2019, combined with a year-over-year increase in tax credits recognized from investments in renewable energy and solar tax credit projects.

Operating Segment Results

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers served and the related products and services provided. The segments reflect how financial information is currently evaluated by management. For additional description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 15 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

Net interest income before provision for credit losses of each segment represents the difference between actual interest income earned on loans and interest expense paid on customer deposits of the segment, adjusted for funding charges for loans or funding credits for deposits through the Company’s internal funds transfer pricing (“FTP”) process. During the third quarter of 2019, the Company enhanced its FTP methodology related to deposits by setting a minimum floor rate for the FTP credits for deposits in consideration of the flattened and inverted yield curve. This methodology has been retrospectively applied to the segment financial results for the second quarter and first half of 2019.

The following tables present selected segment information for the second quarter and first half of 2020 and 2019:



($ in thousands)	Three Months Ended June 30, 2020
			Consumer and Business Banking			Commercial Banking			Other			Total
Net interest income before provision for credit losses	$	124,926		$	183,796		$	35,053		$	343,775
Provision for credit losses	5,590			96,853			—			102,443
Noninterest income	13,943			33,887			10,807			58,637






















Noninterest expense	80,164			64,900			42,632			187,696
Segment income before income taxes	53,115			55,930			3,228			112,273

Segment net income	$	38,058		$	40,178		$	21,116		$	99,352
Average loans	$	12,011,203		$	25,130,570		$	—		$	37,141,773
Average deposits	$	27,004,689		$	10,642,686		$	2,253,153		$	39,900,528



($ in thousands)	Three Months Ended June 30, 2019
			Consumer and Business Banking			Commercial Banking			Other			Total
Net interest income before provision for credit losses	$	180,911		$	158,941		$	27,474		$	367,326
Provision for credit losses	1,616			17,629			—			19,245
Noninterest income	14,503			33,656			4,600			52,759






















Noninterest expense	83,656			67,303			26,704			177,663
Segment income before income taxes	110,142			107,665			5,370			223,177

Segment net income (loss)	$	78,741		$	76,885		$	(5,246)		$	150,380
Average loans	$	10,529,143		$	22,452,231		$	—		$	32,981,374
Average deposits	$	25,010,526		$	8,350,204		$	1,965,655		$	35,326,385



($ in thousands)	Six Months Ended June 30, 2020
			Consumer and Business Banking			Commercial Banking			Other			Total
Net interest income before provision for credit losses	$	277,517		$	367,297		$	61,668		$	706,482
Provision for credit losses	13,378			162,935			—			176,313
Noninterest income	30,345			66,343			15,998			112,686
Noninterest expense	167,128			135,026			64,418			366,572
Segment income before income taxes	127,356			135,679			13,248			276,283
Segment net income	$	91,253		$	97,309		$	55,614		$	244,176
Average loans	$	11,640,346		$	24,507,525		$	—		$	36,147,871
Average deposits	$	26,298,876		$	9,909,058		$	2,478,850		$	38,686,784



($ in thousands)	Six Months Ended June 30, 2019
			Consumer and Business Banking			Commercial Banking			Other			Total
Net interest income before provision for credit losses	$	365,970		$	311,649		$	52,168		$	729,787
Provision for credit losses	4,629			37,195			—			41,824
Noninterest income	28,275			58,200			8,415			94,890
Noninterest expense	171,562			137,847			55,176			364,585
Segment income before income taxes	218,054			194,807			5,407			418,268
Segment net income	$	155,887		$	139,219		$	19,298		$	314,404
Average loans	$	10,440,946		$	22,258,698		$	—		$	32,699,644
Average deposits	$	25,029,425		$	8,186,361		$	1,910,208		$	35,125,994

Consumer and Business Banking

The Consumer and Business Banking segment reported net income of $38.1 million for the second quarter of 2020, compared with $78.7 million for the same period in 2019. The decrease in segment net income of $40.6 million or 52% was primarily due to a decrease in net interest income before provision for credit losses.

Second quarter 2020 net interest income before provision for credit losses for this segment was $124.9 million, a decrease of $56.0 million or 31%, compared with $180.9 million for the same period in 2019. Interest income earned on loans decreased by 3%, driven by a decrease in average loan yields, partially offset by average loan growth; interest expense paid on deposits decreased by 52%, driven by a decline in the average cost of deposits; FTP funding charges assessed for loans decreased, reflecting a decline in the loans FTP rate, and FTP credits received for deposits also decreased, reflecting a decline in the deposits FTP rate. Combined, these factors contributed to a 31% decrease in segment net interest income before provision for credit losses, with the largest driver of the unfavorable result being lower FTP credits received for deposits.

Second quarter 2020 average loans for this segment were $12.01 billion, an increase of $1.48 billion or 14% from $10.53 billion for the same period in 2019, primarily driven by an increase in single-family residential portfolio. Second quarter 2020 average deposits for this segment were $27.00 billion, an increase of $1.99 billion or 8% from $25.01 billion for the same period in 2019, primarily driven by increases in noninterest-bearing demand and money market deposits.

The Consumer and Business Banking segment reported net income of $91.3 million for the first half of 2020, compared with $155.9 million for the same period in 2019. The decrease in segment net income of $64.6 million or 41% was primarily due to a decrease in net interest income before provision for credit losses.

First half 2020 net interest income before provision for credit losses for this segment was $277.5 million, a decrease of $88.5 million or 24%, compared with $366.0 million for the same period in 2019. Interest income earned on loans remained relatively flat; interest expense paid on deposits decreased by 36%, driven by a decline in the average cost of deposits; FTP funding charges assessed for loans decreased, reflecting a decline in the loans FTP rate, and FTP credits received for deposits also decreased, reflecting a decline in the deposits FTP rate. Combined, these factors drove a 24% decrease in segment net interest income before provision for credit losses, with the largest driver of the unfavorable result being lower FTP credits received for deposits.

First half 2020 average loans for this segment were $11.64 billion, an increase of $1.20 billion or 11% from $10.44 billion for the same period in 2019, primarily driven by an increase in single-family residential portfolio. First half 2020 average deposits for this segment were $26.30 billion, an increase of $1.27 billion or 5% from $25.03 billion for the same period in 2019, primarily driven by increases in noninterest-bearing demand and money market deposits.

Commercial Banking

The Commercial Banking segment primarily generates commercial loans and deposits. Commercial loan products include commercial business loans and lines of credit, trade finance loans and letters of credit, CRE loans, construction and land lending, affordable housing loans and letters of credit, asset-based lending, and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

The Commercial Banking segment reported segment net income of $40.2 million for the second quarter of 2020, compared with $76.9 million for the same period in 2019. The decrease in segment net income of $36.7 million or 48% reflected an increase in provision for credit losses, partially offset by an increase in net interest income before provision for credit losses. Second quarter 2020 provision for credit losses was $96.9 million, an increase of $79.3 million or 449%, compared with $17.6 million for the same period in 2019. This increase was primarily due to deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic, as well as due to loan risk rating downgrades.

Second quarter 2020 net interest income before provision for credit losses for this segment was $183.8 million, an increase of $24.9 million or 16% compared with $158.9 million for the same period in 2019. Interest income earned on loans decreased by 21%, driven by a decrease in average loan yields, which more than offset the income growth driven by the average loan growth; interest expense paid on deposits decreased by 46%, driven by a decline in the average cost of deposits; FTP funding charges assessed for loans decreased, reflecting a decline in the FTP rate on loans, and FTP credits received for deposits also decreased, reflecting a decline in the FTP rate on deposits. Combined, these factors contributed to an increase of 16% in segment net interest income before provision for credit losses, which were primarily driven by lower FTP funding charges assessed for loans.

Second quarter 2020 average loans for this segment were $25.13 billion, an increase of $2.68 billion or 12% from $22.45 billion for the same period in 2019, primarily driven by the growth in CRE and C&I loan portfolios. Second quarter 2020 average deposits were $10.64 billion, an increase of $2.29 billion or 27% from $8.35 billion for the same period in 2019, primarily driven by an increase in noninterest-bearing demand deposits.

The Commercial Banking segment reported segment net income of $97.3 million for the first half of 2020, compared with $139.2 million for the same period in 2019. The decrease in segment net income of $41.9 million or 30% reflected an increase in provision for credit losses, partially offset by increases in net interest income before provision for credit losses and noninterest income. First half 2020 provision for credit losses was $162.9 million, an increase of $125.7 million or 338%, compared with $37.2 million for the same period in 2019. This increase was primarily due to deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic, as well as due to loan risk rating downgrades.

First half 2020 net interest income before provision for credit losses for this segment was $367.3 million, an increase of $55.7 million or 18% compared with $311.6 million for the same period in 2019. Interest income earned on loans decreased by 13%, which was primarily attributable to a decrease in average loan yields, which more than offset income growth driven by average loan growth; interest expense paid on deposits decreased by 31%, driven by a decline in the average cost of deposits; FTP funding charges assessed for loans decreased, reflecting a decline in the FTP rate on loans; FTP credits received for deposits also decreased, reflecting a decline in the FTP rate on deposits. Combined, these factors drove an increase of 18% in segment net interest income before provision for credit losses, which were primarily driven by lower FTP funding charges assessed for loans. First half 2020 noninterest income was $66.3 million, an increase of $8.1 million or 14%, compared with $58.2 million for the same period in 2019. This increase was mainly attributable to an increase in the valuation of warrants received as part of lending relationships.

First half 2020 average loans for this segment were $24.51 billion, an increase of $2.25 billion or 10% from $22.26 billion for the same period in 2019, primarily driven by the growth in CRE and C&I loan portfolios. First half 2020 average deposits for this segment were $9.91 billion, an increase of $1.72 billion or 21% from $8.19 billion for the same period in 2019, primarily driven by increases in noninterest-bearing demand and time deposits.

Other

Centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Other segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments.

The Other segment reported segment income before income taxes of $3.2 million and segment net income of $21.1 million for the second quarter of 2020, reflecting an income tax benefit of $17.9 million. In comparison, the Other segment reported segment income before income taxes of $5.4 million and segment net loss of $5.2 million for the second quarter of 2019, reflecting an income tax expense of $10.6 million.

The decrease in second quarter 2020 segment income before income taxes was primarily driven by an increase in noninterest expense, partially offset by increases in net interest income before provision for credit losses and noninterest income. Noninterest expense was $42.6 million, an increase of $15.9 million or 60%, compared with $26.7 million for the same period in 2019. The increase was mainly attributable to a reduction in value for investments accounted for under the equity method and an increase in amortization expense from tax credit investments placed in service in 2020. In addition, the Company prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million during the second quarter of 2020. Second quarter 2020 net interest income before provision for credit losses was $35.1 million, an increase of $7.6 million or 28%, compared with $27.5 million for the same period in 2019. The increase mainly reflected a 67% decrease in interest expense paid on deposits, driven by a decline in average cost of deposits and an increase in FTP net spread. FTP net spread is the difference between the total internal FTP charges and credits and is recorded as part of net interest income in the Other segment. The favorable impact on net interest income before provision for credit losses was partially offset by a decrease in interest income on investment. Second quarter 2020 noninterest income was $10.8 million, an increase of $6.2 million or 135%, compared with $4.6 million for the same period in 2019, driven by an increase in gains on sales of municipal bonds during the second quarter of 2020.

The Other segment reported segment income before income taxes of $13.2 million and segment net income of $55.6 million for the first half of 2020, reflecting an income tax benefit of $42.4 million. In comparison, the Other segment reported segment income before income taxes of $5.4 million and segment net income of $19.3 million for the first half of 2019, reflecting an income tax benefit of $13.9 million.

The increase in segment income before income taxes was primarily driven by increases in net interest income before provision for credit losses and noninterest income, partially offset by an increase in noninterest expense. First half 2020 net interest income before provision for credit losses was $61.7 million, an increase of $9.5 million or 18%, compared with $52.2 million for the same period in 2019. The increase reflected a 42% decrease in interest expense paid on deposits, driven by a decline in the average cost of deposits and an increase in FTP net spread. The favorable impact on net interest income before provision for credit losses was partially offset by a decrease in interest income on investments. First half 2020 noninterest income was $16.0 million, an increase of $7.6 million or 90%, compared with $8.4 million for the same period in 2019, primarily driven by the aforementioned sales of municipal bonds during the second quarter of 2020. First half 2020 noninterest expense was $64.4 million, an increase of $9.2 million or 17%, compared with $55.2 million for the same period in 2019. The increase was primarily due to the aforementioned debt extinguishment cost of $8.7 million during the second quarter of 2020.

The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments. Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes.

Balance Sheet Analysis

The following table presents a discussion of the significant changes between June 30, 2020 and December 31, 2019:

Selected Consolidated Balance Sheet Data



($ in thousands)	June 30, 2020		December 31, 2019		Change
									$	%
	(Unaudited)
ASSETS
Cash and cash equivalents	$	4,533,502	$	3,261,149	$	1,272,353	39	%

Interest-bearing deposits with banks	531,591		196,161		335,430		171	%


Resale agreements	1,260,000		860,000		400,000		47	%
AFS debt securities, at fair value (amortized cost of $3,823,714 in 2020)	3,884,574		3,317,214		567,360		17	%
Restricted equity securities, at cost	78,963		78,580		383		0	%
Loans held-for-sale	3,875		434		3,441		793	%
Loans held-for-investment (net of allowance for loan losses of $632,071 in 2020 and $358,287 in 2019)	36,597,341		34,420,252		2,177,089		6	%
Investments in qualified affordable housing partnerships, net	201,888		207,037		(5,149)		(2)	%
Investments in tax credit and other investments, net	251,318		254,140		(2,822)		(1)	%
Premises and equipment, net	110,709		118,364		(7,655)		(6)	%
Goodwill	465,697		465,697		—		—	%
Operating lease right-of-use assets	94,898		99,973		(5,075)		(5)	%

Other assets	1,393,237		917,095		476,142		52	%
TOTAL	$	49,407,593	$	44,196,096	$	5,211,497	12	%
LIABILITIES
Noninterest-bearing	$	13,940,420	$	11,080,036	$	2,860,384	26	%
Interest-bearing	26,732,258		26,244,223		488,035		2	%
Total deposits	40,672,678		37,324,259		3,348,419		9	%

Short-term borrowings	252,851		28,669		224,182		782	%

FHLB advances	656,759		745,915		(89,156)		(12)	%
Repurchase agreements	300,000		200,000		100,000		50	%
Long-term debt and finance lease liabilities ⁽¹⁾	1,580,442		152,270		1,428,172		938	%
Operating lease liabilities	102,708		108,083		(5,375)		(5)	%
Accrued expenses and other liabilities	854,912		619,283		235,629		38	%
Total liabilities	44,420,350		39,178,479		5,241,871		13	%
STOCKHOLDERS’ EQUITY	4,987,243		5,017,617		(30,374)		(1)	%
TOTAL	$	49,407,593	$	44,196,096	$	5,211,497	12	%

(1)Includes $1.43 billion of advances from the Federal Reserve’s PPPLF.

As of June 30, 2020, total assets were $49.41 billion, an increase of $5.21 billion or 12% from December 31, 2019, primarily due to loan growth and increases in cash equivalents, AFS debt securities, resale agreements and interest-bearing deposits with banks. The loan growth came from each of the Company’s major loan portfolios, with the strongest growth from C&I, driven by PPP loan growth. CRE and single-family residential loans contributed to the growth as well. The increase in cash and cash equivalents was primarily driven by deposit growth and advances from PPPLF.

As of June 30, 2020, total liabilities were $44.42 billion, an increase of $5.24 billion or 13% from December 31, 2019, primarily due to increases in deposits and long-term debt. The increase in deposits was largely driven by increases in noninterest-bearing demand and money market accounts, partially offset by a decrease in time deposits. Deposit growth was attributable to strong growth from consumer and small business commercial customers, as well as to PPP funds held in deposit accounts, partially offset by intentional run-off of higher-cost balances. The increase in long-term debt was primarily driven by advances from PPPLF.

