0001069157us-gaap:ExtendedMaturityAndInterestRateReductionMember2023-01-012023-06-30



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 SeptemberJune 30, 20172023

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: 144,542,911141,483,668 shares as of OctoberJuly 31, 2017.

2023.




TABLE OF CONTENTS
Page
3
5
Page
PART I — FINANCIAL INFORMATION
Item 1.
5
Consolidated Balance SheetsSheet (Unaudited)
5
Consolidated StatementsStatement of Income (Unaudited)
6
Consolidated StatementsStatement of Comprehensive Income (Loss) (Unaudited)
7
Consolidated StatementsStatement of Changes in Stockholders’ Equity (Unaudited)
8
Consolidated StatementsStatement of Cash Flows (Unaudited)
9
11
1 — Basis of Presentation
11
2 — Current Accounting Developments and Summary of Significant Accounting Policies
1112
3 — Dispositions
14
4 — Fair Value Measurement and Fair Value of Financial Instruments
1513
54 — SecuritiesAssets Purchased under Resale Agreements and Sold under Repurchase Agreements
2423
5 — Securities
25
6 — SecuritiesDerivatives
2731
7 — Derivatives
30
8 — Loans Receivable and Allowance for Credit Losses
3538
98 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities
4852
9 — Goodwill
53
10 — GoodwillShort-Term Borrowings and Other Intangible AssetsLong-Term Debt
4954
1111 — Commitments and Contingencies
5054
1212 — Stock Compensation Plans
5156
1313 — Stockholders’ Equity and Earnings Per Share
5257
1414 — Accumulated Other Comprehensive Income (Loss)
5357
1515 — Business Segments
5459
16 — Subsequent Events
56
5762
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
92101
92101
93102
93102
93102
93102
103
93103
94104
95105
EXHIBIT INDEX
96

2


Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q (“Form(this “Form 10-Q”) contain or incorporateforward-looking statements that are intended to be covered by the safe harbor provisions for such statements provided by the Private Securities Litigation Reform Act of 1995. In addition, 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”) believesmay make forward-looking statements in other documents that it files with, or furnishes to, the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and management may make forward-looking statements to analysts, investors, media members and others. Forward-looking statements 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 statementsthose that do not relate to historical facts, and that are based on current assumptions, beliefs, estimates, expectations and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Forward-looking statements may relate to various matters, including the Company’s financial condition, results of operations, plans, objectives, future performance, business or business. Theyindustry, and usually can be identified by the use of forward-looking language,words, such as “likely result in,“anticipates,” “assumes,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “anticipates,“forecasts,” “estimates,“goal,” “forecasts,“intends,” “likely,” “may,” “might,” “objective,” “plans,” “potential,” “projects,” “intends to,“remains,” or may include other similar words or phrases, such as “believes,“should,” “plans,“target,” “trend,” “objective,“will,” “continues,” “remains,“would,” or similar expressions or future or conditional verbs,variations thereof, and the negative thereof, but these terms are not the exclusive means of identifying such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs.statements. You should not place undue reliance on theseforward-looking statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference.below. 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 ofvarious important factors that could cause future results to differ materially from historical performance and theseany 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.”)global economy, including an economic slowdown, capital or financial market disruption, supply chain disruption, level of inflation, interest rate environment, housing prices, employment levels, rate of growth and general business conditions;conditions, which could result in, among other things, reduced demand for loans, reduced availability of funding or increased funding costs, declines in asset values and/or recognition of allowance for credit losses;
•changes in government interest rate policies;local, regional and global business, economic and political conditions and geopolitical events, such as Russia’s invasion of Ukraine;
•the soundness of other financial institutions and the impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements, Federal Deposit Insurance Corporation (“FDIC”) insurance premiums, losses in the value of our investment portfolio, deposit withdrawals, or other adverse consequences of negative market perceptions of the banking industry or the Company;
•changes in laws or the regulatory environment, including regulatory reform initiatives and policies of the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve Board System (“Federal Reserve”), the Federal Deposit Insurance Corporation,FDIC, the U.S. Securities and Exchange Commission,SEC, the Consumer Financial Protection Bureau and(“CFPB”), the California Department of Business Oversight Financial Protection and Innovation — Division of Financial Institutions;Institutions, the National Administration of Financial Regulation, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, and the Monetary Authority of Singapore;
•changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade, economic and political disputes between the U.S. and the People’s Republic of China and the monetary policies of the Federal Reserve;
•changes in the commercial and consumer real estate markets;
•changes in consumer or commercial spending, savings and borrowing habits, and patterns and behaviors;
•the impact from potential changes to income tax laws and regulations, federal spending and economic stimulus programs;
•the impact of any future U.S. federal government shutdown and uncertainty regarding the U.S. federal government’s debt limit and credit rating;
•the Company’s ability to compete effectively against financial institutions and other entities, including as a result of emerging technologies;
•the success and timing of the Company’s business strategies;
•the Company’s ability to retain key officers and employees;
•the 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;

3

•the impact of communications or technology disruption, failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third party vendors 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;
•the 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;
•the impact of adverse changes to the Company’s credit ratings from major credit rating agencies;
•the impact of adverse judgments or settlements in litigation;
•the impact of political developments, pandemics, wars, civil unrest, terrorism or other hostilities that may disrupt or increase volatility in securities or otherwise affect business and economic conditions on the Company and its customers;
•heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;
changes in •the economyimpact of reputational risk from negative publicity, fines, penalties and monetary policy inother negative consequences from regulatory violations, legal actions and the People’s RepublicCompany’s interactions with business partners, counterparties, service providers and other third parties;
•the impact of China;regulatory investigations and enforcement actions;
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 the Company’s 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 Actimpact on the Company’s business, business practices and cost of operations;
impact of adverse changesliquidity due 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 checkingCompany’s ability to receive dividends from its subsidiaries;
•any strategic acquisitions or savings account deposits on the Company’s funding costs and net interest margin; anddivestitures;
a recurrence of significant turbulence or disruption•changes 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 loansequity and declines in asset values and/or recognition of other-than-temporary impairment (“OTTI”) ondebt securities heldmarkets;
•fluctuations in the Company’s available-for-sale investment securities portfolio.stock price;

•fluctuations in foreign currency exchange rates;
•the impact of increased focus on social, environmental and sustainability matters, which may affect the operations of the Company and its customers and the economy more broadly; and
•the impact of climate change, natural or man-made disasters or calamities, such as wildfires, droughts, hurricanes, flooding and earthquakes or other events that may directly or indirectly result in a negative impact on the financial performance of the Company and its customers.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 2016,2022, filed with the U.S. Securities and Exchange CommissionSEC on February 27, 20172023 (the “Company’s 20162022 Form 10-K”), under the heading “ITEMItem 1A. RISK FACTORS”Risk Factors, and the information set forth under “ITEMItem 1A. RISK FACTORS” inRisk Factors of this Form 10-Q. You should treat forward-looking statements as speaking only as of the date they are made and based only on information then actually known to the Company. 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.

4



PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSSHEET
($ in thousands, except shares)

(Unaudited)
June 30,
2023		December 31,
2022
ASSETS
Cash and due from banks$614,053 $534,980 
Interest-bearing cash with banks5,763,834 2,946,804 
Cash and cash equivalents6,377,887 3,481,784 
Interest-bearing deposits with banks17,169 139,021 
Assets purchased under resale agreements (“resale agreements”)635,000 792,192 
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $6,820,569 and $6,879,225)5,987,258 6,034,993 
Held-to-maturity (“HTM”) debt securities, at amortized cost (fair value of $2,440,484 and $2,455,171)2,975,933 3,001,868 
Loans held-for-sale2,830 25,644 
Loans held-for-investment (net of allowance for loan losses of $635,400 and $595,645)49,192,964 47,606,785 
Investments in qualified affordable housing partnerships, tax credit and other investments, net815,471 763,256 
Premises and equipment (net of accumulated depreciation of $153,079 and $148,126)88,966 89,191 
Goodwill465,697 465,697 
Operating lease right-of-use assets100,500 103,681 
Other assets1,873,006 1,608,038 
TOTAL$68,532,681 $64,112,150 
LIABILITIES
Deposits:
Noninterest-bearing$16,741,099 $21,051,090 
Interest-bearing38,917,687 34,916,759 
Total deposits55,658,786 55,967,849 
Short-term borrowings4,500,000 — 
Assets sold under repurchase agreements (“repurchase agreements”)— 300,000 
Long-term debt and finance lease liabilities152,951 152,400 
Operating lease liabilities110,383 111,931 
Accrued expenses and other liabilities1,648,864 1,595,358 
Total liabilities62,070,984 58,127,538 
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 169,310,864 and 168,459,045 shares issued169 168 
Additional paid-in capital1,959,615 1,936,389 
Retained earnings6,075,735 5,582,546 
Treasury stock, at cost 27,827,196 and 27,511,199 shares(791,890)(768,862)
Accumulated other comprehensive loss (“AOCI”), net of tax(781,932)(765,629)
Total stockholders’ equity6,461,697 5,984,612 
TOTAL$68,532,681 $64,112,150 
 
  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.


