EAST WEST BANCORP INC - Quarter Report: 2021 September (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 September 30, 2021

☐ 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, par value $0.001 per share

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: 141,907,491 shares as of October 31, 2021.

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 and Current Accounting Developments	9
		2 — Fair Value Measurement and Fair Value of Financial Instruments	11
		3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements	21
		4 — Securities	22
		5 — Derivatives	26
		6 — Loans Receivable and Allowance for Credit Losses	33
		7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities	45
		8 — Goodwill and Other Intangible Assets	47
		9 — Commitments and Contingencies	48


		10 — Stock Compensation Plans	49
		11 — Stockholders’ Equity and Earnings Per Share	51
		12 — Accumulated Other Comprehensive Income (Loss)	51
		13 — Business Segments	53
		14 — Subsequent Events	55

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56










	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	111

	Item 4.	Controls and Procedures	111


PART II — OTHER INFORMATION			112

	Item 1.	Legal Proceedings	112
	Item 1A.	Risk Factors	112
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	112



	Item 6.	Exhibits	113

GLOSSARY OF ACRONYMS			114

SIGNATURE			115

PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

($ in thousands, except shares)

(Unaudited)



	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Cash and due from banks	$	594,631	$	592,117
Interest-bearing cash with banks	4,258,270		3,425,854
Cash and cash equivalents	4,852,901		4,017,971
Interest-bearing deposits with banks	855,162		809,728
Assets purchased under resale agreements (“resale agreements”)	2,596,142		1,460,000
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $9,783,180 in 2021 and $5,470,523 in 2020; includes assets pledged as collateral of $859,901 in 2021 and $588,484 in 2020)	9,713,006		5,544,658
Restricted equity securities, at cost	77,200		83,046
Loans held-for-sale	—		1,788
Loans held-for-investment (net of allowance for loan losses of $560,404 in 2021 and $619,983 in 2020; includes assets pledged as collateral of $24,551,177 in 2021 and $23,263,517 in 2020)	39,921,301		37,770,972
Investments in qualified affordable housing partnerships, net	297,367		213,555
Investments in tax credit and other investments, net	367,428		266,525
Premises and equipment (net of accumulated depreciation of $136,796 in 2021 and $127,884 in 2020)	96,956		103,251
Goodwill	465,697		465,697
Operating lease right-of-use assets	99,785		95,460
Other assets	1,616,165		1,324,262
TOTAL	$	60,959,110	$	52,156,913
LIABILITIES
Deposits:
Noninterest-bearing	$	23,175,471	$	16,298,301
Interest-bearing	30,180,719		28,564,451
Total deposits	53,356,190		44,862,752
Short-term borrowings	—		21,009

Federal Home Loan Bank (“FHLB”) advances	248,898		652,612
Assets sold under repurchase agreements (“repurchase agreements”)	300,000		300,000
Long-term debt and finance lease liabilities	151,795		151,739
Operating lease liabilities	107,107		102,830
Accrued expenses and other liabilities	1,104,919		796,796
Total liabilities	55,268,909		46,887,738
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 167,764,049 and 167,240,600 shares issued in 2021 and 2020, respectively	168		167
Additional paid-in capital	1,883,871		1,858,352
Retained earnings	4,513,321		4,000,414
Treasury stock, at cost 25,880,318 shares in 2021 and 25,675,371 shares in 2020	(649,591)		(634,083)
Accumulated other comprehensive (loss) income (“AOCI”), net of tax	(57,568)		44,325
Total stockholders’ equity	5,690,201		5,269,175
TOTAL	$	60,959,110	$	52,156,913

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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	363,503	$	336,542	$	1,057,964	$	1,115,804
AFS debt securities	37,826		18,493		101,616		59,639

Resale agreements	8,957		5,295		23,077		16,434
Restricted equity securities	500		353		1,588		1,100
Interest-bearing cash and deposits with banks	4,521		5,045		11,781		20,717
Total interest and dividend income	415,307		365,728		1,196,026		1,213,694
INTEREST EXPENSE
Deposits	15,970		33,798		55,790		156,600
Short-term borrowings	—		407		42		1,228
FHLB advances	857		3,146		6,025		10,655
Repurchase agreements	2,012		2,155		5,981		9,686
Long-term debt and finance lease liabilities	762		2,092		2,314		4,913
Total interest expense	19,601		41,598		70,152		183,082
Net interest income before provision for credit losses	395,706		324,130		1,125,874		1,030,612
(Reversal of) provision for credit losses	(10,000)		10,000		(25,000)		186,313
Net interest income after provision for credit losses	405,706		314,130		1,150,874		844,299
NONINTEREST INCOME
Lending fees	17,516		18,736		56,965		56,455
Deposit account fees	18,508		12,573		51,233		33,892
Interest rate contracts and other derivative income	7,156		5,538		20,981		18,718
Foreign exchange income	13,101		3,310		35,634		15,691
Wealth management fees	5,598		4,553		20,460		12,997
Net gains on sales of loans	3,329		361		6,601		1,443
Gains on sales of AFS debt securities	354		698		1,178		11,867