As of June 30, 2020, total stockholders’ equity was $4.99 billion, a decrease of $30.4 million or 1% from December 31, 2019. This decrease was primarily driven by stock repurchase transactions, cash dividends declared on common stock and a cumulative-effect adjustment to retained earnings due to the adoption of ASU 2016-13, partially offset by first half 2020 net income.

Debt Securities

The Company maintains a debt securities portfolio that consists of high quality and liquid securities with relatively short durations to minimize overall interest rate and liquidity risks. The Company’s AFS debt securities provide:

•interest income for earnings and yield enhancement;

•availability for funding needs arising during the normal course of business;

•the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and

•collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.

Available-for-Sale Debt Securities

As of June 30, 2020 and December 31, 2019, the Company’s AFS debt securities portfolio primarily consisted of mortgage-backed securities and debt securities issued by U.S. government agency and U.S. government-sponsored enterprises, collateralized loan obligations (“CLOs”), non-agency mortgage-backed securities, U.S. Treasury securities, municipal securities, and foreign bonds. Debt securities classified as AFS are carried at their fair value with the corresponding changes in fair value recorded in Accumulated other comprehensive loss, net of tax, as a component of Stockholders’ equity on the Consolidated Balance Sheet.

The following table presents the amortized cost and fair value of AFS debt securities by major categories as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019
			Amortized Cost			Fair Value			Amortized Cost			Fair Value
AFS debt securities:
U.S. Treasury securities	$	250,494		$	251,201		$	177,215		$	176,422
U.S. government agency and U.S. government-sponsored enterprise debt securities	433,923			442,644			584,275			581,245
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities	2,074,538			2,139,335			1,598,261			1,607,368
Municipal securities	208,333			215,184			101,621			102,302
Non-agency mortgage-backed securities	261,870			265,706			133,439			135,098
Corporate debt securities	31,254			30,826			11,250			11,149
Foreign bonds ⁽¹⁾	204,540			204,080			354,481			354,172
Asset-backed securities	64,762			61,619			66,106			64,752
CLOs	294,000			273,979			294,000			284,706

Total AFS debt securities	$	3,823,714		$	3,884,574		$	3,320,648		$	3,317,214

(1)There were no securities of a single non-governmental agency issuer that exceeded 10% of stockholder’s equity as of both June 30, 2020 and December 31, 2019.

The fair value of AFS debt securities totaled $3.88 billion as of June 30, 2020, compared with $3.32 billion as of December 31, 2019. The $567.4 million or 17% increase was primarily attributable to the purchases of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, municipal securities, U.S. Treasury securities, and non-agency mortgage-backed securities; partially offset by the sales, repayments, calls, and maturities of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, U.S. government agency and U.S. government-sponsored enterprise debt securities, foreign bonds, municipal securities and U.S Treasury securities.

The Company’s debt securities portfolio had an effective duration of 2.6 years as of June 30, 2020 which shortened from 3.1 years as of December 31, 2019, primarily due to a decline in interest rates. In addition, the spread between central government-guaranteed securities and private issuers widened, as relatively higher risk premiums were paid for securities issued by private entities. As of June 30, 2020 and December 31, 2019, 94% and 97%, respectively, of the carrying value of the Company’s debt securities portfolio was rated “AA-” or “Aa3” or higher by nationally recognized credit rating agencies. Credit ratings of BBB- or higher by Standard and Poor’s (“S&P”) and Fitch Ratings (“Fitch”), or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are considered investment grade.

The Company’s AFS debt securities are carried at fair value with noncredit-related unrealized gains and losses, net of tax, reported in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income. If a credit loss exists, the Company records impairment related to credit losses through allowance for credit losses with a corresponding Provision for credit losses on the Consolidated Statement of Income. Pre-tax net unrealized gains on AFS debt securities were $60.9 million as of June 30, 2020, which improved from net unrealized losses of $3.4 million as of December 31, 2019. This change was primarily due to the decrease in interest rates during the period, partially offset by increased spreads.

Gross unrealized losses on AFS debt securities totaled $29.7 million as of June 30, 2020, compared with $23.2 million as of December 31, 2019. Of the securities with gross unrealized losses, substantially all were rated investment grade as of both June 30, 2020 and December 31, 2019, as classified based upon the lowest of the credit ratings issued by S&P, Moody’s, or Fitch. The Company believes that the gross unrealized losses were due to non-credit related factors and the gross unrealized losses across all major security types were primarily attributable to widened spreads arising from the negative outlook and uncertainty as a result of the COVID-19 pandemic, and yield curve movement. 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 the credit performance deteriorates from the impact of the COVID-19 pandemic.

As of June 30, 2020, the Company had no intention to sell securities with unrealized losses and believed it is more-likely-than-not that it would not be required to sell such securities before recovery of their amortized costs. The Company assesses individual securities for credit losses for each reporting period. There were no credit losses recognized in earnings for the second quarter and first half of 2020, and no OTTI credit losses recognized in earnings for the same periods of 2019. For additional information of the Company’s accounting policies, valuation and composition, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies, Note 3 — Fair Value Measurement and Fair Value of Financial Instruments and Note 5 — Securities to the Consolidated Financial Statements in this Form 10-Q.

The following table presents the weighted-average yields and contractual maturity distribution, excluding periodic principal payments, of the Company’s debt securities as of June 30, 2020 and December 31, 2019. Actual maturities of mortgage-backed securities can differ from contractual maturities as the borrowers have the right to prepay obligations with or without prepayment penalties. In addition, factors such as prepayments and interest rates may affect the yields on the carrying values of mortgage-backed securities.



($ in thousands)	June 30, 2020															December 31, 2019
			Amortized Cost			Fair Value			Yield ⁽¹⁾			Amortized Cost			Fair Value			Yield ⁽¹⁾
AFS debt securities:
U.S. Treasury securities:
Maturing in one year or less	$	199,985		$	199,986		0.13	%		$	—		$	—		—	%
Maturing after one year through five years	50,509			51,215			1.26	%		177,215			176,422			1.33	%


Total	250,494			251,201			0.36	%		177,215			176,422			1.33	%
U.S. government agency and U.S. government- sponsored enterprise debt securities:
Maturing in one year or less	204,966			205,571			2.52	%		328,628			326,341			2.62	%
Maturing after one year through five years	157,963			162,504			2.69	%		158,490			156,431			2.69	%
Maturing after five years through ten years	27,450			28,905			2.51	%		44,908			45,189			2.38	%
Maturing after ten years	43,544			45,664			2.75	%		52,249			53,284			2.78	%
Total	433,923			442,644			2.61	%		584,275			581,245			2.63	%
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Maturing in one year or less	—			—			—	%		112			113			2.72	%
Maturing after one year through five years	22,326			23,271			2.60	%		23,144			23,289			2.29	%
Maturing after five years through ten years	139,193			146,545			2.38	%		85,970			88,261			2.72	%
Maturing after ten years	1,913,019			1,969,519			2.47	%		1,489,035			1,495,705			2.66	%
Total	2,074,538			2,139,335			2.47	%		1,598,261			1,607,368			2.66	%
Municipal securities ⁽²⁾:
Maturing in one year or less	43,330			43,586			2.72	%		37,136			37,291			2.67	%
Maturing after one year through five years	15,549			15,888			2.50	%		18,699			18,948			2.52	%
Maturing after five years through ten years	69,112			72,240			2.83	%		12,151			12,451			3.15	%
Maturing after ten years	80,342			83,470			3.26	%		33,635			33,612			2.63	%
Total	208,333			215,184			2.95	%		101,621			102,302			2.69	%
Non-agency mortgage-backed securities:
Maturing in one year or less	7,920			7,889			2.08	%		—			—			—	%
Maturing after one year through five years	—			—			—	%		7,920			7,914			3.78	%
Maturing after five years through ten years	32,064			31,988			2.99	%		—			—			—	%
Maturing after ten years	221,886			225,829			2.98	%		125,519			127,184			3.21	%
Total	261,870			265,706			2.95	%		133,439			135,098			3.24	%
Corporate debt securities:
Maturing in one year or less	1,250			1,251			4.53	%		1,250			1,262			5.20	%
Maturing after one year through five years	20,000			19,523			4.69	%		10,000			9,887			4.00	%
Maturing after five years through ten years	10,004			10,052			5.23	%		—			—			—	%
Total	31,254			30,826			4.85	%		11,250			11,149			4.13	%
Foreign bonds:
Maturing in one year or less	104,484			104,586			1.90	%		354,481			354,172			2.22	%
Maturing after one year through five years	100,056			99,494			2.11	%		—			—			—	%
Total	204,540			204,080			2.00	%		354,481			354,172			2.22	%
Asset-backed securities:
Maturing after ten years	64,762			61,619			1.03	%		66,106			64,752			2.65	%

CLOs:
Maturing after ten years	294,000			273,979			3.07	%		294,000			284,706			3.08	%
Total AFS debt securities	$	3,823,714		$	3,884,574		2.42	%		$	3,320,648		$	3,317,214		2.60	%

Total aggregated by maturities:
Maturing in one year or less	$	561,935		$	562,869		1.57	%		$	721,607		$	719,179		2.43	%
Maturing after one year through five years	366,403			371,895			2.43	%		395,468			392,891			2.11	%
Maturing after five years through ten years	277,823			289,730			2.68	%		143,029			145,901			2.65	%
Maturing after ten years	2,617,553			2,660,080			2.58	%		2,060,544			2,059,243			2.76	%
Total AFS debt securities	$	3,823,714		$	3,884,574		2.42	%		$	3,320,648		$	3,317,214		2.60	%

(1)Weighted-average yields are computed based on amortized cost balances.

(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

Loan Portfolio

The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include commercial loans, which consist of C&I, CRE, multifamily residential, and construction and land loans; and consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Total net loans, including loans held-for-sale, were $36.60 billion as of June 30, 2020, an increase of $2.18 billion or 6% from $34.42 billion as of December 31, 2019. This was primarily driven by increases of $1.27 billion or 10% in C&I loans driven by PPP loan growth, $623.7 million or 6% in CRE loans and $554.9 million or 8% in single-family residential loans. The composition of the loan portfolio as of June 30, 2020 was similar to the composition as of December 31, 2019.

The following table presents the composition of the Company’s total loan portfolio by loan type as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019
			Amount ⁽¹⁾			%			Amount ⁽¹⁾			%
Commercial:
C&I⁽²⁾	$	13,422,691		36	%		$	12,150,931		35	%
CRE:
CRE	10,902,114			29	%		10,278,448			30	%
Multifamily residential	3,032,385			8	%		2,856,374			8	%
Construction and land	567,716			2	%		628,499			2	%
Total CRE	14,502,215			39	%		13,763,321			40	%
Total commercial	27,924,906			75	%		25,914,252			75	%
Consumer:
Residential mortgage:
Single-family residential	7,660,094			21	%		7,108,590			20	%
HELOCs	1,461,951			4	%		1,472,783			4	%
Total residential mortgage	9,122,045			25	%		8,581,373			24	%
Other consumer	182,461			0	%		282,914			1	%
Total consumer	9,304,506			25	%		8,864,287			25	%
Total loans held-for-investment	37,229,412			100	%		34,778,539			100	%
Allowance for loan losses	(632,071)						(358,287)
Loans held-for-sale ⁽³⁾	3,875						434
Total loans, net	$	36,601,216					$	34,420,686

(1)On January 1, 2020, the Company adopted ASU 2016-13. Total loans include net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(72.1) million and $(43.2) million as of June 30, 2020 and December 31, 2019, respectively. Net origination fees related to PPP loans were $(25.4) million as of June 30, 2020.

(2)Includes $1.75 billion of PPP loans as of June 30, 2020.

(3)Consists of single-family residential loans as of both June 30, 2020 and December 31, 2019.

Actions to Support Customers during the COVID-19

In response to the COVID-19 pandemic, the Company provided assistance to customers faced with financial difficulties by offering SBA PPP loans and also provided customers with payment relief through various loan modification programs. For a summary of the loans that the Company has modified in response to COVID-19, please refer to Item 2. MD&A — Risk Management — Credit Risk Management in this Form 10-Q.

In April 2020, the Company started accepting PPP applications and began to originate loans to qualified small businesses under the PPP established by the CARES Act. These loans are included in the C&I portfolio, carrying an interest rate of 1%, and are 100% guaranteed by the SBA. No allowance for loan losses were recorded for these loans as of June 30, 2020. The Company has funded over 7,200 PPP loans for customers with an outstanding loan balance totaling $1.75 billion as of June 30, 2020. The majority of the Company’s PPP loans have a term of two years. The SBA pays the Company fees for processing PPP loans in the following amounts: (1) five percent for loans of not more than $350,000; (2) three percent for loans of more than $350,000 and less than $2,000,000; and (3) one percent for loans of at least $2,000,000. Loan processing fees paid to the Company by the SBA are accounted for as loan origination fees, where net deferred fees are recognized over the estimated life of the loan as a yield adjustment on the loans. Payments by borrowers on PPP loans begin ten months after the loan forgiveness covered period. Under the terms of the PPP, such loans are eligible to be forgiven if certain conditions are satisfied, in which case the SBA will make payments to the Company for the forgiven amounts. If a loan is paid off or forgiven by the SBA prior to its projected estimated life, the remaining unamortized deferred fees will be recognized as interest income in that period. The PPP was originally set to expire on June 30, 2020. On July 4, 2020, the President signed legislation extending the PPP to August 8, 2020. The Company will continue to originate loans to qualified small businesses through the latest extension date.

Commercial

The commercial loan portfolio comprised 75% of total loans as of both June 30, 2020 and December 31, 2019. Given the widespread impact of the COVID-19 pandemic on the U.S. and the global economy, a number of industries have been or will be adversely impacted. The Company continues to actively evaluate and monitor all industries and its entire commercial portfolio for elevated levels of credit risk. During the second quarter of 2020, we undertook a review of our loan portfolio to evaluate credit exposures for sensitivity to prospective weakening of economic conditions and reviewed certain C&I and CRE loans, with a particular focus on sectors that we believe are of higher risk during the COVID-19 pandemic.

Commercial — Commercial and Industrial Loans. C&I loans totaled $13.42 billion and $12.15 billion, which accounted for 36% and 35% of total loans held-for-investment, as of June 30, 2020 and December 31, 2019, respectively. The $1.27 billion or 10% increase in C&I loans was primarily due to the funding of PPP loans during the second quarter of 2020. The majority of the C&I loans are variable interest rate loans. The C&I loan portfolio includes loans and financing for businesses in a wide spectrum of industries, and includes asset-based lending, equipment financing and leasing, project-based finance, revolving lines of credit, SBA lending, structured finance, term loans and trade finance. The Company also had a portfolio of broadly syndicated C&I loans, comprised primarily of Term B loans, which totaled $960.8 million and $894.6 million as of June 30, 2020 and December 31, 2019, respectively.

The C&I portfolio is well-diversified by industry. The Company monitors the concentrations within the C&I loan portfolio by customer exposure and industry classification, setting diversification targets and limits for specialized underwriting portfolios. Exposures to various industries within our C&I portfolio are shown in the following charts as of June 30, 2020 and December 31, 2019. Given the uncertainty and rapidly evolving socioeconomic impacts of the COVID-19 pandemic, the Company is actively monitoring its loan portfolio, assessing the financial conditions of borrowers and guarantors, and the valuation of collateral.

