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EAST WEST BANCORP INC - Quarter Report: 2022 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, 2022

or

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

For the transition period from to

Commission file number 000-24939

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

Delaware
(State or other jurisdiction of incorporation or organization)

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

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

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

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

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

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

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

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

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
    Number of shares outstanding of the issuer’s common stock on the latest practicable date: 140,917,512 shares as of July 31, 2022.



TABLE OF CONTENTS
Page
2


PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands, except shares)
(Unaudited)
June 30,
2022
December 31,
2021
(Unaudited)
ASSETS
Cash and due from banks$688,936 $527,317 
Interest-bearing cash with banks1,213,117 3,385,618 
Cash and cash equivalents1,902,053 3,912,935 
Interest-bearing deposits with banks712,709 736,492 
Assets purchased under resale agreements (“resale agreements”)1,422,794 2,353,503 
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $6,891,522 and $10,087,179)
6,255,504 9,965,353 
Held-to-maturity (“HTM”) debt securities, at amortized cost (fair value of $2,656,549)
3,028,302 — 
Loans held-for-sale28,464 635 
Loans held-for-investment (net of allowance for loan losses of $563,270 and $541,579)
45,938,806 41,152,202 
Investments in qualified affordable housing partnerships, tax credit and other investments, net634,304 628,263 
Premises and equipment (net of accumulated depreciation of $143,708 and $139,358)
93,911 97,302 
Goodwill465,697 465,697 
Operating lease right-of-use assets107,588 98,632 
Other assets1,804,151 1,459,687 
TOTAL$62,394,283 $60,870,701 
LIABILITIES
Deposits:
Noninterest-bearing$23,028,831 $22,845,464 
Interest-bearing31,314,523 30,505,068 
Total deposits54,343,354 53,350,532 
Federal Home Loan Bank (“FHLB”) advances174,776 249,331 
Assets sold under repurchase agreements (“repurchase agreements”)611,785 300,000 
Long-term debt and finance lease liabilities152,663 151,997 
Operating lease liabilities115,387 105,534 
Accrued expenses and other liabilities1,386,836 876,089 
Total liabilities56,784,801 55,033,483 
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 168,427,021 and 167,790,645 shares issued
168 168 
Additional paid-in capital1,914,064 1,893,557 
Retained earnings5,064,650 4,683,659 
Treasury stock, at cost 27,509,632 and 25,882,691 shares
(768,752)(649,785)
Accumulated other comprehensive loss (“AOCI”), net of tax(600,648)(90,381)
Total stockholders’ equity5,609,482 5,837,218 
TOTAL$62,394,283 $60,870,701 
See accompanying Notes to Consolidated Financial Statements.

3


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees$439,416 $352,453 $816,526 $694,461 
Debt securities46,176 34,690 88,843 63,790 
Resale agreements8,553 8,021 16,936 14,120 
Restricted equity securities822 541 1,431 1,088 
Interest-bearing cash and deposits with banks4,787 3,628 8,047 7,260 
Total interest and dividend income499,754 399,333 931,783 780,719 
INTEREST EXPENSE
Deposits22,488 17,998 35,477 39,820 
Short-term borrowings
241 — 250 42 
FHLB advances559 2,099 1,137 5,168 
Repurchase agreements2,418 1,991 4,434 3,969 
Long-term debt and finance lease liabilities1,096 772 1,920 1,552 
Total interest expense26,802 22,860 43,218 50,551 
Net interest income before provision for (reversal of) credit losses472,952 376,473 888,565 730,168 
Provision for (reversal of) credit losses13,500 (15,000)21,500 (15,000)
Net interest income after provision for (reversal of) credit losses459,452 391,473 867,065 745,168 
NONINTEREST INCOME
Lending fees20,142 21,092 39,580 39,449 
Deposit account fees22,372 17,342 42,687 32,725 
Interest rate contracts and other derivative income (loss)9,801 (3,172)20,934 13,825 
Foreign exchange income11,361 13,007 24,060 22,533 
Wealth management fees6,539 7,951 12,591 14,862 
Net gains on sales of loans917 1,491 3,839 3,272 
Gains on sales of AFS debt securities28 632 1,306 824 
Other investment income4,863 7,596 6,490 8,521 
Other income2,421 2,492 6,700 5,286 
Total noninterest income78,444 68,431 158,187 141,297 
NONINTEREST EXPENSE
Compensation and employee benefits113,364 105,426 229,633 213,234 
Occupancy and equipment expense15,469 15,377 30,933 31,299 
Deposit insurance premiums and regulatory assessments4,927 4,274 9,644 8,150 
Deposit account expense5,671 3,817 10,364 7,709 
Data processing3,486 4,035 7,151 8,513 
Computer software expense6,572 7,521 13,866 14,680 
Consulting expense2,021 1,868 3,854 3,343 
Legal expense1,047 1,975 1,765 3,477 
Other operating expense29,324 17,939 50,221 37,546 
Amortization of tax credit and other investments14,979 27,291 28,879 52,649 
Total noninterest expense196,860 189,523 386,310 380,600 
INCOME BEFORE INCOME TAXES341,036 270,381 638,942 505,865 
INCOME TAX EXPENSE82,707 45,639 142,961 76,129 
NET INCOME$258,329 $224,742 $495,981 $429,736 
EARNINGS PER SHARE (“EPS”)
BASIC$1.83 $1.58 $3.50 $3.03 
DILUTED$1.81 $1.57 $3.47 $3.01 
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC141,429 141,868 141,725 141,758 
DILUTED142,372 143,040 142,838 142,963 
See accompanying Notes to Consolidated Financial Statements.