Other investment income	5,349		5,239		13,870		6,652
Other income	2,198		3,495		7,484		8,000
Total noninterest income	73,109		54,503		214,406		165,715
NONINTEREST EXPENSE
Compensation and employee benefits	105,751		99,756		318,985		298,671
Occupancy and equipment expense	15,851		16,648		47,150		49,941
Deposit insurance premiums and regulatory assessments	4,641		4,006		12,791		11,133
Deposit account expense	4,136		3,113		11,845		10,029
Data processing	3,575		3,590		12,088		11,896
Computer software expense	8,426		8,539		23,106		22,006
Consulting expense	1,635		1,224		4,978		3,854
Legal expense	2,363		1,366		5,840		6,093
Other operating expense	20,998		17,122		58,544		57,489
Amortization of tax credit and other investments	38,008		17,209		90,657		57,819
Repurchase agreements’ extinguishment cost	—		—		—		8,740
Total noninterest expense	205,384		172,573		585,984		537,671
INCOME BEFORE INCOME TAXES	273,431		196,060		779,296		472,343
INCOME TAX EXPENSE	47,982		36,523		124,111		68,630
NET INCOME	$	225,449	$	159,537	$	655,185	$	403,713
EARNINGS PER SHARE (“EPS”)
BASIC	$	1.59	$	1.13	$	4.62	$	2.83
DILUTED	$	1.57	$	1.12	$	4.58	$	2.82
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC	141,880		141,498		141,799		142,595
DILUTED	143,143		142,043		143,051		143,082

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	225,449	$	159,537	$	655,185	$	403,713
Other comprehensive income (loss), net of tax:
Net changes in unrealized (losses) gains on AFS debt securities	(41,178)		4,634		(101,577)		49,903
Net changes in unrealized gains (losses) on cash flow hedges	51		87		551		(1,246)
Foreign currency translation adjustments	(1,752)		5,459		(867)		3,065
Other comprehensive (loss) income	(42,879)		10,180		(101,893)		51,722
COMPREHENSIVE INCOME	$	182,570	$	169,717	$	553,292	$	455,435

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, JULY 1, 2020	141,486,397	$	1,841,915	$	3,755,649	$	(633,455)	$	23,134	$	4,987,243

Net income	—	—		159,537		—		—		159,537
Other comprehensive income	—	—		—		—		10,180		10,180



Issuance of common stock pursuant to various stock compensation plans and agreements	21,968	8,648		—		—		—		8,648
Repurchase of common stock pursuant to various stock compensation plans and agreements	(935)	—		—		(31)		—		(31)

Cash dividends on common stock ($0.275 per share)	—	—		(39,471)		—		—		(39,471)
BALANCE, SEPTEMBER 30, 2020	141,507,430	$	1,850,563	$	3,875,715	$	(633,486)	$	33,314	$	5,126,106
BALANCE, JULY 1, 2021	141,877,505	$	1,876,247	$	4,335,327	$	(649,337)	$	(14,689)	$	5,547,548

Net income	—	—		225,449		—		—		225,449
Other comprehensive loss	—	—		—		—		(42,879)		(42,879)



Issuance of common stock pursuant to various stock compensation plans and agreements	9,643	7,792		—		—		—		7,792
Repurchase of common stock pursuant to various stock compensation plans and agreements	(3,417)	—		—		(254)		—		(254)

Cash dividends on common stock ($0.330 per share)	—	—		(47,455)		—		—		(47,455)
BALANCE, SEPTEMBER 30, 2021	141,883,731	$	1,884,039	$	4,513,321	$	(649,591)	$	(57,568)	$	5,690,201



	Common Stock and Additional Paid-in Capital			Retained Earnings		Treasury Stock		AOCI, Net of Tax		Total Stockholders’ Equity
	Shares	Amount
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 (1)	—	—		(97,967)		—		—		(97,967)
Net income	—	—		403,713		—		—		403,713
Other comprehensive income	—	—		—		—		51,722		51,722



Issuance of common stock pursuant to various stock compensation plans and agreements	543,287	24,051		—		—		—		24,051
Repurchase of common stock pursuant to various stock compensation plans and agreements	(189,560)	—		—		(7,656)		—		(7,656)
Repurchase of common stock pursuant to the Stock Repurchase Program	(4,471,682)	—		—		(145,966)		—		(145,966)
Cash dividends on common stock ($0.825 per share)	—	—		(119,408)		—		—		(119,408)
BALANCE, SEPTEMBER 30, 2020	141,507,430	$	1,850,563	$	3,875,715	$	(633,486)	$	33,314	$	5,126,106
BALANCE, JANUARY 1, 2021	141,565,229	$	1,858,519	$	4,000,414	$	(634,083)	$	44,325	$	5,269,175

Net income	—	—		655,185		—		—		655,185
Other comprehensive loss	—	—		—		—		(101,893)		(101,893)



Issuance of common stock pursuant to various stock compensation plans and agreements	523,449	25,520		—		—		—		25,520
Repurchase of common stock pursuant to various stock compensation plans and agreements	(204,947)	—		—		(15,508)		—		(15,508)

Cash dividends on common stock ($0.990 per share)	—	—		(142,278)		—		—		(142,278)
BALANCE, SEPTEMBER 30, 2021	141,883,731	$	1,884,039	$	4,513,321	$	(649,591)	$	(57,568)	$	5,690,201

(1)Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326) on January 1, 2020.

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

(Unaudited)



	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	655,185	$	403,713
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	116,371		96,089
Amortization of premiums and accretion of discount, net	17,392		(17,974)
Stock compensation costs	24,047		22,201
Deferred income tax benefit (expense)	787		(91)
(Reversal of) provision for credit losses	(25,000)		186,313
Net gains on sales of loans	(6,601)		(1,443)
Gains on sales of AFS debt securities	(1,178)		(11,867)


Impairment on other real estate owned ("OREO") and other foreclosed assets	4,843		—
Net gains on sales of OREO and other foreclosed assets	(1,954)		—
Loans held-for-sale:
Originations and purchases	(9,323)		(53,911)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale	11,337		50,339


Proceeds from distributions received from equity method investees	7,624		4,934
Net change in accrued interest receivable and other assets	(78,649)		(467,077)
Net change in accrued expenses and other liabilities	30,179		220,343
Other net operating activities	771		529
Total adjustments	90,646		28,385
Net cash provided by operating activities	745,831		432,098
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in:
Investments in qualified affordable housing partnerships, tax credit and other investments	(141,882)		(102,190)
Interest-bearing deposits with banks	4,576		(503,187)
Resale agreements:
Proceeds from paydowns and maturities	698,274		400,000
Purchases	(1,834,416)		(500,000)
AFS debt securities:
Proceeds from sales	236,967		494,877
Proceeds from repayments, maturities and redemptions	1,346,839		1,532,411
Purchases	(5,884,389)		(3,167,863)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment	416,426		254,035
Purchases	(746,395)		(163,861)
Other changes in loans held-for-investment, net	(1,798,011)		(2,764,867)





