0001069157us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMemberewbc:ConstructionAndLandLoanMember2020-12-31



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

FORM 10-Q


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


For the quarterly period ended September 30, 20172021

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
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)


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 x☒ No ¨☐

    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes x☒ 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 filerx☒Accelerated filer¨☐
Non-accelerated filer¨☐(Do not check if a smaller reporting company)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 x☒

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 144,542,911141,907,491 shares as of October 31, 2017.

2021.




TABLE OF CONTENTS
Page
3
Page
PART I — FINANCIAL INFORMATION
Item 1.
53
Consolidated Balance SheetsSheet (Unaudited)
53
Consolidated StatementsStatement of Income (Unaudited)
64
Consolidated StatementsStatement of Comprehensive Income (Unaudited)
75
Consolidated StatementsStatement of Changes in Stockholders’ Equity (Unaudited)
86
Consolidated StatementsStatement of Cash Flows (Unaudited)
97
119
1 — Basis of Presentation and Current Accounting Developments
119
2 — Current Accounting Developments
11
3 — Dispositions
14
4 — Fair Value Measurement and Fair Value of Financial Instruments
1511
53 — SecuritiesAssets Purchased under Resale Agreements and Sold under Repurchase Agreements
2421
64 — Securities
2722
75 — Derivatives
3026
86 — Loans Receivable and Allowance for Credit Losses
3533
97 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities
4845
108 — Goodwill and Other Intangible Assets
4947
119 — Commitments and Contingencies
5048
1210 — Stock Compensation Plans
5149
1311 — Stockholders’ Equity and Earnings Per Share
5251
1412 — Accumulated Other Comprehensive Income (Loss)
5351
1513 — Business Segments
5453
1614 — Subsequent Events
5655
5756
Overview
57
Results of Operations
59
Balance Sheet Analysis
72
Off-Balance Sheet Arrangements
86
Asset Liability and Market Risk Management
87
Critical Accounting Policies and Estimates
91
92111
92111
93112
93112
93112
93112
93113
94114
95115
EXHIBIT INDEX
96

2

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q (“Form 10-Q”) contain or incorporate statements that East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) believes are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. 
There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such differences, some of which are beyond the Company’s control, include, but are not limited to:

the Company’s ability to compete effectively against other financial institutions in its banking markets;
changes in the commercial and consumer real estate markets;
changes in the Company’s costs of operation, compliance and expansion;
changes in the United States (“U.S.”) economy, including inflation, employment levels, rate of growth and general business conditions;
changes in government interest rate policies;
changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and the California Department of Business Oversight — Division of Financial Institutions;
heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;
changes in the economy of and monetary policy in the People’s Republic of China;
changes in income tax laws and regulations;
changes in accounting standards as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies and their impact on critical accounting policies and assumptions;
changes in the equity and debt securities markets;
future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;
fluctuations in the Company’s stock price;
fluctuations in foreign currency exchange rates;
success and timing of the Company’s business strategies;
ability of the Company to adopt and successfully integrate new technologies into its business in a strategic manner;
impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions;
impact of potential federal tax changes and spending cuts;
impact of adverse judgments or settlements in litigation;
impact of regulatory enforcement actions;
changes in the Company’s ability to receive dividends from its subsidiaries;
impact of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;
impact of natural or man-made disasters or calamities or conflicts or other events that may directly or indirectly result in a negative impact on the Company’s financial performance;
continuing consolidation in the financial services industry;
the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;
impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Company’s business, business practices and cost of operations;
impact of adverse changes to the Company’s credit ratings from the major credit rating agencies;


impact of failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused;
adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
the effect of the current low interest rate environment or changes in interest rates on the Company’s net interest income and net interest margin;
the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin; and
a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increased funding costs, reduced investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment (“OTTI”) on securities held in the Company’s available-for-sale investment securities portfolio.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on February 27, 2017 (the “Company’s 2016 Form 10-K”), under the heading “ITEM 1A. RISK FACTORS” and the information set forth under “ITEM 1A. RISK FACTORS” in this Form 10-Q. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.



PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSSHEET
($ 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 banks4,258,270 3,425,854 
Cash and cash equivalents4,852,901 4,017,971 
Interest-bearing deposits with banks855,162 809,728 
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 cost77,200 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, net297,367 213,555 
Investments in tax credit and other investments, net367,428 266,525 
Premises and equipment (net of accumulated depreciation of $136,796 in 2021 and $127,884 in 2020)96,956 103,251 
Goodwill465,697 465,697 
Operating lease right-of-use assets99,785 95,460 
Other assets1,616,165 1,324,262 
TOTAL$60,959,110 $52,156,913 
LIABILITIES
Deposits:
Noninterest-bearing$23,175,471 $16,298,301 
Interest-bearing30,180,719 28,564,451 
Total deposits53,356,190 44,862,752 
Short-term borrowings— 21,009 
Federal Home Loan Bank (“FHLB”) advances248,898 652,612 
Assets sold under repurchase agreements (“repurchase agreements”)300,000 300,000 
Long-term debt and finance lease liabilities151,795 151,739 
Operating lease liabilities107,107 102,830 
Accrued expenses and other liabilities1,104,919 796,796 
Total liabilities55,268,909 46,887,738 
COMMITMENTS AND CONTINGENCIES (Note 9)00
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, respectively168 167 
Additional paid-in capital1,883,871 1,858,352 
Retained earnings4,513,321 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’ equity5,690,201 5,269,175 
TOTAL$60,959,110 $52,156,913 
 
  September 30,
2017		 December 31,
2016
  (Unaudited)  
ASSETS    
Cash and due from banks $364,328
 $460,559
Interest-bearing cash with banks 1,372,421
 1,417,944
Cash and cash equivalents 1,736,749
 1,878,503
Interest-bearing deposits with banks 404,946
 323,148
Securities purchased under resale agreements (“resale agreements”) 1,250,000
 2,000,000
Securities :    
Available-for-sale investment securities, at fair value (includes assets pledged as collateral of $584,907 in 2017 and $767,437 in 2016) 2,956,776
 3,335,795
Held-to-maturity investment security, at cost (fair value of $144,593 in 2016) —
 143,971
Restricted equity securities, at cost 73,322
 72,775
Loans held-for-sale 178
 23,076
Loans held-for-investment (net of allowance for loan losses of $285,926 in 2017 and $260,520 in 2016; includes assets pledged as collateral of $18,182,265 in 2017 and $16,441,068 in 2016) 28,239,431
 25,242,619
Investments in qualified affordable housing partnerships, net 178,344
 183,917
Investments in tax credit and other investments, net 203,758
 173,280
Premises and equipment (net of accumulated depreciation of $109,296 in 2017 and $114,890 in 2016) 131,311
 159,923
Goodwill 469,433
 469,433
Other assets 663,718
 782,400
TOTAL $36,307,966
 $34,788,840
LIABILITIES  
  
Customer deposits:  
  
Noninterest-bearing $10,992,674
 $10,183,946
Interest-bearing 20,318,988
 19,707,037
Total deposits 31,311,662
 29,890,983
Short-term borrowings 24,813
 60,050
Federal Home Loan Bank (“FHLB”) advances 323,323
 321,643
Securities sold under repurchase agreements (“repurchase agreements”) 50,000
 350,000
Long-term debt 176,513
 186,327
Accrued expenses and other liabilities 639,759
 552,096
Total liabilities 32,526,070
 31,361,099
COMMITMENTS AND CONTINGENCIES (Note 11) 

 

STOCKHOLDERS’ EQUITY    
Common stock, $0.001 par value, 200,000,000 shares authorized; 165,178,075 and 164,604,072 shares issued in 2017 and 2016, respectively 165
 164
Additional paid-in capital 1,745,181
 1,727,434
Retained earnings 2,520,817
 2,187,676
Treasury stock at cost — 20,667,132 shares in 2017 and 20,436,621 shares in 2016 (452,050) (439,387)
Accumulated other comprehensive loss, net of tax (32,217) (48,146)
Total stockholders’ equity 3,781,896
 3,427,741
TOTAL $36,307,966
 $34,788,840
 



See accompanying Notes to Consolidated Financial Statements.


53



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
 Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
 2017 2016 2017 20162021202020212020
INTEREST AND DIVIDEND INCOME      
  
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees $306,939
 $255,316
 $872,039
 $763,189
Loans receivable, including fees$363,503 $336,542 $1,057,964 $1,115,804 
Investment securities 14,828
 13,388
 43,936
 37,433
AFS debt securitiesAFS debt securities37,826 18,493 101,616 59,639 
Resale agreements 7,901
 7,834
 25,222
 22,479
Resale agreements8,957 5,295 23,077 16,434 
Restricted equity securities 612
 611
 1,859
 2,008
Restricted equity securities500 353 1,588 1,100 
Interest-bearing cash and deposits with banks 9,630
 3,168
 22,298
 10,245
Interest-bearing cash and deposits with banks4,521 5,045 11,781 20,717 
Total interest and dividend income 339,910
 280,317
 965,354
 835,354
Total interest and dividend income415,307 365,728 1,196,026 1,213,694 
INTEREST EXPENSE      
  
INTEREST EXPENSE
Customer deposits 31,086
 21,049
 81,803
 60,708
Federal funds purchased and other short-term borrowings 212
 212
 877
 390
DepositsDeposits15,970 33,798 55,790 156,600 
Short-term borrowingsShort-term borrowings— 407 42 1,228 
FHLB advances 1,947
 1,361
 5,738
 4,153
FHLB advances857 3,146 6,025 10,655 
Repurchase agreements 2,122
 2,319
 7,538
 6,441
Repurchase agreements2,012 2,155 5,981 9,686 
Long-term debt 1,388
 1,228
 4,030
 3,726
Long-term debt and finance lease liabilitiesLong-term debt and finance lease liabilities762 2,092 2,314 4,913 
Total interest expense 36,755
 26,169
 99,986
 75,418
Total interest expense19,601 41,598 70,152 183,082 
Net interest income before provision for credit losses
303,155
 254,148
 865,368
 759,936
Net interest income before provision for credit losses395,706 324,130 1,125,874 1,030,612 
Provision for credit losses 12,996
 9,525
 30,749
 17,018
(Reversal of) provision for credit losses(Reversal of) provision for credit losses(10,000)10,000 (25,000)186,313 
Net interest income after provision for credit losses 290,159
 244,623
 834,619
 742,918
Net interest income after provision for credit losses405,706 314,130 1,150,874 844,299 
NONINTEREST INCOME      
  
NONINTEREST INCOME
Branch fees 10,803
 10,408
 31,799
 30,983
Letters of credit fees and foreign exchange income 10,154
 10,908
 33,209
 31,404
Ancillary loan fees and other income 5,987
 6,135
 16,876
 13,997
Lending feesLending fees17,516 18,736 56,965 56,455 
Deposit account feesDeposit account fees18,508 12,573 51,233 33,892 
Interest rate contracts and other derivative incomeInterest rate contracts and other derivative income7,156 5,538 20,981 18,718 
Foreign exchange incomeForeign exchange income13,101 3,310 35,634 15,691 
Wealth management fees 3,615
 4,033
 11,682
 9,862
Wealth management fees5,598 4,553 20,460 12,997 
Derivative fees and other income 6,663
 5,791
 12,934
 9,778
Net gains on sales of loans 2,361
 2,158
 6,660
 6,965
Net gains on sales of loans3,329 361 6,601 1,443 
Net gains on sales of available-for-sale investment securities 1,539
 1,790
 6,733
 8,468
Net gains on sales of fixed assets 1,043
 486
 74,092
 2,916
Net gain on sale of business 3,807
 —
 3,807
 —
Other fees and operating income 3,652
 7,632
 15,255
 19,745
Gains on sales of AFS debt securitiesGains on sales of AFS debt securities354 698 1,178 11,867 
Other investment incomeOther investment income5,349 5,239 13,870 6,652 
Other incomeOther income2,198 3,495 7,484 8,000 
Total noninterest income 49,624
 49,341
 213,047
 134,118
Total noninterest income73,109 54,503 214,406 165,715 
NONINTEREST EXPENSE      
  
NONINTEREST EXPENSE
Compensation and employee benefits 79,583
 75,042
 244,930
 220,166
Compensation and employee benefits105,751 99,756 318,985 298,671 
Occupancy and equipment expense 16,635
 15,456
 47,829
 45,619
Occupancy and equipment expense15,851 16,648 47,150 49,941 
Deposit insurance premiums and regulatory assessments 5,676
 6,450
 17,384
 17,341
Deposit insurance premiums and regulatory assessments4,641 4,006 12,791 11,133 
Deposit account expenseDeposit account expense4,136 3,113 11,845 10,029 
Data processingData processing3,575 3,590 12,088 11,896 
Computer software expenseComputer software expense8,426 8,539 23,106 22,006 
Consulting expenseConsulting expense1,635 1,224 4,978 3,854 
Legal expense 3,316
 5,361
 8,930
 12,714
Legal expense2,363 1,366 5,840 6,093 
Data processing 3,004
 2,729
 9,009
 8,712
Consulting expense 4,087
 4,594
 10,775
 19,027
Deposit related expense 2,413
 3,082
 7,283
 7,675
Computer software expense 4,393
 3,331
 13,823
 9,267
Other operating expense 19,830
 19,814
 55,357
 58,508
Other operating expense20,998 17,122 58,544 57,489 
Amortization of tax credit and other investments 23,827
 32,618
 66,059
 60,779
Amortization of tax credit and other investments38,008 17,209 90,657 57,819 
Amortization of core deposit intangibles 1,735
 2,023
 5,314
 6,177
Repurchase agreements’ extinguishment costRepurchase agreements’ extinguishment cost— — — 8,740 
Total noninterest expense 164,499
 170,500
 486,693
 465,985
Total noninterest expense205,384 172,573 585,984 537,671 
INCOME BEFORE INCOME TAXES 175,284
 123,464
 560,973
 411,051
INCOME BEFORE INCOME TAXES273,431 196,060 779,296 472,343 
INCOME TAX EXPENSE 42,624
 13,321
 140,247
 90,108
INCOME TAX EXPENSE47,982 36,523 124,111 68,630 
NET INCOME $132,660
 $110,143
 $420,726
 $320,943
NET INCOME$225,449 $159,537 $655,185 $403,713 
EARNINGS PER SHARE (“EPS”)        EARNINGS PER SHARE (“EPS”)
BASIC $0.92
 $0.76
 $2.91
 $2.23
BASIC$1.59 $1.13 $4.62 $2.83 
DILUTED $0.91
 $0.76
 $2.88
 $2.21
DILUTED$1.57 $1.12 $4.58 $2.82 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING        
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDINGWEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC 144,498
 144,122
 144,412
 144,061
BASIC141,880 141,498 141,799 142,595 
DILUTED 145,882
 145,238
 145,849
 145,086
DILUTED143,143 142,043 143,051 143,082 
DIVIDENDS DECLARED PER COMMON SHARE $0.20
 $0.20
 $0.60
 $0.60



See accompanying Notes to Consolidated Financial Statements.


64



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
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 hedges51 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 
 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net income $132,660
 $110,143
 $420,726
 $320,943
Other comprehensive income (loss), net of tax:        
Net change in unrealized (losses) gains on available-for-sale investment securities (1,906) (4,907) 7,916
 12,993
Foreign currency translation adjustments 3,870
 (555) 8,013
 (5,226)
Other comprehensive income (loss) 1,964
 (5,462) 15,929
 7,767
COMPREHENSIVE INCOME $134,624
 $104,681
 $436,655
 $328,710
 



See accompanying Notes to Consolidated Financial Statements.


75



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except share data)shares)
(Unaudited)
 
  Common Stock and Additional Paid-in Capital 
Retained
Earnings
 
Treasury
Stock
 Accumulated Other Comprehensive Loss, Net of Tax 
Total
Stockholders’
Equity
  Shares Amount    
BALANCE, JANUARY 1, 2016 143,909,233
 $1,701,459
 $1,872,594
 $(436,162) $(14,941) $3,122,950
Net income —
 —
 320,943
 —
 —
 320,943
Other comprehensive income —
 —
 —
 —
 7,767
 7,767
Stock compensation costs —
 13,973
 —
 —
 —
 13,973
Net activity of common stock pursuant to various stock compensation plans and agreements, and related tax benefits 224,071
 2,981
 —
 (3,144) —
 (163)
Cash dividends on common stock —
 —
 (87,416) —
 —
 (87,416)
BALANCE, SEPTEMBER 30, 2016 144,133,304
 $1,718,413
 $2,106,121
 $(439,306) $(7,174) $3,378,054
BALANCE, JANUARY 1, 2017 144,167,451
 $1,727,598
 $2,187,676
 $(439,387) $(48,146) $3,427,741
Net income —
 —
 420,726
 —
 —
 420,726
Other comprehensive income —
 —
 —
 —
 15,929
 15,929
Stock compensation costs —
 15,780
 —
 —
 —
 15,780
Net activity of common stock pursuant to various stock compensation plans and agreements 343,492
 1,968
 —
 (12,663) —
 (10,695)
Cash dividends on common stock —
 —
 (87,585) —
 —
 (87,585)
BALANCE, SEPTEMBER 30, 2017 144,510,943
 $1,745,346
 $2,520,817
 $(452,050) $(32,217) $3,781,896
 


Common Stock and
Additional Paid-in Capital		Retained EarningsTreasury StockAOCI,
Net of Tax		Total
Stockholders’ Equity
SharesAmount
BALANCE, JULY 1, 2020141,486,397 $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 agreements21,968 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, 2020141,507,430 $1,850,563 $3,875,715 $(633,486)$33,314 $5,126,106 
BALANCE, JULY 1, 2021141,877,505 $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 agreements9,643 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, 2021141,883,731 $1,884,039 $4,513,321 $(649,591)$(57,568)$5,690,201 

Common Stock and
Additional Paid-in Capital		Retained EarningsTreasury StockAOCI,
Net of Tax		Total
Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2020145,625,385 $1,826,512 $3,689,377 $(479,864)$(18,408)$5,017,617 
Cumulative-effect of change in accounting principle related to credit losses (1)
— — (97,967)— — (97,967)
Net income— — 403,713 — — 403,713 
Other comprehensive income— — — — 51,722 51,722 
Issuance of common stock pursuant to various stock compensation plans and agreements543,287 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, 2020141,507,430 $1,850,563 $3,875,715 $(633,486)$33,314 $5,126,106 
BALANCE, JANUARY 1, 2021141,565,229 $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 agreements523,449 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, 2021141,883,731 $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.


86



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended September 30,
20212020
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 amortization116,371 96,089 
Amortization of premiums and accretion of discount, net17,392 (17,974)
Stock compensation costs24,047 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 assets4,843 — 
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-sale11,337 50,339 
Proceeds from distributions received from equity method investees7,624 4,934 
Net change in accrued interest receivable and other assets(78,649)(467,077)
Net change in accrued expenses and other liabilities30,179 220,343 
Other net operating activities771 529 
Total adjustments90,646 28,385 
Net cash provided by operating activities745,831 432,098 
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 banks4,576 (503,187)
Resale agreements:
Proceeds from paydowns and maturities698,274 400,000 
Purchases(1,834,416)(500,000)
AFS debt securities:
Proceeds from sales236,967 494,877 
Proceeds from repayments, maturities and redemptions1,346,839 1,532,411 
Purchases(5,884,389)(3,167,863)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment416,426 254,035 
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 assets28,560 — 
Purchase of bank-owned life insurance(150,000)— 
Proceeds from distributions received from equity method investees5,626 2,601 
Other net investing activities(61)(2,223)
Net cash used in investing activities(7,817,886)(4,520,267)
 
  Nine Months Ended September 30,
  2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES  
  
Net income $420,726
 $320,943
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Depreciation and amortization 123,008
 98,561
Accretion of discount and amortization of premiums, net (19,237) (37,881)
Stock compensation costs 15,780
 13,973
Deferred income tax (benefit) expense (14,500) 3,730
Provision for credit losses 30,749
 17,018
Net gains on sales of loans (6,660) (6,965)
Net gains on sales of available-for-sale investment securities (6,733) (8,468)
Net gains on sales of premises and equipment (74,092) (2,916)
Net gain on sale of business (3,807) —
Originations and purchases of loans held-for-sale (15,069) (10,901)
Proceeds from sales and paydowns/payoffs in loans held-for-sale 15,792
 15,065
Net change in accrued interest receivable and other assets 105,729
 (2,591)
Net change in accrued expenses and other liabilities 95,432
 19,217
Other net operating activities (2,135) (1,181)
Total adjustments 244,257
 96,661
Net cash provided by operating activities 664,983
 417,604
CASH FLOWS FROM INVESTING ACTIVITIES  
  
Net increase in:  
  
Loans held-for-investment (2,967,873) (776,277)
Interest-bearing deposits with banks (74,254) (13,469)
Investments in qualified affordable housing partnerships, tax credit and other investments, net (121,590) (57,742)
Purchases of:  
  
Resale agreements (550,000) (1,150,000)
Available-for-sale investment securities (501,669) (1,330,724)
Loans held-for-investment (441,141) (1,038,083)
Premises and equipment (11,598) (10,412)
Proceeds from sale of:  
  
Available-for-sale investment securities 676,776
 1,008,256
Loans held-for-investment 448,679
 545,256
Other real estate owned (“OREO”) 5,431
 3,271
Premises and equipment 116,021
 8,163
Business, net of cash transferred 3,633
 —
Paydowns and maturities of resale agreements 1,000,000
 1,450,000
Repayments, maturities and redemptions of available-for-sale investment securities 323,463
 870,965
Other net investing activities 27,914
 17,527
Net cash used in investing activities (2,066,208) (473,269)
CASH FLOWS FROM FINANCING ACTIVITIES  
  
Net increase (decrease) in:  
  
Customer deposits 1,385,625
 1,130,022
Short-term borrowings (36,604) 37,699
Proceeds from:    
Issuance of common stock pursuant to various stock compensation plans and agreements 1,008
 1,962
Payments for:  
  
Repayment of FHLB advances —
 (700,000)
Repayment of long-term debt (10,000) (15,000)
Repurchase of vested shares due to employee tax liability (12,663) (3,144)
Cash dividends on common stock (87,880) (86,984)
Other net financing activities —
 1,019
Net cash provided by financing activities 1,239,486
 365,574
Effect of exchange rate changes on cash and cash equivalents 19,985
 (3,964)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (141,754) 305,945
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,878,503
 1,360,887
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,736,749
 $1,666,832
 

See accompanying Notes to Consolidated Financial Statements.


97



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
(Continued)
 
  Nine Months Ended September 30,
  2017 2016
SUPPLEMENTAL CASH FLOW INFORMATION:    
Cash paid during the period for:  
  
Interest paid $98,409
 $76,750
Income taxes paid $11,800
 $20,652
Noncash investing and financing activities:  
  
Loans transferred from held-for-investment to held-for-sale $418,489
 $720,670
Investment security transferred from held-to-maturity to available-for-sale $115,615
 $—
Held-to-maturity investment security retained from securitization of loans $—
 $160,135
Loans transferred to OREO $456
 $6,086
     
Nine Months Ended September 30,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES  
Net increase in deposits8,486,734 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 agreements1,180 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 activities7,903,443 5,322,358 
Effect of exchange rate changes on cash and cash equivalents3,542 11,603 
NET INCREASE IN CASH AND CASH EQUIVALENTS834,930 1,245,792 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,017,971 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.


108



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 and its subsidiaries (“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 various subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of September 30, 2017,2021, East West also has six6 wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with FASBFinancial 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 Generally Accepted Accounting Principles (“U.S.”) generally accepted accounting principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and general practices in the banking industry,industry. While the unaudited interim Consolidated Financial Statements reflect all adjustments that, in the opinion of management, are necessary for fair statementpresentation, 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 interim periodaudited Consolidated Financial Statements. CertainStatements 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 otherfuture interim period or for the year as a whole. Events subsequent to the Consolidated Balance Sheet date have been evaluated through the date the Consolidated Financial Statements are issued for inclusion in the accompanying Consolidated Financial Statements. The unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto, included in the Company’s 2016 Form 10-K.



Note 2 — Current Accounting Developments
New Accounting Pronouncements Adopted
StandardRequired Date of AdoptionDescriptionEffect 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.

9

In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship provided that all other hedge accounting criteria in ASC 815 continue to be met. This clarification applies to both cash flow and fair value hedging relationships. The Company adopted this guidance prospectively in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.
StandardRequired Date of AdoptionDescriptionEffect 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.


In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which requires an entity to use a four-step decision model when assessing contingent call (put) options that can accelerate the payment of principal on debt instruments to determine whether they are clearly and closely related to their debt hosts. The Company adopted this guidance on a modified retrospective basis in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.
10


In March 2016, the FASB issued ASU 2016-07, InvestmentsNote 2 — Equity Method and Joint Ventures (Topic 323):Simplifying the Transition to the Equity Method of Accounting, to eliminate the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The amendments in ASU 2016-07 also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income (loss) (“AOCI”) at the date the investment becomes qualified for use of the equity method. The Company adopted this guidance prospectively in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.



In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification in the statements of cash flows. The Company adopted this guidance in the first quarter of 2017. The changes that impacted the Company included a requirement that excess tax benefits and deficiencies be recognized as a component of Income tax expense on the Consolidated Statements of Income rather than Additional paid-in capital on the Consolidated Statements of Changes in Stockholders’ Equity as required in the previous guidance. The adoption of this guidance results in increased volatility to the Company’s income tax expense, but does not have a material impact on the Consolidated Balance Sheets or the Consolidated Statements of Changes in Stockholders’ Equity. The income tax expense volatility is dependent on the Company’s stock price on the dates the restricted stock units (“RSUs”) vest, which occur primarily in the first quarter of each year. Net excess tax benefits for RSUs of $4.6 million have been recognized by the Company as a component of Income tax expense on the Consolidated Statements of Income during the nine months ended September 30, 2017. The guidance also removes the impact of the excess tax benefits and deficiencies from the calculation of diluted EPS. In addition, ASU 2016-09 no longer requires a presentation of excess tax benefits and deficiencies as both an operating outflow and a financing inflow on the Consolidated Statements of Cash Flows. Instead, excess tax benefits and deficiencies are recorded along with other income tax cash flows as an operating activity. These changes to the guidance were applied on a prospective basis. The Company has also elected to retain its existing accounting policy election to estimate award forfeitures.

Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue for contracts to provide goods or services to customers and will replace most existing revenue recognition guidance in the U.S. GAAP when it becomes effective. Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. ASU 2014-09 is effective on January 1, 2018. The guidance should be applied on either a modified retrospective or full retrospective basis. The Company’s revenue is mainly comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income, as well as other revenues from financial instruments such as loans, leases, securities and derivatives. The Company has completed a comprehensive scoping exercise to determine the revenue streams that are in the scope of the guidance and the review of its contracts to ascertain whether certain noninterest income revenue items are within the scope of the new guidance. Based on the completed contract reviews thus far, the adoption of this guidance is not expected to have a material impact on its Consolidated Balance Sheets or Consolidated Statements of Income. The next phase of the Company’s implementation work will be to evaluate any changes that may be required to its applicable disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments, except those accounted for under the equity method of accounting or consolidated, to be measured at fair value with changes recognized in net income, thus eliminating eligibility for the current available-for-sale category. If there is no readily determinable fair value, the guidance allows entities to measure equity investments at cost less impairment, whereby impairment is based on a qualitative assessment. Furthermore, investments in Federal Reserve Bank and FHLB stock are not subject to this guidance and will continue to be presented at cost. The guidance eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost and changes the presentation of financial assets and financial liabilities on the Consolidated Balance Sheets or in the footnotes. If an entity has elected the fair value option to measure liabilities, the guidance requires the portion of the change in the fair value of a liability resulting from credit risk to be presented in Other comprehensive income. ASU 2016-01 is effective on January 1, 2018. Early adoption is not permitted except for certain specific changes under the fair value option guidance. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the adoption date. The Company does not have a significant amount of equity securities classified as available-for-sale. Additionally, the Company does not have any financial liabilities accounted for under the fair value option. For the guidance that is applicable to us, the accounting will be implemented on a modified retrospective basis through a cumulative-effect adjustment to the Consolidated Balance Sheets as of January 1, 2018, except for the guidance related to equity securities without readily determinable fair values, which should be applied on a prospective basis. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Balance Sheets or Consolidated Statements of Income.



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability in the accounting for lease transactions. The guidance requires lessees to recognize right-of-use assets and related lease liabilities for all leases with lease terms of more than 12 months on the Consolidated Balance Sheets, and provide quantitative and qualitative disclosures regarding key information about the leasing arrangements. For short-term leases with a term of 12 months or less, lessees can make a policy election not to recognize lease assets and lease liabilities. Lessor accounting is largely unchanged. ASU 2016-02 is effective on January 1, 2019, with early adoption permitted. The guidance should be applied using a modified retrospective transition method through a cumulative-effect adjustment. The Company is currently evaluating the potential impact on its Consolidated Financial Statements by reviewing its existing lease contracts and service contracts that may include embedded leases. The Company expects the adoption of ASU 2016-02 to result in additional assets and liabilities, as the Company will be required to recognize operating leases on its Consolidated Balance Sheets. The Company does not expect a material impact to its recognition of operating lease expense on its Consolidated Statements of Income. Upon completion of the contract reviews and consideration of system requirements, the Company will evaluate the impacts of adopting the new accounting guidance on its disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to introduce a new approach based on expected losses to estimate credit losses on certain types of financial instruments, which modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new “expected credit loss” impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loan receivables, available-for-sale and held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. For available-for-sale debt securities with unrealized losses, ASU 2016-13 does not change the measurement method of credit losses, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses, and requires disclosure of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). ASU 2016-13 is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The guidance should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. While the Company is still evaluating the impact on its Consolidated Financial Statements, the Company expects that ASU 2016-13 may result in an increase in the allowance for credit losses due to the following factors: 1) the allowance for credit losses provides for expected credit losses over the remaining expected life of the loan portfolio, and will consider expected future changes in macroeconomic conditions; 2) the nonaccretable difference on the purchased credit impaired (“PCI”) loans will be recognized as an allowance, offset by an increase in the carrying value of the PCI loans; and 3) an allowance may be established for estimated credit losses on available-for-sale and held-to-maturity debt securities. The amount of the increase will be impacted by the portfolio composition and quality, as well as the economic conditions and forecasts as of the adoption date. The Company has begun its implementation efforts by identifying key interpretive issues, assessing its processes and identifying the system requirements against the new guidance to determine what modifications may be required.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to provide guidance on eight specific issues related to classification on the Consolidated Statements of Cash Flows in order to reduce diversity in practice. The specific issues cover cash payments for debt prepayment or debt extinguishment costs; cash outflows for settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments that are not made soon after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests received in securitization transactions; and clarification regarding when no specific U.S. GAAP guidance exists and the sources of the cash flows are not separately identifiable, the classification should be based on the activity that is likely to be the predominant source or use of the cash flows. ASU 2016-15 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied using a retrospective transition method. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, whichrequires the Company to include those amounts that are deemed to be restricted cash and restricted cash equivalents in its cash and cash equivalent balances on the Consolidated Statements of Cash Flows. In addition, the Company is required to explain the changes in the combined total of restricted and unrestricted balances on the Consolidated Statements of Cash Flows. ASU 2016-18 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.



In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the accounting for goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance also eliminates the requirements for any reporting units with a zero or negative carrying amount to perform a qualitative assessment. ASU 2017-04 is effective on January 1, 2020 and should be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on the Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The guidance does not require any accounting changes for debt securities held at a discount; the discount continues to be amortized as an adjustment of yield over the contractual life (to maturity) of the instrument. ASU 2017-08 is effective on January 1, 2019, with early adoption permitted. The guidance should be applied using a modified retrospective transition method, with the cumulative-effect adjustment recognized to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied prospectively to awards modified on or after the adoption date. The Company plans to adopt this guidance in the first quarter of 2018 prospectively.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which better aligns the Company’s risk management activities and financial reporting for hedging relationships through changes to both the description and measurement guidance for qualifying hedging relationships and the presentation of hedge results, expands and refines hedge accounting for both nonfinancial and financial risk components, and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item on the Consolidated Financial Statements. ASU 2017-12 is effective on January 1, 2019, with early adoption permitted. Upon adoption, the guidance should be applied using a retrospective transition method to any existing cash flows or net investment hedges through a cumulative-effect adjustment to AOCI to eliminate the separate measurement of ineffectiveness. The amended presentation and disclosure guidance is applied prospectively. The Company is currently evaluating the impact on its Consolidated Financial Statements.


Note 3 — Dispositions

In the first quarter of 2017, the Company completed the sale and leaseback of a commercial property in San Francisco, California for cash consideration of $120.6 million and entered into a leaseback with the buyer for part of the property, consisting of a retail branch and office facilities. The property had a net book value of $31.6 million at the time of sale, resulting in a pre-tax gain of $85.4 million after considering $3.6 million in selling costs. As the leaseback is an operating lease, $71.7 million of the gain was recognized on the closing date, and $13.7 million was deferred and will be recognized over the term of the lease agreement. The first quarter 2017 diluted EPS impact from the sale of the commercial property was $0.28 per share, net of tax.

In the third quarter of 2017, the Company sold its insurance brokerage business, East West Insurance Services, Inc., for $4.3 million, and recorded a pre-tax gain of $3.8 million. The third quarter 2017 diluted EPS impact from the sale of the Company’s insurance brokerage business was $0.02 per share, net of tax.



Note 4 —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 noteddescribed 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 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 in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.
•Level 3—•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.

In determining the appropriate hierarchy levels,fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the Company performs an analysisassets or liabilities.

The classification of the assets and liabilities thatwithin the hierarchy is based on whether inputs to the valuation methodology used are subject toobservable or unobservable, and the significance of those inputs in the fair value disclosure.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 tables present financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:
          
  Assets (Liabilities) Measured at Fair Value on a Recurring Basis
as of September 30, 2017
($ in thousands) 
Fair Value
Measurements
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale investment securities:  
  
  
  
 
U.S. Treasury securities $526,332
 $526,332
 $—
 $—
 
U.S. government agency and U.S. government sponsored enterprise debt securities 189,185
 —
 189,185
 —
 
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:  
  
  
  
 
Commercial mortgage-backed securities 315,172
 —
 315,172
 —
 
Residential mortgage-backed securities 1,150,934
 —
 1,150,934
 —
 
Municipal securities 117,242
 —
 117,242
 —
 
Non-agency residential mortgage-backed securities:  
  
  
  
 
Investment grade 9,694
 —
 9,694
 —
 
Corporate debt securities:  
  
  
  
 
Investment grade 2,327
 —
 2,327
 —
 
Non-investment grade 9,615
 —
 9,615
 —
 
Foreign bonds:         
Investment grade 489,140
 —
 489,140
 —
 
Other securities 147,135
 31,418
 102
 115,615
(1) 
Total available-for-sale investment securities $2,956,776
 $557,750
 $2,283,411
 $115,615
 
          
Derivative assets:         
Interest rate swaps and options $64,822
 $—
 $64,822
 $—
 
Foreign exchange contracts 14,187
 —
 14,187
 —
 
Credit risk participation agreements (“RPAs”) 2
 —
 2
 —
 
Warrants 1,455
 —
 856
 599
 
Total derivative assets $80,466
 $—
 $79,867
 $599
 
          
Derivative liabilities:         
Interest rate swaps on certificates of deposit $(6,648) $—
 $(6,648) $—
 
Interest rate swaps and options (64,212) —
 (64,212) —
 
Foreign exchange contracts (20,054) —
 (20,054) —
 
RPAs (1) —
 (1) —
 
Total derivative liabilities $(90,915) $—
 $(90,915) $—
 
          
(1)During the third quarter of 2017, the Company transferred a non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held- to-maturity to available-for-sale.



 
  Assets (Liabilities) Measured at Fair Value on a Recurring Basis
as of December 31, 2016
($ in thousands) 
Fair Value
Measurements
 Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale investment securities:  
  
  
  
U.S. Treasury securities $720,479
 $720,479
 $—
 $—
U.S. government agency and U.S. government sponsored enterprise debt securities 274,866
 —
 274,866
 —
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:  
  
  
  
Commercial mortgage-backed securities 266,799
 —
 266,799
 —
Residential mortgage-backed securities 1,258,747
 —
 1,258,747
 —
Municipal securities 147,654
 —
 147,654
 —
Non-agency residential mortgage-backed securities:  
  
  
  
Investment grade 11,477
 —
 11,477
 —
Corporate debt securities:  
  
  
  
Investment grade 222,377
 —
 222,377
 —
Non-investment grade 9,173
 —
 9,173
 —
Foreign bonds:        
Investment grade 383,894
 —
 383,894
 —
Other securities 40,329
 30,991
 9,338
 —
Total available-for-sale investment securities $3,335,795
 $751,470
 $2,584,325
 $—
         
Derivative assets:        
Foreign currency forward contracts $4,325
 $—
 $4,325
 $—
Interest rate swaps and options 67,578
 —
 67,578
 —
Foreign exchange contracts 11,874
 —
 11,874
 —
RPAs 3
 —
 3
 —
Total derivative assets $83,780
 $—
 $83,780
 $—
         
Derivative liabilities:        
Interest rate swaps on certificates of deposit $(5,976) $—
 $(5,976) $—
Interest rate swaps and options (65,131) —
 (65,131) —
Foreign exchange contracts (11,213) —
 (11,213) —
RPAs (3) —
 (3) —
Total derivative liabilities $(82,323) $—
 $(82,323) $—
         



At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. There were no assets or liabilities measured using significant unobservable inputs (Level 3) on a recurring basis as of December 31, 2016, and during the three and nine months ended September 30, 2016. The following table presents a reconciliation of the beginning and ending balances for other securities and warrants measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017:
  Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
($ in thousands) Other securities Warrants Other securities Warrants
Beginning balance $—
 $—
 $—
 $—
Issuances —
 599
 —
 599
Transfer from held-to-maturity investment security to available-for-sale investment security 115,615
 —
 115,615
 —
Ending balance $115,615

$599

$115,615

$599
         

Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities become unobservable or observable in the current marketplace. The Company’s policy, with respect to transfers between levels of the fair value hierarchy, is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers of assets and liabilities measured on a recurring basis into and out of Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2017 and 2016. During the three and nine months ended September 30, 2017, the Company transferred a non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale to reflect the Company’s intent to sell the security under active liquidity management.

The following table presents quantitative information about significant unobservable inputs used in the valuation of assets measured on a recurring basis classified as Level 3 as of September 30, 2017. Significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets or liabilities. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets or liabilities would be impacted by a predetermined percentage change.
         
($ in thousands) 
Fair Value
Measurements
(Level 3)
 
Valuation
Technique
 
Unobservable
Input(s)
 
Weighted
 Average
Available-for-sale investment securities:

        
Other securities $115,615
 Discounted cash flows Discount margin 191 Basis points
         
Derivative assets:        
Warrants $599
 Black-Scholes option pricing model Volatility 44%
      Liquidity discount 47%
         

Assets measured at fair value on a nonrecurring basis include certain non-purchased credit impaired (“non-PCI”) loans that were impaired, OREO and loans held-for-sale.  These fair value adjustments result from impairments recognized during the period on certain non-PCI impaired loans, application of fair value less cost to sell on OREO and application of the lower of cost or fair value on loans held-for-sale.



The following tables present the carrying amounts of assets included on the Consolidated Balance Sheets that had fair value changes measured on a nonrecurring basis as of September 30, 2017 and December 31, 2016:
         
  Assets Measured at Fair Value on a Nonrecurring Basis
as of September 30, 2017
($ in thousands) 
Fair Value
Measurements
 Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 
Significant
Unobservable
Inputs
(Level 3)
Non-PCI impaired loans:  
  
  
  
Commercial real estate (“CRE”) $9,172
 $—
 $—
 $9,172
Commercial and industrial (“C&I”) 32,053
 —
 —
 32,053
Residential 6,079
 —
 —
 6,079
Consumer 633
 —
 —
 633
Total non-PCI impaired loans $47,937
 $—
 $—
 $47,937
OREO $1,789
 $—
 $—
 $1,789
         
         
  Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2016
($ in thousands) 
Fair Value
Measurements
 Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 
Significant
Unobservable
Inputs
(Level 3)
Non-PCI impaired loans:  
  
  
  
CRE $14,908
 $—
 $—
 $14,908
C&I 52,172
 —
 —
 52,172
Residential 2,464
 —
 —
 2,464
Consumer 610
 —
 —
 610
Total non-PCI impaired loans $70,154
 $—
 $—
 $70,154
OREO $345
 $—
 $—
 $345
Loans held-for-sale $22,703
 $—
 $22,703
 $—
         

The following table presents the fair value adjustments of assets measured on a nonrecurring basis recognized during the three and nine months ended and which were included on the Consolidated Balance Sheets as of September 30, 2017 and 2016:
         
  Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2017 2016 2017 2016
Non-PCI impaired loans:      
  
CRE $6
 $(282) $(66) $1,741
C&I (16,954) 77
 (17,648) (5,497)
Residential (3) (14) 49
 (14)
Consumer —
 —
 25
 17
Total non-PCI impaired loans $(16,951) $(219) $(17,640) $(3,753)
OREO $(285) $(41) $(286) $(994)
Loans held-for-sale $—
 $—
 $—
 $(2,351)
         



The following table presents the quantitative information about the significant unobservable inputs used in the valuation of assets measured on a nonrecurring basis classified as Level 3 as of September 30, 2017 and December 31, 2016:
 
($ in thousands) Fair Value
Measurements
(Level 3)		 Valuation
Technique(s)		 
Unobservable
Input(s)
 
Range of 
Input(s)
 Weighted 
Average
September 30, 2017  
        
Non-PCI impaired loans $30,563
 Discounted cash flows Discount 0% — 82% 19%
  $17,374
 Market comparables 
Discount (1)
 0% — 100% 40%
OREO $1,789
 Appraisal Selling cost 8% 8%
December 31, 2016          
Non-PCI impaired loans $31,835
 Discounted cash flows Discount 0% — 62% 7%
  $38,319
 Market comparables 
Discount (1)
 0% — 100% 18%
OREO $345
 Appraisal Selling cost 8% 8%
           
(1)Discount is adjusted for factors such as liquidation cost of collateral and selling cost.

The following tables present the carrying and fair values per the fair value hierarchy of certain financial instruments, excluding those measured at fair value on a recurring basis, as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017
 
Carrying
Amount
 Level 1 Level 2 Level 3 
Estimated
Fair Value
Financial assets:          
Cash and cash equivalents $1,736,749
 $1,736,749
 $—
 $—
 $1,736,749
Interest-bearing deposits with banks $404,946
 $—
 $404,946
 $—
 $404,946
Resale agreements (1)
 $1,250,000
 $—
 $1,236,413
 $—
 $1,236,413
Restricted equity securities $73,322
 $—
 $73,322
 $—
 $73,322
Loans held-for-sale $178
 $—
 $178
 $—
 $178
Loans held-for-investment, net $28,239,431
 $—
 $—
 $27,635,961
 $27,635,961
Accrued interest receivable $111,710
 $—
 $111,710
 $—
 $111,710
Financial liabilities:  
  
  
  
  
Customer deposits:  
  
  
  
  
Demand, checking, savings and money market deposits $25,517,121
 $—
 $25,517,121
 $—
 $25,517,121
Time deposits $5,794,541
 $—
 $5,787,188
 $—
 $5,787,188
Short-term borrowings $24,813
 $—
 $24,813
 $—
 $24,813
FHLB advances $323,323
 $—
 $336,741
 $—
 $336,741
Repurchase agreements (1)
 $50,000
 $—
 $105,269
 $—
 $105,269
Long-term debt $176,513
 $—
 $139,649
 $—
 $139,649
Accrued interest payable $11,017
 $—
 $11,017
 $—
 $11,017
 
(1)
Resale and repurchase agreements are reported net pursuant to ASC 210-20-45, Balance Sheet Offsetting. As of September 30, 2017, $400.0 millionout of $450.0 millionof repurchase agreements were eligible for netting against resale agreements.



 
($ in thousands) December 31, 2016
 Carrying
Amount		 Level 1 Level 2 Level 3 Estimated
Fair Value
Financial assets:  
  
  
  
  
Cash and cash equivalents $1,878,503
 $1,878,503
 $—
 $—
 $1,878,503
Interest-bearing deposits with banks $323,148
 $—
 $323,148
 $—
 $323,148
Resale agreements (1)
 $2,000,000
 $—
 $1,980,457
 $—
 $1,980,457
Held-to-maturity investment security $143,971
 $—
 $—
 $144,593
 $144,593
Restricted equity securities $72,775
 $—
 $72,775
 $—
 $72,775
Loans held-for-sale $23,076
 $—
 $23,076
 $—
 $23,076
Loans held-for-investment, net $25,242,619
 $—
 $—
 $24,915,143
 $24,915,143
Accrued interest receivable $100,524
 $—
 $100,524
 $—
 $100,524
Financial liabilities:  
  
  
  
  
Customer deposits:  
  
  
  
  
Demand, checking, savings and money market deposits $24,275,714
 $—
 $24,275,714
 $—
 $24,275,714
Time deposits $5,615,269
 $—
 $5,611,746
 $—
 $5,611,746
Short-term borrowings $60,050
 $—
 $60,050
 $—
 $60,050
FHLB advances $321,643
 $—
 $334,859
 $—
 $334,859
Repurchase agreements (1)
 $350,000
 $—
 $411,368
 $—
 $411,368
Long-term debt $186,327
 $—
 $186,670
 $—
 $186,670
Accrued interest payable $9,440
 $—
 $9,440
 $—
 $9,440
 
(1)
Resale and repurchase agreements are reported net pursuant to ASC 210-20-45, Balance Sheet Offsetting. As of December 31, 2016, $100.0 millionout of $450.0 millionof repurchase agreements were eligible for netting against resale agreements.

The following is a description ofsection describes the valuation methodologies and significant assumptions used by the Company to measure financial assets and liabilities at fair value, and to estimate fair value for certain financialon a recurring basis, as well as the general classification of these instruments not recorded at fair value. The description also includes the level ofwithin the fair value hierarchy in which the assets or liabilities are classified.hierarchy.

Cash and Cash EquivalentsAvailable-for-SaleDebt Securities — The carrying amount approximates fair value due to the short-term nature of these instruments. As such, the estimated fair value is classified as Level 1.
Interest-bearing Deposits with Banks — The fair value of interest-bearing deposits with banks generally approximates their book value due to their short maturities.  In addition, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.
Resale Agreements — The fair value of resale agreementsAFS debt securities is estimated by discounting the cash flows based on expected maturities or repricing dates utilizing estimated market discount rates.  In addition, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

Held-to-Maturity Investment Security — The held-to-maturity investment security as of December 31, 2016 was comprised of a floating rate non-agency commercial mortgage-backed security that was subsequently transferred from held-to-maturity to available-for-sale during the three months ended September 30, 2017. This security was categorized under Available-for-sale investment securities — other securities as of September 30, 2017.The fair value of this security is estimated by discounting the future expected cash flows utilizing the underlying index and a discount margin. Other unobservable inputs include conditional prepayment rate, constant default rate and loss severity. Due to the significant unobservable inputs used in estimating the fair value, this security is classified as Level 3.
Available-for-SaleInvestment Securities — When available, the Company uses quoted market prices to determine the fair value of available-for-sale investment securities, which are classified as Level 1.  Level 1 available-for-sale investment securities are primarily comprised of U.S. Treasury securities.  Other than the non-agency commercial mortgage-backed security, the fair value of which is described above, the fair value of other available-for-sale investment securities are 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 obtaining such valuation information from third parties,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 reviewedvalidates the methodologiesvaluations 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 developascertain the resultingreliability 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 values.  The available-for-sale investmentvalue of AFS debt securities valued using such methodsthat are classified as Level 2.


Loans Held-for-Sale — The Company’s loans held-for-sale1. 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 carried atbased on observable inputs in the lower of cost or fair value. Loans held-for-sale were comprised of single-family residential loans as of September 30, 2017, and were primarily comprised of consumer loans as of December 31, 2016. The fair value of loans held-for-sale is derived from current market prices and comparative current sales. The Company records any fair value adjustments on a nonrecurring basis. Loans held-for-salemarketplace, 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.

Non-PCI Impaired Loans
11

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 non-PCI impaired loansthese equity securities. When NAV is measured usingavailable periodically and the market comparables or discounted cash flow techniques. For CRE and C&I loans,equity securities can be put back to the fair value is based on each loan’s observable market price ortransfer agents at the publicly available NAV, the fair value of the collateral less cost to sell, if the loan is collateral dependent. The fair value of collateral is generally based on third party appraisals (or internal evaluation if third party appraisal is not required by regulations) which utilize one or more valuation techniques (income, market and/or cost approaches). All third party appraisals and evaluations are reviewed and validated by independent appraisers or the Company’s appraisal department staffed by licensed appraisers and/or experienced real estate reviewers. The third party appraisals are ordered through the appraisal department (except for one-to-four unit residential appraisals which are typically ordered through an approved appraisal management company or an approved residential appraiser) at the inception, renewal or, for all real estate related loans, upon the occurrence of any events causing a downgrade to an adverse grade (i.e., “substandard” or “doubtful”). Updated appraisals and evaluations are generally obtained within the last 12 months. The Company increases the frequency of obtaining updated appraisals for adversely graded credits when declining market conditions exist. All appraisals include an “as is” market value without conditions as of the effective date of the appraisal. For certain impaired loans, the Company utilizes the discounted cash flow approach and applies a discount derived from historical data. The significant unobservable inputs used in the fair value measurement of non-PCI impaired loans are discounts applied based on the liquidation cost of collateral and selling cost. On a quarterly basis, all nonperforming assets are reviewed to assess whether the current carrying value is supported by the collateral or cash flow and to ensure that the current carrying value is appropriate. Non-PCI impaired loans are classified as Level 3.
Loans Held-for-Investment, net — The fair value of loans held-for-investment other than non-PCI impaired loans is determined based on a discounted cash flow approach considered for an exit price value. The discount rate is derived from the associated yield curve plus spreads that reflect the rates in the market for loans with similar financial characteristics. No adjustments have been made for changes in credit within any of the loan portfolios. It is management’s opinion that the allowance for loan losses pertaining to performing and nonperforming loans results in a fair value adjustment of credit for such loans. Due to the unobservable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 3.
Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment, which are recorded at estimated fair value less cost to sell at the time of foreclosure and at the lower of cost or estimated fair value less the cost to sell subsequent to acquisition. The fair values of OREO properties are based on third party appraisals or accepted written offers. Refer to the Non-PCI Impaired Loans section above for a detailed discussion on the Company’s policies and procedures related to appraisals and evaluations. On a monthly basis, the current fair market value of each OREO property is reviewed to ensure that the current carrying value is appropriate. The significant unobservable input used is the selling cost. OREO properties are classified as Level 3.

Restricted Equity Securities — Restricted equity securities are comprised of Federal Reserve Bank stock and FHLB stock. Ownership of these securities is restricted to member banks and these securities do not have a readily determinable fair value.  Purchases and sales of these securities are at par value. The carrying amounts of the Company’s restricted equity securities approximate fair value. The valuation of these investments is classified as Level 2.
Accrued Interest Receivable — The carrying amount approximates1. 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 due to the short-term nature of these instruments. Considering the observable nature of the inputs used in deriving the estimated fair value, these instruments areequity securities is classified as Level 2.




Interest Rate Swaps and OptionsContracts— The Company enters into interest rate swap and option contracts that are not designated as hedging instruments with institutional counterparties to hedge against interest rate swap and option products offered to bank customers. These products allowits borrowers to lock in attractive intermediate and long-term interest rates, by entering into an interest rate swap or option contract with the Company, resulting in the customer obtaining a synthetic fixedfixed-rate loan. To economically hedge against the interest rate loan.risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certificates of deposit issued. This product allows the Company to lock in attractive floatingcertain variable interest rate funding.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 variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves.  The fair value of the interest rate options, consistingwhich 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 fellfall below (rise above) the strike rate of the floors (caps). The variable interest rates used in the calculation of projected receipts on the floor (cap) are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. 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 model-derived credit spreads. As of September 30, 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these interest rate contracts and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative portfolios. As a result,utilized, the Company classifies these derivative instruments as Level 2 of the fair value hierarchy due to the observable nature of the significant inputs utilized.2.

Foreign Exchange Contracts — The Company enters into short-term foreign exchange contracts to purchase/sell foreign currencies at set rates inaccommodate the future.  These contracts economically hedge againstbusiness needs of its customers. For a majority of the foreign exchange rate fluctuations.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 enters into contracts with institutional counterparties to hedge againstutilizes foreign exchange products offeredcontracts that are not designated as hedging instruments to bankmitigate 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. These products allow customers to hedge theThe fair value of foreign exchange risk of their deposits and loans denominated in foreign currencies. The Company assumes minimal foreign exchange rate risk because the contracts with the customer and the institutional party mirror each other. The fair value is determined at each reporting period based on changes in the foreign exchange rate.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. Valuation depends on the type of derivative, and the nature of the underlying rate and contractual terms including period of maturity, price and index upon which the derivative’s value is based. Key inputs include foreign exchange rates (spot and/or forward rates), volatility of currencies and the correlation of such inputs. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and resultedresult 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 isare classified as Level 2. As of September 30, 2017, foreign exchange forward contracts used to economically hedge the Company’s net investment in East West Bank (China) Limited, a non-U.S. Dollar (“USD”) functional currency subsidiary in China, are included in this caption. See Foreign Currency Forward Contracts in the section below for details on valuation methodologies2021 and significant assumptions.
Customer Deposits — The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking, savings and money market deposits, approximates the carrying amount as these deposits are payable on demand at the measurement date. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. For time deposits, the fair value is based on the discounted value of contractual cash flows using current market rates for instruments with similar maturities. Due to the observable nature of the inputs used in deriving the estimated fair value, time deposits are classified as Level 2.

Federal Home Loan Bank Advances — The fair value of FHLB advances is estimated based on the discounted value of contractual cash flows, using rates currently offered by the FHLB of San Francisco for advances with similar remaining maturities at each reporting date. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

Repurchase Agreements — The fair value of the repurchase agreements is calculated by discounting future cash flows based on expected maturities or repricing dates, utilizing estimated market discount rates and taking into consideration the call features of each instrument. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.
Accrued Interest Payable — The carrying amount approximates fair value due to the short-term nature of these instruments. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.