4


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Net income$258,329 $224,742 $495,981 $429,736 
Other comprehensive (loss) income, net of tax:
Net changes in unrealized (losses) gains on AFS debt securities(192,878)73,049 (362,148)(60,399)
Net changes in unrealized gains (losses) on securities transferred from AFS to HTM3,750 — (106,930)— 
Net changes in unrealized (losses) gains on cash flow hedges(6,380)68 (31,103)500 
Foreign currency translation adjustments(10,215)2,234 (10,086)885 
Other comprehensive (loss) income(205,723)75,351 (510,267)(59,014)
COMPREHENSIVE INCOME (LOSS)$52,606 $300,093 $(14,286)$370,722 
See accompanying Notes to Consolidated Financial Statements.

5


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

Common Stock and
Additional Paid-in Capital
Retained EarningsTreasury StockAOCI,
Net of Tax
Total
Stockholders’ Equity
SharesAmount
BALANCE, APRIL 1, 2021141,843,036 $1,866,101 $4,158,032 $(649,066)$(90,040)$5,285,027 
Net Income— — 224,742 — — 224,742 
Other comprehensive income— — — — 75,351 75,351 
Issuance of common stock pursuant to various stock compensation plans and agreements38,073 10,146 — — — 10,146 
Repurchase of common stock pursuant to various stock compensation plans and agreements(3,604)— — (271)— (271)
Cash dividends on common stock ($0.33 per share)
— — (47,447)— — (47,447)
BALANCE, JUNE 30, 2021141,877,505 $1,876,247 $4,335,327 $(649,337)$(14,689)$5,547,548 
BALANCE, APRIL 1, 2022142,256,520 $1,903,042 $4,863,721 $(668,382)$(394,925)$5,703,456 
Net Income— — 258,329 — — 258,329 
Other comprehensive loss— — — — (205,723)(205,723)
Issuance of common stock pursuant to various stock compensation plans and agreements51,733 11,190 — — — 11,190 
Repurchase of common stock pursuant to various stock compensation plans and agreements(5,347)— — (380)— (380)
Repurchase of common stock pursuant to the Stock Repurchase Plan(1,385,517)— — (99,990)— (99,990)
Cash dividends on common stock ($0.40 per share)
— — (57,400)— — (57,400)
BALANCE, JUNE 30, 2022140,917,389 $1,914,232 $5,064,650 $(768,752)$(600,648)$5,609,482 
Common Stock and
Additional Paid-in Capital
Retained EarningsTreasury StockAOCI,
Net of Tax
Total
Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2021141,565,229 $1,858,519 $4,000,414 $(634,083)$44,325 $5,269,175 
Net income— — 429,736 — — 429,736 
Other comprehensive loss— — — — (59,014)(59,014)
Issuance of common stock pursuant to various stock compensation plans and agreements513,806 17,728 — — — 17,728 
Repurchase of common stock pursuant to various stock compensation plans and agreements(201,530)— — (15,254)— (15,254)
Cash dividends on common stock ($0.66 per share)
— — (94,823)— — (94,823)
BALANCE, JUNE 30, 2021141,877,505 $1,876,247 $4,335,327 $(649,337)$(14,689)$5,547,548 
BALANCE, JANUARY 1, 2022141,907,954 $1,893,725 $4,683,659 $(649,785)$(90,381)$5,837,218 
Net income— — 495,981 — — 495,981 
Other comprehensive loss— — — — (510,267)(510,267)
Issuance of common stock pursuant to various stock compensation plans and agreements639,847 20,507 — — — 20,507 
Repurchase of common stock pursuant to various stock compensation plans and agreements(244,895)— — (18,977)— (18,977)
Repurchase of common stock pursuant to the Stock Repurchase Plan(1,385,517)— — (99,990)— (99,990)
Cash dividends on common stock ($0.80 per share)
— — (114,990)— — (114,990)
BALANCE, JUNE 30, 2022140,917,389 $1,914,232 $5,064,650 $(768,752)$(600,648)$5,609,482 

See accompanying Notes to Consolidated Financial Statements.

6


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Six Months Ended June 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $495,981 $429,736 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 48,911 70,402 
Amortization of premiums and accretion of discount, net21,519 11,310 
Stock compensation costs17,009 16,025 
Deferred income tax (expense) benefit(7,554)2,571 
Provision for (reversal of) credit losses21,500 (15,000)
Net gains on sales of loans(3,839)(3,272)
Gains on sales of AFS debt securities(1,306)(824)
Loans held-for-sale:
Originations and purchases(447)(8,703)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale461 10,353 
Proceeds from distributions received from equity method investees4,412 3,564 
Net change in accrued interest receivable and other assets (128,071)(73,809)
Net change in accrued expenses and other liabilities457,296 (44,113)
Other net operating activities3,182 5,571 
Total adjustments 433,073 (25,925)
Net cash provided by operating activities929,054 403,811 
CASH FLOWS FROM INVESTING ACTIVITIES  
Net (increase) decrease in:  
Investments in qualified affordable housing partnerships, tax credit and other investments(49,545)(92,780)
Interest-bearing deposits with banks23,442 (20,534)
Resale agreements:
Proceeds from paydowns and maturities1,162,172 506,353 
Purchases(231,463)(1,345,537)
AFS debt securities:
Proceeds from sales129,181 164,898 
Proceeds from repayments, maturities and redemptions613,244 877,123 
Purchases(767,015)(4,015,212)
HTM debt securities:
Proceeds from repayments, maturities and redemptions40,072 — 
Purchases(50,000)— 
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment325,813 248,540 
Purchases(541,997)(542,839)
Other changes in loans held-for-investment, net(4,639,384)(1,389,832)
Proceeds from distributions received from equity method investees8,717 4,983 
Other net investing activities1,354 2,388 
Net cash used in investing activities(3,975,409)(5,602,449)
See accompanying Notes to Consolidated Financial Statements.