Proceeds from sales of OREO and other foreclosed assets	28,560		—


Purchase of bank-owned life insurance	(150,000)		—
Proceeds from distributions received from equity method investees	5,626		2,601
Other net investing activities	(61)		(2,223)
Net cash used in investing activities	(7,817,886)		(4,520,267)

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

(Unaudited)

(Continued)



	Nine Months Ended September 30,
	2021		2020




















































CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	8,486,734		4,337,096
Net (decrease) increase in short-term borrowings	(21,143)		30,916

FHLB advances:
Proceeds	—		10,200
Repayment	(405,000)		(100,200)
Repurchase agreements:
Proceeds from repurchase agreements	—		48,063
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	(909)		(10,609)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program	—		(145,966)
Proceeds from issuance pursuant to various stock compensation plans and agreements	1,180		1,170
Stocks tendered for payment of withholding taxes	(15,508)		(7,656)
Cash dividends paid	(141,911)		(119,185)
Net cash provided by financing activities	7,903,443		5,322,358
Effect of exchange rate changes on cash and cash equivalents	3,542		11,603
NET INCREASE IN CASH AND CASH EQUIVALENTS	834,930		1,245,792
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	4,017,971		3,261,149
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,852,901	$	4,506,941

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	70,833	$	188,657
Income taxes, net	$	137,452	$	82,114
Noncash investing and financing activities:

Loans transferred from held-for-investment to held-for-sale	$	411,416	$	253,302




Loans transferred to OREO and other foreclosed assets	$	49,122	$	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 and Current Accounting Developments

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 (“East West Bank” or the “Bank”) and its subsidiaries. The unaudited interim Consolidated Financial Statements in this Quarterly Report on Form 10-Q (“this Form 10-Q”) include the accounts of East West, East West Bank and East West’s subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of September 30, 2021, 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.

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. While the unaudited interim Consolidated Financial Statements reflect all adjustments that, in the opinion of management, are necessary for fair presentation, they primarily serve to update the most recently filed annual report on Form 10-K, and may not include all the information and notes necessary to constitute a complete set of financial statements. Accordingly, they should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission on February 26, 2021 (the “Company’s 2020 Form 10-K”). In addition, certain items on the Consolidated Financial Statements and notes for the prior periods have been reclassified to conform to the current period presentation.

The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Financial Statements, income and expenses during the reporting period, and the related disclosures. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual results could be materially different from those estimates. Hence, the current period’s results of operations are not necessarily indicative of results that may be expected for any future interim period or for the year as a whole. Events subsequent to the Consolidated Balance Sheet date have been evaluated through the date the Consolidated Financial Statements are issued for inclusion in the accompanying Consolidated Financial Statements.

New Accounting Pronouncements Adopted


Standard	Required Date of Adoption	Description	Effect on Financial Statements
Standards Adopted in 2021
ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables— Nonrefundable Fees and Other Costs	January 1, 2021 Early adoption is not permitted.	The amendments in this ASU updates ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, by clarifying that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. If the security contained additional future call dates, an entity should consider whether the amortized cost basis exceeded the amount repayable by the issuer at the next call date. If so, the excess should be amortized to the next call date. This ASU also clarifies if there is no remaining premium or if there are no further call dates, the entity shall reset the effective yield using the payment terms of the debt security. The amendments of this guidance should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.	The Company adopted this guidance on a prospective basis in January 2021. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.


Standard	Required Date of Adoption	Description	Effect on Financial Statements
Standards Adopted in 2021 (continued)

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent related ASU 2021-01, Reference Rate Reform (Topic 848): Scope	Effective for all entities from the dates of issuance through December 31, 2022.	In March 2020, the FASB issued an ASU related to contracts or hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued due to reference rate reform. This ASU provides temporary optional expedients and exceptions regarding the accounting requirements related to the modification of certain contracts, hedging relationships and other transactions that are affected by the reference rate reform. The guidance permits the Company to make a one-time election to sell and/or transfer qualifying held-to-maturity securities, and not to apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationships and the assessment of hedge effectiveness during the transition period. This one-time election may be made at any time after March 12, 2020, but no later than December 31, 2022. In January 2021, the FASB issued ASU 2021-01 as subsequent amendments, which expanded the scope of Topic 848 to include all affected derivatives and clarified certain optional expedients and exceptions regarding the hedge accounting for derivative contracts affected by the discounting transition. The amendments of this guidance could be elected retrospectively or prospectively to new modifications made on or after the date of issuance of this ASU, January 7, 2021.	The Company adopted this guidance on a prospective basis in January 2021. At the time of adoption, the guidance did not have a material impact on the Company’s Consolidated Financial Statements. The Company will continue to track the exposure as of each reporting period and to assess the impact as the reference rate transition occurs through the cessation of LIBOR.


ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	January 1, 2021 Early adoption is permitted on January 1, 2020.	This ASU simplifies the accounting for income taxes by removing certain exceptions to the existing guidance. This includes removing exceptions to: 1) the incremental approach for intraperiod tax allocation, 2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred tax liability when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, this ASU simplifies the accounting for income taxes related to franchise taxes, the tax basis of goodwill and the method for recognizing an enacted change in tax laws. This ASU also specifies that an entity is not required to allocate the consolidated amount of tax expense to a legal entity that is not subject to tax in its separate financial statements. This ASU also makes improvements in the accounting for income taxes related to employee stock ownership plans and equity method investments in qualified affordable housing projects. This guidance should be applied on either a retrospective, modified retrospective or prospective basis depending on the amendments.	The Company adopted this guidance in January 2021 using the transition guidance prescribed by this ASU. At the time of adoption, this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Note 2 — Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Determination

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

•Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets.

•Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

•Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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

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

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

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

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 of foreign exchange contracts is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts are classified as Level 2. As of September 30, 2021 and December 31, 2020, the Bank held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency non-deliverable forward contracts is determined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include spot rates and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

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

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

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

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
AFS debt securities:
U.S. Treasury securities	$	941,724	$	—	$	—	$	941,724
U.S. government agency and U.S. government-sponsored enterprise debt securities	—		1,363,109		—		1,363,109
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		1,274,467		—		1,274,467
Residential mortgage-backed securities	—		2,791,064		—		2,791,064
Municipal securities	—		501,489		—		501,489
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—		464,770		—		464,770
Residential mortgage-backed securities	—		901,256		—		901,256
Corporate debt securities	—		618,671		—		618,671
Foreign government bonds	—		254,848		—		254,848
Asset-backed securities	—		76,799		—		76,799
Collateralized loan obligations (“CLOs”)	—		524,809		—		524,809
Total AFS debt securities	$	941,724	$	8,771,282	$	—	$	9,713,006

Investments in tax credit and other investments:
Equity securities (1)	$	22,289	$	4,496	$	—	$	26,785
Total investments in tax credit and other investments	$	22,289	$	4,496	$	—	$	26,785

Derivative assets:
Interest rate contracts	$	—	$	298,831	$	—	$	298,831
Foreign exchange contracts	—		31,875		—		31,875
Credit contracts	—		15		—		15
Equity contracts	—		6		220		226
Commodity contracts	—		363,063		—		363,063
Gross derivative assets	$	—	$	693,790	$	220	$	694,010
Netting adjustments (2)	$	—	$	(165,483)	$	—	$	(165,483)
Net derivative assets	$	—	$	528,307	$	220	$	528,527

Derivative liabilities:
Interest rate contracts	$	—	$	213,328	$	—	$	213,328
Foreign exchange contracts	—		24,313		—		24,313
Credit contracts	—		120		—		120
Commodity contracts	—		324,027		—		324,027
Gross derivative liabilities	$	—	$	561,788	$	—	$	561,788
Netting adjustments (2)	$	—	$	(342,619)	$	—	$	(342,619)
Net derivative liabilities	$	—	$	219,169	$	—	$	219,169



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
AFS debt securities:
U.S. Treasury securities	$	50,761	$	—	$	—	$	50,761
U.S. government agency and U.S. government-sponsored enterprise debt securities	—		814,319		—		814,319
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		1,153,770		—		1,153,770
Residential mortgage-backed securities	—		1,660,894		—		1,660,894
Municipal securities	—		396,073		—		396,073
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—		239,842		—		239,842
Residential mortgage-backed securities	—		289,775		—		289,775
Corporate debt securities	—		405,968		—		405,968
Foreign government bonds	—		182,531		—		182,531
Asset-backed securities	—		63,231		—		63,231
CLOs	—		287,494		—		287,494
Total AFS debt securities	$	50,761	$	5,493,897	$	—	$	5,544,658

Investments in tax credit and other investments:
Equity securities (1)	$	22,548	$	8,724	$	—	$	31,272
Total investments in tax credit and other investments	$	22,548	$	8,724	$	—	$	31,272

Derivative assets:
Interest rate contracts	$	—	$	489,132	$	—	$	489,132
Foreign exchange contracts	—		30,300		—		30,300
Credit contracts	—		13		—		13
Equity contracts	—		585		273		858
Commodity contracts	—		82,451		—		82,451
Gross derivative assets	$	—	$	602,481	$	273	$	602,754
Netting adjustments (2)	$	—	$	(101,512)	$	—	$	(101,512)
Net derivative assets	$	—	$	500,969	$	273	$	501,242

Derivative liabilities:
Interest rate contracts	$	—	$	317,698	$	—	$	317,698
Foreign exchange contracts	—		22,759		—		22,759
Credit contracts	—		206		—		206
Commodity contracts	—		84,165		—		84,165
Gross derivative liabilities	$	—	$	424,828	$	—	$	424,828
Netting adjustments (2)	$	—	$	(184,697)	$	—	$	(184,697)
Net derivative liabilities	$	—	$	240,131	$	—	$	240,131

(1)Equity securities consist of mutual funds with readily determinable fair values. The Company invested in these mutual funds for CRA purposes.

(2)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

For the three and nine months ended September 30, 2021 and 2020, Level 3 fair value measurements that were measured on a recurring basis consisted of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three and nine months ended September 30, 2021 and 2020:



($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Equity Contracts
Beginning balance	$	223	$	316	$	273	$	421

Total (losses) gains included in earnings (1)	(9)		(6)		37		8,262




Issuances	12		—		12		—


Settlements	—		—		(96)		—
Transfers out of Level 3 (2)	(6)		—		(6)		(8,373)
Ending balance	$	220	$	310	$	220	$	310

(1)Include both realized and unrealized gain (losses) recorded in Lending fees on the Consolidated Statement of Income. The unrealized (losses) gains were $(9) thousand and $(6) thousand for the three months ended September 30, 2021 and 2020, respectively, and $(38) thousand and $8.3 million for the nine months ended September 30, 2021 and 2020, respectively.

(2)During the three and nine months ended September 30, 2021, the Company transferred $6 thousand of equity contracts measured on a recurring basis out of Level 3 into Level 2 after the corresponding issuer of the equity contracts, which was previously a private company, completed its initial public offering and became a public company. In comparison, zero and $8.4 million were transferred out of Level 3 for the same reason during the three and nine months ended September 30, 2020, respectively.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of September 30, 2021 and December 31, 2020, respectively. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.