Long-Term Debt — The fair value of long-term debt is estimated by discounting the cash flows through maturity based on current market rates the Company would pay for new issuances. Due to the observable nature of the inputs used in deriving the estimated fair value, long-term debt is classified as Level 2.
Foreign Currency Forward Contracts — During the three months ended December 31, 2015,2020, the Company began entering intoBank held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited. Previously, theLimited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were eligible for hedge accounting. During the nine months ended September 30, 2017, the foreign currency forward contracts were dedesignated when the hedge relationship ceased to be highly effective. The Company continues to economically hedge its foreign currency exposure resulting from East West Bank (China) Limited and the foreign currency forward contracts are includeddesignated as part of the “Foreign Exchange Contracts” caption as of September 30, 2017.net investment hedges. The fair value of foreign currency non-deliverable forward contracts is valueddetermined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. InputsKey inputs of the current market exchange rate include spot rates and forward rates and the interest rate curves of the domestic and foreign currency. Interest ratecontractual 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 Risk Participation Agreements Contracts — The Company entersmay periodically enter into RPAs, under which the Company assumes its pro-rata share ofcredit risk participation agreements (“RPAs”) to manage the credit exposure on interest rate contracts associated with the borrower’s performance related to interest rate derivative contracts.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 credit spreads of the borrowers used in the calculation are estimated by the Company based on current market conditions, including consideration of current borrowing spreads for similar customers and transactions, review of existing collateralization or other credit enhancements, and changes in credit sector and entity-specific credit information. The Company has determined that the majority of the inputs used to value the RPAs are observable. Accordingly,observable; accordingly, RPAs fall withinare classified as Level 22.

12

Equity Contracts — As part of the fair value hierarchy.

Warrants — Theloan origination process, the Company obtainedperiodically obtains warrants to purchase preferred andand/or common stock of technology and life sciences companies as part of the loan origination process.to which it provides loans. As of September 30, 2017,2021 and December 31, 2020, the warrants included on the Consolidated Financial Statements were from both public and private companies. The Company valuedvalues 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 option volatility assumption wasCompany applies proxy volatilities based on public market indices that include members that operate in similar industries as the companies in ourindustry sectors of the private company portfolio.companies. The model values were furtherare 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. There is a direct correlation between changes in the volatility assumption and the fair value measurement of warrants from private companies, while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement of warrants from private companies. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a sensitivitymeasurement 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 estimates presented hereinof 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 pertinent information availablethe 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 managementthe observable nature of the significant inputs utilized.

13

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of each reporting date. AlthoughSeptember 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 
14

($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Fair Value
AFS debt securities:
U.S. Treasury securities$50,761 $— $— $50,761 
U.S. government agency and U.S. government-sponsored enterprise debt 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.

15

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,
2021202020212020
Equity Contracts
Beginning balance$223 $316 $273 $421 
Total (losses) gains included in earnings (1)
(9)(6)37 8,262 
Issuances12 — 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 modelEquity volatility45% — 54%49%
Liquidity discount47%47%
December 31, 2020
Derivative assets:
Equity contracts$273 Black-Scholes option pricing modelEquity volatility46% — 61%53%
Liquidity discount47%47%
(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of 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.

16

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 awarerequired 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 anythe 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 significantly affect theonly 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 amounts, such amounts have not been comprehensively revalued for purposesless the costs to sell at the time of these Consolidated Financial Statements sinceforeclosure 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 date, and therefore,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 may differ significantly fromdeclines below its carrying value. Other nonperforming assets are classified as Level 3.

17

The following tables present the carrying amounts of assets that were still held and had fair value 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.
18

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,
2021202020212020
Loans held-for-investment (1):
Commercial:
C&I$(4,977)$(24,928)$(13,590)$(38,855)
CRE:
CRE(106)(15)(7,186)(292)
Multifamily residential16 — — — 
Total commercial(5,067)(24,943)(20,776)(39,147)
Consumer:
Residential mortgage:
HELOCs3 3 (6)(178)
Other consumer— — (2,491)2,491 
Total consumer3 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 flowsDiscount4% — 15%7%
$32,636 Fair value of collateralDiscount15% — 81%40%
$1,000 Fair value of collateralContract valueNMNM
$15,252 Fair value of propertySelling cost8%8%
Other nonperforming assets$699 Fair value of collateralContract valueNMNM
December 31, 2020
Loans held-for-investment$104,783 Discounted cash flowsDiscount3% — 15%11%
$22,207 Fair value of collateralDiscount10% — 26%15%
$15,879 Fair value of collateralContract valueNMNM
$46,993 Fair value of propertySelling cost7% — 26%10%
Investments in tax credit and other investments, net$3,140 Individual analysis of each investmentExpected future tax benefits and distributionsNMNM
OREO$15,824 Fair value of propertySelling cost8%8%
NM — Not meaningful.
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of September 30, 2021 and December 31, 2020.

19

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of 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 herein.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 1Level 2Level 3Estimated
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 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$4,017,971 $4,017,971 $— $— $4,017,971 
Interest-bearing deposits with banks$809,728 $— $809,728 $— $809,728 
Resale agreements$1,460,000 $— $1,464,635 $— $1,464,635 
Restricted equity securities, at cost$83,046 $— $83,046 $— $83,046 
Loans held-for-sale$1,788 $— $1,788 $— $1,788 
Loans held-for-investment, net$37,770,972 $— $— $37,803,940 $37,803,940 
Mortgage servicing rights$5,522 $— $— $8,435 $8,435 
Accrued interest receivable$150,140 $— $150,140 $— $150,140 
Financial liabilities:
Demand, checking, savings and money market deposits$35,862,403 $— $35,862,403 $— $35,862,403 
Time deposits$9,000,349 $— $9,016,884 $— $9,016,884 
Short-term borrowings$21,009 $— $21,009 $— $21,009 
FHLB advances$652,612 $— $659,631 $— $659,631 
Repurchase agreements$300,000 $— $317,850 $— $317,850 
Long-term debt$147,376 $— $150,131 $— $150,131 
Accrued interest payable$11,956 $— $11,956 $— $11,956 

20

Note 53 —SecuritiesAssets Purchased under Resale Agreements and Sold under Repurchase Agreements


Assets Purchased under Resale Agreements


ResaleIn resale agreements, are recorded at the balances at whichCompany is exposed to credit risk for both counterparties and the securities were acquired.underlying collateral. The market valuesCompany 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 underlying securities collateralizingtransaction, liquidation and set-off of collateral against the related receivablenet 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 including accrued interest, are monitored. Additional collateral may be requested byas described above, the Company from the counterparty when deemed appropriate. Grossdid 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 $1.65$1.34 billion and $2.10$1.16 billion as of September 30, 20172021 and December 31, 2016,2020, respectively. The weighted average interest ratesweighted-average yields were 2.30%1.50% and 1.84%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, 20172021 and December 31, 2016,2020, 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

Long-term repurchase agreements are accounted for as collateralized financing transactions — As of September 30, 2021 and recorded at the balances at which theDecember 31, 2020, securities were sold. The collateral forsold under the repurchase agreements is primarily comprisedconsisted of U.S. Treasury securities, U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities and U.S. government agency and U.S. government sponsoredgovernment-sponsored enterprise debtmortgage-backed securities. The Company may have to provide additional collateral for the repurchase agreements, as necessary. Gross repurchase agreements were $450.0$300.0 million as of eachboth 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, 2017 and December 31, 2016. The weighted average interest rates were 3.56% and 3.15% as of September 30, 2017 and December 31, 2016, respectively.2021, all repurchase agreements will mature in 2023.


Balance Sheet Offsetting

The Company’s resale and repurchase agreements are transacted under legally enforceable master repurchasenetting agreements that, provide the Company, 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 SheetsSheet when it has a legally enforceable master netting agreement and the transactions are eligible for netting under ASC 210-20-45.210-20-45-11, Balance Sheet Offsetting Repurchase and Reverse Repurchase Agreements. Collateral acceptedreceived includes securities and loans that are not recognized on the Consolidated Balance Sheets.Sheet. Collateral pledged consists of securities that are not netted on the Consolidated Balance SheetsSheet against the related collateralized liability. Collateral acceptedSecurities 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, but isand are usually delivered to and held by the third partythird-party trustees. The collateral amounts received/posted are limited for presentation purposes to the related recognized asset/liability balance for each counterparty, and accordingly, do not include excess collateral received/pledged.




The following tables present the resale and repurchase agreements included on the Consolidated Balance SheetsSheet as of September 30, 20172021 and December 31, 2016:2020:
($ in thousands)September 30, 2021
AssetsGross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Collateral Received
Resale agreements$2,596,142 $— $2,596,142 $(2,580,187)(1)$15,955 
LiabilitiesGross
Amounts
of Recognized
Liabilities		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Collateral Pledged
Repurchase agreements$300,000 $— $300,000 $(300,000)(2)$— 
21

($ in thousands) As of September 30, 2017($ in thousands)December 31, 2020
 
Gross
Amounts
of Recognized
Assets
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts of
Assets Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
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
AssetsAssetsNet
Amount
 
Gross
Amounts
of Recognized
Assets
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts of
Assets Presented
on the
Consolidated
Balance Sheets		 Financial
Instruments		 Collateral
Pledged		 Net AmountGross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Collateral Received
Resale agreements $—
 $(1,240,568)
(2) 
$9,432
Resale agreements$1,460,000 $— $1,460,000 $(1,458,700)(1)$1,300 
            
 
Gross
Amounts
of Recognized
Liabilities
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 
Net Amounts of
Liabilities
Presented
on the
Consolidated
Balance Sheets
 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
LiabilitiesLiabilitiesGross
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
 
Gross
Amounts
of Recognized
Liabilities
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 
Net Amounts of
Liabilities
Presented
on the
Consolidated
Balance Sheets
 Financial
Instruments		 Collateral 
Posted		 Net AmountCollateral Pledged
Repurchase agreements $—
 $(50,000)
(3) 
$—
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.
 
($ in thousands) As of December 31, 2016
  
Gross
Amounts
of Recognized
Assets
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts of
Assets Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
Assets    Financial
Instruments		 Collateral
Pledged		 Net Amount
Resale agreements $2,100,000
 $(100,000) $2,000,000
 $(150,000)
(1) 
$(1,839,120)
(2) 
$10,880
             
  
Gross
Amounts
of Recognized
Liabilities
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts of
Liabilities
Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
Liabilities    Financial
Instruments		 Collateral 
Posted		 Net Amount
Repurchase agreements $450,000
 $(100,000) $350,000
 $(150,000)
(1) 
$(200,000)
(3) 
$—
 
(1)Represents financial instruments subject to enforceable master netting arrangements that are not eligible to be offset under ASC 210-20-45 but would be eligible for offsetting to the extent that an event of default has occurred.
(2)Represents the fair value of securities the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty.
(3)Represents the fair value of securities the Company has pledged under repurchase agreements, limited for table presentation purposes to the amount of the recognized liability owed to each counterparty.

(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, referderivatives. Refer to Note 7 5 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.





Note 64 — Securities


The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of available-for-sale investmentAFS debt securities which are carried at fair value, and the held-to-maturity investment security, which is carried at amortized cost, as of September 30, 20172021 and December 31, 2016:2020:
($ 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 securities1,386,236 4,401 (27,528)1,363,109 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,277,989 19,063 (22,585)1,274,467 
Residential mortgage-backed securities2,814,111 13,875 (36,922)2,791,064 
Municipal securities500,907 8,194 (7,612)501,489 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities463,358 4,704 (3,292)464,770 
Residential mortgage-backed securities902,002 2,490 (3,236)901,256 
Corporate debt securities626,531 9,445 (17,305)618,671 
Foreign government bonds258,119 657 (3,928)254,848 
Asset-backed securities76,417 437 (55)76,799 
CLOs527,250 5 (2,446)524,809 
Total AFS debt securities$9,783,180 $63,504 $(133,678)$9,713,006 
22

 
  As of September 30, 2017
($ in thousands) Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Available-for-sale investment securities:  
  
  
  
U.S. Treasury securities $533,035
 $—
 $(6,703) $526,332
U.S. government agency and U.S. government sponsored enterprise debt securities 191,727
 81
 (2,623) 189,185
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:  
  
  
  
Commercial mortgage-backed securities 321,943
 326
 (7,097) 315,172
Residential mortgage-backed securities 1,154,026
 4,790
 (7,882) 1,150,934
Municipal securities 116,798
 900
 (456) 117,242
Non-agency residential mortgage-backed securities:        
Investment grade (1)
 9,680
 21
 (7) 9,694
Corporate debt securities:        
Investment grade (1)
 2,464
 —
 (137) 2,327
Non-investment grade (1)
 10,191
 —
 (576) 9,615
Foreign bonds:       

Investment grade (1) (2)
 505,395
 229
 (16,484) 489,140
Other securities  (3)
 147,504
 3
 (372) 147,135
Total available-for-sale investment securities $2,992,763
 $6,350
 $(42,337) $2,956,776
Held-to-maturity investment security:        
Non-agency commercial mortgage-backed security $—
 $—
 $—
 $—
Total investment securities $2,992,763
 $6,350
 $(42,337) $2,956,776
         
         
  As of December 31, 2016
($ in thousands) Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Available-for-sale investment securities:  
  
  
  
U.S. Treasury securities $730,287
 $21
 $(9,829) $720,479
U.S. government agency and U.S. government sponsored enterprise debt securities 277,891
 224
 (3,249) 274,866
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:  
  
  
  
Commercial mortgage-backed securities 272,672
 345
 (6,218) 266,799
Residential mortgage-backed securities 1,266,372
 3,924
 (11,549) 1,258,747
Municipal securities 148,302
 1,252
 (1,900) 147,654
Non-agency residential mortgage-backed securities:        
Investment grade (1)
 11,592
 —
 (115) 11,477
Corporate debt securities:        
Investment grade (1)
 222,190
 562
 (375) 222,377
Non-investment grade (1)
 10,191
 —
 (1,018) 9,173
Foreign bonds:        
Investment grade (1) (2)
 405,443
 30
 (21,579) 383,894
Other securities 40,501
 337
 (509) 40,329
Total available-for-sale investment securities $3,385,441
 $6,695
 $(56,341) $3,335,795
Held-to-maturity investment security:        
Non-agency commercial mortgage-backed security (3)
 $143,971
 $622
 $—
 $144,593
Total investment securities $3,529,412
 $7,317
 $(56,341) $3,480,388
         
(1)Available-for-sale investment securities rated BBB- or higher by Standard &Poor’s (“S&P”) or Baa3 or higher by Moody’s are considered investment grade.  Conversely, available-for-sale investment securities rated lower than BBB- by S&P or lower than Baa3 by Moody’s are considered non-investment grade. Classifications are based on the lower of the credit ratings by S&P or Moody’s.
(2)Fair values of foreign bonds include $458.9 million and $353.6 million of multilateral development bank bonds as of September 30, 2017 and December 31, 2016, respectively.
(3)During the third quarter of 2017, the Company transferred a non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale.

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



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.

23

Unrealized Losses


The following tables present the fair value and the associated gross unrealized losses and related fair values of the Company’s investment portfolio,AFS debt securities, aggregated by investment category and the length of time that individualthe securities have been in a continuous unrealized loss position as of September 30, 20172021 and December 31, 2016:2020.
($ in thousands)September 30, 2021
Less Than 12 Months12 Months or MoreTotal
Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$768,909 $(8,769)$— $— $768,909 $(8,769)
U.S. government agency and U.S. government- sponsored enterprise debt securities1,008,979 (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 securities603,554 (17,164)107,752 (5,421)711,306 (22,585)
Residential mortgage-backed securities1,904,559 (35,792)17,591 (1,130)1,922,150 (36,922)
Municipal securities249,055 (7,612)— — 249,055 (7,612)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities151,915 (2,158)40,233 (1,134)192,148 (3,292)
Residential mortgage-backed securities561,635 (3,233)8,145 (3)569,780 (3,236)
Corporate debt securities207,861 (6,139)178,833 (11,166)386,694 (17,305)
Foreign government bonds54,228 (3,514)84,977 (414)139,205 (3,928)
Asset-backed securities21,631 (55)— — 21,631 (55)
CLOs183,192 (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 Months12 Months or MoreTotal
Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$352,521 $(1,260)$— $— $352,521 $(1,260)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities292,596 (5,656)3,543 (54)296,139 (5,710)
Residential mortgage-backed securities342,561 (1,611)— — 342,561 (1,611)
Municipal securities24,529 (88)— — 24,529 (88)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities58,738 (1,230)7,920 — 66,658 (1,230)
Residential mortgage-backed securities90,156 (506)— — 90,156 (506)
Corporate debt securities251,674 (3,645)9,798 (203)261,472 (3,848)
Foreign government bonds106,828 (1,460)— — 106,828 (1,460)
Asset-backed 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)

24

 
  As of September 30, 2017
($ in thousands) Less Than 12 Months 12 Months or More Total
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Available-for-sale investment securities:  
  
  
  
  
  
U.S. Treasury securities $415,507
 $(4,615) $110,825
 $(2,088) $526,332
 $(6,703)
U.S. government agency and U.S. government sponsored enterprise debt securities 96,681
 (367) 54,512
 (2,256) 151,193
 (2,623)
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:  
  
  
  
  
  
Commercial mortgage-backed securities 120,070
 (1,721) 155,128
 (5,376) 275,198
 (7,097)
Residential mortgage-backed securities 365,038
 (2,344) 288,768
 (5,538) 653,806
 (7,882)
Municipal securities 22,010
 (222) 11,256
 (234) 33,266
 (456)
Non-agency residential mortgage-backed securities:  
  
  
  
  
  
Investment grade 4,715
 (7) —
 —
 4,715
 (7)
Corporate debt securities:  
  
  
  
  
  
Investment grade —
 —
 2,327
 (137) 2,327
 (137)
Non-investment grade —
 —
 9,615
 (576) 9,615
 (576)
Foreign bonds:            
Investment grade 73,619
 (873) 344,298
 (15,611) 417,917
 (16,484)
Other securities 31,223
 (372) —
 —
 31,223
 (372)
Total available-for-sale investment securities $1,128,863
 $(10,521) $976,729
 $(31,816) $2,105,592
 $(42,337)
Held-to-maturity investment security:            
Non-agency commercial mortgage-backed security $—
 $—
 $—
 $—
 $—
 $—
Total investment securities $1,128,863
 $(10,521) $976,729
 $(31,816) $2,105,592
 $(42,337)
             
             
  As of December 31, 2016
($ in thousands) Less Than 12 Months 12 Months or More Total
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Available-for-sale investment securities:  
  
  
  
  
  
U.S. Treasury securities $670,268
 $(9,829) $—
 $—
 $670,268
 $(9,829)
U.S. government agency and U.S. government sponsored enterprise debt securities 203,901
 (3,249) —
 —
 203,901
 (3,249)
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:          
  
Commercial mortgage-backed securities 202,106
 (5,452) 29,201
 (766) 231,307
 (6,218)
Residential mortgage-backed securities 629,324
 (9,594) 119,603
 (1,955) 748,927
 (11,549)
Municipal securities 57,655
 (1,699) 2,692
 (201) 60,347
 (1,900)
Non-agency residential mortgage-backed securities:          
  
Investment grade 5,033
 (101) 6,444
 (14) 11,477
 (115)
Corporate debt securities:          
  
Investment grade —
 —
 71,667
 (375) 71,667
 (375)
Non-investment grade —
 —
 9,173
 (1,018) 9,173
 (1,018)
Foreign bonds:            
Investment grade 363,618
 (21,327) 14,258
 (252) 377,876
 (21,579)
Other securities 30,991
 (509) —
 —
 30,991
 (509)
Total available-for-sale investment securities $2,162,896
 $(51,760) $253,038
 $(4,581) $2,415,934
 $(56,341)
Held-to-maturity investment security:            
Non-agency commercial mortgage-backed security $—
 $—
 $—
 $—
 $—
 $—
Total investment securities $2,162,896
 $(51,760) $253,038
 $(4,581) $2,415,934
 $(56,341)
 
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
For each
Each reporting period, the Company examines all individual securitiesassesses each AFS debt security that areis in an unrealized loss position for OTTI.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 OTTI,impairment related to credit losses, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale InvestmentDebt Securitiestoto the Consolidated Financial Statements ofin the Company’s 20162020 Form 10-K.


The gross unrealized losses presented in the above tables were primarily attributable to the yield curveinterest rate movement in addition toand 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 spreads.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. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The Company believes that the gross unrealized losses detailed in the previous tables are temporary and not due to reasons of credit quality. As a result, the Company expects to recover the entire amortized cost basis of these securities. Accordingly, there was no impairment loss was recorded on the Company’s Consolidated Statements of Incomeallowance for the three and nine months ended September 30, 2017 and 2016. Ascredit losses as of September 30, 2017, the Company had 146 available-for-sale investment securities in an unrealized loss position with no credit impairment, primarily comprised of 79 U.S. government agency2021 and U.S. government sponsored enterprise mortgage-backed securities, 22 U.S. Treasury securities and 14 investment grade foreign bonds. In comparison, as of December 31, 2016, the Company had 170 available-for-sale investment securities in an unrealized loss position with2020 provided against these securities. In addition, there was no credit impairment, primarily comprised of 82 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, 26 U.S. Treasury securities and 13 investment grade foreign bonds.

During the first quarter of 2016, the Company obtained a non-agency commercial mortgage-backed security, through the securitization of multifamily real estate loans, which was classified as held-to-maturity and recorded at amortized cost. During the third quarter of 2017, the Company transferred this non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale. The transfer reflects the Company’s intent to sell the security under active liquidity management.

Other-Than-Temporary Impairment

No OTTIprovision for credit losses were recognized for the three and nine months ended September 30, 20172021 and 2016.2020.


25

Realized Gains and Losses


The following table presents the proceeds, gross realized gains and losses, and tax expense related to the sales of available-for-sale investmentAFS debt securities for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Gross realized gains$354 $698 $1,178 $11,867 
Related tax expense$104 $206 $348 $3,508 
 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Proceeds from sales $124,887
 $143,513
 $676,776
 $1,008,256
Gross realized gains $1,539
 $1,790
 $6,733
 $8,593
Gross realized losses $—
 $—
 $—
 $(125)
Related tax expense $647
 $752
 $2,831
 $3,560
 


ScheduledContractual Maturities of InvestmentAvailable-for-Sale Debt Securities

The following table presents the scheduledcontractual maturities of available-for-sale investmentAFS debt securities as of September 30, 2017:
 
($ in thousands) 
Amortized
Cost
 
Estimated
Fair Value
Due within one year $638,257
 $621,343
Due after one year through five years 629,892
 623,058
Due after five years through ten years 176,117
 172,902
Due after ten years 1,548,497
 1,539,473
Total available-for-sale investment securities $2,992,763
 $2,956,776
 



Actual2021. Expected maturities of mortgage-backed securities canwill differ from contractual maturities becauseon certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations. In addition, factors such as prepaymentsobligations with or without prepayment penalties.
($ in thousands)Amortized CostFair Value
Due within one year$1,522,146 $1,486,148 
Due after one year through five years845,850 848,562 
Due after five years through ten years1,618,344 1,618,061 
Due after ten years5,796,840 5,760,235 
Total AFS debt securities$9,783,180 $9,713,006 

As of September 30, 2021 and interest rates may affect the yields on the carrying values of mortgage-backed securities.

Available-for-sale investmentDecember 31, 2020, AFS debt securities with fair valuesvalues of $584.9$859.9 million and $767.4$588.5 million, as of September 30, 2017 and December 31, 2016, respectively, were pledged to secure public deposits, repurchase agreements the Federal Reserve Bank’s discount window and for other purposes required or permitted by law.


Restricted Equity Securities


Restricted equity securities include stock of the Federal Reserve Bank and of the FHLB. Restricted equity securities are carried at cost as these securities do not have a readily determinable fair value. The following table presents the restricted equity securities on the Consolidated Balance Sheet as of September 30, 20172021 and December 31, 2016:2020:
($ in thousands)September 30, 2021December 31, 2020
Federal Reserve Bank of San Francisco (“FRBSF”) stock$59,950 $59,249 
FHLB stock17,250 23,797 
Total restricted equity securities$77,200 $83,046 

     
($ in thousands) September 30, 2017 December 31, 2016
Federal Reserve Bank stock $56,072
 $55,525
FHLB stock 17,250
 17,250
Total $73,322
 $72,775
     


Note 75 — Derivatives

The Company uses derivatives to manage exposure to market risk, primarily including interest rate risk and foreign currency risk, andas 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 aredo not significant tosignificantly 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 Company’sBank’s investment in its China subsidiary, East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance SheetsSheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives consist ofserve as economic hedges. For additional information on the Company’s derivatives and hedging activities, seeNote 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivativesto the Consolidated Financial Statements of the Company’s 20162020 Form 10-K.


26

The following table presents the total notional amounts and gross fair valuevalues of the Company’s derivatives, as well as the balance sheet netting adjustments on an aggregate basis as of September 30, 20172021 and December 31, 2016:2020. 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, 2021December 31, 2020
Notional
Amount		Fair ValueNotional
Amount		Fair Value
Derivative
Assets 		Derivative
 Liabilities 		Derivative
Assets 		Derivative
 Liabilities 
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate contracts$275,000 $— $1,149 $275,000 $— $1,864 
Net investment hedges:
Foreign exchange contracts85,316 158 — 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 contracts3,047,846 31,717 24,313 3,108,488 30,300 22,524 
Credit contracts83,693 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 
 
($ in thousands) September 30, 2017 December 31, 2016
 
Notional
Amount
 Fair Value 
Notional
Amount
 Fair Value
  
Derivative
Assets (1)
 
Derivative
 Liabilities (1)
  
Derivative
Assets (1)
 
Derivative
 Liabilities (1)
Derivatives designated as hedging instruments:            
Interest rate swaps on certificates of deposit $42,566
 $—
 $6,648
 $48,365
 $—
 $5,976
Foreign currency forward contracts —
 —
 —
 83,026
 4,325
 —
Total derivatives designated as hedging instruments $42,566
 $—
 $6,648
 $131,391
 $4,325
 $5,976
Derivatives not designated as hedging instruments:            
Interest rate swaps and options $8,742,980
 $64,822
 $64,212
 $7,668,482
 $67,578
 $65,131
Foreign exchange contracts 1,131,414
 14,187
 20,054
 767,764
 11,874
 11,213
RPAs 68,387
 2
 1
 71,414
 3
 3
Warrants —
(2) 
1,455
 —
 —
 —
 —
Total derivatives not designated as hedging instruments $9,942,781
 $80,466
 $84,267
 $8,507,660
 $79,455
 $76,347
 
(1)
Derivative assets and derivative liabilities are included in Other assets and Accrued expenses and other liabilities, respectively,on the Consolidated Balance Sheets.
(2)The Company held four warrants in public companies and 32 warrants in private companies as of September 30, 2017.

(1)The Company held equity contracts in 1 public company and 12 private companies as of September 30, 2021. In comparison, the Company held equity contracts in 2 public companies and 17 private companies as of December 31, 2020.

(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 8,557 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


Interest Rate Swaps on Certificates of Deposit Fair Value Hedges — The Company is exposedentered into interest rate swaps designated as fair value hedges to hedge changes in the fair value of certain fixed rate certificates of deposit due to changes in the benchmark interest rate, London Interbank Offered Rate. Interestrate. The interest rate swaps designated as fair value hedges involveinvolved the receiptexchange of fixed rate amounts from a counterparty in exchange for the Company making variable ratevariable-rate payments over the life of the agreements without the exchange ofexchanging the underlying notional amount.

Asamounts. During the fourth quarter of September 30, 2017 and December 31, 2016,2020, both the total notional amounts of thehedging interest rate swaps onand hedged certificates of deposit were $42.6 million and $48.4 million, respectively. The fair value liabilitiescalled.

As of the interest rate swaps were $6.6 million and $6.0 million as ofboth September 30, 20172021 and December 31, 2016, respectively.

The following table presents the net2020, there were no fair value hedges or hedged certificates of deposit outstanding. There were no gains (losses)or losses recognized on the Consolidated StatementsStatement of Income related to the derivatives designated as fair value hedges for both the three and nine months ended September 30, 20172021. In comparison, the net gains recognized on interest rate swaps were $154 thousand and 2016:$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.

27

 
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Gains (losses) recorded in interest expense:        
  Recognized on interest rate swaps $37
 $(1,327) $(1,486) $3,044
  Recognized on certificates of deposit $(116) $674
 $1,236
 $(2,688)
 
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,
2021202020212020
 (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. During the fourth quarter of 2015, theThe Company began enteringenters into foreign currency forward contracts to hedge itsa 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 Company’sBank’s net investment in China,East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate.rate of the Chinese Renminbi (“RMB”). The Company recorded the changes in the carrying amount of its China subsidiary in the Foreign currency translation adjustment account within AOCI. Simultaneously, the effective portion of the hedge of this exposure was also recorded in the Foreign currency translation adjustment account and the ineffective portion, if any, was recorded in current earnings. During the first quarter of 2017, the Company discontinued hedge accounting prospectively. The cumulative effective portion ofmay de-designate the net investment hedges recorded throughwhen the point of dedesignation remained inCompany expects the Foreign currency translation adjustment account within AOCI, andhedge will cease to be reclassified into earnings only upon the sale or liquidation of the China subsidiary. The Company continues to economically hedge its foreign currency exposure in its China subsidiary through foreign exchange forward contracts, which were included as part of the Derivatives Not Designated as Hedging Instruments — “Foreign Exchange Contracts” caption as of September 30, 2017.effective.


As of September 30, 2017, there were no derivative contracts designated as net investment hedges. As of December 31, 2016, the total notional amount and fair value of the foreign currency forward contracts designated as net investment hedges were $83.0 million and a $4.3 million asset, respectively. The following table presents the after-tax (losses) gains (losses) recordedrecognized in the Foreign currency translation adjustment account within AOCI related to the effective portion of theon net investment hedges and the ineffective portion recorded on the Consolidated Statements of Income for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Losses recognized in AOCI$(318)$(2,627)$(1,860)$(2,000)
 
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Gains (losses) recognized in AOCI on net investment hedges (effective portion) $—
 $69
 $(648) $296
Losses recognized in foreign exchange income (ineffective portion) $—
 $(236) $(1,953) $(667)
 




Derivatives Not Designated as Hedging Instruments


Interest Rate Swaps and OptionsContracts— The Company enters into interest rate derivatives includingcontracts, which include interest rate swaps and options with its customers to allow themthe 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 institutional counterparties. Asthird-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, 2017,2021 and December 31, 2020:
($ in thousands)September 30, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Written options$1,103,453 $— $751 Purchased options$1,103,453 $757 $— 
Sold collars and corridors179,605 2,083 198 Collars and corridors179,605 199 2,093 
Swaps7,573,811 276,902 31,316 Swaps7,603,519 18,890 177,821 
Total$8,856,869 $278,985 $32,265 Total$8,886,577 $19,846 $179,914 
28

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

Included in the total notional amountsamount of $8.89 billion of interest rate contracts entered into with financial counterparties as of September 30, 2021, was a notional amount of $2.86 billion of interest rate swaps and options, including mirroredthat cleared through London Clearing House (“LCH”). Applying variation margin payments as settlement to LCH cleared derivative transactions with institutional counterparties and the Company’s customers, totaled $4.37 billion for derivatives that were in an asset valuation position and $4.37 billion for derivatives that wereresulted in a reduction in derivative asset fair value of $16.0 million and liability valuation position. Asfair value of $104.6 million as of September 30, 2021. In comparison, included in the total notional amount of $9.09 billion of interest rate contracts entered into with financial counterparties as of December 31, 2016, the total2020 was a notional amountsamount of $2.98 billion of interest rate swaps and options, including mirroredthat cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions with institutional counterparties and the Company’s customers, totaled $3.86 billion for derivatives that were in an asset valuation position and $3.81 billion for derivatives that wereresulted in a reduction in derivative asset fair values of $1.3 million and liability valuation position. The fair valuevalues of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $64.8$187.4 million asset and a $64.2 million liability as of September 30, 2017. The fair value of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $67.6 million asset and a $65.1 million liability as of December 31, 2016.2020.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, primarily comprisedconsisting of forward,forwards, spot, swap and spotoption contracts to enableaccommodate the business needs of its customers to hedge their transactions in foreign currencies against fluctuations in foreign exchange rates, and also to allow the Company to economically hedge against foreign currency fluctuations in certain foreign currency denominated deposits that it offers to its customers, as well as the Company’s investment in its China subsidiary, East West Bank (China) Limited. For a majority of the foreign exchange transactions entered with its customers, thecustomers. The Company enters into offsetting foreign exchange contracts with institutionalthird-party financial institutions to manage its foreign exchange exposure with its customers, and enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. The Company also utilizes foreign exchange contracts to mitigate the economic effect of currency fluctuations on certain foreign exchange risk.currency-denominated on-balance sheet assets and liabilities, primarily foreign currency-denominated deposits offered to its customers. A majority of thesethe foreign exchange contracts havehad original maturities of one year or less. Asless as of both September 30, 20172021 and December 31, 2016,2020.

The following tables present the total notional amounts ofand the foreign exchange contracts were $1.13 billion and $767.8 million, respectively.  Thegross fair values of the foreign exchange derivative contracts recorded were a $14.2 million asset and a $20.1 million liabilityoutstanding as of September 30, 2017.2021 and December 31, 2020:
($ in thousands)September 30, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$1,573,945 $18,558 $20,340 Forwards and spot$249,814 $1,913 $1,653 
Swaps66,696 321 76 Swaps814,355 10,885 2,204 
Written options169,434 22 10 Purchased options169,434 10 22 
Collars2,084 — 8 Collars2,084 8 — 
Total$1,812,159 $18,901 $20,434 Total$1,235,687 $12,816 $3,879 
($ in thousands)December 31, 2020
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$1,522,888 $17,575 $17,928 Forwards and spot$145,197 $1,230 $273 
Swaps13,590 872 91 Swaps1,191,355 10,049 3,658 
Written options117,729 — 574 Purchased options117,729 574 — 
Total$1,654,207 $18,447 $18,593 Total$1,454,281 $11,853 $3,931 

29

Credit Contracts — The fair valuesCompany may periodically enter into RPAs with institutional counterparties to manage the credit exposure of the foreign exchangeinterest rate contracts recorded were an $11.9 million asset and an $11.2 million liability as of December 31, 2016.

Credit Risk Participation Agreements —associated with the syndicated loans. The Company has enteredmay enter into RPAsprotection sold or protection purchased RPAs. The purchaser of credit protection that enters into an interest rate contract with the borrower, may in turn enter into an RPA with a seller of protection, under which the Company assumed its pro-rata shareseller of protection receives a fee to accept a portion of the credit exposure associated with the borrower’s performance relatedrisk. A seller of credit protection is required to interest rate derivative contracts. The Company may or may not be a partymake payments to the interest rate derivative contract and enters into such RPAs in instances where the Company isbuyer if a party to the related loan participation agreement with the borrower. The Company will make or receive payments under the RPAs if the borrower defaults on its obligation to perform under the related interest rate derivative contract. The Company manages its creditCredit risk on the RPAs is managed by monitoring the credit worthiness of thethe borrowers and institutional counterparties, which is based onpart of the normal credit review and monitoring process. Assuming the underlying borrower referenced in the interest rate contracts defaulted as of September 30, 2021 and December 31, 2020, the maximum exposure of protection sold RPAs would be $4.5 million and $6.0 million, respectively. As of September 30, 2021 and December 31, 2020, the weighted-average remaining maturities of the outstanding protection sold RPAs were 3.4 years and 3.5 years, respectively.

The notional amount of the RPAs reflectreflects the Company’s pro-rata share of the derivative instrument. As of September 30, 2017,The following table presents the notional amountamounts and the gross fair valuevalues of the RPAs purchased were $47.8 million and a $1 thousand liability, respectively. As of September 30, 2017, the notional amount and fair value of the RPAs sold were $20.6 million and a $2 thousand asset, respectively. As of December 31, 2016, the notional amount and fair value of the RPAs purchased were $48.3 million and a $3 thousand liability, respectively. As of December 31, 2016, the notional amount and fair value of the RPAs sold were $23.1 million and a $3 thousand asset, respectively. Assuming all underlying borrowers referenced in the interest rate derivative contracts defaultedoutstanding as of September 30, 20172021 and December 31, 2016, the exposures from the RPAs purchased would be $92 thousand and $179 thousand, respectively.  As of September 30, 2017 and December 31, 2016, the weighted average remaining maturities2020:
($ in thousands)September 30, 2021December 31, 2020
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
RPAs - protection sold$72,979 $— $120 $66,278 $— $206 
RPAs - protection purchased10,714 15 — 10,714 13 — 
Total RPAs$83,693 $15 $120 $76,992 $13 $206 

Equity Contracts — Periodically, as part of the outstanding RPAs were 3.0 years and 3.7 years, respectively.

Warrants — TheCompany’s loan origination process, the Company obtainedobtains warrants to purchase preferred andand/or common stock of technology and life sciences companies as partto which it provides loans. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The Company held warrants in 1 public company and 12 private companies as of September 30, 2021, and held warrants in 2 public companies and 17 private companies as of December 31, 2020. The total fair value of the warrants held in both public and private companies was $226 thousand and $858 thousand as of September 30, 2021 and December 31, 2020, respectively.

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

The following tables present the notional amounts and fair values of the commodity derivative positions outstanding as of September 30, 2021 and December 31, 2020:
($ and units in thousands)September 30, 2021
Customer Counterparty($ and units in thousands)Financial Counterparty
Notional
Unit		Fair ValueNotional
Unit		Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Written options212 Barrels$302 $1 Purchased options212 Barrels$— $278 
Collars3,070 Barrels35,941 — Collars3,126 Barrels— 35,575 
Swaps5,275 Barrels82,563 2 Swaps8,219 Barrels30,604 98,712 
Total8,557 $118,806 $3 Total11,557 $30,604 $134,565 
Natural gas:Natural gas:
Written options2,668 MMBTUs$— $— Purchased options2,668 MMBTUs$— $— 
Collars25,224 MMBTUs30,542 62 Collars29,242 MMBTUs5,236 32,005 
Swaps67,381 MMBTUs106,653 14,756 Swaps127,419 MMBTUs71,222 142,636 
Total95,273 $137,195 $14,818 Total159,329 $76,458 $174,641 
Total$256,001 $14,821 Total$107,062 $309,206 
30

($ and units in thousands)December 31, 2020
Customer Counterparty($ and units in thousands)Financial Counterparty
Notional
Unit		Fair ValueNotional
Unit		Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Collars2,022 Barrels$2,344 $2,193 Collars2,022 Barrels$2,217 $2,402 
Swaps4,299 Barrels9,282 14,283 Swaps4,299 Barrels8,220 7,135 
Total6,321 $11,626 $16,476 Total6,321 $10,437 $9,537 
Natural gas:Natural gas:
Written options597 MMBTUs$— $59 Purchased options597 MMBTUs$59 $— 
Collars12,733 MMBTUs1,063 205 Collars16,293 MMBTUs205 813 
Swaps96,305 MMBTUs32,074 27,238 Swaps103,973 MMBTUs26,988 29,837 
Total109,635 $33,137 $27,502 Total120,863 $27,252 $30,650 
Total$44,763 $43,978 Total$37,689 $40,187 

As of September 30, 2017,2021, the Company held four warrantsnotional quantities that cleared through the Chicago Mercantile Exchange (“CME”) totaled 1,070 thousand barrels of crude oil and 15,740 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in public companiesreductions to the gross derivative asset fair value of $8.8 million and 32 warrants in private companies. Theto the liability fair valuesvalue of the warrants for public and private companies were an $856 thousand asset and a $599 thousand asset, respectively, totaling $1.5$41.2 million as of September 30, 2017.2021, to a net fair value liability of $7.5 million. In comparison, the notional quantities that cleared through CME totaled 1,275 thousand barrels of crude oil and 29,733 thousand MMBTUs of natural gas as of December 31, 2020. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction to the gross derivative asset fair value of $7.9 million and to the liability fair value of $3.7 million, as of December 31, 2020, to a net fair value of zero.




The following table presents the net gains (losses) recognized on the Company’s Consolidated StatementsStatement of Income related to derivatives not designated as hedging instruments for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Classification on
Consolidated
Statement of Income		Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Derivatives not designated as hedging instruments:
Interest rate contractsInterest rate contracts and other derivative income$2,467 $(3,013)$11,030 $(15,385)
Foreign exchange contractsForeign exchange income11,820 5,255 34,035 14,317 
Credit contractsInterest rate contracts and other derivative income(20)26 175 (72)
Equity contractsLending fees3 3,592 388 11,971 
Commodity contractsInterest rate contracts and other derivative income32 34 13 (13)
Net gains$14,302 $5,894 $45,641 $10,818 
 
($ in thousands) 
Location in
Consolidated
Statements of Income
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Derivatives not designated as hedging instruments:          
Interest rate swaps and options Derivative fees and other income $(94) $411
 $(1,838) $(2,220)
Foreign exchange contracts Foreign exchange income 3,720
 3,787
 17,936
 10,982
RPAs Derivative fees and other income —
 4
 1
 (7)
Warrants Ancillary loan fees and other income 669
 —
 1,455
 —
Net gains   $4,295
 $4,202
 $17,554
 $8,755
 


Credit-Risk-RelatedCredit Risk-Related Contingent Features— Certain of the Company’s over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-relatedcredit risk-related event. These events, which are defined by the existing derivative contracts,Such event primarily relaterelates to a downgrade in the credit rating of East West Bank to below investment grade.grade. As of September 30, 2021, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $82.4 million, in which $81.1 million of collateral was posted to cover these positions. As of December 31, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $107.4 million, in which $106.8 million of collateral was posted to cover these positions. In the event that the credit rating of East West Bank’s credit rating isBank had been downgraded to below investment grade, noa minimal additional collateral would behave been required to be posted since the liabilities related to such contracts were fully collateralized as of September 30, 20172021 and December 31, 2016.2020.

31



Offsetting of Derivatives


The Company has entered into agreements with certain counterparty financial institutions, which include master netting agreements.  However, the Company has elected to account for all derivatives with counterparty institutions on a gross basis. The following tables present the gross derivativesderivative fair values, the balance sheet netting adjustments and the resulting net fair values recorded on the Consolidated Balance SheetsSheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the respective collateral received or pledged in the formapplication of other financial instruments, which are generally marketable securities and/or cash.variation margin payments as settlements with central counterparties, where applicable. The collateral amounts in thesethe following tables are limited to the outstanding balances of the related asset or liability, (after netting is applied); thusafter the application of netting; therefore, instances of overcollateralization are not shown:
($ in thousands)As of September 30, 2021
Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$694,010 $(102,515)$(62,968)$528,527 $— $528,527 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the
Consolidated Balance Sheet		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities$561,788 $(102,515)$(240,104)$219,169 $(157,315)$61,854 
 
  As of September 30, 2017
($ in thousands) Total Contracts Not Subject to Master Netting Arrangements Contracts Subject to Master Netting Arrangements
  
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts
Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
       
Derivative
Amount
 Collateral
Received		 Net Amount
Derivatives Assets $80,466
 $57,720
 $22,746
 $—
 $22,746
 $(20,240)
(1) 
$(2,230)
(2) 
$276
                 
  
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 Gross Amounts
Offset on the
Consolidated
Balance Sheets		 Net Amounts
Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
       
Derivative
Amount
 Collateral 
Posted		 Net Amount
Derivatives Liabilities $90,915
 $17,814
 $73,101
 $—
 $73,101
 $(20,240)
(1) 
$(52,851)
(3) 
$10
 
($ in thousands)As of December 31, 2020
 Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$602,754 $(93,063)$(8,449)$501,242 $(35)$501,207 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the Consolidated Balance SheetNet Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities$424,828 $(93,063)$(91,634)$240,131 $(221,150)$18,981 
(1)Included $1.2 million and $1.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of September 30, 2021 and December 31, 2020, respectively.
 
  As of December 31, 2016
($ in thousands) Total Contracts Not Subject to Master Netting Arrangements Contracts Subject to Master Netting Arrangements
  
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
Gross Amounts
Offset on the
Consolidated
Balance Sheets
 Net Amounts
Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
       Derivative
Amounts		 Collateral
Received		 Net Amount
Derivatives Assets $83,780
 $51,218
 $32,562
 $—
 $32,562
 $(20,991)
(1) 
$(10,687)
(2) 
$884
                 
  
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
 Gross
Amounts Recognized
 
Gross Amounts
Offset on the
Consolidated
Balance Sheets
 Net Amounts
Presented
on the
Consolidated
Balance Sheets		 Gross Amounts Not Offset on the
Consolidated Balance Sheets		  
       Derivative
Amounts		 Collateral 
Posted		 Net Amount
Derivatives Liabilities $82,323
 $24,097
 $58,226
 $—
 $58,226
 $(20,991)
(1) 
$(36,349)
(3) 
$886
 
(1)Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable master netting arrangements if the Company has elected to net.
(2)Represents cash and securities received against derivative assets with the same counterparty that are subject to enforceable master netting arrangements. No cash collateral was received as of September 30, 2017. Includes $8.1 million of cash collateral received as of December 31, 2016.
(3)Represents cash and securities pledged against derivative liabilities with the same counterparty that are subject to enforceable master netting arrangements. Includes $18.0 million and $170 thousand of cash collateral posted as of September 30, 2017 and December 31, 2016, respectively.

(2)Included $1.4 million and $220 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of September 30, 2021 and December 31, 2020, respectively.
(3)Gross cash collateral received under master netting arrangements or similar agreements were $67.1 million and $15.8 million as of September 30, 2021 and December 31, 2020, respectively. Of the gross cash collateral received, $63.0 million and $8.4 million were used to offset against derivative assets as of September 30, 2021 and December 31, 2020, respectively.
(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $240.1 million and $91.6 million as of September 30, 2021 and December 31, 2020, respectively. Of the gross cash collateral pledged, $240.1 million and $91.6 million were used to offset against derivative liabilities as of September 30, 2021 and December 31, 2020, respectively.
(5)Represents the fair value of security collateral received and pledged limited to derivative assets and liabilities that are subject to enforceable master netting arrangements or similar agreements. U.S. GAAP does not permit the netting of noncash collateral on the Consolidated Balance Sheet but requires disclosure of such amounts.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to resale and repurchase agreements, referagreements. Refer to Note 53 — SecuritiesAssets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q for additional information. Refer toNote 4 2— Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures on derivatives.



32



Note 86 — Loans Receivable and Allowance for Credit Losses


The Company’s held-for-investment loan portfolio includes originated and purchased loans. Originated and purchased loans with no evidence of credit deterioration at their acquisition date are referred to collectively as non-PCI loans. PCI loans are loans acquired with evidence of credit deterioration since their origination and it is probable at the acquisition date that the Company would be unable to collect all contractually required payments. PCI loans are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company has elected to account for PCI loans on a pool level basis under ASC 310-30 at the time of acquisition.

The following table presents the composition of the Company’s non-PCI and PCI loans held-for-investment as of September 30, 20172021 and December 31, 2016:2020:
($ in thousands)September 30, 2021December 31, 2020
Commercial:
C&I (1)
$13,831,649 $13,631,726 
CRE:
CRE11,818,065 11,174,611 
Multifamily residential3,340,378 3,033,998 
Construction and land376,921 599,692 
Total CRE15,535,364 14,808,301 
Total commercial29,367,013 28,440,027 
Consumer:
Residential mortgage:
Single-family residential9,021,801 8,185,953 
HELOCs1,963,622 1,601,716 
Total residential mortgage10,985,423 9,787,669 
Other consumer129,269 163,259 
Total consumer11,114,692 9,950,928 
Total loans held-for-investment (2)
$40,481,705 $38,390,955 
Allowance for loan losses(560,404)(619,983)
Loans held-for-investment, net (2)
$39,921,301 $37,770,972 
 
($ in thousands) September 30, 2017 December 31, 2016
 
Non-PCI
Loans (1) 
 
PCI
    Loans (2)
 
Total (1)(2)
 
Non-PCI
Loans (1)
 
PCI
    Loans (2)
 
Total (1)(2)
CRE:            
Income producing $8,530,519
 $313,257
 $8,843,776
 $7,667,661
 $348,448
 $8,016,109
Construction 572,027
 —
 572,027
 551,560
 —
 551,560
Land 111,006
 371
 111,377
 121,276
 1,918
 123,194
Total CRE 9,213,552
 313,628
 9,527,180
 8,340,497
 350,366
 8,690,863
C&I:            
Commercial business 9,763,688
 12,566
 9,776,254
 8,921,246
 38,387
 8,959,633
Trade finance 868,902
 —
 868,902
 680,930
 —
 680,930
Total C&I 10,632,590
 12,566
 10,645,156
 9,602,176
 38,387
 9,640,563
Residential:            
Single-family 4,234,017
 121,992
 4,356,009
 3,370,669
 139,110
 3,509,779
Multifamily 1,808,311
 68,645
 1,876,956
 1,490,285
 95,654
 1,585,939
Total residential 6,042,328
 190,637
 6,232,965
 4,860,954
 234,764
 5,095,718
Consumer 2,104,614
 15,442
 2,120,056
 2,057,067
 18,928
 2,075,995
Total loans held-for-investment $27,993,084
 $532,273
 $28,525,357
 $24,860,694
 $642,445
 $25,503,139
Allowance for loan losses (285,858) (68) (285,926) (260,402) (118) (260,520)
Loans held-for-investment, net $27,707,226
 $532,205
 $28,239,431
 $24,600,292
 $642,327
 $25,242,619
 
(1)Includes $(29.2) million and $1.2(1)Includes Paycheck Protection Program (“PPP”) loans of $807.3 million and $1.57 billion as of September 30, 2017 and December 31, 2016, respectively, of net deferred loan fees, unearned income, unamortized premiums and unaccreted discounts.
(2)Loans net of ASC 310-30 discount.

CRE loans include income producing real estate, construction and land loans where the interest rates may be fixed, variable or hybrid. Included in CRE loans are owner occupied and non-owner occupied loans where the borrowers rely on income from tenants to service the loan. Commercial business and trade finance in the C&I segment provide financing to businesses in a wide spectrum of industries.
Residential loans are comprised of single-family and multifamily loans. The Company offers first lien mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Company offers a variety of first lien mortgage loan programs, including fixed rate conforming loans and adjustable rate mortgage loans with initial fixed periods of one to seven years, which adjust annually thereafter.

Consumer loans are comprised of home equity lines of credit (“HELOCs”), insurance premium financing loans, credit card and auto loans. As of September 30, 20172021 and December 31, 2016, the Company’s HELOCs were the largest component2020, respectively.
(2)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of the consumer loan portfolio,$(54.3) million and were secured by one-to-four unit residential properties located in its primary lending areas. The HELOCs loan portfolio is largely comprised of loans originated through a reduced documentation loan program, where a substantial down payment is required, resulting in a low loan-to-value ratio, typically 60% or less at origination. The Company is in a first lien position for many of these reduced documentation HELOCs. These loans have historically experienced low delinquency and default rates.



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

As$(58.8) million as of September 30, 20172021 and December 31, 2016,2020, respectively. Net origination fees related to PPP loans were $(13.5) million and $(12.7) million as of September 30, 2021 and December 31, 2020, respectively.

Loans held-for-investment accrued interest receivable was $102.7 million and $107.5 million as of September 30, 2021 and December 31, 2020, respectively, and is presented in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

Loans totaling $18.18$24.55 billion and $16.44$23.26 billion as of September 30, 2021 and December 31, 2020, respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the Federal Reserve BankFRBSF and the FHLB.


Credit Quality Indicators


All loans are subject to the Company’s internal and external credit review and monitoring. Loansmonitoring process. For the commercial portfolio, loans are risk rated based on an analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of all repayment sources, the borrower’s current payment performance/performance or delinquency, currentrepayment sources, financial and liquidity statusfactors, including industry and all other relevant information.geographic considerations. For single-family residential loans,a majority of the consumer portfolio, payment performance/performance or delinquency is the driving indicator for the risk ratings. Risk ratings are the overall credit quality indicator for the Company and the credit quality indicator utilized for estimating the appropriate allowance for loan losses. The Company utilizes internal credit risk ratings to assign each individual loan a risk rating system, which can be classified within the following categories:of one through ten. Loans risk rated one through five are assigned an internal risk rating category of “Pass.” Loans risk rated one are typically loans fully secured by cash. Pass Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the repayment sources.

Pass and Watch loans are generally considered to have sufficient sources of repayment in order to repay the loan in full, in accordance with all terms and conditions. Special Mention loans are considered toLoans assigned a risk rating of six have potential weaknesses that warrant closer attention by management. Special Mention is consideredmanagement; these are assigned an internal risk rating category of “Special Mention.” Loans assigned a transitory grade. If potential weaknesses are resolved, the loan is upgraded to a Passrisk rating of seven or Watch grade. If negative trends in the borrower’s financial status or other information indicate that the repayment sources may become inadequate, the loan is downgraded to a Substandard grade. Substandard loans are considered toeight have well-defined weaknesses that may jeopardize the full and timely repayment of the loan. Substandard loans haveloan; these are assigned an internal risk rating category of “Substandard.” Loans assigned a distinct possibilityrisk rating of loss, if the deficiencies are not corrected. Additionally, when management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan is still classified as Substandard. Doubtful loansnine have insufficient sources of repayment and a high probability of loss. Loss loansloss; these are considered to beassigned an internal risk rating category of “Doubtful.” Loans assigned a risk rating of ten are uncollectible and of such little value that they are no longer considered bankable assets. Theseassets; these are assigned an internal risk rating category of “Loss.” Exposures categorized as criticized consist of special mention, substandard, doubtful and loss categories. The Company reviews the internal risk ratings are reviewed routinelyof its loan portfolio on a regular basis, and adjustedadjusts the ratings based on changes in the borrowers’ financial status and the loans’ collectability.collectability of the loans.