7


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

Six Months Ended June 30,
20222021
CASH FLOWS FROM FINANCING ACTIVITIES  
Net increase in deposits1,046,046 7,708,661 
Net decrease in short-term borrowings(49)(21,143)
FHLB advances:
Proceeds 3,950,000 — 
Repayment(4,025,000)(405,000)
Repurchase agreements:
Proceeds from repurchase agreements311,785 — 
Long-term debt and lease liabilities:
Repayment of long-term debt and lease liabilities(457)(613)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program(99,990)— 
Proceeds from issuance pursuant to various stock compensation plans and agreements1,444 1,180 
Stocks tendered for payment of withholding taxes(18,977)(15,254)
Cash dividends paid(115,623)(95,060)
Net cash provided by financing activities1,049,179 7,172,771 
Effect of exchange rate changes on cash and cash equivalents(13,706)5,701 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,010,882)1,979,834 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,912,935 4,017,971 
CASH AND CASH EQUIVALENTS, END OF PERIOD$1,902,053 $5,997,805 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest$45,057 $52,228 
Income taxes, net$188,510 $114,202 
Noncash investing and financing activities:
Securities transferred from AFS to HTM debt securities$3,010,003 $— 
Loans transferred from held-for-investment to held-for-sale$351,406 $247,636 
Loans transferred from held-for-sale to held-for-investment$631 $— 
Loans transferred to other real estate owned (“OREO”) and other foreclosed assets$— $13,025 

See accompanying Notes to Consolidated Financial Statements.

8


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

Note 1 Basis of Presentation

East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Quarterly Report on Form 10-Q (“this Form 10-Q”) include the accounts of East West, East West Bank and East West’s subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of June 30, 2022, East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board 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, 2021, filed with the U.S. Securities and Exchange Commission on February 28, 2022 (the “Company’s 2021 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.

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

Recent Accounting Pronouncements
StandardRequired Date of AdoptionDescriptionEffect on Financial Statements
Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326): Trouble Debt Restructurings and the Vintage Disclosures

January 1, 2023
ASU 2022-02 eliminates the troubled debt restructuring (“TDRs”) accounting model for creditors and instead requires companies to apply the loan refinancing and restructuring guidance to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan. In addition, companies are no longer required to use a discounted cash flow method to measure the allowance for credit losses for certain TDRs and instead allows for the use of an expected loss approach for all loans. The guidance also introduces new disclosure requirements related to restructuring of financing receivables made to borrowers experiencing financial difficulty, and amends vintage disclosures to require current-period gross write-off by year of origination.

The guidance should be applied on a prospective basis except for amendments related to recognition and measurement of TDRs, where a modified retrospective transition method is optional.
The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements. The Company expects to adopt ASU 2022-02 on January 1, 2023.


9


Significant Accounting Policies Update

During the first quarter of 2022, the Company transferred $3.01 billion in fair value of debt securities from AFS to HTM.

Transfer between Categories of Debt Securities Upon transfer of a debt security from the AFS to HTM category, the security’s new amortized cost is reset to fair value, reduced by any previous write-offs but excluding any allowance for credit losses. Unrealized gains or losses at the date of transfer of these securities continue to be reported in AOCI and are amortized into interest income over the remaining life of the securities as effective yield adjustments, in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. For transfers of securities from the AFS to HTM category, any allowance for credit losses that was previously recorded under the AFS model is reversed and an allowance for credit losses is subsequently recorded under the HTM debt security model. The reversal and re-establishment of the allowance for credit losses are recorded in the provision for credit losses.

Held-to-Maturity Debt Securities Debt securities that the Company has the intent and ability to hold until maturity are classified as HTM and are carried at amortized cost, net of allowance for credit losses. HTM debt securities are generally placed on nonaccrual status using factors similar to those described for loans. The amortized cost of the Company’s HTM debt securities excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election not to recognize an allowance for credit losses for accrued interest receivables on HTM debt securities, as the Company reverses any accrued interest against interest income if a debt security is placed on nonaccrual status. Any cash collected on nonaccrual HTM securities is applied to reduce the security’s amortized cost basis and not as interest income. Generally, the Company returns an HTM security to accrual status when all delinquent interest and principal become current under the contractual terms of the security, and the collectability of remaining principal and interest is no longer doubtful.