5



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 June 30,Six Months Ended June 30,
 2017 2016 2017 20162023202220232022
INTEREST AND DIVIDEND INCOME      
  
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees $306,939
 $255,316
 $872,039
 $763,189
Loans receivable, including fees$771,264 $439,416 $1,499,650 $816,526 
Investment securities 14,828
 13,388
 43,936
 37,433
Debt securitiesDebt securities68,970 46,176 134,901 88,843 
Resale agreements 7,901
 7,834
 25,222
 22,479
Resale agreements3,969 8,553 8,472 16,936 
Restricted equity securities 612
 611
 1,859
 2,008
Restricted equity securities936 822 1,975 1,431 
Interest-bearing cash and deposits with banks 9,630
 3,168
 22,298
 10,245
Interest-bearing cash and deposits with banks60,995 4,787 96,642 8,047 
Total interest and dividend income 339,910
 280,317
 965,354
 835,354
Total interest and dividend income906,134 499,754 1,741,640 931,783 
INTEREST EXPENSE      
  
INTEREST EXPENSE
Customer deposits 31,086
 21,049
 81,803
 60,708
DepositsDeposits287,477 22,488 504,271 35,477 
Federal funds purchased and other short-term borrowings 212
 212
 877
 390
Federal funds purchased and other short-term borrowings49,032 241 57,857 250 
FHLB advances 1,947
 1,361
 5,738
 4,153
Federal Home Loan Bank (“FHLB”) advancesFederal Home Loan Bank (“FHLB”) advances— 559 6,430 1,137 
Repurchase agreements 2,122
 2,319
 7,538
 6,441
Repurchase agreements211 2,418 1,263 4,434 
Long-term debt 1,388
 1,228
 4,030
 3,726
Long-term debt and finance lease liabilitiesLong-term debt and finance lease liabilities2,668 1,096 5,212 1,920 
Total interest expense 36,755
 26,169
 99,986
 75,418
Total interest expense339,388 26,802 575,033 43,218 
Net interest income before provision for credit losses
303,155
 254,148
 865,368
 759,936
Net interest income before provision for credit losses566,746 472,952 1,166,607 888,565 
Provision for credit losses 12,996
 9,525
 30,749
 17,018
Provision for credit losses26,000 13,500 46,000 21,500 
Net interest income after provision for credit losses 290,159
 244,623
 834,619
 742,918
Net interest income after provision for credit losses540,746 459,452 1,120,607 867,065 
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 fees20,901 20,142 41,487 39,580 
Deposit account feesDeposit account fees22,285 22,372 43,988 42,687 
Interest rate contracts and other derivative incomeInterest rate contracts and other derivative income7,373 9,801 9,937 20,934 
Foreign exchange incomeForeign exchange income13,251 11,361 25,911 24,060 
Wealth management fees 3,615
 4,033
 11,682
 9,862
Wealth management fees6,889 6,539 13,193 12,591 
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 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
Net (losses) gains on sales of loansNet (losses) gains on sales of loans(7)917 (29)3,839 
Net gains (losses) on AFS debt securitiesNet gains (losses) on AFS debt securities— 28 (10,000)1,306 
Other investment incomeOther investment income4,003 4,863 5,924 6,490 
Other incomeOther income3,936 2,421 8,198 6,700 
Total noninterest income 49,624
 49,341
 213,047
 134,118
Total noninterest income78,631 78,444 138,609 158,187 
NONINTEREST EXPENSE      
  
NONINTEREST EXPENSE
Compensation and employee benefits 79,583
 75,042
 244,930
 220,166
Compensation and employee benefits124,937 113,364 254,591 229,633 
Occupancy and equipment expense 16,635
 15,456
 47,829
 45,619
Occupancy and equipment expense16,088 15,469 31,675 30,933 
Deposit insurance premiums and regulatory assessments 5,676
 6,450
 17,384
 17,341
Deposit insurance premiums and regulatory assessments8,262 4,927 16,172 9,644 
Legal expense 3,316
 5,361
 8,930
 12,714
Deposit account expenseDeposit account expense10,559 5,671 20,168 10,364 
Data processing 3,004
 2,729
 9,009
 8,712
Data processing3,213 3,486 6,560 7,151 
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
Computer software expense7,479 6,572 14,839 13,866 
Other operating expense 19,830
 19,814
 55,357
 58,508
Other operating expense35,337 32,392 70,207 55,840 
Amortization of tax credit and other investments 23,827
 32,618
 66,059
 60,779
Amortization of tax credit and other investments55,914 14,979 66,024 28,879 
Amortization of core deposit intangibles 1,735
 2,023
 5,314
 6,177
Total noninterest expense 164,499
 170,500
 486,693
 465,985
Total noninterest expense261,789 196,860 480,236 386,310 
INCOME BEFORE INCOME TAXES 175,284
 123,464
 560,973
 411,051
INCOME BEFORE INCOME TAXES357,588 341,036 778,980 638,942 
INCOME TAX EXPENSE 42,624
 13,321
 140,247
 90,108
INCOME TAX EXPENSE45,557 82,707 144,510 142,961 
NET INCOME $132,660
 $110,143
 $420,726
 $320,943
NET INCOME$312,031 $258,329 $634,470 $495,981 
EARNINGS PER SHARE (“EPS”)        EARNINGS PER SHARE (“EPS”)
BASIC $0.92
 $0.76
 $2.91
 $2.23
BASIC$2.21 $1.83 $4.49 $3.50 
DILUTED $0.91
 $0.76
 $2.88
 $2.21
DILUTED$2.20 $1.81 $4.47 $3.47 
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
BASIC141,468 141,429 141,291 141,725 
DILUTED 145,882
 145,238
 145,849
 145,086
DILUTED141,876 142,372 141,910 142,838 
DIVIDENDS DECLARED PER COMMON SHARE $0.20
 $0.20
 $0.60
 $0.60



See accompanying Notes to Consolidated Financial Statements.


6



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME (LOSS)
($ in thousands)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income$312,031 $258,329 $634,470 $495,981 
Other comprehensive loss, net of tax:
Net changes in unrealized (losses) gains on AFS debt securities(43,618)(192,878)7,701 (362,148)
Reclassification of unrealized losses on debt securities transferred from AFS to HTM— — — (112,991)
Amortization of unrealized losses on debt securities transferred from AFS to HTM2,816 3,750 5,578 6,061 
Net changes in unrealized losses on cash flow hedges(53,887)(6,380)(25,274)(31,103)
Foreign currency translation adjustments(7,249)(10,215)(4,308)(10,086)
Other comprehensive loss(101,938)(205,723)(16,303)(510,267)
COMPREHENSIVE INCOME (LOSS)$210,093 $52,606 $618,167 $(14,286)
 
  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.


7



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except shares and per share data)
(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 CapitalRetained EarningsTreasury StockAOCI, Net of TaxTotal Stockholders’ Equity
SharesAmount
BALANCE, APRIL 1, 2022142,256,520 $1,903,042 $4,863,721 $(668,382)$(394,925)$5,703,456 
Net income— — 258,329 — — 258,329 
Other comprehensive loss— — — — (205,723)(205,723)
Issuance of common stock pursuant to various stock compensation plans and agreements51,733 11,190 — — — 11,190 
Repurchase of common stock pursuant to various stock compensation plans and agreements(5,347)— — (380)— (380)
Repurchase of common stock pursuant to the Stock Repurchase Program(1,385,517)— — (99,990)— (99,990)
Cash dividends on common stock ($0.40 per share)— — (57,400)— — (57,400)
BALANCE, JUNE 30, 2022140,917,389 $1,914,232 $5,064,650 $(768,752)$(600,648)$5,609,482 
BALANCE, APRIL 1, 2023141,395,800 $1,947,687 $5,832,291 $(790,653)$(679,994)$6,309,331 
Net income— — 312,031 — — 312,031 
Other comprehensive loss— — — — (101,938)(101,938)
Issuance of common stock pursuant to various stock compensation plans and agreements111,097 12,097 — — — 12,097 
Repurchase of common stock pursuant to various stock compensation plans and agreements(23,229)— — (1,237)— (1,237)
Cash dividends on common stock ($0.48 per share)— — (68,587)— — (68,587)
BALANCE, JUNE 30, 2023141,483,668 $1,959,784 $6,075,735 $(791,890)$(781,932)$6,461,697 

Common Stock and Additional Paid-in CapitalRetained EarningsTreasury StockAOCI,
Net of Tax		Total
Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2022141,907,954 $1,893,725 $4,683,659 $(649,785)$(90,381)$5,837,218 
Net income— — 495,981 — — 495,981 
Other comprehensive loss— — — (510,267)(510,267)
Issuance of common stock pursuant to various stock compensation plans and agreements639,847 20,507 — — — 20,507 
Repurchase of common stock pursuant to various stock compensation plans and agreements(244,895)— — (18,977)— (18,977)
Repurchase of common stock pursuant to the Stock Repurchase Program(1,385,517)— — (99,990)— (99,990)
Cash dividends on common stock ($0.80 per share)— — (114,990)— — (114,990)
BALANCE, JUNE 30, 2022140,917,389 $1,914,232 $5,064,650 $(768,752)$(600,648)$5,609,482 
BALANCE, JANUARY 1, 2023140,947,846 $1,936,557 $5,582,546 $(768,862)$(765,629)$5,984,612 
Cumulative-effect of a change in accounting principle (1)
— — (4,262)— — (4,262)
Net income— — 634,470 — — 634,470 
Other comprehensive loss— — — — (16,303)(16,303)
Issuance of common stock pursuant to various stock compensation plans and agreements851,819 23,227 — — — 23,227 
Repurchase of common stock pursuant to various stock compensation plans and agreements(315,997)— — (23,028)— (23,028)
Cash dividends on common stock ($0.96 per share)— — (137,019)— — (137,019)
BALANCE, JUNE 30, 2023141,483,668 $1,959,784 $6,075,735 $(791,890)$(781,932)$6,461,697 

(1)Represents the change in the Company’s allowance for loan losses as a result of the adoption of Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and the Vintage Disclosures on January 1, 2023. Refer to Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies in this Form 10-Q for additional information.
See accompanying Notes to Consolidated Financial Statements.