33



The following tables presentsummarize the credit risk ratings for non-PCICompany’s loans by portfolio segmentheld-for-investment as of September 30, 20172021 and December 31, 2016:
 
($ in thousands) September 30, 2017
 Pass/Watch 
Special
Mention
 Substandard Doubtful Loss Total
Non-PCI
Loans
CRE:  
  
  
  
    
Income producing $8,341,970
 $74,028
 $114,521
 $—
 $—
 $8,530,519
Construction 540,851
 22,176
 9,000
 —
 —
 572,027
Land 96,160
 —
 14,846
 —
 —
 111,006
C&I:        
    
Commercial business 9,447,163
 142,531
 152,975
 21,019
 —
 9,763,688
Trade finance 830,268
 18,631
 20,003
 —
 —
 868,902
Residential:        
    
Single-family 4,199,554
 11,501
 22,962
 —
 —
 4,234,017
Multifamily 1,789,351
 —
 18,960
 —
 —
 1,808,311
Consumer 2,080,056
 9,683
 14,875
 —
 —
 2,104,614
Total $27,325,373
 $278,550
 $368,142
 $21,019
 $—
 $27,993,084
 
 
($ in thousands) December 31, 2016
 Pass/Watch 
Special
Mention
 Substandard Doubtful Loss 
Total
Non-PCI
Loans
CRE:  
  
  
  
    
Income producing $7,476,804
 $29,005
 $161,852
 $—
 $—
 $7,667,661
Construction 551,560
 —
 —
 —
 —
 551,560
Land 107,976
 —
 13,290
 10
 —
 121,276
C&I:  
  
  
  
    
Commercial business 8,559,674
 155,276
 201,139
 5,157
 —
 8,921,246
Trade finance 635,027
 9,435
 36,460
 —
 8
 680,930
Residential:  
  
  
  
    
Single-family 3,341,015
 10,179
 19,475
 —
 —
 3,370,669
Multifamily 1,462,522
 2,268
 25,495
 —
 —
 1,490,285
Consumer 2,043,405
 6,764
 6,898
 —
 —
 2,057,067
Total $24,177,983
 $212,927
 $464,609
 $5,167
 $8
 $24,860,694
 



The following tables present the credit2020, presented by loan portfolio segments, internal risk ratings for PCI loans by portfolio segment asand vintage year. The vintage year is the year of origination, renewal or major modification.
($ in thousands)September 30, 2021
Term LoansRevolving Loans
Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
20212020201920182017Prior
Commercial:
C&I:
Pass$3,136,513 $1,454,547 $787,238 $279,254 $175,669 $244,616 $7,069,657 $29,053 $13,176,547 
Criticized (accrual)75,943 168,029 110,500 13,700 1,475 4,489 183,809 — 557,945 
Criticized (nonaccrual)5,171 338 17,889 20,148 12,538 1,356 39,717 — 97,157 
Total C&I3,217,627 1,622,914 915,627 313,102 189,682 250,461 7,293,183 29,053 13,831,649 
CRE:
CRE:
Pass1,956,957 2,181,275 2,288,701 1,965,724 1,181,060 1,869,183 148,077 6,427 11,597,404 
Criticized (accrual)77,286 8,095 9,206 31,093 25,136 55,609 — — 206,425 
Criticized (nonaccrual)4,425 — — 4,648 4,752 411 — — 14,236 
Subtotal CRE2,038,668 2,189,370 2,297,907 2,001,465 1,210,948 1,925,203 148,077 6,427 11,818,065 
Multifamily residential:
Pass611,439 752,178 692,580 432,959 316,412 451,180 19,420 — 3,276,168 
Criticized (accrual)— — 725 23,512 7,121 31,729 — — 63,087 
Criticized (nonaccrual)— — — — — 1,123 — — 1,123 
Subtotal multifamily residential611,439 752,178 693,305 456,471 323,533 484,032 19,420 — 3,340,378 
Construction and land:
Pass102,619 99,857 111,607 16,986 — 1,252 — — 332,321 
Criticized (accrual)3,398 — — 22,156 — 19,046 — ��� 44,600 
Criticized (nonaccrual)— — — — — — — — — 
Subtotal construction and land106,017 99,857 111,607 39,142 — 20,298 — — 376,921 
Total CRE2,756,124 3,041,405 3,102,819 2,497,078 1,534,481 2,429,533 167,497 6,427 15,535,364 
Total commercial5,973,751 4,664,319 4,018,446 2,810,180 1,724,163 2,679,994 7,460,680 35,480 29,367,013 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
2,131,943 2,214,125 1,465,612 1,169,483 825,120 1,203,031 — — 9,009,314 
Criticized (accrual)— — 374 490 1,633 1,214 — — 3,711 
Criticized (nonaccrual) (1)
— 397 2,178 1,712 1,168 3,321 — — 8,776 
Subtotal single-family residential2,131,943 2,214,522 1,468,164 1,171,685 827,921 1,207,566 — — 9,021,801 
HELOCs:
Pass20 1,799 258 1,295 3,343 12,578 1,710,540 223,057 1,952,890 
Criticized (accrual)7 — — 200 — 222 2 1,570 2,001 
Criticized (nonaccrual)— — 151 188 3,523 1,579 — 3,290 8,731 
Subtotal HELOCs27 1,799 409 1,683 6,866 14,379 1,710,542 227,917 1,963,622 
Total residential mortgage2,131,970 2,216,321 1,468,573 1,173,368 834,787 1,221,945 1,710,542 227,917 10,985,423 
Other consumer:
Pass16,737 5,382 — — 1,741 51,529 51,389 — 126,778 
Criticized (accrual)— — — — — — — — — 
Criticized (nonaccrual)— — — — 2,491 — — — 2,491 
Total other consumer16,737 5,382 — — 4,232 51,529 51,389 — 129,269 
Total consumer2,148,707 2,221,703 1,468,573 1,173,368 839,019 1,273,474 1,761,931 227,917 11,114,692 
Total$8,122,458 $6,886,022 $5,487,019 $3,983,548 $2,563,182 $3,953,468 $9,222,611 $263,397 $40,481,705 
34

($ in thousands)December 31, 2020
Term LoansRevolving Loans
Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
20202019201820172016Prior
Commercial:
C&I:
Pass$3,912,147 $1,477,740 $483,725 $245,594 $69,482 $245,615 $6,431,003 $29,487 $12,894,793 
Criticized (accrual)120,183 74,601 56,785 19,426 1,487 5,872 324,640 — 602,994 
Criticized (nonaccrual)2,125 25,267 22,240 18,787 4,964 1,592 58,964 — 133,939 
Total C&I4,034,455 1,577,608 562,750 283,807 75,933 253,079 6,814,607 29,487 13,631,726 
CRE:
CRE:
Pass2,296,649 2,402,136 2,310,748 1,328,251 732,694 1,529,681 173,267 19,064 10,792,490 
Criticized (accrual)47,459 63,654 43,447 98,259 2,094 80,662 — — 335,575 
Criticized (nonaccrual)— — 42,067 1,115 — 3,364 — — 46,546 
Subtotal CRE2,344,108 2,465,790 2,396,262 1,427,625 734,788 1,613,707 173,267 19,064 11,174,611 
Multifamily residential:
Pass783,671 783,589 479,959 411,945 181,213 348,751 5,895 — 2,995,023 
Criticized (accrual)— 735 22,330 6,101 264 5,877 — — 35,307 
Criticized (nonaccrual)— — 1,475 — — 2,193 — — 3,668 
Subtotal multifamily residential783,671 784,324 503,764 418,046 181,477 356,821 5,895 — 3,033,998 
Construction and land:
Pass224,924 172,707 156,712 — 20,897 1,028 — — 576,268 
Criticized (accrual)3,524 — — — — 19,900 — — 23,424 
Criticized (nonaccrual)— — — — — — — — — 
Subtotal construction and land228,448 172,707 156,712 — 20,897 20,928 — — 599,692 
Total CRE3,356,227 3,422,821 3,056,738 1,845,671 937,162 1,991,456 179,162 19,064 14,808,301 
Total commercial7,390,682 5,000,429 3,619,488 2,129,478 1,013,095 2,244,535 6,993,769 48,551 28,440,027 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
2,385,853 1,813,200 1,501,660 1,021,707 523,170 921,714 — — 8,167,304 
Criticized (accrual)— 1,429 — — 119 1,034 — — 2,582 
Criticized (nonaccrual) (1)
— 226 812 1,789 1,994 11,246 — — 16,067 
Subtotal single-family residential2,385,853 1,814,855 1,502,472 1,023,496 525,283 933,994 — — 8,185,953 
HELOCs:
Pass1,131 880 2,879 5,363 8,433 13,475 1,328,919 225,810 1,586,890 
Criticized (accrual)— — 200 — 996 — 1,328 606 3,130 
Criticized (nonaccrual)— 151 285 4,617 164 1,962 — 4,517 11,696 
Subtotal HELOCs1,131 1,031 3,364 9,980 9,593 15,437 1,330,247 230,933 1,601,716 
Total residential mortgage2,386,984 1,815,886 1,505,836 1,033,476 534,876 949,431 1,330,247 230,933 9,787,669 
Other consumer:
Pass9,531 — — 1,830 — 83,255 66,136 — 160,752 
Criticized (accrual)16 — — — — — — — 16 
Criticized (nonaccrual)— — — 2,491 — — — — 2,491 
Total other consumer9,547 — — 4,321 — 83,255 66,136 — 163,259 
Total consumer2,396,531 1,815,886 1,505,836 1,037,797 534,876 1,032,686 1,396,383 230,933 9,950,928 
Total$9,787,213 $6,816,315 $5,125,324 $3,167,275 $1,547,971 $3,277,221 $8,390,152 $279,484 $38,390,955 
(1)As of September 30, 20172021 and December 31, 2016:2020, $647 thousand and $747 thousand of nonaccrual loans whose payments were guaranteed by the Federal Housing Administration, respectively, were classified with a “Pass” rating.

35

 
($ in thousands) September 30, 2017
 Pass/Watch 
Special
Mention
 Substandard Doubtful Loss 
Total
PCI Loans
CRE:  
  
  
      
Income producing $261,907
 $—
 $51,350
 $—
 $—
 $313,257
Land 44
 —
 327
 —
 —
 371
C&I:            
Commercial business 11,205
 90
 1,271
 —
 —
 12,566
Residential:            
Single-family 118,281
 1,769
 1,942
 —
 —
 121,992
Multifamily 64,455
 —
 4,190
 —
 —
 68,645
Consumer 13,962
 364
 1,116
 —
 —
 15,442
Total (1)
 $469,854
 $2,223
 $60,196
 $—
 $—
 $532,273
 
Revolving loans converted to term loans presented in the table above are excluded from the term loans by vintage year columns. During the three and nine months ended September 30, 2021, HELOCs totaling $4.1 million and $62.7 million, respectively, were converted to term loans. In comparison, during the three and nine months ended September 30, 2020, HELOCs totaling $59.8 million and $118.2 million, respectively, were converted to term loans. During the three and nine months ended September 30, 2021, 1 C&I revolving loan of $82 thousand was converted to a term loan. In comparison, during the three and nine months ended September 30, 2020, 1 C&I revolving loan of $250 thousand was converted to a term loan. NaN CRE revolving loan of $1.4 million was converted to a term loan during the three months ended September 30, 2021. NaN CRE revolving loans totaling $6.4 million were converted to term loans during the nine months ended September 30, 2021. In comparison, there were no conversions of CRE revolving loans to term loans during both the three and nine months ended September 30, 2020.
 
($ in thousands) December 31, 2016
 Pass/Watch 
Special
Mention
 Substandard Doubtful Loss 
Total
PCI Loans
CRE:  
  
  
      
Income producing $293,529
 $3,239
 $51,680
 $—
 $—
 $348,448
Land 1,562
 —
 356
 —
 —
 1,918
C&I:  
  
  
  
    
Commercial business 33,885
 772
 3,730
 —
 —
 38,387
Residential:  
  
  
      
Single-family 136,245
 1,239
 1,626
 —
 —
 139,110
Multifamily 86,190
 —
 9,464
 —
 —
 95,654
Consumer 17,433
 316
 1,179
 —
 —
 18,928
Total (1)
 $568,844
 $5,566
 $68,035
 $—
 $—
 $642,445
 
(1)Loans net of ASC 310-30 discount.




Nonaccrual and Past Due Loans


Non-PCI loansLoans that are 90 or more days past due are generally placed on nonaccrual status. Additionally, non-PCI loansstatus, unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. Payment deferral activities instituted in response to the COVID-19 pandemic could delay the recognition of delinquencies for customers who otherwise would have moved into nonaccrual status. The following tables present the aging analysis on non-PCIof total loans held-for-investment as of September 30, 20172021 and December 31, 2016:2020:
($ in thousands)September 30, 2021
Current
Accruing
Loans (1)
Accruing
Loans
30-59  Days
Past Due		Accruing
Loans
60-89  Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$13,717,788 $6,597 $10,107 $16,704 $97,157 $13,831,649 
CRE:
CRE11,803,236 438 155 593 14,236 11,818,065 
Multifamily residential3,337,341 1,914 — 1,914 1,123 3,340,378 
Construction and land376,921 — — — — 376,921 
Total CRE15,517,498 2,352 155 2,507 15,359 15,535,364 
Total commercial29,235,286 8,949 10,262 19,211 112,516 29,367,013 
Consumer:
Residential mortgage:
Single-family residential8,995,226 13,442 3,711 17,153 9,422 9,021,801 
HELOCs1,950,594 2,298 1,999 4,297 8,731 1,963,622 
Total residential mortgage10,945,820 15,740 5,710 21,450 18,153 10,985,423 
Other consumer126,594 180 4 184 2,491 129,269 
Total consumer11,072,414 15,920 5,714 21,634 20,644 11,114,692 
Total$40,307,700 $24,869 $15,976 $40,845 $133,160 $40,481,705 

36

 
($ in thousands) September 30, 2017
 
Accruing
Loans
30-59 Days
Past Due
 
Accruing
Loans
60-89 Days
Past Due
 
Total
Accruing
Past Due
Loans
 
Nonaccrual
Loans Less
Than 90 
Days
Past Due
 
Nonaccrual
Loans
90 or More
Days 
Past Due
 
Total
Nonaccrual
Loans
 
Current
Accruing
Loans
 
Total
Non-PCI
Loans
CRE:  
  
  
  
  
  
  
  
Income producing $5,211
 $1,924
 $7,135
 $4,853
 $19,949
 $24,802
 $8,498,582
 $8,530,519
Construction 9,000
 —
 9,000
 —
 —
 —
 563,027
 572,027
Land —
 —
 —
 10
 4,173
 4,183
 106,823
 111,006
C&I:  
  
  
  
  
  
  
  
Commercial business 16,315
 108
 16,423
 34,844
 38,540
 73,384
 9,673,881
 9,763,688
Trade finance —
 —
 —
 —
 —
 —
 868,902
 868,902
Residential:  
  
  
  
  
  
  
  
Single-family 16,765
 1,560
 18,325
 —
 6,639
 6,639
 4,209,053
 4,234,017
Multifamily 7,476
 664
 8,140
 1,456
 1,164
 2,620
 1,797,551
 1,808,311
Consumer 8,837
 5,346
 14,183
 93
 3,004
 3,097
 2,087,334
 2,104,614
Total $63,604
 $9,602
 $73,206
 $41,256
 $73,469
 $114,725
 $27,805,153
 $27,993,084
 
($ in thousands)December 31, 2020
Current
Accruing
Loans (1)
Accruing
Loans
30-59 Days
Past Due		Accruing
Loans
60-89 Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$13,488,070 $8,993 $724 $9,717 $133,939 $13,631,726 
CRE:
CRE11,127,690 375 — 375 46,546 11,174,611 
Multifamily residential3,028,512 1,818 — 1,818 3,668 3,033,998 
Construction and land579,792 19,900 — 19,900 — 599,692 
Total CRE14,735,994 22,093 — 22,093 50,214 14,808,301 
Total commercial28,224,064 31,086 724 31,810 184,153 28,440,027 
Consumer:
Residential mortgage:
Single-family residential8,156,645 9,911 2,583 12,494 16,814 8,185,953 
HELOCs1,583,968 2,922 3,130 6,052 11,696 1,601,716 
Total residential mortgage9,740,613 12,833 5,713 18,546 28,510 9,787,669 
Other consumer160,534 217 17 234 2,491 163,259 
Total consumer9,901,147 13,050 5,730 18,780 31,001 9,950,928 
Total$38,125,211 $44,136 $6,454 $50,590 $215,154 $38,390,955 
 
($ in thousands) December 31, 2016
 
Accruing
Loans
30-59 Days
Past Due
 
Accruing
Loans
60-89 Days
Past Due
 
Total
Accruing
Past Due
Loans
 
Nonaccrual
Loans Less
Than 90 
Days
Past Due
 
Nonaccrual
Loans
90 or More
Days 
Past Due
 
Total
Nonaccrual
Loans
 
Current
Accruing
Loans
 Total
Non-PCI
Loans
CRE:  
  
  
  
  
  
  
  
Income producing $6,233
 $14,080
 $20,313
 $14,872
 $12,035
 $26,907
 $7,620,441
 $7,667,661
Construction 4,994
 —
 4,994
 —
 —
 —
 546,566
 551,560
Land —
 —
 —
 433
 4,893
 5,326
 115,950
 121,276
C&I:  
  
  
  
  
  
  
  
Commercial business 45,052
 2,279
 47,331
 60,511
 20,737
 81,248
 8,792,667
 8,921,246
Trade finance —
 —
 —
 8
 —
 8
 680,922
 680,930
Residential:  
  
  
    
  
  
  
Single-family 9,595
 8,076
 17,671
 —
 4,214
 4,214
 3,348,784
 3,370,669
Multifamily 3,951
 374
 4,325
 2,790
 194
 2,984
 1,482,976
 1,490,285
Consumer 3,327
 3,228
 6,555
 165
 1,965
 2,130
 2,048,382
 2,057,067
Total $73,152
 $28,037
 $101,189
 $78,779
 $44,038
 $122,817
 $24,636,688
 $24,860,694
                 

For information on the policy for recording payments received and resuming accrual of interest on non-PCI loans that are placed on nonaccrual status, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

PCI loans are excluded from the above aging analysis tables as the Company has elected to account for these loans on a pool level basis under ASC 310-30 at the time of acquisition. Refer to the discussion on PCI loans within this note for additional details on interest income recognition. (1)As of September 30, 20172021 and December 31, 2016, PCI2020, loans in payment deferral programs offered in response to the COVID-19 pandemic that are performing according to their modified terms are generally not considered delinquent, and are included in the “Current Accruing Loans” column.

The following table presents the amortized cost of loans on nonaccrual status totaled $5.7for which there was no related allowance for loan losses as of both September 30, 2021 and December 31, 2020. Nonaccrual loans may not have an allowance for credit losses if the loss expectation is zero because the loan balances are supported by the collateral value.
($ in thousands)September 30, 2021December 31, 2020
Commercial:
C&I$15,270 $62,040 
CRE:
CRE13,826 45,537 
Multifamily residential— 2,519 
Total CRE13,826 48,056 
Total commercial29,096 110,096 
Consumer:
Residential mortgage:
Single-family residential1,534 6,013 
HELOCs5,608 8,076 
Total residential mortgage7,142 14,089 
Other consumer— 2,491 
Total consumer7,142 16,580 
Total nonaccrual loans with no related allowance for loan losses$36,238 $126,676 

Foreclosed Assets

Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $39.5 million and $11.7 million, respectively.



Loans in Process of Foreclosure

Asforeclosed assets as of September 30, 2017 and2021, compared with $19.7 million as of December 31, 2016,2020. The Company commences the Company had $6.3 million and $3.1 million, respectively, of recorded investments in residential andforeclosure process on consumer mortgage loans secured by residentialafter a borrower becomes more than 120 days delinquent in accordance with the Consumer Financial Protection Bureau guidelines. The carrying value of consumer real estate properties, for which formal foreclosure proceedingsloans that were in the process according to local requirements of the applicable jurisdictions, which were not included in OREO. A foreclosed residential real estate property with a carrying amount of $391 thousandactive or suspended foreclosure was included in total net OREO of $2.3$8.7 million and $4.1 million as of September 30, 2017. In comparison, foreclosed residential real estate properties with a carrying amount of $401 thousand were included in total net OREO of $6.7 million as of2021 and December 31, 2016.2020, respectively. The Company suspended certain mortgage foreclosure activities in connection with its actions to support its customers during the COVID-19 pandemic. In addition, certain other foreclosures are awaiting for the end of government-mandated foreclosure moratoriums in certain states.

37

Troubled Debt Restructurings


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


The following tables present the additions to non-PCI TDRs for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Loans Modified as TDRs During the Three Months Ended September 30,
20212020
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Commercial:
C&I7$26,248 $27,111 $5,688 6$43,378 $35,568 $12,108 
CRE:
CRE—— — — 221,429 21,242 21 
Multifamily residential11,101 1,118 — 11,220 1,226 — 
Total CRE11,101 1,118 — 322,649 22,468 21 
Total commercial827,349 28,229 5,688 966,027 58,036 12,129 
Total8$27,349 $28,229 $5,688 9$66,027 $58,036 $12,129 
($ in thousands)Loans Modified as TDRs During the Nine Months Ended September 30,
20212020
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Commercial:
C&I11$46,144 $45,954 $7,662 11$93,235 $79,713 $12,507 
CRE:
CRE—— — — 221,429 21,242 21 
Multifamily residential11,101 1,118 — 11,220 1,226 — 
Total CRE11,101 1,118 — 322,649 22,468 21 
Total commercial1247,245 47,072 7,662 14115,884 102,181 12,528 
Total12$47,245 $47,072 $7,662 14$115,884 $102,181 $12,528 
(1)Includes subsequent payments after modification and reflects the balance as of September 30, 2021 and 2020.
(2)Includes charge-offs and specific reserves recorded since the modification date.

38
 
  Loans Modified as TDRs During the Three Months Ended September 30,
($ in thousands) 2017 2016
 Number
of
Loans		 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment (1)
 
Financial
Impact (2)
 Number
of
Loans		 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment (1)
 
Financial
Impact (2)
CRE:   ��
  
  
        
Income producing 1 $172
 $172
 $8
 — $—
 $—
 $—
C&I:                
Commercial business 10 $15,143
 $14,927
 $65
 3 $493
 $475
 $93
 

 
  Loans Modified as TDRs During the Nine Months Ended September 30,
($ in thousands) 2017 2016
 Number
of
Loans		 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment (1)
 
Financial
Impact (2)
 Number
of
Loans		 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment (1)
 
Financial
Impact (2)
CRE:    
  
  
        
Income producing 2 $1,699
 $1,648
 $8
 3 $15,899
 $15,730
 $43
Land — $—
 $—
 $—
 1 $5,522
 $5,233
 $—
C&I:                
Commercial business 15 $29,541
 $28,796
 $10,365
 8 $22,182
 $9,113
 $2,711
Trade finance — $—
 $—
 $—
 2 $7,901
 $3,025
 $—
Residential:                
Single-family — $—
 $—
 $—
 2 $1,071
 $1,065
 $—
Multifamily 1 $3,655
 $3,620
 $112
 — $—
 $—
 $—
Consumer — $—
 $—
 $—
 1 $344
 $337
 $1
 
(1)Includes subsequent payments after modification and reflects the balance as of September 30, 2017 and 2016.
(2)The financial impact includes charge-offs and specific reserves recorded at the modification date.



The following tables present the non-PCI TDR modificationspost-modification outstanding balances for the three and nine months ended September 30, 20172021 and 20162020 by modification type:
($ in thousands)Modification Type During the Three Months Ended September 30,
20212020
Principal (1)
Principal
  and Interest		Interest
Deferments		Interest Rate ReductionTotal
Principal (1)
Principal
  and Interest (2)
Interest
Deferments		Interest Rate ReductionTotal
Commercial:
C&I$27,111 $— $— $— $27,111 $19,025 $— $16,543 $— $35,568 
CRE:
CRE— — — — — 21,242 — — — 21,242 
Multifamily residential1,118 — — — 1,118 1,226 — — — 1,226 
Total CRE1,118 — — 01,118 22,468 — — — 22,468 
Total commercial28,229 — — — 28,229 41,493 — 16,543 — 58,036 
Total$28,229 $— $— $— $28,229 $41,493 $— $16,543 $— $58,036 
($ in thousands) Modification Type During the Three Months Ended September 30, 2017($ in thousands)Modification Type During the Nine Months Ended September 30,
Principal (1)
 
Principal
and
Interest (2)
 
Interest
Rate
Reduction
 
Interest
Deferments
 Other Total20212020
($ in thousands)
Principal (1)
Principal
  and Interest		Interest
Deferments		Interest Rate ReductionTotal
Principal (1)
Principal
  and Interest (2)
Interest
Deferments		Interest Rate ReductionTotal
Commercial:
C&I$28,780 $— $— $17,174 $45,954 $36,043 $10,819 $32,851 $— $79,713 
CRE:CRE:
CRE $172
 $—
 $—
 $—
 $—
 $172
CRE— — — — — 21,242 — — — 21,242 
C&I 14,903
 24
 —
 —
 —
 14,927
Multifamily residentialMultifamily residential1,118 — — — 1,118 1,226 — — — 1,226 
Total CRETotal CRE1,118 — — — 1,118 22,468 — — — 22,468 
Total commercialTotal commercial29,898 — — 17,174 47,072 58,511 10,819 32,851 — 102,181 
Total $15,075
 $24
 $—
 $—
 $—
 $15,099
Total$29,898 $— $— $17,174 $47,072 $58,511 $10,819 $32,851 $— $102,181 
 
(1)Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.
 
($ in thousands) Modification Type During the Three Months Ended September 30, 2016
 
Principal (1)
 
Principal
and
Interest (2)
 Interest
Rate
Reduction		 Interest
Deferments		 Other Total
C&I $444
 $—
 $—
 $31
 $—
 $475
Total $444
 $—
 $—
 $31
 $—
 $475
  
(2)Include principal and interest deferments or reductions.

 
($ in thousands) Modification Type During the Nine Months Ended September 30, 2017
 
Principal (1)
 
Principal
and
Interest (2)
 Interest
Rate
Reduction		 Interest
Deferments		 Other Total
CRE $1,648
 $—
 $—
 $—
 $—
 $1,648
C&I 18,289
 10,507
 —
 —
 —
 28,796
Residential 3,620
 —
 —
 —
 —
 3,620
Total $23,557
 $10,507
 $—
 $—
 $—
 $34,064
  
 
($ in thousands) Modification Type During the Nine Months Ended September 30, 2016
 
Principal (1)
 
Principal
and
Interest (2)
 Interest
Rate
Reduction		 Interest
Deferments		 Other Total
CRE $19,812
 $—
 $—
 $—
 $1,151
 $20,963
C&I 10,218
 —
 1,288
 32
 600
 12,138
Residential 266
 —
 799
 —
 —
 1,065
Consumer 337
 —
 —
 —
 —
 337
Total $30,633
 $—
 $2,087
 $32
 $1,751
 $34,503
            
(1)Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.
(2)Includes principal and interest deferments or reductions.



Subsequent to restructuring,After a loan is modified as a TDR, that becomesthe Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent generally beyondand result in payment default (generally 90 days is consideredpast due) subsequent to have defaulted. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the allowance for loan losses.restructuring. The following tables presenttable presents the information foron loans modified as TDRs within the previous 12 months that have subsequently defaultedentered into payment default during the three and nine months ended September 30, 20172021 and 2016,2020 that were modified in as TDRs during the 12 months preceding payment default:
($ in thousands)Loans Modified as TDRs that Subsequently Defaulted
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Loan CountRecorded
Investment		Loan CountRecorded
Investment		Loan CountRecorded
Investment		Loan CountRecorded
Investment
Commercial:
C&I— $— — $— 1 $11,431 1 $16,309 
Total— $— — $— 1 $11,431 1 $16,309 

As of September 30, 2021 and were still in default atDecember 31, 2020, the respective period end:
 
($ in thousands) Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended September 30,
 2017 2016
 Number of
Loans		 Recorded
Investment		 Number of
Loans		 Recorded
Investment
CRE:  
  
  
  
Income producing —
 $—
 1
 $1,000
C&I:        
Commercial business 1
 $9,386
 —
 $—
 
 
($ in thousands) Loans Modified as TDRs that Subsequently Defaulted During the Nine Months Ended September 30,
 2017 2016
 Number of
Loans		 Recorded
Investment		 Number of
Loans		 Recorded
Investment
CRE:  
  
  
  
Income producing —
 $—
 1
 $1,000
C&I:  
  
  
  
Commercial business 1
 $9,386
 2
 $119
Consumer 1
 $48
 —
 $—
 

The amount ofremaining commitments to lend additional funds committed to lend to borrowers whose terms have beenof their outstanding owed balances were modified as TDRs was $612 thousand$6.8 million and $9.9$3.0 million, as of September 30, 2017 and December 31, 2016, respectively.


39
Impaired Loans


Allowance for Credit Losses

The Company’s loans are grouped into heterogeneousCompany has an allowance framework under ASU 2016-13 for all financial assets measured at amortized cost and homogeneous (mostly consumer loans) categories. Classified loanscertain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the heterogeneous categoryCompany’s relevant financial assets.

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

The allowance for credit losses estimation involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures share risk characteristics with other similar exposures and are collectively evaluated. The collectively evaluated for impairmentloans cover performing risk-rated loans and unfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the Company generally estimates expected credit losses on an individual basis. AThese individually assessed loans include TDR and nonaccrual loans.

Allowance for Collectively Evaluated Loans

The allowance for collectively evaluated loans consists of a quantitative component that assesses the different risk factors considered in our models and a qualitative component that considers risk factors external to the models. Each of these components are described below.
•Quantitative Component — The allowance for loan losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the loans. The forward-looking information is limited to the reasonable and supportable period. These macroeconomic scenarios include variables that are considered impaired when, based on current informationkey drivers of increases and events, it is probabledecreases in credit losses. The Company utilizes a probability-weighted, multiple-scenario forecast approach. These scenarios may consist of a base forecast representing management's view of the most likely outcome, and downside or upside scenarios reflecting possible worsening or improving economic conditions. The quantitative models incorporate a probability-weighted calculation of these macroeconomic scenarios over a reasonable and supportable forecast period. If the life of the loans extends beyond the reasonable and supportable forecast period, the Company will consider historical experience or long-run macroeconomic trends over the remaining lives of the loans to estimate the allowance for loan losses.

For both the three and nine months ended September 30, 2021 and 2020, there were no changes to the reasonable and supportable forecast period, except to the C&I segment, which changed from eight to 11 quarters, and no changes to the reversion to historical loss experience method. The change in the reasonable and supportable period for the C&I segment was due to model enhancement, including updates to certain macroeconomic variable inputs. There was no change to the overall model methodology.

The following table provides key credit risk characteristics and macroeconomic variables that the Company willuses to estimate the expected credit losses by portfolio segment:
Portfolio SegmentRisk CharacteristicsMacroeconomic Variables
C&I
Age (1), size and spread at origination, and internal risk rating
Volatility Index (“VIX”) and BBB yield to 10-year U.S. Treasury spread (“BBB Spread”) (1)
CRE, Multifamily residential, and Construction and landDelinquency status, maturity date, collateral value, property type, and geographic locationUnemployment rate, Gross Domestic Product (“GDP”), and U.S. Treasury rates
Single-family residential and HELOCsFICO score, delinquency status, maturity date, collateral value, and geographic locationUnemployment rate, GDP, and home price index
Other consumerHistorical loss experience
Immaterial (2)
(1)Due to model enhancements, risk characteristic related to “time-to-maturity” was changed to “age”; while macroeconomic variables related to “unemployment rate and two- and ten-year U.S. Treasury spread” were changed to “VIX and BBB Spread” during the three months ended September 30, 2021.
(2)Macroeconomic variables are included in the qualitative estimate.

40

Allowance for Loan Losses for the Commercial Loan Portfolio

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

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

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

Allowance for Loan Losses for the Consumer Loan Portfolio

For single-family residential and HELOC loans, projected PDs and LGDs are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. The forecast of future economic conditions returns to long-run historical economic trends after the reasonable and supportable period. In order to estimate the life of a loan for the single-family residential and HELOC portfolio, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. For other consumer loans, the Company uses a loss rate approach.

•Qualitative Component — The Company also considers the following qualitative factors in the determination of the collectively evaluated allowance, if these factors have not already been captured by the quantitative model. Such qualitative factors may include, but are not limited to:
–Loan growth trends;
–The volume and severity of past due financial assets, and the volume and severity of adversely classified financial assets;
–The Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices;
–Knowledge of a borrower’s operations;
–The quality of the Company’s credit review system;
–The experience, ability and depth of the Company’s management, lending associates and other relevant associates;
–The effect of other external factors such as the regulatory and legal environments and changes in technology;
–Actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates; and
–Risk factors in certain industry sectors not captured by the quantitative models.

The magnitude of the impact of these factors on the Company’s qualitative assessment of the allowance for credit losses changes from period to period according to changes made by management in its assessment of these factors. The extent to which these factors change may be abledependent on whether they are already reflected in quantitative loss estimates during the current period and the extent to collectwhich changes in these factors diverge from period to period.

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

41

Allowance for Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual or interest due in accordance withTDR loans, the original contractual terms. ImpairedCompany estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans areis measured based onas the difference between the recorded value of the loans and their fair value. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows discounted atflows; and (3) the loan’s effective interest rate or, as expedient, at the loan’sloan's observable market price orprice. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral if the loan is collateral dependent, less costs to sell. Whensell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of an impairedfuture cash flows or the observable market value of the loan.

•Collateral-Dependent Loans — The allowance of a collateral-dependent loan is less thanlimited to the difference between the recorded investmentvalue and fair value of the loan is classifiedcollateral less cost of disposal or sale. As of September 30, 2021, collateral-dependent commercial and consumer loans totaled $45.4 million and $10.4 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $97.2 million and $17.3 million, respectively, as nonperformingof December 31, 2020. The Company's commercial collateral-dependent loans were secured by real estate or other collateral. The Company's consumer collateral-dependent loans were all residential mortgage loans, secured by the underlying real estate. As of both September 30, 2021 and uncollectible,December 31, 2020, the deficiency is charged-off againstcollateral value of the properties securing each of these collateral-dependent loans, net of selling costs, exceeded the recorded value of the individual loans.

The following tables summarize the activity in the allowance for loan losses. Impaired loans exclude the homogeneous consumer loanlosses by portfolio which is evaluated collectively for impairment. The Company’s impaired loans include predominantly non-PCI loans held-for-investment on nonaccrual status and any non-PCI loans modified in a TDR, which may be on accrual or nonaccrual status.



The following tables present information on the non-PCI impaired loans as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017
 
Unpaid
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
CRE:  
  
  
  
  
Income producing $35,133
 $28,908
 $6,241
 $35,149
 $1,011
Land 4,183
 4,173
 10
 4,183
 1
C&I:  
  
  
  
  
Commercial business 89,233
 50,700
 38,392
 89,092
 18,183
Trade finance 4,786
 —
 4,708
 4,708
 786
Residential:  
  
  
  
  
Single-family 15,868
 1,867
 14,032
 15,899
 572
Multifamily 12,224
 6,062
 6,170
 12,232
 194
Consumer 4,298
 1,303
 2,998
 4,301
 4
Total $165,725
 $93,013
 $72,551
 $165,564
 $20,751
 
 
($ in thousands) December 31, 2016
 
Unpaid
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
CRE:  
  
  
  
  
Income producing $50,718
 $32,507
 $14,001
 $46,508
 $1,263
Land 6,457
 5,427
 443
 5,870
 63
C&I:  
  
  
    
Commercial business 162,239
 78,316
 42,137
 120,453
 10,443
Trade finance 5,227
 —
 5,166
 5,166
 34
Residential:  
  
  
    
Single-family 15,435
 —
 14,335
 14,335
 687
Multifamily 11,181
 5,684
 4,357
 10,041
 180
Consumer 4,016
 —
 3,682
 3,682
 31
Total $255,273
 $121,934
 $84,121
 $206,055
 $12,701
 



The following table presents the average recorded investment and interest income recognized on non-PCI impaired loanssegments for the three and nine months ended September 30, 2017 2021 and 2016:2020:
($ in thousands)Three Months Ended September 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$362,528 $161,962 $21,925 $15,643 $16,530 $2,938 $4,198 $585,724 
(Reversal of) provision for credit losses on loans(a)(23,365)2,129 (2,660)9,058 2,537 435 130 (11,736)
Gross charge-offs(1,154)(14,229)— (2,674)(912)— (10)(18,979)
Gross recoveries4,203 187 652 267 137 19 — 5,465 
Total net recoveries (charge-offs)3,049 (14,042)652 (2,407)(775)19 (10)(13,514)
Foreign currency translation adjustment(70)— — — — — — (70)
Allowance for loan losses, end of period$342,142 $150,049 $19,917 $22,294 $18,292 $3,392 $4,318 $560,404 
($ in thousands)Three Months Ended September 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$380,723 $176,040 $25,058 $18,551 $25,314 $3,867 $2,518 $632,071 
Provision for (reversal of) credit losses on loans(a)31,691 (8,301)(1,916)(8,180)(2,692)(637)(76)9,889 
Gross charge-offs(25,111)(1,414)— — — — (124)(26,649)
Gross recoveries1,218 485 665 30 — 43 — 2,441 
Total net (charge-offs) recoveries(23,893)(929)665 30 — 43 (124)(24,208)
Foreign currency translation adjustment500 — — — — — — 500 
Allowance for loan losses, end of period$389,021 $166,810 $23,807 $10,401 $22,622 $3,273 $2,318 $618,252 
42

 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 Average
Recorded
Investment		 
Recognized
Interest
   Income (1)
 Average
Recorded
Investment		 
Recognized
Interest
   Income (1)
 
Average
Recorded
Investment
 
Recognized
Interest
   Income (1)
 Average
Recorded
Investment		 
Recognized
Interest
   Income (1)
CRE:                
Income producing $37,489
 $179
 $52,116
 $464
 $37,238
 $535
 $52,221
 $1,368
Land 4,337
 —
 6,622
 9
 4,484
 —
 6,777
 26
C&I:                
Commercial business 93,278
 242
 91,290
 258
 94,709
 799
 92,805
 648
Trade finance 4,216
 53
 9,005
 33
 4,444
 122
 10,028
 166
Residential:                
Single-family 16,124
 111
 13,438
 72
 16,141
 325
 13,517
 220
Multifamily 12,532
 108
 20,585
 77
 12,540
 324
 20,646
 231
Consumer 4,492
 14
 1,571
 16
 4,455
 41
 1,575
 48
Total non-PCI impaired loans $172,468
 $707
 $194,627
 $929
 $174,011
 $2,146
 $197,569
 $2,707
 
(1)Includes interest recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal and not as interest income.

($ in thousands)Nine Months Ended September 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$398,040 $163,791 $27,573 $10,239 $15,520 $2,690 $2,130 $619,983 
(Reversal of) provision for credit losses on loans(a)(42,112)11,227 (9,436)14,407 3,522 707 2,226 (19,459)
Gross charge-offs(20,162)(25,558)(130)(2,954)(1,046)(45)(43)(49,938)
Gross recoveries6,301 589 1,910 602 296 40 5 9,743 
Total net (charge-offs) recoveries(13,861)(24,969)1,780 (2,352)(750)(5)(38)(40,195)
Foreign currency translation adjustment75 — — — — — — 75 
Allowance for loan losses, end of period$342,142 $150,049 $19,917 $22,294 $18,292 $3,392 $4,318 $560,404 
($ in thousands)Nine Months Ended September 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$238,376 $40,509 $22,826 $19,404 $28,527 $5,265 $3,380 $358,287 
Impact of ASU 2016-13 adoption74,237 72,169 (8,112)(9,889)(3,670)(1,798)2,221 125,158 
Allowance for loan losses, January 1, 2020312,613 112,678 14,714 9,515 24,857 3,467 5,601 483,445 
Provision for (reversal of) credit losses on loans(a)130,171 46,449 7,273 828 (2,659)(20)(3,197)178,845 
Gross charge-offs(57,466)(2,688)— — — (221)(180)(60,555)
Gross recoveries3,395 10,371 1,820 58 424 47 94 16,209 
Total net (charge-offs) recoveries(54,071)7,683 1,820 58 424 (174)(86)(44,346)
Foreign currency translation adjustment308 — — — — — — 308 
Allowance for loan losses, end of period$389,021 $166,810 $23,807 $10,401 $22,622 $3,273 $2,318 $618,252 



Allowance for Credit Losses

The following tables present a summary oftable summarizes the activities in the allowance for loan losses by portfolio segmentunfunded credit commitments for the three and nine months ended September 30, 2017 2021 and 2016:2020:
($ in thousands)Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$26,300 $28,972 $33,577 $11,158 
Impact of ASU 2016-13 adoption— — — 10,457 
Provision for (reversal of) credit losses on unfunded credit commitments(b)1,736 111 (5,541)7,468 
Allowance for unfunded credit commitments, end of period$28,036 $29,083 $28,036 $29,083 
(Reversal of) provision for credit losses(a) + (b)$(10,000)$10,000 $(25,000)$186,313 

43
 
($ in thousands) Three Months Ended September 30, 2017
 Non-PCI Loans PCI Loans Total
 CRE C&I Residential Consumer Total  
Beginning balance $73,985
 $150,136
 $43,679
 $8,438
 $276,238
 $78
 $276,316
(Reversal of) provision for loan losses (346) 15,656
 (583) (1,269) 13,458
 (10) 13,448
Charge-offs —
 (7,359) —
 (65) (7,424) —
 (7,424)
Recoveries 610
 2,165
 809
 2
 3,586
 —
 3,586
Net recoveries (charge-offs) 610
 (5,194) 809
 (63) (3,838) —
 (3,838)
Ending balance $74,249
 $160,598
 $43,905
 $7,106
 $285,858
 $68
 $285,926
 

 
($ in thousands) Three Months Ended September 30, 2016
 Non-PCI Loans PCI Loans Total
 CRE C&I Residential Consumer Total  
Beginning balance $78,102
 $148,427
 $31,561
 $8,421
 $266,511
 $257
 $266,768
(Reversal of) provision for loan losses (6,598) 18,548
 309
 (644) 11,615
 (101) 11,514
Charge-offs (309) (23,696) (29) (13) (24,047) —
 (24,047)
Recoveries 634
 165
 654
 124
 1,577
 —
 1,577
Net recoveries (charge-offs) 325
 (23,531) 625
 111
 (22,470) —
 (22,470)
Ending balance $71,829
 $143,444
 $32,495
 $7,888
 $255,656
 $156
 $255,812
 
 
($ in thousands) Nine Months Ended September 30, 2017
 Non-PCI Loans PCI Loans Total
 CRE C&I Residential Consumer Total  
Beginning balance $72,804
 $142,166
 $37,333
 $8,099
 $260,402
 $118
 $260,520
(Reversal of) provision for loan losses (120) 28,576
 4,815
 (1,087) 32,184
 (50) 32,134
Charge-offs (149) (19,802) (1) (72) (20,024) —
 (20,024)
Recoveries 1,714
 9,658
 1,758
 166
 13,296
 —
 13,296
Net recoveries (charge-offs) 1,565
 (10,144) 1,757
 94
 (6,728) —
 (6,728)
Ending balance $74,249
 $160,598
 $43,905
 $7,106
 $285,858
 $68
 $285,926
 
 
($ in thousands) Nine Months Ended September 30, 2016
 Non-PCI Loans PCI Loans Total
 CRE C&I Residential Consumer Total  
Beginning balance $81,191
 $134,597
 $39,292
 $9,520
 $264,600
 $359
 $264,959
(Reversal of) provision for loan losses (9,731) 38,549
 (7,679) (1,887) 19,252
 (203) 19,049
Charge-offs (504) (31,770) (166) (17) (32,457) —
 (32,457)
Recoveries 873
 2,068
 1,048
 272
 4,261
 —
 4,261
Net recoveries (charge-offs) 369
 (29,702) 882
 255
 (28,196) —
 (28,196)
Ending balance $71,829
 $143,444
 $32,495
 $7,888
 $255,656
 $156
 $255,812
 

For further information on accounting policies and the methodologies used to estimateThe allowance for credit losses as of September 30, 2021, was $588.4 million, a decrease of $65.2 million compared with $653.6 million as of December 31, 2020. The change in the allowance for credit losses was comprised of a net decrease of $59.6 million in the allowance for loan losses and loan charge-offs, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.



The following table presents a summary of activities$5.6 million decrease in the allowance for unfunded credit reservescommitments. An improved macroeconomic outlook resulted in the overall decrease in the required allowance for credit losses as of September 30, 2021, leading to a $10.0 million and $25.0 million reversal of credit losses for the three and nine months ended September 30, 2017 and 2016:2021, respectively.

         
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Beginning balance $15,188
 $20,318
 $16,121
 $20,360
Reversal of unfunded credit reserves (452) (1,989) (1,385) (2,031)
Ending balance $14,736
 $18,329
 $14,736
 $18,329
         

The allowance for unfunded credit reservescommitments is maintained at a level that management believes to be sufficient to absorb estimated probableexpected credit losses related to unfunded credit facilities. The allowance for unfunded credit reserves is included in Accrued expense and other liabilities on the Consolidated Balance Sheets. See Note 119 — Commitments and Contingenciesto the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit reserves.commitments.


The following tables present the Company’s allowance for loan losses and recorded investments by portfolio segment and impairment methodology as
Loans Held-for-Sale

As of September 30, 2017 and2021, the Company had no loans held-for-sale. As of December 31, 2016:
 
($ in thousands) September 30, 2017
 CRE C&I Residential Consumer Total
Allowance for loan losses          
Individually evaluated for impairment $1,012
 $18,969
 $766
 $4
 $20,751
Collectively evaluated for impairment 73,237
 141,629
 43,139
 7,102
 265,107
Acquired with deteriorated credit quality 
 68
 —
 —
 —
 68
Ending balance $74,317
 $160,598
 $43,905
 $7,106
 $285,926
           
Recorded investment in loans          
Individually evaluated for impairment $39,332
 $93,800
 $28,131
 $4,301
 $165,564
Collectively evaluated for impairment 9,174,220
 10,538,790
 6,014,197
 2,100,313
 27,827,520
Acquired with deteriorated credit quality (1)
 313,628
 12,566
 190,637
 15,442
 532,273
Ending balance (1)
 $9,527,180
 $10,645,156
 $6,232,965
 $2,120,056
 $28,525,357
 
 
($ in thousands) December 31, 2016
 CRE C&I Residential Consumer Total
Allowance for loan losses          
Individually evaluated for impairment $1,326
 $10,477
 $867
 $31
 $12,701
Collectively evaluated for impairment 71,478
 131,689
 36,466
 8,068
 247,701
Acquired with deteriorated credit quality 112
 1
 5
 —
 118
Ending balance $72,916
 $142,167
 $37,338
 $8,099
 $260,520
           
Recorded investment in loans          
Individually evaluated for impairment $52,378
 $125,619
 $24,376
 $3,682
 $206,055
Collectively evaluated for impairment 8,288,119
 9,476,557
 4,836,578
 2,053,385
 24,654,639
Acquired with deteriorated credit quality (1)
 350,366
 38,387
 234,764
 18,928
 642,445
Ending balance (1)
 $8,690,863
 $9,640,563
 $5,095,718
 $2,075,995
 $25,503,139
 
(1)Loans net of ASC 310-30 discount.



Purchased Credit Impaired2020, loans held-for-sale of $1.8 million consisted of single-family residential loans. Refer to Note 1 — Summary of Significant Accounting Policies— Significant Accounting Policies — Loans

At Held-for-Sale to the date of acquisition, PCI loans are pooled and accounted for at fair value, which represents the discounted valueConsolidated Financial Statements of the expected cash flows ofCompany’s 2020 Form 10-K for additional details related to the loan portfolio. A pool is accounted for as a single asset with a single interest rate, cumulative loss rateCompany’s loans held-for-sale.

Loan Transfers, Sales and cash flow expectation. Purchases

The cash flows expected over the life of the pools are estimated by an internal cash flow model that projects cash flowsCompany purchases and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to cumulative loss rates, loss curves and prepayment speeds are utilized to calculate the expected cash flows. The amount of expected cash flows over the initial investmentsells loans in the loan representssecondary market in the “accretable yield,” which is recognized as interest income on a level yield basis over the lifeordinary course of the loan. Prepayments affect the estimated life of PCIbusiness. Purchased loans which may change the amount of interest income, and possibly principal, expected to be collected. The excess of total contractual cash flows over the cash flows expected to be received at origination is deemed to be the “nonaccretable difference.”

The following table presents the changes in accretable yield for PCI loans for the three and nine months ended September 30, 2017 and 2016:
 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Beginning balance $118,625
 $166,777
 $136,247
 $214,907
Accretion (10,747) (14,827) (32,108) (53,510)
Changes in expected cash flows 2,078
 311
 5,817
 (9,136)
Ending balance $109,956
 $152,261
 $109,956
 $152,261
 

Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from held-for-investment to held-for-sale, atand write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information about the lowercarrying value of cost or fair value.

As of September 30, 2017, loans held-for-sale amounted to $178 thousand, which were comprised of single-family residential loans. In comparison, as of December 31, 2016,transferred, loans held-for-sale amounted to $23.1 million, which were primarily comprised of consumer loans. Loans transferred fromsold and purchased for the held-for-investment to held-for-sale were $74.5 million and $418.5 millionportfolio, during the three and nine months ended September 30, 2017, respectively. These loan transfers were primarily comprised2021 and 2020:
($ in thousands)Three Months Ended September 30, 2021
CommercialConsumerTotal
C&ICREResidential Mortgage
CREConstruction
and Land		Single-Family
Residential
Loans transferred from held-for-investment to held-for-sale (1)
$117,196 $24,120 $17,226 $5,238 $163,780 
Sales (2)(3)(4)
$118,851 $24,120 $19,900 $6,959 $169,830 
Purchases (5)
$65,354 $— $— $137,937 $203,291 
($ in thousands)Three Months Ended September 30, 2020
CommercialConsumerTotal
C&ICREResidential Mortgage
Multifamily
Residential		Single-Family
Residential
Loans transferred from held-for-investment to held-for-sale (1)
$89,394 $— $— $89,394 
Sales (2)(3)(4)
$92,237 $— $31,847 $124,084 
Purchases (5)
$— $838 $17,294 $18,132 
($ in thousands)Nine Months Ended September 30, 2021
CommercialConsumer
CREResidential Mortgage
C&ICREMultifamily
Residential		Construction
and Land		Single-Family
Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)
$327,781 $61,171 $— $17,226 $5,238 $411,416 
Sales (2)(3)(4)
$329,233 $61,171 $— $19,900 $17,123 $427,427 
Purchases (5)
$310,447 $— $370 $— $434,900 $745,717 
44

($ in thousands)Nine Months Ended September 30, 2020
CommercialConsumer
CREResidential Mortgage
C&ICREMultifamily
Residential		Single-Family
Residential		Total
Loans transferred from held-for-investment to held-for-sale (1)
$246,052 $7,250 $— $— $253,302 
Sales (2)(3)(4)
$248,895 $7,250 $— $50,197 $306,342 
Purchases (5)
$143,086 $— $2,358 $18,378 $163,822 
(1)Includes write-downs of C&I loans for both periods. In comparison, $144.9$3.6 million and $720.7$4.9 million of loans were transferred from held-for-investment to held-for-sale during the three and nine months ended September 30, 2016, respectively. These loan transfers were primarily comprised of C&I, multifamily residential and CRE loans for both periods. The Company recorded $232 thousand and $441 thousand in write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and nine months ended September 30, 2017,2021, respectively. In comparison, thereThere were no write-downs and $1.9$2.8 million of write-downs recorded to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and nine months ended September 30, 2016, respectively.

During the three and nine months ended September 30, 2017, the Company sold $33.8 million and $101.4 million, respectively, in originated loans, resulting in net gains of $2.3 million and $5.5 million, respectively. Originated loans sold during these periods were primarily comprised of C&I and CRE loans. In comparison, the Company sold $107.3 million in originated loans during the three months ended September 30, 2016, resulting in net gains of $2.2 million. Originated loans sold during this period were primarily comprised of C&I and CRE loans. During the nine months ended September 30, 2016, the Company sold or securitized $529.5 million in originated loans, resulting in net gains of $9.3 million. Included in these amounts were $201.7 million of multifamily residential loans securitized during the first quarter of 2016, which resulted in net gains of $1.1 million, $641 thousand in mortgage servicing rights and $160.1 million of held-to-maturity investment security that were recorded. The remaining $327.8 million of originated loans sold during the nine months ended September 30, 2016, primarily comprising of CRE and C&I loans, resulted in net gains of $8.2 million.



During the three and nine months ended September 30, 2017, the Company purchased $72.4 million and $441.1 million loans, respectively, compared to $256.2 million and $1.04 billion during the three and nine months ended September 30, 2016, respectively. Purchased loans for each of the three and nine months ended September 30, 2017 were2020.
(2)Includes originated loans sold of $143.3 million and $341.9 million for the three and nine months ended September 30, 2021, respectively, and $112.3 million and $294.6 million for the three and nine months ended September 30, 2020, respectively. Originated loans sold consisted primarily comprised of C&I syndication loans. Purchasedand CRE loans during the three and nine months ended September 30, 2021. In comparison, originated loans sold consisted primarily of C&I and single-family residential loans for the three and nine months ended September 30, 2020.
(3)Includes $26.5 million and $85.5 million of purchased loans sold in the secondary market for the three and nine months ended September 30, 2021, respectively. There were $11.8 million of purchased loans sold in the secondary market for each of the three and nine months ended September 30, 20162020.
(4)Net gains on sales of loans were primarily comprised of C&I syndication loans and single-family residential loans. The higher loans purchased for the three and nine months ended September 30, 2016, primarily included $165.8$3.3 million and $488.3 million, respectively, of single-family residential loans purchased for Community Reinvestment Act (“CRA”) purposes.

From time to time, the Company purchases and sells loans in the secondary market. Certain purchased loans are transferred from held-for-investment to held-for-sale and write-downs to allowance for loan losses are recorded, when appropriate. During the three and nine months ended September 30, 2017, the Company sold loans of $57.4 million and $354.5 million, respectively, in the secondary market at net gains of $19 thousand and $1.2 million, respectively. In comparison, the Company sold loans of $45.8 million and $179.4$6.6 million for the three and nine months ended September 30, 2016,2021, respectively, in the secondary market. Loan sales in the secondary market resulted in no gains or losses and $69$361 thousand in net gains recordedand $1.4 million for the three and nine months ended September 30, 2016,2020, respectively.

(5)C&I loan purchases were comprised primarily of syndicated C&I term loans.
The Company records valuation adjustments in Net gains on sales of loans on the Consolidated Statements of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value. For each of the three months ended September 30, 2017 and 2016, no valuation adjustments were recorded. For the nine months ended September 30, 2017 and 2016, the Company recorded $61 thousand and $2.4 million, respectively, in valuation adjustments.