Oil & gas loans comprised 10% of C&I loans and 3% of total loans held-for-investment as of June 30, 2020. There were $1.27 billion in oil & gas loans outstanding and $346.9 million in unfunded commitments as of June 30, 2020. Based on total commitment as of June 30, 2020, the oil & gas portfolio consisted of 62% exploration & production (“E&P”) companies, 32% midstream and downstream companies, and 6% oilfield services and other companies. Oil & gas loans comprised 11% of C&I loans and 4% of total loans held-for-investment as of December 31, 2019. There were $1.33 billion in oil & gas loans outstanding and $477.6 million in unfunded commitments as of December 31, 2019. Based on total commitment as of December 31, 2019, the oil & gas portfolio consisted of 64% E&P companies, 29% midstream and downstream companies, and 7% oilfield services and other companies. The COVID-19 pandemic, as well as the high volatility and downward pressure on oil & gas prices, have unfavorably impacted the credit risk of the oil & gas industry sector. Accordingly, the Company increased its allowance for loan loss coverage against the oil & gas portfolio to 9% as of June 30, 2020, up from 5% as of December 31, 2019.

Commercial — Commercial Real Estate Portfolio. The total CRE loan portfolio, which consists of income-producing CRE, multifamily residential, and construction and land loans, totaled $14.50 billion and $13.76 billion, which accounted for 39% and 40% of total loans held-for-investment as of June 30, 2020 and December 31, 2019, respectively.

The Company’s total CRE portfolio is broadly diversified by property type, which serves to mitigate some of the geographical concentration in California. The following table summarizes the Company’s total CRE loan portfolio by property type as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019
			Amount			%			Amount			%
Property types:
Retail	$	3,435,612		24	%		$	3,300,106		24	%
Multifamily	3,032,385			21	%		2,856,374			21	%
Offices	2,573,520			18	%		2,375,087			17	%
Industrial	2,345,757			16	%		2,163,769			16	%
Hospitality	1,946,437			13	%		1,865,031			14	%
Construction and land	567,716			4	%		628,499			4	%
Other	600,788			4	%		574,455			4	%
Total CRE loans	$	14,502,215		100	%		$	13,763,321		100	%

Approximately 90% of our total CRE loans had a loan-to-value (“LTV”) ratio of 65% or lower as of June 30, 2020, compared to 85% as of December 31, 2019. The weighted-average LTV ratios of total CRE loans were 52% and 50% as of June 30, 2020 and December 31, 2019, respectively. The low LTV ratio was consistent across the various CRE property types. The average loan size of total CRE loans was $2.3 million and $2.1 million as of June 30, 2020 and December 31, 2019, respectively. The consistency of the Company’s low LTV underwriting standards has resulted in historically lower levels of credit losses in the income-producing CRE and multifamily residential loans.

The following tables provide a summary of the Company’s CRE, multifamily residential, and construction and land loans by geography as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020
			CRE			%			Multifamily Residential			%			Construction and Land			%			Total CRE			%
Geographic markets:
Southern California	$	5,798,259					$	1,821,098					$	265,759					$	7,885,116
Northern California	2,517,384						664,186						168,257						3,349,827
California	8,315,643			77	%		2,485,284			82	%		434,016			77	%		11,234,943			77	%
New York	690,064			6	%		125,408			4	%		85,183			15	%		900,655			6	%
Texas	696,290			6	%		137,376			4	%		6,831			1	%		840,497			6	%
Washington	330,964			3	%		84,842			3	%		14,931			3	%		430,737			3	%
Arizona	147,789			1	%		12,156			0	%		—			—	%		159,945			1	%
Nevada	92,773			1	%		138,632			5	%		7,917			1	%		239,322			2	%
Other markets	628,591			6	%		48,687			2	%		18,838			3	%		696,116			5	%
Total loans	$	10,902,114		100	%		$	3,032,385		100	%		$	567,716		100	%		$	14,502,215		100	%



($ in thousands)	December 31, 2019
			CRE			%			Multifamily Residential			%			Construction and Land			%			Total CRE			%
Geographic markets:
Southern California	$	5,446,786					$	1,728,086					$	247,170					$	7,422,042
Northern California	2,359,808						603,135						203,706						3,166,649
California	7,806,594			76	%		2,331,221			82	%		450,876			72	%		10,588,691			77	%
New York	701,902			7	%		116,923			4	%		79,962			13	%		898,787			7	%
Texas	628,576			6	%		124,646			4	%		8,604			1	%		761,826			6	%
Washington	306,247			3	%		55,913			2	%		37,552			6	%		399,712			3	%
Arizona	149,151			1	%		37,208			1	%		6,951			1	%		193,310			1	%
Nevada	102,891			1	%		138,577			5	%		40			0	%		241,508			2	%
Other markets	583,087			6	%		51,886			2	%		44,514			7	%		679,487			4	%
Total loans ⁽¹⁾	$	10,278,448		100	%		$	2,856,374		100	%		$	628,499		100	%		$	13,763,321		100	%

(1)Loans net of ASC 310-30 discount.

As the majority of these loans are concentrated in the California geographic market, changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses.

Commercial — Income-Producing Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV. Income-producing CRE loans totaled $10.90 billion and $10.28 billion, which accounted for 29% and 30% of total loans held-for-investment as of June 30, 2020 and December 31, 2019, respectively.

20% of the income-producing CRE loans were owner occupied properties as of June 30, 2020 and December 31, 2019. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is primarily provided by unaffiliated rental income from a third party. Interest rates on CRE loans may be fixed, variable or hybrid. The distribution of the CRE loan portfolio reflects the Company’s geographical footprint, with a primary concentration in California, which accounted for 77% and 76% of the CRE loan portfolio as of June 30, 2020 and December 31, 2019, respectively.

Commercial — Multifamily Residential Loans. The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period of three to seven years. Multifamily residential loans totaled $3.03 billion and $2.86 billion as of June 30, 2020 and December 31, 2019, respectively, and accounted for 8% of total loans held-for-investment as of both dates. As of June 30, 2020 and December 31, 2019, 82% of the Company’s multifamily residential loans were concentrated in California.

Commercial — Construction and Land Loans. Construction and land loans provide financing for multifamily residential, hotels, offices and industrial structures. These loans totaled $567.7 million and $628.5 million as of June 30, 2020 and December 31, 2019, respectively, and accounted for 2% of total loans held-for-investment as of both periods. Included in the portfolio were construction loans of $516.8 million and $558.2 million, with additional unfunded commitments of $365.4 million and $351.4 million, as of June 30, 2020 and December 31, 2019, respectively. Similar to CRE and multifamily residential loans, the Company has a geographic concentration of construction and land loans in California.

Consumer

The following tables summarize the Company’s single-family residential and HELOCs loan portfolios by geography as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020
			Single- Family Residential			%			HELOCs			%			Total Residential Mortgage			%
Geographic markets:
Southern California	$	3,264,997					$	686,880					$	3,951,877
Northern California	1,081,863						320,074						1,401,937
California	4,346,860			57	%		1,006,954			69	%		5,353,814			59	%
New York	1,966,455			26	%		235,546			16	%		2,202,001			24	%
Washington	622,626			8	%		144,985			10	%		767,611			8	%
Massachusetts	242,388			3	%		34,591			2	%		276,979			3	%
Texas	190,795			2	%		—			—	%		190,795			2	%

Other markets	290,970			4	%		39,875			3	%		330,845			4	%
Total	$	7,660,094		100	%		$	1,461,951		100	%		$	9,122,045		100	%
Lien priority:
First mortgage	$	7,660,093		100	%		$	1,226,845		84	%		$	8,886,938		97	%
Junior lien mortgage	1			0	%		235,106			16	%		235,107			3	%
Total	$	7,660,094		100	%		$	1,461,951		100	%		$	9,122,045		100	%



($ in thousands)	December 31, 2019
			Single- Family Residential			%			HELOCs			%			Total Residential Mortgage			%
Geographic markets:
Southern California	$	3,081,368					$	702,915					$	3,784,283
Northern California	1,038,945						309,883						1,348,828
California	4,120,313			58	%		1,012,798			69	%		5,133,111			60	%
New York	1,657,732			23	%		257,344			17	%		1,915,076			22	%
Washington	630,307			9	%		133,625			9	%		763,932			9	%
Massachusetts	235,393			3	%		31,310			2	%		266,703			3	%
Texas	188,838			3	%		—			—	%		188,838			2	%

Other markets	276,007			4	%		37,706			3	%		313,713			4	%
Total ⁽¹⁾	$	7,108,590		100	%		$	1,472,783		100	%		$	8,581,373		100	%
Lien priority:
First mortgage	$	7,108,588		100	%		$	1,238,186		84	%		$	8,346,774		97	%
Junior lien mortgage	2			0	%		234,597			16	%		234,599			3	%
Total ⁽¹⁾	$	7,108,590		100	%		$	1,472,783		100	%		$	8,581,373		100	%

(1)Loans net of ASC 310-30 discount.

Consumer — Single-Family Residential Loans. The Company offers a variety of single-family residential first lien mortgage loan programs, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period. Single-family residential loans totaled $7.66 billion and $7.11 billion, which accounted for 21% and 20% of total loans held-for-investment as of June 30, 2020 and December 31, 2019, respectively. The Company was in a first lien position for virtually all single-family residential loans as of both June 30, 2020 and December 31, 2019. Many of these loans were reduced documentation loans where a substantial down payment was required, resulting in a low LTV ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and loss rates. As of June 30, 2020 and December 31, 2019, 57% and 58% of the Company’s single-family residential loans, respectively, were concentrated in California.

Consumer — Home Equity Lines of Credit. HELOCs totaled $1.46 billion and $1.47 billion as of June 30, 2020 and December 31, 2019, respectively, and accounted for 4% of total loans held-for-investment as of both periods. The Company was in a first lien position for 84% of total HELOCs as of June 30, 2020 and December 31, 2019. Many of the loans within this portfolio were reduced documentation loans, where a substantial down payment was required, resulting in a low LTV ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and loss rates. As of June 30, 2020 and December 31, 2019, 69% of the Company’s HELOCs were concentrated in California. The HELOC portfolio is comprised largely of variable-rate loans.

All commercial and consumer loans originated are subject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of quality control procedures and periodic audits, including the review of lending and legal requirements, to ensure that the Company is in compliance with these requirements.

Purchased Credit Deteriorated Loans

The Company adopted ASU 2016-13 using the prospective transition approach for purchased financial assets with credit deterioration that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. On January 1, 2020, the amortized cost basis of the purchased credit deteriorated (“PCD”) loans was adjusted to reflect the $1.2 million addition of allowance for loan losses. The Company did not acquire any PCD loans during the first and second quarter of 2020. For additional details regarding PCD loans, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies and Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q. Prior to the adoption of ASU 2016-13, the carrying value of PCI loans totaled $222.9 million as of December 31, 2019.

Loans Held-for-Sale

As of June 30, 2020 and December 31, 2019, loans held-for-sale totaled $3.9 million and $434 thousand, respectively, and consisted of single-family residential loans. At the time of commitment to originate or purchase a loan, a loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s evaluation processes, including liquidity and credit risk management. If the Company subsequently changes its intent to hold certain loans, those loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value.

Loan Purchases, Transfers and Sales

All loans originated by the Company are underwritten pursuant to the Company’s policies and procedures. Although the Company’s primary focus is on directly originated loans, in certain circumstances, the Company also purchases loans and participates in loans with other banks. The Company also participates out interests in commercial loans to other financial institutions and sells loans in the normal course of business.

The following tables provide information on loan sales during the second quarter and first half of 2020 and 2019. Refer to Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q for additional information of loan purchases and transfers.



($ in thousands)	Three Months Ended June 30, 2020
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential



Loans sold:
Originated loans:
Amount	$	33,060		$	—		$	—	$	—	$	13,708			$	46,768
Net gains	$	—		$	—		$	—	$	—	$	132			$	132



($ in thousands)	Three Months Ended June 30, 2019
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential



Loans sold:
Originated loans:
Amount	$	52,972		$	—		$	—	$	1,573	$	1,172			$	55,717
Net gains	$	—		$	—		$	—	$	—	$	15			$	15

Purchased loans:
Amount	$	23,059		$	—		$	—	$	—	$	—			$	23,059



($ in thousands)	Six Months Ended June 30, 2020
			Commercial													Consumer	Total
			C&I			CRE							Residential Mortgage
							CRE		Multifamily Residential	Construction and Land		Single-Family Residential



Loans sold:
Originated loans:
Amount	$	136,033		$	7,250		$	—	—	$	18,350			$	161,633
Net gains	$	235		$	665		$	—	—	$	182			$	1,082



($ in thousands)	Six Months Ended June 30, 2019
			Commercial														Consumer	Total
			C&I			CRE								Residential Mortgage
							CRE		Multifamily Residential		Construction and Land		Single-Family Residential



Loans sold:
Originated loans:
Amount	$	110,381		$	16,655		$	—	$	1,573	$	3,614			$	132,223
Net gains	$	131		$	753		$	—	$	—	$	46			$	930

Purchased loans ⁽¹⁾:
Amount	$	41,296		$	—		$	—	$	—	$	—			$	41,296

(1)Net gains on sales of purchased loans in the first half of 2019 were insignificant.

Foreign Outstandings

The Company’s overseas offices, which include the branch in Hong Kong and the subsidiary bank in China, are subject to the general risks inherent in conducting business in foreign countries, such as regulations, or economic and political uncertainties. In addition, the Company’s financial assets held in the Hong Kong branch and the subsidiary bank in China may be affected by fluctuations in currency exchange rates or other factors. The Company’s country risk exposure is largely concentrated in China and Hong Kong. The following table presents the major financial assets held in the Company’s overseas offices as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019
			Amount			% of Total Consolidated Assets			Amount			% of Total Consolidated Assets
Hong Kong branch:
Cash and cash equivalents	$	445,595		1	%		$	511,639		1	%

AFS debt securities ⁽¹⁾	$	298,041		1	%		$	204,948		0	%
Loans held-for-investment ⁽²⁾	$	637,129		1	%		$	573,305		1	%
Total assets	$	1,456,836		3	%		$	1,361,652		3	%
Subsidiary bank in China:
Cash and cash equivalents	$	661,325		1	%		$	548,930		1	%
Interest-bearing deposits with banks	$	197,520		0	%		$	142,587		0	%

Loans held-for-investment ⁽²⁾	$	621,378		1	%		$	819,110		2	%
Total assets	$	1,579,361		3	%		$	1,520,627		3	%

(1)Comprised of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, foreign bonds, and U.S. Treasury securities as of June 30, 2020; comprised of foreign bonds and U.S. Treasury securities as of December 31, 2019.

(2)Primarily comprised of C&I loans as of both June 30, 2020 and December 31, 2019.

The following table presents the total revenue generated by the Company’s overseas offices for the second quarters and first half of 2020 and 2019:



($ in thousands)	Three Months Ended June 30,																					Six Months Ended June 30,
			2020									2019									2020				2019
			Amount			% of Total Consolidated Revenue			Amount			% of Total Consolidated Revenue			Amount			% of Total Consolidated Revenue			Amount			% of Total Consolidated Revenue
Hong Kong branch:
Total revenue	$	7,261		2	%		$	8,851		2	%		$	14,190		2	%		$	17,748		2	%
Subsidiary bank in China:
Total revenue	$	5,606		1	%		$	9,107		2	%		$	12,785		2	%		$	16,191		2	%

Capital

The Company maintains a strong capital base to support its anticipated asset growth, operating needs and credit risks, and to ensure that the Company and the Bank are in compliance with all regulatory capital guidelines. The Company engages in regular capital planning processes on at least an annual basis to optimize the use of available capital and to appropriately plan for future capital needs, allocating capital to existing and future business activities. Furthermore, the Company conducts capital stress tests as part of its capital planning process. The stress tests enable the Company to assess the impact of adverse changes in the economy and interest rates on its capital base.

In March 2020, the Company authorized the repurchase of up to $500.0 million of the Company’s common stock. This $500.0 million repurchase authorization is inclusive of the Company’s $100.0 million stock repurchase authorization previously outstanding. The Company determines the timing and amount of repurchases, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. The Company repurchased 4,471,682 shares at a total cost of $146.0 million during the first quarter of 2020. The Company did not repurchase shares during the second quarter of 2020. The Company's total remaining available share repurchase authorization as of June 30, 2020 was $354.0 million.