8



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Six Months Ended June 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$634,470 $495,981 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization106,579 48,911 
Amortization of premiums and accretion of discount, net(10,489)21,519 
Stock compensation costs20,439 17,009 
Deferred income tax expense (benefit)1,098 (7,554)
Provision for credit losses46,000 21,500 
Net losses (gains) on sales of loans29 (3,839)
Net losses (gains) on AFS debt securities10,000 (1,306)
Loans held-for-sale:
Originations and purchases— (447)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale— 461 
Proceeds from distributions received from equity method investees2,696 4,412 
Net change in accrued interest receivable and other assets(273,537)(128,071)
Net change in accrued expenses and other liabilities(55,634)457,296 
Other operating activities, net(283)3,182 
Total adjustments(153,102)433,073 
Net cash provided by operating activities481,368 929,054 
CASH FLOWS FROM INVESTING ACTIVITIES  
Net change in:  
Investments in qualified affordable housing partnerships, tax credit and other investments(69,946)(49,545)
Interest-bearing deposits with banks121,774 23,442 
Resale agreements:
Proceeds from paydowns and maturities169,917 1,162,172 
Purchases(12,725)(231,463)
AFS debt securities:
Proceeds from sales— 129,181 
Proceeds from repayments, maturities and redemptions623,108 613,244 
Purchases(594,214)(767,015)
HTM debt securities:
Proceeds from repayments, maturities and redemptions33,882 40,072 
Purchases— (50,000)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment302,811 325,813 
Purchases(272,637)(541,997)
Other changes in loans held-for-investment, net(1,649,160)(4,639,384)
Proceeds from distributions received from equity method investees13,113 8,717 
Other investing activities, net(6,170)1,354 
Net cash used in investing activities(1,340,247)(3,975,409)
 
  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.


9



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
     


Six Months Ended June 30,
20232022
CASH FLOWS FROM FINANCING ACTIVITIES  
Net change in deposits(262,287)1,046,046 
Net change in short-term borrowings4,500,017 (49)
FHLB advances:
Proceeds6,000,000 3,950,000 
Repayment(6,000,000)(4,025,000)
Repurchase agreements:
Proceeds from repurchase agreements— 311,785 
Repayment of repurchase agreements(300,000)— 
Repurchase agreements’ extinguishment cost(3,872)— 
Long-term debt and lease liabilities:
Repayment of long-term debt and lease liabilities(421)(457)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program— (99,990)
Proceeds from issuance pursuant to various stock compensation plans and agreements— 1,444 
Stock tendered for payment of withholding taxes(23,028)(18,977)
Cash dividends paid(138,914)(115,623)
Net cash provided by financing activities3,771,495 1,049,179 
Effect of exchange rate changes on cash and cash equivalents(16,513)(13,706)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS2,896,103 (2,010,882)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,481,784 3,912,935 
CASH AND CASH EQUIVALENTS, END OF PERIOD$6,377,887 $1,902,053 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest$504,774 $45,057 
Income taxes, net$255,432 $188,510 
Noncash investing and financing activities:
Securities transferred from AFS to HTM debt securities$— $3,010,003 
Loans transferred from held-for-investment to held-for-sale$280,026 $351,406 
Loans transferred from held-for-sale to held-for-investment$— $631 



See accompanying Notes to Consolidated Financial Statements.


10



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

Note 1—Basis of Presentation

East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Form 10-Q include the accounts of East West, East West Bank and East West’s various subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of SeptemberJune 30, 2017,2023, East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with 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 StatesU.S. Generally Accepted Accounting Principles (“U.S. 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 period Consolidated Financial Statements. Certain items on theaudited Consolidated Financial Statements and notes forthereto included in the priorCompany’s 2022 Form 10-K.

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 periods, have been reclassifiedand the related disclosures. Although our estimates contemplate current conditions and how we expect them to conform tochange in the current period presentation.

Thefuture, 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.

Risk and Uncertainties

The unaudited interim Consolidated Financial Statements shouldfailures of Silicon Valley Bank, Signature Bank and First Republic Bank earlier in the year have resulted in significant disruption in the financial services industry, which has adversely impacted the volatility and market prices of the securities of financial institutions. In addition, these bank failures have caused concern and uncertainty regarding the liquidity of the banking sector as a whole and resulted in some regional bank customers choosing to maintain deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. These events have adversely impacted, and could continue to adversely affect, our business, results of operations, and financial condition, as well as the market price and volatility of our common stock.

11

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

Accounting Pronouncements Adopted in 2023

StandardRequired Date of AdoptionDescriptionEffect on Financial Statements
ASU 2022-02, Financial Instruments —Credit Losses (Topic 326): Troubled Debt Restructurings and the Vintage Disclosures
January 1, 2023

Early adoption is permitted
ASU 2022-02 eliminates the
•accounting guidance for troubled debt restructurings (“TDR”), and requires the Company to apply the loan refinancing and restructuring guidance to determine whether a modification made to a loan results in a new loan or a continuation of an existing loan; and
•requirement to use a discounted cash flow method to measure receivables.

The guidance also requires
•enhanced disclosures for certain loan refinancings and restructurings by creditors when the borrower is experiencing financial difficulty; and
•vintage disclosures of current period gross charge-offs (on a current year-to-date basis) by year of loan origination for financing receivables and net investments in leases within the scope of ASC 326-20: Financial Instruments — Credit Losses — Measured at Amortized Cost.
The Company adopted ASU 2022-02 on January 1, 2023 on a prospective basis, except for the guidance related to the elimination of TDR recognition and measurement, which was adopted on a modified retrospective approach.

This adoption increased the allowance for loan losses on TDRs as of December 31, 2022 by $6.0 million and decreased opening retained earnings on January 1, 2023 by $4.3 million after-tax. Disclosures as of June 30, 2023 are presented in accordance with this guidance while prior year amounts are reported in accordance with previously applicable GAAP.

Recent Accounting Pronouncements Yet to be readAdopted

StandardRequired Date of AdoptionDescriptionEffect on Financial Statements
Standards Not Yet Adopted
ASU 2023-01, Leases (Topic 842): Common Control Arrangements
January 1, 2024

Early adoption is permitted		ASU 2023-01 amends the accounting for leasehold improvements for leases between entities under common control arrangements. The guidance requires leasehold improvements associated with leases between companies under common control to be amortized by a lessee over the economic life of the leasehold improvements, regardless of the lease term or, until the lessee ceases to control the use of the underlying asset through a lease, at which time the remaining value of the leasehold improvement would be accounted for as a transfer between companies under common control through an adjustment to equity.

The amendments in this guidance may be applied retrospectively to the beginning of the period in which the entity first applied Topic 842 or prospectively (1) to all new leasehold improvements recognized on or after the date the entity first applies the amendments, or (2) to all new and existing leasehold improvements recognized on or after the date the entity first applies the amendments.		The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements. The Company expects to adopt ASU 2023-01 on January 1, 2024 on a prospective basis.
ASU 2023-02, Investments — Equity Method and Joint Ventures(Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
January 1, 2024

Early adoption is permitted
ASU 2023-02 expands the scope of the proportional amortization method to equity tax credit investment programs if certain conditions are met. Previously, the proportional amortization method could only be used for investments in low-income housing tax credit structures. Under this guidance, companies are able to elect, on a tax credit program-by-tax credit program basis, to apply the proportional amortization method to all equity investments meeting the criteria in ASC 323-740-25-1.

The amendments in this guidance must be applied on a modified retrospective or a retrospective basis.
The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.

12

Significant Accounting Policies Update

Loan Modifications — Certain loans are modified in the normal course of business for competitive reasons or 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

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.

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.