Note 97 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities


The CRA encourages banks to meet the credit needs of their communities, for housingparticularly low- and other purposes, particularly in neighborhoods with low or moderate income.moderate-income individuals and neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies that qualify for CRA consideration and tax credits. Such limited partnershipsThese entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. EachTo fully utilize the available tax credits, each of the partnershipsthese entities must meet the regulatory requirements for affordable housing requirements for a minimum 15-year compliance period to fully utilize the tax credits.period. In addition to affordable housing limited partnerships,projects, the Company also invests in small business investment companies and new market tax credit projects that qualify for CRA credits and eligibleconsideration, as well as projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, whileand the investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas.


Investments in Qualified Affordable Housing Partnerships, Net


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


The following table presents the balances of the Company’s investments in qualified affordable housing partnerships, net, and related unfunded commitments as of the periods indicated:September 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Investments in qualified affordable housing partnerships, net$297,367 $213,555 
Accrued expenses and other liabilities — Unfunded commitments$148,171 $77,444 
 
($ in thousands) September 30, 2017 December 31, 2016
Investments in qualified affordable housing partnerships, net $178,344
 $183,917
Accrued expenses and other liabilities — Unfunded commitments $63,607
 $57,243
 


The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the periods indicated:three and nine months ended September 30, 2021 and 2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Tax credits and other tax benefits recognized$7,503 $11,402 $28,583 $34,205 
Amortization expense included in income tax expense$9,147 $8,975 $25,595 $26,507 

45
         
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Tax credits and other tax benefits recognized $15,840
 $8,591
 $35,027
 $26,561
Amortization expense included in income tax expense $8,944
 $6,612
 $22,945
 $20,923
         




Investments in Tax Credit and Other Investments, Net


Investments in tax credit and other investments, net, were $203.8 million and $173.3 million as of September 30, 2017 and December 31, 2016, respectively. The Company is not the primary beneficiary in these partnerships and, therefore, is not required to consolidate its investments in tax credit and other investments on the Consolidated Financial Statements. Depending on the ownership percentage and the influence the Company has on the limited partnership,investments in tax credit and other investments, the Company applies either the equity or cost method of accounting.accounting, or the measurement alternative as elected under ASU 2016-01 for equity investments without readily determinable fair value.


TotalThe following table presents the Company’s investments in tax credit and other investments, net, and related unfunded commitments as of September 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Investments in tax credit and other investments, net$367,428 $266,525 
Accrued expenses and other liabilities — Unfunded commitments$194,796 $105,282 

The following table presents additional information related to the Company’s investments in tax credit and other investments, net, for these investments were $103.0the three and nine months ended September 30, 2021 and 2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Amortization of tax credit and other investments38,008 17,209 90,657 57,819 

The Company held equity securities that are mutual funds with readily determinable fair values of $26.8 million and $117.0$31.3 million, as of September 30, 20172021 and December 31, 2016,2020, respectively. The Company invested in these mutual funds for CRA purposes. These equity securities were measured at fair value with changes in fair value recorded in net income. The Company recorded unrealized losses of $88 thousand and $515 thousand related to these equity securities for the three and nine months ended September 30, 2021, respectively, and areunrealized gains of $55 thousand and $813 thousand, respectively, for the same periods in 2020. Equity securities with readily determinable fair value were included in Accrued expensesInvestments in tax credit and other liabilitiesinvestments, net on the Consolidated Balance Sheets. Sheet.

The Company held equity securities without readily determinable fair values totaling $29.3 million and $23.7 million as of September 30, 2021 and December 31, 2020, respectively, which were measured using the measurement alternative at cost less impairment and adjusted for observable price changes. For the three and nine months ended September 30, 2021 and 2020, there were no adjustments made to these securities. Equity securities without readily determinable fair values were included in Investments in tax credit and other investments, net and Other assets on the Consolidated Balance Sheet.

Tax credit and other investments are evaluated for possible OTTI on an annual basis or when events or changes in circumstances suggest that the carrying amount of the tax credit investments may not be realizable. OTTI charges and impairment recoveries are recorded within Amortization of tax credit and other investments was $23.8 millionon the Consolidated Statement of Income. Refer to Note 2 — Fair Value Measurement and $32.6 millionFair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments. For the three months ended September 30, 20172021 and 2016, respectively. Amortization of2020, the Company recorded no adjustments related to these tax credit and other investments was $66.1investments. For the nine months ended September 30, 2021, the Company recorded $1.3 million of impairment recoveries. In comparison, the Company recorded impairment recoveries of $259 thousand and $60.8 millionOTTI charges of $733 thousand for the nine months ended September 30, 20172020.

Variable Interest Entities

The Company invests in unconsolidated limited partnerships and 2016,similar entities that construct, own and operate affordable housing, historic rehabilitation, and wind and solar energy projects, of which the majority of such investments are variable interest entities (“VIEs”). As a limited partner in these partnerships, these investments are designed to generate a return primarily through the realization of federal tax credits and tax benefits. An unrelated third party is typically the general partner or managing member who has control over the significant activities of such investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these structures due to the general partner’s or managing member’s ability to manage the entity, which is indicative of the general partner’s or managing member’s power over the entity. The Company’s expected maximum exposure to loss in connection with these partnerships consists of the unamortized investment balance and any tax credits claimed that may become subject to recapture.
46

Special purpose entities formed in connection with securitization transactions are generally considered VIEs. A CLO is a VIE that manages a pool of assets consisting primarily of broadly syndicated corporate loans, where multiple tranches of notes are issued to investors. The Company served as the collateral manager of a CLO that closed in 2019 and subsequently sold its portfolio management contract in 2020 but retained the top three investment grade-rated tranches, which had a carrying amount of $291.6 million and $287.5 million as of September 30, 2021 and December 31, 2020, respectively.



Note 108—Goodwill and Other Intangible Assets


Goodwill


Total goodwill of $469.4was $465.7 million remained unchanged as of both September 30, 2017 compared to2021 and December 31, 2016. Goodwill2020. The Company’s annual goodwill impairment testing is tested for impairment on an annual basisperformed as of December 31st, of each year, or more frequently as events occur or circumstances change that would more likely than notmore-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The Company’s three operating segments, Retail Banking, Commercial Banking and Other, are equivalentvalue. Additional information pertaining to the Company’s reporting units. For complete discussion and disclosure, see accounting policy for goodwill is summarized in Note 151 — Business Segments to the Consolidated Financial Statements.

Impairment Analysis

The Company performed its annual impairment analysis as Summary of December 31, 2016 and concluded that there was no goodwill impairment as the fair values of all reporting units exceeded the carrying amounts of goodwill. There were no triggering events during the nine months ended September 30, 2017, and therefore, no additional goodwill impairment analysis was performed. No assurance can be given that goodwill will not be written down in future periods. Refer to Note 9 Significant Accounting Policies — Significant Accounting Policies — Goodwill and Other Intangible Assets to the Consolidated Financial Statements of the Company’s 20162020 Form 10-K for additional details related to the Company’s10-K. The Company completed its annual goodwill impairment analysis.testing as of December 31, 2020, and determined there was no goodwill impairment. As of September 30, 2021, the Company reviewed the macroeconomic conditions, including the impacts of the COVID-19 pandemic on its business performance and market capitalization, and concluded that goodwill was not impaired.

Core Deposit Intangibles


CoreThe following table presents the gross carrying amount of core deposit intangibles represent the intangible valueassets and accumulated amortization as of depositor relationships resulting fromSeptember 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Gross balance (1)
$86,099 $86,099 
Accumulated amortization (1)
(81,869)(79,722)
Net carrying balance (1)
$4,230 $6,377 
(1)Excludes fully amortized core deposit liabilities assumed in various acquisitions and were included in Other assets on the Consolidated Balance Sheets. These intangibles are tested for impairment on an annual basis, or more frequently as events occur, or as current circumstances and conditions warrant. intangible assets.

There were no impairment write-downs on core deposit intangibles forduring the three and nine months ended September 30, 20172021 and 2016.2020.

The following table presents the gross carrying value of intangible assets and accumulated amortization as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017 December 31, 2016
Gross balance $108,814
 $108,814
Accumulated amortization (86,140) (80,825)
Net carrying balance $22,674
 $27,989
 


Amortization Expense


The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $1.7 million$706 thousand and $2.0 million$927 thousand for the three months ended September 30, 20172021 and 2016,2020, respectively, and $5.3$2.1 million and $6.2$2.8 million for the nine months ended September 30, 20172021 and 2016,2020, respectively.




The following table presents the estimated future amortization expense of core deposit intangibles:intangibles as of September 30, 2021:
($ in thousands)Amount
Remainder of 2021$602 
20221,865 
20231,199 
2024553 
202511 
Total$4,230 

47
 
Year Ended December 31, 
Amount
($ in thousands)
Remainder of 2017 $1,620
2018 5,883
2019 4,864
2020 3,846
2021 2,833
Thereafter 3,628
Total $22,674
 



Note 119—Commitments and Contingencies

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


The following table presents the Company’s credit-related commitments as of the periods indicated:September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
($ in thousands)Expire in One Year or LessExpire After One Year Through Three YearsExpire After Three Years Through
Five Years		Expire After Five YearsTotalTotal
Loan commitments$3,043,712 $127,951 $2,678,519 $654,213 $6,504,395 $5,690,847 
Commercial letters of credit and SBLCs983,663 475,826 142,714 590,644 2,192,847 2,240,813 
Total$4,027,375 $603,777 $2,821,233 $1,244,857 $8,697,242 $7,931,660 
 
($ in thousands) September 30, 2017 December 31, 2016
Loan commitments $4,956,515
 $5,077,869
Commercial letters of credit and SBLCs $1,757,648
 $1,525,613
 


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


Commercial letters of credit are issued to facilitate domestic and foreign trade transactions, while SBLCs are generally contingent upon the failure of the customers to perform according to the terms of the underlying contract with the third party. As a result, the total contractual amounts do not necessarily represent future funding requirements. The Company’s historical experience is that SBLCs typically expire without being funded. Additionally, in many cases, the Company holds collateral in various forms against these SBLCs. As a part of its risk management activities, the Company monitors the creditworthiness of customers in conjunction with its SBLC exposure. Customers are obligated to reimburse the Company for any payment made on the customers’ behalf. If the customers fail to pay, the Company would, as applicable, liquidate the collateral and/or offset existing accounts. As of September 30, 2017,2021, total letters of credit which amounted to $1.76of $2.19 billion were comprisedconsisted of SBLCs of $1.70$2.15 billion and commercial letters of credit of $59.1$43.6 million. As of December 31, 2020, total letters of credit of $2.24 billion consisted of SBLCs of $2.12 billion and commercial letters of credit of $124.9 million. As of both September 30, 2021 and December 31, 2020, substantially all SBLCs were rated as “Pass” by the Bank’s internal credit risk rating system.


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

Estimated exposure to loss from these commitments is included in the allowance for unfunded credit reserves,commitments and amounted to $14.0$28.0 million and $33.5 million as of September 30, 20172021 and $15.7 million as of December 31, 2016. These amounts are included in Accrued expenses2020, respectively.

48

Guarantees — From time to time, the Company sells or securitizes single-family and other liabilities on the Consolidated Balance Sheets.


Guarantees — The Company has sold or securitizedmultifamily residential loans with recourse in the ordinary course of business. The Company is obligated to repurchase up to the recourse component inpercentage of the loans if the loans default. The following table presents the carrying amounts of loans sold or securitized with recourse is considered a guarantee. Asand the guarantor, the Company is obligated to makemaximum potential future payments when the loans default. Asas of September 30, 20172021 and December 31, 2016, the unpaid principal balance of total single-family and multifamily residential loans sold or securitized with recourse amounted to $121.2 million and $150.5 million, respectively. 2020:
Maximum Potential Future PaymentsCarrying Value
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
($ in thousands)Expire in One Year or LessExpire After One Year Through Three YearsExpire After Three Years Through
Five Years		Expire After Five YearsTotalTotalTotalTotal
Single-family residential loans sold or securitized with recourse$48 $341 $95 $7,840 $8,324 $10,526 $8,324 $10,526 
Multi-family residential loans sold or securitized with recourse— 192 — 14,996 15,188 15,672 23,889 26,619 
Total$48 $533 $95 $22,836 $23,512 $26,198 $32,213 $37,145 

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit reserves,commitments and totaled $256$45 thousand and $373$88 thousand as of September 30, 20172021 and December 31, 2016,2020, respectively. The allowance for unfunded credit reservescommitments is included inAccrued expenses and other liabilities on the Consolidated Balance Sheets.Sheet. The Company continues to experience minimal losses from the single-family and multifamily residential loan portfolios sold or securitized with recourse.


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


Other Commitments — The Company has commitments to invest in qualified affordable housing partnerships, tax credit and other investments as discussed in Note 9 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entitiesto the Consolidated Financial Statements. These commitments are payable on demand.Statements in this Form 10-Q. As of September 30, 20172021 and December 31, 2016,2020, these commitments were $166.6$343.0 million and $174.3$182.7 million, respectively. These commitments are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.Sheet.



Note 1210—Stock Compensation Plans


Pursuant to the Company’s 2016 Stock Incentive Plan, as amended, the Company may issue stocks, stock options, restricted stock, awardsrestricted stock units (“RSAs”RSUs”), RSUs,stock purchase warrants, stock appreciation rights, stock purchase warrants, phantom stock and dividend equivalents to certaineligible employees, and non-employee directors, consultants, and other service providers of the Company and its subsidiaries. There wereThe Company has granted RSUs as its primary incentive awards. Stock options have not been issued since 2011 and no outstanding stock options or unvested RSAswere outstanding as of both September 30, 20172021 and 2016.December 31, 2020.


RSUs are granted under the Company’s long-term incentive plan at no cost to the recipient. RSUs vest ratably over three years or cliff vest after three or five years of continued employment from the date of the grant. RSUs entitle the recipient to receive cash dividends equivalent to any dividends paid on the underlying common stock during the period the RSUs are outstanding. RSU dividends are accrued during the vesting period and are paid at the time of vesting. While a portion of RSUs are time-vesting awards, others vest subject to the attainment of specified performance goals referred to as “Performance-based RSUs.” All RSUs are subject to forfeiture until vested.
49


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

Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value which considers both market and performance conditions, and is subject to subsequent adjustments based on the changes in the Company’s stock price and the projected outcome of the performance criteria. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.



The following table presents a summary of the total share-based compensation expense and the related net tax benefitbenefits (deficiencies) associated with the Company’s various employee share-based compensation plans for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Stock compensation costs$8,022 $7,921 $24,047 $22,201 
Related net tax benefits (deficiencies) for stock compensation plans$42 $(14)$1,699 $(1,589)
 
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Stock compensation costs $5,665
 $4,763
 $15,780
 $13,973
Related net tax benefits for stock compensation plans $151
 $14
 $4,614
 $1,019
 


Effective January 1, 2017,Restricted Stock Units — RSUs are granted under the Company adopted ASU 2016-09, Compensation — Stock Compensation (Topic 718): ImprovementsCompany’s long-term incentive plan at no cost to Employee Share-Based Payment Accounting. As a resultthe recipient. RSUs generally cliff vest after three years of continued employment from the date of the adoptiongrant, and are authorized to settle predominantly in shares of this new guidance, all excess tax benefitsthe Company’s common stock. Certain RSUs are settled in cash. Dividends are accrued during the vesting period and deficiencies on share-based paymentpaid at the time of vesting. While a portion of RSUs are time-based vesting awards, were recognized within Income tax expenseothers vest subject to the attainment of specified performance goals, referred to as “performance-based RSUs.” Performance-based RSUs are granted annually upon approval by the Company’s Compensation Committee based on the performance in the year prior to the grant date of the award. The number of awards that vest can range from zero to a maximum of 200% of the granted number of awards based on the Company’s achievement of specified performance criteria over a performance period of three years.

Compensation costs are calculated using the quoted market price of the Company’s common stock at the grant date. Compensation costs for certain time-based awards that will be settled in cash are adjusted to fair value based on changes in the share price of the Company’s common stock up to the settlement date. For performance-based RSUs, the compensation costs are based on grant date fair value which considers both performance and market conditions, and is subject to subsequent adjustments based on the Company’s outcome in meeting the performance criteria at the end of the performance period. Compensation costs of both time-based and performance-based awards are estimated based on awards ultimately expected to vest, and are recognized net of estimated forfeitures on a straight-line basis from the grant date until the vesting date of each grant. For accounting on stock-based compensation plans, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Stock-Based Compensation to the Consolidated Financial Statements of Incomethe Company’s 2020 Form 10-K for the three and nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, these tax benefits were recorded as increases to Additional paid-in capital on the Consolidated Statements of Changes in Stockholders’ Equity.additional information.


The following table presents a summary of the activityactivities for the Company’s time-based and performance-based RSUs that will be settled in shares for the nine months ended September 30, 2017 based2021. The number of performance-based RSUs stated below reflects the number of awards granted on the target amountgrant date.
Time-Based RSUsPerformance-Based RSUs
SharesWeighted-Average
Grant Date
Fair Value		SharesWeighted-Average
Grant Date
Fair Value
Outstanding, January 1, 20211,345,524 $50.22 398,057 $53.66 
Granted396,002 71.47 91,960 77.67 
Vested(295,156)67.13 (120,286)70.13 
Forfeited(106,245)55.65 — — 
Outstanding, September 30, 20211,340,125 $52.35 369,731 $54.28 

The following table presents a summary of awards:the activities for the Company’s time-based RSUs that will be vested in cash for the nine months ended September 30, 2021:
Shares
Outstanding, January 1, 202121,802 
Granted15,803 
Vested— 
Forfeited(9,106)
Outstanding, September 30, 202128,499

50
 
  Nine Months Ended September 30, 2017
 Time-Based RSUs Performance-Based RSUs
 Shares 
Weighted
Average
Grant-Date
Fair Value
 Shares 
Weighted
Average
Grant-Date
Fair Value
Outstanding, beginning of period 1,218,714
 $35.92
 410,746
 $35.27
Granted 370,514
 54.71
 131,597
 56.59
Vested (299,164) 36.68
 (118,044) 36.85
Forfeited (131,472) 40.05
 —
 —
Outstanding, end of period 1,158,592
 $41.26
 424,299
 $41.44
 


As of September 30, 2017,2021, there were $28.3 million and $16.6 million of total unrecognized compensation costs related to unvested time-based and performance-based RSUs, amounted to $28.2 million and $15.3 million, respectively. TheseBoth of these costs are expected to be recognized over a weighted averageweighted-average period of 2.00 years and 2.02 years, respectively.1.92 years.



Note 1311 — Stockholders’ Equity and Earnings Per Share


Warrant — The Company acquired MetroCorp Bancshares, Inc., (“MetroCorp”) on January 17, 2014. Prior to the acquisition, MetroCorp had an outstanding warrant to purchase 771,429 shares of its common stock. Upon the acquisition, the rights of the warrant holder were converted into the right to acquire 230,282 shares of East West’s common stock until January 16, 2019. The warrant has not been exercised as of September 30, 2017.

Earnings Per Share— Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period, plus common share equivalents calculated for warrants and RSUs outstanding using the treasury stock method. With the adoption of ASU 2016-09 during the first quarter of 2017, the impact of excess tax benefits and deficiencies is no longer included in the calculation of diluted EPS. As a result of applying ASU 2016-09, the Company recorded income tax benefits of $151 thousand or $0 per common share, and $4.6 million or $0.03 per common share for the three and nine months ended September 30, 2017, respectively, related to the vesting of the RSUs. See Note 2 — Current Accounting Developments to the Consolidated Financial Statements for additional information.



The following table presents the basic and diluted EPS calculations for the three and nine months ended September 30, 20172021 and 2016:2020. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies— Significant Accounting Policies —Earnings Per Share to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.
($ and shares in thousands, except per share data)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Basic:
Net income$225,449 $159,537 $655,185 $403,713 
Basic weighted-average number of shares outstanding141,880 141,498 141,799 142,595 
Basic EPS$1.59 $1.13 $4.62 $2.83 
Diluted:
Net income$225,449 $159,537 $655,185 $403,713 
Basic weighted-average number of shares outstanding141,880 141,498 141,799 142,595 
Diluted potential common shares (1)
1,263 545 1,252 487 
Diluted weighted-average number of shares outstanding (1)
143,143 142,043 143,051 143,082 
Diluted EPS$1.57 $1.12 $4.58 $2.82 
 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
($ and shares in thousands, except per share data) 2017 2016 2017 2016
Basic        
Net income $132,660
 $110,143
 $420,726
 $320,943
         
Basic weighted average number of shares outstanding 144,498
 144,122
 144,412
 144,061
Basic EPS $0.92
 $0.76
 $2.91
 $2.23
         
Diluted        
Net income $132,660
 $110,143
 $420,726
 $320,943
         
Basic weighted average number of shares outstanding 144,498
 144,122
 144,412
 144,061
Diluted potential common shares (1)
 1,384
 1,116
 1,437
 1,025
Diluted weighted average number of shares outstanding 145,882
 145,238
 145,849
 145,086
Diluted EPS $0.91
 $0.76
 $2.88
 $2.21
 
(1)Includes dilutive shares from RSUs and warrants for the three and nine months ended September 30, 2017 and 2016.

(1)Includes dilutive shares from RSUs for the three and nine months ended September 30, 2021 and 2020.

For the three and nine months ended September 30, 2017, 4 thousand2021, 2000 and 6 thousand weighted average6000 weighted-average shares of anti-dilutive shares from RSUs, respectively, were excluded from the diluted EPS computation. ForIn comparison, 124 thousand and 123 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation for the three and nine months ended September 30, 2016, 2 thousand2020.

Stock Repurchase Program — In 2020, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $500.0 million of the Company’s common stock, and 7 thousand weightedthe Company repurchased 4,471,682 shares at an average anti-dilutiveprice of $32.64 per share, for a total cost of $146.0 million. In comparison, the Company did not repurchase any shares from RSUs, respectively, were excluded fromduring the diluted EPS computation.three and nine months ended September 30, 2021.



Note 1412 — Accumulated Other Comprehensive Income (Loss)


The following tables presenttable presents the changes in the components of AOCI balances for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)AFS
Debt
Securities		Cash
Flow
Hedges
Foreign
Currency
Translation
Adjustments (1)
Total
Balance, July 1, 2020$42,850 $(1,333)$(18,383)$23,134 
Net unrealized gains arising during the period5,126 25 5,459 10,610 
Amounts reclassified from AOCI(492)62 — (430)
Changes, net of tax4,634 87 5,459 10,180 
Balance, September 30, 2020$47,484 $(1,246)$(12,924)$33,314 
Balance, July 1, 2021$(8,152)$(730)$(5,807)$(14,689)
Net unrealized losses arising during the period(40,928)(121)(1,752)(42,801)
Amounts reclassified from AOCI(250)172 — (78)
Changes, net of tax(41,178)51 (1,752)(42,879)
Balance, September 30, 2021$(49,330)$(679)$(7,559)$(57,568)
 
($ in thousands) Three Months Ended September 30,
 2017 2016
 Available-
for-Sale
Investment
Securities		 
Foreign
Currency
Translation
Adjustments (1)
 Total Available-
for-Sale
Investment
Securities		 
Foreign
Currency
Translation
Adjustments (1)
 Total
Beginning balance $(18,950) $(15,231) $(34,181) $11,756
 $(13,468) $(1,712)
Net unrealized (losses) gains arising during the period (1,014) 3,870
 2,856
 (3,869) (555) (4,424)
Amounts reclassified from AOCI (892) —
 (892) (1,038) —
 (1,038)
Changes, net of taxes (1,906) 3,870
 1,964
 (4,907) (555) (5,462)
Ending balance $(20,856) $(11,361) $(32,217) $6,849
 $(14,023) $(7,174)
 
51

 
($ in thousands) Nine Months Ended September 30,
 2017 2016
 Available-
for-Sale
Investment
Securities		 
Foreign
Currency
Translation
Adjustments (1)
 Total Available-
for-Sale
Investment
Securities		 
Foreign
Currency
Translation
Adjustments (1)
 Total
Beginning balance $(28,772) $(19,374) $(48,146) $(6,144) $(8,797) $(14,941)
Net unrealized gains (losses) arising during the period 11,818
 8,013
 19,831
 17,901
 (5,226) 12,675
Amounts reclassified from AOCI (3,902) —
 (3,902) (4,908) —
 (4,908)
Changes, net of taxes 7,916
 8,013
 15,929
 12,993
 (5,226) 7,767
Ending balance $(20,856) $(11,361) $(32,217) $6,849
 $(14,023) $(7,174)
             
(1)Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was Chinese Renminbi and USD, respectively.

($ in thousands)AFS
Debt
Securities		Cash
Flow
Hedges
Foreign
Currency
Translation
Adjustments (1)
Total
Balance, January 1, 2020$(2,419)$— $(15,989)$(18,408)
Net unrealized gains (losses) arising during the period58,262 (1,038)3,065 60,289 
Amounts reclassified from AOCI(8,359)(208)— (8,567)
Changes, net of tax49,903 (1,246)3,065 51,722 
Balance, September 30, 2020$47,484 $(1,246)$(12,924)$33,314 
Balance, January 1, 2021$52,247 $(1,230)$(6,692)$44,325 
Net unrealized (losses) gains arising during the period(100,747)108 (867)(101,506)
Amounts reclassified from AOCI(830)443 — (387)
Changes, net of tax(101,577)551 (867)(101,893)
Balance, September 30, 2021$(49,330)$(679)$(7,559)$(57,568)

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


The following tables presenttable presents the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Three Months Ended September 30,
20212020
Before-TaxTax EffectNet-of-TaxBefore-TaxTax EffectNet-of-Tax
AFS debt securities:
Net unrealized (losses) gains arising during the period$(58,138)$17,210 $(40,928)$7,304 $(2,178)$5,126 
Net realized (gains) reclassified into net income (1)
(354)104 (250)(698)206 (492)
Net change(58,492)17,314 (41,178)6,606 (1,972)4,634 
Cash flow hedges:
Net unrealized (losses) gains arising during the period(170)49 (121)34 (9)25 
Net realized losses reclassified into net income (2)
241 (69)172 87 (25)62 
Net change71 (20)51 121 (34)87 
Foreign currency translation adjustments, net of hedges:
Net unrealized (losses) gains arising during the period(1,878)126 (1,752)4,419 1,040 5,459 
Net change(1,878)126 (1,752)4,419 1,040 5,459 
Other comprehensive (loss) income$(60,299)$17,420 $(42,879)$11,146 $(966)$10,180 
52

 
($ in thousands) Three Months Ended September 30,
 2017 2016
 Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax
Available-for-sale investment securities:  
  
  
  
  
  
Net unrealized losses arising during the period $(1,749) $735
 $(1,014) $(6,677) $2,808
 $(3,869)
Net realized gains reclassified into net income (1)
 (1,539) 647
 (892) (1,790) 752
 (1,038)
Net change (3,288) 1,382
 (1,906) (8,467) 3,560
 (4,907)
             
Foreign currency translation adjustments:            
Net unrealized gains (losses) arising during period 3,870
 —
 3,870
 (555) —
 (555)
Net change 3,870
 —
 3,870
 (555) —
 (555)
Other comprehensive income (loss) $582
 $1,382
 $1,964
 $(9,022) $3,560
 $(5,462)
 
($ in thousands)Nine Months Ended September 30,
20212020
Before-TaxTax EffectNet-of-TaxBefore-TaxTax EffectNet-of-Tax
AFS debt securities:
Net unrealized (losses) gains arising during the period$(143,131)$42,384 $(100,747)$82,767 $(24,505)$58,262 
Net realized (gains) reclassified into net income (1)
(1,178)348 (830)(11,867)3,508 (8,359)
Net change(144,309)42,732 (101,577)70,900 (20,997)49,903 
Cash flow hedges:
Net unrealized gains (losses) arising during the period150 (42)$108 (1,449)411 (1,038)
Net realized losses (gains) reclassified into net income (2)
619 (176)443 (290)82 (208)
Net change769 (218)551 (1,739)493 (1,246)
Foreign currency translation adjustments, net of hedges:
Net unrealized (losses) gains arising during the period(1,603)736 (867)2,274 791 3,065 
Net change(1,603)736 (867)2,274 791 3,065 
Other comprehensive (loss) income$(145,143)$43,250 $(101,893)$71,435 $(19,713)$51,722 
(1)For the three and nine months ended September 30, 2021 and 2020, pre-tax amounts were reported in Gains on sales of AFS debt securities on the Consolidated Statement of Income.
(2)For the three and nine months ended September 30, 2021 and 2020, pre-tax amounts were reported in Interest expense on the Consolidated Statement of Income.

 
($ in thousands) Nine Months Ended September 30,
 2017 2016
 Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax
Available-for-sale investment securities:  
  
  
  
  
  
Net unrealized gains arising during the period $20,392
 $(8,574) $11,818
 $30,888
 $(12,987) $17,901
Net realized gains reclassified into net income (1)
 (6,733) 2,831
 (3,902) (8,468) 3,560
 (4,908)
Net change 13,659
 (5,743) 7,916
 22,420
 (9,427) 12,993
             
Foreign currency translation adjustments:            
Net unrealized gains (losses) arising during period 8,013
 —
 8,013
 (5,226) —
 (5,226)
Net change 8,013
 —
 8,013
 (5,226) —
 (5,226)
Other comprehensive income $21,672
 $(5,743) $15,929
 $17,194
 $(9,427) $7,767
 
(1)
For the three and nine months ended September 30, 2017 and 2016, pre-tax amounts were reported in Net gains on sales of available-for-sale investment securities on the Consolidated Statements of Income.


Note 1513 —Business Segments

The Company utilizes an internal reporting system to measure the performance of variousorganizes its operations into 3 reportable operating segments within the Banksegments: (1) Consumer and the Company. The Company has identified three operating segments for purposes of management reporting: (1) RetailBusiness Banking; (2) Commercial Banking; and (3) Other. These three business segments meet the criteria of an operating segment: the segment engages in business activities from which it earns revenues and incurs expenses; its operating results are regularly revieweddefined by the Company’s chief operating decision-maker to render decisions about resources to be allocated totype of customers served, and the related products and services provided. The segments and assess its performance; and discretereflect how financial information is available.
The Retail Banking segment focuses primarily on retail operations through the Bank’s branch network. The Commercial Banking segment, which includes C&I and CRE operations, primarily generates commercial loans and deposits through the bank’s commercial lending offices. Furthermore, the Company’s Commercial Banking segment offers a wide variety of international finance, trade finance, and cash management services and products. The remaining centralized functions, including treasury activities and eliminations of inter-segment amounts, have been aggregated and included in the “Other” segment, which provides broad administrative support to the two core segments.
currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain operatingbalance sheet and income statement items. The information presented is not indicative of how the segments would perform if they operated as independent entities due to the interrelationships among the segments.

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

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

The remaining centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Other segment, which provides broad administrative costssupport to the 2 core segments, namely the Consumer and Business Banking and the provisionCommercial Banking segments.

53

The Company utilizes an internal reporting process to measure the performance of the 3 operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for credit losses.revenues and expenses. Net interest income is allocated basedof each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics.(“FTP”) process. Noninterest income and noninterest expense including depreciation and amortization, directly attributable to a business segment are assigned to the related businessthat segment. Indirect costs, including technology-related costs and corporate overhead, expense, are allocated to the segments based on severala segment’s estimated usage using factors including but not limited to, full-time equivalent employees, net interest income, and loan volume and deposit volume. TheCharge-offs are recorded to the segment directly associated with the respective loans charged off, and provision for credit losses is allocatedrecorded to the segments based on actual charge-offsthe related loans for the period as well as average loan balances for each segment during the period. The Company evaluates overall performance based on profit or loss from operations before income taxes excluding nonrecurring gains and losses.



which allowances are evaluated. The Company’s internal funds transfer pricing assumptionsreporting process utilizes a full-allocation methodology. Under this methodology, corporate and indirect expenses incurred by the Other segment are intendedallocated to promote core deposit growththe Consumer and to reflectBusiness Banking and the current risk profiles of various loan categoriesCommercial Banking segments, except certain corporate treasury-related expenses and insignificant unallocated expenses.

The corporate treasury function within the credit portfolio. Internal funds transfer pricing assumptions and methodologies are reviewed at least annually to ensure thatOther segment is responsible for the Company’s liquidity and interest rate management. The Company’s internal FTP process is reflective of current market conditions.also managed by the corporate treasury function within the Other segment. The internal funds transfer pricing process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as to provide a reasonable and consistent basis for the measurement of the Company’sits business segments and productsegments’ net interest margins.

Changesmargins and profitability. The FTP process charges a cost to fund loans (“FTP charges for loans”) and allocates credits for funds provided from deposits (“FTP credits for deposits”) using internal FTP rates. FTP charges for loans are determined based on a matched cost of funds, which is tied to the pricing and term characteristics of the loans. FTP credits for deposits are based on matched funding credit rates, which are tied to the implied or stated maturity of the deposits. FTP credits for deposits reflect the long-term value generated by the deposits. The net spread between the total internal FTP charges and credits is recorded as part of net interest income in the Other segment. The FTP process transfers the corporate interest rate risk exposure to the treasury function within the Other segment, where such exposures are centrally managed. The Company’s management structure or reportinginternal FTP assumptions and methodologies may result in changes inare reviewed at least annually to ensure that the measurementprocess is reflective of operating segment results. Results for prior year periods are generally restated for comparability for changes in management structure or reporting methodologies unless it is deemed not practicable to do so.current market conditions.

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three and nine months ended September 30, 20172021 and 2016:2020:
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Three Months Ended September 30, 2021
Net interest income before provision for (reversal of) credit losses$176,678 $189,791 $29,237 $395,706 
Provision for (reversal of) credit losses1,293 (11,293)— (10,000)
Noninterest income22,446 42,925 7,738 73,109 
Noninterest expense90,575 66,688 48,121 205,384 
Segment income (loss) before income taxes107,256 177,321 (11,146)273,431 
Segment net income$76,825 $126,767 $21,857 $225,449 
As of September 30, 2021
Segment assets$14,687,023 $27,861,690 $18,410,397 $60,959,110 
54

 
($ in thousands) Three Months Ended September 30, 2017
 
Retail
Banking
 
Commercial
Banking
 Other Total
Interest income $93,714
 $218,397
 $27,799
 $339,910
Charge for funds used (37,979) (87,071) (7,589) (132,639)
Interest spread on funds used 55,735
 131,326
 20,210
 207,271
Interest expense (20,090) (5,943) (10,722) (36,755)
Credit on funds provided 111,812
 12,770
 8,057
 132,639
Interest spread on funds provided (used) 91,722
 6,827
 (2,665) 95,884
Net interest income before provision for credit losses $147,457
 $138,153
 $17,545
 $303,155
Provision for credit losses $2,058
 $10,938
 $—
 $12,996
Depreciation, amortization and (accretion), net $3,401
 $(5,449) $40,001
 $37,953
Segment income before income taxes $68,554
 $99,025
 $7,705
 $175,284
As of September 30, 2017:       

Goodwill $357,207
 $112,226
 $—
 $469,433
Segment assets $8,877,186
 $21,216,848
 $6,213,932
 $36,307,966
 
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Three Months Ended September 30, 2020
Net interest income before provision for (reversal of) credit losses$120,969 $162,884 $40,277 $324,130 
(Reversal of) provision for credit losses(3,470)13,470 — 10,000 
Noninterest income17,426 28,984 8,093 54,503 
Noninterest expense81,419 61,863 29,291 172,573 
Segment income before income taxes60,446 116,535 19,079 196,060 
Segment net income$43,310 $83,340 $32,887 $159,537 
As of September 30, 2020
Segment assets$12,838,625 $26,526,173 $11,006,679 $50,371,477 
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Nine Months Ended September 30, 2021
Net interest income before reversal of credit losses$500,352 $559,579 $65,943 $1,125,874 
(Reversal of) credit losses(598)(24,402)— (25,000)
Noninterest income67,728 125,487 21,191 214,406 
Noninterest expense267,511 200,109 118,364 585,984 
Segment income (loss) before income taxes301,167 509,359 (31,230)779,296 
Segment net income$215,720 $364,632 $74,833 $655,185 
As of September 30, 2021
Segment assets$14,687,023 $27,861,690 $18,410,397 $60,959,110 
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Nine Months Ended September 30, 2020
Net interest income before provision for credit losses$398,486 $530,181 $101,945 $1,030,612 
Provision for credit losses9,908 176,405 — 186,313 
Noninterest income47,771 95,327 22,617 165,715 
Noninterest expense248,547 196,889 92,235 537,671 
Segment income before income taxes187,802 252,214 32,327 472,343 
Segment net income$134,563 $180,649 $88,501 $403,713 
As of September 30, 2020
Segment assets$12,838,625 $26,526,173 $11,006,679 $50,371,477 

 
($ in thousands) Three Months Ended September 30, 2016
 Retail
Banking		 Commercial
Banking		 Other Total
Interest income $77,186
 $180,095
 $23,036
 $280,317
Charge for funds used (24,320) (53,262) (3,858) (81,440)
Interest spread on funds used 52,866
 126,833
 19,178
 198,877
Interest expense (14,855) (3,699) (7,615) (26,169)
Credit on funds provided 68,622
 8,206
 4,612
 81,440
Interest spread on funds provided (used) 53,767
 4,507
 (3,003) 55,271
Net interest income before (reversal of) provision for credit losses $106,633
 $131,340
 $16,175
 $254,148
(Reversal of) provision for credit losses $(3,709) $13,234
 $—
 $9,525
Depreciation, amortization, and (accretion), net $782
 $(5,875) $40,541
 $35,448
Segment income before income taxes $32,304
 $80,393
 $10,767
 $123,464
As of September 30, 2016:       

Goodwill $357,207
 $112,226
 $—
 $469,433
Segment assets $7,606,611
 $18,549,562
 $7,099,102
 $33,255,275
 



 
($ in thousands) Nine Months Ended September 30, 2017
 
Retail
Banking
 
Commercial
Banking
 Other Total
Interest income $263,491
 $616,689
 $85,174
 $965,354
Charge for funds used (98,856) (229,330) (50,273) (378,459)
Interest spread on funds used 164,635
 387,359
 34,901
 586,895
Interest expense (54,650) (16,225) (29,111) (99,986)
Credit on funds provided 320,452
 37,436
 20,571
 378,459
Interest spread on funds provided (used) 265,802
 21,211
 (8,540) 278,473
Net interest income before provision for credit losses $430,437
 $408,570
 $26,361
 $865,368
Provision for credit losses $1,772
 $28,977
 $—
 $30,749
Depreciation, amortization and (accretion), net $6,741
 $(14,609) $111,639
 $103,771
Segment income before income taxes $204,601
 $284,195
 $72,177
 $560,973
As of September 30, 2017:        
Goodwill $357,207
 $112,226
 $—
 $469,433
Segment assets $8,877,186
 $21,216,848
 $6,213,932
 $36,307,966
 
 
($ in thousands) Nine Months Ended September 30, 2016
 Retail
Banking		 Commercial
Banking		 Other Total
Interest income $233,192
 $534,603
 $67,559
 $835,354
Charge for funds used (70,770) (159,734) (22,465) (252,969)
Interest spread on funds used 162,422
 374,869
 45,094
 582,385
Interest expense (44,133) (11,965) (19,320) (75,418)
Credit on funds provided 210,831
 26,655
 15,483
 252,969
Interest spread on funds provided (used) 166,698
 14,690
 (3,837) 177,551
Net interest income before (reversal of) provision for credit losses $329,120
 $389,559
 $41,257
 $759,936
(Reversal of) provision for credit losses $(2,846) $19,864
 $—
 $17,018
Depreciation, amortization and (accretion), net $279
 $(25,915) $86,316
 $60,680
Segment income before income taxes $114,513
 $268,401
 $28,137
 $411,051
As of September 30, 2016:        
Goodwill $357,207
 $112,226
 $—
 $469,433
Segment assets $7,606,611
 $18,549,562
 $7,099,102
 $33,255,275
 


Note 1614 — Subsequent Events

On October 19, 2017,21, 2021, the Company’s Board of Directors declared fourth quarter 20172021 cash dividends for the Company’s common stock. The common stock cash dividend of $0.20$0.33 per share is payable on November 15, 20172021 to stockholders of record as of November 1, 2017.




2021.
55

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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56

Overview

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”“Company,” “we” or “EWBC”), and its various subsidiaries, including theits subsidiary bank, East West Bank and its subsidiaries (referred to herein as “East West Bank” or the “Bank”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes presented elsewhere in this report, and the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 20162020, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 27, 201726, 2021 (the “Company’s 20162020 Form 10-K”).

Company Overview

East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the Bank Holding Company Act of 1956, as amended.Act. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California and is the largest bank in the United States (“U.S.”) that has a strong focus on the financial service needs of the Chinese AmericanAsian-American community. The Bank operates both in the U.S. and Greater China.

The Company’s vision is to serve as the financial bridge between the U.S. and Greater China. The Company’s primary strategy to achieve this vision is to expand the Company’s global network of contacts and resources to better meet its customers’ diverse financial needs in and between the world’s two largest markets. WithThrough over 130120 locations in the U.S. and Greater China, andthe Company provides a full range of cross-borderconsumer and commercial products and services through the following business segments: Consumer and Business Banking and Commercial Banking, with the remaining operations recorded in Other. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is principally derived from the difference between interest earned on loans and debt securities and interest paid on deposits and other funding sources. As of September 30, 2021, the Company continueshad $60.96 billion in assets and approximately 3,100 full-time equivalent employees. For additional information on products and services provided by the Bank, see Item 1. Business — Banking Services of the Company’s 2020 Form 10-K.

Corporate Strategy

We are committed to seek attractive opportunities for growth in pursuing its cross-border business banking strategy.

In executing our strategic vision, we remain focused on the fundamentals ofenhancing long-term shareholder value by growing loans, deposits and revenue, and improving profitability, whileand investing for the future, andwhile managing risk,risks, expenses and capital. Our business model is built on customer loyalty and engagement, understanding our customers’ financial goals, and meeting theirour customers’ financial needs through our offering of diverse products and services. The Company’s approach is concentratedfocuses on organically growingseeking out and deepening client relationships that meet our risk/return measures.parameters. This guides our decision-making across every aspect of our operations: the products we develop, the expertise we cultivate, and the infrastructure we build to help our customers conduct their businesses. We expect our relationship-focused business model to continue to generate organic growth from existing customers and to expand our targeted customer bases. We continually invest in technology to improve the customer user experience, strengthen critical business infrastructure, and streamline core processes, while appropriately managing operating expenses. Our risk management activities are focused on ensuring that the Company identifies and manages risks to maintain safety and soundness while maximizing profitability.


Financial HighlightsCoronavirus Disease 2019 Global Pandemic


The Coronavirus Disease 2019 (“COVID-19”) pandemic has created a historic public health crisis and caused unprecedented disruptions to global economies. Since the beginning of the COVID-19 pandemic, the U.S. government has taken various steps to combat the disease and enacted a number of monetary and fiscal policies to provide fiscal stimulus and relief. Although the COVID-19 pandemic continues to present public health challenges, including the emergence of new variants, great progress has been made and continues to be made in virus containment and vaccination efforts. While these responses have largely mitigated the impact from the COVID-19 pandemic and propelled the U.S. economy to recovery, the resurgence of the pandemic, the adoption and long-term effectiveness of the vaccines, and other factors including the continuing impact on global supply chains may slow down such progress. As a result, we are unable to quantify all the specific impacts, and the extent to which the COVID-19 pandemic may negatively affect our business, financial condition and results of operations, regulatory capital, and liquidity ratios for the remainder of 2021. The Company has been, and may continue to be, impacted by the pandemic.

Throughout the COVID-19 pandemic, the Company has been focusing on serving our customers and communities and maintaining the well-being of our employees.
57

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) to provide additional relief for individuals and businesses affected by the COVID-19 pandemic, including additional funding for the Paycheck Protection Program (“PPP”). The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021. The Company has been a participating lender in the PPP since 2020. As of September 30, 2021, the Company had approximately 3,600 PPP loans outstanding with balances totaling $807.3 million, which were recorded in the commercial and industrial (“C&I”) loan portfolio. During the first nine months of 2021, the Company submitted and received Small Business Administration (“SBA”) approval for the forgiveness of approximately 7,800 PPP loans, totaling $1.64 billion.

The Company delivered strong financial performancealso participated in the Board of Governors of the Federal Reserve System’s (the “Federal Reserve”) Main Street Lending Program (“MSLP”) and funded $233.6 million in MSLP loans as of December 31, 2020. As part of the MSLP, the related Main Street special purpose vehicle purchased 95% participations in the loans originated. The portion retained by the Company totaled $9.9 million and $9.5 million as of September 30, 2021 and December 31, 2020, respectively. The MSLP was terminated on January 8, 2021.

In response to the COVID-19 pandemic, the Company has implemented protocols and processes to execute its business continuity plans to protect its employees and support its customers. As state and local governments have relaxed restrictions on temporary business closures, we have started phasing in the return of our U.S.-based corporate associates to the office. The Company continues to monitor the external environment and make changes to its safety protocols as appropriate. For additional information on the PPP and other U.S. government facilities, programs and loan modification relief as established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and our response to the COVID-19 pandemic, refer to Overview — Coronavirus Disease 2019 Global Pandemic section in the Company’s 2020 Form 10-K.

Further discussion of the potential impacts on our business due to the COVID-19 pandemic is provided in Item 1A — Risk Factors of the Company’s 2020 Form 10-K.
58

Selected Financial Data
($ and shares in thousands, except per share, ratio and headcount data)Three Months EndedNine Months Ended
September 30,
2021		June 30,
2021		September 30,
2020		September 30,
2021		September 30,
2020
Summary of operations:
Net interest income before provision for credit losses (1)
$395,706 $376,473 $324,130 $1,125,874 $1,030,612 
Noninterest income73,109 68,431 54,503 214,406 165,715 
Total revenue468,815 444,904 378,633 1,340,280 1,196,327 
(Reversal of) provision for credit losses(10,000)(15,000)10,000 (25,000)186,313 
Noninterest expense205,384 189,523 172,573 585,984 537,671 
Income before income taxes273,431 270,381 196,060 779,296 472,343 
Income tax expense47,982 45,639 36,523 124,111 68,630 
Net income (1)
$225,449 $224,742 $159,537 $655,185 $403,713 
Per common share:
Basic earnings$1.59 $1.58 $1.13 $4.62 $2.83 
Diluted earnings$1.57 $1.57 $1.12 $4.58 $2.82 
Dividends declared$0.330 $0.330 $0.275 $0.990 $0.825 
Book value$40.10 $39.10 $36.22 $40.10 $36.22 
Non-Generally Accepted Accounting Principles (“GAAP”) tangible common equity (2)
$36.75 $35.75 $32.85 $36.75 $32.85 
Weighted-average number of shares outstanding:
Basic141,880 141,868 141,498 141,799 142,595 
Diluted143,143 143,040 142,043 143,051 143,082 
Common shares outstanding at period-end141,884 141,878 141,507 141,884 141,507 
Performance metrics:
Return on average assets (“ROA”)1.46 %1.56 %1.26 %1.50 %1.13 %
Return on average equity (“ROE”)15.75 %16.61 %12.50 %15.98 %10.73 %
Return on average non-GAAP tangible equity (2)
17.25 %18.28 %13.88 %17.56 %11.95 %
Total average equity to total average assets9.26 %9.39 %10.11 %9.41 %10.53 %
Common dividend payout ratio21.05 %21.11 %24.74 %21.72 %29.58 %
Net interest margin2.70 %2.75 %2.72 %2.72 %3.05 %
Efficiency ratio (3)
43.81 %42.60 %45.58 %43.72 %44.94 %
Non-GAAP efficiency ratio (2)
35.55 %36.30 %40.79 %36.80 %39.14 %
At period end:
Total assets$60,959,110 $59,854,876 $50,371,477 
Interest-earning assets$57,981,485 $57,050,261 $47,972,639 
Total loans (4)
$40,481,705 $40,073,318 $37,441,277 
Available-for-sale (“AFS”) debt securities$9,713,006 $8,399,460 $4,539,160 
Total deposits$53,356,190 $52,582,575 $41,680,555 
Long-term debt
$147,586 $147,515 
$ 1,574.765 (5)
Federal Home Loan Bank (“FHLB”) advances$248,898 $248,464 $657,185 
Stockholders’ equity$5,690,201 $5,547,548 $5,126,106 
Non-GAAP tangible common equity (2)
$5,214,655 $5,071,542 $4,648,040 
Head count (full-time equivalent)3,085 3,161 3,208 
EWBC capital ratios:
Common Equity Tier 1 (“CET1”) capital12.8 %12.8 %12.8 %
Tier 1 capital12.8 %12.8 %12.8 %
Total capital14.2 %14.3 %14.5 %
Tier 1 leverage capital8.8 %9.1 %9.8 %
Total stockholders’ equity to total assets9.3 %9.3 %10.2 %
Non-GAAP tangible common equity to tangible assets (2)
8.6 %8.5 %9.3 %
(1)Includes $15.2 million, $15.4 million and $7.8 million of interest income related to PPP loans for the second and third quarter of 2021, and third quarter of 2020, respectively, and $45.6 million and $29.1 million for the first nine months of 2021 and 2020, respectively.
(2)For a discussion of non-GAAP tangible common equity per share, return on average non-GAAP tangible equity, non-GAAP efficiency ratio, non-GAAP tangible common equity and non-GAAP tangible common equity to tangible assets, refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Reconciliation of GAAP to Non-GAAP Financial Measures in this Quarterly Report on Form 10-Q (“this Form 10-Q”).
(3)The efficiency ratio is noninterest expense divided by total revenue.
(4)Includes $807.3 million, $1.43 billion and $1.77 billion of PPP loans as of September 30, 2021, June 30, 2021 and September 30, 2020, respectively.
(5)Includes $1.43 billion of advances from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”) as of September 30, 2020.

59

Financial Review

The Company’s net income for the third quarter of 2017 across key measures of loan growth, revenue and2021 was $225.4 million or $1.57 per diluted share, compared with third quarter 2020 net income growth, and credit quality. It is the Company’s priority to focus on strengthening its risk management infrastructure and compliance in order to meet increasing regulatory expectations, while still providing strong returns to stockholders.



Financial Performance

Noteworthy items on the Company’s performance included:

Net income totaled $132.7of $159.5 million for the three months ended September 30, 2017,or $1.12 per diluted share, an increase of $22.5$65.9 million or 20%, from $110.1 million41%. Net income for the same period in 2016. This increase was primarily due to higher net interest income, partially offset by higher income tax expense, reflecting a higher effective tax rate. Net income totaled $420.7 million for thefirst nine months ended September 30, 2017,of 2021 was $655.2 million or $4.58 per diluted share, compared with the first nine months of 2020 net income of $403.7 million or $2.82 per diluted share, an increase of $99.8$251.5 million or 31%, from $320.9 million for the same period62%. The increases in 2016. This increase was primarilyboth periods were due to higher net interest income and noninterest income, reversals of provision for credit losses in the second and third quarter of 2021, partially offset by higher noninterest expense and income tax expense due to a higher effective tax rate. The higher net interest income duringexpense.

Noteworthy items about the three and nine months ended September 30, 2017 was primarily due to growth in the loan portfolio and higher yields. The higher noninterest income during the nine months ended September 30, 2017 was primarily due to a $41.5 million after-tax net gain recognized from the sale of a commercial property in San Francisco, California during the first quarter of 2017 and a $2.2 million after-tax net gain recognized from the sale of East West Insurance Services, Inc.’s (“EWIS”) business duringCompany’s performance for the third quarter and first nine months of 2017.2021 included:
Diluted earnings per share (“EPS”) was $0.91 and $0.76 for the three months ended•    As of September 30, 2017 and 2016, respectively, which reflected2021, total assets were $60.96 billion, an increase of $0.15$8.80 billion or 20%. Diluted EPS was $2.88 and $2.21 for the nine months ended17% from $52.16 billion as of December 31, 2020.
•    Total loans were $40.48 billion as of September 30, 2017 and 2016, respectively,2021, an increase of $0.67$2.09 billion or 30%. The diluted EPS impact5% from $38.39 billion as of December 31, 2020. Total loan growth was well-diversified across the saleCompany’s major loan portfolios, including residential mortgage, commercial real estate (“CRE”) and C&I.
•    Total deposits were $53.36 billion as of EWIS’s businessSeptember 30, 2021, an increase of $8.50 billion or 19% from $44.86 billion as of December 31, 2020. Total deposits’ growth was primarily driven by growth in the third quarternoninterest-bearing demand deposits and money market accounts.
•    Asset quality metrics improved. As of 2017 was $0.02, and the diluted EPS impact from the commercial property sale in the first quarterSeptember 30, 2021, criticized loans totaled $1.01 billion or 2.50% of 2017 was $0.28.
Revenue, or the sumloans held-for-investment, a decrease of net interest income before provision for credit losses and noninterest income, increased $49.3$207.2 million or 16% to $352.8 million for the three months ended September 30, 2017,17%, compared to the same period in 2016, and increased $184.4with $1.22 billion or 3.17% of loans held-for-investment as of December 31, 2020. Nonperforming assets were $172.6 million or 21% to $1.08 billion for the nine months ended September 30, 2017, compared to the same period in 2016.
Noninterest expense decreased $6.0 million or 4% to $164.5 million for the three months ended September 30, 2017, compared to the same period in 2016. For the nine months ended September 30, 2017, noninterest expense increased $20.7 million or 4% to $486.7 million, compared to the same period in 2016.
The Company’s effective tax rate for the three and nine months ended September 30, 2017 was 24.3% and 25.0%, respectively, compared to 10.8% and 21.9%, respectively, for the same periods in 2016.
Return on average assets increased 13 and 28 basis points to 1.46% and 1.59% for the three and nine months ended September 30, 2017, respectively, compared to 1.33% and 1.31%, respectively, for the same periods in 2016. Return on average equity increased 93 and 238 basis points to 14.01% and 15.50% for the three and nine months ended September 30, 2017, respectively, compared to 13.08% and 13.12%, respectively, for the same periods in 2016.

Balance Sheet and Liquidity

The Company experienced growth0.28% of $1.52 billion or 4% in total assets as of September 30, 20172021, a decrease of $62.3 million or 26%, compared to December 31, 2016. This growth was largely attributable to loan growth, partially offset by decreases in securities purchased under resale agreements (“resale agreements”) and available-for-sale investment securities.