($ in thousands)	Fair Value Measurements (Level 3)		Valuation Technique	Unobservable Inputs	Range of Inputs	Weighted- Average of Inputs (1)
September 30, 2021
Derivative assets:
Equity contracts	$	220	Black-Scholes option pricing model	Equity volatility	45% — 54%	49%
				Liquidity discount	47%	47%
December 31, 2020
Derivative assets:
Equity contracts	$	273	Black-Scholes option pricing model	Equity volatility	46% — 61%	53%
				Liquidity discount	47%	47%

(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of September 30, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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

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

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

•expected future cash flows that are less than the carrying amount of the investment;

•changes in the economic, market or technological environment that could adversely affect the investee’s operations; and

•other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

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

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

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

The following tables present the carrying amounts of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of September 30, 2021 and December 31, 2020:



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of September 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurements
Loans held-for-investment:
Commercial:
Commercial and industrial (“C&I”)	$	—	$	—	$	123,233	$	123,233
Commercial real estate (“CRE”):
CRE	—		—		9,400		9,400
Multifamily residential	—		—		2,958		2,958


Total commercial	—		—		135,591		135,591
Consumer:
Residential mortgage:

Home equity lines of credit (“HELOCs”)	—		—		2,739		2,739


Total consumer	—		—		2,739		2,739
Total loans held-for-investment	$	—	$	—	$	138,330	$	138,330


Other nonperforming assets	$	—	$	—	$	699	$	699



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurements
Loans held-for-investment:
Commercial:
C&I	$	—	$	—	$	143,331	$	143,331
CRE:
CRE	—		—		42,894		42,894



Total commercial	—		—		186,225		186,225
Consumer:
Residential mortgage:

HELOCs	—		—		1,146		1,146

Other consumer	—		—		2,491		2,491
Total consumer	—		—		3,637		3,637
Total loans held-for-investment	$	—	$	—	$	189,862	$	189,862
Investments in tax credit and other investments, net	$	—	$	—	$	3,140	$	3,140
OREO (1)	$	—	$	—	$	15,824	$	15,824

(1)Amounts are included in Other assets on the Consolidated Balance Sheet and represent the carrying value of OREO properties that were written down subsequent to their initial classification as OREO.

The following table presents the (decrease) increase in fair value of certain assets held at the end of the respective reporting periods, for which a nonrecurring fair value adjustment was recognized during the periods presented:



($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Loans held-for-investment (1):
Commercial:
C&I	$	(4,977)	$	(24,928)	$	(13,590)	$	(38,855)
CRE:
CRE	(106)		(15)		(7,186)		(292)
Multifamily residential	16		—		—		—


Total commercial	(5,067)		(24,943)		(20,776)		(39,147)
Consumer:
Residential mortgage:

HELOCs	3		3		(6)		(178)

Other consumer	—		—		(2,491)		2,491
Total consumer	3		3		(2,497)		2,313
Total loans held-for-investment	$	(5,064)	$	(24,940)	$	(23,273)	$	(36,834)
Investments in tax credit and other investments, net	$	—	$	—	$	877	$	(583)

Other nonperforming assets	$	(43)	$	—	$	(3,933)	$	—

(1) Excludes loans fully charged off.

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 September 30, 2021 and December 31, 2020:



($ in thousands)	Fair Value Measurements (Level 3)		Valuation Techniques	Unobservable Inputs	Range of Inputs	Weighted- Average of Inputs (1)
September 30, 2021
Loans held-for-investment	$	89,442	Discounted cash flows	Discount	4% — 15%	7%
	$	32,636	Fair value of collateral	Discount	15% — 81%	40%
	$	1,000	Fair value of collateral	Contract value	NM	NM
	$	15,252	Fair value of property	Selling cost	8%	8%

Other nonperforming assets	$	699	Fair value of collateral	Contract value	NM	NM


December 31, 2020
Loans held-for-investment	$	104,783	Discounted cash flows	Discount	3% — 15%	11%

	$	22,207	Fair value of collateral	Discount	10% — 26%	15%
	$	15,879	Fair value of collateral	Contract value	NM	NM
	$	46,993	Fair value of property	Selling cost	7% — 26%	10%
Investments in tax credit and other investments, net	$	3,140	Individual analysis of each investment	Expected future tax benefits and distributions	NM	NM
OREO	$	15,824	Fair value of property	Selling cost	8%	8%

NM — Not meaningful.

(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of September 30, 2021 and December 31, 2020.

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of September 30, 2021 and December 31, 2020, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable and mortgage servicing rights included in Other assets, and accrued interest payable 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)	September 30, 2021
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	4,852,901	$	4,852,901	$	—	$	—	$	4,852,901
Interest-bearing deposits with banks	$	855,162	$	—	$	855,162	$	—	$	855,162
Resale agreements	$	2,596,142	$	—	$	2,580,845	$	—	$	2,580,845

Restricted equity securities, at cost	$	77,200	$	—	$	77,200	$	—	$	77,200
Loans held-for-sale	$	—	$	—	$	—	$	—	$	—
Loans held-for-investment, net	$	39,921,301	$	—	$	—	$	39,953,031	$	39,953,031
Mortgage servicing rights	$	5,620	$	—	$	—	$	8,858	$	8,858
Accrued interest receivable	$	151,826	$	—	$	151,826	$	—	$	151,826
Financial liabilities:
Demand, checking, savings and money market deposits	$	45,117,548	$	—	$	45,117,548	$	—	$	45,117,548
Time deposits	$	8,238,642	$	—	$	8,248,717	$	—	$	8,248,717


FHLB advances	$	248,898	$	—	$	250,635	$	—	$	250,635
Repurchase agreements	$	300,000	$	—	$	312,264	$	—	$	312,264
Long-term debt	$	147,586	$	—	$	149,625	$	—	$	149,625
Accrued interest payable	$	11,275	$	—	$	11,275	$	—	$	11,275