Allowance for Credit Losses on Held-to-Maturity Debt Securities For each major HTM debt security type, the allowance for credit losses is estimated collectively for groups of securities with similar risk characteristics. For securities that do not share similar risk characteristics, the losses are estimated individually. Examples of securities for which the Company applies a zero credit loss assumption include debt securities that are either guaranteed or issued by the U.S. government or government-sponsored enterprises, are highly rated by nationally recognized statistical rating organizations (“NRSROs”), and have a long history of no credit losses. Any expected credit loss is recorded through the allowance for credit losses on HTM debt securities and deducted from the amortized cost basis of the security, so that the balance sheet reflects the net amount the Company expects to collect.

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

Fair Value Determination

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

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

10


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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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

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 June 30, 2022 and December 31, 2021. 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 or interest rate collar contracts with institutional counterparties to hedge against certain variable interest rate borrowings and variable interest rate loans. These interest rate contracts with institutional counterparties are 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 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.
11


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 is classified as Level 2. As of June 30, 2022 and December 31, 2021, 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. Since the majority of the inputs used to value the RPAs are observable, RPAs are classified as Level 2.

Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase preferred and/or common stock of the borrowers, which are mainly in the technology and life sciences sectors. As of June 30, 2022 and December 31, 2021, 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 company 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 consisting of swaps and options with its oil and gas loan customers, which 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.
12


The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:
($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of June 30, 2022
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$624,686 $— $— $624,686 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 285,245 — 285,245 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 563,832 — 563,832 
Residential mortgage-backed securities— 1,910,240 — 1,910,240 
Municipal securities— 266,733 — 266,733 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 411,768 — 411,768 
Residential mortgage-backed securities— 726,989 — 726,989 
Corporate debt securities— 559,293 — 559,293 
Foreign government bonds— 242,997 — 242,997 
Asset-backed securities— 67,350 — 67,350 
Collateralized loan obligations (“CLOs”)— 596,371 — 596,371 
Total AFS debt securities
$624,686 $5,630,818 $ $6,255,504 
Investments in tax credit and other investments:
Equity securities$20,463 $4,312 $— $24,775 
Total investments in tax credit and other investments
$20,463 $4,312 $ $24,775 
Derivative assets:
Interest rate contracts$— $261,326 $— $261,326 
Foreign exchange contracts— 42,324 — 42,324 
Equity contracts— 357 359 
Commodity contracts— 404,275 — 404,275 
Gross derivative assets$ $707,927 $357 $708,284 
Netting adjustments (1)
$— $(251,718)$— $(251,718)
Net derivative assets$ $456,209 $357 $456,566 
Derivative liabilities:
Interest rate contracts$— $359,674 $— $359,674 
Foreign exchange contracts— 29,144 — 29,144 
Credit contracts— 76 — 76 
Commodity contracts— 373,675 — 373,675 
Gross derivative liabilities$ $762,569 $ $762,569 
Netting adjustments (1)
$— $(126,414)$— $(126,414)
Net derivative liabilities$ $636,155 $ $636,155 
13


($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 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$1,032,681 $— $— $1,032,681 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 1,301,971 — 1,301,971 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 1,228,980 — 1,228,980 
Residential mortgage-backed securities— 2,928,283 — 2,928,283 
Municipal securities— 523,158 — 523,158 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 496,443 — 496,443 
Residential mortgage-backed securities— 881,931 — 881,931 
Corporate debt securities— 649,665 — 649,665 
Foreign government bonds— 257,733 — 257,733 
Asset-backed securities— 74,558 — 74,558 
CLOs— 589,950 — 589,950 
Total AFS debt securities
$1,032,681 $8,932,672 $ $9,965,353 
Investments in tax credit and other investments:
Equity securities$22,130 $4,474 $— $26,604 
Total investments in tax credit and other investments
$22,130 $4,474 $ $26,604 
Derivative assets:
Interest rate contracts$— $240,222 $— $240,222 
Foreign exchange contracts— 21,033 — 21,033 
Equity contracts— 215 220 
Commodity contracts— 222,709 — 222,709 
Gross derivative assets$ $483,969 $215 $484,184 
Netting adjustments (1)
$— $(100,953)$— $(100,953)
Net derivative assets$ $383,016 $215 $383,231 
Derivative liabilities:
Interest rate contracts$— $179,962 $— $179,962 
Foreign exchange contracts— 15,501 — 15,501 
Credit contracts— 141 — 141 
Commodity contracts— 194,567 — 194,567 
Gross derivative liabilities$ $390,171 $ $390,171 
Netting adjustments (1)
$— $(232,727)$— $(232,727)
Net derivative liabilities$ $157,444 $ $157,444 
(1)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.

14


For the three and six months ended June 30, 2022 and 2021, Level 3 fair value measurements that were measured on a recurring basis consisted of equity contracts issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three and six months ended June 30, 2022 and 2021:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Equity contracts
Beginning balance$309 $272 $215 $273 
Total gains included in earnings (1)
48 47 51 46 
Issuances— — 91 — 
Settlements— (96)— (96)
Ending balance$357 $223 $357 $223 
(1)Includes unrealized gains (losses) of $48 thousand and $(27) thousand for the three months ended June 30, 2022 and 2021, respectively, and $51 thousand and $(29) thousand for the six months ended June 30, 2022 and 2021, respectively. The realized/unrealized gains (losses) of equity contracts are recorded in Lending fees on the Consolidated Statement of Income.