Gross loans held-for-investment increased $3.02 billionwith $234.9 million or 12% to $28.53 billion as0.45% of September 30, 2017, compared to $25.50 billiontotal assets as of December 31, 2016, while2020.
•    The Company recorded a reversal of provision for credit losses in 2021, primarily due to an improved macroeconomic outlook. During the allowance for loan losses to loans held-for-investment ratio slightly declined by two basis points to 1.00% as of September 30, 2017, compared to 1.02% as of December 31, 2016. Deposits increased $1.42 billion or 5% to $31.31 billion as of September 30, 2017, compared to $29.89 billion as of December 31, 2016, consisting of a $1.24 billion or 5% increase in core depositsthird quarter and a $179.3 million or 3% increase in time deposits. Core deposits comprised 81% of total deposits as of each of September 30, 2017 and December 31, 2016.



Capital

Our financial performance in thefirst nine months ended September 30, 2017 resulted in strong capital generation, which increased total stockholders’ equity by $354.2 million or 10% to $3.78 billion as of September 30, 2017, compared to December 31, 2016. We returned $29.22021, the Company recorded a reversal of credit losses of $10.0 million and $87.6$25.0 million, respectively, compared with a provision for credit losses of $10.0 million and $186.3 million for the same periods in cash dividends to our stockholders during2020, respectively.
•    Profitability expanded in 2021. Third quarter 2021 ROA was 1.46%, compared with 1.26% for the three andthird quarter of 2020. First nine months ended September 30, 2017, respectively. Book value per common share increased 10% to $26.17 as of September 30, 2017,2021 ROA was 1.50%, compared to $23.78 aswith 1.13% for the first nine months of December 31, 2016.2020. Third quarter 2021 ROE was 15.75%, compared with 12.50% for the third quarter of 2020. First nine months of 2021 ROE was 15.98%, compared with 10.73% for the first nine months of 2020.


From a capital management perspective, the Company continued to maintain a strong capital position with its Common Equity Tier 1 (“CET1”) capital ratio at 11.4% as of September 30, 2017, compared to 10.9% as of December 31, 2016. The total risk-based capital ratio was 12.9% and 12.4% as of September 30, 2017 and December 31, 2016, respectively. The Tier 1 leverage capital ratio was 9.4% as of September 30, 2017, compared to 8.7% as of December 31, 2016.


60

Results of Operations

Components of Net Income
 
($ in thousands, except per share data and ratios) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 % Change / Basis Point (“BP”) Change 2017 2016 
% Change / BP
Change
Interest and dividend income $339,910
 $280,317
 21 % $965,354
 $835,354
 16%
Interest expense 36,755
 26,169
 40 % 99,986
 75,418
 33%
Net interest income before provision for credit losses 303,155
 254,148
 19 % 865,368
 759,936
 14%
Provision for credit losses 12,996
 9,525
 36 % 30,749
 17,018
 81%
Noninterest income 49,624
 49,341
 1 % 213,047
 134,118
 59%
Noninterest expense 164,499
 170,500
 (4)% 486,693
 465,985
 4%
Income tax expense 42,624
 13,321
 220 % 140,247
 90,108
 56%
Net income $132,660
 $110,143
 20 % $420,726
 $320,943
 31%
Diluted EPS $0.91
 $0.76
 20 % $2.88
 $2.21
 30%
Annualized return on average assets 1.46% 1.33% 13  bps 1.59% 1.31% 28 bps
Annualized return on average equity 14.01% 13.08% 93  bps 15.50% 13.12% 238 bps
 



Net income increased $22.5 million or 20% to $132.7 million for the three months ended September 30, 2017, from $110.1 million for the same period in 2016. Diluted EPS was $0.91 for the three months ended September 30, 2017, an increase of $0.15 or 20% from the prior year period. Net income increased $99.8 million or 31% to $420.7 million for the nine months ended September 30, 2017, from $320.9 million for the same period in 2016. Diluted EPS was $2.88 for the nine months ended September 30, 2017, an increase of $0.67 or 30% from the prior year period. As discussed in Note 3 — Dispositions to the Consolidated Financial Statements, the Company completed the sale and leaseback of a commercial property, which resulted in an after-tax net gain of $41.5 million recorded during the first quarter of 2017. Additionally, the Company sold its insurance brokerage business, EWIS, and recorded an after-tax net gain of $2.2 million during the third quarter of 2017. Excluding the net gains on the sales of the commercial property and EWIS’s business during the nine months ended September 30, 2017, non-Generally Accepted Accounting Principles (“non-GAAP”) net income of $377.0 million and non-GAAP diluted EPS of $2.58 increased $56.1 million and $0.37 per share, respectively, from the same prior year period (see reconciliations of non-GAAP measures used below under “Use of Non-GAAP Financial Measures”).

Revenue, or the sum of net interest income before provision for credit losses and noninterest income, increased $49.3 million or 16% to $352.8 million during the three months ended September 30, 2017, from $303.5 million during the same period in 2016. This increase was primarily due to a $49.0 million increase in net interest income, reflecting the growth in the loan portfolio and the positive impact of short-term interest rate increases in 2017. Revenue increased $184.4 million or 21% to $1.08 billion during the nine months ended September 30, 2017, from $894.1 million during the same period in 2016. This increase was due to a $105.4 million increase in net interest income, reflecting the growth in the loan portfolio and the positive impact of short-term interest rate increases in 2017; and a $78.9 million increase in noninterest income, primarily due to the $71.7 million pre-tax gain recognized from the sale of the commercial property during the first quarter of 2017 and the $3.8 million pre-tax gain recognized from the sale of EWIS’s business.

Noninterest expense was $164.5 million for the three months ended September 30, 2017, a decrease of $6.0 million or 4% from $170.5 million for the same period in 2016. This decrease was largely driven by lower amortization expense of tax credits and other investments and lower legal expense, partially offset by an increase in compensation and employee benefits. Noninterest expense was $486.7 million for the nine months ended September 30, 2017, an increase of $20.7 million or 4% from $466.0 million for the same period in 2016. This increase was largely driven by higher compensation and employee benefits and amortization expense of tax credit and other investments, partially offset by lower consulting and legal expenses.

Strong returns on average assets and average equity during the three and nine months ended September 30, 2017 reflected the Company’s ability to achieve higher profitability while expanding the loan and deposit base. The return on average assets increased 13 basis points to 1.46% while the return on average equity increased 93 basis points to 14.01% for the three months ended September 30, 2017, compared to the same period in 2016. The return on average assets increased 28 basis points to 1.59% while the return on average equity increased 238 basis points to 15.50% for the nine months ended September 30, 2017, compared to the same period in 2016. Excluding the impact of the after-tax gains on the sales of the commercial property and EWIS’s business that were recognized in the first and third quarters of 2017, respectively, non-GAAP return on average assets was 1.43% for the nine months ended September 30, 2017, a 12 basis point increase from the same prior year period, while non-GAAP return on average equity was 13.89% for the nine months ended September 30, 2017, a 77 basis point increase from the same prior year period. (See reconciliations of non-GAAP measures used below under “Use of Non-GAAP Financial Measures”.)

Use of Non-GAAP Financial Measures

To supplement the Company’s unaudited interim Consolidated Financial Statements presented in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

The Company believes these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding its performance. Management believes that excluding the non-recurring after-tax effect of the gains on sales of the commercial property and EWIS’s business from net income, diluted EPS, and returns on average assets and average equity, will make it easier to analyze the results by presenting them on a more comparable basis. However, note that these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.



The following table presents a reconciliation of GAAP to non-GAAP financial measures for the nine months ended September 30, 2017 and 2016:
 
    Nine Months Ended September 30,
($ and shares in thousands, except per share data)   2017 2016
Net income (a) $420,726
 $320,943
Less: Gain on sale of the commercial property, net of tax (1)
 (b) (41,526) —
         Gain on sale of business, net of tax (1)
   (2,206) —
Non-GAAP net income (c) $376,994

$320,943
       
Diluted weighted average number of shares outstanding (d) 145,849
 145,086
       
Diluted EPS (a)/(d) $2.88
 $2.21
Diluted EPS impact of the gain on sale of the commercial property, net of tax (b)/(d) (0.28) —
Diluted EPS impact of the gain on sale of business, net of tax   (0.02) —
Non-GAAP diluted EPS (c)/(d) $2.58

$2.21
       
Average total assets (e) $35,290,542
 $32,662,445
Average stockholders’ equity (f) $3,630,062
 $3,266,485
Return on average assets (2)
 (a)/(e) 1.59% 1.31%
Non-GAAP return on average assets (2)
  (c)/(e) 1.43% 1.31%
Return on average equity (2)
 (a)/(f) 15.50% 13.12%
Non-GAAP return on average equity (2)
  (c)/(f) 13.89% 13.12%
       
(1)Applied statutory tax rate of 42.05%.
(2)Annualized.

A discussion of net interest income, noninterest income, noninterest expense, income taxes and operating segment results are presented below.

Net Interest Income

The Company’s primary source of revenue is net interest income, which is the difference between interest income earned on loans, investment securities, resale agreements and other interest-earning assets less interest expense paid on customer deposits, securities sold under repurchase agreements (“repurchase agreements”), borrowings and other interest-bearing liabilities. Net interest margin is calculated by dividing the annualizedratio of net interest income byto average interest-earning assets. Net interest income and net interest margin are affectedimpacted by several factors, including changes in average balances and the composition of interest-earning assets and funding sources, market interest rate fluctuations and the slope of the yield curve, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities, volume of noninterest-bearing sources of funds, and asset quality.

ewbc-20210930_g1.jpg

Third quarter 2021 net interest income before provision for credit losses was $395.7 million, an increase of $71.6 million or 22%, compared with third quarter 2020 net interest income of $324.1 million. Third quarter 2021 net interest margin was 2.70%, a decrease of two basis points (“bps”) from 2.72% for the third quarter of 2020. The change in net interest income and net interest margin primarily reflected higher interest income from loans and AFS debt securities due to volume growth, and a lower cost of time and money market deposits. Net interest income for the threefirst nine months ended September 30, 2017of 2021 was $303.2 million,$1.13 billion, an increase of $49.0$95.3 million or 19%9%, compared to $254.1 millionwith $1.03 billion for the same period in 2016.first nine months of 2020. Net interest incomemargin was 2.72% for the first nine months ended September 30, 2017 was $865.4 million, an increase of $105.4 million or 14% compared to $759.9 million2021, a decrease of 33 bps from 3.05% for the same period in 2016.first nine months of 2020. The notable increaseschanges in net interest income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily due to increased interest income resulting from loan growth and higher yields on interest-earning assets, partially offset by a 16 and 12 basis point increase in the cost of interest-bearing deposits during the three and nine months ended September 30, 2017, respectively. The cost of interest-bearing deposits was 0.60% and 0.55% for the three and nine months ended September 30, 2017, respectively, compared to 0.44% and 0.43% for the three and nine months ended September 30, 2016.



For the three months ended September 30, 2017, net interest margin increased to 3.52%, compared to 3.26% for the same period in 2016. For the nine months ended September 30, 2017, netprimarily benefited from a lower cost of time and money market deposits, higher interest margin increased to 3.45%, compared to 3.29% for the same period in 2016. The increases in net interest margin for the three and nine months ended September 30, 2017 wereincome from AFS debt securities due to higher yields from interest-earning assets (primarily due to an increase in loan yields for the three months ended September 30, 2017 compared to the same prior year period, and primarily due to increases in yields of loans, interest-bearing cash and deposits with banks and investment securities during the nine months ended September 30, 2017), as a result of the short-term interest rate increases in 2017. The higher loan yields for the three and nine months ended September 30, 2017 werevolume growth, partially offset by lower accretioninterest income from the purchased credit impaired (“PCI”)on loans accounted for under Accounting Standard Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. During the three and nine months ended September 30, 2017, total accretion income from loans accounted for under ASC 310-30 was $4.5 million and $14.0 million, respectively, compared to $7.1 million and $33.8 million, respectively, for the same periods in 2016.

For the three months ended September 30, 2017, average interest-earning assets increased $3.15 billion or 10% to $34.21 billion from $31.06 billion for the same period in 2016. This increase was primarily due to increases of $3.22 billion or 13% in average loans, and $751.0 million or 47%yield compression. The increase in average interest-bearing cash and deposits with banks, partially offset by decreaseswhich earned an average yield of $508.2 million0.25% and 0.26% for the third quarter and first nine months of 2021, respectively, also contributed to net interest margin compression.

Average interest-earning assets were $58.24 billion for the third quarter of 2021, an increase of $10.81 billion or 28% in average resale agreements and $310.7 million or 9% in average investment securities.23% from $47.43 billion for the third quarter of 2020. For the first nine months ended September 30, 2017,of 2021, the average interest-earning assets increased $2.73were $55.35 billion, an increase of $10.27 billion or 9% to $33.54 billion23% from $30.81$45.08 billion for the same period in 2016. This increase was primarily due tofirst nine months of 2020. The year-over-year increases of $2.78 billion or 12% in average interest-earning assets for both periods reflect growth in the average balances of AFS debt securities, loans, and $305.1 million or 17%interest-bearing cash and deposits with banks.

The yield on average interest-earning assets for the third quarter of 2021 was 2.83%, a decrease of 24 bps from 3.07% for the third quarter of 2020, primarily reflecting an increase in averagelower yielding AFS debt securities and interest-bearing cash and deposits with banks partially offset byin the earnings asset mix. The yield on average interest-earning assets for the first nine months of 2021 was 2.89%, a $228.3 million or 7% decrease of 71 bps from 3.60% for the first nine months of 2020, primarily reflecting compression in average investment securities.loan yields.

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Customer depositsewbc-20210930_g2.jpg

Average loan yield was 3.61% for the third quarter of 2021, an increase of one bp from 3.60% for the third quarter of 2020. Average loan yield for the first nine months of 2021 was 3.59%, a decrease of 49 bps from 4.08% for the first nine months of 2020. Excluding the impacts of PPP loans, the adjusted average loan yield was 3.56% and 3.70% for the third quarters of 2021 and 2020, respectively, and 3.58% and 4.10% for the first nine months of 2021 and 2020, respectively. For additional details, see the reconciliations of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q. Approximately 65% of loans held-for-investment were variable-rate or hybrid loans in their adjustable rate period as of both September 30, 2021 and 2020.

ewbc-20210930_g3.jpg
ewbc-20210930_g4.jpg

62

Deposits are an important source of fundingfunds and affectimpact both net interest income and net interest margin. Deposits are comprisedThe average cost of noninterest-bearing demand, interest-bearing checking, money market, savings and time deposits. Average deposits increased $2.79 billion or 10% to $31.07 billionwas 0.12% for the threethird quarter of 2021, a 21 bp decrease from 0.33% for the third quarter of 2020. The average cost of deposits was 0.15% for the first nine months ended September 30, 2017, compared to $28.28 billionof 2021, a 38 bp decrease from 0.53% for the same period in 2016.2020. The ratioyear-over-year decreases reflected a lower interest rate environment in 2021, as well as the year-over-year run-off of averagehigher rate time deposits. The higher proportion of noninterest-bearing demand deposits, towhich comprised 43% and 40% of average total deposits increased to 34% for the threethird quarter and first nine months ended September 30, 2017, fromof 2021, compared with 35% and 33% for the three months ended September 30, 2016. Averagesame periods of 2020, respectively, also contributed to the decrease in the average cost of deposits. The average cost of interest-bearing deposits increased $2.27 billion or 8% to $30.33 billionwas 0.21% for the third quarter of 2021, a 29 bp decrease from 0.50% for the third quarter of 2020. The average cost of interest-bearing deposits was 0.25% for the first nine months ended September 30, 2017, compared to $28.06 billionof 2021, a 54 bp decrease from 0.79% for the same period in 2016. The ratio of average noninterest-bearing demand deposits to total deposits increased to 34% for the nine months ended September 30, 2017, from 32% for the nine months ended September 30, 2016. 2020.

The average loans to average deposits ratio increased to 89% for the three months ended September 30, 2017, from 86% for the three months ended September 30, 2016. The average loans to average deposits ratio increased to 88% for the nine months ended September 30, 2017, from 86% for the nine months ended September 30, 2016. In addition, cost of funds increased 10 basis points to 0.46%was 0.14% for the three months ended September 30, 2017third quarter of 2021, a decrease of 24 bps from 0.36%0.38% for the same period in 2016. Costthird quarter of 2020. For the first nine months of 2021, the average cost of funds increased eight basis points to 0.43%was 0.18%, a decrease of 41 bps from 0.59% for the first nine months ended September 30, 2017 from 0.35% forof 2020. The decrease in the same periodaverage cost of funds reflected the lower cost of deposits, as well as decreases in 2016.other sources of funding due to changes in the interest rate environment. Other sources of funding included FHLB advances, assets sold under repurchase agreements (“repurchase agreements”), long-term debt and short-term borrowings.


The Company utilizes various tools to manage interest rate risk. Refer to the “InterestInterest Rate Risk Management”Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Item 2. MD&A”) &A — Asset Liability and Risk Management —Market Risk Management for details.in this Form 10-Q.



63

The following table presents the interest spread, net interest margin, average balances, interest income and expense, and the average yield/rate by asset and liability component for the three months ended September 30, 2017third quarters of 2021 and 2016:2020:
($ in thousands)Three Months Ended September 30,
20212020
Average
Balance		Interest
Average
Yield/Rate (1)
Average
Balance		Interest
Average
Yield/Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks$7,036,823 $4,521 0.25 %$4,904,394 $5,045 0.41 %
Assets purchased under resale agreements (“resale agreements”)2,382,741 8,957 1.49 %1,225,217 5,295 1.72 %
AFS debt securities (2)(3)
8,782,682 37,826 1.71 %4,059,456 18,493 1.81 %
Loans (4)(5)
39,960,151 363,503 3.61 %37,160,445 336,542 3.60 %
Restricted equity securities77,083 500 2.57 %79,074 353 1.78 %
Total interest-earning assets$58,239,480 $415,307 2.83 %$47,428,586 $365,728 3.07 %
Noninterest-earning assets:
Cash and due from banks627,640 522,699 
Allowance for loan losses(584,827)(632,216)
Other assets3,077,240 2,928,190 
Total assets$61,359,533 $50,247,259 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$6,646,515 $3,186 0.19 %$5,663,873 $4,345 0.31 %
Money market deposits12,604,827 3,446 0.11 %9,981,704 6,837 0.27 %
Savings deposits2,792,702 1,943 0.28 %2,259,788 1,481 0.26 %
Time deposits8,283,265 7,395 0.35 %9,008,907 21,135 0.93 %
Short-term borrowings620 — — %84,858 407 1.91 %
FHLB advances248,614 857 1.37 %656,906 3,146 1.91 %
Repurchase agreements310,997 2,012 2.57 %317,097 2,155 2.70 %
Long-term debt and finance lease liabilities151,870 762 1.99 %1,579,623 (6)2,092 0.53 %
Total interest-bearing liabilities$31,039,410 $19,601 0.25 %$29,552,756 $41,598 0.56 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits23,169,323 14,296,475 
Accrued expenses and other liabilities1,470,494 1,318,677 
Stockholders’ equity5,680,306 5,079,351 
Total liabilities and stockholders’ equity$61,359,533 $50,247,259 
Interest rate spread2.58 %2.51 %
Net interest income and net interest margin$395,706 2.70 %$324,130 2.72 %
(1)Annualized.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(3)Includes the amortization of premiums on debt securities of $22.6 million and $8.1 million for the third quarters of 2021 and 2020, respectively.
(4)Average balances include nonperforming loans and loans held-for-sale.
(5)Loans include the accretion of net deferred loan fees, unearned fees and amortization of premiums, which totaled $17.0 million and $7.7 million for the third quarters of 2021 and 2020, respectively.
(6)Includes average PPPLF balances, which were repaid in full during the fourth quarter of 2020.

64
 
($ in thousands) Three Months Ended September 30,
 2017 2016
 
Average
Balance
 Interest 
Average
Yield/
Rate(1)
 Average
Balance		 Interest 
Average
Yield/
Rate(1)
ASSETS            
Interest-earning assets:            
Interest-bearing cash and deposits with banks $2,344,561
 $9,630
 1.63% $1,593,577
 $3,168
 0.79%
Resale agreements (2)
 1,297,826
 7,901
 2.42% 1,805,978
 7,834
 1.73%
Investment securities (3)
 2,963,122
 14,828
(4) 
1.99% 3,273,861
 13,388
(4) 
1.63%
Loans (5)
 27,529,779
 306,939
(6) 
4.42% 24,309,313
 255,316
(6) 
4.18%
Restricted equity securities 73,245
 612
 3.31% 72,625
 611
 3.35%
Total interest-earning assets 34,208,533
 339,910
 3.94% 31,055,354
 280,317
 3.59%
Noninterest-earning assets:            
Cash and due from banks 387,705
     354,053
    
Allowance for loan losses (276,467)     (266,763)    
Other assets 1,617,796
     1,763,889
    
Total assets $35,937,567
     $32,906,533
    
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Interest-bearing liabilities:          
Checking deposits $4,014,290
 $4,768
 0.47% $3,553,477
 $3,253
 0.36%
Money market deposits 7,997,648
 11,828
 0.59% 7,548,835
 6,663
 0.35%
Savings deposits 2,423,312
 1,810
 0.30% 2,133,036
 1,160
 0.22%
Time deposits 5,974,793
 12,680
 0.84% 5,627,084
 9,973
 0.71%
Federal funds purchased and other short-term borrowings 29,661
 212
 2.84% 32,137
 212
 2.62%
Federal Home Loan Bank (“FHLB”) advances 322,973
 1,947
 2.39% 320,743
 1,361
 1.69%
Repurchase agreements (2)
 50,000
 2,122
 16.84% 200,000
 2,319
 4.61%
Long-term debt 176,472
 1,388
 3.12% 196,170
 1,228
 2.49%
Total interest-bearing liabilities 20,989,149
 36,755
 0.69% 19,611,482
 26,169
 0.53%
Noninterest-bearing liabilities and stockholders’ equity:          
Demand deposits 10,655,860
     9,413,031
    
Accrued expenses and other liabilities 536,351
     532,779
    
Stockholders’ equity 3,756,207
     3,349,241
    
Total liabilities and stockholders’ equity $35,937,567
     $32,906,533
    
Interest rate spread  
   3.25%     3.06%
Net interest income and net interest margin  
 $303,155
 3.52%   $254,148
 3.26%
 

(1)Annualized.
(2)
Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.
(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(4)Includes the amortization of net premiums on investment securities of $5.2 million and $5.4 million for the three months ended September 30, 2017 and 2016, respectively.
(5)Average balance includes nonperforming loans.
(6)Interest income on loans includes net deferred loan fees, accretion of ASC 310-30 discounts and amortization of premiums, which totaled $6.5 million and $8.5 million for the three months ended September 30, 2017 and 2016, respectively.



The following table presents the interest spread, net interest margin, average balances, interest income and expense, and the average yield/ratesrate by asset and liability component for first nine months of 2021 and 2020:
($ in thousands)Nine Months Ended September 30,
20212020
Average
Balance		Interest
Average
Yield/Rate (1)
Average
Balance		Interest
Average
Yield/Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks$6,078,982 $11,781 0.26 %$3,775,242 $20,717 0.73 %
Resale agreements (2)
1,994,776 23,077 1.55 %1,048,923 16,434 2.09 %
AFS debt securities (3)(4)
7,755,029 101,616 1.75 %3,685,837 59,639 2.16 %
Loans (5)(6)
39,441,751 1,057,964 3.59 %36,487,859 1,115,804 4.08 %
Restricted equity securities80,107 1,588 2.65 %78,873 1,100 1.86 %
Total interest-earning assets$55,350,645 $1,196,026 2.89 %$45,076,734 $1,213,694 3.60 %
Noninterest-earning assets:
Cash and due from banks602,830 510,750 
Allowance for loan losses(603,523)(563,912)
Other assets2,913,050 2,729,458 
Total assets$58,263,002 $47,753,030 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$6,571,231 $11,177 0.23 %$5,119,568 $19,995 0.52 %
Money market deposits12,262,173 11,869 0.13 %9,630,918 37,178 0.52 %
Savings deposits2,715,114 5,762 0.28 %2,162,365 4,743 0.29 %
Time deposits8,635,250 26,982 0.42 %9,633,582 94,684 1.31 %
Short-term borrowings1,871 42 3.00 %128,846 1,228 1.27 %
FHLB advances457,273 6,025 1.76 %667,935 10,655 2.13 %
Repurchase agreements (2)
304,745 5,981 2.62 %355,923 9,686 3.64 %
Long-term debt and finance lease liabilities152,018 2,314 2.04 %807,599 (7)4,913 0.81 %
Total interest-bearing liabilities$31,099,675 $70,152 0.30 %$28,506,736 $183,082 0.86 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits20,345,370 12,987,813 
Accrued expenses and other liabilities1,335,252 1,230,359 
Stockholders’ equity5,482,705 5,028,122 
Total liabilities and stockholders’ equity$58,263,002 $47,753,030 
Interest rate spread2.59 %2.74 %
Net interest income and net interest margin$1,125,874 2.72 %$1,030,612 3.05 %
(1)Annualized.
(2)Average balances of resale and repurchase agreements for the nine months ended September 30, 20172020 have been reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45-11, Balance Sheet Offsetting: Repurchase and 2016:Reverse Repurchase Agreements. The weighted-average yields of gross resale and gross repurchase agreements for the nine months ended September 30, 2020 were 2.09% and 3.48%, respectively.
(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(4)Includes the amortization of premiums on debt securities of $62.7 million and $17.3 million for first nine months of 2021 and 2020, respectively.
(5)Average balances include nonperforming loans and loans held-for-sale.
(6)Loans include the accretion of net deferred loan fees, unearned fees and amortization of premiums, which totaled $46.8 million and $36.8 million for first nine months of 2021 and 2020, respectively.
(7)Includes average PPPLF balances, which were repaid in full during the fourth quarter of 2020.
65
             
($ in thousands) Nine Months Ended September 30,
 2017 2016
 
Average
Balance
 Interest 
Average
Yield/
Rate(1)
 Average
Balance		 Interest 
Average
Yield/
Rate(1)
ASSETS            
Interest-earning assets:            
Interest-bearing cash and deposits with banks $2,073,322
 $22,298
 1.44% $1,768,252
 $10,245
 0.77%
Resale agreements (2)
 1,552,198
 25,222
 2.17% 1,672,993
 22,479
 1.79%
Investment securities (3)
 3,060,688
 43,936
(4) 
1.92% 3,289,014
 37,433
(4) 
1.52%
Loans (5)
 26,783,082
 872,039
(6) 
4.35% 24,006,926
 763,189
(6) 
4.25%
Restricted equity securities 73,651
 1,859
 3.37% 76,122
 2,008
 3.52%
Total interest-earning assets 33,542,941
 965,354
 3.85% 30,813,307
 835,354
 3.62%
Noninterest-earning assets:            
Cash and due from banks 387,440
     349,721
    
Allowance for loan losses (268,477)     (264,088)    
Other assets 1,628,638
     1,763,505
    
Total assets $35,290,542
     $32,662,445
    
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Interest-bearing liabilities:          
Checking deposits $3,830,004
 $12,538
 0.44% $3,445,996
 $9,058
 0.35%
Money market deposits 7,968,457
 30,409
 0.51% 7,519,261
 19,295
 0.34%
Saving deposits 2,334,752
 4,525
 0.26% 2,043,547
 3,207
 0.21%
Time deposits 5,873,217
 34,331
 0.78% 5,941,760
 29,148
 0.66%
Federal funds purchased and other short-term borrowings 40,772
 877
 2.88% 19,384
 390
 2.69%
FHLB advances 414,355
 5,738
 1.85% 400,850
 4,153
 1.38%
Repurchase agreements (2)
 170,330
 7,538
 5.92% 182,482
 6,441
 4.71%
Long-term debt 181,337
 4,030
 2.97% 201,060
 3,726
 2.48%
Total interest-bearing liabilities 20,813,224
 99,986
 0.64% 19,754,340
 75,418
 0.51%
Noninterest-bearing liabilities and stockholders’ equity:          
Demand deposits 10,323,254
     9,107,051
    
Accrued expenses and other liabilities 524,002
     534,569
    
Stockholders’ equity 3,630,062
     3,266,485
    
Total liabilities and stockholders’ equity $35,290,542
     $32,662,445
    
Interest rate spread     3.21%     3.11%
Net interest income and net interest margin   $865,368
 3.45%   $759,936
 3.29%
             
(1)Annualized.
(2)
Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.

(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(4)Includes the amortization of net premiums on investment securities of $16.3 million and $18.2 million for the nine months ended September 30, 2017 and 2016, respectively.
(5)Average balance includes nonperforming loans.
(6)Interest income on loans includes net deferred loan fees, accretion of ASC 310-30 discounts and amortization of premiums, which totaled $21.1 million and $39.7 million for the nine months ended September 30, 2017 and 2016, respectively.



The following table summarizes the extent to which changes in (1) interest ratesrate, and changes in(2) volume of average interest-earning assets and average interest-bearing liabilities affected the Company’s net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into the changechanges attributable to variations in volume and the change attributable to variations in interest rates.yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average rate. Nonaccrual loans are included in average loans used to compute the table below:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021 vs. 20202021 vs. 2020
Total
Change		Changes Due toTotal
Change		Changes Due to
VolumeYield/RateVolumeYield/Rate
Interest-earning assets:
Interest-bearing cash and deposits with banks$(524)$1,763 $(2,287)$(8,936)$8,656 $(17,592)
Resale agreements3,662 4,446 (784)6,643 11,798 (5,155)
AFS debt securities19,333 20,448 (1,115)41,977 55,098 (13,121)
Loans26,961 26,369 592 (57,840)85,446 (143,286)
Restricted equity securities147 (9)156 488 17 471 
Total interest and dividend income$49,579 $53,017 $(3,438)$(17,668)$161,015 $(178,683)
Interest-bearing liabilities:
Checking deposits$(1,159)$670 $(1,829)$(8,818)$4,589 $(13,407)
Money market deposits(3,391)1,478 (4,869)(25,309)8,107 (33,416)
Savings deposits462 370 92 1,019 1,173 (154)
Time deposits(13,740)(1,579)(12,161)(67,702)(8,933)(58,769)
Short-term borrowings(407)(203)(204)(1,186)(1,900)714 
FHLB advances(2,289)(1,574)(715)(4,630)(2,988)(1,642)
Repurchase agreements(143)(39)(104)(3,705)(1,263)(2,442)
Long-term debt and finance lease liabilities(1,330)(3,188)1,858 (2,599)(6,087)3,488 
Total interest expense$(21,997)$(4,065)$(17,932)$(112,930)$(7,302)$(105,628)
Change in net interest income$71,576 $57,082 $14,494 $95,262 $168,317 $(73,055)
 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
 2017 vs. 2016 2017 vs. 2016
 
Total
Change
 Changes Due to 
Total
Change
 Changes Due to
  Volume  Yield/Rate   Volume  Yield/Rate 
Interest-earning assets:        
  
  
Interest-bearing cash and deposits with banks $6,462
 $1,988
 $4,474
 $12,053
 $2,018
 $10,035
Resale agreements 67
 (2,566) 2,633
 2,743
 (1,714) 4,457
Investment securities 1,440
 (1,348) 2,788
 6,503
 (2,746) 9,249
Loans 51,623
 35,780
 15,843
 108,850
 89,417
 19,433
Restricted equity securities 1
 6
 (5) (149) (65) (84)
Total interest and dividend income $59,593
 $33,860
 $25,733
 $130,000
 $86,910
 $43,090
Interest-bearing liabilities:  
      
  
  
Checking deposits $1,515
 $464
 $1,051
 $3,480
 $1,083
 $2,397
Money market deposits 5,165
 420
 4,745
 11,114
 1,211
 9,903
Savings deposits 650
 175
 475
 1,318
 496
 822
Time deposits 2,707
 654
 2,053
 5,183
 (341) 5,524
Federal funds purchased and other short-term borrowings —
 (17) 17
 487
 458
 29
FHLB advances 586
 10
 576
 1,585
 144
 1,441
Repurchase agreements (197) (2,762) 2,565
 1,097
 (452) 1,549
Long-term debt 160
 (132) 292
 304
 (390) 694
Total interest expense $10,586
 $(1,188) $11,774
 $24,568
 $2,209
 $22,359
Change in net interest income $49,007
 $35,048
 $13,959
 $105,432
 $84,701
 $20,731
 


Noninterest Income


Noninterest income increased $283 thousand or 1% to $49.6 million for the three months ended September 30, 2017, compared to $49.3 million for the same period in 2016. This increase was primarily due to a $3.8 million increase in net gain on sale of EWIS’s business and an $872 thousand increase in derivative fees and other income, partially offset by a $4.0 million decrease in other fees and operating income. Noninterest income increased $78.9 million or 59% to $213.0 million for the nine months ended September 30, 2017, compared to $134.1 million for the same period in 2016. This increase was comprised of a $71.2 million increase in net gains on sales of fixed assets, primarily related to the sale of a commercial property, and a $3.8 million increase in net gain on the sale of EWIS’s business, partially offset by a $4.5 million decrease in other fees and operating income. Noninterest income represented 14% and 20% of revenue for the three and nine months ended September 30, 2017, respectively, compared to 16% and 15%, respectively, for the same periods in 2016.



The following table presents the components of noninterest income for the periods indicated:third quarters and first nine months of 2021 and 2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
20212020% Change20212020% Change
Lending fees$17,516 $18,736 (7)%$56,965 $56,455 1 %
Deposit account fees18,508 12,573 47 %51,233 33,892 51 %
Interest rate contracts and other derivative income7,156 5,538 29 %20,981 18,718 12 %
Foreign exchange income13,101 3,310 296 %35,634 15,691 127 %
Wealth management fees5,598 4,553 23 %20,460 12,997 57 %
Net gains on sales of loans3,329 361 822 %6,601 1,443 357 %
Gains on sales of AFS debt securities354 698 (49)%1,178 11,867 (90)%
Other investment income5,349 5,239 2 %13,870 6,652 109 %
Other income2,198 3,495 (37)%7,484 8,000 (6)%
Total noninterest income$73,109 $54,503 34 %$214,406 $165,715 29 %

66

 
($ in thousands) Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 % Change 2017 2016 % Change
Branch fees $10,803
 $10,408
 4 % $31,799
 $30,983
 3 %
Letters of credit fees and foreign exchange income 10,154
 10,908
 (7)% 33,209
 31,404
 6 %
Ancillary loan fees and other income 5,987
 6,135
 (2)% 16,876
 13,997
 21 %
Wealth management fees 3,615
 4,033
 (10)% 11,682
 9,862
 18 %
Derivative fees and other income 6,663
 5,791
 15 % 12,934
 9,778
 32 %
Net gains on sales of loans 2,361
 2,158
 9 % 6,660
 6,965
 (4)%
Net gains on sales of available-for-sale investment securities 1,539
 1,790
 (14)% 6,733
 8,468
 (20)%
Net gains on sales of fixed assets 1,043
 486
 115 % 74,092
 2,916
 NM
Net gain on sale of business 3,807
 —
 NM
 3,807
 —
 NM
Other fees and operating income 3,652
 7,632
 (52)% 15,255
 19,745
 (23)%
Total noninterest income $49,624
 $49,341
 1 % $213,047
 $134,118
 59 %
 
NM Not Meaningful.

The following discussion providesNoninterest income comprised 16% of total revenue for both the compositionthird quarter and first nine months of 2021, compared with 14% for the major changessame periods in 2020. Third quarter 2021 noninterest income and the factors contributing to the changes.

Net gains on saleswas $73.1 million, an increase of fixed assets increased $71.2$18.6 million to $74.1 million for the nine months ended September 30, 2017,or 34%, compared to $2.9with $54.5 million for the same period in 2016.2020. This increase was primarily due to the $71.7 million of pre-tax gain recognized from the sale of the commercial propertyincreases in California duringforeign exchange income and deposit account fees. Noninterest income for the first quarternine months of 2017. In the first quarter2021 was $214.4 million, an increase of 2017, East West Bank completed the sale and leaseback of a commercial property in California for cash consideration of $120.6 million and entered into a lease agreement for part of the property, consisting of a retail branch and office facilities. The total pre-tax profit from the sale was $85.4 million, of which $71.7 million was recognized in the first quarter of 2017, and $13.7 million was deferred and recognized over the term of the lease agreement.

In the third quarter of 2017, the Company sold its insurance brokerage business, EWIS, for $4.3 million and recognized a pre-tax gain of $3.8 million.

Other fees and operating income decreased $4.0$48.7 million or 52% to $3.7 million for the three months ended September 30, 2017 from $7.629%, compared with $165.7 million for the same period in 2016,2020. This increase was primarily due to increases in foreign exchange income, deposit account fees, wealth management fees, other investment income, and decreased $4.5gains on sales of loans, partially offset by a decrease in gains on sales of AFS debt securities.

Deposit account fees increased $5.9 million or 47% to $18.5 million for the third quarter of 2021, and increased $17.3 million or 51% to $51.2 million for the first nine months of 2021, compared with the same periods in 2020. These increases primarily reflected an increase in treasury management service fees resulting from commercial deposit growth.

Foreign exchange income increased $9.8 million or 296% to $13.1 million for the third quarter of 2021, and increased $19.9 million or 127% to $35.6 million for the first nine months of 2021, compared with the same periods in 2020. These increases reflected new customer acquisitions and growth in customer-driven transactions, favorable revaluation of foreign currency transactions, as well as remeasurement of certain foreign currency-denominated balance sheet items.

Wealth management fees increased $1.0 million or 23% to $15.3$5.6 million forthe third quarter of 2021, and increased $7.5 million or 57% to $20.5 million for the first nine months ended September 30, 2017 from $19.7of 2021, compared with the same periods in 2020. These increases were primarily due to growth in customer-driven transactions.

Net gains on sales of loans increased $3.0 million or 822% to $3.3 million forthe third quarter of 2021, and increased $5.2 million or 357% to $6.6 million for the first nine months of 2021, compared with the same periods in 2020. These increases were primarily due to a higher volume of SBA loan sold.

Gains on sales of AFS debt securities decreased $344 thousand or 49% to $354 thousand forthe third quarter of 2021, compared with the same period in 2016. The $4.02020. Gains on sales of AFS debt securities decreased $10.7 million decreaseor 90% to $1.2 million for the threefirst nine months ended September 30, 2017,of 2021, compared towith the same period in 2016,was mainly attributable to decreases in rental income, as a result of the commercial property sale during the first quarter of 2017, and decreases in dividend income from other investments.2020. The $4.5 million decrease for the first nine months ended September 30, 2017,of 2021, compared towith the same period in 2016,2020, was largelyprimarily due to a decrease in rentallower volume of AFS debt securities sold.

Other investment income as a resultincreased $110 thousand or 2% to $5.3 million for the third quarter of sale of the commercial property during2021, and increased $7.2 million or 109% to $13.9 million for the first quarternine months of 2017.2021, compared with the same periods in 2020. These increases primarily reflected higher earnings from equity method investments.




Noninterest Expense


NoninterestThe following table presents the components of noninterest expense totaled $164.5 million for the threethird quarters and first nine months ended September 30, 2017, a decrease of $6.02021 and 2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
20212020% Change20212020% Change
Compensation and employee benefits$105,751 $99,756 6 %$318,985 $298,671 7 %
Occupancy and equipment expense15,851 16,648 (5)%47,150 49,941 (6)%
Deposit insurance premiums and regulatory assessments4,641 4,006 16 %12,791 11,133 15 %
Deposit account expense4,136 3,113 33 %11,845 10,029 18 %
Data processing3,575 3,590 0 %12,088 11,896 2 %
Computer software expense8,426 8,539 (1)%23,106 22,006 5 %
Consulting expense1,635 1,224 34 %4,978 3,854 29 %
Legal expense2,363 1,366 73 %5,840 6,093 (4)%
Other operating expense20,998 17,122 23 %58,544 57,489 2 %
Amortization of tax credit and other investments38,008 17,209 121 %90,657 57,819 57 %
Repurchase agreements’ extinguishment cost— — — %— 8,740 (100)%
Total noninterest expense$205,384 $172,573 19 %$585,984 $537,671 9 %
Efficiency ratio43.81 %45.58 %43.72 %44.94 %

67

Third quarter 2021 noninterest expense was $205.4 million, an increase of $32.8 million or 4%19%, compared to $170.5with $172.6 million for the same period in 2016.2020. This decreaseincrease was primarily due to higher amortization of tax credit and other investments, compensation and employee benefits, and other operating expense. First nine months of 2021 noninterest expense was $586.0 million, an $8.8increase of $48.3 million decreaseor 9%, compared with $537.7 million for the same period in 2020. The increase primarily reflected higher amortization of tax credit and other investments, and a $2.0 million decrease in legal expense, partially offset by a $4.5 million increase in compensation and employee benefits. Noninterest expense totaled $486.7 million for the nine months ended September 30, 2017, an increase of $20.7 million or 4%, compared to $466.0 million for the same period in 2016. This increase was primarily due to a $24.8 million increase in compensation and employee benefits and a $5.3 million increase in amortization of tax credit and other investments, partially offset by an $8.3 million decrease in consulting expense and a $3.8 million decrease in legal expense.

The following table presents the various components of noninterest expense for the periods indicated: 
 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
($ in thousands) 2017 2016 % Change 2017 2016 % Change
Compensation and employee benefits $79,583
 $75,042
 6 % $244,930
 $220,166
 11 %
Occupancy and equipment expense 16,635
 15,456
 8 % 47,829
 45,619
 5 %
Deposit insurance premiums and regulatory assessments 5,676
 6,450
 (12)% 17,384
 17,341
 — %
Legal expense 3,316
 5,361
 (38)% 8,930
 12,714
 (30)%
Data processing 3,004
 2,729
 10 % 9,009
 8,712
 3 %
Consulting expense 4,087
 4,594
 (11)% 10,775
 19,027
 (43)%
Deposit related expenses 2,413
 3,082
 (22)% 7,283
 7,675
 (5)%
Computer software expense 4,393
 3,331
 32 % 13,823
 9,267
 49 %
Other operating expense 19,830
 19,814
 — % 55,357
 58,508
 (5)%
Amortization of tax credit and other investments 23,827
 32,618
 (27)% 66,059
 60,779
 9 %
Amortization of core deposit intangibles 1,735
 2,023
 (14)% 5,314
 6,177
 (14)%
Total noninterest expense $164,499
 $170,500
 (4)% $486,693
 $465,985
 4 %
 

The following provides a discussion of the major changes in noninterest expense and the factors contributing to the changes.


Compensation and employee benefits increased $4.5$6.0 million or 6% to $79.6$105.8 million for the threethird quarter of 2021, and increased $20.3 million or 7% to $319.0 million for the first nine months ended September 30, 2017,of 2021, compared with the same periods in 2020. These increases were primarily due to $75.0higher bonus accruals.

The increase in other operating expense of $3.9 million or 23% to $21.0 million for the third quarter of 2021, compared with the same period in 2016,2020, was primarily due to higher charitable contributions. Other operating expense was $58.5 million and increased $24.8 million or 11% to $244.9$57.5 million for the first nine months ended September 30, 2017, compared to $220.2 million for the same period in 2016. The increases for the threeof 2021 and nine months ended September 30, 2017 were primarily attributable to an increase in headcount to support the Company’s growing business and risk management and compliance requirements, as well as additional severance expenses.2020, respectively.


Amortization of tax credit and other investments decreased $8.8increased $20.8 million or 27%121% to $23.8$38.0 million for the three months ended September 30, 2017, compared to $32.6 million for the same period in 2016, and increased $5.3 million or 9% to $66.1 million for the nine months ended September 30, 2017, compared to $60.8 million for the same period in 2016. The decrease in the third quarter of 2017, compared with the prior year period, was mainly driven by higher amortization, which resulted from a renewable energy tax credit investment newly placed in service in the third quarter of 2016. Likewise, the increase in2021, and increased $32.9 million or 57% to $90.7 million for the first nine months of 2017,2021, compared with the prior year period, wassame periods in 2020. These increases were primarily driven by additional renewable energy and historical rehabilitationdue to the timing of the tax credit investments placedrecognition in service duringeach period, based on when new tax credit projects were put into service.

During the second quarter of 2020, the Company prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million. No such expense was incurred in either the third quarter or first nine months ended September 30, 2017.of 2021.


LegalEfficiency ratio, calculated as noninterest expense decreased $2.0 million or 38% to $3.3 milliondivided by total revenue, was 43.81% and 45.58% for the three months ended September 30, 2017, compared to $5.4 millionthird quarters of 2021 and 2020, respectively, and 43.72% and 44.94% for the same period in 2016,first nine months of 2021 and decreased $3.8 million or 30% to $8.9 million2020, respectively. Non-GAAP efficiency ratio, adjusted for the amortization of tax credit and other investments and the amortization of core deposit intangibles, improved 524 bps to 35.55% for the third quarter of 2021, and improved 234 bps to 36.80% for the first nine months ended September 30, 2017,of 2021, compared to $12.7 million forwith the same periodperiods in 2016. The decreases for2020. For additional details, see the three and nine months ended September 30, 2017 were predominantly duereconciliations of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to lower legal fees and litigation expense following the resolution of previously outstanding litigation.Non-GAAP Financial Measures in this Form 10-Q.




Consulting expense decreased $507 thousand or 11% to $4.1 million for the three months ended September 30, 2017, compared to $4.6 million for the same period in 2016, and decreased $8.3 million or 43% to $10.8 million for the nine months ended September 30, 2017, compared to $19.0 million for the same period in 2016. The decreases for both periods were primarily attributable to a decline in Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) related consulting expense.

Income Taxes
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
20212020% Change20212020% Change
Income before income taxes$273,431 $196,060 39 %$779,296 $472,343 65 %
Income tax expense$47,982 $36,523 31 %$124,111 $68,630 81 %
Effective tax rate17.5 %18.6 %15.9 %14.5 %
Income
Third quarter 2021 income tax expense was $42.6$48.0 million and $140.2 million for the three and nine months ended September 30, 2017, respectively, compared to $13.3 million and $90.1 million, respectively, for the same periods in 2016. The effective tax rate was 24.3%17.5%, compared with third quarter 2020 income tax expense of $36.5 million and 25.0%effective tax rate of 18.6%. The decrease in effective tax rate for the three andthird quarter of 2021, compared with the same period in 2020 was primarily due to the relative impact of tax credit investments on income tax expense. For the first nine months ended September 30, 2017, respectively,of 2021, income tax expense was $124.1 million and the effective tax rate was 15.9%, compared to 10.8%with income tax expense of $68.6 million and 21.9%, respectively,effective tax rate of 14.5% for the same periodsperiod in 2016.

2020. The higheryear-over-year increase in effective tax rates for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were mainly due torate was predominantly driven by a higher projectedlevel of income before income taxes, that was partially offset by increases in tax credits primarily generated from investments in renewable energy, historic rehabilitation and affordable housing partnership projects. For the three and nine months ended September 30, 2017, tax credits generated from these investments were $40.0 million and $106.4 million, respectively, compared to $33.3 million and $83.7 million, respectively, for the same periods in 2016. In addition, the effective tax rates for the three and nine months ended September 30, 2017 were further reduced by the adoption of Accounting Standards Update (“ASU”) 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, beginning January 1, 2017. As a result of the adoption of this ASU, net excess tax benefits for restricted stock units of $151 thousand and $4.6 million were recognized in Income tax expense on the Consolidated Statements of Income during the three and nine months ended September 30, 2017, respectively, which partially offset the higher effective tax rates for the same periods.

Management regularly reviews the Company’s tax positions and deferred tax assets. Factors considered in this analysis include the Company’s ability to generate future taxable income, implement tax-planning strategies and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversalsthe relative impact of existing taxable temporary differences. The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized and settled. As of September 30, 2017 and December 31, 2016, the Company had net deferred tax assets of $142.0 million and $129.7 million, respectively.

A valuation allowance is established for deferred tax assets if, basedcredit investments on the weight of all positive evidence against all negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is used, as needed, to reduce the deferred tax assets to the amount that is more likely than not to be realized. Management has concluded that it is more likely than not that all of the benefits of the deferred tax assets will be realized, with the exception of the deferred tax assets related to net operating losses in certain states. Accordingly, a valuation allowance has been recorded for these amounts. The Company believes that adequate provisions have been made for all income tax uncertainties consistent with ASC 740-10, Income Taxes.expense in each period.




Operating Segment Results

The Company definesorganizes its operating segments based on its core strategy and has identifiedoperations into three reportable operating segments: Retail Banking,(1) Consumer and Business Banking; (2) Commercial BankingBanking; and (3) Other.

These segments are defined by the type of customers served, and the related products and services provided. The Retail Banking segment focuses primarily on retail operations throughsegments reflect how financial information is currently evaluated by management. For additional description of the Bank’s branch network. The Commercial Banking segment, which includes commercial and industrial (“C&I”) and commercial real estate (“CRE”) operations, primarily generates commercial loans and deposits through domestic commercial lending offices located in California, New York, Texas, Washington, Massachusetts, Nevada and Georgia, and foreign commercial lending offices located in China and Hong Kong. Furthermore, the Commercial Banking segment offers a wide variety of international finance, trade finance, and cashCompany’s internal management services and products. The remaining centralized functions,reporting process, including the treasury activitiessegment cost allocation methodology, see Note 13 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the Company and eliminations of inter-segment amounts have been aggregated and included insegment, adjusted for funding charges or credits through the “Other” segment, which provides broad administrative support to the two core segments.

Changes in the Company’s management structure or reporting methodologies may result in changes in the measurement of operating segment results. Results for prior periods are generally restated for comparability when there are changes in management structure or reporting methodologies, unless it is deemed not practicable to do so.
The Company’s internal funds transfer pricing process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as to provide a reasonable and consistent basis for the measurement of its business segments and product net interest margins. The Company’s internal funds transfer pricing assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. (“FTP”) process.


Note 15 — Business Segments to the Consolidated Financial Statements describes the Company’s segment reporting methodology and the business activities of each business segment, and presents financial results of these business segments for the three and nine months ended September 30, 2017 and 2016.
68



The following tables present the selectedresults by operating segment for the periods indicated:
($ in thousands)Three Months Ended September 30,
Consumer and Business BankingCommercial BankingOther
202120202021202020212020
Total revenue$199,124 $138,395 $232,716 $191,868 $36,975 $48,370 
Provision for (reversal of) credit losses1,293 (3,470)(11,293)13,470 — — 
Noninterest expense90,575 81,419 66,688 61,863 48,121 29,291 
Segment income (loss) before income taxes107,256 60,446 177,321 116,535 (11,146)19,079 
Segment net income$76,825 $43,310 $126,767 $83,340 $21,857 $32,887 
($ in thousands)Nine Months Ended September 30,
Consumer and Business BankingCommercial BankingOther
202120202021202020212020
Total revenue$568,080 $446,257 $685,066 $625,508 $87,134 $124,562 
(Reversal of) provision for credit losses(598)9,908 (24,402)176,405 — — 
Noninterest expense267,511 248,547 200,109 196,889 118,364 92,235 
Segment income (loss) before income taxes301,167 187,802 509,359 252,214 (31,230)32,327 
Segment net income$215,720 $134,563 $364,632 $180,649 $74,833 $88,501 

Consumer and Business Banking

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

The following tables present additional financial information for the threeConsumer and nine months ended September 30, 2017 and 2016:
 
($ in thousands) Three Months Ended September 30, 2017
 
Retail
Banking
 
Commercial
Banking
 Other Total
Net interest income $147,457
 $138,153
 $17,545
 $303,155
Noninterest income $16,218
 $30,320
 $3,086
 $49,624
Noninterest expense $56,062
 $45,686
 $62,751
 $164,499
Pre-tax income $68,554
 $99,025
 $7,705
 $175,284
   
   
($ in thousands) Three Months Ended September 30, 2016
 
Retail
Banking
 
Commercial
Banking
 Other Total
Net interest income $106,633
 $131,340
 $16,175
 $254,148
Noninterest income $14,700
 $26,218
 $8,423
 $49,341
Noninterest expense $55,942
 $45,306
 $69,252
 $170,500
Pre-tax income $32,304
 $80,393
 $10,767
 $123,464
   
   
($ in thousands) Nine Months Ended September 30, 2017
 
Retail
Banking
 
Commercial
Banking
 Other Total
Net interest income $430,437
 $408,570
 $26,361
 $865,368
Noninterest income $43,767
 $82,645
 $86,635
 $213,047
Noninterest expense $181,811
 $149,510
 $155,372
 $486,693
Pre-tax income $204,601
 $284,195
 $72,177
 $560,973
   
   
($ in thousands) Nine Months Ended September 30, 2016
 
Retail
Banking
 
Commercial
Banking
 Other Total
Net interest income $329,120
 $389,559
 $41,257
 $759,936
Noninterest income $37,798
 $70,450
 $25,870
 $134,118
Noninterest expense $173,337
 $145,695
 $146,953
 $465,985
Pre-tax income $114,513
 $268,401
 $28,137
 $411,051
   

RetailBusiness Banking
The Retail Banking segment reported pre-tax income of $68.6 million and $204.6 million for the three and nine months ended September 30, 2017, respectively, compared to $32.3 million and $114.5 million, respectively, for the same periods in 2016. The increases in pre-tax income for this segment for the three and nine months ended September 30, 2017, comparedperiods indicated:
($ in thousands)Three Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$176,678 $120,969 $55,709 46 %
Noninterest income22,446 17,426 5,020 29 %
Total revenue199,124 138,395 60,729 44 %
Provision for (reversal of) credit losses1,293 (3,470)4,763 (137)%
Noninterest expense90,575 81,419 9,156 11 %
Segment income before income taxes107,256 60,446 46,810 77 %
Income tax expense30,431 17,136 13,295 78 %
Segment net income$76,825 $43,310 $33,515��77 %
Average loans$14,186,630 $12,267,993 $1,918,637 16 %
Average deposits$32,516,678 $27,596,090 $4,920,588 18 %
69

($ in thousands)Nine Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$500,352 $398,486 $101,866 26 %
Noninterest income67,728 47,771 19,957 42 %
Total revenue568,080 446,257 121,823 27 %
(Reversal of) provision for credit losses(598)9,908 (10,506)(106)%
Noninterest expense267,511 248,547 18,964 8 %
Segment income before income taxes301,167 187,802 113,365 60 %
Income tax expense85,447 53,239 32,208 60 %
Segment net income$215,720 $134,563 $81,157 60 %
Average loans$13,787,675 $11,851,089 $1,936,586 16 %
Average deposits$31,304,335 $26,734,437 $4,569,898 17 %

For the third quarter of 2021, segment net income increased $33.5 million or 77% year-over-year to the same periods in 2016, were primarily$76.8 million, driven by an increase in net interest income,revenue growth, partially offset by an increaseincreases in income tax expense, noninterest expense, and the provision for credit losses.
Net interest income before provision for this segmentcredit losses increased $40.8$55.7 million or 46% to $176.7 million, driven by lower interest expense, primarily due to lower interest rates and growth in noninterest-bearing demand deposits; and higher interest income, primarily due to growth in residential mortgage loans. Noninterest income increased $5.0 million or 38%29% to $147.5$22.4 million, primarily due to higher foreign exchange income and deposit account fees, reflecting growth in customer-driven transactions. Noninterest expense increased $9.2 million or 11% to $90.6 million, primarily due to higher allocated corporate overhead, and compensation and employee benefits.