The Company’s stockholders’ equity was $4.99 billion as of June 30, 2020, a $30.4 million or 1% decrease from $5.02 billion as of December 31, 2019. The decrease in the Company’s stockholders’ equity was primarily due to share repurchase activity of $146.0 million during the first quarter of 2020; a decrease in opening retained earnings of $98.0 million as a result of the adoption of ASU 2016-13, and cash dividends declared of $79.9 million during the first half of 2020, partially offset by first half of 2020 net income of $244.2 million. For other factors that contributed to the changes in stockholders’ equity, refer to Item 1. Consolidated Financial Statements — Consolidated Statement of Changes in Stockholders’ Equity in this Form 10-Q.

Book value was $35.25 per common share as of June 30, 2020, compared with $34.46 per common share as of December 31, 2019. The Company paid a quarterly cash dividend of $0.275 for both first and second quarter of 2020, and $0.23 and $0.275 per common share for the first and second quarter of 2019, respectively. In July 2020, the Company’s Board of Directors declared third quarter 2020 cash dividends of $0.275 per common share. The dividend is payable on August 17, 2020 to stockholders of record as of August 4, 2020.

Deposits and Other Sources of Funds

Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short and long-term borrowings, and long-term debt. See Item 2 — MD&A — Risk Management — Liquidity Risk Management in this Form 10-Q for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funds as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019									Change
			Amount			%			Amount			%			$			%
Deposits

Noninterest-bearing demand	$	13,940,420		34	%		$	11,080,036		30	%		$	2,860,384		26	%
Interest-bearing checking	5,280,887			13	%		5,200,755			14	%		80,132			2	%
Money market	10,002,624			25	%		8,711,964			23	%		1,290,660			15	%
Savings	2,186,199			5	%		2,117,196			6	%		69,003			3	%




Time deposits	9,262,548			23	%		10,214,308			27	%		(951,760)			(9)	%
Total deposits	$	40,672,678		100	%		$	37,324,259		100	%		$	3,348,419		9	%
Other Funds
Short-term borrowings ⁽¹⁾	$	252,851					$	28,669					$	224,182		782	%

FHLB advances	656,759						745,915						(89,156)			(12)	%
Repurchase agreements	300,000						200,000						100,000			50	%
Long-term debt ⁽²⁾	1,575,653						147,101						1,428,552			971	%
Total other funds	$	2,785,263					$	1,121,685					$	1,663,578		148	%
Total sources of funds	$	43,457,941					$	38,445,944					$	5,011,997		13	%

(1)Includes $200.0 million of FRB discount window borrowing.

(2)Includes $1.43 billion of advances from the Federal Reserve’s PPPLF.

Deposits

The Company offers a wide variety of deposit products to both consumer and commercial customers. The Company’s deposit strategy is to grow and retain relationship-based deposits, which provides a stable and low-cost source of funding and liquidity to the Company.

Total deposits were $40.67 billion as of June 30, 2020, an increase of $3.35 billion or 9% from $37.32 billion as of December 31, 2019. This growth was primarily due to a $2.86 billion or 26% increase in noninterest-bearing demand and a $1.29 billion or 15% increase in money market, partially offset by a $951.8 million or 9% decrease in time deposits. The increase in noninterest-bearing demand deposits was attributable to strong growth from consumer and small business commercial demand accounts, as well as PPP funds held in deposit accounts. Noninterest-bearing demand deposits comprised 34% and 30% of total deposits as of June 30, 2020 and December 31, 2019, respectively. Additional information regarding the impact of deposits on net interest income and a comparison of average deposit balances and rates are provided in Item 2. MD&A — Results of Operations — Net Interest Income in this Form 10-Q.

Other Sources of Funding

Short-term borrowings were comprised of FRB discount window borrowing and short-term borrowings entered into by the Company’s subsidiary, East West Bank (China) Limited. The Company had $252.9 million of short-term borrowings outstanding as of June 30, 2020, compared with $28.7 million as of December 31, 2019. During the second quarter of 2020, the Company borrowed $200.0 million from the FRB discount window with a term of 90 days at a rate of 0.25%. Short-term borrowings entered by East West Bank (China) Limited was $52.9 million and $28.7 million as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, short-term borrowings entered by East West Bank (China) Limited had fixed interest rates ranging from 3.68% to 3.73%, and will mature between the third quarter of 2020 and the first quarter of 2021.

FHLB advances were $656.8 million as of June 30, 2020, a decrease of $89.2 million or 12% from $745.9 million as of December 31, 2019. As of June 30, 2020, FHLB advances had fixed and floating interest rates ranging from zero to 2.34% with remaining maturities between 0.3 years and 2.4 years.

Gross repurchase agreements totaled $300.0 million and $450.0 million as of June 30, 2020 and December 31, 2019, respectively. The decrease was primarily due to the extinguishment of $150.0 million in the second quarter of 2020. Resale and repurchase agreements are reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of June 30, 2020, the Company did not have gross resale agreements that were eligible for netting pursuant to ASC 210-20-45-11. In comparison, net repurchase agreements totaled $200.0 million as of December 31, 2019, after netting $250.0 million of gross repurchase agreements against gross resale agreements. As of June 30, 2020, gross repurchase agreements had interest rates ranging from 2.55% to 3.26%, original terms between 4.0 years and 8.5 years and remaining maturities between 3.1 years and 3.2 years.

Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the securities are sold. As of June 30, 2020, the collateral for the repurchase agreements was comprised of U.S. Treasury securities and U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities. To ensure the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funds from a diverse group of counterparties and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q.

The Company uses long-term debt to provide funding to acquire interest-earning assets, as well as to enhance liquidity and regulatory capital. Long-term debt totaled $1.58 billion and $147.1 million as of June 30, 2020 and December 31, 2019, respectively. Long-term debt is comprised of PPPLF and junior subordinated debt. During the second quarter of 2020, the Company participated in the PPPLF and added $1.43 billion to long-term debt funding at a rate of 0.35%. Junior subordinated debt qualifies as Tier 2 capital for regulatory purposes. The junior subordinated debt was issued in connection with the Company’s various pooled trust preferred securities offerings and includes the value of the common stock issued by six wholly-owned subsidiaries of the Company in conjunction with these offerings. The junior subordinated debt had a weighted-average interest rate of 2.67% and 4.21% for the first half of 2020 and 2019, respectively, with remaining maturities ranging between 15.2 years and 17.2 years as of June 30, 2020.

Regulatory Capital and Ratios

The federal banking agencies have risk-based capital adequacy guidelines intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with a banking organization’s operations. See Item 1. Business — Supervision and Regulation — Capital Requirements of the Company’s 2019 Form 10-K for additional details.

The Company adopted ASU 2016-13 on January 1, 2020. The Company has elected the phase-in option provided by regulatory guidance, which delays the estimated impact of CECL on regulatory capital for two years and phases the impact over three years beginning in 2022. In April 2020, in recognition of CARES Act requirements, and to facilitate the use of the PPPLF, the U.S banking agencies issued an interim final rule that banking organizations may exclude from leverage and risk-based capital requirements any eligible assets sold or pledged to the Federal Reserve on a non-recourse basis as part of these programs. The interim final rule states that PPP covered loans originated by a banking organization under PPP will be risk-weighted at zero percent for regulatory capital purposes. As a result, the June 30, 2020 capital ratios exclude the impact of the increased allowance for loan losses and risk weighted PPP loans at zero percent.

The following table presents the Company’s and the Bank’s capital ratios as of June 30, 2020 and December 31, 2019 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:



	Basel III Capital Rules
			June 30, 2020									December 31, 2019							Minimum Regulatory Requirements	Fully Phased-in Minimum Regulatory Requirements ⁽²⁾	Well- Capitalized Requirements
			Company			East West Bank			Company			East West Bank
Risk-Based Capital Ratios:
CET1 capital	12.7	%		11.9	%		12.9	%		12.9	%		4.5	%	7.0	%	6.5	%
Tier 1 capital	12.7	%		11.9	%		12.9	%		12.9	%		6.0	%	8.5	%	8.0	%
Total capital	14.4	%		13.1	%		14.4	%		13.9	%		8.0	%	10.5	%	10.0	%
Tier 1 leverage ⁽¹⁾	9.7	%		9.1	%		10.3	%		10.3	%		4.0	%	4.0	%	5.0	%

(1)The Tier 1 leverage well-capitalized requirement applies to the Bank only because there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank-holding company.

(2)As of January 1, 2019, the 2.5% capital conservation buffer above the minimum capital ratios was required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonus payments to executive officers.

The Company is committed to maintaining strong capital levels to assure the Company’s investors, customers and regulators that the Company and the Bank are financially sound. As of June 30, 2020 and December 31, 2019, both the Company and the Bank continued to exceed all “well-capitalized” capital requirements and the fully phased-in required minimum capital requirements under the Basel III Capital Rules. Total risk-weighted assets were $36.20 billion as of June 30, 2020, an increase of $1.06 billion or 3% from $35.14 billion as of December 31, 2019. The increase in the risk-weighted assets was primarily due to loan growth.

Other Matters

LIBOR Transition

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The Company’s commercial and consumer businesses issue, trade, and hold various products that are currently indexed to LIBOR. A portion of the Company’s loans, derivatives, debt securities, resale agreements, FHLB advances, as well as junior subordinated debt and repurchase agreements are indexed to LIBOR and mature after 2021. The volume of the Company’s products that are indexed to LIBOR is significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks.

The Alternative Reference Rates Committee (“ARRC”) has proposed the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. In 2019, the ARRC released recommended fallback contract language for new issuances of LIBOR indexed bilateral business loans, syndicated loans, floating-rate notes, securitizations and residential adjustable rate mortgages. During 2020, the ARRC has continued to provide guidance on fallback language, SOFR adoption and spread adjustment methodology. The International Swaps and Derivatives Association, Inc. is in the process of developing detailed guidance on fallback contract language and amendments to the 2006 International Swaps and Derivatives Association Definitions and related protocols.

The Company has been closely monitoring the impact of COVID-19 and any potential delay in the cessation of LIBOR. Although the Financial Conduct Authority continues to assess the evolving impact of COVID-19 on firms’ LIBOR transition efforts, the target LIBOR cessation date currently remains unchanged.

Due to the uncertainty surrounding the future of LIBOR, the transition is anticipated to span several reporting periods through the end of 2021. Certain actions already taken by the Company related to the transition of LIBOR include (1) establishing a cross-functional team to identify, assess and monitor risks associated with the transition of LIBOR and other benchmark rates, (2) completing an inventory of LIBOR indexed products, (3) implementing more robust fallback contract language for new loans, which identifies LIBOR cessation trigger events, provides for an alternative index and permits an adjustment to the margin as applicable, and (4) creating an entity-wide transition project plan, to ensure an effective transition away from LIBOR. The Company continues to monitor this activity and evaluate the related risks. The Company’s cross-functional team also manages communication of the Company’s transition plans with both internal and external stakeholders and ensures that the Company appropriately updates its business processes, analytical tools, information systems and contract language to minimize disruption during and after the LIBOR transition. For additional information related to the potential impact surrounding the transition from LIBOR on the Company’s business, see Item 1A. Risk Factors in the Company’s 2019 Form 10-K.

Off-Balance Sheet Arrangements

In the course of the Company’s business, the Company may enter into or be a party to transactions that are not recorded on the Consolidated Balance Sheet and are considered to be off-balance sheet arrangements. Off-balance sheet arrangements are any contractual arrangements to which a nonconsolidated entity is a party and under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by the Company in a nonconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or research and development services with the Company.

Commitments to Extend Credit

As a financial service provider, the Company routinely enters into commitments to extend credit such as loan commitments, commercial letters of credit for foreign and domestic trade, standby letters of credit (“SBLCs”) and financial guarantees to meet the financing needs of our customers. Many of these commitments to extend credit may expire without being drawn upon. The credit policies used in underwriting loans to customers are also used to extend these commitments. Under some of these contractual agreements, the Company may also have liabilities contingent upon the occurrence of certain events. The Company’s liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of its lending activities. Information about the Company’s loan commitments, commercial letters of credit and SBLCs is provided in Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q.

Guarantees

In the ordinary course of business, the Company enters into various guarantee agreements in which the Company sells or securitizes loans with recourse. Under these guarantee arrangements, the Company is contingently obligated to repurchase the recourse component of the loans when the loans default. Additional information regarding guarantees is provided in Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q.

A discussion of significant contractual arrangements under which the Company may be held contingently liable is included in Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q. In addition, the Company has commitments and obligations under post-retirement benefit plans as described in Note 17 — Employee Benefit Plans to the Consolidated Financial Statements of the Company’s 2019 Form 10-K, and has contractual obligations for future payments on debts, borrowings and lease obligations as detailed in Item 7. MD&A — Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2019 Form 10-K.

Risk Management

Overview

In the course of conducting its businesses, the Company is exposed to a variety of risks, some of which are inherent to the financial services industry and others of which are more specific to the Company’s businesses. The Company operates under a Board-approved enterprise risk management (“ERM”) framework, which outlines its company-wide approach to risk management and oversight and describes the structures and practices employed to manage the current and emerging risks inherent to the Company. The Company’s ERM program incorporates risk management throughout the organization in identifying, managing, monitoring, and reporting risks. It identifies the Company’s major risk categories as capital risk, strategic risk, credit risk, liquidity risk, market risk, operational risk, reputational risk, and legal and compliance risk.

The Board of Directors monitors the ERM program to ensure independent review and oversight of the Company’s risk appetite and control environment. The Risk Oversight Committee provides focused oversight of the Company’s identified enterprise risk categories on behalf of the full Board of Directors. Under the direction of the Risk Oversight Committee, management committees apply targeted strategies to reduce the risks to which the Company’s operations are exposed.

The Company’s ERM program is executed along the three lines of defense model, which provides for a consistent and standardized risk management control environment across the enterprise. The first line of defense is comprised of production, operational, and support units. The second line of defense is comprised of various risk management and control functions charged with monitoring and managing specific major risk categories and/or risk subcategories. The third line of defense is comprised of the Internal Audit function and Independent Asset Review. Internal Audit provides assurance and evaluates the effectiveness of risk management, control, and governance processes as established by the Company. Internal Audit has organizational independence and objectivity, reporting directly to the Board’s Audit Committee. Further discussion and analyses of each major risk area are included in the following sub-sections of Risk Management.

Credit Risk Management

Credit risk is the risk that a borrower or counterparty will fail to perform according to terms and conditions of a loan or investment and expose the Company to loss. Credit risk exists with many of our assets and exposures such as loans and certain derivatives. The majority of our credit risk is associated with lending activities.

The Risk Oversight Committee has primary oversight responsibility of identifying enterprise risk categories including credit risk. The Risk Oversight Committee monitors management’s assessment of asset quality and credit risk trends, credit quality administration and underwriting standards, portfolio credit risk management and processes to enable management to control credit risk including diversification and liquidity. At the management level, the Credit Risk Management Committee has primary oversight responsibility for credit risk. The Senior Credit Supervision function manages credit policy and provides the resources to manage the line of business transactional credit risk, assuring that all exposure is risk rated according to the requirements of the credit risk rating policy. The Senior Credit Supervision function reports on the overall credit risk portfolio to senior management and the Risk Oversight Committee. The Independent Asset Review function supports a strong credit risk management culture by providing independent and objective assessments of the quality of underwriting and documentation, reporting directly to the Board’s Risk Oversight Committee. A key focus of our credit risk management is adherence to a well-controlled underwriting process.

The company assesses overall credit quality performance of our held-for-investment portfolio through an integrate analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: Nonperforming Assets, TDRs and Allowance for Credit Losses.

Nonperforming Assets

Nonperforming assets are comprised of nonaccrual loans, other real estate owned (“OREO”), and other nonperforming assets. OREO and other nonperforming assets are repossessed assets and properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. Loans are generally placed on nonaccrual status when they become 90 days past due or when the full collection of principal or interest becomes uncertain regardless of the length of past due status. Collectability is generally assessed based on economic and business conditions, the borrower’s financial condition and the adequacy of collateral, if any. For additional details regarding the Company’s nonaccrual loan policy, see Note 1 — Summary of Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements of the Company’s 2019 Form 10-K.