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, 2022 and December 31, 2021. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.
($ in thousands)Fair Value
Measurements
(Level 3)
Valuation
Technique
Unobservable
Inputs
Range of Inputs
Weighted-
Average of Inputs (1)
June 30, 2022
Derivative assets:
Equity contracts$357 
Black-Scholes option pricing model
Equity volatility
46% — 70%.
61%
Liquidity discount47%47%
December 31, 2021
Derivative assets:
Equity contracts$215 
Black-Scholes option pricing model
Equity volatility
44% — 54%
49%
Liquidity discount47%47%
(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of June 30, 2022 and December 31, 2021.

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 the 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.
15


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

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company conducts due diligence on its investments in qualified affordable housing partnerships, tax credit and other investments prior to the initial investment date and through the placed-in-service date. After these investments are either acquired or placed into service, the Company continues its periodic monitoring process to ensure 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 information 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, Investments — Equity Method and Joint Ventures, 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 the transfer 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 estimated recovery of the foreclosed asset. The Company records an impairment when the foreclosed asset’s fair value declines below its carrying value. The fair value measurement of other nonperforming assets is classified within one of the three levels in a valuation hierarchy based upon the observability of inputs to the valuation as of the measurement date.

16


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 June 30, 2022 and December 31, 2021:
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of June 30, 2022
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”)$— $— $55,015 $55,015 
Commercial real estate (“CRE”):
CRE— — 30,716 30,716 
Multifamily residential— — 1,055 1,055 
Total commercial  86,786 86,786 
Consumer:
Residential mortgage:
Home equity lines of credit (“HELOCs”)— — 1,167 1,167 
Total consumer  1,167 1,167 
Total loans held-for-investment$ $ $87,953 $87,953 
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 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:
C&I$— $— $102,349 $102,349 
CRE:
CRE— — 21,891 21,891 
Total commercial  124,240 124,240 
Consumer:
Residential mortgage:
HELOCs— — 2,744 2,744 
Total consumer  2,744 2,744 
Total loans held-for-investment$ $ $126,984 $126,984 
Other nonperforming assets$391 $ $ $391 

17


The following table presents the increase (decrease) in fair value of certain assets held at the end of the respective reporting periods, for which a nonrecurring fair value adjustment was recognized for the three and six months ended June 30, 2022 and 2021:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Loans held-for-investment:
Commercial:
C&I$(6,054)$(6,462)$(14,740)$(15,530)
CRE:
CRE(533)(275)2,330 (7,336)
Multifamily residential(8)(8)(6)
Construction and land— (209)— (280)
Total commercial(6,595)(6,944)(12,418)(23,152)
Consumer:
Residential mortgage:
Single-family residential— — — (8)
HELOCs82 85 (23)
Other consumer— (2,491)— (2,491)
Total consumer82 (2,488)85 (2,522)
Total loans held-for-investment$(6,513)$(9,432)$(12,333)$(25,674)
Investments in tax credit and other investments, net$ $877 $ $877 
OREO$ $(910)$ $(910)
Other nonperforming assets$(6,861)$ $(6,861)$(3,890)

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, 2022 and December 31, 2021:
($ in thousands)Fair Value
Measurements
(Level 3)
Valuation
Techniques
Unobservable
Inputs
Range of 
Inputs
Weighted-
Average of Inputs (1)
June 30, 2022
Loans held-for-investment$36,889 Discounted cash flowsDiscount
4% — 6%
4%
$19,293 Fair value of collateralDiscount
15% — 77%
37%
$31,771 Fair value of propertySelling cost
8%
8%
December 31, 2021
Loans held-for-investment$64,919 Discounted cash flowsDiscount
4% — 15%
7%
$38,537 Fair value of collateralDiscount
15% — 75%
41%
$23,528 Fair value of propertySelling cost
8%
8%
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of June 30, 2022 and December 31, 2021.

18


Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of June 30, 2022 and December 31, 2021, 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, restricted equity securities, at cost, and mortgage servicing rights that are included in Other assets, and accrued interest payable which is included in Accrued expenses and other liabilities. These financial assets and liabilities are measured on an amortized cost basis on the Company’s Consolidated Balance Sheet.
($ in thousands)June 30, 2022
Carrying
Amount
Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$1,902,053 $1,902,053 $— $— $1,902,053 
Interest-bearing deposits with banks$712,709 $— $712,709 $— $712,709 
Resale agreements$1,422,794 $— $1,348,036 $— $1,348,036 
HTM debt securities$3,028,302 $486,521 $2,170,028 $— $2,656,549 
Restricted equity securities, at cost$77,962 $— $77,962 $— $77,962 
Loans held-for-sale$28,464 $— $28,464 $— $28,464 
Loans held-for-investment, net$45,938,806 $— $— $45,860,749 $45,860,749 
Mortgage servicing rights$5,909 $— $— $10,349 $10,349 
Accrued interest receivable$172,008 $— $172,008 $— $172,008 
Financial liabilities:
Demand, checking, savings and money market deposits$44,965,778 $— $44,965,778 $— $44,965,778 
Time deposits$9,377,576 $— $9,318,992 $— $9,318,992 
FHLB advances$174,776 $— $175,207 $— $175,207 
Repurchase agreements$611,785 $— $619,280 $— $619,280 
Long-term debt$147,801 $— $139,206 $— $139,206 
Accrued interest payable$9,596 $— $9,596 $— $9,596 
($ in thousands)December 31, 2021
Carrying
Amount
Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$3,912,935 $3,912,935 $— $— $3,912,935 
Interest-bearing deposits with banks$736,492 $— $736,492 $— $736,492 
Resale agreements$2,353,503 $— $2,335,901 $— $2,335,901 
Restricted equity securities, at cost$77,434 $— $77,434 $— $77,434 
Loans held-for-sale$635 $— $635 $— $635 
Loans held-for-investment, net$41,152,202 $— $— $41,199,599 $41,199,599 
Mortgage servicing rights$5,706 $— $— $9,104 $9,104 
Accrued interest receivable$159,833 $— $159,833 $— $159,833 
Financial liabilities:
Demand, checking, savings and money market deposits$45,388,550 $— $45,388,550 $— $45,388,550 
Time deposits$7,961,982 $— $7,966,116 $— $7,966,116 
FHLB advances$249,331 $— $250,372 $— $250,372 
Repurchase agreements$300,000 $— $310,525 $— $310,525 
Long-term debt$147,658 $— $151,020 $— $151,020 
Accrued interest payable$11,435 $— $11,435 $— $11,435 