($ in thousands)	December 31, 2020
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	4,017,971	$	4,017,971	$	—	$	—	$	4,017,971
Interest-bearing deposits with banks	$	809,728	$	—	$	809,728	$	—	$	809,728
Resale agreements	$	1,460,000	$	—	$	1,464,635	$	—	$	1,464,635

Restricted equity securities, at cost	$	83,046	$	—	$	83,046	$	—	$	83,046
Loans held-for-sale	$	1,788	$	—	$	1,788	$	—	$	1,788
Loans held-for-investment, net	$	37,770,972	$	—	$	—	$	37,803,940	$	37,803,940

Mortgage servicing rights	$	5,522	$	—	$	—	$	8,435	$	8,435
Accrued interest receivable	$	150,140	$	—	$	150,140	$	—	$	150,140
Financial liabilities:

Demand, checking, savings and money market deposits	$	35,862,403	$	—	$	35,862,403	$	—	$	35,862,403
Time deposits	$	9,000,349	$	—	$	9,016,884	$	—	$	9,016,884
Short-term borrowings	$	21,009	$	—	$	21,009	$	—	$	21,009
FHLB advances	$	652,612	$	—	$	659,631	$	—	$	659,631
Repurchase agreements	$	300,000	$	—	$	317,850	$	—	$	317,850
Long-term debt	$	147,376	$	—	$	150,131	$	—	$	150,131
Accrued interest payable	$	11,956	$	—	$	11,956	$	—	$	11,956

Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements

Assets Purchased under Resale Agreements

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

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $1.34 billion and $1.16 billion as of September 30, 2021 and December 31, 2020, respectively. The weighted-average yields were 1.50% and 1.72% for the three months ended September 30, 2021 and 2020, respectively; and 1.53% and 2.09% for the nine months ended September 30, 2021 and 2020, respectively.

Loans Purchased under Resale Agreements — The Company participated in resale agreements collateralized with loans with multiple counterparties starting in the fourth quarter of 2020. Total loans purchased under resale agreements were $1.26 billion and $300.0 million as of September 30, 2021 and December 31, 2020, respectively. The weighted-average yields were 1.48% and 1.57% for the three and nine months ended September 30, 2021, respectively.

Assets Sold under Repurchase Agreements — As of September 30, 2021 and December 31, 2020, securities sold under the repurchase agreements consisted of U.S. Treasury securities and U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities. Gross repurchase agreements were $300.0 million as of both September 30, 2021 and December 31, 2020. The weighted-average interest rates were 2.57% and 2.70% for the three months ended September 30, 2021 and 2020, respectively, and 2.62% and 3.64% for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, all repurchase agreements will mature in 2023.

Balance Sheet Offsetting

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

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of September 30, 2021 and December 31, 2020:



($ in thousands)	September 30, 2021

Assets	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			Net Amount

							Collateral Received
Resale agreements	$	2,596,142	$	—	$	2,596,142	$	(2,580,187)	(1)	$	15,955

Liabilities	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			Net Amount

							Collateral Pledged
Repurchase agreements	$	300,000	$	—	$	300,000	$	(300,000)	(2)	$	—



($ in thousands)	December 31, 2020

	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Consolidated Balance Sheet		Net Amounts of Assets Presented on the Consolidated Balance Sheet		Gross Amounts Not Offset on the Consolidated Balance Sheet
Assets										Net Amount
							Collateral Received
Resale agreements	$	1,460,000	$	—	$	1,460,000	$	(1,458,700)	(1)	$	1,300

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

(1)Represents the fair value of securities and loans the Company has received under resale agreements, limited to the amount of the recognized asset due from each counterparty for presentation purposes. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

(2)Represents the fair value of securities the Company has pledged under repurchase agreements, limited to the amount of the recognized liability due to each counterparty for presentation purpose. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to derivatives. Refer to Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

Note 4 — 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 September 30, 2021 and December 31, 2020:



($ in thousands)	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
AFS debt securities:
U.S. Treasury securities	$	950,260	$	233	$	(8,769)	$	941,724
U.S. government agency and U.S. government-sponsored enterprise debt securities	1,386,236		4,401		(27,528)		1,363,109
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	1,277,989		19,063		(22,585)		1,274,467
Residential mortgage-backed securities	2,814,111		13,875		(36,922)		2,791,064
Municipal securities	500,907		8,194		(7,612)		501,489
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	463,358		4,704		(3,292)		464,770
Residential mortgage-backed securities	902,002		2,490		(3,236)		901,256
Corporate debt securities	626,531		9,445		(17,305)		618,671
Foreign government bonds	258,119		657		(3,928)		254,848
Asset-backed securities	76,417		437		(55)		76,799
CLOs	527,250		5		(2,446)		524,809
Total AFS debt securities	$	9,783,180	$	63,504	$	(133,678)	$	9,713,006



($ in thousands)	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
AFS debt securities:
U.S. Treasury securities	$	50,310	$	451	$	—	$	50,761
U.S. government agency and U.S. government-sponsored enterprise debt securities	806,814		8,765		(1,260)		814,319
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	1,125,174		34,306		(5,710)		1,153,770
Residential mortgage-backed securities	1,634,553		27,952		(1,611)		1,660,894
Municipal securities	382,573		13,588		(88)		396,073
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	234,965		6,107		(1,230)		239,842
Residential mortgage-backed securities	288,520		1,761		(506)		289,775
Corporate debt securities	406,323		3,493		(3,848)		405,968
Foreign government bonds	183,828		163		(1,460)		182,531
Asset-backed securities	63,463		10		(242)		63,231
CLOs	294,000		—		(6,506)		287,494
Total AFS debt securities	$	5,470,523	$	96,596	$	(22,461)	$	5,544,658

The amortized cost of AFS debt securities excludes accrued interest receivables, which are a component of Other assets on the Consolidated Balance Sheet. The accrued interest receivables for AFS debt securities were $27.0 million and $22.3 million as of September 30, 2021 and December 31, 2020, respectively. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivables, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in the Company’s 2020 Form 10-K.