The following table presents information regarding nonperforming assets as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020				December 31, 2019
				Nonaccrual Loans				Non-PCI Nonaccrual Loans
Commercial:
C&I	$	84,823			$	74,835
CRE:
CRE	56,577				16,441
Multifamily residential	774				819

Total CRE	57,351				17,260
Consumer:
Residential mortgage:
Single-family residential	20,070				14,865
HELOCs	14,068				10,742
Total residential mortgage	34,138				25,607
Other consumer	2,508				2,517
Total nonaccrual loans	178,820				120,219

OREO, net	19,504				125
Other nonperforming assets	3,890				1,167
Total nonperforming assets	$	202,214			$	121,511
Nonperforming assets to total assets	0.41		%		0.27		%
Nonaccrual loans to loans held-for-investment	0.48		%		0.35		%
Allowance for loan losses to nonaccrual loans	353.47		%		298.03		%
Annualized quarterly net charge-offs to average loans held-for-investment	0.21		%		0.10		%
TDRs included in nonperforming loans	$	23,733			$	54,566

Period-over-period changes to nonaccrual loans represent loans that are placed on nonaccrual status in accordance with the Company’s accounting policy, offset by reductions for loan repayments and for loans that are paid down, charged off, sold, foreclosed, or no longer classified as nonaccrual as a result of continued performance and improvement in the borrowers’ financial condition. Nonaccrual loans were $178.8 million as of June 30, 2020, an increase of $58.6 million or 49% from $120.2 million as of December 31, 2019. This increase was primarily driven by the oil & gas C&I and CRE loans that became nonaccrual in the second quarter of 2020, partially offset by payoffs and charge-offs of C&I loans. Credit risk related to the C&I nonaccrual loans were partially mitigated by the collaterals in place. Nonaccrual loans as a percentage of loans held-for-investment were 0.48% and 0.35% as of June 30, 2020 and December 31, 2019, respectively. C&I nonaccrual loans were 47% and 62% of total nonaccrual loans as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, $58.7 million, or 33%, of the $178.8 million nonaccrual loans were less than 90 days delinquent. In comparison, $35.6 million or 30%, of the $120.2 million nonaccrual loans were less than 90 days delinquent as of December 31, 2019.

OREO increased by $19.4 million from $125 thousand as of December 31, 2019 to $19.5 million as of June 30, 2020 due to the Company taking possession of a retail CRE property located in Southern California in the first quarter of 2020.

The following table presents the accruing loans past due by portfolio segments as of June 30, 2020 and December 31, 2019:



($ in thousands)	Total Accruing Past Due Loans ⁽¹⁾								Change						Percentage of Total Loans Outstanding
			June 30, 2020			December 31, 2019									June 30, 2020	December 31, 2019
Commercial:
C&I	$	60,136		$	48,155		$	11,981	25	%	0.45	%	0.40	%
CRE:
CRE	8,727			24,807			(16,080)		(65)	%	0.08	%	0.24	%
Multifamily residential	5,963			729			5,234		718	%	0.20	%	0.03	%

Total CRE	14,690			25,536			(10,846)		(42)	%	0.10	%	0.19	%
Total commercial	74,826			73,691			1,135		2	%	0.27	%	0.29	%
Consumer:
Residential mortgage:
Single-family residential	20,691			20,517			174		1	%	0.27	%	0.29	%
HELOCs	2,938			7,064			(4,126)		(58)	%	0.20	%	0.48	%
Total residential mortgage	23,629			27,581			(3,952)		(14)	%	0.26	%	0.32	%
Other consumer	14,695			11			14,684		NM		8.05	%	0.00	%
Total consumer	38,324			27,592			10,732		39	%	0.41	%	0.31	%
Total	$	113,150		$	101,283		$	11,867	12	%	0.30	%	0.29	%

NM — Not meaningful.

(1)There were no accruing loans past due 90 days or more as of both June 30, 2020 and December 31, 2019.

Troubled Debt Restructurings

TDRs are loans for which contractual terms have been modified by the Company for economic or legal reasons related to a borrower’s financial difficulties, and for which a concession to the borrower was granted that the Company would not otherwise consider. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. The Company has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19 that were not accounted for as TDRs. Existing TDRs that were subsequently modified in response to COVID-19 continue to be classified as TDRs. As of June 30, 2020, there were 14 TDRs totaling $29.3 million were provided subsequent modifications related to COVID-19.

The following table presents the performing and nonperforming TDRs by portfolio segments as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020									December 31, 2019
			Performing TDRs			Nonperforming TDRs			Performing TDRs			Nonperforming TDRs
Commercial:
C&I	$	45,187		$	21,186		$	39,208		$	41,014
CRE:
CRE	5,112			348			5,177			11,503
Multifamily residential	3,316			223			3,644			229
Construction and land	19,692			—			19,691			—
Total CRE	28,120			571			28,512			11,732
Consumer:
Residential mortgage:
Single-family residential	6,684			1,260			7,346			1,098
HELOCs	2,809			716			2,832			722
Total residential mortgage	9,493			1,976			10,178			1,820

Total TDRs	$	82,800		$	23,733		$	77,898		$	54,566

100

Performing TDRs were $82.8 million as of June 30, 2020, an increase of $4.9 million or 6% from $77.9 million as of December 31, 2019. This increase primarily reflected $26.7 million in newly designated C&I TDR loans, partially offset by paydowns and payoffs of existing C&I TDR loans. Nonperforming TDRs were $23.7 million as of June 30, 2020, a decrease of $30.8 million or 57% from $54.6 million as of December 31, 2019. This decrease primarily reflected $37.1 million in payoffs and paydowns of C&I loans, $11.1 million in the transfer of nonperforming CRE loans to OREO, partially offset by $17.2 million new designation of C&I non-performing TDR loans. The allowance for loan losses for TDRs was $1.6 million and $400 thousand as of June 30, 2020 and December 31, 2019, respectively. See Note 7 — Loans Receivable and Allowance for Loan Losses to the Consolidated Financial Statements in this Form 10-Q.

Loan Modifications Due to COVID-19

As of June 30, 2020, the Company provided $2.82 billion in COVID-19 related loan modifications that were not considered TDRs to consumer and commercial customers. The aging of loan modifications related to COVID-19 are frozen at the time of the modification. Interest income continues to be recognized over the contractual life of the loan. For more information related to the Company’s accounting policy on loan modifications related to COVID-19, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

Loan Modifications under Section 4013 CARES Act — The CARES Act includes a provision that permits a financial institution to elect to temporarily suspend TDR accounting under ASC Subtopic 310-40 in certain circumstances (“Section 4013 CARES Act”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the federal National Emergency or (b) December 31, 2020. The Company provided relief programs under Section 4013 CARES Act to 2,890 loans totaling $2.68 billion, none of which were on nonaccrual status as of June 30, 2020. The majority of Section 4013 loan modification programs offered by our Company were comprised of payment deferrals. As of June 30, 2020, 288 commercial loans totaling $1.46 billion, comprising 55% of outstanding loan balances under the Section 4013 payment deferral program were primarily on a three-month payment deferral program, comprising of either principal payment deferrals or a combination of principal and interest payment deferrals. The deferred payments for commercial loans are either repaid at contractual maturity or over the remaining contractual term of the loan. As of June 30, 2020, 2,590 consumer loans totaling $1.17 billion, comprising 44% of the outstanding loan balances under the payment deferral program, were primarily comprised of single-family residential loans with payment deferrals ranging between two to six months. The deferred payments for consumer loans are either repaid at contractual maturity, or repaid over six or 12 months. Section 4013 forbearance programs consisted of interest rate reductions and/or concessions. As of June 30, 2020, there were three CRE loans totaling $30.6 million under the Section 4013 forbearance programs.

Loan Modifications under Interagency Statement — In response to the loan modification provisions under the CARES Act, the federal banking regulators issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board (“FASB”), confirmed that for loans not subject to section 4013, short-term modifications (i.e. six months or less) made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40. As of June 30, 2020, there were 293 loans totaling $143.0 million under the payment deferral program, comprising primarily of single-family residential loans, of which 90 single-family residential loans totaling $15.1 million were under the Federal Housing Finance Agency payment deferral program. The remaining $127.9 million loans primarily had a three-month payment deferral to be repaid either over six or 12 months. The majority of these loans were performing loans.

101

The following table presents loan modifications in response to the COVID-19 pandemic, by modification types, portfolio segments, and accommodation categories as of June 30, 2020, none of which were classified as TDRs:



($ in thousands)	June 30, 2020
		Section 4013 CARES Act								Interagency Statement						Total
		Number of Loans			Outstanding Balance		Number of Loans			Outstanding Balance		Number of Loans			Outstanding Balance
Modification type:
Payment Deferral
Commercial:
C&I	70		$	121,353		1		$	3,735		71		$	125,088
CRE:
CRE	198		1,202,046			2		19,684			200		1,221,730
Multifamily residential	26		102,176			—		—			26		102,176
Construction and land	3		51,192			—		—			3		51,192
Total CRE	227		1,355,414			2		19,684			229		1,375,098
Total commercial	297		1,476,767			3		23,419			300		1,500,186
Consumer:
Residential mortgage:
Single-family residential	2,127		1,000,092			277		116,395			2,404		1,116,487
HELOCs	463		172,096			13		3,166			476		175,262
Total residential mortgage	2,590		1,172,188			290		119,561			2,880		1,291,749
Total consumer	2,590		1,172,188			290		119,561			2,880		1,291,749
Total payment deferral	2,887		2,648,955			293		142,980			3,180		2,791,935
Forbearance
Commercial:

CRE:
CRE	3		30,599			—		—			3		30,599


Total CRE	3		30,599			—		—			3		30,599
Total commercial	3		30,599			—		—			3		30,599






Total forbearance	3		30,599			—		—			3		30,599
















Total	2,890		$	2,679,554		293		$	142,980		3,183		$	2,822,534

Allowance for Credit Losses

Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments — Credit Losses that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The allowance for credit losses estimate uses various models and estimation techniques based on our historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts and other relevant factors. The adoption of the new accounting standard increased the allowance for loan losses by $125.2 million, and the allowance for unfunded credit commitments by $10.5 million, partially offset by an after-tax decrease to opening retained earnings of $98.0 million on January 1, 2020.

The Company’s methodology for determining the allowance for loan losses includes an estimate of expected credit losses on a collective basis for groups loans with similar risk characteristics and specific allowance for loans which are individually evaluated. For collectively evaluated loans, the Company uses quantitative models to forecast expected credit losses and these models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and supportable. The Company also considers qualitative factors in determining the allowance for loan losses. Qualitative adjustments are used to capture characteristics in the portfolio that impact expected credit losses which are not fully captured within the Company’s expected credit loss models.

102

In addition to the allowance for loan losses, the Company maintains an allowance for unfunded credit commitments. The Company has three general areas where it provides the allowance for unfunded credit commitments: recourse obligations for loans sold, letters of credit and unfunded lending commitments. The Company’s methodology for determining the allowance for unfunded lending commitments calculation uses the lifetime loss rates of the on-balance sheet commitment. Recourse obligations for loans sold and letters of credit use the weighted loss rates for the segment of individual credit.

The Company employs a disciplined process and methodology to establish its allowance for loan losses each quarter. The process for estimating the allowance for loan losses takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan-specific risk characteristics. In addition to regular quarterly reviews of the adequacy of the allowance for loan losses, the Company performs ongoing assessments of the risks inherent in the loan portfolio. Determining the appropriateness of the allowance for loan losses is complex and requires judgement by management about the effect of matters that are inherently uncertain.

The Company is committed to maintaining the allowance for loan losses at a level that is commensurate with the estimated inherent losses in the loan portfolio, including unfunded credit facilities. While the Company believes that the allowance for loan losses was appropriate as of June 30, 2020, future allowance levels may increase or decrease based on a variety of factors, including but not limited to, accounting standard and regulatory changes, loan growth, portfolio performance and general economic conditions. See Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies — New Accounting Pronouncements Adopted, Note 7 — Loans Receivables and Allowance for Loan Losses — Allowance for Loan Losses and Item 2. MD&A — Critical Accounting Policies and Estimates in this Form 10-Q for a description of the policies, methodologies and judgements used to determine the allowance for credit losses.

The following tables present a summary of activities in the allowance for loan losses for loans by portfolio segments for the second quarter and first half of 2020 and 2019:



($ in thousands)		Three Months Ended June 30, 2020
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family 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 recoveries		602			226			620		7		159		2		93			1,709
Total net (charge-offs) recoveries		(19,776)			(94)			620		7		159		(219)		63			(19,240)
Foreign currency translation adjustments		8			—			—		—		—		—		—			8
Allowance for loan losses, end of period		$	380,723		$	176,040		$	25,058	$	18,551	$	25,314	$	3,867	$	2,518		$	632,071

103



($ in thousands)		Three Months Ended June 30, 2019
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family Residential		Construction and Land		Single- Family Residential		HELOCs
Allowance for loan losses, beginning of period		$	189,757		$	39,224		$	19,169	$	22,349	$	35,759	$	7,401	$	4,235		$	317,894
Provision for (reversal of) credit losses on loans	(a)	26,140			(1,250)			58		173		(3,068)		(1,224)		(98)			20,731

Gross charge-offs		(11,745)			—			—		—		—		—		(14)			(11,759)
Gross recoveries		1,713			1,837			53		439		72		—		7			4,121
Total net (charge-offs) recoveries		(10,032)			1,837			53		439		72		—		(7)			(7,638)
Foreign currency translation adjustments		(362)			—			—		—		—		—		—			(362)
Allowance for loan losses, end of period		$	205,503		$	39,811		$	19,280	$	22,961	$	32,763	$	6,177	$	4,130		$	330,625



($ in thousands)		Six Months Ended June 30, 2020
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family 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 adoption		74,237			72,169			(8,112)		(9,889)		(3,670)		(1,798)		2,221			125,158
Allowance for loan losses, January 1, 2020		312,613			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 recoveries		2,177			9,886			1,155		28		424		4		94			13,768
Total net (charge-offs) recoveries		(30,178)			8,612			1,155		28		424		(217)		38			(20,138)
Foreign currency translation adjustments		(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



($ in thousands)		Six Months Ended June 30, 2019
				Commercial																	Consumer		Total
				C&I			CRE											Residential Mortgage				Other Consumer
								CRE		Multi-Family Residential		Construction and Land		Single- Family Residential		HELOCs

Allowance for loan losses, beginning of period		$	189,117		$	40,666		$	19,885	$	20,290	$	31,340	$	5,774	$	4,250		$	311,322
Provision for (reversal of) credit losses on loans	(a)	41,404			(2,914)			(939)		2,169		1,349		401		(99)			41,371

Gross charge-offs		(28,989)			—			—		—		—		—		(28)			(29,017)
Gross recoveries		3,964			2,059			334		502		74		2		7			6,942
Total net (charge-offs) recoveries		(25,025)			2,059			334		502		74		2		(21)			(22,075)
Foreign currency translation adjustments		7			—			—		—		—		—		—			7
Allowance for loan losses, end of period		$	205,503		$	39,811		$	19,280	$	22,961	$	32,763	$	6,177	$	4,130		$	330,625

104

The following table presents a summary of activities in the allowance for unfunded credit commitments for the three and six months ended June 30, 2020 and 2019:



		Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)		2020		2019		2020		2019
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period		$	20,829	$	14,505	$	11,158	$	12,566
Impact of ASU 2016-13 adoption		—		—		10,457		—

Provision for (reversal of) credit losses on unfunded credit commitments	(b)	8,143		(1,486)		7,357		453
Allowance for unfunded credit commitments, end of period		$	28,972	$	13,019	$	28,972	$	13,019

Provision for credit losses	(a) + (b)	$	102,443	$	19,245	$	176,313	$	41,824

The following table presents the Company’s credit quality ratios for the second quarters and the first half of 2020 and 2019:



($ in thousands)	Three Months Ended June 30,												Six Months Ended June 30,
				2020				2019				2020				2019
Average loans held-for-investment	$	37,139,949			$	32,981,161			$	36,146,736			$	32,699,380
Loans held-for-investment	37,229,412				$	33,730,377			$	37,229,412			$	33,730,377
Allowance for loan losses to loans held-for-investment	1.70		%		0.98		%		1.70		%		0.98		%
Annualized net charge-offs to average loans held-for-investment	0.21		%		0.09		%		0.11		%		0.14		%

As of June 30, 2020, the allowance for loan losses amounted to $632.1 million or 1.70% of loans held-for-investment, compared with $358.3 million or 1.03% and $330.6 million or 0.98% of loans held-for-investment as of December 31, 2019 and June 30, 2019, respectively. The quarter-over-quarter and year-over-year increases in allowance for loan losses were largely due to a combination of factors: deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic, which resulted in a provision for credit losses of $102.4 million and $176.3 million for the second quarter and first half of 2020, respectively, and the adoption of ASU 2016-13, which increased the allowance for loan losses by $125.2 million on January 1, 2020. Second quarter 2020 gross charge-offs were $20.9 million and were primarily from C&I loans, partially offset by gross recoveries of $1.7 million, resulting in net charge-offs of $19.2 million or annualized 0.21% of average loans held-for-investment. First half 2020 gross charge-offs were $33.9 million and were primarily from C&I loans, partially offset by recoveries of $13.8 million, primarily from CRE loans, resulting in net charge-offs of $20.1 million or annualized 0.11% of average loans held-for-investment. Charge-offs in C&I portfolio totaled $20.4 million and $32.4 million for the three and six months ended June 30, 2020, respectively. These primarily comprised of oil & gas loan charge-offs of $13.8 million and $25.7 million in these respective periods.