19


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

Assets Purchased under Resale Agreements

In the resale agreements, the Company is exposed to credit risk for both the counterparties and the underlying collateral. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with the counterparties. The relevant agreements allow for the efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. It is also the Company’s policy to take possession, where possible, of the assets underlying resale agreements. As a result of the Company’s credit risk mitigation practices with respect to resale agreements as described above, the Company did not hold any reserves for credit impairment with respect to these agreements as of both June 30, 2022 and December 31, 2021.

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $1.13 billion as of June 30, 2022, and $1.33 billion as of December 31, 2021. The weighted-average yields were 1.96% and 1.54% for the three months ended June 30, 2022 and 2021, respectively; and 1.79% and 1.55% for the six months ended June 30, 2022 and 2021, respectively.

Loans Purchased under Resale Agreements Total loans purchased under resale agreements were $289.8 million as of June 30, 2022, and $1.02 billion as of December 31, 2021. The weighted-average yields were 2.47% and 1.47% for the three months ended June 30, 2022 and 2021, respectively; and 1.91% and 1.64% for the six months ended June 30, 2022 and 2021, respectively.

Assets Sold under Repurchase Agreements — As of June 30, 2022, securities sold under the repurchase agreements consisted of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, and U.S. Treasury securities. Gross repurchase agreements were $611.8 million as of June 30, 2022, and $300.0 million as of December 31, 2021. The weighted-average interest rates were 2.70% and 2.63% for the three months ended June 30, 2022 and 2021, respectively; and 2.66% and 2.65% for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, $311.8 million and $300.0 million of the securities sold under repurchase agreements will mature in 2022 and 2023, respectively.

Balance Sheet Offsetting

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

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of June 30, 2022 and December 31, 2021:
($ in thousands)June 30, 2022
AssetsGross
Amounts
of Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet
Gross Amounts  Not Offset on the
Consolidated  Balance Sheet
Net
Amount
Collateral Received
Resale agreements$1,422,794 $— $1,422,794 $(1,336,962)
(1)
$85,832 
LiabilitiesGross
Amounts
of Recognized
Liabilities
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Pledged
Repurchase agreements$611,785 $— $611,785 $(611,785)
(2)
$— 
20


($ in thousands)December 31, 2021
Gross
Amounts
of Recognized
Assets
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet
Gross Amounts  Not Offset on the
Consolidated  Balance Sheet
AssetsNet
Amount
Collateral Received
Resale agreements$2,353,503 $— $2,353,503 $(2,327,687)
(1)
$25,816 
LiabilitiesGross
Amounts
of Recognized
Liabilities
Gross Amounts
Offset on the
Consolidated
Balance Sheet
Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Pledged
Repurchase agreements$300,000 $— $300,000 $(300,000)
(2)
$— 
(1)Represents the fair value of assets 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 assets 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.

21


Note 5 — Securities

The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of AFS and HTM debt securities as of June 30, 2022 and December 31, 2021:
($ in thousands)June 30, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
AFS debt securities:
U.S. Treasury securities$676,320 $— $(51,634)$624,686 
U.S. government agency and U.S. government-sponsored enterprise debt securities324,463 — (39,218)285,245 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities614,135 125 (50,428)563,832 
Residential mortgage-backed securities2,097,339 193 (187,292)1,910,240 
Municipal securities306,419 22 (39,708)266,733 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities451,200 247 (39,679)411,768 
Residential mortgage-backed securities808,012 — (81,023)726,989 
Corporate debt securities673,502 105 (114,314)559,293 
Foreign government bonds253,118 648 (10,769)242,997 
Asset-backed securities69,764 — (2,414)67,350 
CLOs617,250 — (20,879)596,371 
Total AFS debt securities6,891,522 1,340 (637,358)6,255,504 
HTM debt securities:
U.S. Treasury securities521,352 — (34,831)486,521 
U.S. government agency and U.S. government-sponsored enterprise debt securities997,369 — (144,291)853,078 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities512,391 — (62,563)449,828 
Residential mortgage-backed securities807,111 — (96,637)710,474 
Municipal securities190,079 — (33,431)156,648 
Total HTM debt securities3,028,302  (371,753)2,656,549 
Total debt securities$9,919,824 $1,340 $(1,009,111)$8,912,053 
22