For the first nine months of 2021, segment net income increased $81.2 million or 60% year-over-year to $215.7 million, due to revenue growth and a lower provision for the three months ended September 30, 2017, compared to $106.6 million for the same period in 2016.credit losses, partially offset by higher income tax expense and noninterest expense. Net interest income before provision for credit losses increased $101.3$101.9 million or 31%26% to $430.4$500.4 million, for the nine months ended September 30, 2017, compared to $329.1 million for the same period in 2016. The increases in netdriven by higher interest income, for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily due to the growth in coreresidential mortgage loans; and lower interest expense, primarily due to growth in noninterest-bearing demand deposits for the segment, for which the segment receivesand lower interest income credit under the Bank’s internal funds transfer pricing system.
Noninterest income for this segment increased $1.5 million or 10% to $16.2 million for the three months ended September 30, 2017, compared to $14.7 million for the same period in 2016.rates. Noninterest income increased $6.0$20.0 million or 16%42% to $43.8$67.7 million, for the nine months ended September 30, 2017, comparedprimarily due to $37.8 million for the same period in 2016. The increases in noninteresthigher foreign exchange income, for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily attributable to increases in branch fees, derivativedeposit account fees, and other income, wealth management fees, and net gains on sales of loans. This was partially offset by a decrease in ancillary loan feeslower interest rate contracts and other derivative income.


Noninterest expense for this segment increased slightly by $120 thousand to $56.1 million for the three months ended September 30, 2017, compared to $55.9 million for the same period in 2016. Noninterest expense increased $8.5$19.0 million or 5%8% to $181.8$267.5 million, for the nine months ended September 30, 2017, compared to $173.3 million for the same period in 2016. The increases in noninterest expense for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily due to increases infrom increased compensation and employee benefits, occupancy and equipment expense, and data processing expense, partially offset by a decrease in consulting expense.allocated corporate overhead.

Commercial Banking

The Commercial Banking segment reported pre-tax incomeprimarily offers commercial loan and deposit products. Commercial loan products include commercial business loans and lines of $99.0 millioncredit, trade finance loans and $284.2 millionletters of credit, CRE loans, construction and land lending, affordable housing loans and letters of credit, asset-based lending, and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

70

The following tables present additional financial information for the three and nine months ended September 30, 2017, respectively, compared to $80.4 million and $268.4 million, respectively, for the same periods in 2016. The increases in pre-tax income for thisCommercial Banking segment for the threeperiods indicated:
($ in thousands)Three Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$189,791 $162,884 $26,907 17 %
Noninterest income42,925 28,984 13,941 48 %
Total revenue232,716 191,868 40,848 21 %
(Reversal of) provision for credit losses(11,293)13,470 (24,763)(184)%
Noninterest expense66,688 61,863 4,825 8 %
Segment income before income taxes177,321 116,535 60,786 52 %
Income tax expense50,554 33,195 17,359 52 %
Segment net income$126,767 $83,340 $43,427 52 %
Average loans$25,773,521 $24,892,452 $881,069 4 %
Average deposits$18,275,884 $10,766,677 $7,509,207 70 %
($ in thousands)Nine Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$559,579 $530,181 $29,398 6 %
Noninterest income125,487 95,327 30,160 32 %
Total revenue685,066 625,508 59,558 10 %
(Reversal of) provision for credit losses(24,402)176,405 (200,807)(114)%
Noninterest expense200,109 196,889 3,220 2 %
Segment income before income taxes509,359 252,214 257,145 102 %
Income tax expense144,727 71,565 73,162 102 %
Segment net income$364,632 $180,649 $183,983 102 %
Average loans$25,654,076 $24,636,770 $1,017,306 4 %
Average deposits$16,611,906 $10,197,018 $6,414,888 63 %

For the third quarter of 2021, segment net income increased $43.4 million or 52% year-over-year to $126.8 million, driven by revenue growth and nine months ended September 30, 2017, compared to the same periods in 2016, were attributable to increases in net interesta lower provision for credit losses, partially offset by higher income tax expense and noninterest income.
expense. Net interest income before provision for this segmentcredit losses increased $6.8 million or 5% to $138.2 million for the three months ended September 30, 2017, compared to $131.3 million for the same period in 2016. Net interest income increased $19.0 million or 5% to $408.6 million for the nine months ended September 30, 2017, compared to $389.6 million for the same period in 2016. The increases in net interest income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were due to the growth in commercial loans and commercial core deposits, for which the segment receives interest income credit under the Bank’s internal funds transfer pricing system.
Noninterest income for this segment increased $4.1 million or 16% to $30.3 million for the three months ended September 30, 2017, compared to $26.2 million for the same period in 2016. Noninterest income increased $12.2$26.9 million or 17% to $82.6$189.8 million, for the nine months ended September 30, 2017, compareddriven by higher interest income, due to $70.5more PPP loan-related income and growth in commercial loans; and lower interest expense due to growth in noninterest-bearing demand deposits. Noninterest income increased $13.9 million for the same period in 2016. The increases in noninterestor 48% to $42.9 million, reflecting higher foreign exchange income, for the threedeposit account fees, gains on sales of loans, and nine months ended September 30, 2017, comparedinterest rate contracts and other derivative income. Noninterest expense increased $4.8 million or 8% to the same periods in 2016, were$66.7 million, primarily due to a net gain on sale ofhigher compensation and employee benefits.

For the Company’s insurance brokerage business, EWIS, during the three andfirst nine months ended September 30, 2017,of 2021, segment net income increased $184.0 million or 102% year-over-year to $364.6 million, reflecting a lower provision for credit losses and increasesrevenue growth, partially offset by higher income tax expense and noninterest expense. Net interest income before provision for credit losses increased $29.4 million or 6% to $559.6 million, driven by lower interest expense, due to lower interest rates and growth in branchnoninterest-bearing demand deposits; partially offset by lower interest income, due to compression in commercial loan yields. Noninterest income increased $30.2 million or 32% to $125.5 million, reflecting higher foreign exchange income, deposit account fees, ancillary loan feesinterest rate contracts and other derivative income, as well as lettersand gains on sales of credit fees and foreign exchange income.
Noninterest expense for this segment increased slightly by $380 thousand to $45.7 million for the three months ended September 30, 2017, compared to $45.3 million for the same period in 2016.loans. Noninterest expense increased $3.8$3.2 million or 3%2% to $149.5$200.1 million, for the nine months ended September 30, 2017, compared to $145.7 million for the same period in 2016. The increases in noninterest expense for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily due to increases in compensation and employee benefits, and consulting expense,deposit related expenses, partially offset by a decrease in legalloan related expense.
Other
The Other segment includes

Centralized functions, including the activities of thecorporate treasury function, which is responsible for liquidity and interest rate risk managementactivities of the Company and supportseliminations of inter-segment amounts, have been aggregated and included in the RetailOther segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments through internal funds transfer pricing credits and charges, which are included in net interest income. segments.
71

The following tables present additional financial information for the Other segment reported pre-taxfor the periods indicated:
($ in thousands)Three Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$29,237 $40,277 $(11,040)(27)%
Noninterest income7,738 8,093 (355)(4)%
Total revenue36,975 48,370 (11,395)(24)%
Noninterest expense48,121 29,291 18,830 64 %
Segment (loss) income before income taxes(11,146)19,079 (30,225)(158)%
Income tax benefit(33,003)(13,808)(19,195)139 %
Segment net income$21,857 $32,887 $(11,030)(34)%
Average deposits$2,704,070 $2,847,980 $(143,910)(5)%
($ in thousands)Nine Months Ended September 30,
Change from 2020
20212020$%
Net interest income before provision for credit losses$65,943 $101,945 $(36,002)(35)%
Noninterest income21,191 22,617 (1,426)(6)%
Total revenue87,134 124,562 (37,428)(30)%
Noninterest expense118,364 92,235 26,129 28 %
Segment (loss) income before income taxes(31,230)32,327 (63,557)(197)%
Income tax benefit(106,063)(56,174)(49,889)89 %
Segment net income$74,833 $88,501 $(13,668)(15)%
Average deposits$2,612,897 $2,602,791 $10,106 0 %

Segment net income of $7.7decreased $11.0 million and $72.2or 34% year-over-year to $21.9 million for the three and nine months ended September 30, 2017, respectively, comparedthird quarter of 2021. Net interest income before provision for credit losses decreased $11.0 million or 27% to $10.8 million and $28.1 million, respectively, for the same periods in 2016.$29.2 million. The decrease in pre-tax income for this segment for the three months ended September 30, 2017, compared to the same period in 2016, was primarily driven by decreases in noninterestlower FTP spread income and internal funds transfer pricing credits,absorbed by the Other segment, partially offset by growth in interest income from investments due to a decrease in noninteresthigher volume of AFS debt securities. Noninterest expense increased $18.8 million or 64% to $48.1 million, primarily due to higher amortization of tax credits and an increase inother investments.

Segment net interest income. The increase in pre-tax income for this segmentdecreased $13.7 million or 15% year-over-year to $74.8 million for the first nine months ended September 30, 2017, comparedof 2021. Net interest income before provision for credit losses decreased $36.0 million or 35% to the same period in 2016,$65.9 million. The decrease was primarily driven by an increase in noninterestlower FTP spread income asabsorbed by the result of the net gain on sale of the commercial property,Other segment, partially offset by a decrease in net interest income and an increase in noninterest expense.
Net interest income for this segment increased $1.4 million or 8% to $17.5 million for the three months ended September 30, 2017, compared to $16.2 million for the same period in 2016. Net interest income decreased $14.9 million or 36% to $26.4 million for the nine months ended September 30, 2017, compared to $41.3 million for the same period in 2016. The increase in net interest income for the three months ended September 30, 2017, compared to the same period in 2016, was primarily due to an increasegrowth in interest income from investments. The decrease in net interest income for the nine months ended September 30, 2017, compared to the same period in 2016, wasinvestments due to increases in interest expense on borrowings and deposits.


Noninterest income for this segment decreased $5.3 million or 63% to $3.1 million for the three months ended September 30, 2017, compared to $8.4 million for the same period in 2016. Noninterest income increased $60.8 million or 235% to $86.6 million for the nine months ended September 30, 2017, compared to $25.9 million for the same period in 2016. The decrease in noninterest income for the three months ended September 30, 2017, compared to the same period in 2016, was primarily due to decreases in foreign exchange income arising from valuation changes associated with currency hedges and decreases in rental income. The increase in noninterest income for the nine months ended September 30, 2017, compared to the same period in 2016, was primarily due to the $71.7 million net gain on salea higher volume of the commercial property, as discussed in the Noninterest income section of MD&A.
Noninterest expense for this segment decreased $6.5 million or 9% to $62.8 million for the three months ended September 30, 2017, compared to $69.3 million for the same period in 2016.AFS debt securities. Noninterest expense increased $8.4$26.1 million or 6%28% to $155.4$118.4 million, for the nine months ended September 30, 2017, compared to $147.0 million for the same period in 2016. The decrease in noninterest expense for the three months ended September 30, 2017, compared to the same period in 2016, was primarily attributable to a decrease of $8.8 million indriven by higher amortization of tax creditcredits and other investments, partially offset by increases of $2.5 million in compensation and employee benefits. The increase in noninterest expense for the nine months ended September 30, 2017, compared to the same period in 2016, was primarily attributable to increases of $5.3 million in amortization of tax credit and other investments, and $6.5 million in compensation and employee benefits.investments.


Balance Sheet Analysis


The following is a discussion of the significant changes between September 30, 2017 and December 31, 2016.

Selected Consolidated Balance Sheets Data
     
      Change
($ in thousands) September 30, 2017 December 31, 2016 $ %
  (Unaudited)      
ASSETS        
Cash and cash equivalents $1,736,749
 $1,878,503
 $(141,754) (8)%
Interest-bearing deposits with banks 404,946
 323,148
 81,798
 25 %
Resale agreements 1,250,000
 2,000,000
 (750,000) (38)%
Available-for-sale investment securities, at fair value 2,956,776
 3,335,795
 (379,019) (11)%
Held-to-maturity investment security, at cost —
 143,971
 (143,971) (100)%
Restricted equity securities, at cost 73,322
 72,775
 547
 1 %
Loans held-for-sale 178
 23,076
 (22,898) (99)%
Loans held-for-investment (net of allowance for loan losses of $285,926 in 2017 and $260,520 in 2016) 28,239,431
 25,242,619
 2,996,812
 12 %
Investments in qualified affordable housing partnerships, net 178,344
 183,917
 (5,573) (3)%
Investments in tax credit and other investments, net 203,758
 173,280
 30,478
 18 %
Premises and equipment 131,311
 159,923
 (28,612) (18)%
Goodwill 469,433
 469,433
 —
 — %
Other assets 663,718
 782,400
 (118,682) (15)%
TOTAL $36,307,966
 $34,788,840
 $1,519,126
 4 %
LIABILITIES  
  
   

Customer deposits $31,311,662
 $29,890,983
 $1,420,679
 5 %
Short-term borrowings 24,813
 60,050
 (35,237) (59)%
FHLB advances 323,323
 321,643
 1,680
 1 %
Repurchase agreements 50,000
 350,000
 (300,000) (86)%
Long-term debt 176,513
 186,327
 (9,814) (5)%
Accrued expenses and other liabilities 639,759
 552,096
 87,663
 16 %
Total liabilities 32,526,070
 31,361,099
 1,164,971
 4 %
STOCKHOLDERS’ EQUITY 3,781,896
 3,427,741
 354,155
 10 %
TOTAL $36,307,966
 $34,788,840
 $1,519,126
 4 %
     

As of September 30, 2017, total assets were $36.31 billion, an increase of $1.52 billion or 4% from December 31, 2016. The predominant area of asset growth was in loans, which was driven by strong increases across all of the Company’s commercial and retail lines of business. These increases were partially offset by maturities of resale agreements, and decreases in investment securities, cash and cash equivalents, and other assets.

As of September 30, 2017, total liabilities were $32.53 billion, an increase of $1.16 billion or 4% from December 31, 2016, primarily due to increases in customer deposits, reflecting the continued strong growth from existing and new customers. This increase was partially offset by a decrease in repurchase agreements primarily due to an increase in resale agreements that were eligible for netting against repurchase agreements under ASC 210-20-45, Balance Sheet Offsetting.

Stockholders’ equity growth benefited primarily from $420.7 million in net income, partially offset by $87.6 million of cash dividends on common stock.



InvestmentDebt Securities

The Company aims to maintain an investmentmaintains a portfolio that consists of high quality and liquid debt securities with relatively shortmoderate durations to minimize overall interest rate and liquidity risks. The Company’s available-for-sale investmentdebt securities provide:

•interest income for earnings and yield enhancement;
•availability for funding needs arising during the normal course of business;
•the ability to execute interest rate risk management strategies duein response to changes in economic or market conditions, which influence loan origination, prepayment speeds, or deposit balancesconditions; and mix; and
•collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.


Held-to-maturity investment security
72


Available-for-Sale Debt Securities
During the first quarter of 2016, the Company securitized $201.7 million of multifamily residential loans and retained $160.1 million of the senior tranche of the resulting securities from the securitization as held-to-maturity, which is carried at amortized cost. The held-to-maturity investment security is a non-agency commercial mortgage-backed security maturing on April 25, 2046. During the third quarter of 2017, the Company transferred this non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale. The transfer reflects the Company’s intent to sell the security under active liquidity management.

Available-for-sale investment securities

As of September 30, 2017 and December 31, 2016, the Company’s available-for-sale investment securities portfolio was primarily comprised of U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, U.S. Treasury securities and foreign bonds. InvestmentDebt securities classified as available-for-saleAFS are carried at their estimated fair value with the corresponding changes in fair value recorded in Accumulated other comprehensive loss,income (loss), net of tax,, as a component of Stockholders’ equity on the Consolidated Balance Sheets.Sheet.


The following table presents the breakoutdistribution of the amortized cost andCompany’s AFS debt securities portfolio by fair value and percentage of available-for-sale investment securities by major categoriesportfolio as of September 30, 20172021 and December 31, 2016:2020, and by credit ratings as of September 30, 2021:
($ in thousands)September 30, 2021December 31, 2020
Ratings as of September 30, 2021 (2)
Fair
Value		% of TotalFair
Value		% of TotalAAA/AAABBBNo Rating
AFS debt securities:
U.S. Treasury securities$941,724 10 %$50,761 1 %100 %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities1,363,109 14 %814,319 15 %100 %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities4,065,531 42 %2,814,664 51 %100 %— %— %— %
Municipal securities (1)
501,489 5 %396,073 7 %94 %3 %— %3 %
Non-agency mortgage-backed securities (1)
1,366,026 14 %529,617 10 %88 %— %— %12 %
Corporate debt securities (1)
618,671 6 %405,968 7 %— %23 %77 %— %
Foreign government bonds (1)
254,848 3 %182,531 3 %46 %54 %— %— %
Asset-backed securities (1)
76,799 1 %63,231 1 %100 %— %— %— %
Collateralized loan obligations (CLOs) (1)
524,809 5 %287,494 5 %95 %5 %— %— %
Total AFS debt securities$9,713,006 100 %$5,544,658 100 %90 %3 %5 %2 %
 
($ in thousands) September 30, 2017 December 31, 2016
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Available-for-sale investment securities:        
U.S. Treasury securities $533,035
 $526,332
 $730,287
 $720,479
U.S. government agency and U.S. government sponsored enterprise debt securities 191,727
 189,185
 277,891
 274,866
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities 1,475,969
 1,466,106
 1,539,044
 1,525,546
Municipal securities 116,798
 117,242
 148,302
 147,654
Non-agency residential mortgage-backed securities 9,680
 9,694
 11,592
 11,477
Corporate debt securities 12,655
 11,942
 232,381
 231,550
Foreign bonds 505,395
 489,140
 405,443
 383,894
Other securities (1)
 147,504
 147,135
 40,501
 40,329
Total available-for-sale investment securities $2,992,763
 $2,956,776
 $3,385,441
 $3,335,795
 
(1)During the third quarter of 2017, the Company transferred a non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale.

(1)There were no securities of a single non-federal governmental agency issuer that exceeded 10% of stockholder’s equity as of both September 30, 2021 and December 31, 2020.

(2)Primarily based upon the lowest of the credit ratings issued by Standard and Poor's (“S&P”), Moody’s Investors Service (“Moody’s”) or Fitch Ratings (“Fitch”). Rating percentages are allocated based on fair value.


The fair value of the available-for-sale investmentAFS debt securities totaled $2.96$9.71 billion as of September 30, 2017, compared to $3.342021, an increase of $4.17 billion or 75% from $5.54 billion as of December 31, 2016.2020. The decrease of $379.0 million or 11% primarily reflected the sales of corporate debt securities, U.S. Treasury securities,largest changes came from U.S. government agency and U.S. government sponsoredgovernment-sponsored enterprise mortgage-backed securities, and municipal securities; and paydowns, maturities and calls of U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, U.S. government agency and U.S. government sponsored enterprise debt securities, and U.S. Treasury securities. The decrease was partially offsetwhich increased $1.25 billion, followed by purchases of U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, foreign bonds, U.S. government agency and U.S. government sponsored enterprise debt securities, U.S. Treasury securities, which increased $891.0 million, and municipal securities; and the transfer of a non-agency commercial mortgage-backed security from held-to-maturity security.securities, which increased $836.4 million.


The Company’s available-for-saleAFS debt securities portfolio had an effective duration, defined as the sensitivity of the value of the portfolio to interest rate changes, of 5.3 as of September 30, 2021. This increased from 4.2 as of December 31, 2020, primarily due to the steepening of the yield curve. As of September 30, 2021, 90% of the carrying value of the Company’s debt securities portfolio was rated “AA-,” “Aa3” or higher by nationally recognized credit rating agencies, compared with 88% as of December 31, 2020. Credit ratings of BBB- or higher by S&P and Fitch, or Baa3 or higher by Moody’s, are considered investment grade.

The Company’s AFS debt securities are carried at fair value with changesnon-credit related unrealized gains and losses, net of tax, reported in fair value reflected in Other comprehensive income (loss) unless a security is deemed to be other-than-temporarily impaired. Ason the Consolidated Statement of September 30, 2017, the Company’sComprehensive Income. Pre-tax net unrealized losses on available-for-sale investmentAFS debt securities were $36.0$70.2 million as of September 30, 2021, compared to $49.6with pre-tax net unrealized gains on AFS debt securities of $74.1 million as of December 31, 2016. The favorable2020. This change in the net unrealized losses was primarily attributeddue to interest rate movement and the flattening in the yield curve with long-term interest rates falling. Gross unrealized losses on available-for-sale investment securities totaled $42.3 million aswidening of September 30, 2017, compared to $56.3 million as of December 31, 2016.liquidity spreads. As of September 30, 2017,2021, the Company had no intention to sell securities with unrealized losses and believesbelieved it is more likely than notmore-likely-than-not that it would not be required to sell such securities before recovery of their amortized cost. No other-than-temporarycosts.

Of the securities with gross unrealized losses, substantially all were rated investment grade as of both September 30, 2021 and December 31, 2020, based upon the lowest of the credit ratings issued by S&P, Moody’s, or Fitch. The Company believes that the gross unrealized losses were due to non-credit related factors, and were primarily attributable to yield curve movement. The impact of the COVID-19 pandemic has been reduced by the government’s aggressive monetary policy, including benchmark rate cuts and various relief measures that contributed to the gradual and steady recovery of the market to pre-pandemic levels. The Company believes that the credit support levels of its AFS debt securities are strong and, based on current assessments and macroeconomic forecasts, expects that full contractual cash flows will be received.
73

The Company assesses individual security for credit losses for each reporting period. If a credit loss is identified, the Company records an impairment wasrelated to credit losses through the allowance for credit losses with a corresponding Provision for credit losses on the Consolidated Statement of Income. There were no credit losses recognized in earnings for both the threethird quarters and first nine months ended September 30, 2017of 2021 and 2016.2020. For a complete discussiondescription of the policies, methodologies and disclosure,judgments used to determine the allowance for credit losses, see Item 7. MD&A — Critical Accounting Policies and Estimates of the Company’s 2020 Form 10-K and Note 4 1— Fair Value Measurement and Fair ValueSummary of Financial Instruments, and Note 6 Significant Accounting Policies— Allowance for Credit Losses on Available-for-Sale Debt Securitiesto the Consolidated Financial Statements.Statements of the Company’s 2020 Form 10-K.


As of September 30, 2017 and December 31, 2016, available-for-sale investment securities with a fair value of $584.9 million and $767.4 million, respectively, were pledged to secure public deposits, repurchase agreements, the Federal Reserve Bank’s discount window and for other purposes required or permitted by law.
74



The following table presents the weighted averageweighted-average yields and contractual maturity distributions,distribution, excluding periodic principal payments, of the Company’s investmentAFS debt securities as of the periods indicated.September 30, 2021 and December 31, 2020. Actual maturities of mortgage-backedcertain securities can differ from contractual maturities as the borrowers have the right to prepay the obligations.obligations with or without prepayment penalties. In addition, factors such factors as prepayments and interest rate changesrates may affect the yields on the carrying valuevalues of mortgage-backedthese securities.
($ in thousands)September 30, 2021December 31, 2020
Amortized
Cost		Fair
Value
Yield (1)
Amortized
Cost		Fair
Value
Yield (1)
AFS debt securities:
U.S. Treasury securities:
Maturing in one year or less$25,015 $25,040 1.27 %$50,310 $50,761 1.26 %
Maturing after one year through five years25,662 25,466 0.82 %— — — %
Maturing after five years through ten years899,583 891,218 0.96 %— — — %
Total950,260 941,724 0.97 %50,310 50,761 1.26 %
U.S. government agency and U.S. government- sponsored enterprise debt securities:
Maturing in one year or less1,210,105 1,185,286 1.74 %640,153 640,366 1.78 %
Maturing after one year through five years60,608 60,750 2.20 %118,053 122,012 2.38 %
Maturing after five years through ten years32,372 32,138 1.70 %11,091 11,697 2.54 %
Maturing after ten years83,151 84,935 2.53 %37,517 40,244 2.74 %
Total1,386,236 1,363,109 1.81 %806,814 814,319 1.92 %
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Maturing in one year or less10,438 10,489 2.77 %4,185 4,232 3.46 %
Maturing after one year through five years18,439 19,360 2.78 %21,566 22,668 2.72 %
Maturing after five years through ten years305,909 310,107 2.32 %216,332 222,905 2.17 %
Maturing after ten years3,757,314 3,725,575 1.73 %2,517,644 2,564,859 2.11 %
Total4,092,100 4,065,531 1.78 %2,759,727 2,814,664 2.12 %
Municipal securities (2):
Maturing in one year or less11,641 11,775 2.71 %18,663 18,868 3.04 %
Maturing after one year through five years37,766 38,769 2.65 %36,000 37,716 2.89 %
Maturing after five years through ten years238,245 242,526 2.21 %230,851 239,883 2.07 %
Maturing after ten years213,255 208,419 1.99 %97,059 99,606 2.08 %
Total500,907 501,489 2.16 %382,573 396,073 2.20 %
Non-agency mortgage-backed securities:
Maturing in one year or less7,920 7,914 1.84 %7,920 7,920 0.63 %
Maturing after one year through five years164,752 165,184 3.10 %49,704 49,870 3.80 %
Maturing after five years through ten years53,235 53,230 1.15 %21,332 21,376 1.50 %
Maturing after ten years1,139,453 1,139,698 1.91 %444,529 450,451 2.48 %
Total1,365,360 1,366,026 2.03 %523,485 529,617 2.48 %
Corporate debt securities:
Maturing in one year or less180,028 172,157 1.80 %126,250 124,846 1.71 %
Maturing after one year through five years407,503 407,906 3.26 %276,073 277,103 3.56 %
Maturing after five years through ten years39,000 38,608 2.56 %4,000 4,019 4.50 %
Total626,531 618,671 2.80 %406,323 405,968 2.99 %
Foreign government bonds:
Maturing in one year or less76,999 73,487 1.21 %45,681 45,655 0.85 %
Maturing after one year through five years131,120 131,127 2.40 %138,147 136,876 2.41 %
Maturing after five years through ten years50,000 50,234 0.42 %— — — %
Total258,119 254,848 1.66 %183,828 182,531 2.02 %
Asset-backed securities:
Maturing after ten years76,417 76,799 0.77 %63,463 63,231 0.85 %
CLOs:
Maturing after ten years527,250 524,809 1.06 %294,000 287,494 1.34 %
Total AFS debt securities$9,783,180 $9,713,006 1.77 %$5,470,523 $5,544,658 2.13 %
Total aggregated by maturities:
Maturing in one year or less$1,522,146 $1,486,148 1.73 %$893,162 $892,648 1.72 %
Maturing after one year through five years845,850 848,562 2.91 %639,543 646,245 3.05 %
Maturing after five years through ten years1,618,344 1,618,061 1.45 %483,606 499,880 2.12 %
Maturing after ten years5,796,840 5,760,235 1.71 %3,454,212 3,505,885 2.08 %
Total AFS debt securities$9,783,180 $9,713,006 1.77 %$5,470,523 $5,544,658 2.13 %
(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.

75
 
($ in thousands) September 30, 2017 December 31, 2016
 Amortized
Cost		 Fair Value 
Yield (1)
 Amortized
Cost		 Fair Value 
Yield (1)
Available-for-sale investment securities:            
U.S. Treasury securities:            
Maturing in one year or less $150,431
 $150,134
 0.96% $100,707
 $100,653
 0.65%
Maturing after one year through five years 382,604
 376,198
 1.35% 376,580
 371,917
 1.27%
Maturing after five years through ten years —
 —
 —% 253,000
 247,909
 1.59%
Total 533,035
 526,332
 1.24% 730,287
 720,479
 1.29%
U.S. government agency and U.S. government sponsored enterprise debt securities:            
Maturing in one year or less 24,999
 24,916
 1.02% 118,966
 118,982
 0.94%
Maturing after one year through five years 9,732
 9,774
 2.37% 52,622
 52,630
 1.38%
Maturing after five years through ten years 103,394
 101,030
 2.19% 81,829
 78,977
 2.07%
Maturing after ten years 53,602
 53,465
 2.58% 24,474
 24,277
 2.50%
Total 191,727
 189,185
 2.15% 277,891
 274,866
 1.49%
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:            
Maturing after one year through five years 52,312
 52,055
 2.33% 47,278
 46,950
 1.74%
Maturing after five years through ten years 66,351
 65,534
 2.45% 79,379
 78,903
 3.11%
Maturing after ten years 1,357,306
 1,348,517
 2.20% 1,412,387
 1,399,693
 2.34%
Total 1,475,969
 1,466,106
 2.22% 1,539,044
 1,525,546
 2.36%
Municipal securities (2):
            
Maturing in one year or less 12,987
 13,058
 3.56% 6,404
 6,317
 2.56%
Maturing after one year through five years 85,244
 85,767
 2.29% 127,178
 127,080
 2.31%
Maturing after five years through ten years 6,274
 6,235
 2.50% 9,785
 9,515
 2.50%
Maturing after ten years 12,293
 12,182
 4.31% 4,935
 4,742
 3.95%
Total 116,798
 117,242
 2.67% 148,302
 147,654
 2.40%
Non-agency residential mortgage-backed securities:            
Maturing after ten years 9,680
 9,694
 2.72% 11,592
 11,477
 2.52%
Corporate debt securities:            
Maturing in one year or less 12,655
 11,942
 2.19% 12,671
 11,347
 1.80%
Maturing after five years through ten years —
 —
 —% 40,479
 40,500
 2.40%
Maturing after ten years —
 —
 —% 179,231
 179,703
 2.26%
Total 12,655
 11,942
 2.19% 232,381
 231,550
 2.26%
Foreign bonds:            
Maturing in one year or less 405,395
 389,876
 2.13% 304,427
 287,695
 2.09%
Maturing after one year through five years 100,000
 99,264
 2.70% 101,016
 96,199
 2.11%
Total 505,395
 489,140
 2.24% 405,443
 383,894
 2.09%
Other securities:            
Maturing in one year or less 31,790
 31,417
 —% 40,501
 40,329
 2.72%
Maturing after five years through ten years 99
 103
 1.43% —
 —
 —%
Maturing after ten years 115,615
 115,615
 3.78% —
 —
 —%
Total 147,504
 147,135
 2.96% 40,501
 40,329
 2.72%
             
Total:            
Maturing in one year or less 638,257
 621,343
   583,676
 565,323
  
Maturing after one year through five years 629,892
 623,058
   704,674
 694,776
  
Maturing after five years through ten years 176,118
 172,902
   464,472
 455,804
  
Maturing after ten years 1,548,496
 1,539,473
   1,632,619
 1,619,892
  
 Total available-for-sale investment securities $2,992,763
 $2,956,776
   $3,385,441
 $3,335,795
  
             
Held-to-maturity investment security:            
Non-agency commercial mortgage-backed security:            
Maturing after ten years $—
 $—
 —% $143,971
 $144,593
 3.91%
 
(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.




The following sections discuss additional information on the Company’s loan portfolios, non-purchased credit impaired (“non-PCI”) nonperforming assets and allowance for credit losses.

Total Loan Portfolio

The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include CRE,commercial loans, which consist of C&I, CRE, multifamily residential, and construction and land loans; and consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”), and other consumer loans. NetTotal net loans including loans held-for-sale, increased $2.97 billion or 12% to $28.24were $39.92 billion as of September 30, 20172021, an increase of $2.15 billion or 6% from $25.27$37.77 billion as of December 31, 2016. The increase2020. This was broad based andprimarily driven by strong increases of $1.14well-diversified growth across our key loan portfolios including $1.20 billion or 22%12% in residential mortgage loans, $1.00 billion or 10% in C&I loans, $836.3$727.1 million or 10%5% in total CRE loans, and $44.1$199.9 million or 2%1% in consumerC&I loans.
 
($ in thousands) September 30, 2017 December 31, 2016
 
Amount (1)
 Percent 
Amount (1)
 Percent
CRE:        
Income producing $8,843,776
 31% $8,016,109
 31%
Construction 572,027
 2% 551,560
 2%
Land 111,377
 —% 123,194
 1%
Total CRE 9,527,180
 33% 8,690,863
 34%
C&I:        
Commercial business 9,776,254
 34% 8,959,633
 35%
Trade finance 868,902
 3% 680,930
 3%
Total C&I 10,645,156
 37% 9,640,563
 38%
Residential:        
Single-family 4,356,009
 16% 3,509,779
 14%
Multifamily 1,876,956
 7% 1,585,939
 6%
Total residential 6,232,965
 23% 5,095,718
 20%
Consumer 2,120,056
 7% 2,075,995
 8%
Total loans held-for-investment (2)
 $28,525,357
 100% $25,503,139
 100%
Allowance for loan losses (285,926)   (260,520)  
Loans held-for-sale 178
   23,076
  
Total loans, net $28,239,609
   $25,265,695
  
 
(1)Includes $(29.2) million and $1.2 million as The composition of September 30, 2017 and December 31, 2016, respectively, of net deferred loan fees, unearned income, unamortized premiums and unaccreted discounts.
(2)Loans net of ASC 310-30 discount.

Although the loan portfolio grew 12% during the nine months ended September 30, 2017, the loan type composition remained relatively unchanged from December 31, 2016. The Company’s largest credit risks are concentrated in the commercial lending portfolios, which are comprised of C&I and CRE loans. The commercial lending portfolios comprised 70% and 72% of the total loan portfoliowas largely similar as of September 30, 20172021 and December 31, 2016, respectively, and are discussed further below.2020.


C&I Loans. C&I loans of $10.65 billion and $9.64 billion, which accounted for 37% and 38%The following table presents the composition of the Company’s total loan portfolio by loan type as of September 30, 20172021 and December 31, 2016, respectively, include commercial business2020:
($ in thousands)September 30, 2021December 31, 2020
Amount%Amount%
Commercial:
C&I (1)
$13,831,649 35 %$13,631,726 36 %
CRE:
CRE11,818,065 29 %11,174,611 29 %
Multifamily residential3,340,378 8 %3,033,998 8 %
Construction and land376,921 1 %599,692 2 %
Total CRE15,535,364 38 %14,808,301 39 %
Total commercial29,367,013 73 %28,440,027 75 %
Consumer:
Residential mortgage:
Single-family residential9,021,801 22 %8,185,953 21 %
HELOCs1,963,622 5 %1,601,716 4 %
Total residential mortgage10,985,423 27 %9,787,669 25 %
Other consumer129,269 0 %163,259 0 %
Total consumer11,114,692 27 %9,950,928 25 %
Total loans held-for-investment (2)
40,481,705 100 %38,390,955 100 %
Allowance for loan losses(560,404)(619,983)
Loans held-for-sale (3)
— 1,788 
Total loans, net$39,921,301 $37,772,760 
(1)Includes $807.3 million and trade finance$1.57 billion of PPP loans which comprisedas of September 30, 2021 and December 31, 2020, respectively.
(2)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(54.3) million and $(58.8) million as of September 30, 2021 and December 31, 2020, respectively. Net origination fees related to PPP loans were $(13.5) million and $(12.7) million as of September 30, 2021 and December 31, 2020, respectively.
(3)Consists of single-family residential loans as of December 31, 2020.

Actions to Support Customers during the largest sectorCOVID-19 Pandemic

In response to the COVID-19 pandemic, the Company assisted customers by offering SBA PPP loans in 2020 and 2021 to help struggling businesses in our communities pay their employees and sustain their businesses. The SBA stopped accepting new loan applications on May 31, 2021. For more information on PPP loans, refer to Item 7. MD&A — Overview — Regulatory Developments Relating to the lending portfolio. OverCOVID-19 Pandemic — Paycheck Protection Program of the last few years,Company’s Form 10-K and Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Paycheck Protection Program to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

In addition, the Company also provides payment relief through various loan modification programs. For a summary of the loans that the Company has experienced higher growthmodified in specialized lending verticals response to the COVID-19 pandemic, refer to Item 2. MD&A — Risk Management — Credit Risk Management in industries suchthis Form 10-Q.

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Commercial

The commercial loan portfolio made up 73% and 75% of total loans as private equity, energy, entertainment and structured specialty finance. As of September 30, 20172021 and December 31, 2016, specialized lending verticals comprised 42%2020, respectively. The Company actively monitors this portfolio for elevated levels of credit risk and 37% of total C&I loans, respectively.reviews credit exposures for sensitivity to changing economic conditions.


Although the C&I industry sectors in which the Company provides financing are diversified, the Company has higher concentrations in the industry sectors of wholesale trade, manufacturing, real estateCommercial — Commercial and leasing, entertainment and private equity. The Company’sIndustrial Loans. Total C&I loan exposures within the wholesale trade sector, which totaled $1.63commitments (loans outstanding plus unfunded credit commitments, excluding issued letters of credit) were $19.70 billion and $1.38$18.69 billion as of September 30, 20172021 and December 31, 2016,2020, respectively, are largely related to U.S. domiciled companies,an increase of 5% year-to-date. Total C&I loans were $13.83 billion or 35% of total loans held-for-investment as of September 30, 2021, which import goodsgrew by $199.9 million or 1% from Greater China for U.S. consumer consumption, many$13.63 billion or 36% of which are companies based in California.total loans held-for-investment as of December 31, 2020. The private equity loans are largely capital call lines of credit. The Company also has a syndicated loan portfolio within the C&I loan portfolio includes loans and financing for businesses in a wide spectrum of industries, including asset-based lending, equipment financing, project-based finance, revolving lines of credit, SBA lending, structured finance, term loans and trade finance. The C&I loan portfolio also includes PPP loans. Additionally, the Company has a portfolio of broadly syndicated C&I loans, which represent revolving or term loan facilities that are marketed and sold primarily to institutional investors, that totaled $627.9$962.7 million and $758.5$892.1 million as of September 30, 20172021 and December 31, 2016,2020, respectively. The majority of the C&I loans have variable interest rates.

The C&I portfolio is well-diversified by industry. The Company monitors concentrations within the C&I loan portfolio by customer exposure and industry classifications, setting limits for specialized lending verticals andclassification, setting diversification targets.targets and exposure limits by industry or loan product. The following charts illustrate the industry mix within our C&I portfolio as of September 30, 2021 and December 31, 2020.



ewbc-20210930_g5.jpgewbc-20210930_g6.jpg

CRECommercial — Commercial Real Estate Loans. Total CRE loans include income producing real estate,outstanding was $15.54 billion or 38% of total loans held-for-investment as of September 30, 2021, which grew by $727.1 million or 5% from $14.81 billion or 39% of total loans held-for-investment as of December 31, 2020. The total CRE loan portfolio consists of income-producing CRE, multifamily residential, and construction and land loans. Year-to-date growth in total CRE loans was driven by growth in income-producing CRE and multifamily residential loans, partially offset by declines in construction and land loans.

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The Company’s total CRE portfolio is granular and diversified by property type. The average CRE loan balance was $2.4 million as of both September 30, 2021 and December 31, 2020. The following table summarizes the Company’s total CRE loan portfolio by property type as of September 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Amount%Amount%
Property types:
Retail$3,570,761 23 %$3,466,141 23 %
Multifamily3,340,378 21 %3,033,998 20 %
Offices2,850,289 18 %2,747,082 19 %
Industrial2,738,653 18 %2,407,594 16 %
Hospitality1,959,192 13 %1,888,797 13 %
Construction and land376,921 2 %599,692 4 %
Other699,170 5 %664,997 5 %
Total CRE loans$15,535,364 100 %$14,808,301 100 %

The weighted-average loan-to-value (“LTV”) ratio of the total CRE portfolio was 51% as of both September 30, 2021 and December 31, 2020. The low weighted-average LTV ratio was consistent by CRE property type. Approximately 90% of total CRE loans had an LTV ratio of 65% or lower as of September 30, 2021, compared with 89% as of December 31, 2020. The consistency of the Company’s low LTV underwriting standards has historically resulted in lower credit losses for income-producing CRE and multifamily residential loans.

The following tables provide a summary of the Company’s income-producing CRE, multifamily residential, and construction and land loans where the interest rates may be fixed, variable or hybrid.by geography as of September 30, 2021 and December 31, 2020. The Company focuses on providing financing to experienced real estate investors and developers who are long-time customers and have moderate levels of leverage. Loans are generally underwritten with high standards for cash flows, debt service coverage ratios and loan-to-value ratios. Due to the nature of the Company’s geographical footprint and market presence, the Company has CRE loan concentrations primarily in California, which comprised 74%distribution of the CRE loan portfolio asreflects the Company’s geographical footprint, which is primarily concentrated in California:
($ in thousands)September 30, 2021
CRE%Multifamily
Residential		%Construction
and Land		%Total CRE%
Geographic markets:
Southern California$6,273,314 $1,977,190 $174,483 $8,424,987 
Northern California2,575,357 704,213 117,616 3,397,186 
California8,848,671 75 %2,681,403 80 %292,099 76 %11,822,173 76 %
New York659,068 6 %151,393 5 %73,076 19 %883,537 6 %
Texas977,865 8 %244,963 7 %1,907 1 %1,224,735 8 %
Washington383,806 3 %98,440 3 %— — %482,246 3 %
Arizona114,522 1 %30,280 1 %— — %144,802 1 %
Nevada116,132 1 %101,033 3 %— — %217,165 1 %
Other markets718,001 6 %32,866 1 %9,839 4 %760,706 5 %
Total loans$11,818,065 100 %$3,340,378 100 %$376,921 100 %$15,535,364 100 %
78

($ in thousands)December 31, 2020
CRE%Multifamily
Residential		%Construction
and Land		%Total CRE%
Geographic markets:
Southern California$5,884,691 $1,867,646 $249,282 $8,001,619 
Northern California2,476,510 674,813 197,195 3,348,518 
California8,361,201 75 %2,542,459 84 %446,477 74 %11,350,137 77 %
New York696,712 6 %137,114 4 %93,806 16 %927,632 6 %
Texas864,639 8 %116,367 4 %2,581 0 %983,587 7 %
Washington341,374 3 %91,824 3 %22,724 4 %455,922 3 %
Arizona147,187 1 %12,406 0 %— — %159,593 1 %
Nevada88,959 1 %86,644 3 %22,384 4 %197,987 1 %
Other markets674,539 6 %47,184 2 %11,720 2 %733,443 5 %
Total loans$11,174,611 100 %$3,033,998 100 %$599,692 100 %$14,808,301 100 %

Since 76% and 77% of eachtotal CRE loans were concentrated in California as of September 30, 20172021 and December 31, 2016. Accordingly,2020, respectively, changes in the CaliforniaCalifornia’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses. 19%For additional information related to the risk of real estate markets in California, see Item 1A. Risk Factors — Risks Related to Geopolitical Uncertainties to the Company’s2020 Form 10-K.

Commercial — Income-Producing Commercial Real Estate Loans. The Company provides financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. Income-producing CRE loans totaled $11.82 billion as of September 30, 2021, compared with $11.17 billion as of December 31, 2020, and accounted for 29% of total loans held-for-investment as of both dates. Interest rates on CRE loans may be fixed, variable or hybrid. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Owner-occupied properties comprised 20% of the income-producing CRE loans as of each ofboth September 30, 20172021 and December 31, 20162020. The remainder were owner occupiednon-owner-occupied properties, while the remaining 81% were non-owner occupied properties (wherewhere 50% or more of the debt service for the loan is typically provided by rental income). Asincome from an unaffiliated third party.

Commercial —Multifamily Residential Loans. The multifamily residential loan portfolio is largely made up of September 30, 2017 and December 31, 2016, the Company had an income-producing CRE portfolio that was broadly diversified across all property types.

The Company had $572.0 million of construction loans and $507.3 million of unfunded commitmentssecured by residential properties with five or more units. Multifamily residential loans totaled $3.34 billion as of September 30, 2017,2021, compared to $551.6 million of construction loans and $526.4 million of unfunded commitmentswith $3.03 billion as of December 31, 2016. The construction portfolio2020, and accounted for 8% of total loans held-for-investment as of September 30, 2017 and December 31, 2016 was largely comprised of financing for the construction of hotels, multifamily and residential condominiums, as well as mixed use (residential and retail) structures.

Residential Loans. Residential loans are comprised of single-family and multifamily residential loans. The Company offers first lien mortgage loans secured by one-to-four unit residential properties located in its primary lending areas.both dates. The Company offers a variety of first lien mortgage loan programs,mortgages, including fixed rate conformingfixed- and variable-rate loans, and adjustable rate mortgageas well as hybrid loans with initial fixed periods of one to seven years, whichinterest rates that adjust annually thereafter. The Company’s multifamily loanafter an initial fixed-rate period of three to ten years.

Commercial —Construction and Land Loans. Construction and land loans provide financing for a portfolio is largely comprised of projects diversified by real estate property type. These loans secured by smaller multifamily properties ranging from 5 to 15 units in its primary lending areas. 71% and 73%totaled $376.9 million or 1% of the Company’s residentialtotal loans were concentrated in Californiaheld-for-investment as of September 30, 20172021, compared with $599.7 million or 2% of total loans held-for-investment as of December 31, 2020. Construction loans exposure consisted of $332.7 million in loans outstanding and $306.9 million in unfunded commitments as of September 30, 2021, compared with $554.7 million in loans outstanding and $288.2 million in unfunded commitments as of December 31, 2020. Land loans totaled $44.2 million as of September 30, 2021, compared with $45.0 million as December 31, 2020.

79

Consumer

The primary consumer portfolios for the Company were single-family residential mortgages and HELOCs, which are summarized by geography as of September 30, 2021 and December 31, 2016, respectively. Many2020:
($ in thousands)September 30, 2021
Single-Family
Residential		%HELOCs%Total Residential
Mortgage		%
Geographic markets:
Southern California$3,531,157 $882,500 $4,413,657 
Northern California1,029,914 465,579 1,495,493 
California4,561,071 50 %1,348,079 69 %5,909,150 53 %
New York3,000,065 33 %280,822 14 %3,280,887 30 %
Washington552,507 6 %214,112 11 %766,619 7 %
Massachusetts260,730 3 %59,570 3 %320,300 3 %
Texas226,814 3 %— — %226,814 2 %
Georgia281,109 3 %22,279 1 %303,388 3 %
Other markets139,505 2 %38,760 2 %178,265 2 %
Total$9,021,801 100 %$1,963,622 100 %$10,985,423 100 %
Lien priority:
First mortgage$9,021,801 100 %$1,725,535 88 %$10,747,336 98 %
Junior lien mortgage— — %238,087 12 %238,087 2 %
Total$9,021,801 100 %$1,963,622 100 %$10,985,423 100 %
($ in thousands)December 31, 2020
Single-Family
Residential		%HELOCs%Total Residential
Mortgage		%
Geographic markets:
Southern California$3,462,067 $728,733 $4,190,800 
Northern California1,059,832 354,014 1,413,846 
California4,521,899 55 %1,082,747 68 %5,604,646 57 %
New York2,277,722 28 %244,425 15 %2,522,147 26 %
Washington597,231 7 %180,765 11 %777,996 8 %
Massachusetts259,368 3 %44,633 3 %304,001 3 %
Texas209,737 3 %— — %209,737 2 %
Other markets319,996 4 %49,146 3 %369,142 4 %
Total$8,185,953 100 %$1,601,716 100 %$9,787,669 100 %
Lien priority:
First mortgage$8,185,953 100 %$1,372,270 86 %$9,558,223 98 %
Junior lien mortgage— — %229,446 14 %229,446 2 %
Total$8,185,953 100 %$1,601,716 100 %$9,787,669 100 %

Consumer — Single-Family Residential Mortgages. Single-family residential loans totaled $9.02 billion or 22% of thetotal loans held-for-investment as of September 30, 2021, compared with $8.19 billion or 21% of total loans held-for-investment as of December 31, 2020. Year-to-date single-family residential mortgages grew by $835.8 million or 10%, primarily driven by net growth in New York. The Company was in a first lien position for all of its single-family residential loans within the Company’s portfolioas of both September 30, 2021 and December 31, 2020. Many of these loans are reduced documentation loans, wherefor which a substantial down payment is required, resulting in a low loan-to-valueLTV ratio at origination, typically 65% or less. These loans have historically experienced low delinquency and loss rates. The Company offers a variety of single-family residential first lien mortgage loan programs, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed-rate period.

80

Consumer — Home Equity Lines of Credit. Total HELOC commitments were $2.23 billion as of September 30, 2021, which grew by $478.3 million or 27% from $1.75 billion as of December 31, 2020. Unfunded HELOC commitments are unconditionally cancellable. HELOCs outstanding totaled $1.96 billion or 5% of total loans held-for-investment as of September 30, 2021, compared with $1.60 billion or 4% of total loans held-for-investment as of December 31, 2020. Year-to-date HELOCs increased by $361.9 million or 23%, primarily driven by growth in California. The Company was in a first lien position for 88% and 86% of total HELOCs as of September 30, 2021 and December 31, 2020, respectively. Many of these loans are reduced documentation loans, for which a substantial down payment is required, resulting in a low LTV ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and defaultloss rates. Substantially all of the Company’s HELOCs were variable-rate loans.

Consumer Loans. ConsumerAll commercial and consumer loans originated by the Company are comprisedsubject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of home equity linesquality control procedures and periodic audits, including the review of credit (“HELOCs”), insurance premium financing loans, credit cardlending and auto loans. legal requirements, to ensure that the Company is compliant with these requirements.

Loans Held-for-Sale

As of September 30, 2017 and2021, the Company had no loans held-for-sale. In comparison, as of December 31, 2016, the Company’s HELOCs were the largest component2020, loans held-for-sale of the consumer loan portfolio, and were secured by one-to-four unit$1.8 million consisted of single-family residential properties located in its primary lending areas. The HELOC loan portfolio is largely comprised of loans originated through a reduced documentation loan program where a substantial down payment is required, resulting in a low loan-to-value ratio, typically 60% or less. The Company is in a first lien position for many of these reduced documentation HELOCs. These loans have historically experienced low delinquency and default rates.

The Company’s total loan portfolio includes originated and purchased loans. Originated and purchased loans, for which there was no evidence of credit deterioration at their acquisition date, are collectively referred to as non-PCI loans. Acquired loans for which there was, at the acquisition date, evidence of credit deterioration are referred to as PCI loans. PCI loans are recorded net of ASC 310-30 discount and totaled $532.3 million and $642.4 million as of September 30, 2017 and December 31, 2016, respectively. For additional details regarding PCI loans, see Note 8 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements.

The Company’s overseas offices include the branch in Hong Kong and the subsidiary bank in China. As of September 30, 2017 and December 31, 2016, loans held in the Hong Kong branch totaled $686.3 million and $733.3 million, respectively. As of September 30, 2017 and December 31, 2016, loans held in the subsidiary bank in China totaled $499.5 million and $425.3 million, respectively. These overseas loans are comprised mainly of C&I loans made to cross-border or trade finance companies. In total, these loans represented 3% of total consolidated assets as of September 30, 2017 and December 31, 2016.



When a determination is made atAt the time of commitment to originate or purchase loans asa loan, a loan is determined to be held-for-investment if it is the Company’s intent to hold these loansthe loan to maturity or for the “foreseeableforeseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liabilityliquidity and credit risk management. WhenIf the Company subsequently changes its intent to hold certain loans, thethose loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value. As

Sales of September 30, 2017,Originated Loans and Purchased Loans

All loans held-for-sale amountedoriginated by the Company are underwritten pursuant to $178 thousand, which were comprisedthe Company’s policies and procedures. Although the Company’s primary focus is on directly originated loans, in certain circumstances, the Company also purchases loans and participates in loans with other banks. In the normal course of single-family residentialbusiness, the Company also participates out interests in directly originated commercial loans to other financial institutions and sells loans. In comparison, as of December 31, 2016, loans held-for-sale amounted to $23.1 million, which were primarily comprised of consumer loans. Loans transferred from held-for-investment to held-for-sale were $74.5 million and $418.5 million

The following tables provide information on loan sales during the threethird quarters and first nine months ended September 30, 2017, respectively. These loan transfers were primarily comprised of C&I loans for both periods. In comparison, $144.9 million2021 and $720.7 million of loans were transferred from held-for-investment2020. Refer to held-for-sale during the three and nine months ended September 30, 2016, respectively. These loan transfers were primarily comprised of C&I, multifamily residential and CRE loans for both periods. The Company recorded $232 thousand and $441 thousand in write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and nine months ended September 30, 2017, respectively. In comparison, there were no write-downs and $1.9 million of write-downs recorded to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and nine months ended September 30, 2016, respectively.

During the three and nine months ended September 30, 2017, the Company sold $33.8 million and $101.4 million, respectively, in originated loans, resulting in net gains of $2.3 million and $5.5 million, respectively. Originated loans sold during the three months ended September 30, 2017 were primarily comprised of $15.7 million of CRE loans and $12.3 million of C&I loans. Originated loans sold during the nine months ended September 30, 2017 were primarily comprised of $50.5 million of C&I loans and $34.8 million of CRE loans. In comparison, the Company sold $107.3 million in originated loans during the three months ended September 30, 2016, resulting in net gains of $2.2 million. Originated loans sold during this period were primarily comprised of $53.9 million of C&I loans and $46.0 million of CRE loans. During the nine months ended September 30, 2016, the Company sold or securitized $529.5 million in originated loans, resulting in net gains of $9.3 million. Included in these amounts were $201.7 million of multifamily residential loans securitized during the first quarter of 2016, which resulted in net gains of $1.1 million, $641 thousand in mortgage servicing rights and $160.1 million of held-to-maturity investment security that were recorded. The remaining $327.8 million of originated loans sold during the nine months ended September 30, 2016, primarily comprising of $171.9 million of CRE loans and $99.6 million of C&I loans, resulted in net gains of $8.2 million.

During the three and nine months ended September 30, 2017, the Company purchased $72.4 million and $441.1 million loans, respectively, compared to $256.2 million and $1.04 billion during the three and nine months ended September 30, 2016, respectively. Purchased loans for each of the three and nine months ended September 30, 2017 were primarily comprised of C&I syndication loans. Purchased loans for each of the three and nine months ended September 30, 2016 were primarily comprised of C&I syndication loans and single-family residential loans. The higher loans purchased for the three and nine months ended September 30, 2016, primarily included $165.8 million and $488.3 million, respectively, of single-family residential loans purchased for Community Reinvestment Act purposes.