In March 2016, the FASB issued ASU 2016-07, Investments — 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 expectsmitigation activities. Upon the adoption of ASU 2016-022022-02, the Company applies the general loan modification guidance provided in ASC 310-20 to result in additional assets and liabilities,all loan modifications, including modifications made to borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: (1) the terms of the new loan are at least as favorable to the Company as the Company will be requiredterms for comparable loans to recognize operating leases on its Consolidated Balance Sheets.other customers with similar collection risks; and (2) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as a continuation of the existing loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. A modification made to borrowers experiencing financial difficulty may vary by program and by borrower-specific characteristics, and may include rate reductions, principal forgiveness, term extensions, and payment delays, and is intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company doesapplies the same credit loss methodology it uses for similar loans that were not expect a material impactmodified. For the Company’s accounting policy related 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 themodifications’ allowance for loan losses, see Note 7 — Loans Receivable and lease losses, and requires disclosure ofAllowance for Credit Losses — Allowance for Credit Losses to 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.this Form 10-Q.


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

In determining the fair value of financial instruments,Under applicable accounting standards, 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 ormeasures a liability. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the useportion of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy noted below is based on the quality and reliability of the information used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The fair value of the Company’sits assets and liabilities is classified and disclosed in one of the following three categories:
•Level 1—Valuation is based on quoted prices for identical instruments traded in active markets.
•Level 2—Valuation is based on quoted prices for similar instruments 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—Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities.at fair value. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

In determining the appropriate hierarchy levels, the Company performs an analysis of the assets and liabilities that are subject to fair value disclosure. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to theirpredominantly recorded at fair value measurements.



The following tables present financialon a recurring basis. From time to time, certain 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-maturitynonrecurring basis; that is, they are subject 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 duringonly as required through the period on certain non-PCI impaired loans, application of fair value less cost to sell on OREO and application of thean accounting method such as lower of cost or fair value on loans held-for-sale.



or write-down of individual assets. The following tables present the carrying amounts ofCompany categorizes its assets includedand liabilities into three levels based on the Consolidated Balance Sheets that hadestablished fair value changes measuredhierarchy and conducts a review of fair value hierarchy classifications 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 quantitativequarterly basis. For more 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 perregarding the fair value hierarchy of certain financial instruments, excluding those measured atand how the Company measures fair value, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Fair Value to the Consolidated Financial Statements in the Company’s 2022 Form 10-K for additional information.

Assets and Liabilities Measured at Fair Value on a recurring basis, as of September 30, 2017 and December 31, 2016:Recurring Basis
 
($ 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 expectations and reference data obtained from market research publications. Inputs used by the third-party pricing service providers in valuing collateralized mortgage obligations and other securitization structures also include newly issued 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 evaluates the fair values of securities by comparing the fair values provided by the third-party pricing service providers to prices from other available independent sources for the same securities. When significant variances in prices are identified, the Company further compares inputs used by different sources to ascertain the reliability of these sources. On a quarterly basis, the Company reviews the valuation inputs and methodology for each security category furnished by third-party pricing service providers.

13

When a quoted price in an active market exists for the identical security, this price is used to developdetermine the resulting fair values.  The available-for-sale investmentvalue and the AFS debt security is classified as Level 1. Level 1 AFS debt securities valued using such methodsconsist of U.S. Treasury securities. When pricing is unavailable from third-party pricing service providers for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. In addition, the Company obtains market quotes from other official published sources. As these valuations are based on observable inputs in the current marketplace, they are classified as Level 2. The Company periodically communicates with the independent external brokers to validate their pricing methodology. Information such as pricing sources, pricing assumptions, data inputs and valuation techniques are reviewed periodically.



Loans Held-for-SaleEquity Securities — The Company’s loans held-for-sale are carried at the lower Equity securities consisted of cost or fair value. Loans held-for-sale were comprised of single-family residential loansmutual funds as of Septemberboth June 30, 2017,2023 and were primarily comprised of consumer loans as of December 31, 2016.2022. 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 loans held-for-salethese equity securities. When NAV is derived from current market pricesavailable periodically and comparative current sales. The Company records any fair value adjustments on a nonrecurring basis. Loans held-for-sale are classified as Level 2.
Non-PCI Impaired Loans — The fair value of non-PCI impaired loans is measured using 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 intoInterest rate contracts consist of interest rate swapswaps and option contracts with institutional counterparties to hedge against interest rate swap and option products offered to bank customers. These products allow 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 fixed rate loan. 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 floating rate funding.options. 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 the2.

Foreign Exchange Contracts— The fair value hierarchy due to the observable nature of the significant inputs utilized.
Foreign Exchange Contracts — The Company enters into short-term foreign exchange contracts to purchase/sell foreign currencies at set rates in the future.  These contracts economically hedge against foreign exchange rate fluctuations. The Company also enters into contracts with institutional counterparties to hedge against foreign exchange products offered to bank customers. These products allow customers to hedge the 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 is classified as Level 2. As of Septemberboth June 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 methodologies2023 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, 2015,2022, 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 enters into RPAs, under which Credit contracts utilized by the Company assumes its pro-rata shareare comprised of credit risk participation agreements (“RPAs”) entered into by the credit exposure associatedCompany with the borrower’s performance related to interest rate derivative contracts.institutional counterparties. The fair value of the 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 spreadsDue to the observable nature of the borrowersall other significant inputs used in deriving 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 RPAs are observable. Accordingly, RPAs fall within Level 2 of the fair value, hierarchy.credit contracts are classified as Level 2.


Warrants
14

Equity Contracts — The Company obtained Equity contracts consisted of warrants to purchase common or 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.companies as of both June 30, 2023 and December 31, 2022. 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 optionequity 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 company warrants. Due to the unobservable nature of the option volatility and liquidity discount assumptions used in deriving the estimated fair value, warrants from private companies are classified as Level 3. 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 — Commodity contracts consist of swaps and options referencing commodity products. 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.

15

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of each reporting date. AlthoughJune 30, 2023 and December 31, 2022:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of June 30, 2023
($ in thousands)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$711,706 $— $— $711,706 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 460,084 — 460,084 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 478,777 — 478,777 
Residential mortgage-backed securities— 1,721,237 — 1,721,237 
Municipal securities— 263,873 — 263,873 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 384,051 — 384,051 
Residential mortgage-backed securities— 608,574 — 608,574 
Corporate debt securities— 485,750 — 485,750 
Foreign government bonds— 224,766 — 224,766 
Asset-backed securities— 44,875 — 44,875 
Collateralized loan obligations (“CLOs”)— 603,565 — 603,565 
Total AFS debt securities$711,706 $5,275,552 $— $5,987,258 
Investments in qualified affordable housing partnerships, tax credit and other investments, net:
Equity securities$19,991 $4,168 $— $24,159 
Total investments in qualified affordable housing partnerships, tax credit and other investments, net$19,991 $4,168 $— $24,159 
Derivative assets:
Interest rate contracts$— $530,235 $— $530,235 
Foreign exchange contracts— 95,582 — 95,582 
Equity contracts— — 263 263 
Commodity contracts— 139,081 — 139,081 
Gross derivative assets$— $764,898 $263 $765,161 
Netting adjustments (1)
$— $(472,428)$— $(472,428)
Net derivative assets$— $292,470 $263 $292,733 
Derivative liabilities:
Interest rate contracts$— $591,447 $— $591,447 
Foreign exchange contracts— 72,342 — 72,342 
Credit contracts— 16 — 16 
Commodity contracts— 147,920 — 147,920 
Gross derivative liabilities$— $811,725 $— $811,725 
Netting adjustments (1)
$— $(208,183)$— $(208,183)
Net derivative liabilities$— $603,542 $— $603,542 
16

Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 2022
($ in thousands)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$606,203 $— $— $606,203 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 461,607 — 461,607 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 500,269 — 500,269 
Residential mortgage-backed securities— 1,762,195 — 1,762,195 
Municipal securities— 257,099 — 257,099 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 398,329 — 398,329 
Residential mortgage-backed securities— 649,224 — 649,224 
Corporate debt securities— 526,274 — 526,274 
Foreign government bonds— 227,053 — 227,053 
Asset-backed securities— 49,076 — 49,076 
CLOs— 597,664 — 597,664 
Total AFS debt securities$606,203 $5,428,790 $— $6,034,993 
Investments in qualified affordable housing partnerships, tax credit and other investments, net:
Equity securities$19,777 $4,177 $— $23,954 
Total investments in qualified affordable housing partnerships, tax credit and other investments, net$19,777 $4,177 $— $23,954 
Derivative assets:
Interest rate contracts$— $440,283 $— $440,283 
Foreign exchange contracts— 53,109 — 53,109 
Equity contracts— — 323 323 
Commodity contracts— 261,613 — 261,613 
Gross derivative assets$— $755,005 $323 $755,328 
Netting adjustments (1)
$— $(614,783)$— $(614,783)
Net derivative assets$— $140,222 $323 $140,545 
Derivative liabilities:
Interest rate contracts$— $584,516 $— $584,516 
Foreign exchange contracts— 44,117 — 44,117 
Credit contracts— 23 — 23 
Commodity contracts— 258,608 — 258,608 
Gross derivative liabilities$— $887,264 $— $887,264 
Netting adjustments (1)
$— $(242,745)$— $(242,745)
Net derivative liabilities$— $644,519 $— $644,519 
(1)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

17

For the three and six months ended June 30, 2023 and 2022, Level 3 fair value measurements that were measured on a recurring basis consisted of equity contracts issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Equity contracts
Beginning balance$277 $309 $323 $215 
Total (losses) gains included in earnings (1)
(14)48 (60)51 
Issuances— — — 91 
Ending balance$263 $357 $263 $357 
(1)Includes unrealized (losses) gains recorded in Lending fees on the Consolidated Statement of Income.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of June 30, 2023 and December 31, 2022. 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 TechniqueUnobservable InputsRange of Inputs
Weighted-Average of Inputs (1)
June 30, 2023
Derivative assets:
Equity contracts$263 Black-Scholes option pricing modelEquity volatility41% — 50%44%
Liquidity discount47%47%
December 31, 2022
Derivative assets:
Equity contracts$323 Black-Scholes option pricing modelEquity volatility42% — 60%54%
Liquidity discount47%47%
(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of both June 30, 2023 and December 31, 2022.