($ in thousands)December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
AFS debt securities:
U.S. Treasury securities$1,049,238 $130 $(16,687)$1,032,681 
U.S. government agency and U.S. government-sponsored enterprise debt securities1,333,984 2,697 (34,710)1,301,971 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,242,043 15,791 (28,854)1,228,980 
Residential mortgage-backed securities2,968,789 8,629 (49,135)2,928,283 
Municipal securities519,381 10,065 (6,288)523,158 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities498,920 3,000 (5,477)496,443 
Residential mortgage-backed securities889,937 971 (8,977)881,931 
Corporate debt securities657,516 8,738 (16,589)649,665 
Foreign government bonds260,447 767 (3,481)257,733 
Asset-backed securities74,674 185 (301)74,558 
CLOs592,250 52 (2,352)589,950 
Total AFS debt securities $10,087,179 $51,025 $(172,851)$9,965,353 

During the first quarter of 2022, the Company transferred $3.01 billion in fair value of debt securities from AFS to HTM. At the time of the transfer, $113.0 million of unrealized losses, net of tax, was retained in AOCI.

As of June 30, 2022 and December 31, 2021, the amortized cost of debt securities excluded accrued interest receivables of $34.9 million and $33.1 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to debt securities’ accrued interest receivable, 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 2021 Form 10-K and Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.
23


Unrealized Losses of Available-for-Sale Debt Securities

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, 2022 and December 31, 2021.
($ in thousands)June 30, 2022
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$466,095 $(32,524)$158,591 $(19,110)$624,686 $(51,634)
U.S. government agency and U.S. government sponsored enterprise debt securities249,274 (35,689)35,971 (3,529)285,245 (39,218)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities440,235 (34,101)110,670 (16,327)550,905 (50,428)
Residential mortgage-backed securities1,433,558 (122,567)463,552 (64,725)1,897,110 (187,292)
Municipal securities265,197 (39,708)— — 265,197 (39,708)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities335,199 (28,436)65,175 (11,243)400,374 (39,679)
Residential mortgage-backed securities616,819 (67,098)110,170 (13,925)726,989 (81,023)
Corporate debt securities295,000 (35,503)236,189 (78,811)531,189 (114,314)
Foreign government bonds18,887 (165)67,798 (10,604)86,685 (10,769)
Asset-backed securities57,469 (1,888)9,881 (526)67,350 (2,414)
CLOs312,368 (10,882)284,003 (9,997)596,371 (20,879)
Total AFS debt securities$4,490,101 $(408,561)$1,542,000 $(228,797)$6,032,101 $(637,358)
($ in thousands)December 31, 2021
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$935,776 $(14,689)$47,881 $(1,998)$983,657 $(16,687)
U.S. government agency and U.S. government-sponsored enterprise debt securities773,647 (18,000)402,907 (16,710)1,176,554 (34,710)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities440,734 (13,589)257,745 (15,265)698,479 (28,854)
Residential mortgage-backed securities2,138,542 (37,691)330,522 (11,444)2,469,064 (49,135)
Municipal securities177,065 (5,682)17,003 (606)194,068 (6,288)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities301,925 (4,158)40,013 (1,319)341,938 (5,477)
Residential mortgage-backed securities707,792 (8,966)6,431 (11)714,223 (8,977)
Corporate debt securities183,916 (3,084)251,494 (13,505)435,410 (16,589)
Foreign government bonds27,097 (5)133,279 (3,476)160,376 (3,481)
Asset-backed securities24,885 (301)— — 24,885 (301)
CLOs221,586 (64)291,712 (2,288)513,298 (2,352)
Total AFS debt securities$5,932,965 $(106,229)$1,778,987 $(66,622)$7,711,952 $(172,851)

24


As of June 30, 2022, the Company had a total of 531 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting primarily of 244 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 100 non-agency mortgage-backed securities, and 63 corporate debt securities. In comparison, as of December 31, 2021, the Company had a total of 431 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting primarily of 180 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 50 U.S. government agency and U.S. government-sponsored agency debt securities, 21 U.S. Treasury securities, and 30 corporate debt securities.

Allowance for Credit Losses on Available-for-Sale Debt Securities

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 2021 Form 10-K.

The gross unrealized losses presented in the preceding tables were primarily attributable to interest rate movement and widening of liquidity and/or credit spreads. U.S. Treasury, U.S. government agency, U.S. government-sponsored agency, and U.S. government-sponsored enterprise mortgage-backed securities, are issued, guaranteed, or otherwise supported by the U.S. government and have a zero credit loss assumption. The other securities that were in an unrealized loss position as of June 30, 2022 were mainly comprised of the following:

Non-agency mortgage-backed securities — The market value decline as of June 30, 2022 was primarily due to interest rate movement and spreads widening. Since these securities are rated investment grade by NRSROs, or have high priority in the cash flow waterfall within the securitization structure, and the contractual payments have historically been on time, the Company believes the risk of credit losses on these securities is low.
Corporate debt securities — The market value decline as of June 30, 2022 was primarily due to interest rate movement and spreads widening. Since credit profiles of these securities are strong (rated investment grade by NRSROs) and the contractual payments from these bonds have been and are expected to be received on time, the Company believes that the risk of credit losses on these securities is low.

As of June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021 provided against these securities. In addition, there was no provision for credit losses recognized for the three and six months ended June 30, 2022 and 2021. If a credit loss had been identified, the Company would record an impairment through the allowance for credit losses with a corresponding Provision for credit losses on the Consolidated Statement of Income.