As previously discussed, the Company has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. As of June 30, 2020, the Bank funded PPP loans for over 7,200 customers, with an outstanding loan balance totaling $1.75 billion. As these loans are 100% guaranteed by SBA, the Company expects that these loans will have zero expected loss. As a result, as of June 30, 2020, these loans had no related allowance for loan losses. Additionally, in consideration of the economic disruption caused by COVID-19, the Company offered temporary loan accommodations. In calculating the allowance, these loans were included in the general reserve in their corresponding loan categories. The Company further evaluated these loans and noted that no additional qualitative allowance was needed for the impact of the pandemic because the effects were captured through the forecast used by the models.

The allowance for unfunded credit commitments was $29.0 million as of June 30, 2020, compared with $11.2 million and $13.0 million as of December 31, 2019 and June 30, 2019, respectively. The Company believes that the allowance for loan losses as of June 30, 2020, December 31, 2019 and June 30, 2019 was adequate.

105

The following table presents an allocation of the allowance for loan losses by portfolio segment as of June 30, 2020 and December 31, 2019 (prior to the adoption of ASU 2016-13):



($ in thousands)	June 30, 2020																					December 31, 2019
			Allowance Allocation			% of Allowance to Total Allowance			Loans as % of Total Loans			% of ACL to Loans			Allowance Allocation			% of Allowance to Total Allowance			Loans as % of Total Loans			% of ACL to Loans
Commercial:
C&I	$	380,723		60	%		36	%		2.84	%		$	238,376		67	%		35	%		1.96	%
CRE:
CRE	176,040			28	%		29	%		1.61	%		40,509			11	%		30	%		0.39	%
Multifamily residential	25,058			4	%		8	%		0.83	%		22,826			6	%		8	%		0.80	%
Construction and land	18,551			3	%		2	%		3.27	%		19,404			5	%		2	%		3.09	%
Total CRE	219,649			35	%		39	%		1.51	%		82,739			22	%		40	%		0.60	%
Consumer:
Residential mortgage:
Single-family residential	25,314			4	%		21	%		0.33	%		28,527			8	%		20	%		0.40	%
HELOCs	3,867			1	%		4	%		0.26	%		5,265			2	%		4	%		0.36	%
Total residential mortgage	29,181			5	%		25	%		0.32	%		33,792			10	%		24	%		0.39	%
Other consumer	2,518			0	%		0	%		1.38	%		3,380			1	%		1	%		1.19	%
Total	$	632,071		100	%		100	%		1.70	%		$	358,287		100	%		100	%		1.03	%

The allowance for loan losses increased $273.8 million or 76% from December 31, 2019, primarily driven by the impact of adopting ASU 2016-13 of $74.2 million in C&I and $72.2 million in CRE loans, as well as first half 2020 provision for C&I and CRE credit losses of $98.5 million and $54.8 million, respectively, mainly due to the significant deterioration in the economic outlook from the COVID-19 pandemic, partially offset by first half 2020 C&I gross charge-offs of $32.4 million, primarily from our oil & gas loan portfolio.

Upon adoption of ASU 2016-13, allowance for loan losses for PCD loans is determined using the same methodology as other loans held-for-investment. As of December 31, 2019, the Company had no allowance for loan losses against $222.9 million of PCI loans.

Liquidity Risk Management

Liquidity

Liquidity is a financial institution’s capacity to meet its deposit and other counterparties’ obligations as they come due, or to obtain adequate funding at a reasonable cost to meet those obligations. The objective of liquidity management is to manage the potential mismatch of asset and liability cash flows. Maintaining an adequate level of liquidity depends on the institution’s ability to efficiently meet both expected and unexpected cash flows, and collateral needs without adversely affecting daily operations or the financial condition of the institution. To achieve this objective, the Company analyzes its liquidity risk, maintains readily available liquid assets and utilizes diverse funding sources including its stable core deposit base.

The Board of Directors’ Risk Oversight Committee has primary oversight responsibility. At the management level, the Company’s Asset/Liability Committee (“ALCO”) sets the liquidity guidelines that govern the day-to-day active management of the Company’s liquidity position. The ALCO regularly monitors the Company’s liquidity status and related management processes, and provides regular reports to the Board of Directors. These liquidity management practices have allowed the Company to effectively manage the market stress that began in the first quarter of 2020 from the COVID-19 pandemic.

106

Liquidity Risk — Liquidity Sources. The Company’s primary source of funding is from deposits generated by its banking business, which is relatively stable and low-cost. Total deposits amounted to $40.67 billion as of June 30, 2020, compared with $37.32 billion as of December 31, 2019. The Company’s loan-to-deposit ratio was 92% and 93% as of June 30, 2020 and December 31, 2019, respectively. In addition, the Company has access to various sources of wholesale funding, as well as borrowing capacity at the FHLB and FRB of San Francisco to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute its business strategy. Economic conditions and the stability of capital markets impact the Company’s access to and the cost of wholesale financing. The Company’s access to capital markets is also affected by the ratings received from various credit rating agencies. See Item 2 — MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funds in this Form 10-Q for further detail related to the Company’s funding sources.

The Company’s liquid assets include cash and cash equivalents, interest-bearing deposits with banks, short-term resale agreements and AFS debt securities. The following table presents the Company’s liquid assets as of June 30, 2020 and December 31, 2019:



($ in thousands)	June 30, 2020															December 31, 2019
			Encumbered			Unencumbered			Total			Encumbered			Unencumbered			Total
Cash and cash equivalents	$	—		$	4,533,502		$	4,533,502		$	—		$	3,261,149		$	3,261,149
Interest-bearing deposits with banks	—			531,591			531,591			—			196,161			196,161
Short-term resale agreements	—			700,000			700,000			—			400,000			400,000
AFS debt securities	745,163			3,139,411			3,884,574			479,432			2,837,782			3,317,214
Total	$	745,163		$	8,904,504		$	9,649,667		$	479,432		$	6,695,092		$	7,174,524

Unencumbered liquid assets totaled $8.90 billion and $6.70 billion as of June 30, 2020 and December 31, 2019, respectively. AFS debt securities included as part of liquidity sources are primarily comprised of mortgage-backed securities and debt securities issued by U.S. government agency and U.S. government-sponsored enterprises, U.S. Treasury securities, municipal securities and foreign bonds. The Company believes these AFS debt securities provide quick sources of liquidity to obtain financing, regardless of market conditions, through sale or pledging.

As a means of augmenting the Company’s liquidity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and FRB, unsecured federal funds lines of credit with various correspondent banks, and several master repurchase agreements with major brokerage companies. The Company’s available borrowing capacity with the FHLB and FRB as of June 30, 2020, was $7.19 billion and $4.35 billion, respectively. Unencumbered loans and/or securities were pledged to the FHLB and FRB discount window as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRB and is subject to change at their discretion. The Bank’s unsecured federal funds lines of credit, subject to availability, totaled $1.00 billion with correspondent banks as of June 30, 2020. Estimated borrowing capacity from unpledged AFS debt securities totaled $2.78 billion as of June 30, 2020. In connection with the Company’s participation in the PPP under the CARES Act, the Company has the ability to pledge loans it has made under the SBA’s PPP program to the PPPLF and receive term funding matching the term of the pledged loans for the full balance of PPP loans held by the Company. As of June 30, 2020, the Company had drawn down $1.43 billion from the Federal Reserve PPPLF and had $343.6 million PPP loans available to be pledged as collateral to secure additional funding. In sum, the Company had available borrowing capacity of $15.66 billion as of June 30, 2020, and the Company believes that its liquidity sources are sufficient to meet all reasonably foreseeable short-term needs over the next 12 months.

Liquidity Risk — Liquidity for East West. East West’s primary source of liquidity is from cash dividends distributed by its subsidiary, East West Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends as discussed in Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds of the Company’s 2019 Form 10-K. During the first half of 2020 and 2019, the Bank paid total dividends of $511.0 million and $90.0 million to East West, respectively.

Liquidity Risk — Liquidity Stress Testing. Liquidity stress testing is performed at the Company level, as well as at the foreign subsidiary and foreign branch levels. Stress testing and scenario analysis are intended to quantify the potential impact of a liquidity event on the financial and liquidity position of the entity. These scenarios include assumptions about significant changes in key funding sources, market triggers and potential uses of funding and economic conditions in certain countries. In addition, Company specific events are incorporated into the stress testing. Liquidity stress tests are conducted to ascertain potential mismatches between liquidity sources and uses over a variety of time horizons, both immediate and longer term, and over a variety of stressed conditions. Given the range of potential stresses, the Company maintains a series of contingency funding plans on a consolidated basis and for individual entities.

107

In response to recent developments relating to COVID-19, the Company is continuing to closely monitor the impact of the pandemic on its business. The uncertainty surrounding COVID-19 and in the financial service industry in general could potentially impact the liquidity of the Company. The prolonged strained economic, capital, credit and/or financial market conditions may expose the Company to liquidity risk. Nevertheless, the Company believes that the market conditions have shown signs of improvement after the Federal Reserve stepped in with a broad array of actions to stabilize financial markets and lower borrowing costs. As of June 30, 2020, the Company was not aware of any material commitments for capital expenditures in the foreseeable future and believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business. Given the uncertainty and the rapidly changing market and economic conditions related to the COVID-19 pandemic, the Company will continue to actively evaluate the nature and extent of the impact of the COVID-19 pandemic on its business and financial position.

Consolidated Cash Flows Analysis

The following table presents a summary of the Company’s Consolidated Statement of Cash Flows for the periods indicated, which may be helpful to highlight business strategies and macro trends. In addition to this cash flow analysis, the discussion related to liquidity in Item 7. MD&A — Risk Management — Liquidity Risk Management — Liquidity may provide a more useful context in evaluating the Company’s liquidity position and related activity.



($ in thousands)	Six Months Ended June 30,
			2020			2019
Net cash provided by operating activities	$	270,916		$	290,001
Net cash used in investing activities	(3,510,613)			(997,151)
Net cash provided by financing activities	4,527,520			1,327,884
Effect of exchange rate changes on cash and cash equivalents	(15,470)			(497)
Net increase in cash and cash equivalents	1,272,353			620,237
Cash and cash equivalents, beginning of period	3,261,149			3,001,377
Cash and cash equivalents, end of period	$	4,533,502		$	3,621,614

Operating Activities — Net cash provided by operating activities was $270.9 million and $290.0 million for the first half of 2020 and 2019, respectively. During the first half of 2020 and 2019, net cash provided by operating activities mainly reflected inflows of $244.2 million and $314.4 million from net income, respectively. During the first half of 2020, net operating cash inflows also benefited from $228.3 million of noncash adjustments to reconcile net income to net operating cash, as well as $257.4 million of net changes in accrued expenses and other liabilities, partially offset by $456.4 million of net changes in accrued interest receivable and other assets. The $456.4 million of net changes in accrued interest receivable and other assets between June 30, 2020 and December 31, 2019 was primarily due to changes in derivative asset fair values. In comparison, during the same period in 2019, net operating cash inflows benefited from $113.6 million of noncash adjustments to reconcile net income to net operating cash, which was offset by $150.2 million of net changes in accrued interest receivable and other assets.

Investing Activities — Net cash used in investing activities was $3.51 billion and $997.2 million for the first half of 2020 and 2019, respectively. During the first half of 2020, net cash used in investing activities primarily reflected cash outflows of $2.48 billion from loans held-for-investment, $501.1 million from AFS debt securities, $315.5 million from interest-bearing deposits with banks and $150.0 million from resale agreements. The cash outflows from loans held-for-investment were primarily due to C&I, CRE and single-family residential loan growth during the first half of 2020. During the same period in 2019, net cash used in investing activities primarily reflected cash outflows of $1.35 billion from loans held-for-investment, partially offset by $222.4 million increase in interest-bearing deposits with banks and $175.7 million net decrease in AFS debt securities.

Financing Activities — Net cash provided by financing activities was $4.53 billion and $1.33 billion for the first half of 2020 and 2019, respectively. During the first half of 2020, net cash provided by financing activities primarily reflected net increases of $3.36 billion in deposits, $1.43 billion in PPPLF advances and $225.8 million in short-term borrowings, partially offset by $158.7 million in repayment of repurchase agreements and its extinguishment cost, $146.0 million in shares repurchased, $90.0 million net repayment of FHLB advances, and $80.3 million in cash dividends. During the same period in 2019, net cash provided by financing activities primarily reflected a $1.04 billion net increase in deposits and a $418.0 million net increase in FHLB advances, partially offset by cash dividends of $74.9 million and a $38.1 million decrease in short-term borrowings.

108

Market Risk Management

Market risk is the risk that the Company’s financial condition may change resulting from adverse movements in market rates or prices including interest rates, foreign exchange rates, interest rate contracts, investment securities prices, credit spreads, and related risk resulting from mismatches in rate sensitive assets and liabilities. In the event of market stress, the risk could have a material impact on our results of financial condition.

The Board’s Risk Oversight Committee has primary oversight responsibility. At the management level, the ALCO establishes and monitors compliance with the policies and risk limits pertaining to market risk management activities. Corporate Treasury supports the ALCO in measuring, monitoring and managing interest rate risk as well as all other market risks.

Interest Rate Risk Management

Interest rate risk results primarily from the Company’s traditional banking activities of gathering deposits and extending loans, and is the primary market risk for the Company. Economic and financial conditions, movements in interest rates, and consumer preferences impact the level of noninterest-bearing funding sources at the Company, and affect the difference between the interest the Company earns on interest-earning assets and pays on interest-bearing liabilities. In addition, changes in interest rates can influence the rate of principal prepayments on loans and the speed of deposit withdrawals. Due to the pricing term mismatches and the embedded options inherent in certain products, changes in market interest rates not only affect expected near-term earnings, but also the economic value of these interest-earning assets and interest-bearing liabilities. Other market risks include foreign currency exchange risk and equity price risk. These risks are not considered significant to the Company and no separate quantitative information concerning these risks is presented herein.