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, other real estate owned (“OREO”), loans held-for-sale, and other nonperforming assets. Nonrecurring fair value adjustments result from the impairment on certain individually evaluated loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, from write-downs of OREO and other nonperforming assets, or from the application of lower of cost or fair value on loans held-for-sale.

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

•Discounted cash flow valuation techniques that consist of developing an expected stream of cash flows over the life of the loans, and then calculating the present value of the loans by discounting the expected cash flows at a designated discount rate.
•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 is unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches.

18

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company conducts due diligence on its investments in qualified affordable housing partnerships, tax credit and other investments prior to the initial investment date and through the placed-in-service date. After these investments are either acquired or placed into service, the Company continues its periodic monitoring process to ensure book values are realizable and that there is no significant tax credit recapture risk. This monitoring process includes reviewing the investment entity’s quarterly financial statements and annual tax returns, the annual financial statements of anythe guarantor (if any) and a comparison of the actual performance of the investment against the financial projections prepared at the time the investment was made. The Company assesses its tax credit and other investments for possible other-than-temporary impairment 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;
•the potential for tax credit recapture; and
•other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

All available information is considered in assessing whether a decline in value is other-than-temporary. Generally, none of the aforementioned factors are individually conclusive and the relative importance placed on individual facts may vary depending on the situation. In accordance with ASC 323-10-35-32, Investments — Equity Method and Joint Ventures, an impairment charge would 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 revaluedless the costs to sell at the time of foreclosure or at the lower of cost or estimated fair value less the costs to sell subsequent to acquisition. On a monthly basis, the current fair market value of each OREO property is reviewed to ensure that the current carrying value is appropriate. OREO properties are classified as Level 3.

Loans Held-for-Sale— Loans held-for-investment subsequently transferred to held-for-sale are recorded at the lower of cost or fair value upon transfer. Loans held-for-sale may be measured at fair value on a nonrecurring basis when fair value is less than cost. Fair value is generally determined based on available market data for purposes of these Consolidated Financial Statements since that date,similar loans and therefore, current estimates ofare classified as Level 2.

Other Nonperforming Assets—Other nonperforming assets are recorded at fair value may differ significantlyupon transfer from loans to foreclosed assets. Subsequently, foreclosed assets are recorded at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised values of the collateral or management’s estimated recovery of the foreclosed asset. The Company records an impairment when the foreclosed asset’s fair value declines below its carrying value. The fair value measurement of other nonperforming assets is classified within one of the three levels in a valuation hierarchy based upon the observability of inputs to the valuation as of the measurement date.

19

The following tables present the carrying amounts of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of June 30, 2023 and December 31, 2022:
Assets Measured at Fair Value on a Nonrecurring Basis
as of June 30, 2023
($ in thousands)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”)$— $— $31,323 $31,323 
Commercial real estate (“CRE”):
CRE— — 4,398 4,398 
Total commercial— — 35,721 35,721 
Total loans held-for-investment$— $— $35,721 $35,721 
Investments in qualified affordable housing partnerships, tax credit and other investments, net$— $— $868 $868 
Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2022
($ in thousands)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$— $— $40,011 $40,011 
CRE:
CRE— — 31,380 31,380 
Total commercial— — 71,391 71,391 
Consumer:
Residential mortgage:
Home equity lines of credit (“HELOCs”)— — 1,223 1,223 
Total consumer— — 1,223 1,223 
Total loans held-for-investment$— $— $72,614 $72,614 

20

The following table presents the increase (decrease) in the fair value of certain assets held at the end of the respective reporting periods, for which a nonrecurring fair value adjustment was recognized for the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Loans held-for-investment:
Commercial:
C&I$(10,419)$(6,054)$(11,674)$(14,740)
CRE:
CRE(2,252)(533)(2,252)2,330 
Multifamily residential— (8)— (8)
Total commercial(12,671)(6,595)(13,926)(12,418)
Consumer:
Residential mortgage:
HELOCs— 82 — 85 
Total consumer— 82 — 85 
Total loans held-for-investment$(12,671)$(6,513)$(13,926)$(12,333)
Investments in qualified affordable housing partnerships, tax credit and other investments, net$(961)$— $(787)$— 
Other nonperforming assets$— $(6,861)$— $(6,861)

The following table presents the quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements that are measured on a nonrecurring basis as of June 30, 2023 and December 31, 2022:
($ in thousands)Fair Value Measurements (Level 3)Valuation TechniquesUnobservable InputsRange of Inputs
Weighted-Average of Inputs (1)
June 30, 2023
Loans held-for-investment$4,989 Discounted cash flowsDiscount15%15%
$17,501 Fair value of collateralDiscount15% — 81%43%
$6,134 Fair value of collateralContract valueNMNM
$7,097 Fair value of propertySelling cost8%8%
Investments in qualified affordable housing partnerships, tax credit and other investments, net$868 Individual analysis of each investmentExpected future tax benefits and distributionsNMNM
December 31, 2022
Loans held-for-investment$23,322 Discounted cash flowsDiscount4% — 6%4%
$17,912 Fair value of collateralDiscount15% — 75%37%
$31,380 Fair value of propertySelling cost8%8%
NM — Not meaningful.
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of June 30, 2023 and December 31, 2022.

21

Disclosures about the Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of June 30, 2023 and December 31, 2022, 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, restricted equity securities, at cost, and mortgage servicing rights that are included in Other assets, and accrued interest payable which is included in Accrued expenses and other liabilities. These financial instruments are measured on an amortized cost basis on the Company’s Consolidated Balance Sheet.

June 30, 2023
($ in thousands)Carrying AmountLevel 1Level 2Level 3Estimated Fair Value
Financial assets:
Cash and cash equivalents$6,377,887 $6,377,887 $— $— $6,377,887 
Interest-bearing deposits with banks$17,169 $— $17,169 $— $17,169 
Resale agreements$635,000 $— $541,441 $— $541,441 
HTM debt securities$2,975,933 $474,137 $1,966,347 $— $2,440,484 
Restricted equity securities, at cost$79,206 $— $79,206 $— $79,206 
Loans held-for-sale$2,830 $— $2,830 $— $2,830 
Loans held-for-investment, net$49,192,964 $— $— $48,197,217 $48,197,217 
Mortgage servicing rights$5,537 $— $— $10,078 $10,078 
Accrued interest receivable$288,526 $— $288,526 $— $288,526 
Financial liabilities:
Demand, checking, savings and money market deposits$38,679,009 $— $38,679,009 $— $38,679,009 
Time deposits$16,979,777 $— $16,866,296 $— $16,866,296 
Short-term borrowings$4,500,000 $— $4,500,000 $— $4,500,000 
Long-term debt$148,097 $— $141,990 $— $141,990 
Accrued interest payable$107,457 $— $107,457 $— $107,457 

December 31, 2022
($ in thousands)Carrying AmountLevel 1Level 2Level 3Estimated Fair Value
Financial assets:
Cash and cash equivalents$3,481,784 $3,481,784 $— $— $3,481,784 
Interest-bearing deposits with banks$139,021 $— $139,021 $— $139,021 
Resale agreements$792,192 $— $693,656 $— $693,656 
HTM debt securities$3,001,868 $471,469 $1,983,702 $— $2,455,171 
Restricted equity securities, at cost$78,624 $— $78,624 $— $78,624 
Loans held-for-sale$25,644 $— $25,644 $— $25,644 
Loans held-for-investment, net$47,606,785 $— $— $46,670,690 $46,670,690 
Mortgage servicing rights$6,235 $— $— $10,917 $10,917 
Accrued interest receivable$263,430 $— $263,430 $— $263,430 
Financial liabilities:
Demand, checking, savings and money market deposits$42,637,316 $— $42,637,316 $— $42,637,316 
Time deposits$13,330,533 $— $13,228,777 $— $13,228,777 
Repurchase agreements$300,000 $— $304,097 $— $304,097 
Long-term debt$147,950 $— $143,483 $— $143,483 
Accrued interest payable$37,198 $— $37,198 $— $37,198 

22

Note 54 —SecuritiesAssets Purchased under Resale Agreements and Sold under Repurchase Agreements


Assets Purchased under Resale Agreements


ResaleWith resale agreements, are recorded at the balances at whichCompany is exposed to credit risk for both the securities were acquired.counterparties and the underlying collateral. The market valuesCompany manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with the counterparties. The relevant agreements allow for an 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 June 30, 2023 and December 31, 2022.