Allowance for Credit Losses on Held-to-Maturity Debt Securities

The Company separately evaluates its HTM debt securities for any credit losses using an expected loss model, similar to the methodology used for loans. Any expected credit loss is recorded through the allowance for credit losses and is deducted from the amortized cost basis. The net amount the Company expects to collect is reflected on the Consolidated Balance Sheet.

The Company monitors the credit quality of the HTM debt securities using external credit ratings. As of June 30, 2022, all HTM securities were rated investment grade by NRSROs and issued, guaranteed, or supported by U.S. government entities and agencies. Accordingly, the Company applied a zero credit loss assumption and no allowance for credit losses was recorded as of June 30, 2022. Overall, the Company believes that the credit support levels of the debt securities are strong and, based on current assessments and macroeconomic forecasts, expects that full contractual cash flows will be received. For more information on the Company’s credit loss methodology, refer to Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-Q.

25


Realized Gains and Losses

The following table presents the gross realized gains and tax expense related to the sales of AFS debt securities for the three and six months ended June 30, 2022 and 2021:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Gross realized gains$28 $632 $1,306 $824 
Related tax expense$$187 $386 $244 
26


Contractual Maturities of Available-for-Sale and Held-to-Maturity Debt Securities

The following tables present the contractual maturities, amortized cost, fair value and weighted average yields of AFS and HTM debt securities as of June 30, 2022. 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)Within One Year
After One Year through Five Years
After Five Years through Ten Years After Ten Years Total
AFS debt securities:
U.S. Treasury securities
Amortized cost$— $576,626 $99,694 $— $676,320 
Fair value— 536,698 87,988 — 624,686 
Weighted-average yield (1)
— %1.28 %0.74 %— %1.20 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost— 29,193 125,001 170,269 324,463 
Fair value— 27,700 110,199 147,346 285,245 
Weighted-average yield (1)
— %1.62 %1.16 %2.09 %1.69 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Amortized cost— 13,289 192,287 2,505,898 2,711,474 
Fair value— 13,205 182,832 2,278,035 2,474,072 
Weighted-average yield (1)
— %3.11 %2.69 %2.11 %2.15 %
Municipal securities
Amortized cost— 39,712 6,498 260,209 306,419 
Fair value— 37,800 5,758 223,175 266,733 
Weighted-average yield (1) (2)
— %2.47 %1.79 %2.23 %2.25 %
Non-agency mortgage-backed securities
Amortized cost10,019 196,136 40,404 1,012,653 1,259,212 
Fair value9,894 189,963 39,224 899,676 1,138,757 
Weighted-average yield (1)
4.47 %3.56 %1.19 %2.23 %2.42 %
Corporate debt securities
Amortized cost10,000 — 334,502 329,000 673,502 
Fair value9,847 — 309,395 240,051 559,293 
Weighted average yield (1)
3.26 %— %3.59 %1.98 %2.80 %
Foreign government bonds
Amortized cost108,712 44,406 50,000 50,000 253,118 
Fair value108,660 44,832 50,081 39,424 242,997 
Weighted-average yield (1)
1.82 %3.01 %0.55 %1.50 %1.71 %
Asset-backed securities:
Amortized cost— — — 69,764 69,764 
Fair value— — — 67,350 67,350 
Weighted-average yield (1)
— %— %— %2.74 %2.74 %
CLOs
Amortized cost— — — 617,250 617,250 
Fair value— — — 596,371 596,371 
Weighted average yield (1)
— %— %— %2.22 %2.22 %
Total AFS debt securities
Amortized cost$128,731 $899,362 $848,386 $5,015,043 $6,891,522 
Fair value$128,401 $850,198 $785,477 $4,491,428 $6,255,504 
Weighted-average yield (1)
2.14 %1.95 %2.39 %2.15 %2.15 %
27


($ in thousands)Within One Year
After One Year through Five Years
After Five Years through Ten YearsAfter Ten YearsTotal
HTM debt securities:
U.S. Treasury securities
Amortized cost$$166,856$354,496$$521,352
Fair value156,200330,321486,521
Weighted-average yield (1)
— %0.90 %1.12 %— %1.05 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost213,101784,268997,369
Fair value193,357659,721853,078
Weighted-average yield (1)
— %— %2.03 %1.86 %1.90 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities
Amortized cost87,2641,232,2381,319,502
Fair value78,9931,081,3091,160,302
Weighted-average yield (1)
— %— %1.60 %1.59 %1.59 %
Municipal securities
Amortized cost190,079190,079
Fair value156,648156,648
Weighted-average yield (1) (2)
— %— %— %1.97 %1.97 %
Total HTM debt securities
Amortized cost$$166,856$654,861$2,206,585$3,028,302
Fair value$$156,200$602,671$1,897,678$2,656,549
Weighted-average yield (1)
 %0.90 %1.48 %1.72 %1.62 %
(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.

As of June 30, 2022 and December 31, 2021, AFS and HTM debt securities with carrying values of $1.29 billion and $803.9 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 included in Other assets on the Consolidated Balance Sheet as of June 30, 2022 and December 31, 2021:
($ in thousands)June 30, 2022December 31, 2021
Federal Reserve Bank of San Francisco (“FRBSF”) stock$60,712 $60,184 
FHLB stock17,250 17,250 
Total restricted equity securities$77,962 $77,434