With oversight by the Company’s Board of Directors, the ALCO coordinates the overall management of the Company’s interest rate risk. The ALCO meets regularly and is responsible for reviewing the Company’s open market positions and establishing policies to monitor and limit exposure to market risk. Management of interest rate risk is carried out primarily through strategies involving the Company’s investment securities portfolio, loan portfolio, available funding channels and capital market activities. In addition, the Company’s policies permit the use of derivative instruments to assist in managing interest rate risk.

The interest rate risk exposure is measured and monitored through various risk management tools, which include a simulation model that performs interest rate sensitivity analyses under multiple interest rate scenarios. The model incorporates the Company’s cash instruments, loans, debt securities, resale agreements, deposits, borrowings and repurchase agreements, as well as financial instruments from the Company’s foreign operations. The Company incorporates both a static balance sheet and a forward growth balance sheet in order to perform these analyses. The simulated interest rate scenarios include a non-parallel shift in the yield curve (“rate shock”) and a gradual non-parallel shift in the yield curve (“rate ramp”). In addition, the Company also performs simulations using alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting. Results of these various simulations are used to formulate and gauge strategies to achieve a desired risk profile within the Company’s capital and liquidity guidelines.

The net interest income simulation model is based on the actual maturity and re-pricing characteristics of the Company’s interest-rate sensitive assets, liabilities and related derivative contracts. It also incorporates various assumptions, which management believes to be reasonable but may have a significant impact on results. These assumptions include, but are not limited to, the timing and magnitude of changes in interest rates, the yield curve evolution and shape, the correlation between various interest rate indices, financial instrument future repricing characteristics and spread relative to benchmark rates, and the effect of interest rate floors and caps. The modeled results are highly sensitive to deposit decay and deposit beta assumptions, derived from a regression analysis of the Company’s historical deposit data. Deposit beta commonly refers to the correlation of the change in interest rates paid on deposits to changes in benchmark market interest rates. The model is also sensitive to the loan and investment prepayment assumptions, based on an independent model and the Company’s historical prepayment data, which consider anticipated prepayments under different interest rate environments.

Simulation results are highly dependent on input assumptions. To the extent actual behavior is different from the assumptions in the models, there could be a material change in interest rate sensitivity. The assumptions applied in the model are documented and supported for reasonableness, and periodically back-tested to assess their effectiveness. The Company makes appropriate calibrations to the model as needed, continually refining the model, methodology and results. Changes to key model assumptions are reviewed by the ALCO. Scenario results do not reflect strategies that management could employ to limit the impact of changing interest rate expectations.

109

As the federal funds target rate range has been lowered to near zero to between 0.00% and 0.25% in March 2020 and the Federal Reserve has committed its resources to support the financial markets, business, and state and local governments, it is not expected that rates can decline further, or into the negative territory. Consequently, the simulation results for the downward interest rate scenarios as of June 30, 2020 are not provided.

Twelve-Month Net Interest Income Simulation

Net Interest Income simulation modeling looks at interest rate risk through earnings. It projects the changes in interest rate sensitive asset and liability cash flows, expressed in terms of net interest income, over a specified time horizon for defined interest rates scenarios. Net interest income simulations generate insight into the impact of market rates changes on earnings and guide risk management decisions. The Company assesses interest rate risk by comparing net interest income using different interest rate scenarios.

The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in upward direction as of June 30, 2020 and in both directions as of December 31, 2019.



Change in Interest Rates (Basis Points)	Net Interest Income Volatility ⁽¹⁾⁽²⁾
			June 30, 2020			December 31, 2019
+200	14.6	%		13.2	%
+100	6.7	%		6.7	%
-100	NM			(5.5)	%
-200	NM			(8.7)	%

(1)The percentage change represents net interest income over 12 months in a stable interest rate environment versus net interest income in the various rate scenarios.

(2)NM — Not meaningful.

The Company’s estimated twelve-month net interest income sensitivity as of June 30, 2020 was higher when compared with the sensitivity as of December 31, 2019, for the upward 200 basis point rate scenario, while the sensitivity remained unchanged for the upward 100 basis point rate scenario. This reflects a greater rate of upward repricing in the Company’s rate sensitive assets, which offsets simulated increases in interest expense from higher rates on deposits. While there has been an increase in the population of floating rate loans that are currently at their floors under the current low interest rate environment, an increase in the cash and cash equivalents along with an increase in non-interest bearing deposits and the reduction in the base case twelve-month net interest income were the primary drivers for the increased the interest rate sensitivity under the upward interest rate scenarios.

The Company’s net interest income profile as of June 30, 2020 reflects an asset sensitive position. Net interest income would be expected to increase if interest rates rise and to decrease if interest rates decline, albeit the federal funds rate is floored at the target range between 0.00% and 0.25%. The Company is naturally asset sensitive due to the large share of variable rate loans in its loan portfolio, which are primarily linked to Prime and LIBOR indices. The Company’s interest income is vulnerable to changes in short-term interest rates. The Company’s deposit portfolio is primarily comprised of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates.

The federal funds target rate was between 0.00% and 0.25% as of June 30, 2020 and between 1.50% and 1.75% as of December 31, 2019. After cutting the rate to a range of between 0.00% and 0.25% in March 2020, the Federal Open Market Committee pledged to maintain monetary support and planned to leave interest rates unchanged through 2022 in order to support the markets, which continued to be strained from the impact of the COVID-19 pandemic.

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While an instantaneous and sustained non-parallel shift in market interest rates was used in the simulation model described in the preceding paragraphs, the Company believes that any shift in interest rates would likely be more gradual and would therefore have a more modest impact. The rate ramp table below shows the net income volatility under a gradual non-parallel shift upward and downward of the yield curve in even quarterly increments over the first twelve months, followed by rates held constant thereafter:



Change in Interest Rates (Basis Points)	Net Interest Income Volatility⁽¹⁾⁽²⁾
			June 30, 2020			December 31, 2019
+200 Rate Ramp	5.7	%		6.0	%
+100 Rate Ramp	2.7	%		3.0	%
-100 Rate Ramp	NM			(2.6)	%
-200 Rate Ramp	NM			(5.1)	%

(1)The percentage change represents net interest income under a gradual non-parallel shift in even quarterly increments over 12 months.

(2)NM — Not meaningful.

The Company believes that the rate ramp table, shown above, when evaluated together with the results of the rate shock simulation, presents a better indication of the potential impact to the Company’s twelve-month net interest income in a rising and falling rate scenario. Between June 30, 2020 and December 31, 2019, the Company’s modeled sensitivity slightly decreased under a ramp simulation under the upward interest rate scenarios.

Economic Value of Equity at Risk

Economic value of equity (“EVE”) is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the economic value of the bank. The fair market values of a bank's assets and liabilities are directly linked to interest rates. In some ways, the economic value approach provides a broader scope than the net income volatility approach since it captures all anticipated cash flows.

EVE simulation reflects the effect of interest rate shifts on the value of the Company and is used to assess the degree of interest rate risk exposure. In contrast to the earnings perspective, the economic perspective identifies risks arising from repricing or maturity gaps for the life of the balance sheet. Changes in economic value indicate anticipated changes in the value of the bank’s future cash flows. Thus, the economic perspective can provide a leading indicator of the bank’s future earnings and capital values. The economic valuation method also reflects those sensitivities across the full maturity spectrum of the bank’s assets and liabilities.

The following table presents the Company’s EVE sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in an upward direction as of June 30, 2020 and in both directions as of December 31, 2019:



Change in Interest Rates (Basis Points)	EVE Volatility⁽¹⁾⁽²⁾
			June 30, 2020			December 31, 2019
+200	12.8	%		7.0	%
+100	6.4	%		3.6	%
-100	NM			(1.4)	%
-200	NM			(3.5)	%

(1)The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

(2)NM — Not meaningful.

The Company’s EVE sensitivity for the upward interest rate scenarios increased as of June 30, 2020 compared with the results as of December 31, 2019. The changes in EVE sensitivity during this period were primarily due to the reduced base EVE and the changes in level and shape of the yield curve.

The Company’s EVE profile as of June 30, 2020 reflects an asset sensitive EVE position under the upward interest rate scenarios. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, and the shape of the yield curve, actual results may vary from those predicted by the Company’s model.

111

Derivatives

It is the Company’s policy not to speculate on the future direction of interest rates, foreign currency exchange rates and commodity prices. However, the Company will, from time to time, enter into derivative transactions in order to reduce its exposure to market risks, primarily interest rate risk and foreign currency risk. The Company believes that these derivative transactions, when properly structured and managed, may provide a hedge against inherent risk in certain assets and liabilities and against risk in specific transactions. Hedging transactions may be implemented using a variety of derivative instruments such as swaps, forwards and options. Prior to entering into any hedging activities, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies. In addition, the Company enters into derivative transactions in order to assist customers with their risk management objectives, primarily to manage exposures to fluctuations in interest rates, foreign currencies and commodity prices. To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into mirrored derivative contracts with third-party financial institutions. The exposures from derivative transactions are collateralized by cash and/or eligible securities based on limits as set forth in the respective agreements entered between the Company and the financial institutions.

The Company is subject to credit risk associated with the counterparties to the derivative contracts. This counterparty credit risk is a multidimensional form of risk, affected by both the exposure and credit quality of the counterparty, both of which are sensitive to market-induced changes. The Company’s Credit Risk Management Committee provides oversight of credit risks and the Company has guidelines in place to manage counterparty concentration, tenor limits and collateral. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, entering into legally enforceable master netting arrangements and requiring collateral arrangements, where possible. The Company may also transfer counterparty credit risk related to interest rate swaps to institutional third parties through the use of credit risk participation agreements (“RPAs”). Certain derivative contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk. The Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives.

Fair Value Hedges — The Company had one and two cancellable interest rate swap contracts as of June 30, 2020 and December 31, 2019, respectively, with original terms of 20 years each. These swap contracts involve the exchange of variable rate payments over the life of the agreements without the exchange of the underlying notional amounts. The changes in fair value of the hedged brokered certificates of deposit are expected to be effectively offset by the changes in fair value of the swaps throughout the terms of these contracts.

Cash Flow Hedges — As of June 30, 2020, the Company entered into two interest rate swap contracts designated to hedge against the risk of variable cash flow that the Company is exposed to from its variable interest rate borrowings, including FRB discount window borrowing and FHLB advances. 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 during which the hedged cash flows impact earnings.

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 Bank entered into foreign currency forward contracts to hedge its investment in East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. The hedging instruments designated as net investment hedges, involve hedging the risk of changes in the U.S. dollar equivalent value of a designated monetary amount of the Company’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”). As of June 30, 2020, the outstanding foreign currency forwards effectively hedged approximately 50% of the RMB exposure in East West Bank (China) Limited. The fluctuation in foreign currency translation of the hedged exposure is expected to be offset by changes in the fair value of the forwards.

112

Interest Rate Contracts — The Company offers various interest rate derivative contracts to its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions including with central clearing organizations. Certain derivative contracts entered with central clearing organizations are settled-to-market daily to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. Derivative contracts allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are not linked to specific Company assets or liabilities on the Consolidated Balance Sheet or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked-to-market at each reporting period. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forward, spot, swap and option contracts to accommodate the business needs of its customers. For the foreign exchange contracts entered into with its customers, the Company managed its foreign exchange exposure by entering into offsetting foreign exchange contracts with third-party financial institutions and/or entering into bilateral collateral and master netting agreements with customer counterparties to manage its credit exposure. The changes in the fair values entered with third-party financial institutions are expected to be largely comparable to the changes in fair values of the foreign exchange transactions executed with the customers throughout the terms of these 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 offered to its customers. The Company’s policies permit taking proprietary currency positions within approved limits, in compliance with the proprietary trading exemption provided under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Company does not speculate in the foreign exchange markets, and actively manages its foreign exchange exposures within prescribed risk limits and defined controls.

Credit Contracts — The Company may periodically enter into RPAs to manage the credit exposure on interest rate contracts associated with its syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPA, the Company will receive or make a payment if a borrower defaults on the related interest rate contract. The Company manages its credit risk on the RPAs by monitoring the credit worthiness of the borrowers, which is based on the Company’s normal credit review process.

Equity Contracts — As part of the loan origination process, from time to time, the Company obtained warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. The warrants included on the Consolidated Financial Statements were from public and private companies.

Commodity Contracts — The Company entered into energy commodity contracts with its customers to allow them to hedge against the risk of fluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions including with central clearing organizations. Certain derivative contracts entered with central clearing organizations are settled to market daily to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. The changes in fair values of the energy commodity contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the energy commodity transactions executed with customers throughout the terms of these contracts.

Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 2019 Form 10-K, Note 3 — Fair Value Measurement and Fair Value of Financial Instruments and Note 6 — Derivatives to the Consolidated Financial Statements of this Form 10-Q.

113

Impact of Inflation

The consolidated financial statements and related financial data presented in this report have been prepared according to GAAP, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that inflation may have on both short-term and long-term interest rates. Since almost all the assets and liabilities of a financial institution are monetary in nature, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. While inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies and use of estimates are fundamental to understanding its results of operations and financial condition. Some accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In addition, some significant accounting policies require significant judgments in applying complex accounting principles to individual transaction and determining the most appropriate treatment. The Company has procedures and processes in place to facilitate making these judgments. For significant accounting policies and use of estimates of allowance for credit losses, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies in this Form 10-Q; and for all other significant accounting policies and use of estimates, see Note 1 — Summary of Significant Accounting Policies of the Company’s 2019 Form 10-K.

Certain accounting policies are considered to have a critical effect on the Company’s Consolidated Financial Statements in the Company’s judgment. Critical accounting policies are defined as those that require the most complex or subjective judgments and are reflective of significant uncertainties, and whose actual results could differ from the Company’s estimates. Future changes in the key variables could change future valuations and impact the results of operations. In each area, the Company has identified the most important variables in the estimation process. The Company has used the best information available to make the estimations necessary for the related assets and liabilities. The following accounting policies are critical to the Company’s Consolidated Financial Statements as they require management to make subjective and complex judgments about matters that are inherently uncertain where actual results could differ materially from the Company’s estimates:

•fair value of financial instruments;

•allowance for credit losses;

•goodwill impairment; and

•income taxes.

Recently Issued Accounting Standards

For detailed discussion and disclosure on new accounting pronouncements adopted and recent accounting pronouncements issued, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

Supplemental Information — Explanation of GAAP to Non-GAAP Financial Measures

To supplement the Company’s unaudited interim Consolidated Financial Statements presented in accordance with GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement. The Company believes these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

During the second quarter of 2020, the Company prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million. During the first and second quarters of 2019, the Company recorded a $7.0 million pre-tax impairment charge and reversed $30.1 million of certain previously claimed tax credits related to DC Solar, respectively.

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The following tables present the reconciliations of GAAP to non-GAAP financial measures for the periods presented:



($ and shares in thousands, except per share data)		Three Months Ended June 30,									Six Months Ended June 30,
					2020			2019			2020			2019
Net income	(a)	$	99,352		$	150,380		$	244,176		$	314,404
Add: Impairment charge related to DC Solar ⁽¹⁾		—			—			—			6,978

Tax effect of adjustments ⁽²⁾		—			—			—			(2,063)
Add: Reversal of certain previously claimed tax credits related to DC Solar		—			30,104			—			30,104
Non-GAAP net income	(b)	$	99,352		$	180,484		$	244,176		$	349,423

Diluted weighted-average number of shares outstanding		141,827			146,052			143,560			146,016

Diluted EPS		$	0.70		$	1.03		$	1.70		$	2.15
Diluted EPS impact of impairment charge related to DC Solar, net of tax		—			—			—			0.03

Diluted EPS impact of reversal of certain previously claimed tax credits related to DC Solar		—			0.21			—			0.21
Non-GAAP diluted EPS		$	0.70		$	1.24		$	1.70		$	2.39

Average total assets	(c)	$	48,228,914		$	41,545,441		$	46,492,211		$	41,144,152
Average stockholders’ equity	(d)	$	4,982,446		$	4,684,348		$	5,002,226		$	4,611,231
ROA ⁽³⁾	(a)/(c)	0.83		%	1.45		%	1.06		%	1.54		%
Non-GAAP ROA ⁽³⁾	(b)/(c)	0.83		%	1.74		%	1.06		%	1.71		%
ROE ⁽³⁾	(a)/(d)	8.02		%	12.88		%	9.82		%	13.75		%
Non-GAAP ROE ⁽³⁾	(b)/(d)	8.02		%	15.45		%	9.82		%	15.28		%

(1)Included in Amortization of tax credit and other investments on the Consolidated Statement of Income.