From time to time, the Company purchases and sells loans in the secondary market. Certain purchased loans are transferred from held-for-investment to held-for-sale and write-downs to allowance for loan losses are recorded, when appropriate. During the three and nine months ended September 30, 2017, the Company sold loans of $57.4 million and $354.5 million, respectively, in the secondary market at net gains of $19 thousand and $1.2 million, respectively. In comparison, the Company sold loans of $45.8 million and $179.4 million for the three and nine months ended September 30, 2016, respectively, in the secondary market. Loan sales in the secondary market resulted in no gains or losses and $69 thousand in net gains recorded for the three and nine months ended September 30, 2016, respectively.

The Company records valuation adjustments in Net gains on sales of loans on the Consolidated Statements of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value. For each of the three months ended September 30, 2017 and 2016, no valuation adjustments were recorded. For the nine months ended September 30, 2017 and 2016, the Company recorded $61 thousand and $2.4 million, respectively, in valuation adjustments.



Non-PCI Nonperforming Assets
Non-PCI nonperforming assets are comprised of nonaccrual loans and other real estate owned (“OREO”), net. Loans are placed on nonaccrual status when they become 90 days past due or when the full collection of principal or interest becomes uncertain regardless of the length of past due status. The following table presents information regarding non-PCI nonperforming assets as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017 December 31, 2016
Nonaccrual loans:    
Real estate - commercial $24,802
 $26,907
Real estate - land and construction 4,183
 5,326
Commercial 73,384
 81,256
Real estate - single-family 6,639
 4,214
Real estate - multifamily 2,620
 2,984
Consumer 3,097
 2,130
Total nonaccrual loans 114,725
 122,817
OREO, net 2,289
 6,745
Total nonperforming assets $117,014
 $129,562
Non-PCI nonperforming assets to total assets (1)
 0.32% 0.37%
Non-PCI nonaccrual loans to loans held-for-investment (1)
 0.40% 0.48%
Allowance for loan losses to non-PCI nonaccrual loans 249.23% 212.12%
 
(1)Total assets and loans held-for-investment include PCI loans of $532.3 million and $642.4 million as of September 30, 2017 and December 31, 2016, respectively.

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with the Company’s accounting policy, offset by reductions for loans that are paid down, charged off, sold, foreclosed, or no longer classified as nonaccrual as a result of continued performance and improvement in the borrower’s financial condition and loan repayment capabilities. Nonaccrual loans decreased by $8.1 million or 7% to $114.7 million as of September 30, 2017 from $122.8 million as of December 31, 2016. The decrease in nonaccrual loans was primarily due to payoffs and paydowns of nonaccrual loans of $70.2 million, transfers of nonaccrual loans to accrual status of $37.2 million, and charge-offs of nonaccrual loans of $19.5 million, partially offset by loans transferred to nonaccrual status of $119.4 million, during the nine months ended September 30, 2017. Nonaccrual loans as a percentage of loans held-for-investment declined from 0.48% as of December 31, 2016 to 0.40% as of September 30, 2017. C&I loans comprised 64% and 66% of total nonaccrual loans as of September 30, 2017 and December 31, 2016, respectively. Credit risks related to the C&I nonaccrual loans were mitigated by the collateral. In addition, the risk of loss of all nonaccrual loans had been considered as of September 30, 2017 and December 31, 2016 and the Company believes that this was appropriately covered by the allowance for loan losses.

In addition, 36% and 64% of non-PCI nonaccrual loans consisted of loans that were less than 90 days delinquent as of September 30, 2017 and December 31, 2016, respectively.

For additional details regarding the Company’s non-PCI nonaccrual loans policy, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

Troubled debt restructurings (“TDRs”) may be designated as performing or nonperforming. A TDR may be designated as performing, if the loan has demonstrated sustained performance under the modified terms. The period of sustained performance may include the periods prior to modification if prior performance has met or exceeded the modified terms. A loan will remain on nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments.


The following table presents the performing and nonperforming TDRs by loan segment as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017 December 31, 2016
 
Performing
TDRs
 
Nonperforming
TDRs
 
Performing
TDRs
 
Nonperforming
TDRs
CRE $10,347
 $19,830
 $20,145
 $14,446
C&I 20,416
 44,292
 44,363
 23,771
Residential 18,872
 486
 17,178
 717
Consumer 1,204
 375
 1,552
 49
Total TDRs $50,839
 $64,983
 $83,238
 $38,983
 

Performing TDRs decreased by $32.4 million or 39% to $50.8 million as of September 30, 2017, primarily due to the transfers of one CRE and two C&I loans from performing to nonperforming status during the nine months ended September 30, 2017. Nonperforming TDRs increased by $26.0 million or 67% to $65.0 million as of September 30, 2017, primarily due to the aforementioned transfers of CRE and C&I loans between performing and nonperforming status and a C&I loan becoming a TDR loan during the nine months ended September 30, 2017.
The Company’s impaired loans include predominantly non-PCI loans held-for-investment on nonaccrual status and non-PCI loans modified as a TDR, on either accrual or nonaccrual status. See Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K for additional information regarding the Company’s TDRs and impaired loan policies. As of September 30, 2017, the allowance for loan losses included $20.8 million for impaired loans with a total recorded investment balance of $72.6 million. In comparison, the allowance for loan losses included $12.7 million for impaired loans with a total recorded investment balance of $84.1 million as of December 31, 2016.

The following table presents the recorded investment balances for non-PCI impaired loans as of September 30, 2017 and December 31, 2016:
 
($ in thousands) September 30, 2017 December 31, 2016
 Amount Percent Amount Percent
CRE:        
Income producing $35,149
 21% $46,508
 23%
Land 4,183
 3% 5,870
 3%
Total CRE impaired loans 39,332
 24% 52,378
 26%
C&I:        
Commercial business 89,092
 54% 120,453
 58%
Trade finance 4,708
 3% 5,166
 2%
Total C&I impaired loans 93,800
 57% 125,619
 60%
Residential:        
Single-family 15,899
 10% 14,335
 7%
Multifamily 12,232
 7% 10,041
 5%
Total residential impaired loans 28,131
 17% 24,376
 12%
Consumer 4,301
 2% 3,682
 2%
Total impaired loans $165,564
 100% $206,055
 100%
 


Allowance for Credit Losses
Allowance for credit losses consists of allowance for loan losses and allowance for unfunded credit reserves. Unfunded credit reserves include reserves provided for unfunded lending commitments, issued commercial letters of credit and standby letters of credit (“SBLCs”), and recourse obligations for loans sold. The allowance for credit losses is increased by the provision for credit losses which is charged against current period operating results, and is increased or decreased by the amount of net recoveries or charge-offs, respectively, during the period. The allowance for unfunded credit reserves is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Net adjustments to the allowance for unfunded credit reserves are included in Provision for credit losses on the Consolidated Statements of Income.

The Company is committed to maintaining the allowance for credit losses at a level that is commensurate with the estimated inherent loss in the loan portfolio, including unfunded credit reserves. In addition to regular quarterly reviews of the adequacy of the allowance for credit losses, the Company performs an ongoing assessment of the risks inherent in the loan portfolio. While the Company believes that the allowance for loan losses is appropriate as of September 30, 2017, future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions. For additional details on the Company’s allowance for credit losses, including the methodologies used, see Note 86 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q for additional information on loan purchases and Item 7. MD&A — Critical Accounting Policiestransfers.
($ in thousands)Three Months Ended September 30, 2021
CommercialConsumerTotal
C&ITotal CREResidential Mortgage
CREConstruction
and Land		Single-Family Residential
Loans sold:
Originated loans:
Amount$92,372 $24,120 $19,900 $6,959 $143,351 
Net gains$161 $3,107 $— $46 $3,314 
Purchased loans:
Amount$26,479 $— $— $— $26,479 
Net gains$15 $— $— $— $15 
81

($ in thousands)Three Months Ended September 30, 2020
CommercialConsumerTotal
C&IResidential Mortgage
Single-Family Residential
Loans sold:
Originated loans:
Amount$80,457 $31,847 $112,304 
Net gains$— $361 $361 
Purchased loans:
Amount (1)
$11,780 $— $11,780 
($ in thousands)Nine Months Ended September 30, 2021
CommercialConsumerTotal
C&ITotal CREResidential Mortgage
CREConstruction
and Land		Single-Family Residential
Loans sold:
Originated loans:
Amount$243,729 $61,171 $19,900 $17,123 $341,923 
Net gains$557 $5,609 $— $326 $6,492 
Purchased loans:
Amount$85,504 $— $— $— $85,504 
Net gains$109 $— $— $— $109 
($ in thousands)Nine Months Ended September 30, 2020
CommercialConsumerTotal
C&ITotal CREResidential Mortgage
CRESingle-Family Residential
Loans sold:
Originated loans:
Amount$237,115 $7,250 $50,197 $294,562 
Net gains$235 $665 $543 $1,443 
Purchased loans:
Amount (1)
$11,780 $— $— $11,780 
(1)Net gains on sales of purchased loans were insignificant or none.

82

Foreign Outstandings

The Company’s overseas offices, which include the branch in Hong Kong and Estimates and Note 1 — Summary of Significant Accounting Policies the subsidiary bank in China, are subject to the Consolidated Financial Statements ofgeneral risks inherent in conducting business in foreign countries, such as regulatory risk and economic and political uncertainties. In addition, the Company’s 2016 Form 10-K.

financial assets held in the Hong Kong branch and the subsidiary bank in China may be affected by fluctuations in currency exchange rates or other factors. The Company’s international operation risk exposure is largely concentrated in these locations. The following table presents a summary of activitiesthe major financial assets held in the allowance for credit losses for the three and nine months ended September 30, 2017 and 2016:
 
($ in thousands) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Allowance for loan losses, beginning of period $276,316
 $266,768
 $260,520
 $264,959
Provision for loan losses 13,448
 11,514
 32,134
 19,049
Gross charge-offs:        
CRE —
 (309) (149) (504)
C&I (7,359) (23,696) (19,802) (31,770)
Residential —
 (29) (1) (166)
Consumer (65) (13) (72) (17)
Total gross charge-offs (7,424) (24,047) (20,024) (32,457)
Gross recoveries:        
CRE 610
 634
 1,714
 873
C&I 2,165
 165
 9,658
 2,068
Residential 809
 654
 1,758
 1,048
Consumer 2
 124
 166
 272
Total gross recoveries 3,586
 1,577
 13,296
 4,261
Net charge-offs (3,838) (22,470) (6,728) (28,196)
Allowance for loan losses, end of period 285,926
 255,812
 285,926
 255,812
         
Allowance for unfunded credit reserves, beginning of period 15,188
 20,318
 16,121
 20,360
Reversal of unfunded credit reserves (452) (1,989) (1,385) (2,031)
Allowance for unfunded credit reserves, end of period 14,736
 18,329
 14,736
 18,329
Allowance for credit losses $300,662
 $274,141
 $300,662
 $274,141
         
Average loans held-for-investment $27,529,103
 $24,258,913
 $26,764,327
 $23,961,288
Loans held-for-investment, end of period $28,525,357
 $24,731,962
 $28,525,357
 $24,731,962
Annualized net charge-offs to average loans held-for-investment (0.06)% (0.37)% (0.03)% (0.16)%
Allowance for loan losses to loans held-for-investment 1.00 % 1.03 % 1.00 % 1.03 %



AsCompany’s overseas offices as of September 30, 2017, the allowance for loan losses amounted to $285.9 million or 1.00%2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Amount% of Total
Consolidated
Assets		Amount% of Total
Consolidated
Assets
Hong Kong branch:
Cash and cash equivalents$624,855 1 %$647,883 1 %
AFS debt securities, at fair value (1)
$266,163 0 %$66,170 0 %
Loans held-for-investment (2)
$843,787 1 %$704,415 1 %
Total assets$1,747,329 3 %$1,426,479 3 %
Subsidiary bank in China:
Cash and cash equivalents$499,078 1 %$611,088 1 %
Interest-bearing deposits with banks$119,913 0 %$74,079 0 %
AFS debt securities (3)
$138,864 0 %$152,219 0 %
Loans held-for-investment (2)
$897,511 1 %$796,153 2 %
Total assets$1,639,312 3 %$1,634,896 3 %
(1)Comprised of loans held-for-investment, compared to $260.5 million or 1.02%U.S. Treasury securities, corporate debt securities and $255.8 million or 1.03%foreign government bonds as of loans held-for-investmentSeptember 30, 2021; comprised of U.S. Treasury securities and foreign government bonds as of December 31, 2016 and2020.
(2)Primarily comprised of C&I loans as of both September 30, 2016, respectively. The increase in the allowance for loan losses was largely due to the overall growth in the loan portfolio. The allowance for loan losses to loans held-for-investment ratio as of September 30, 2017 decreased slightly compared to both December 31, 2016 and September 30, 2016. The decrease in this ratio was primarily attributable to the higher credit quality of newly originated loans, resulting in loans held-for-investment increasing at a higher rate than the estimated allowance for loan losses. In addition, the extended good economic cycle and sound credit risk management practices have led to continued declines in the Company’s historical loss rate experience, which has resulted in a slower rate of change in the allowance for loan losses compared to the Company’s loan growth.Provision for credit losses includes provision for loan losses and unfunded credit reserves. Provision for credit losses is charged to income to bring the allowance for credit losses to a level deemed appropriate by the Company based on the factors described above. The fluctuation in the provision for credit losses is highly dependent on the historical loss rates trend along with the net charge-offs experienced during the period. The increase in the provision for credit losses for the three and nine months ended September 30, 2017, compared to the same periods in 2016, was reflective of the overall loan portfolio growth, partially offset by a decline in the historical loss factor during the same periods. The Company believes the allowance for credit losses as of September 30, 20172021 and December 31, 2016 was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date.2020.

(3)Comprised of foreign government bonds as of both September 30, 2021 and December 31, 2020.

The following table presents the total revenue generated by the Company’s allocationoverseas offices for the third quarters and first nine months of the allowance for loan losses by segment2021 and the ratio of each loan segment to total loans held-for-investment as of September 30, 2017 and December 31, 2016:2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Amount% of Total
Consolidated
Revenue		Amount% of Total
Consolidated
Revenue		Amount% of Total
Consolidated
Revenue		Amount% of Total
Consolidated
Revenue
Hong Kong branch:
Total revenue$5,912 1 %$4,967 1 %$18,252 1 %$19,157 2 %
Subsidiary bank in China:
Total revenue$7,592 2 %$3,859 1 %$20,271 2 %$16,644 1 %

Capital
($ in thousands) September 30, 2017 December 31, 2016
 
Allowance
Allocation
 
% of
Total Loans
 
Allowance
Allocation
 
% of
Total Loans
CRE $74,317
 33% $72,916
 34%
C&I 160,598
 37% 142,167
 38%
Residential 43,905
 23% 37,338
 20%
Consumer 7,106
 7% 8,099
 8%
Total $285,926
 100% $260,520
 100%
 


The Company maintains an allowance on non-PCI and PCI loans. Based on the Company’s estimates of cash flows expected to be collected, an allowance for the PCI loans is established, with a charge to income through the provision for loan losses. PCI loan losses are estimated collectively for groups of loans with similar characteristics. As of September 30, 2017, the Company established an allowance of $68 thousand on $532.3 million of PCI loans. In comparison, an allowance of $118 thousand was established on $642.4 million of PCI loans as of December 31, 2016. The allowance balances for both periods were attributed mainly to the PCI CRE loans.



Deposits
The Company offers a wide variety of deposit products to both consumer and commercial customers. Deposits are an important low-cost source of funding, and affect net interest income and net interest margin. The following table presents the balances for customer deposits as of September 30, 2017 and December 31, 2016:
 
($ in thousands)  Change
 September 30, 2017 
% of total
deposits
 December 31, 2016 % of total
deposits		 $ %
Core deposits:            
Noninterest-bearing demand $10,992,674
 35% $10,183,946
 34% $808,728
 8 %
Interest-bearing checking 4,108,859
 13% 3,674,417
 12% 434,442
 12 %
Money market 7,939,031
 25% 8,174,854
 27% (235,823) (3)%
Savings 2,476,557
 8% 2,242,497
 8% 234,060
 10 %
Total core deposits 25,517,121
 81% 24,275,714
 81% 1,241,407
 5 %
Time deposits 5,794,541
 19% 5,615,269
 19% 179,272
 3 %
Total deposits $31,311,662
 100% $29,890,983
 100% $1,420,679
 5 %
       

Total deposits increased mainly due to growth in noninterest-bearing demand and interest-bearing checking deposits from existing and new customers. The Company’s deposit strategy is to grow and retain relationship-based deposits, and provide a source of low-cost funding and liquidity to the Company. Core deposits comprised 81% of total deposits as of each of September 30, 2017 and December 31, 2016. The $1.24 billion or 5% increase in core deposits was primarily due to the increases in noninterest-bearing demand deposits and interest-bearing checking deposits. Noninterest-bearing demand deposits comprised 35% and 34% of total deposits as of September 30, 2017 and December 31, 2016, respectively. Interest-bearing checking deposits comprised 13% and 12% of total deposits as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, deposits were 110% of total loans, compared to 117% as of December 31, 2016, as the growth in total loans outpaced deposit growth.

Borrowings

The Company utilizes short-term and long-term borrowings to manage its liquidity position. Borrowings include short-term borrowings, long-term FHLB advances and repurchase agreements.

As of September 30, 2017 and December 31, 2016, short-term borrowings were comprised of the Company’s subsidiary, East West Bank (China) Limited’s borrowings of $24.8 million and $60.1 million, respectively. The interest rates of these borrowings ranged from 2.96% to 3.27% and 2.80% to 3.27% as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, the short-term borrowings of $24.8 million are due to mature in the fourth quarter of 2017.     

FHLB advances increased by $1.7 million to $323.3 million as of September 30, 2017 from $321.6 million as of December 31, 2016. As of September 30, 2017, FHLB advances had floating interest rates ranging from 1.48% to 1.72% with remaining maturities between 1.4 and 5.1 years.    

Gross repurchase agreements totaled $450.0 million as of each of September 30, 2017 and December 31, 2016. Resale and repurchase agreements are reported net pursuant to ASC 210-20-45, Balance Sheet Offsetting. Net repurchase agreements totaled $50.0 million and $350.0 million as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, $400.0 million of repurchase agreements were eligible for netting against resale agreements, resulting in $50.0 million of net repurchase agreements reported. In comparison, $100.0 million of gross repurchase agreements were eligible for netting against resale agreements, resulting in $350.0 million of net repurchase agreements reported as of December 31, 2016. As of September 30, 2017, gross repurchase agreements of $450.0 million had interest rates ranging between 3.54% to 3.58% and original terms ranging between 10.0 and 16.5 years. The remaining maturity terms of the repurchase agreements range between 5.1 and 5.9 years.



Repurchase agreements are accounted for as collateralized financing transactions and recorded at the balances at which the securities were sold. The collateral for the repurchase agreements is primarily comprised of U.S. Treasury securities, U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, and U.S. government agency and U.S. government sponsored enterprise debt securities. To ensure that the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funding from a diverse group of counterparties and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 5 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements.

Long-Term Debt
The Company uses long-term debt to provide funding to acquire income earning assets and enhance liquidity. Long-term debt, which consists of junior subordinated debt and a term loan, decreased $9.8 million or 5% from $186.3 million as of December 31, 2016 to $176.5 million as of September 30, 2017. The decrease was primarily due to the quarterly repayment on the term loan, totaling $10.0 million, during the nine months ended September 30, 2017.

The junior subordinated debt was issued in connection with the Company’s various pooled trust preferred securities offerings. Junior subordinated debt is recorded as a component of long-term debt and includes the value of the common stock issued by six wholly-owned subsidiaries in conjunction with these transactions. The junior subordinated debt totaled $152.6 million and $146.3 million as of September 30, 2017 and December 31, 2016, respectively. The junior subordinated debt had a weighted average interest rate of 2.73% and 2.22% for the nine months ended September 30, 2017 and 2016, respectively, and remaining maturity terms of 17.2 to 20.0 years as of September 30, 2017. Beginning in 2016, trust preferred securities no longer qualify as Tier 1 capital and are limited to Tier 2 capital for regulatory purposes, based on Basel III Capital Rules. For further discussion, see Item 1. Business — Supervision and Regulation — Capital Requirements of the Company’s 2016 Form 10-K.

In 2013, the Company entered into a $100.0 million three-year term loan agreement. The terms of the agreement were modified in 2015 to extend the term loan maturity from July 1, 2016 to December 31, 2018, where principal repayments of $5.0 million are due quarterly. The term loan bears interest at the rate of the three-month London Interbank Offered Rate plus 150 basis points and the weighted average interest rate was 2.65% and 2.19% for the nine months ended September 30, 2017 and 2016, respectively. The outstanding balance of the term loan was $30.0 million and $40.0 million as of September 30, 2017 and December 31, 2016, respectively.

Capital
The Company maintains an adequatestrong capital base to support its anticipated asset growth, operating needs and credit risks, and to ensure that East Westthe Company and the Bank are in compliance with allapplicable regulatory capital guidelines.requirements. The Company engages in regularregularly conducts capital planning, processesat a minimum on an annual basis, to optimize the use of available capital, and to appropriately plan for future capital needs. Theneeds, and to allocate capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. In addition,Furthermore, the Company conductsperforms capital stress tests as part of its annual capital planning process. The stress tests enable the Company to assess the impact of adverse changes in the economy and interest rates on its capital base.


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In March 2020, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s common stock. This $500.0 million repurchase authorization was inclusive of the Company’s $100.0 million stock repurchase authorization previously outstanding. The Company determines the timing and amount of stock repurchases, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. During the first quarter of 2020, the Company repurchased 4,471,682 shares at an average price of $32.64 per share for a total cost of $146.0 million. The Company did not repurchase any shares during the remainder of 2020 or in the first nine months of 2021. As of September 30, 2021, the total remaining available capital authorized for repurchase was $354.0 million.

The Company’s stockholders’ equity increased by $354.2 million or 10% to $3.78was $5.69 billion as of September 30, 2017, compared to $3.432021, an increase of $421.0 million or 8% from $5.27 billion as of December 31, 2016.2020. The increase in the Company’s primary source of capital is the retention of its operating earnings. Retained earnings increased by $333.1 million or 15%to $2.52 billion as of September 30, 2017, compared to $2.19 billion as of December 31, 2016. The increasestockholders’ equity was primarily due to net income of $420.7$655.2 million reducedfor the first nine months of 2021, partially offset by $87.6 million of cash dividends declared of $142.3 million and an increase in other comprehensive loss of $101.9 million during the first nine months ended September 30, 2017. In addition, common stock and additional paid-in capital increased by $17.7 million or 1.0% primarily due to the activities in employee stock compensation plans.of 2021. For other factors that contributed to the changes in stockholders’ equity, refer to theItem 1. Consolidated Financial Statements — Consolidated Statement of Changes in Stockholders’ Equity.Equity in this Form 10-Q.

Book value was $26.17$40.10 per common share based on 144.5 million common shares outstanding as of September 30, 2017, compared to $23.782021, an increase of 8% from $37.22 per common share based on 144.2 million common shares outstanding as of December 31, 2016.2020. The Company made dividend paymentspaid a quarterly cash dividends of $0.20$0.33 and $0.275 per common share in each quarter duringfor the nine months ended September 30, 2017third quarters of 2021 and 2016.2020, respectively. In October 2017,2021, the Company’s Board of Directors (the “Board”) declared fourth quarter 20172021 cash dividends for the Company’sof $0.33 per common stock.share. The common stock cash dividend of $0.20 per share is payable on November 15, 20172021 to stockholders of record as of November 1, 2017.2021.




Deposits and Other Sources of Funds

Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short- and long-term borrowings, and long-term debt. See Item 2.MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-Q for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funds as of September 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020Change
Amount%Amount%$%
Deposits
Noninterest-bearing demand$23,175,471 44 %$16,298,301 36 %$6,877,170 42 %
Interest-bearing checking6,530,601 12 %6,142,193 14 %388,408 6 %
Money market12,555,879 24 %10,740,667 24 %1,815,212 17 %
Savings2,855,597 5 %2,681,242 6 %174,355 7 %
Time deposits8,238,642 15 %9,000,349 20 %(761,707)(8)%
Total deposits$53,356,190 100 %$44,862,752 100 %$8,493,438 19 %
Other Funds
Short-term borrowings$— $21,009 $(21,009)(100)%
FHLB advances248,898 652,612 (403,714)(62)%
Repurchase agreements300,000 300,000 — — %
Long-term debt147,586 147,376 210 0 %
Total other funds$696,484 $1,120,997 $(424,513)(38)%
Total sources of funds$54,052,674 $45,983,749 $8,068,925 18 %

Deposits

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

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Total deposits were $53.36 billion as of September 30, 2021, an increase of $8.49 billion or 19% from $44.86 billion as of December 31, 2020. Deposit growth was attributable to strong growth in non-maturity deposits partially offset by a reduction in higher-cost time deposits, from both commercial and consumer customers. The strongest growth was in noninterest-bearing demand deposits, which grew by $6.88 billion or 42% from December 31, 2020. Noninterest-bearing demand deposits were $23.18 billion or 44% of total deposits as of September 30, 2021, up from $16.30 billion or 36% of total deposits as of December 31, 2020. Additional information regarding the impact of deposits on net interest income, with a comparison of average deposit balances and rates, is provided in Item 2. MD&A — Results of Operations — Net Interest Income in this Form 10-Q.

Other Sources of Funding

There were no short-term borrowings as of September 30, 2021. Short-term borrowings of $21.0 million as of December 31, 2020 consisted of borrowings entered into by the Company’s subsidiary, East West Bank (China) Limited.

FHLB advances were $248.9 million as of September 30, 2021, a decrease of $403.7 million from $652.6 million as of December 31, 2020. As of September 30, 2021, FHLB advances had floating interest rates ranging from 0.52% to 0.56% and remaining maturities between five months and 1.1 years.

Gross repurchase agreements totaled $300.0 million as of both September 30, 2021 and December 31, 2020. Resale and repurchase agreements are reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of both September 30, 2021 and December 31, 2020, the Company did not have any gross resale agreements that were eligible for netting. As of September 30, 2021, gross repurchase agreements had interest rates ranging from 2.35% to 2.40%, with original terms between 4.0 years and 8.5 years and remaining maturities between 1.8 years and 1.9 years.

Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the assets are sold. As of September 30, 2021, the collateral for the repurchase agreements was comprised of U.S. Treasury securities, and U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities. To ensure the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under the repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funds from a diverse group of counterparties, and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q.

The Company uses long-term debt to provide funding to acquire interest-earning assets, and to enhance liquidity and regulatory capital adequacy. Long-term debt totaled $147.6 million and $147.4 million as of September 30, 2021 and December 31, 2020, respectively. Long-term debt consists of junior subordinated debt, which qualifies as Tier 2 capital for regulatory capital purposes. The junior subordinated debt was issued in connection with the Company’s various pooled trust preferred securities offerings, as well as with common stock issued by the six wholly-owned subsidiaries of the Company in conjunction with these offerings. The junior subordinated debt had a weighted-average interest rate of 1.74% and 2.41% for the first nine months of 2021 and 2020, respectively, with remaining maturities ranging between 13.2 years and 16.0 years as of September 30, 2021.

Regulatory Capital and Ratios

The federal banking agencies have risk-based capital adequacy guidelinesrequirements intended to ensure that are designed to reflectbanking organizations maintain capital that is commensurate with the degree of risk associated with a banking organization’s operationsoperations. The Company and transactions.the Bank are subject to regulatory capital adequacy requirements. The guidelines cover transactions that are reported on the balance sheet as well as those recorded as off-balance sheet items. In 2013,Bank is a member bank of the Federal Reserve Board,System and is primarily regulated by the Federal Deposit Insurance CorporationReserve and Officethe California Department of Financial Protection and Innovation (“DFPI”). The Company and the Comptroller ofBank are required to comply with the Currency issued the final Basel III Capital Rules establishing a new comprehensive capital framework for strengthening international capital standards as well as implementing certain provisions ofadopted by the “Dodd-Frank Act”.federal banking agencies. Both the Company and the Bank are standardized approach institutions under Basel III Capital Rules. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and — Recent Regulatory Capital-Related Development of the Company’s 20162020 Form 10-K for additional details.

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The Basel III Capital Rules became effective for the Company and the Bankadopted Accounting Standards Update (“ASU”) 2016-13 on January 1, 2015 (subject2020. The Company has elected the phase-in option provided by the regulatory guidance, which delays the estimated impact of Current Expected Credit Losses (“CECL”) on regulatory capital for two years and phases the impact over three years. As a result, the effects of CECL on the Company’s and the Bank’s regulatory capital will be delayed through the year 2021, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. In April 2020, in recognition of the CARES Act requirements, and to phase-in periods for certain components).

The Basel III Capital Rules requirefacilitate the use of the PPPLF, the U.S. banking agencies issued an interim final rule that banking organizations maintainmay exclude from leverage and risk-based capital requirements any eligible assets sold or pledged to the Federal Reserve on a minimum CET1 rationon-recourse basis as part of 4.5%,the PPPLF. In addition, under the CARES Act, loans originated by a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%. Moreover,banking organization under the rules require that banking organizations maintain a capital conservation buffer of 2.5% abovePPP (whether or not sold or pledged in the capital minimums are being phased-in over four years beginning in 2016 (increasing by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019). When fully phased-in in 2019, the banking organizationsPPPLF) will be requiredrisk-weighted at zero percent for regulatory capital purposes. Accordingly, the September 30, 2021 capital ratios exclude the impact of the increased allowance for loan losses due to maintain a minimum CET1 capital ratio of 7.0%, a minimum Tier 1 capital ratio of 8.5%CECL, and a minimum total capital ratio of 10.5% to avoid limitations on capital distributions (including common stock dividends and share repurchases) and certain discretionary incentive compensation payments.

The Company is committed to maintaining capitalPPP loans are risk-weighted at a level sufficient to assure the Company’s stockholders, customers and regulators that the Company and the Bank are financially sound.zero percent. As of September 30, 2017 and December 31, 2016, both2021, the Company and the Bankdid not have any PPPLF outstanding. Accordingly, there were considered “well-capitalized,” and met all capital requirementsno PPP loans pledged as collateral. The PPPLF ceased extending credit on a fully phased-in basis under the Basel III Capital Rules.July 30, 2021.


The following table presents the Company’s and the Bank’s capital ratios as of September 30, 20172021 and December 31, 20162020 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:
Basel III Capital Rules
September 30, 2021December 31, 2020Minimum
Regulatory
Requirements
Fully Phased-in
Minimum
Regulatory
Requirements (2)
Well-
Capitalized
Requirements
CompanyEast West
Bank		CompanyEast West
Bank
Risk-based capital ratios:
CET1 capital (1)
12.8 %12.3 %12.7 %12.1 %4.5 %7.0 %6.5 %
Tier 1 capital12.8 %12.3 %12.7 %12.1 %6.0 %8.5 %8.0 %
Total capital14.2 %13.3 %14.3 %13.4 %8.0 %10.5 %10.0 %
Tier 1 leverage (1)
8.8 %8.5 %9.4 %9.0 %4.0 %4.0 %5.0 %
 
  Basel III Capital Rules
 September 30, 2017 December 31, 2016 
Minimum
Regulatory
Requirements
 
Well-
Capitalized
Requirements
 
Fully
Phased-in
Minimum
Regulatory
Requirements
 Company East
West
Bank		 Company East
West
Bank		   
CET1 risk-based capital 11.4% 11.3% 10.9% 11.3% 4.5% 6.5% 7.0%
Tier 1 risk-based capital 11.4% 11.3% 10.9% 11.3% 6.0% 8.0% 8.5%
Total risk-based capital 12.9% 12.3% 12.4% 12.3% 8.0% 10.0% 10.5%
Tier 1 leverage capital 9.4% 9.3% 8.7% 9.1% 4.0% 5.0% 4.0%
 

(1)The Company’s CET1 and Tier 1 capital ratios have improved by 49 basis points, while the total risk-based and Tier 1 leverage components of the “well-capitalized” requirements apply only to the Bank since there is no CET1 or Tier 1 leverage ratio component in the regulatory definition of a well-capitalized bank-holding company. In addition, the Tier 1 risk-based capital ratio requirement for the Company to be considered well-capitalized is 6.0%.
(2)As of January 1, 2019, the 2.5% capital conservation buffer above the minimum risk-based capital ratios increased by 48was required in order to avoid limitations on distributions, including dividend payments and 65 basis points, respectively, duringcertain discretionary bonus payments to executive officers.

The Company is committed to maintaining strong capital levels to assure the nine months endedCompany’s investors, customers and regulators that the Company and the Bank are financially sound. As of September 30, 2017. The improvement was primarily driven by2021 and December 31, 2020, both the increases in revenues, primarily dueCompany and the Bank continued to exceed all “well-capitalized” capital requirements and the fully phased-in required minimum capital requirements under the Basel III Capital Rules. Total risk-weighted assets were $42.13 billion as of September 30, 2021, an increase in net interest income and net gains recorded from the sale of commercial property during the first quarter of 2017. The $1.82$3.72 billion or 7% increase in risk-weighted assets increased10% from $27.36$38.41 billion as of December 31, 2016 to $29.18 billion as of September 30, 20172020. The increase in the risk-weighted assets was primarily due to loan growth and increased AFS debt securities.

Other Matters

London Interbank Offered Rate Transition

On March 5, 2021, the growthUnited Kingdom’s Financial Conduct Authority (“FCA”) confirmed that the one-week and two-month U.S. dollar (“USD”) London Interbank Offered Rate (“LIBOR”) settings will permanently cease following the LIBOR publication on December 31, 2021, and that the overnight, one-month, three-month, six-month and 12-month USD LIBOR settings will permanently cease following the LIBOR publication on June 30, 2023. The federal banking agencies have continued to encourage banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR, although the adoption of SOFR remains voluntary. The ARRC has also formally recommended the CME Group’s forward-looking SOFR term rates. The ARRC supports the use of SOFR term rates for business loan activity and continues to recommend using forms of overnight and averages of SOFR where possible. On October 6, 2021, the ARRC released a summary of its spread-adjusted fallback recommendations for contracts referencing USD LIBOR.

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A majority of the Company’s Consolidated Balance Sheets. As of SeptemberLIBOR-based loans, derivatives, debt securities, resale agreements, junior subordinated debt and repurchase agreements are indexed to LIBOR tenors that will cease to be published after June 30, 2017, the Company’s CET1 risk-based capital, Tier 1 risk-based capital, total risk-based capital ratios and Tier 1 leverage capital ratios were 11.4%, 11.4%, 12.9% and 9.4%, respectively, well above the well-capitalized requirements of 6.5%, 8.0%, 10.0% and 5.0%, respectively.

Regulatory Matters

2023. The Bank entered into a Written Agreement, dated November 9, 2015, with the Federal Reserve Bank of San Francisco (the “Written Agreement”), to correct less than satisfactory BSA and AML programs detailed in a joint examination by the Federal Reserve Bank of San Francisco (“FRB”) and the California Department of Business Oversight (“DBO”). The Bank also entered into a related Memorandum of Understanding (“MOU”) with the DBO in 2015. See Item 7. MD&A — Regulatory Matters and Note 18 — Regulatory Requirements and Matters to the Consolidated Financial Statementsvolume of the Company’s 2016 Form 10-KLIBOR-based products that mature after June 30, 2023 is significant and, if not sufficiently planned for, further details.the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to the Company.




The transition is anticipated to span several reporting periods through mid-2023 with the confirmed LIBOR cessation dates. The Company believescreated a cross-functional team to manage the communication of the Company’s transition plans with both internal and external stakeholders and to ensure that the Bank is making progressCompany appropriately updates its business processes, analytical tools, information systems and contract language to minimize disruptions during and after the LIBOR transition. The Company has taken steps to transition LIBOR contracts maturing after the LIBOR cessation dates to alternative rates. Beginning in executing the compliance plans and programs required byfourth quarter of 2021, the Written Agreement and MOU, although there can beCompany will no assurances that our plans and progresslonger extend new LIBOR-based loans as a primary offering to customers. The Company will be found to be satisfactory by our regulators. To date, the Bank has added significant resources to meet the monitoring and reporting obligations imposed by the Written Agreement and will continue to require significant management and third party consultant resources to comply with the Written Agreement and MOU, and to address anyoffer new variable rate loans based on alternative reference rates. For additional findings or recommendations by the regulators. These incremental administrative and third party costs, as well as the operational restrictions imposed by the Written Agreement, may adversely affect the Bank’s results of operations.

If additional compliance issues are identified or the regulators determine the Bank has not satisfactorily complied with the terms of the Written Agreement, the regulators could take further actions with respectinformation related to the Bank and, if such further actions were taken, such actions could have a material adverse effectpotential impact surrounding the transition from LIBOR on the Bank. The operating and other conditionsCompany’s business, see Item 1A. Risk Factors in the BSA and AML program and the auditing and oversight of the program that led to the Written Agreement and MOU could also lead to an increased risk of being subject to additional actions by the DBO and FRB, an increased risk of future examinations that may downgrade the regulatory ratings of the Bank, and an increased risk investigations by other government agencies may result in fines, penalties, increased expenses or restrictions on operations. Company’s 2020 Form 10-K.


Off-Balance Sheet Arrangements

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


Commitments to Extend Credit

As a financial service provider, the Company routinely enters into commitments to extend credit to customers, such as loan commitments, commercial letters of credit for foreign and domestic trade, SBLCsstandby letters of credit (“SBLCs”) and financial guarantees.guarantees to meet the financing needs of its customers. Many of these commitments to extend credit may expire without being drawn upon. The credit policies used in underwriting loans to customers are also used to extend these commitments. Under some of these contractual agreements, the Company may also have liabilities contingent upon the occurrence of certain events. The Company’s liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of its lending activities. The following table presents

Guarantees

In the ordinary course of business, the Company periodically enters into various guarantee agreements in which the Company sells or securitizes loans with recourse. Under these guarantee arrangements, the Company is contingently obligated to repurchase the recourse component of the loans when the loans default.

Further information and discussion about the Company’s loan commitments, commercial letters of credit, and SBLCs, as of September 30, 2017:
 
($ in thousands) Commitments
Outstanding
Loan commitments $4,956,515
Commercial letters of credit and SBLCs $1,757,648
 

 A discussion ofguarantees, and significant contractual arrangements under which the Company may be held contingently liable is included in Note 11 9—Commitments and Contingenciesto the Consolidated Financial Statements.Statements in this Form 10-Q. In addition, the Company has commitments and obligations under post-retirement benefit plans as described in Note 15 14 — Employee Benefit Plans to the Consolidated Financial Statements of the Company’s 20162020 Form 10-K, and has contractual obligations for future payments on debts, borrowings and lease obligations as detailed in Item 7 —7. MD&A — Off-Balance Sheet Arrangements and Aggregate Contractual Obligations of the Company’s 20162020 Form 10-K.




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Asset Liability and Market

Risk Management

LiquidityOverview

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

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

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

Credit Risk Management

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

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

The Company assesses the overall credit quality performance of the loan held-for-investment portfolio through an integrated analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: Credit Quality, Nonperforming Assets, Troubled Debt Restructurings (“TDRs”) and Allowance for Credit Losses.

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Credit Quality

The Company utilizes a credit risk rating system to assist in monitoring credit quality. Loans are evaluated using the Company’s internal credit risk rating of one through ten. Loans risk rated one through five are assigned an internal risk rating category of “Pass.” Loans assigned with a credit risk rating of six have potential weaknesses that warrant closer attention by management and are assigned an internal risk rating category of “Special mention.” Loans assigned a credit risk rating of seven or eight have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating category of “Substandard.” Loans assigned a credit risk rating of nine have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating category of “Doubtful.” Loans assigned a credit risk rating of ten are uncollectible and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating category of “Loss.” Exposures categorized as criticized consist of “Special mention,” “Substandard,” “Doubtful” and “Loss” categories. Exposures categorized as classified consist of “Substandard,” “Doubtful” and “Loss” categories. For more information on credit quality indicators, refer to Note 6 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

The following table presents the Company’s criticized loans as of September 30, 2021 and December 31, 2020:
($ in thousands)Change
September 30, 2021December 31, 2020$%
Criticized loans
Special mention loans$448,497 $564,555 $(116,058)(21)%
Classified loans561,787 652,880 (91,093)(14)%
Total criticized loans$1,010,284 $1,217,435 $(207,151)(17 %)
Special mention loans to loans held-for-investment1.11 %1.47 %
Classified loans to loans held-for-investment1.39 %1.70 %
Criticized loans to loans held-for-investment2.50 %3.17 %

Nonperforming Assets

Nonperforming assets are comprised of nonaccrual loans, other real estate owned (“OREO”) and other nonperforming assets. Other nonperforming assets and OREO are repossessed assets and properties, respectively, acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. Loans are generally placed on nonaccrual status when they become 90 days past due or when the full collection of principal or interest becomes uncertain regardless of the length of past due status. Collectability is generally assessed based on economic and business conditions, the borrower’s financial condition, and the adequacy of collateral, if any. For additional details regarding the Company’s nonaccrual loan policy, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

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The following table presents information regarding nonperforming assets as of the periods indicated:
($ in thousands)Change
September 30, 2021December 31, 2020$%
Commercial:
C&I$97,157 $133,939 $(36,782)(27)%
CRE:
CRE14,236 46,546 (32,310)(69)%
Multifamily residential1,123 3,668 (2,545)(69)%
Total CRE15,359 50,214 (34,855)(69)%
Consumer:
Residential mortgage:
Single-family residential9,422 16,814 (7,392)(44)%
HELOCs8,731 11,696 (2,965)(25)%
Total residential mortgage18,153 28,510 (10,357)(36)%
Other consumer2,491 2,491 — 0 %
Total nonaccrual loans133,160 215,154 (81,994)(38)%
OREO, net28,800 15,824 12,976 82 %
Other nonperforming assets10,681 3,890 6,791 175 %
Total nonperforming assets$172,641 $234,868 $(62,227)(26)%
Nonperforming assets to total assets
0.28 %0.45 %
Nonaccrual loans to loans held-for-investment0.33 %0.56 %
Allowance for loan losses to nonaccrual loans420.85 %288.16 %
TDRs included in nonperforming loans$77,583 $71,924 

Nonaccrual loans decreased $82.0 million or 38% from $215.2 million as of December 31, 2020 to $133.2 million as of September 30, 2021. This decrease was predominantly due to resolutions of C&I oil and gas exposures and CRE loans.

As of September 30, 2021, C&I comprised 73% and CRE comprised 12% of total nonaccrual loans. As of December 31, 2020, C&I and total CRE loans comprised 62% and 23% of total nonaccrual loans, respectively. As of September 30, 2021, $101.9 million or 77% of nonaccrual loans were less than 90 days delinquent. In comparison, $106.4 million or 49% of nonaccrual loans were less than 90 days delinquent as of December 31, 2020.

OREO was $28.8 million as of September 30, 2021, an increase of $13.0 million or 82% from $15.8 million as of December 31, 2020. The increase was due to an addition of a CRE office property totaling $28.8 million, which the Company took possession of during the third quarter of 2021, offset by a sale of a retail CRE property.

Other nonperforming assets totaled $10.7 million and $3.9 million as of September 30, 2021 and December 31, 2020, respectively, a net increase of $6.8 million or 175%, due to transfers from oil and gas loans to foreclosed assets, partially offset by sales and write-downs of oil and gas foreclosed assets.

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The following table presents the accruing loans past due by portfolio segment as of September 30, 2021 and December 31, 2020:
($ in thousands)
Total Accruing Past Due Loans (1)
ChangePercentage of
Total Respective Loan Portfolios
September 30,
2021		December 31,
2020		$%September 30,
2021		December 31,
2020
Commercial:
C&I$16,704 $9,717 $6,987 72 %0.12 %0.07 %
CRE:
CRE593 375 218 58 %0.01 %0.00 %
Multifamily residential1,914 1,818 96 5 %0.06 %0.06 %
Construction and land— 19,900 (19,900)(100 %)0.00 %3.32 %
Total CRE2,507 22,093 (19,586)(89 %)0.02 %0.15 %
Total commercial19,211 31,810 (12,599)(40 %)0.07 %0.11 %
Consumer:
Residential mortgage:
Single-family residential17,153 12,494 4,659 37 %0.19 %0.15 %
HELOCs4,297 6,052 (1,755)(29 %)0.22 %0.38 %
Total residential mortgage21,450 18,546 2,904 16 %0.20 %0.19 %
Other consumer184 234 (50)(21 %)0.14 %0.14 %
Total consumer21,634 18,780 2,854 15 %0.19 %0.19 %
Total$40,845 $50,590 $(9,745)(19 %)0.10 %0.13 %
(1)There were no accruing loans past due 90 days or more as of both September 30, 2021 and December 31, 2020.

Troubled Debt Restructurings

TDRs are loans for which contractual terms have been modified by the Company for economic or legal reasons related to a borrower’s financial difficulties, and for which a concession to the borrower was granted that the Company would not otherwise consider. The following table presents the performing and nonperforming TDRs by portfolio segment as of September 30, 2021 and December 31, 2020. The allowance for loan losses for TDRs was $12.3 million as of September 30, 2021 and $10.3 million as of December 31, 2020.
($ in thousands)September 30, 2021December 31, 2020
Performing
TDRs		Nonperforming
TDRs		TotalPerforming
TDRs		Nonperforming
TDRs		Total
Commercial:
C&I$65,998 $75,415 $141,413 $85,767 $68,451 $154,218 
CRE:
CRE23,544 — 23,544 24,851 — 24,851 
Multifamily residential5,302 204 5,506 3,310 1,448 4,758 
Construction and land— — — 19,900 — 19,900 
Total CRE28,846 204 29,050 48,061 1,448 49,509 
Consumer:
Residential mortgage:
Single-family residential6,640 1,113 7,753 6,748 1,169 7,917 
HELOCs2,579 851 3,430 2,631 856 3,487 
Total residential mortgage9,219 1,964 11,183 9,379 2,025 11,404 
Total TDRs$104,063 $77,583 $181,646 $143,207 $71,924 $215,131 

As of September 30, 2021, performing TDRs were $104.1 million, a decrease of $39.1 million or 27% from $143.2 million as of December 31, 2020. This decrease mainly reflected payoffs of performing C&I and construction TDRs, partially offset by the transfers of C&I TDRs from nonperforming to performing status. Over 95% and 85% of the performing TDRs were current as of September 30, 2021 and December 31, 2020, respectively.

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Nonperforming TDRs were $77.6 million as of September 30, 2021, an increase of $5.7 million or 8% from $71.9 million as of December 31, 2020. This increase mainly reflected newly designated nonperforming C&I TDR loans, partially offset by paydowns, payoffs and transfers of certain C&I TDRs from nonperforming to performing status.

Existing TDRs that were subsequently modified in response to the COVID-19 pandemic continue to be classified as TDRs. As of September 30, 2021, there were no TDRs that were provided subsequent modifications related to the COVID-19 pandemic. As of December 31, 2020, there were four TDRs totaling $11.8 million that were provided subsequent modifications related to the COVID-19 pandemic.

Loan Modifications Due to COVID-19 Pandemic

Since late March 2020, under various forbearance programs, the Company has granted a range of commercial and consumer loan accommodations, predominantly in the form of payment deferrals, to provide relief to borrowers experiencing financial hardship due to the COVID-19 pandemic. Section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, 2021 (“CAA”), permits a financial institution to elect to temporarily suspend TDR accounting under ASC Subtopic 310-40 in certain circumstances. To be eligible under Section 4013 of the CARES Act, as modified by the CAA, a loan modification must be (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the federal National Emergency or (b) January 1, 2022. The federal banking regulators, in consultation with the Financial Accounting Standards Board (“FASB”), issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customer Affected by the Coronavirus (Revised) (the “Interagency Statement”) on April 7, 2020 confirming that, for loans not subject to Section 4013 of the CARES Act, short-term modifications (i.e., six months or less) made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current as of the implementation date of a loan modification, or modifications granted under government mandated modification programs, are not considered as TDRs under ASC Subtopic 310-40. See additional information in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Troubled Debt Restructurings to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

The delinquency aging of loans modified related to the COVID-19 pandemic is frozen at the time of the modification. As a result, the recognition of delinquent loans, nonaccrual status and loan net charge-offs may be delayed for certain borrowers who are enrolled in these loan modification programs, which would have otherwise moved into past due or nonaccrual status. Interest income continues to be recognized over the accommodation periods.

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The following table provides a summary of the COVID-19 pandemic-related loan modifications that remained under their modified terms as of September 30, 2021 and December 31, 2020. These amounts represent loan modifications that meet the criteria under Section 4013 of the CARES Act, as amended by the CAA, or the Interagency Statement and therefore are not considered as TDRs. These amounts also exclude loan modifications related to the COVID-19 pandemic made on existing TDRs. A loan is counted once in the table regardless of the number of accommodations the borrower has received.
($ in thousands)September 30, 2021December 31, 2020
Number of LoansOutstanding Balance% of Balance
to Respective Loan Portfolio		Number of LoansOutstanding Balance% of Balance
to Respective Loan Portfolio
Payment deferral and forbearance
Commercial:
C&I8$11,156 0 %16$54,215 0 %
CRE:
CRE39465,2824 %63597,9725 %
Multifamily residential6113,5063 %417,1111 %
Construction and land154,07714 %366,62911 %
Total CRE46632,865 4 %70681,712 5 %
Total commercial54644,021 2 %86735,927 3 %
Consumer:
Residential mortgage:
Single-family residential19880,4561 %498207,7973 %
HELOCs4222,5101 %10239,4692 %
Total residential mortgage240102,966 1 %600247,266 3 %
Total consumer240102,966 1 %600247,266 2 %
Total payment deferral and forbearance294$746,987 2 %686$983,193 3 %

The above table excludes loan modifications related to the COVID-19 pandemic that did not meet the criteria provided under Section 4013 of the CARES Act, as amended by the CAA, or the Interagency Statement, and that were evaluated and deemed to not be classified as TDRs. The determination to not consider a modification a TDR was made on the premise that the amount of the delayed restructured payments was insignificant relative to the unpaid principal or the collateral value of the loan, resulting in an insignificant shortfall in the contractual amount due from the borrower, or an insignificant delay in the timing of the restructured payment period relative to the payment frequency under the loan’s original contractual maturity or expected duration.

The COVID-19 pandemic-related loan modifications primarily consisted of payment deferrals six months or less in duration, in the form of either principal payment deferrals, where the borrower was still paying interest, or full principal and interest payment deferrals. Other forbearance programs consisted of interest rate concessions. The deferred payments for commercial loans are either repaid at contractual maturity or spread over the remaining contractual term of the loan. The deferred payments for consumer loans are repaid under defined payment plans between six to 72 months after the deferral period ends, or the loan term is extended beyond the contractual maturity by the number of payments deferred.

As of September 30, 2021, the Company had $747.0 million of loans under payment deferral and forbearance programs, a decrease of $236.2 million or 24% from $983.2 million as of December 31, 2020. The loans on deferral as of September 30, 2021 and December 31, 2020, largely consisted of CRE and residential mortgage loans. The year-to-date decrease in loans on deferral reflected the lifting of COVID-19 related business shutdowns and restrictions on travel and restaurant dining. The increase of CRE COVID-19 related loan deferrals that were making at least partial payments from 73% as of December 31, 2020 to 92% as of September 30, 2021 also signaled improvements in the economy. Loans that have exited the modification program were predominantly current as of September 30, 2021. The Company monitors the delinquency status of loans exiting relief programs on an ongoing basis. The impacts of the COVID-19 loan modifications were considered in the determination of the allowance for credit loss.
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Allowance for Credit Losses

The Company’s measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The allowance for credit losses estimate uses various models and estimation techniques based on historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts, and other relevant factors. In the case of loans and securities, allowance for credit losses are contra-asset valuation accounts that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of unfunded credit commitments, the allowance for credit losses is a liability account that is reported as a component of Accrued expenses and other liabilities in our Consolidated Balance Sheet.

In addition to the allowance for loan losses, the Company maintains an allowance for unfunded credit commitments. The Company has three general areas for which it provides the allowance for unfunded credit commitments: 1) recourse obligations for loans sold, 2) letters of credit, and 3) unfunded lending commitments. The Company’s methodology for determining the allowance calculation for unfunded lending commitments uses the lifetime loss rates of the on-balance sheet commitment. Recourse obligations for loans sold and letters of credit use the weighted loss rates for the applicable segment of the individual credit.

The Company is committed to maintaining the allowance for credit losses at a level that is commensurate with the estimated inherent losses in the loan portfolio, including unfunded credit facilities. While the Company believes that the allowance for credit losses as of September 30, 2021 was appropriate to absorb losses inherent in the loan portfolio and in unfunded credit commitments based on the information available, future allowance levels may increase or decrease based on a variety of factors, including but not limited to, accounting standard and regulatory changes, loan growth, portfolio performance and general economic conditions. For a description of the policies, methodologies and judgments used to determine the allowance for credit losses, see Item 7. MD&A — Critical Accounting Policies and Estimates of the Company’s 2020 Form 10-Kand Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K, and Note 6—Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

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The following table presents an allocation of the allowance for loan losses by loan portfolio segments and unfunded credit commitments as of September 30, 2021 and December 31, 2020:
($ in thousands)September 30, 2021December 31, 2020
Allowance
Allocation		% of Loan Type to Total LoansAllowance
Allocation		% of Loan Type to Total Loans
Allowance for loan losses
Commercial:
C&I$342,142 35 %$398,040 36 %
CRE:
CRE150,049 29 %163,791 29 %
Multifamily residential19,917 8 %27,573 8 %
Construction and land22,294 1 %10,239 2 %
Total CRE192,260 38 %201,603 39 %
Total commercial534,402 73 %599,643 75 %
Consumer:
Residential mortgage:
Single-family residential18,292 22 %15,520 21 %
HELOCs3,392 5 %2,690 4 %
Total residential mortgage21,684 27 %18,210 25 %
Other consumer4,318 0 %2,130 0 %
Total consumer26,002 27 %20,340 25 %
Total allowance for loan losses$560,404 100 %$619,983 100 %
Allowance for unfunded credit commitments$28,036 $33,577 
Total allowance for credit losses$588,440 $653,560 
Loans held-for-investment$40,481,705 $38,390,955 
Allowance for loan losses to loans held-for-investment1.38 %1.61 %
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Average loans held-for-investment$39,959,972 $37,157,095 $39,441,410 $36,485,980 
Annualized net charge-offs to average loans held-for-investment0.13 %0.26 %0.14 %0.16 %

The allowance for loan losses was $560.4 million as of September 30, 2021, a decrease of $59.6 million from $620.0 million as of December 31, 2020, primarily driven by a reduction in the allowance against the C&I loan portfolio. The change in the allowance reflects year-to-date improvement in the macroeconomic forecast, partially offset by loan growth.