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $1.65 billion and $2.10 billion$635.0 million as of SeptemberJune 30, 20172023, and $760.0 million as of December 31, 2016,2022. The weighted-average yields were 2.42% and 1.96% for the three months ended June 30, 2023 and 2022, respectively; and 2.46% and 1.79% for the six months ended June 30, 2023 and 2022, respectively. The weighted average interest rates

Loans Purchased under Resale Agreements — Loans purchased under resale agreements were 2.30% and 1.84%$32.2 million as of September 30, 2017 and December 31, 2016, respectively.


Repurchase Agreements

Long-term repurchase2022. During the first six months of 2023, all the loans purchased under resale agreements are accounted for matured and the Company had no loans purchased under resale agreements as collateralized financing transactionsof June 30, 2023. The weighted-average yields were 7.75% and recorded at the balances at which the securities were sold. The collateral2.47% for the repurchase agreements is primarily comprised of U.S. Treasury securities, U.S. government agencythree months ended June 30, 2023 and U.S. government sponsored enterprise mortgage-backed securities,2022, respectively; and U.S. government agency7.27% and U.S. government sponsored enterprise debt securities. The Company may have to provide additional collateral1.91% for the repurchase agreements, as necessary.six months ended June 30, 2023 and 2022, respectively.

Assets Sold under Repurchase Agreements — Gross repurchase agreements were $450.0$300.0 million as of each of September 30, 2017 and December 31, 2016.2022. The weighted averageCompany recorded $3.9 million of charges related to the extinguishment of $300.0 million of repurchase agreements during the first quarter of 2023. In comparison, no extinguishment charges were recorded for the three and six months ended June 30, 2022. The weighted-average interest rates were 3.56%5.43% and 3.15% as2.70% for the three months ended June 30, 2023 and 2022, respectively; and 4.18% and 2.66% for the six months ended June 30, 2023 and 2022, respectively. These weighted-average interest rates also reflect the impact of September 30, 2017short-term repurchase agreements entered and December 31, 2016, respectively.repaid during the periods presented.


Balance Sheet Offsetting

The Company’s resale and repurchase agreements are transacted under legally enforceable master repurchase agreements that, provide the Company, in the event of default by the counterparty, 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 SeptemberJune 30, 20172023 and December 31, 2016:2022:
($ in thousands)June 30, 2023
Gross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Gross Amounts  Not Offset on the
Consolidated  Balance Sheet		Net
Amount
AssetsCollateral Received
Resale agreements$635,000 $— $635,000 $(550,872)(1)$84,128 
Gross
Amounts
of Recognized
Liabilities		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
LiabilitiesCollateral Pledged
Repurchase agreements$— $— $— $— $— 
23

($ in thousands) As of September 30, 2017($ in thousands)December 31, 2022
 
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$792,192 $— $792,192 $(701,790)(1)$90,402 
            
 
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 assets the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.
 
($ 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 assets the Company has pledged under repurchase agreements, limited for table presentation purposes to the amount of the recognized liability due to each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to derivatives, referderivatives. Refer to Note 7 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.



24



Note 65 — Securities


The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of available-for-sale investmentAFS and HTM debt securities which are carried at fair value, and the held-to-maturity investment security, which is carried at amortized cost, as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
June 30, 2023
($ in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
AFS debt securities:
U.S. Treasury securities$779,973 $15 $(68,282)$711,706 
U.S. government agency and U.S. government-sponsored enterprise debt securities514,594 — (54,510)460,084 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities552,859 — (74,082)478,777 
Residential mortgage-backed securities1,966,906 15 (245,684)1,721,237 
Municipal securities304,204 28 (40,359)263,873 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities432,782 2 (48,733)384,051 
Residential mortgage-backed securities715,775 — (107,201)608,574 
Corporate debt securities653,502 — (167,752)485,750 
Foreign government bonds236,392 152 (11,778)224,766 
Asset-backed securities46,332 — (1,457)44,875 
CLOs617,250 — (13,685)603,565 
Total AFS debt securities6,820,569 212 (833,523)5,987,258 
HTM debt securities:
U.S. Treasury securities526,794 — (52,657)474,137 
U.S. government agency and U.S. government-sponsored enterprise debt securities1,000,415 — (202,544)797,871 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities496,852 — (93,114)403,738 
Residential mortgage-backed securities762,573 — (147,285)615,288 
Municipal securities189,299 — (39,849)149,450 
Total HTM debt securities2,975,933 — (535,449)2,440,484 
Total debt securities$9,796,502 $212 $(1,368,972)$8,427,742 
25

 
  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.

December 31, 2022
($ in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
AFS debt securities:
U.S. Treasury securities$676,306 $— $(70,103)$606,203 
U.S. government agency and U.S. government-sponsored enterprise debt securities517,806 67 (56,266)461,607 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities577,392 — (77,123)500,269 
Residential mortgage-backed securities2,011,054 41 (248,900)1,762,195 
Municipal securities303,884 3 (46,788)257,099 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities447,512 213 (49,396)398,329 
Residential mortgage-backed securities762,202 — (112,978)649,224 
Corporate debt securities673,502 — (147,228)526,274 
Foreign government bonds241,165 174 (14,286)227,053 
Asset-backed securities51,152 — (2,076)49,076 
CLOs617,250 — (19,586)597,664 
Total AFS debt securities6,879,225 498 (844,730)6,034,993 
HTM debt securities:
U.S. Treasury securities524,081 — (52,612)471,469 
U.S. government agency and U.S. government-sponsored enterprise debt securities998,972 — (209,560)789,412 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities506,965 — (98,566)408,399 
Residential mortgage-backed securities782,141 — (148,230)633,911 
Municipal securities189,709 — (37,729)151,980 
Total HTM debt securities3,001,868 — (546,697)2,455,171 
Total debt securities$9,881,093 $498 $(1,391,427)$8,490,164 



As of June 30, 2023 and December 31, 2022, the amortized cost of debt securities excluded accrued interest receivables of $41.0 million and $41.8 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to debt securities’ accrued interest receivable, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities and Allowance for Credit Losses on Held-to-Maturity Debt Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

26

Unrealized Losses of Available-for-Sale Debt Securities


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 SeptemberJune 30, 20172023 and December 31, 2016:2022.
June 30, 2023
Less Than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
AFS debt securities:
U.S. Treasury securities$— $— $608,012 $(68,282)$608,012 $(68,282)
U.S. government agency and U.S. government sponsored enterprise debt securities206,807 (1,696)253,277 (52,814)460,084 (54,510)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities20,690 (1,580)458,087 (72,502)478,777 (74,082)
Residential mortgage-backed securities26,838 (1,074)1,692,202 (244,610)1,719,040 (245,684)
Municipal securities7,651 (111)254,201 (40,248)261,852 (40,359)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— — 381,043 (48,733)381,043 (48,733)
Residential mortgage-backed securities— — 608,574 (107,201)608,574 (107,201)
Corporate debt securities29,702 (4,299)456,048 (163,453)485,750 (167,752)
Foreign government bonds68,206 (516)38,738 (11,262)106,944 (11,778)
Asset-backed securities— — 44,875 (1,457)44,875 (1,457)
CLOs— — 603,565 (13,685)603,565 (13,685)
Total AFS debt securities$359,894 $(9,276)$5,398,622 $(824,247)$5,758,516 $(833,523)
December 31, 2022
Less Than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
AFS debt securities:
U.S. Treasury securities$131,843 $(8,761)$474,360 $(61,342)$606,203 $(70,103)
U.S. government agency and U.S. government-sponsored enterprise debt securities97,403 (6,902)214,136 (49,364)311,539 (56,266)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities252,144 (30,029)248,125 (47,094)500,269 (77,123)
Residential mortgage-backed securities307,536 (20,346)1,448,658 (228,554)1,756,194 (248,900)
Municipal securities95,655 (10,194)159,439 (36,594)255,094 (46,788)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities106,184 (3,309)282,301 (46,087)388,485 (49,396)
Residential mortgage-backed securities22,715 (1,546)626,509 (111,432)649,224 (112,978)
Corporate debt securities173,595 (17,907)352,679 (129,321)526,274 (147,228)
Foreign government bonds107,576 (429)36,143 (13,857)143,719 (14,286)
Asset-backed securities12,450 (524)36,626 (1,552)49,076 (2,076)
CLOs144,365 (4,735)453,299 (14,851)597,664 (19,586)
Total AFS debt securities$1,451,466 $(104,682)$4,332,275 $(740,048)$5,783,741 $(844,730)

27

 
  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)
 


For each reporting period,As of June 30, 2023, the Company examines all individualhad 564 AFS debt securities that are in ana gross unrealized loss position with no credit impairment, primarily consisting of 269 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 66 corporate debt securities, 99 non-agency mortgage-backed securities, and 15 U.S. Treasury securities. In comparison, as of December 31, 2022, the Company had 559 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of 263 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 100 non-agency mortgage-backed securities, 68 corporate debt securities, and 15 U.S. Treasury securities.