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 September 30, 2021 and December 31, 2020.



($ in thousands)	September 30, 2021
	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	$	768,909	$	(8,769)	$	—	$	—	$	768,909	$	(8,769)
U.S. government agency and U.S. government- sponsored enterprise debt securities	1,008,979		(21,747)		144,196		(5,781)		1,153,175		(27,528)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	603,554		(17,164)		107,752		(5,421)		711,306		(22,585)
Residential mortgage-backed securities	1,904,559		(35,792)		17,591		(1,130)		1,922,150		(36,922)
Municipal securities	249,055		(7,612)		—		—		249,055		(7,612)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	151,915		(2,158)		40,233		(1,134)		192,148		(3,292)
Residential mortgage-backed securities	561,635		(3,233)		8,145		(3)		569,780		(3,236)
Corporate debt securities	207,861		(6,139)		178,833		(11,166)		386,694		(17,305)
Foreign government bonds	54,228		(3,514)		84,977		(414)		139,205		(3,928)
Asset-backed securities	21,631		(55)		—		—		21,631		(55)
CLOs	183,192		(58)		291,612		(2,388)		474,804		(2,446)
Total AFS debt securities	$	5,715,518	$	(106,241)	$	873,339	$	(27,437)	$	6,588,857	$	(133,678)



($ in thousands)	December 31, 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. Treasury securities	$	352,521	$	(1,260)	$	—	$	—	$	352,521	$	(1,260)

U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	292,596		(5,656)		3,543		(54)		296,139		(5,710)
Residential mortgage-backed securities	342,561		(1,611)		—		—		342,561		(1,611)
Municipal securities	24,529		(88)		—		—		24,529		(88)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	58,738		(1,230)		7,920		—		66,658		(1,230)
Residential mortgage-backed securities	90,156		(506)		—		—		90,156		(506)
Corporate debt securities	251,674		(3,645)		9,798		(203)		261,472		(3,848)
Foreign government bonds	106,828		(1,460)		—		—		106,828		(1,460)
Asset-backed securities	—		—		34,104		(242)		34,104		(242)
CLOs	—		—		287,494		(6,506)		287,494		(6,506)
Total AFS debt securities	$	1,519,603	$	(15,456)	$	342,859	$	(7,005)	$	1,862,462	$	(22,461)

As of September 30, 2021, the Company had a total of 359 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting primarily of 150 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 48 U.S. government agency and U.S. government-sponsored enterprise debt securities, and 22 corporate debt securities. In comparison, as of December 31, 2020, the Company had a total of 104 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting primarily of 46 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities and 17 corporate debt securities.

Allowance for Credit Losses

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

The gross unrealized losses presented in the above tables were primarily attributable to interest rate movement and widened liquidity spreads. Securities that were in unrealized loss positions as of September 30, 2021 were mainly comprised of the following:

•U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities — The market value decline as of September 30, 2021 was primarily due to interest rate movement. These securities (issued by Ginnie Mae, Fannie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the U.S. government, and the credit profiles are strong (rated Aaa, AA+ and AAA by Moody’s Investors Service (“Moody’s”), Standard and Poor's (“S&P”) and Fitch Ratings (“Fitch”), respectively). The Company expects to receive all contractual cash flows on time and believes the risk of credit losses on these securities is remote.

•U.S. government agency and U.S. government-sponsored enterprise debt securities — The market value decline as of September 30, 2021 was primarily due to interest rate movement. The securities consisted of the debt securities issued by:

–Federal Farm Credit Bank, Fannie Mae, Freddie Mac, and U.S. International Development Finance Corporation (rated Aaa, AA+ and AAA by Moody’s, S&P and Fitch, respectively).

–FHLB (rated Aaa and AA+ by Moody’s and S&P, respectively).

These securities are guaranteed or issued by entities sponsored by the U.S. government and the credit profiles are strong. The Company expects to receive all contractual cash flows on time and believes the risk of credit losses on these securities is remote.

•Corporate debt securities — The market value decline as of September 30, 2021 was primarily due to interest rate movement and spread widening. Since credit profiles of these securities are strong (rated BBB- or higher by Moody’s, S&P, Fitch, and Kroll Bond Rating Agency), and the contractual payments from these securities have been and are expected to be received on time, the Company believes that the risk of credit losses on these securities is remote.

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

As of September 30, 2021 and December 31, 2020, the Company had the intent to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-likely-than-not that the Company will not have to sell these securities before the recovery of their amortized cost. The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities. As a result, the Company expects to recover the entire amortized cost basis of these securities. Accordingly, there was no allowance for credit losses as of September 30, 2021 and December 31, 2020 provided against these securities. In addition, there was no provision for credit losses recognized for the three and nine months ended September 30, 2021 and 2020.

Realized Gains and Losses

The following table presents the gross realized gains and tax expense related to the sales of AFS debt securities for the three and nine months ended September 30, 2021 and 2020:



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

Gross realized gains	$	354	$	698	$	1,178	$	11,867
Related tax expense	$	104	$	206	$	348	$	3,508

Contractual Maturities of Available-for-Sale Debt Securities

The following table presents the contractual maturities of AFS debt securities as of September 30, 2021. Expected maturities will differ from contractual maturities on certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.