The Company considers multiple economic scenarios to develop the estimate of the allowance for loans. The scenarios may consist of a base forecast representing management's view of the most likely outcome and downside or upside scenarios reflecting possible worsening or improving economic conditions. The base forecast assumed an end to the worst of the COVID-19 pandemic and continuing improvement in the economic outlook, with annual GDP growth estimated at 6.0% and 4.3% for 2021 and 2022, respectively, and the projected unemployment rate declining to 3.4% by the end of 2022. The downside scenario assumed a pullback in the expected economic recovery due to rising concerns with COVID-19 variants and a rise in unemployment. The upside scenario assumed a more optimistic view for the economic recovery, including higher GDP growth through next year and a faster return to full employment.

As of September 30, 2021 and December 31, 2020, PPP loans outstanding were $807.3 million and $1.57 billion, respectively. Since PPP loans are 100% guaranteed by the SBA, there were no allowance for loan losses provided for these loans as of September 30, 2021 and December 31, 2020.

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Third quarter 2021 net charge-offs were $13.5 million or annualized 0.13% of average loans-held-for-investment, compared with $24.2 million or annualized 0.26% of average loans held-for-investment for the same period of 2020. In the first nine months of 2021, net charge-offs were $40.2 million or annualized 0.14% of average loans held-for-investment, compared with $44.3 million or annualized 0.16% of average loans held-for-investment for the first nine months of 2020. The year-over-year decreases for both periods were primarily due to a decrease in C&I charge-offs, partially offset by higher CRE charge-offs. The recognition of certain loan charge-offs could be delayed due to payment deferral activities instituted in response to the COVID-19 pandemic.

The following tables summarize activities in the allowance for loan losses for loans by portfolio segments for the third quarters and first nine months of 2021 and 2020:
($ in thousands)Three Months Ended September 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$362,528 $161,962 $21,925 $15,643 $16,530 $2,938 $4,198 $585,724 
(Reversal of) provision for credit losses on loans(a)(23,365)2,129 (2,660)9,058 2,537 435 130 (11,736)
Gross charge-offs(1,154)(14,229)— (2,674)(912)— (10)(18,979)
Gross recoveries4,203 187 652 267 137 19 — 5,465 
Total net recoveries (charge-offs)3,049 (14,042)652 (2,407)(775)19 (10)(13,514)
Foreign currency translation adjustment(70)— — — — — — (70)
Allowance for loan losses, end of period$342,142 $150,049 $19,917 $22,294 $18,292 $3,392 $4,318 $560,404 
($ in thousands)Three Months Ended September 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$380,723 $176,040 $25,058 $18,551 $25,314 $3,867 $2,518 $632,071 
Provision for (reversal of) credit losses on loans(a)31,691 (8,301)(1,916)(8,180)(2,692)(637)(76)9,889 
Gross charge-offs(25,111)(1,414)— — — — (124)(26,649)
Gross recoveries1,218 485 665 30 — 43 — 2,441 
Total net (charge-offs) recoveries(23,893)(929)665 30 — 43 (124)(24,208)
Foreign currency translation adjustment500 — — — — — — 500 
Allowance for loan losses, end of period$389,021 $166,810 $23,807 $10,401 $22,622 $3,273 $2,318 $618,252 
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($ in thousands)Nine Months Ended September 30, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$398,040 $163,791 $27,573 $10,239 $15,520 $2,690 $2,130 $619,983 
(Reversal of) provision for credit losses on loans(a)(42,112)11,227 (9,436)14,407 3,522 707 2,226 (19,459)
Gross charge-offs(20,162)(25,558)(130)(2,954)(1,046)(45)(43)(49,938)
Gross recoveries6,301 589 1,910 602 296 40 5 9,743 
Total net (charge-offs) recoveries(13,861)(24,969)1,780 (2,352)(750)(5)(38)(40,195)
Foreign currency translation adjustment75 — — — — — — 75 
Allowance for loan losses, end of period$342,142 $150,049 $19,917 $22,294 $18,292 $3,392 $4,318 $560,404 
($ in thousands)Nine Months Ended September 30, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period$238,376 $40,509 $22,826 $19,404 $28,527 $5,265 $3,380 $358,287 
Impact of ASU 2016-13 adoption74,237 72,169 (8,112)(9,889)(3,670)(1,798)2,221 125,158 
Allowance for loan losses, January 1, 2020312,613 112,678 14,714 9,515 24,857 3,467 5,601 483,445 
Provision for (reversal of) credit losses on loans(a)130,171 46,449 7,273 828 (2,659)(20)(3,197)178,845 
Gross charge-offs(57,466)(2,688)— — — (221)(180)(60,555)
Gross recoveries3,395 10,371 1,820 58 424 47 94 16,209 
Total net (charge-offs) recoveries(54,071)7,683 1,820 58 424 (174)(86)(44,346)
Foreign currency translation adjustment308 — — — — — — 308 
Allowance for loan losses, end of period$389,021 $166,810 $23,807 $10,401 $22,622 $3,273 $2,318 $618,252 

The following table summarizes activity in the allowance for unfunded credit commitments for the third quarters and first nine months of 2021 and 2020:
($ in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$26,300 $28,972 $33,577 $11,158 
Impact of ASU 2016-13 adoption— — — 10,457 
Provision for (reversal of) credit losses on unfunded credit commitments(b)1,736 111 (5,541)7,468 
Allowance for unfunded credit commitments, end of period$28,036 $29,083 $28,036 $29,083 
(Reversal of) provision for credit losses(a) + (b)$(10,000)$10,000 $(25,000)$186,313 

The allowance for unfunded credit commitments was $28.0 million as of September 30, 2021, compared with $33.6 million as of December 31, 2020.

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Liquidity Risk Management

Liquidity

Liquidity is a financial institution’s capacity to meet its contractualdeposit and contingent financial obligations on or off-balance sheet,to other counterparties as they become due.come due, or to obtain adequate funding at a reasonable cost to meet those obligations. The Company’s primaryobjective of liquidity management objective is to provide sufficient funding for its businesses throughout market cyclesmanage the potential mismatch of asset and be ableliability cash flows. Maintaining an adequate level of liquidity depends on the institution’s ability to manageefficiently meet both expected and unexpected cash flowand collateral needs and requirements without adversely impactingaffecting daily operations or the financial healthcondition of the Company.institution. To achieve this objective, the Company analyzes its liquidity risk, maintains readily available liquid assets, and accessesutilizes diverse funding sources including its stable core deposit base.

The Board of Directors’ Risk Oversight Committee has primary oversight responsibility over liquidity risk management. At the management level, the Company’s Asset/Liability Committee (“ALCO”) setsestablishes the liquidity guidelines that govern the day-to-day active management of the Company’s liquidity position.position by requiring sufficient asset-based liquidity to cover potential funding requirements and avoid over-dependence on volatile, less reliable funding markets. These guidelines are established and monitored for both the Bank and East West on a stand-alone basis to ensure that the Company can serve as a source of financial strength for its subsidiaries. The ALCO regularly monitors the Company’s liquidity status and related management processes, and providesproviding regular reports to the Board.Board of Directors. The Company believes its liquidity management practices have been effective under normal operating and stressed market conditions.


Liquidity Risk — Liquidity Sources. The Company’s primary source of funding is from deposits generated by its banking business, which are relatively stable and low-cost. Total deposits amounted to $53.36 billion as of September 30, 2021, compared with $44.86 billion as of December 31, 2020. The Company’s loan-to-deposit ratio was 76% as of September 30, 2021, compared with 86% as of December 31, 2020.

In addition to deposits, the Company has access to various sources of wholesale funding, as well as borrowing capacity with the FHLB and Federal Reserve Bank of San Francisco (“FRBSF”) to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute its business strategy. Economic conditions and the stability of capital markets impact the Company’s access to and the cost of wholesale financing. The Company’s access to capital markets is also affected by the ratings received from various credit rating agencies. See Item 2— MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funds in this Form 10-Q for further detail related to the Company’s funding sources.

The Company maintains liquidity in the form of cash and cash equivalents, interest-bearing deposits with banks, short-term resale agreements and available-for-sale investmentunencumbered high-quality and liquid AFS debt securities. These assets totaled $5.10 billion and $5.54 billion, accounting for 14% and 16% of totalThe following table presents the Company’s liquid assets as of September 30, 20172021 and December 31, 2016, respectively. Traditional forms of funding such as customer deposits and borrowings augment these2020:
($ in thousands)September 30, 2021December 31, 2020
EncumberedUnencumberedTotalEncumberedUnencumberedTotal
Cash and cash equivalents$— $4,852,901 $4,852,901 $— $4,017,971 $4,017,971 
Interest-bearing deposits with banks— 855,162 855,162 — 809,728 809,728 
Short-term resale agreements— 1,961,142 1,961,142 — 900,000 900,000 
U.S. Treasury, and U.S. government agency and U.S. government-sponsored enterprise debt securities378,213 1,926,620 2,304,833 91,637 773,443 865,080 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities481,425 3,584,106 4,065,531 494,132 2,320,532 2,814,664 
Foreign government bonds— 254,848 254,848 — 182,531 182,531 
Municipal securities— 501,489 501,489 1,033 395,040 396,073 
Non-agency mortgage-backed securities, asset-backed securities and CLOs261 1,967,373 1,967,634 434 879,908 880,342 
Corporate debt securities— 618,671 618,671 1,249 404,719 405,968 
Total$859,899 $16,522,312 $17,382,211 $588,485 $10,683,872 $11,272,357 

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Unencumbered liquid assets. Total customer deposits amounted to $31.31assets totaled $16.52 billion as of September 30, 2017,2021, compared to $29.89with $10.68 billion as of December 31, 2016,2020. AFS debt securities, included as part of which core deposits comprised 81%liquidity sources, consist of total deposits ashigh quality and liquid securities with moderate durations to minimize overall interest rate and liquidity risks. The Company believes these AFS debt securities provide quick sources of eachliquidity to obtain financing, regardless of September 30, 2017 and December 31, 2016. market conditions, through sale or pledging.

As a means of augmenting the Company’sto generate incremental liquidity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and FRB,FRBSF, unsecured federal funds’funds lines of credit with various correspondent banks, for purchase of overnight funds, and several master repurchase agreements with major brokerage companies. The Company’sAs of September 30, 2021, the Company had available borrowing capacity of $22.40 billion, including $9.67 billion with the FHLB and FRB was $6.45$3.88 billion and $3.23 billion, respectively, as of September 30, 2017. The Bank’s unsecured federal funds’ lines of credit, subject to availability, totaled $731.0 million with correspondent banks as of September 30, 2017.the FRBSF. The Company believes that its liquidity sources are sufficient to meet all reasonably foreseeable short-term needs. Unencumbered loans and/or debt securities were pledged to the FHLB and intermediate-term needs.
the FRBSF discount window as collateral. The Company experienced nethas established operational procedures to enable borrowing against these assets, including regular monitoring of the total pool of loans and debt securities eligible as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRBSF and is subject to change at their discretion. The Bank’s unsecured federal funds lines of credit with correspondent banks, subject to availability, totaled $1.01 billion as of September 30, 2021. Estimated borrowing capacity from unpledged AFS debt securities totaled $7.84 billion as of September 30, 2021.

Liquidity Risk — Liquidity for East West. In addition to bank level liquidity management, the Company manages liquidity at the parent company level for various operating needs including payment of dividends, repurchases of common stock, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries. East West’s primary source of liquidity is from cash inflows from operating activitiesdividends distributed by its subsidiary, East West Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends as discussed in Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of $665.0Funds of the Company’s 2020 Form 10-K. East West held $344.4 million and $417.6 million during the nine months ended September 30, 2017 and 2016, respectively. The $247.4 million increase in net cash inflows from operating activities between these periods was primarily due to a $99.8 million increase in net income, a $108.3 million increase in net changes in cash flows receivable from other assets and a $76.2 million increase in net changes in the cash flows from accrued expenses and other liabilities, partially offset by a $32.5 million change in non-cash amounts. The $108.3 million increase in net changes in cash flows receivable from other assets, comparing the nine months ended September 30, 2017 to the same period in 2016, was primarily due to a reduction in tax receivables, and an increase in fair value of interest rate swaps and options during the nine months ended September 30, 2016 contributing to operating cash outflows in that period. The $76.2 million increase in net changes in the cash flows from accrued expenses and other liabilities, comparing the nine months ended September 30, 2017 to the same period in 2016, was primarily due to a larger wire transfer in transit and an increase in tax payables.

Net cash used in investing activities totaled $2.07 billion and $473.3 million during the nine months ended September 30, 2017 and 2016, respectively. The $1.59 billion increase in net cash used in investing activities was primarily due to a $1.69 billion increase in net cash outflows from loans held-for-investment, partially offset by a $150.0 million increase in net cash inflows from resale agreements.

During the nine months ended September 30, 2017 and 2016, the Company experienced net cash inflows from financing activities of $1.24 billion and $365.6 million, respectively. Net cash inflows from financing activities of $1.24 billion during the nine months ended September 30, 2017 was primarily comprised of a $1.39 billion net increase in customer deposits, partially offset by $87.9$439.1 million in cash dividends paid. Netand cash inflows from financing activitiesequivalents as of $365.6 million during the same period in 2016 were primarily comprised of a $1.13 billion net increase in customer depositsSeptember 30, 2021 and a $37.7 million increase in short-term borrowings, partially offset by a $700.0 million repayment of short-term FHLB advances and $87.0 million in cash dividends paid.

December 31, 2020, respectively. As of September 30, 2017,2021, management believes that East West has sufficient cash and cash equivalents to service its operating needs.

Liquidity Risk — Liquidity Stress Testing. Liquidity stress testing is performed at the Company is not awarelevel, as well as at the foreign subsidiary and foreign branch levels. Stress tests and scenario analyses are intended to quantify the potential impact of any trends,a liquidity event on the financial and liquidity position of the entity. Scenario analyses include assumptions about significant changes in key funding sources, market triggers, and potential uses of funding and economic conditions in certain countries. In addition, Company specific events or uncertainties that had or were reasonably likelyare incorporated into the stress testing. Liquidity stress tests are conducted to haveascertain potential mismatches between liquidity sources and uses over a material effect on its liquidity position. Furthermore,variety of time horizons, both immediate and longer term, and over a variety of stressed conditions. Given the range of potential stresses, the Company ismaintains contingency funding plans on a consolidated basis and for individual entities.

As of September 30, 2021, the Company was not aware of any material commitments for capital expenditures in the foreseeable future.future and believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business. Given the uncertainty and the rapidly changing market and economic conditions related to the COVID-19 pandemic, the Company will continue to actively evaluate the nature and extent of the impact on its business and financial position. For more information of how the COVID-19 pandemic may impact our liquidity, see Item 1A. Risk Factors — Risks Related to the COVID-19 Pandemic of the Company’s 2020 Form 10-K.


99


East West’sConsolidated Cash Flows Analysis

The following table presents a summary of the Company’s Consolidated Statement of Cash Flows for the periods indicated. While this information may be helpful to highlight business strategies and certain macroeconomic trends, the cash flow analysis may not be as relevant when analyzing changes in the Company’s net earnings and assets. The Company believes that in addition to this traditional cash flow analysis, the discussion related to liquidity has historically been dependent onin Item 2. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-Q may provide a useful context in evaluating the paymentCompany’s liquidity position and related activity.
($ in thousands)Nine Months Ended September 30,
20212020
Net cash provided by operating activities$745,831 $432,098 
Net cash used in investing activities(7,817,886)(4,520,267)
Net cash provided by financing activities7,903,443 5,322,358 
Effect of exchange rate changes on cash and cash equivalents3,542 11,603 
Net increase in cash and cash equivalents834,930 1,245,792 
Cash and cash equivalents, beginning of period4,017,971 3,261,149 
Cash and cash equivalents, end of period$4,852,901 $4,506,941 

Operating Activities — During the first nine months of 2021, net cash provided by operating activities mainly reflected inflow of $655.2 million from net income, plus net income adjusted for certain noncash items of $128.7 million, and a $30.2 million increase in accrued expenses and other liabilities, partially offset by a $78.6 million increase in accrued interest receivable and other assets. In comparison, during the same period in 2020, net cash provided by operating activities mainly reflected inflow of $403.7 million from net income, net income adjusted for certain noncash items of $273.2 million and a $220.3 million increase in accrued expenses and other liabilities, partially offset by a $467.1 million increase in accrued interest receivable and other assets.

Investing Activities —During the first nine months of 2021, cash used in investing activities primarily reflected $4.30 billion of net AFS debt securities purchases (net of sales, maturities and redemptions), $2.13 billion in cash used for growth in the loan portfolio, and $1.14 billion in net resale agreements purchases (net of paydowns and maturities). During the same period in 2020, net cash used in investing activities primarily reflected cash outflows of $2.67 billion from loans held-for-investment, $1.14 billion of net AFS debt securities purchases (net of sales, maturities and redemptions), and $503.2 million in cash used for interest-bearing deposits with banks.

Financing Activities —During the first nine months of 2021, net cash provided by financing activities primarily reflected a net increase of $8.49 billion in deposits, partially offset by $405.0 million in repayment of FHLB advances, and $141.9 million in cash dividends paid. During the same period in 2020, net cash provided by its subsidiary, East West Bank, subject to applicable statutes, regulationsfinancing activities primarily reflected net increases of $4.34 billion in deposits and special approval. The Bank paid total$1.43 billion in PPPLF advances, partially offset by $146.0 million in shares repurchased and $119.2 million in cash dividends of $255.0 million and $100.0 million to East West duringpaid.

Market Risk Management

Market risk is the nine months ended September 30, 2017 and 2016, respectively. In addition, in October 2017, the Board declared a quarterly cash dividend of $0.20 per share forrisk that the Company’s common stock payablefinancial condition may change resulting from adverse movements in market rates or prices including interest rates, foreign exchange rates, interest rate contracts, investment securities prices, credit spreads and related risk resulting from mismatches in rate sensitive assets and liabilities. In the event of market stress, the risk could have a material impact on November 15, 2017our results of operations and financial condition.

The Board’s Risk Oversight Committee has primary oversight responsibility over market risk management. At the management level, the ALCO establishes and monitors compliance with the policies and risk limits pertaining to stockholders of record on November 1, 2017.market risk management activities. Corporate Treasury supports the ALCO in measuring, monitoring and managing interest rate risk as well as all other market risks.


100

Interest Rate Risk Management


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


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


The interest rate risk exposure is measured and monitored through various risk management tools, which include a simulation model that performs interest rate sensitivity analysisanalyses under multiple interest rate scenarios. The model includesincorporates the Company’s cash instruments, loans, investmentdebt securities, resale agreements, customer deposits, borrowings and borrowing portfolios, including repurchase agreements. Theagreements, as well as financial instruments from the Company’s domestic and foreign operations, forecasted noninterest income and noninterest expense items are also incorporated in the simulation. The interest rate scenarios simulated include an instantaneous parallel shift and non-parallel shift in the yield curve. In addition, the Company also performs various simulations using alternative interest rate scenarios. The alternative interest rate scenarios include yield curve flattening, yield curve steepening and yield curve inverting. In order to apply the assumed interest rate environment, adjustments are made to reflect the shift in the U.S. Treasury and other appropriate yield curves.operations. The Company incorporatesuses both a static balance sheet and a forward growth balance sheet in order to perform these evaluations.analyses. The simulated interest rate scenarios include a non-parallel shift in the yield curve (“rate shock”) and a gradual non-parallel shift in the yield curve (“rate ramp”). In addition, the Company also performs simulations using alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting. Results of these various simulations are used to formulate and gauge strategies to achieve a desired risk profile within the Company’s capital and liquidity guidelines.


The net interest income simulation model is based on the actual maturity and re-pricingrepricing characteristics of the Company’s interest-rate sensitive assets, liabilities and related derivative contracts. It also incorporates various assumptions, which management believes to be reasonable but may have a significant impact on results. These assumptions include, but are not limited to, the timing and magnitude of changes in interest rates, the yield curve evolution and shape, the correlation between various interest rate indices, financial instrument future repricing characteristics and spread relative to benchmark rates, and the effect of interest rate floors and caps. The modeled results are highly sensitive to the deposit decay and deposit beta assumptions, used for deposits that do not have specific maturities. The Company uses historicalwhich are derived from a regression analysis of the Company’s internalhistorical deposit data as a guidedata. Deposit beta commonly refers to set deposit decay assumptions. In addition, the model is also highly sensitive to certain assumptions on the correlation of the changechanges in interest rates paid on core deposits to changes in benchmark market interest rates, commonly referred to as deposit beta assumptions. Deposit beta assumptions are based on the Company’s historical experience.rates. The model is also sensitive to the loan and investment prepayment assumption. The loanassumptions, based on an independent model and investmentthe Company’s historical prepayment assumption,data, which considers theconsider anticipated prepayments under different interest rate environments, is based on an independent model, as well as the Company’s historical prepayment experiences.environments.


Existing investment securities, loans, customer deposits and borrowings are assumed to roll into new instruments at a similar spread relative to benchmark interest rates and internal pricing guidelines. The assumptions applied in the model are documented and supported for reasonableness. Changes to key model assumptions are reviewed by the ALCO. Due to the sensitivity of the model results, the Company performs periodic testing to assess the impact of the assumptions. The Company also makes appropriate calibrations when necessary. Scenarios do not reflect strategies that management could employ to limit the impact as interest rate expectations change. Simulation results are highly dependent on theseinput assumptions. To the extent actual behavior is different from the assumptions in the models, there could be a material change in interest rate sensitivity. The assumptions applied in the model are documented and supported for reasonableness, and periodically back-tested to assess their effectiveness. The Company makes appropriate calibrations to the model as needed, continually refining the model, methodology and results. Changes to key model assumptions are reviewed by the ALCO. Scenario results do not reflect strategies that management could employ to limit the impact of changing interest rate expectations.



Since the federal funds rate range was lowered to near zero in March 2020 and the Federal Reserve has committed its resources to support the U.S. economy, it is not expected that rates will decline further, nor is it expected that rates will enter into the negative territory. Consequently, the simulation results for the downward interest rate scenarios as of September 30, 2021 are not provided.


101

Twelve-Month Net Interest Income Simulation

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

The federal funds target rate range was 0.25% as of both September 30, 2021 and December 31, 2020. After lowering the range to between 0.00% and 0.25% in March 2020, the Federal Open Market Committee (“FOMC”) pledged to maintain monetary support for the economy. In the September 2021 meeting, the FOMC held the federal funds target rate at between 0.00% and 0.25%. The FOMC statement repeated language that inflation was transitory, but also acknowledged the inflation was elevated. In November 2021 meeting, the FOMC voted to continue to hold the federal funds target rate at between 0.00% and 0.25% and to begin tapering its asset purchases in mid-November. The Bank anticipates the first rate hike will take place in 2022.

The following table presents the Company’s net interest income and economic value of equity (“EVE”) sensitivity as of September 30, 2017 and December 31, 2016 related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis pointsbps in both directions:upward direction as of September 30, 2021 and December 31, 2020.
Change in Interest Rates
(in bps)
Net Interest Income Volatility (1)
September 30, 2021December 31, 2020
+20016.3 %12.6 %
+1007.8 %5.6 %
-100NMNM
-200NMNM
 
Change in
Interest Rates
(BP)
 
Net Interest
Income
   Volatility (1)
 
EVE
    Volatility (2)
 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
+200 20.5 % 22.4 % 13.4 % 12.3 %
+100 11.4 % 12.0 % 7.0 % 7.5 %
-100 (8.0)% (6.8)% (3.7)% (5.0)%
-200 (10.4)% (7.5)% (9.6)% (9.3)%
 
(1)The percentage change represents net interest income over 12 months in a stable interest rate environment versus net interest income in the various rate scenarios.
(2)The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

NM — Not meaningful.
Twelve-Month(1)The percentage change represents net interest income over 12 months in a stable interest rate environment versus net interest income in the various rate scenarios.

The Company’s net interest income profile as of September 30, 2021 reflects an asset sensitive position. Net Interest Income Simulationinterest income is expected to increase if interest rates rise and to decrease if interest rates decline. The potential impact of rate decreases is partially reduced due to the current low rate environment with the federal funds rate floored and the federal funds rate range between 0.00% and 0.25%. The Company is naturally asset sensitive due to the large share of variable rate loans in its loan portfolio, which are primarily linked to Prime and LIBOR indices. The Company’s interest income is vulnerable to changes in short-term interest rates. However, given the current low level of interest rates, the potential for further rate decreases is limited, which reduces the Bank’s exposure to risks associated with falling rates. The Company’s deposit portfolio is primarily comprised of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates.


The Company’s estimated twelve-month net interest income sensitivity as of September 30, 20172021 was slightly lowerhigher as compared to December 31, 2016 for both upward interest rate scenarios, as simulated increases in interest income are offset by an increase inwith the rate of repricing for the Company’s deposit portfolio. In a simulated downward interest rate scenario, sensitivity increased overall for both of the downward interest rate scenarios, mainly due to the impact of the recent interest rate increases on December 14, 2016, March 15, 2017, and June 14, 2017. As interest rates rise further away from all time historical lows, there is more room for the Company’s simulated interest income to decline in a downward interest rate scenario, relative to previous simulations.
Under most rising interest rate environments, the Company would expect some customers to move balances in demand deposits into higher interest-bearing deposits such as money market, savings or time deposits. The models are particularly sensitive to the assumption about the rate of such migration. The federal funds target rate was between 0.50% and 0.75% as of December 31, 2016,2020 under both higher rate scenarios. This reflects both an increased rate sensitivity in the Company’s assets and between 1.00%an increase in noninterest bearing deposits.

102

While an instantaneous and 1.25% as of September 30, 2017. It should be noted that despitesustained non-parallel shift in market interest rates was used in the two interest rate increasessimulation model described in 2017, as of September 30, 2017,the preceding paragraphs, the Company has not experienced this deposit movement, though there canbelieves that any shift in interest rates would likely be no assurance as to how long this is expected to last.more gradual and would therefore, have a more modest impact. The rate ramp table below shows the net income volatility under a gradual non-parallel shift of the yield curve upward direction, in even quarterly increments over the first 12 months, followed by rates held constant thereafter:

Change in Interest Rates
(in bps)
Net Interest Income Volatility (1)
September 30, 2021December 31, 2020
+200 Rate Ramp7.1 %4.9 %
+100 Rate Ramp3.0 %2.2 %
-100 Rate RampNMNM
-200 Rate RampNMNM
NM — Not meaningful.
(1)The following table presents the Company’spercentage change represents net interest income under a gradual non-parallel shift in even quarterly increments over 12 months.
The Company believes that the rate ramp table, shown above, when evaluated together with the results of the rate shock simulation, presents a more meaningful indication of the potential impact of rising interest rates to the Company’s twelve-month net interest income. During the third quarter of 2021, the Company’s modeled asset sensitivity as of September 30, 2017increased under simulations for the +100up 200 and +200 basis points interest rate scenarios assuming a $1.00 billion, $2.00 billion and $3.00 billion demand deposit migrations:up 100 bps ramp scenarios.
 
Change in
Interest Rates
(BP)
 Net Interest Income Volatility
 September 30, 2017
 
$1.00 Billion
Migration
12 Months
 
$2.00 Billion
Migration
12 Months
 
$3.00 Billion
Migration
12 Months
+200 18.3% 16.0% 13.8%
+100 9.9% 8.5% 7.0%
   


Economic Value of Equity at Risk


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

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

The following table presents the Company’s EVE sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 bps in an upward direction as of September 30, 2021 and December 31, 2020:
Change in Interest Rates
(in bps)
EVE Volatility (1)
September 30, 2021December 31, 2020
+2004.5 %9.6 %
+1002.6 %4.8 %
-100NMNM
-200NMNM
NM — Not meaningful.
(1)The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

The Company’s EVE sensitivity increasedfor the upward interest rate scenarios decreased as of September 30, 2017,2021, compared towith the results as of December 31, 2016, for both of the upward interest rate scenarios. In the simulated upward 100 basis points and 200 basis points interest rate scenarios,2020. The changes in EVE sensitivity was 7.0% and 13.4%, respectively. The increase in sensitivity as of September 30, 2017 compared to December 31, 2016 in the upward interest rate scenario wasduring this period were primarily due to changes in the level and shape of the yield curve and changes in balance sheet portfolio mix. EVE declined 3.7% and 9.6% of the base level as of September 30, 2017 in declining rate scenarios of 100 and 200 basis points, respectively.




The Company’s net interest income and EVE profile as of September 30, 2017, as presented in the net interest income and EVE tables,2021 reflects an asset sensitive netEVE position under the higher interest income position and an asset sensitive EVE position. The Company is naturally asset sensitive due to its large portfolio of rate-sensitive loans that are funded in part by noninterest-bearing and rate-stable core deposits. As a result, if there are no significant changes in the mix of assets and liabilities, net interest income increases when interest rates increase, and decreases when interest rates decrease.rate scenarios. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, and the shape of the yield curve, actual results may vary from those predicted by the Company’s model.


103

Derivatives


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


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

The following table summarizes certain information about the derivative financial instruments utilized by the Company in its management of interest rate risk and foreign currency risk as of September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
($ in thousands)Interest Rate ContractsForeign Exchange ContractsInterest Rate ContractsForeign Exchange Contracts
Derivatives designated as hedging instruments:Cash Flow HedgesNet Investment HedgesCash Flow HedgesNet Investment Hedges
Notional amounts:$275,000 $85,316 $275,000 $84,269 
Fair value:
Recognized as an asset— 158 — — 
Recognized as a liability1,149 — 1,864 235 
Net fair value$(1,149)$158 $(1,864)$(235)
Weighted-average interest rates:
Pay fixed (receive floating)0.351%
(3-month USD-LIBOR)		NM0.483%
(3-month USD-LIBOR)		NM
Weighted-average remaining term to maturity (in months):16.9 2.7 25.8 2.6 
Derivatives not designated as hedging instruments:Interest Rate ContractsForeign Exchange ContractsInterest Rate ContractsForeign Exchange Contracts
Notional amounts:$17,743,446 $3,047,846 $18,155,678 $3,108,488 
Fair value:
Recognized as an asset298,83131,717489,13230,300
Recognized as a liability212,17924,313315,83422,524
Net fair value$86,652 $7,404 $173,298 $7,776 
NM — Not meaningful.

104

Derivatives Designated as Hedging Instruments — Interest Rate Swapsrate and foreign exchange derivative contracts are utilized in our asset and liability management activities and serve as an efficient tool to manage the Company’s interest rate risk and foreign exchange risk. We use derivatives to hedge the risk of variable cash flows that the Company is exposed to from its variable interest rate borrowings, including repurchase agreements and FHLB advances. The Company also uses derivatives to hedge the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited. For both cash flow and net investment hedges, the change in the fair value of the hedging instruments is recognized in Accumulated other comprehensive (loss) income, net of tax, on Certificatesthe Consolidated Balance Sheet.

The fluctuation in foreign currency translation of Deposit —the hedged exposure is expected to be offset by changes in the fair value of the forwards. As of September 30, 2017 and December 31, 2016,2021, the Company had two cancellableoutstanding foreign currency forwards effectively hedged approximately 50% of the Chinese Renminbi exposure in East West Bank (China) Limited.

Changes to the composition of the Company’s derivatives designated as hedging instruments reflect actions taken for interest rate swap contracts with original terms of 20 years.risk and foreign exchange rate risk management. The objective of these interest rate swaps, which were designated as fair value hedges, wasdecisions to obtain low-cost floating rate fundingreposition our derivatives portfolio are based on the Company’s brokered certificatescurrent assessment of deposit. As of September 30, 2017economic and December 31, 2016, underfinancial conditions, including the terms of the swap contracts, the Company received a fixed interest rate and paid a variable interest rate. Asforeign currency environments, balance sheet composition and trends, and the relative mix of September 30, 2017our cash and December 31, 2016, the notional amounts of the Company’s brokered certificates of deposit interest rate swaps were $42.6 million and $48.4 million, respectively. The fair value liabilities of the interest rate swaps were $6.6 million and $6.0 millionderivative positions.

Derivatives Not Designated as of September 30, 2017 and December 31, 2016, respectively.

Interest Rate Swaps and OptionsHedging Instruments — The Company also offers variousenters into interest rate, derivative productsforeign exchange and energy commodity contracts to support the business needs of its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with registered swap dealers. Thesethird-party financial institutions. The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through a clearinghouse or over-the-counter.

The Company offers various interest rate derivative contracts to its customers. For the interest rate contracts entered into with its customers, the Company managed its interest rate risk by entering into offsetting interest rate contracts with third-party financial institutions including with central clearing organizations. Certain derivative contracts entered with central clearing organizations are settled-to-market daily to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. Derivative contracts allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are not linked to any specific Company assets or liabilities on the Consolidated Balance SheetsSheet, or to forecasted transactions in a hedgehedging relationship, and are therefore areclassified as economic hedges. The contracts are marked to marketmarked-to-market at each reporting period. Fair values are determined from verifiable third-party sources that have considerable experience with derivative markets. The Company provides data to the third party source to calculate the credit valuation component of thechanges in fair values of the client derivative contracts.

As of September 30, 2017,contracts traded with third-party financial institutions are expected to be largely comparable to the total notional amounts of interest rate swaps and options, including mirrored transactions with institutional counterparties and the Company’s customers, totaled $4.37 billion for derivatives that werechanges in an asset valuation position and $4.37 billion for derivatives that were in a liability valuation position. As of December 31, 2016, the total notional amounts of interest rate swaps and options, including mirrored transactions with institutional counterparties and the Company’s customers, totaled $3.86 billion for derivatives that were in an asset valuation position and $3.81 billion for derivatives that were in a liability valuation position. The fair values of interest rate swap and optionthe derivative transactions executed with customers throughout the terms of these contracts, with institutional counterpartiesexcept for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the Company’s customers amounted to a $64.8 million assetcounterparties, considering the effects of enforceable master netting agreements and a $64.2 million liability as of September 30, 2017. The fair values of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $67.6 million asset and a $65.1 million liability as of December 31, 2016.collateral arrangements.


Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, primarily comprisedconsisting of forward, spot, swap and spotoption contracts to enableaccommodate the business needs of its customers to hedge their transactions in foreign currencies from fluctuations in foreign exchange rates, and also to allow the Company to economically hedge against foreign currency fluctuations in certain foreign currency denominated deposits that it offers to its customers, as well as the Company’s investment in its China subsidiary, East West Bank (China) Limited.

customers. For a majority of the foreign exchange transactionscontracts entered into with its customers, the Company entersmanaged its foreign exchange and credit exposures by entering into offsetting foreign exchange contracts with institutionalthird-party financial institutions and/or entering into bilateral collateral and master netting agreements with customer counterparties. The changes in the fair values entered with third-party financial institutions are expected to be largely comparable to the changes in fair values of the foreign exchange transactions executed with customers throughout the terms of these contracts. As of September 30, 2021, the Company anticipates performance by all counterparties and has not experienced nonperformance by any of its counterparties, and therefore did not incur any related losses. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign exchange risk. These transactions are economic hedges and the Company does not apply hedge accounting.currency on-balance sheet items, primarily foreign currency denominated deposits offered to its customers. The Company’s policies also permit taking proprietary currency positions within approved limits, in compliance with theexemptions to proprietary trading exemptionrestrictions provided under Section 619 of the Dodd-Frank Act.Wall Street Reform and Consumer Protection Act, or the Volcker Rule. The Company does not speculate in the foreign exchange markets, and actively manages its foreign exchange exposures within prescribed risk limits and defined controls.




ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions and ASC 815, Derivatives and Hedging, The Company enters into energy commodity contracts with its customers to allow hedging of the foreign currency risk of a net investment in a foreign operation. During the fourth quarter of 2015, the Company began entering into foreign currency forward contractsthem to hedge its investment in East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. The hedging instruments, designated as net investment hedges, involve hedging the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in China, against the risk of adversefluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions, including with central clearing organizations. Certain derivative contracts entered into with central clearing organizations are settled-to-market daily, to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. The changes in the foreign currency exchange rate. The notional amount and fair value of the net investment hedges were $83.0 million and a $4.3 million asset, respectively, as of December 31, 2016. Since recent policy changes by the People’s Bank of China, the central bank of the People’s Republic of China, as well as market sentiments have caused a divergence in the exchange rate movements of the on-shore Chinese Renminbi and off-shore Chinese Renminbi, the net investment hedge relationships were dedesignated during the first quarter of 2017, even though they continued to meet the hedge effectiveness test. As of September 30, 2017, the notional amount and fair value of these two foreign exchange forward contracts designated as economic hedges were $93.3 million and a $4.8 million liability, respectively, and have been included in the foreign exchange contracts’ notional amount of $1.13 billion and fair value of $14.2 million disclosed below.

As of September 30, 2017 and December 31, 2016, the Company’s total notional amounts of the foreign exchange contracts that were not designated as hedging instruments were $1.13 billion and $767.8 million, respectively. The fair values of the foreign exchangeenergy commodity contracts were a $14.2 million asset and a $20.1 million liability, respectively, as of September 30, 2017 and an $11.9 million asset and an $11.2 million liability, respectively, as of December 31, 2016.

Credit Risk Participation Agreements — The Company has entered into credit risk participation agreements (“RPAs”) under whichtraded with third-party financial institutions are expected to be largely comparable to the Company assumed its pro-rata sharechanges in fair values of the credit exposure associatedenergy commodity transactions executed with customers throughout the borrower’s performance related to interest rate derivativeterms of these contracts. The Company may or may not be a party to the interest rate derivative contract and enters into such RPAs in instances where the Company is a party to the related loan participation agreement with the borrower. The Company will make/receive payments under the RPAs if the borrower defaults on its obligation to perform under the interest rate derivative contract. The Company manages its credit risk on the RPAs by monitoring the credit worthiness of the borrowers, which is based on the normal credit review process. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. As of September 30, 2017, the notional amount and fair value of the RPAs purchased were $47.8 million and a $1 thousand liability, respectively. As of September 30, 2017, the notional amount and fair value of the RPAs sold were $20.6 million and a $2 thousand asset, respectively. As of December 31, 2016, the notional amount and fair value of the RPAs purchased were $48.3 million and a $3 thousand liability, respectively. As of December 31, 2016, the notional amount and fair value of the RPAs sold were $23.1 million and a $3 thousand asset, respectively.

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Warrants — The Company obtained warrants to purchase preferred and common stock of technology and life sciences companies, as part of the loan origination process. As of September 30, 2017, the warrants included on the Consolidated Financial Statements were from public and private companies. The Company valued 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 duration-matched U.S. Treasury rate and market-observable company-specific option volatility as inputs to value the warrants. 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 option volatility assumption was based on public market indices that include members that operate in similar industries as the companies in our private company portfolio. The model values were further adjusted for a general lack of liquidity due to the private nature of the underlying companies. As of September 30, 2017, the total fair value of the warrants held in public and private companies was a $1.5 million asset.

Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 20162020 Form 10-K, and Note 4 2 —Fair Value Measurement and Fair Value of Financial Instruments and Note 7 5 — Derivatives to the Consolidated Financial Statements.Statements in this Form 10-Q.


Impact of Inflation

The primary impact of inflation on our operations is reflected in increased operating costs and in the effect that inflation may have on both short- and long-term interest rates. Since almost all the assets and liabilities of a financial institution are monetary in nature, interest rates generally have a more significant impact on a financial institution's performance than inflation. While inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.

Critical Accounting Policies and Estimates


SignificantThe Company’s significant accounting policies (see (Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements and Item 7. MD&A — Critical Accounting Policies and Estimates of the Company’s 20162020 Form 10-K) are fundamental to understanding the Company’s reported results.our results of operations and financial condition. Some accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In addition, some accounting policiesassessments and may require significant judgmentjudgments in applying complex accounting principles to individual transactions, to determinewhere actual results could differ materially from the most appropriate treatment.Company’s estimates. The Company has procedures and processes in place to facilitate making these judgments.



Certain In addition, certain accounting policies are consideredmore likely than others to have a critical effect on the Company’s Consolidated Financial Statements, inand may apply to areas of relatively greater business importance. The following accounting policies are critical to the Company’s judgment. In each area, the Company has identified the most important variables in the estimation process. The Company has used the best information available to make the estimations necessary for the related assets and liabilities. Actual results could differ from the Company’s estimates, and future changes in the key variables could change future valuations and impact the results of operations. The following is a list of the more judgmental and complex accounting estimates and principles:Consolidated Financial Statements:

•fair value of financial instruments;
available-for-sale investment securities;
PCI loans;
•allowance for loan losses and unfunded credit losses;commitments;
•goodwill impairment; and
•income taxes.


Recently Issued Accounting Standards

For a detailed discussion and disclosure on new accounting pronouncements adopted, see Note 1—Basis of Presentation and recent accounting pronouncements issued, see Note 2 — Current Accounting Developments to the Consolidated Financial Statements.Statements in this Form 10-Q.



Reconciliation of GAAP to Non-GAAP Financial Measures

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

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The following tables present the reconciliations of U.S. GAAP to non-GAAP financial measures for the periods presented:
($ in thousands)Three Months EndedNine Months Ended
September 30, 2021June 30,
2021		September 30, 2020September 30, 2021September 30, 2020
Net interest income before provision for credit losses(a)$395,706 $376,473 $324,130 $1,125,874 $1,030,612 
Total noninterest income (1)
73,109 68,431 54,503 214,406 165,715 
Total revenue(b)$468,815 $444,904 $378,633 $1,340,280 $1,196,327 
Total noninterest expense (1)
(c)$205,384 $189,523 $172,573 $585,984 $537,671 
Less: Amortization of tax credit and other investments (1)
(38,008)(27,291)(17,209)(90,657)(57,819)
 Amortization of core deposit intangibles(705)(710)(927)(2,147)(2,811)
 Repurchase agreements’ extinguishment cost— — — — (8,740)
Non-GAAP noninterest expense(d)$166,671 $161,522 $154,437 $493,180 $468,301 
Efficiency ratio(c)/(b)43.81 %42.60 %45.58 %43.72 %44.94 %
Non-GAAP efficiency ratio(d)/(b)35.55 %36.30 %40.79 %36.80 %39.14 %
(1)Starting fourth quarter of 2020, the Company reclassified certain income/losses from equity-method investments from Amortization of tax credit and other investments to Other investment income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.



($ and shares in thousands, except per share data)		September 30, 2021June 30, 2021September 30, 2020
Stockholders’ equity(a)$5,690,201 $5,547,548 $5,126,106 
Less: Goodwill(465,697)(465,697)(465,697)
Other intangible assets (1)
(9,849)(10,309)(12,369)
Non-GAAP tangible common equity(b)$5,214,655 $5,071,542 $4,648,040 
Total assets(c)$60,959,110 $59,854,876 $50,371,477 
Less: Goodwill(465,697)(465,697)(465,697)
Other intangible assets (1)
(9,849)(10,309)(12,369)
Non-GAAP tangible assets(d)$60,483,564 $59,378,870 $49,893,411 
Total stockholders’ equity to total assets(a)/(c)9.33 %9.27 %10.18 %
Non-GAAP tangible common equity to tangible assets(b)/(d)8.62 %8.54 %9.32 %
Number of common shares at period-end(e)141,884 141,878 141,507 
Non-GAAP tangible common equity per share(b)/(e)$36.75 $35.75 $32.85 
(1)Includes core deposit intangibles and mortgage servicing assets.

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($ in thousands)Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2020September 30, 2021September 30, 2020
Net income$225,449 $224,742 $159,537 $655,185 $403,713 
Add: Amortization of core deposit intangibles705 710 927 2,147 2,811 
  Amortization of mortgage servicing assets430 420 450 1,264 1,492 
Tax effect of adjustments (1)
(322)(321)(390)(968)(1,220)
Non-GAAP tangible net income(a)$226,262 $225,551 $160,524 $657,628 $406,796 
Average stockholders’ equity$5,680,306 $5,425,952 $5,079,351 $5,482,705 $5,028,122 
Less: Average goodwill(465,697)(465,697)(465,697)(465,697)(465,697)
  Average other intangible assets (2)
(10,135)(10,827)(13,083)(10,847)(14,302)
Average non-GAAP tangible equity(b)$5,204,474 $4,949,428 $4,600,571 $5,006,161 $4,548,123 
Return on average non-GAAP tangible equity (3)
(a)/(b)17.25 %18.28 %13.88 %17.56 %11.95 %
(1)Applied statutory rate of 28.37% for the third quarter and first nine months of 2021, and the second quarter of 2021. Applied statutory tax rate of 28.35% for the third quarter and first nine months of 2020.
(2)Includes core deposit intangibles and mortgage servicing assets.
(3)Annualized.

Three Months EndedNine Months Ended
Yield on Average Loans
($ in thousand)		September 30,
2021		June 30,
2021		September 30,
2020		September 30,
2021		September 30,
2020
Interest income on loans(a)$363,503 $352,453 $336,542 $1,057,964 $1,115,804 
Less: Interest income on PPP loans(15,212)(15,377)(7,778)(45,606)(29,067)
Adjusted interest income on loans(b)$348,291 $337,076 $328,764 $1,012,358 $1,086,737 
Average loans(c)$39,960,151 $39,622,270 $37,160,445 $39,441,751 $36,487,859 
Less: Average PPP loans(1,111,404)(1,870,385)(1,764,411)(1,634,617)(1,078,985)
Adjusted average loans(d)$38,848,747 $37,751,885 $35,396,034 $37,807,134 $35,408,874 
Average loan yield (1)
(a)/(c)3.61 %3.57 %3.60 %3.59 %4.08 %
Adjusted average loan yield (1)
(b)/(d)3.56 %3.58 %3.70 %3.58 %4.10 %
(1)Annualized.
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Forward-Looking Statements

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

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such differences, some of which are beyond the Company’s control, include, but are not limited to:
•changes in the U.S. economy, including an economic slowdown, inflation, deflation, housing prices, employment levels, rate of growth and general business conditions;
•changes in local, regional and global business, economic and political conditions and geopolitical events;
•the economic, financial, reputational and other impacts of the ongoing COVID-19 global pandemic and variants thereof and any other pandemic, epidemic or health-related crisis, as well as a deterioration of asset quality and an increase in credit losses due to the COVID-19 global pandemic;
•changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the SEC, the Consumer Financial Protection Bureau, and the DFPI;
•the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the U.S. and the People’s Republic of China;
•changes in the commercial and consumer real estate markets;
•changes in consumer or commercial spending, and savings and borrowing habits, patterns and behaviors;
•fluctuations in the Company’s stock price;
•changes in income tax laws and regulations;
•the Company’s ability to compete effectively against financial institutions in its banking markets and other entities, including as a result of emerging technologies;
•the soundness of other financial institutions;
•success and timing of the Company’s business strategies;
•the Company’s ability to retain key officers and employees;
•impact on the Company’s funding costs, net interest income and net interest margin from changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;
•changes in the Company’s costs of operation, compliance and expansion;
•the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;
•impact of the benchmark interest rate reform in the U.S. including the transition away from USD LIBOR to alternative reference rates;
•impact of communications or technology disruption, failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with which the Company does business, including as a result of cyber-attacks, and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused and materially impact the Company’s ability to provide services to its clients;
•adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
•future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;
•impact of adverse changes to the Company’s credit ratings from major credit rating agencies;
•impact of adverse judgments or settlements in litigation;
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•impact on the Company’s operations due to political developments, disease pandemics, wars, civil unrest, terrorism or other hostilities that may disrupt or increase volatility in securities or otherwise affect business and economic conditions;
•heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;
•impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations, legal actions and the Company’s interactions with business partners, counterparties, service providers and other third parties;
•impact of regulatory enforcement actions;
•changes in accounting standards as may be required by the FASB or other regulatory agencies and their impact on critical accounting policies and assumptions;
•impact of other potential federal tax changes and spending cuts;
•the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;
•impact on the Company’s liquidity due to changes in the Company’s ability to pay dividends and repurchase common stock and to receive dividends from its subsidiaries;
•any future strategic acquisitions or divestitures;
•changes in the equity and debt securities markets;
•fluctuations in foreign currency exchange rates;
•impact of increased focus on social, environmental and sustainability matters, which may affect the Company’s operations as well as those of its customers and the economy more broadly;
•significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, declines in asset values and/or recognition of allowance for credit losses on securities held in the Company’s AFS debt securities portfolio; and
•impact of climate change, natural or man-made disasters or calamities, such as wildfires, droughts and earthquakes, all of which are particularly common in California, or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s 2020 Form 10-K under the heading Item 1A. Risk Factors and the information set forth under Item 1A. Risk Factors in this Form 10-Q. The Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 1.Note 5 — Derivatives to the Consolidated Financial Statements — Note 7 — Derivativesin this Form 10-Q and Item 2. MD&A — Asset Liability andRisk Management — Market Risk Management in Part I of this report. Form 10-Q.



ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of September 30, 2017,2021, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.2021.


The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission.SEC. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Change in Internal Control over Financial Reporting

There has beenwere no changechanges in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2017,2021, that hashave materially affected or isare reasonably likely to materially affect the Company’s internal control over financial reporting.



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PART II — OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

See Note 119 —Commitments and Contingencies— Litigation to the Consolidated Financial Statements in Part I of this report,Form 10-Q, incorporated herein by reference.


ITEM 1A. RISK FACTORS


The Company’s 20162020 Form 10-K contains disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors. There has been no material change to the Company’s risk factors as presented in the Company’s 20162020 Form 10-K.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities or repurchase activities during the three months ended September 30, 2017.2021.



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ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this report:
Exhibit No.Exhibit Description
3.1
Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i) from Registrant’s Registration Statement on Form S-4/A filed with the Commission on November 13, 1998 (File No. 333-63605).]
3.1.1
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i).1 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Commission on March 28, 2003 (File No. 000-24939).]
3.1.2
Amendment to Certificate of Incorporation to Increase Authorized Shares of the Registrant [Incorporated by reference from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 15, 2005 (File No. 000-24939).]
3.1.3
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit A from the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2008 (File No. 000-24939).]
3.2
Amended and Restated Bylaws of the Registrant dated January 29, 2013 [Incorporated by reference to Exhibit 3.10 from Registrant’s Current Report on Form 8-K, filed with the Commission on January 30, 2013 (File No. 000-24939).]
Exhibit No.Exhibit Description
31.1
10.1
Amendment to Employment Agreement - Irene H. Oh. Filed herewith.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101.INSThe instance document does not appear in the interactive data file because its XBRL Instance Document.tags are embedded within the inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document. Filed herewith.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document. Filed herewith.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.
104Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). Filed herewith.

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All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted.





GLOSSARY OF ACRONYMS

ALCOAFSAvailable-for-saleHELOCHome equity line of credit
ALCOAsset/Liability CommitteeLCHLondon Clearing House
AMLAOCIAnti-Money Laundering
AOCIAccumulated other comprehensive (loss) income (loss)LGDLoss given default
ASCARPAAmerican Rescue Plan Act of 2021LIBORLondon Interbank Offered Rate
ARRCAlternative Reference Rates CommitteeLTVLoan-to-value
ASCAccounting Standards Codification
ASUAccounting Standards Update
BPMD&ABasis point
BSABank Secrecy Act
C&ICommercial and industrial
CET1Common Equity Tier 1
CRACommunity Reinvestment Act
CRECommercial real estate
DBOCalifornia Department of Business Oversight
EPSEarnings per share
EVEEconomic value of equity
EWISEast West Insurance Service, Inc.
FASBFinancial Accounting Standards Board
FHLBFederal Home Loan Bank
FRBFederal Reserve Bank of San Francisco
GAAPGenerally Accepted Accounting Principles
HELOCsHome equity lines of credit
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MOUASUMemorandum of UnderstandingAccounting Standards UpdateMMBTUMillion British thermal unit
Non-GAAPC&INon-Generally Accepted Accounting PrinciplesCommercial and industrialMSLPMain Street Lending Program
Non-PCICAANon-purchased credit impairedConsolidated Appropriations Act, 2021NAVNet asset value
OREOCARES ActCoronavirus Aid, Relief, and Economic Security ActOREOOther real estate owned
OTTICECLCurrent expected credit lossesOTTIOther-than-temporary impairment
PCICET1Purchased credit impairedCommon Equity Tier 1PDProbability of default
RPAsCLOCollateralized loan obligationPPPPaycheck Protection Program
CMEChicago Mercantile ExchangePPPLFPaycheck Protection Program Liquidity Facility
COVID-19Coronavirus Disease 2019RMBChinese Renminbi
CRACommunity Reinvestment ActROAReturn on average assets
CRECommercial real estateROEReturn on average equity
DFPICalifornia Department of Financial Protection and InnovationRPACredit risk participation agreementsagreement
RSAsEPSEarnings per shareRSURestricted stock awardsunit
RSUsERMRestricted stock unitsEnterprise risk managementS&PStandard and Poor's
SBLCsEVEEconomic value of equitySBASmall Business Administration
FASBFinancial Accounting Standards BoardSBLCStandby lettersletter of credit
S&PFCAStandardFinancial Conduct AuthoritySECU.S. Securities and Poor’sExchange Commission
TDRsFHLBFederal Home Loan BankSOFRSecured Overnight Financing Rate
FOMCFederal Open Market CommitteeTDRTroubled debt restructuringsrestructuring
U.S.FRBSFFederal Reserve Bank of San FranciscoU.S.United States
FTPFunds transfer pricingUSDU.S. GAAPUnited States Generally Accepted Accounting Principlesdollar
USDGAAPU.S. DollarGenerally accepted accounting principlesVIEVariable interest entity
GDPGross Domestic Product





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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:November 7, 20178, 2021
EAST WEST BANCORP, INC.
(Registrant)
By/s/ IRENE H. OH
Irene H. Oh
Executive Vice President and
Chief Financial Officer





EXHIBIT INDEX
The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2, furnished with this report:
Exhibit No.Exhibit DescriptionEAST WEST BANCORP, INC.
(Registrant)
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
By		/s/ IRENE H. OH
Irene H. Oh
31.2
Certification of
Executive Vice President and
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted.



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