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

The Company evaluates each AFS debt security where the fair value declines below amortized cost. 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 Securitiesto to the Consolidated Financial Statements ofin the Company’s 20162022 Form 10-K.


The gross unrealized losses presented in the preceding tables were primarily attributable to interest rate movement and the yield curve movement, in addition to widenedwidening of liquidity andand/or credit spreads. U.S. Treasury, U.S. government agency, U.S. government-sponsored agency, and U.S. government-sponsored enterprise debt and mortgage-backed securities are issued, guaranteed, or otherwise supported by the U.S. government and have a zero credit loss assumption. The remaining securities that were in an unrealized loss position as of June 30, 2023 were mainly comprised of the following:

•Non-agency mortgage-backed securities — The market value decline as of June 30, 2023, was primarily due to interest rate movement and spread widening. Since these securities are rated investment grade by nationally recognized statistical rating organizations (“NRSROs”), or have high priority in the cash flow waterfall within the securitization structure, and the contractual payments have historically been on time, the Company believes the risk of credit losses on these securities is low.
•Corporate debt securities — The market value decline as of June 30, 2023 was primarily due to interest rate movement and spread widening. A portion of the corporate debt securities is comprised of subordinated debt securities issued by U.S. banks. Despite the reduction of the market value of these securities after the banking sector disruption in the first half of 2023, these securities are nearly all rated investment grade by NRSROs or issued by well-capitalized financial institutions with strong profitability. The contractual payments from these corporate debt securities have been and are expected to be received on time. The Company will continue to monitor the market developments in the banking sector and the credit performance of these securities.

As of both June 30, 2023 and December 31, 2022, the Company intended to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-likely-than-not that the Company would 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. As of September 30, 2017, the Company had 146 available-for-sale investmentcredit losses provided against these securities in an unrealized loss position with no credit impairment, primarily comprised of 79 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, 22 U.S. Treasury securities and 14 investment grade foreign bonds. In comparison, as of both June 30, 2023 and December 31, 2016, the Company had 170 available-for-sale investment securities in an unrealized loss position with2022. 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 ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.


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

The Company separately evaluates its HTM debt securities for any credit losses using an expected loss model, similar to the methodology used for loans. For additional information on the Company’s credit loss methodology, refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Held-to-Maturity Debt Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The Company monitors the credit quality of the HTM debt securities using external credit ratings. As of June 30, 2023, all HTM securities were rated investment grade by NRSROs and issued, guaranteed, or supported by U.S. government entities and agencies. Accordingly, the Company applied a zero credit loss assumption and no allowance for credit losses was recorded as of June 30, 2023 and December 31, 2022. Overall, the Company believes that the credit support levels of the debt securities are strong, and based on current assessments and macroeconomic forecasts, expects that full contractual cash flows will be received.

28

Realized Gains and Losses


The following table presents the proceeds, gross realized gains from the sales and losses,impairment write-off of AFS debt securities and the related tax expense related to the sales of available-for-sale investment securities(benefit) included in earnings for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Gross realized gains from sales$— $28 $— $1,306 
Impairment write-off (1)
$— $— $10,000 $— 
Related tax expense (benefit)$— $8 $(2,956)$386 
 
($ 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
 
(1)During the first quarter of 2023, the Company fully wrote down a subordinated debt security and recorded the impairment loss as a component of noninterest income in the Company’s Consolidated Statement of Income.


Scheduled Maturities of Investment SecuritiesInterest Income

The following table presents the scheduledcomposition of interest income on debt securities for the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Taxable interest$64,139 $41,250 $125,188 $79,454 
Nontaxable interest4,831 4,926 9,713 9,389 
Total interest income on debt securities$68,970 $46,176 $134,901 $88,843 

29

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

The following tables present the contractual maturities, amortized cost, fair value and weighted-average yields of available-for-sale investmentAFS and HTM debt securities as of SeptemberJune 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
 



Actual2023. 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 prepayments and interest rates may affect theobligations with or without prepayment penalties.
($ in thousands)Within One Year
After One Year through Five Years
After Five Years through Ten YearsAfter Ten YearsTotal
AFS debt securities:
U.S. Treasury securities
Amortized cost$103,679 $676,294 $— $— $779,973 
Fair value103,694 608,012 — — 711,706 
Weighted-average yield (1)
4.82 %1.20 %— %— %1.68 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost150,000 98,133 100,000 166,461 514,594 
Fair value149,305 93,146 82,433 135,200 460,084 
Weighted-average yield (1)
4.98 %3.07 %1.26 %2.09 %2.96 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities
Amortized cost— 38,030 151,754 2,329,981 2,519,765 
Fair value— 35,886 137,852 2,026,276 2,200,014 
Weighted-average yield (1) (2)
— %3.20 %2.71 %3.48 %3.43 %
Municipal securities
Amortized cost2,301 37,167 10,777 253,959 304,204 
Fair value2,288 34,380 9,454 217,751 263,873 
Weighted-average yield (1) (2)
2.21 %2.46 %2.73 %2.24 %2.28 %
Non-agency mortgage-backed securities
Amortized cost102,877 105,584 12,946 927,150 1,148,557 
Fair value101,397 101,371 12,525 777,332 992,625 
Weighted-average yield (1)
6.86 %4.18 %0.80 %2.57 %3.08 %
Corporate debt securities
Amortized cost— — 349,502 304,000 653,502 
Fair value— — 279,402 206,348 485,750 
Weighted-average yield (1)
— %— %3.48 %1.97 %2.78 %
Foreign government bonds
Amortized cost74,140 62,252 50,000 50,000 236,392 
Fair value74,116 62,364 49,548 38,738 224,766 
Weighted-average yield (1)
3.02 %2.33 %5.46 %1.50 %3.03 %
Asset-backed securities
Amortized cost— — — 46,332 46,332 
Fair value— — — 44,875 44,875 
Weighted-average yield (1)
— %— %— %5.75 %5.75 %
CLOs
Amortized cost— — 319,000 298,250 617,250 
Fair value— — 311,589 291,976 603,565 
Weighted-average yield (1)
— %— %6.38 %6.43 %6.40 %
Total AFS debt securities
Amortized cost$432,997 $1,017,460 $993,979 $4,376,133 $6,820,569 
Fair value$430,800 $935,159 $882,803 $3,738,496 $5,987,258 
Weighted-average yield (1)
5.04 %1.88 %4.12 %3.26 %3.29 %
30

($ in thousands)Within One Year
After One Year through Five Years
After Five Years through Ten YearsAfter Ten YearsTotal
HTM debt securities:
U.S. Treasury securities
Amortized cost$—$526,794$—$—$526,794
Fair value—474,137——474,137
Weighted-average yield (1)
— %1.05 %— %— %1.05 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost——280,571719,8441,000,415
Fair value——237,713560,158797,871
Weighted-average yield (1)
— %— %1.92 %1.89 %1.90 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities
Amortized cost——95,5271,163,8981,259,425
Fair value——80,230938,7961,019,026
Weighted-average yield (1) (2)
— %— %1.56 %1.68 %1.67 %
Municipal securities
Amortized cost———189,299189,299
Fair value———149,450149,450
Weighted-average yield (1) (2)
— %— %— %1.98 %1.98 %
Total HTM debt securities
Amortized cost$—$526,794$376,098$2,073,041$2,975,933
Fair value$—$474,137$317,943$1,648,404$2,440,484
Weighted-average yield (1)
— %1.05 %1.83 %1.78 %1.66 %
(1)Weighted-average yields are computed based on the carrying valuesamortized cost balances.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

As of mortgage-backed securities.

Available-for-sale investment securities with fair values of $584.9 million and $767.4 million as of SeptemberJune 30, 20172023 and December 31, 2016, 2022, AFS and HTM debt securities with carrying values of $7.21 billion and $794.2 million, respectively, were pledged to secure borrowings, 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 included in Other assets on the Consolidated Balance Sheet as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
($ in thousands)June 30, 2023December 31, 2022
Federal Reserve Bank of San Francisco (“FRBSF”) stock$61,956 $61,374 
FHLB stock17,250 17,250 
Total restricted equity securities$79,206 $78,624 

     
($ 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 76 — Derivatives

The Company uses derivativesderivative instruments to manage exposure to market risk, primarily including interest rate risk and foreign currency risk, andrisks, as well as to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility so that movements into mitigate the effect of interest rates are not significant torate changes on 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 20162022 Form 10-K.