(2)Applied statutory rate of 29.56% for the three and six months ended June 30, 2019.

(3)Annualized.



($ in thousands)		Three Months Ended June 30,									Six Months Ended June 30,
					2020			2019			2020			2019
Income tax expense	(a)	$	12,921		$	72,797		$	32,107		$	103,864
Less: Reversal of certain previously claimed tax credit related to DC Solar	(b)	—			(30,104)			—			(30,104)
Non-GAAP income tax expense	(c)	$	12,921		$	42,693		$	32,107		$	73,760

Income before income taxes	(d)	112,273			$	223,177		$	276,283		$	418,268

Effective tax rate	(a)/(d)	11.51		%	32.62		%	11.62		%	24.83		%
Less: Reversal of certain previously claimed tax credit related to DC Solar	(b)/(d)	—		%	(13.49)		%	—		%	(7.20)		%
Non-GAAP effective tax rate	(c)/(d)	11.51		%	19.13		%	11.62		%	17.63		%

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($ in thousands)		Three Months Ended June 30,									Six Months Ended June 30,
					2020			2019			2020			2019
Net interest income before provision for credit losses	(a)	$	343,775		$	367,326		$	706,482		$	729,787
Total noninterest income		58,637			52,759			112,686			94,890
Total revenue	(b)	$	402,412		$	420,085		$	819,168		$	824,677





Total noninterest expense	(c)	$	187,696		$	177,663		$	366,572		$	364,585
Less: Amortization of tax credit and other investments		(24,759)			(16,739)			(42,084)			(41,644)
Amortization of core deposit intangibles		(931)			(1,152)			(1,884)			(2,326)
Repurchase agreements’ extinguishment cost		(8,740)			—			(8,740)			—
Non-GAAP noninterest expense	(d)	$	153,266		$	159,772		$	313,864		$	320,615

Efficiency ratio	(c)/(b)	46.64		%	42.29		%	44.75		%	44.21		%
Non-GAAP efficiency ratio	(d)/(b)	38.09		%	38.03		%	38.31		%	38.88		%



($ and shares in thousands, except per share data)		June 30, 2020		March 31, 2020		June 30, 2019
Stockholders’ equity	(a)	$	4,987,243	$	4,902,985	$	4,734,593
Less: Goodwill		(465,697)		(465,697)		(465,697)
Other intangible assets ⁽¹⁾		(13,490)		(14,769)		(18,952)
Non-GAAP tangible common equity	(b)	$	4,508,056	$	4,422,519	$	4,249,944

Number of common shares at period-end	(c)	141,486		141,435		145,547
Non-GAAP tangible common equity per share	(b)/(c)	$	31.86	$	31.27	$	29.20

(1)Includes core deposit intangibles and mortgage servicing assets.

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Forward-Looking Statements

Certain matters discussed in this Form 10-Q contains certain forward-looking information about us that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, and are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control, particularly with regard to developments related to COVID-19. These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” “assumes,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs, and the negative thereof. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such differences, some of which are beyond the Company’s control, include, but are not limited to

•the impact of disease pandemics, such as the worldwide spread of COVID-19, on the Company, its operations and its customers, employees and the markets in which the Company operates and in which its loans are concentrated; and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may precipitate or exacerbate one or more of the below-mentioned and/or other risks, and significantly disrupt or prevent the Company from operating its business in the ordinary course for an extended period;

•changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the SBA’s PPP, the Federal Reserve efforts to provide liquidity to the U.S. financial system, including changes in government interest rate policies, and to provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic, as well as the resulting effect of all such items on the Company’s operations, liquidity and capital position, and on the financial condition of the Company’s borrowers and other customers;

•changes in the U.S. economy, including an economic slowdown or recession, inflation, deflation, employment levels, rate of growth and general business conditions;

•the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the U.S. and the People’s Republic of China;

•fluctuations in the Company’s stock price;

•changes in income tax laws and regulations;

•the Company’s ability to compete effectively against other financial institutions in its banking markets;

•success and timing of the Company’s business strategies;

•the Company’s ability to retain key officers and employees;

•impact on the Company’s funding costs, net interest income and net interest margin from changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;

•changes in the Company’s costs of operation, compliance and expansion;

•the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;

•impact of benchmark interest rate reform in the U.S. that resulted in the SOFR selected as the preferred alternative reference rate to the LIBOR;

•impact of failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber-attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused;

•adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;

•future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;

•impact of adverse changes to the Company’s credit ratings from major credit rating agencies;

•impact of adverse judgments or settlements in litigation;

•changes in the commercial and consumer real estate markets;

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•changes in consumer spending and savings habits;

•impact on the Company’s international operations due to political developments, disease pandemics, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;

•changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the SEC, the Consumer Financial Protection Bureau and the California Department of Business Oversight - Division of Financial Institutions;

•impact of the Dodd-Frank Act on the Company’s business, business practices, cost of operations and executive compensation;

•heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;

•impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions and from the Company’s interactions with business partners, counterparties, service providers and other third parties;

•impact of regulatory enforcement actions;

•changes in accounting standards as may be required by the FASB or other regulatory agencies and their impact on critical accounting policies and assumptions;

•impact of other potential federal tax changes and spending cuts;

•the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;

•impact on the Company’s liquidity due to changes in the Company’s ability to receive dividends from its subsidiaries;

•any future strategic acquisitions or divestitures;

•continuing consolidation in the financial services industry;

•changes in the equity and debt securities markets;

•fluctuations in foreign currency exchange rates;

•a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, a reduction in investor demand for mortgage loans and declines in asset values and/or recognition of OTTI on securities held in the Company’s AFS debt securities portfolio; and

•impact of natural or man-made disasters or calamities, such as wildfires, or conflicts or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

In addition to the risk factors enumerated above, the economic impact of the COVID-19 pandemic could cause actual outcome to differ, possibly materially, from the Company’s forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Company’s control. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on the Company’s business. The extent to which the COVID-19 pandemic impacts the Company will depend on future developments that are uncertain and unpredictable, including the scope, severity and duration of the pandemic and its impact on the Company’s customers, the actions taken by governmental authorities in response to the pandemic as well as its impact on global and regional economies, and the pace of recovery when the COVID-19 pandemic subsides, among others.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s 2019 Form 10-K under the heading Item 1A. Risk Factors and the information set forth under Item 1A. Risk Factors in this Form 10-Q. The Company does not undertake, and specifically disclaims any obligation to update or revise any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 1. Consolidated Financial Statements — Note 6 — Derivatives and Item 2. MD&A — Risk Management — Market Risk Management in Part I of this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of June 30, 2020, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2020.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2020, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Item 1. Consolidated Financial Statements — Note 10 — Commitments and Contingencies — Litigation in Part I of this report, incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the risk factor set forth below and the information set forth in this Form 10-Q, you should carefully consider the disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors in the Company’s 2019 Form 10-K. There has been no material changes to the Company’s risk factors as presented in the Company’s 2019 Form 10-K, other than the risk factors set forth below:

The effects of the COVID-19 pandemic have had and may continue to impact the Company’s businesses, results of operations and financial condition, and the extent and duration of these impacts remain uncertain. A second wave of COVID-19 may have a similar or worse impact on the Company than the first wave. The COVID-19 pandemic and governmental responses to the pandemic have had and will likely continue to have a severe impact on global economic conditions, including disruption and volatility in the financial markets, disruption of global supply chains, temporary closures or failures of businesses, increased unemployment, and the institution of social distancing and restrictions on movement in the U.S. and other countries.

East West Bank is considered an essential business in the eight states where we have branches or office locations. As part of the CARES Act passed by Congress in March 2020, various initiatives to protect and support individuals, businesses and local economies, such as the SBA PPP and the Main Street Lending Program were established. The Company participates and will continue to participate in the SBA PPP during the time it is available, or until August 8, 2020. Further, the Company participates in the Main Street Lending Program. In addition, to provide further relief to customers during these turbulent times, we are providing loan modifications and payment deferrals for customers impacted by COVID-19, and deferring foreclosures on certain residential mortgage loans. Our loan portfolio includes loans that are in forbearance but which are not classified as TDRs due to the exclusions provided in the CARES Act and federal banking regulators. In the future, we may be required to classify a portion of these loans as TDRs. There can be no assurance that the federal stimulus measures will improve the markets or economies in which we conduct operations. If the federal stimulus measures are not effective in mitigating the effect of COVID-19, credit issues for our loan customers may be severe and adversely affecting our business and results of operations more substantially over a longer period of time.

Further, in order to facilitate our business and in response to enhanced safety measures, the Company has implemented employee business travel restrictions, and has implemented business continuity plans, which include shifting a majority of our corporate and division office functions to work remotely, alternating workplace arrangements such as split work sites and rotating shifts for certain employees to suit the changing business requirements. To date, the business continuity plans work as designed and support our ongoing normal course of business. However, our ability to provide services has been, and may continue to be, to some extent, negatively impacted by interruptions due to illnesses, quarantines, “stay-at-home” orders or other restrictions of our employees, or the safety measures implemented to prevent illnesses of our employees, including the potential closure of particular branches and certain employees working remotely.

We may face increased cybersecurity risks due to the shifting of a majority of our corporate and division office functions to operating remotely in regions impacted by “stay-at-home” orders. Increased levels of remote access may create additional opportunities for cybercriminals to attempt to exploit vulnerabilities, and our employees may be more susceptible to phishing and social engineering attempts due to increased stress caused by the crisis and from balancing family and work responsibilities at home. In addition, our technological resources may be strained due to the number of remote users.

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The conditions caused by the COVID-19 pandemic could continue to adversely affect the ability of the Company’s borrowers to satisfy their obligations. Taken into consideration that many of the Company’s loans are secured by real estate, a potential decline in real estate markets could further impact the Company’s business and financial condition and the credit quality of the Company’s loan portfolio. If unemployment continues to rise and our clients and customers draw on their lines of credit or seek additional loans to help finance their businesses, our level of charge-offs and provision for credit losses could continue to increase. Further, the disruptions related to COVID-19 may decrease our borrowers’ confidence with respect to purchasing real estate or homes and adversely affect the demand for the Company’s loans and other products and services, the valuation of our loans, securities and derivatives portfolios, the carrying value of our deferred tax assets, our capital levels and liquidity, and our results of operations.

In addition, the unprecedented developments and reports relating to COVID-19 have coincided with heightened volatility in financial markets in the U.S. and worldwide. The continuation of prolonged adverse economic conditions (including whether due to a resurgence or a second wave of COVID-19 infections) primarily in the U.S. and Greater China can be expected to have adverse effects on the Company’s businesses and results of operations, which could have material impacts on the value of securities, derivatives and other financial instruments which the Company owns. The Company executes transactions with various counterparties in the financial industry, including broker-dealers, commercial banks and investment banks. Defaults by financial services institutions and uncertainty in the financial services industry in general could lead to market-wide liquidity problems and may expose the Company to credit risk in the event of default of its counterparties or clients and further increase the possibility of downgrades in the Company’s credit ratings. This pandemic, and any further measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a significant adverse effect on our results of operations and financial condition. Additionally, the earnings impacts from recent and future emergency interest rate cuts could further compress interest margins, which could potentially have an adverse effect on our results of operations and financial condition.

The extent to which the COVID-19 pandemic and any resultant economic downturn continues to impact our business, operations, and financial results is uncertain and will depend on numerous evolving factors that are outside our control and we may not be able to accurately predict, including the scope, severity and duration of the pandemic and the governmental, business and individual actions already taken, and those actions implemented in the future, in response to the pandemic and the impact of those actions on global economic activity, as well as the pace of economic recovery when the COVID-19 pandemic subsides. To the extent the COVID-19 pandemic continues to adversely affect our business, operations, and financial results, as well as global economic conditions more generally, it may also heighten many of the other risk factors described in the Company’s 2019 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities for the second quarter and first half of 2020. The following table summarizes common stock repurchased by the Company under the Company’s common stock repurchase program for the first half of 2020. There were no repurchased activities for the second quarter of 2020.



Period	Total Number of Shares Repurchased ⁽¹⁾	Average Price Paid per Share of Common Stock		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in millions) ⁽²⁾
January 1, 2020 - January 31, 2020	—	$	—	—	$	500.0
February 1, 2020 - February 29, 2020	—	—		—	500.0
March 1, 2020 - March 31, 2020	4,471,682	32.64		4,471,682	354.0
April 1, 2020 - April 30, 2020	—	—		—	354.0
May 1, 2020 - May 31, 2020	—	—		—	354.0
June 1, 2020 - June 30, 2020	—	—		—	354.0
Total	4,471,682	$	32.64	4,471,682	$	354.0

(1)Excludes activity of common stock pursuant to various stock compensation plans and agreements totaling $7.6 million.

(2)On March 3, 2020, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s common stock. This $500.0 million repurchase authorization is inclusive of the Company’s $100.0 million stock repurchase authorization previously outstanding. The share repurchase authorization has no expiration date.

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ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this report:


Exhibit No.						Exhibit Description













31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

101.INS						The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document. Filed herewith.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document. Filed herewith.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.

104						Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). Filed herewith.

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GLOSSARY OF ACRONYMS


AFS	Available-for-sale	LIBOR	London Interbank Offered Rates
ALCO	Asset/Liability Committee	LTV	Loan-to-value
AOCI	Accumulated other comprehensive income (loss)	MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ARRC	Alternative Reference Rates Committee	MMBTU	Million British thermal unit
ASC	Accounting Standards Codification	Moody's	Moody’s Investors Service
ASU	Accounting Standards Update	NAV	Net asset value
C&I	Commercial and industrial	OREO	Other real estate owned
CARES Act	Coronavirus Aid, Relief, and Economic Security Act	OTTI	Other-than-temporary impairment
CECL	Current expected credit loss	PCD	Purchased credit deteriorated
CET1	Common Equity Tier 1	PCI	Purchased credit impaired
CLO	Collateralized loan obligation	PD	Probability of default
CME	Chicago Mercantile Exchange	PPP	Paycheck Protection Program
COVID-19	Coronavirus Disease 2019	PPPLF	Paycheck Protection Program Liquidity Facility
CRA	Community Reinvestment Act	RMB	Chinese Renminbi
CRE	Commercial real estate	ROA	Return on average assets
E&P	Exploration and production	ROE	Return on average equity
EPS	Earnings per share	RPA	Credit risk participation agreement
ERM	Enterprise risk management	RSU	Restricted stock unit
EVE	Economic value of equity	S&P	Standard and Poor's
FASB	Financial Accounting Standards Board	SBA	Small Business Administration
FHLB	Federal Home Loan Bank	SBLC	Standby letter of credit
Fitch	Fitch Ratings	SEC	U.S. Securities and Exchange Commission
FRB	Federal Reserve Bank	SOFR	Secured Overnight Financing Rate
FTP	Funds transfer pricing	TDR	Troubled debt restructuring
GAAP	Generally accepted accounting principles	U.S.	United States
HELOC	Home equity line of credit	USD	U.S. dollar
LCH	London Clearing House	VIE	Variable interest entity
LGD	Loss given default

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:

August 7, 2020

EAST WEST BANCORP, INC.
(Registrant)

/s/ IRENE H. OH

Irene H. Oh

Executive Vice President and
Chief Financial Officer

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