($ in thousands)	Amortized Cost		Fair Value
Due within one year	$	1,522,146	$	1,486,148
Due after one year through five years	845,850		848,562
Due after five years through ten years	1,618,344		1,618,061
Due after ten years	5,796,840		5,760,235
Total AFS debt securities	$	9,783,180	$	9,713,006

As of September 30, 2021 and December 31, 2020, AFS debt securities with fair values of $859.9 million and $588.5 million, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.

Restricted Equity Securities

The following table presents the restricted equity securities on the Consolidated Balance Sheet as of September 30, 2021 and December 31, 2020:



($ in thousands)	September 30, 2021		December 31, 2020
Federal Reserve Bank of San Francisco (“FRBSF”) stock	$	59,950	$	59,249
FHLB stock	17,250		23,797
Total restricted equity securities	$	77,200	$	83,046

Note 5 — Derivatives

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

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 September 30, 2021 and December 31, 2020. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of September 30, 2021 and December 31, 2020. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.



($ in thousands)	September 30, 2021							December 31, 2020
	Notional Amount			Fair Value				Notional Amount			Fair Value
				Derivative Assets		Derivative Liabilities					Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:


Cash flow hedges:
Interest rate contracts	$	275,000		$	—	$	1,149	$	275,000		$	—	$	1,864
Net investment hedges:
Foreign exchange contracts	85,316			158		—		84,269			—		235
Total derivatives designated as hedging instruments	$	360,316		$	158	$	1,149	$	359,269		$	—	$	2,099
Derivatives not designated as hedging instruments:
Interest rate contracts	$	17,743,446		$	298,831	$	212,179	$	18,155,678		$	489,132	$	315,834
Foreign exchange contracts	3,047,846			31,717		24,313		3,108,488			30,300		22,524
Credit contracts	83,693			15		120		76,992			13		206
Equity contracts	—		(1)	226		—		—		(1)	858		—
Commodity contracts	—		(2)	363,063		324,027		—		(2)	82,451		84,165
Total derivatives not designated as hedging instruments	$	20,874,985		$	693,852	$	560,639	$	21,341,158		$	602,754	$	422,729
Gross derivative assets/liabilities				$	694,010	$	561,788				$	602,754	$	424,828
Less: Master netting agreements				(102,515)		(102,515)					(93,063)		(93,063)
Less: Cash collateral received/paid				(62,968)		(240,104)					(8,449)		(91,634)
Net derivative assets/liabilities				$	528,527	$	219,169				$	501,242	$	240,131

(1)The Company held equity contracts in one public company and 12 private companies as of September 30, 2021. In comparison, the Company held equity contracts in two public companies and 17 private companies as of December 31, 2020.

(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 8,557 thousand barrels of crude oil and 95,273 thousand units of natural gas, measured in million British thermal units (“MMBTUs”), as of September 30, 2021. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 6,321 thousand barrels of crude oil and 109,635 thousand MMBTUs of natural gas as of December 31, 2020. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

Derivatives Designated as Hedging Instruments

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

As of both September 30, 2021 and December 31, 2020, there were no fair value hedges or hedged certificates of deposit outstanding. There were no gains or losses recognized on the Consolidated Statement of Income related to the derivatives designated as fair value hedges for both the three and nine months ended September 30, 2021. In comparison, the net gains recognized on interest rate swaps were $154 thousand and $3.2 million for the three and nine months ended September 30, 2020, respectively, and a net gain of $112 thousand and a net loss of $1.6 million were recognized on certificates of deposit for the three and nine months ended September 30, 2020, respectively, which were recorded in interest expense on the Consolidated Statement of Income.

Cash Flow Hedges — The Company entered into interest rate swaps that were designated and qualified as cash flow hedges to limit the exposure to the variability in interest payments on certain floating rate borrowings. For cash flow hedges, the entire change in the fair value of the hedging instruments is recognized in AOCI and reclassified to earnings in the same period when the hedged cash flows impact earnings. Reclassified gains and losses on interest rate swaps are recorded in the same line item as the interest payments of the hedged long-term borrowings within Interest expense in the Consolidated Statements of Income. Considering the interest rates, yield curve and notional amounts as of September 30, 2021, the Company expected to reclassify an estimated $625 thousand of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

The following table presents the pre-tax changes in AOCI from cash flow hedges for the three and nine months ended September 30, 2021 and 2020. The after-tax impact of cash flow hedges on AOCI is discussed in Note 12 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.



($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(Losses) gains recognized in AOCI	$	(170)	$	34	$	150	$	(1,449)
(Losses) gains reclassified from AOCI to interest expense	$	(241)	$	(87)	$	(619)	$	290

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

The following table presents the after-tax (losses) gains recognized in AOCI on net investment hedges for the three and nine months ended September 30, 2021 and 2020:



($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Losses recognized in AOCI	$	(318)	$	(2,627)	$	(1,860)	$	(2,000)

Derivatives Not Designated as Hedging Instruments

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

The following tables present the notional amounts and the gross fair values of interest rate derivative contracts outstanding as of September 30, 2021 and December 31, 2020:



($ in thousands)	September 30, 2021
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Assets		Liabilities					Assets		Liabilities
Written options	$	1,103,453	$	—	$	751	Purchased options	$	1,103,453	$	757	$	—
Sold collars and corridors	179,605		2,083		198		Collars and corridors	179,605		199		2,093
Swaps	7,573,811		276,902		31,316		Swaps	7,603,519		18,890		177,821
Total	$	8,856,869	$	278,985	$	32,265	Total	$	8,886,577	$	19,846	$	179,914



($ in thousands)	December 31, 2020
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Assets		Liabilities					Assets		Liabilities
Written options	$	957,393	$	—	$	115	Purchased options	$	957,393	$	101	$	15
Sold collars and corridors	518,477		7,673		—		Collars and corridors	518,477		—		7,717
Swaps	7,586,414		479,634		1,364		Swaps	7,617,524		1,724		306,623
Total	$	9,062,284	$	487,307	$	1,479	Total	$	9,093,394	$	1,825