31

The following table presents the total notional amounts and fair valuevalues of the Company’s derivatives as of SeptemberJune 30, 20172023 and December 31, 2016:2022. Certain derivative contracts are cleared though central clearing organizations where variation margin is applied daily as settlement to the fair values of the contracts. The fair values are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the application of variation margin payments as settlement to fair values of contracts cleared through central clearing organizations. Applying variation margin payments as settlement to the fair values of derivative contracts cleared through the London Clearing House (“LCH”) and the Chicago Mercantile Exchange (“CME”) resulted in reductions in the derivative asset and liability fair values by $24.6 million and $63.5 million, respectively, as of June 30, 2023. In comparison, applying variation margin payments as settlement to LCH- and CME-cleared derivative transactions resulted in reductions in the derivative asset and liability fair values by $167.2 million and $81.3 million, respectively, as of December 31, 2022. Total derivative asset and liability fair values are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
June 30, 2023December 31, 2022
Fair ValueFair Value
($ in thousands)Notional AmountDerivative Assets Derivative Liabilities Notional AmountDerivative Assets Derivative Liabilities 
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate contracts$5,250,000 $2,430 $51,862 $3,450,000 $13,455 $19,687 
Net investment hedges:
Foreign exchange contracts81,480 3,646 — 84,832 5,590 — 
Total derivatives designated as hedging instruments$5,331,480 $6,076 $51,862 $3,534,832 $19,045 $19,687 
Derivatives not designated as hedging instruments:
Interest rate contracts$17,885,894 $527,805 $539,585 $16,932,414 $426,828 $564,829 
Commodity contracts (1)
— 139,081 147,920 — 261,613 258,608 
Foreign exchange contracts4,724,615 91,936 72,342 2,982,891 47,519 44,117 
Credit contracts (2)
109,370 — 16 140,950 — 23 
Equity contracts (3)
— 263 — — 323 — 
Total derivatives not designated as hedging instruments$22,719,879 $759,085 $759,863 $20,056,255 $736,283 $867,577 
Gross derivative assets/liabilities$765,161 $811,725 $755,328 $887,264 
Less: Master netting agreements(208,183)(208,183)(242,745)(242,745)
Less: Cash collateral received(264,245)— (372,038)— 
Net derivative assets/liabilities$292,733 $603,542 $140,545 $644,519 
(1)The notional amount of the Company’s commodity contracts totaled 16,446 thousand barrels of crude oil and 306,161 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of June 30, 2023. In comparison, the notional amount of the Company’s commodity contracts totaled 12,005 thousand barrels of crude oil and 247,704 thousand MMBTUs of natural gas as of December 31, 2022.
(2)The notional amount for credit contracts reflects the Company’s pro-rata share of the derivative instruments in RPAs.
(3)The Company held equity contracts in one public company and 10 private companies as of June 30, 2023. In comparison, the Company held equity contracts in one public company and 13 private companies as of December 31, 2022.

In anticipation of LIBOR’s cessation date on June 30, 2023, certain LIBOR-indexed interest-rate swap contracts with LCH were subject to a conversion process, where the original LIBOR swap contract was exchanged for a SOFR forward-starting swap contract, along with one or more overlap swap contracts replicating the final LIBOR cash flows of the original LIBOR swap contract. The swap contracts exchanged were substantially economically equivalent. The SOFR replacement and overlap LIBOR swaps are considered separate contracts, and the overlay LIBOR swaps will result in a gross-up of the notional amounts presented, until these swaps mature upon settlement of the final LIBOR payment. The interest rate contracts included as cash flow and economic hedges reflect notional gross-ups of $1.00 billion and $161.9 million. These overlay LIBOR swaps are expected to mature in the third quarter of 2023.

32
 
($ 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.



Derivatives Designated as Hedging Instruments


Interest Rate Swaps on Certificates of Deposit Cash Flow Hedges— The Company is exposeduses interest rate swaps to changeshedge the variability in the fair value ofinterest received on certain fixed rate certificates of depositfloating-rate commercial loans, or paid on certain floating-rate borrowings due to changes in the benchmarkcontractually specified interest rates. As of June 30, 2023, interest rate London Interbank Offered Rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed rate amounts from a counterpartycontracts in exchange for the Company making variable rate payments over the life of the agreements without the exchange of the underlying notional amount.

As of September 30, 2017 and December 31, 2016, the total notional amounts of $5.25 billion were designated as cash flow hedges to convert certain variable-rate loans from floating-rate payments to fixed-rate payments. Gains and losses on the hedging derivative instruments are recognized in AOCI and reclassified to earnings in the same period the hedged cash flows impact earnings and within the same income statement line item as the hedged cash flows. Considering the interest rate swaps on certificates of deposit were $42.6 millionrates, yield curve and $48.4 million, respectively. The fair value liabilities of the interest rate swaps were $6.6 million and $6.0 millionnotional amount as of SeptemberJune 30, 2017 and December 31, 2016, respectively.2023, the Company expects to reclassify an estimated $65.5 million 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 net gains (losses) recognized on the Consolidated Statements of Income related to the derivatives designated as fair valuepre-tax changes in AOCI from cash flow hedges for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
 Losses recognized in AOCI:
Interest rate contracts$(96,457)$(7,837)$(66,614)$(40,446)
 Gains (losses) reclassified from AOCI into earnings:
Interest expense (for cash flow hedges on borrowings)— 308 696 135 
Interest and dividend income (for cash flow hedges on loans)(20,252)812 (33,206)3,085 
Noninterest income— — 1,614 (1)— 
Total$(20,252)$1,120 $(30,896)$3,220 
 
($ 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)
 
(1)Represents the amounts in AOCI reclassified into earnings as a result that the forecasted cash flows were no longer probable to occur.


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’s net investment in China,were used to hedge against the risk of adverse changes in the foreign currency exchange rate. 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 portionrate 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 of the net investment hedges recorded through the point of dedesignation remained in the Foreign currency translation adjustment account within AOCI, and will 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.

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 $4.3 million asset, respectively.Chinese Renminbi (“RMB”). The following table presents the pre-tax gains (losses) recordedrecognized in the Foreign currency translation adjustment account within AOCI related to the effective portion of theon net investment hedges and the ineffective portion recorded on the Consolidated Statements of Income for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Gains recognized in AOCI$3,899 $3,255 $2,823 $1,684 
 
($ 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 SwapsCustomer-Related Positions and Optionsother Economic Hedge Derivatives —The Company enters into interest rate, commodity, and foreign exchange derivatives including interest rate swaps and options withat the request of its customers to allow them 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 Companyand generally enters into mirrored interest rateoffsetting derivative contracts with institutional counterparties. As of September 30, 2017,third-party financial institutions to mitigate 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 were 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 value of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $64.8 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.
Foreign Exchange Contracts —inherent market risk. The Company enters intoalso utilizes foreign exchange contracts with its customers, primarily comprisedto mitigate the effect of forward, swap and spot contracts to enable 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 inon certain foreign currency-denominated on-balance sheet assets and liabilities, primarily 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 acustomers. A majority of the foreign exchange transactions entered with its customers, the Company enters into offsetting foreign exchange contracts with institutional counterparties to mitigate the foreign exchange risk. A majority of these contracts havehad original maturities of one year or less. Asless as of Septemberboth June 30, 20172023 and December 31, 2016,2022.

33

The following table presents the total notional amounts ofand the foreign exchange contracts were $1.13 billion and $767.8 million, respectively.  Thegross fair values of the interest rate and foreign exchange contracts recorded were a $14.2 million assetderivatives entered into for customer-related positions and a $20.1 million liabilitywith third-party financial institutions, labeled as “other economic hedges”, as of SeptemberJune 30, 2017. 2023 and December 31, 2022:
June 30, 2023December 31, 2022
Fair ValueFair Value
($ in thousands)Notional AmountAssetsLiabilitiesNotional AmountAssetsLiabilities
Customer-related positions:
Interest rate contracts:
Swaps$6,900,309 $2,117 $503,261 $6,656,491 $1,438 $521,719 
Written options1,621,207 — 24,166 1,548,158 — 30,904 
Collars and corridors296,585 12 8,743 215,773 — 8,924 
Subtotal8,818,101 2,129 536,170 8,420,422 1,438 561,547 
Foreign exchange contracts:
Forwards and spot1,410,862 23,596 31,829 993,588 17,009 18,090 
Swaps888,018 17,862 4,767 623,143 6,629 12,178 
Other129,000 5,939 — 121,631 2,070 245 
Subtotal2,427,880 47,397 36,596 1,738,362 25,708 30,513 
Total$11,245,981 $49,526 $572,766 $10,158,784 $27,146 $592,060 
Other economic hedges:
Interest rate contracts:
Swaps$7,088,622 $491,972 $2,707 $6,683,828 $384,201 $2,047 
Purchased options1,651,896 24,927 — 1,580,275 32,233 — 
Written options30,690 — 696 32,117 — 1,235 
Collars and corridors296,585 8,777 12 215,772 8,956 — 
Subtotal9,067,793 525,676 3,415 8,511,992 425,390 3,282 
Foreign exchange contracts:
Forwards and spot24,935 88 155 77,998 3,050 87 
Swaps2,142,800 44,451 29,652 1,044,900 18,516 11,447 
Other129,000 — 5,939 121,631 245 2,070 
Subtotal2,296,735 44,539 35,746 1,244,529 21,811 13,604 
Total$11,364,528 $570,215 $39,161 $9,756,521 $447,201 $16,886 

34

The Company enters into energy commodity contracts with its customers in the oil and gas sector, which allow them to hedge against the risk of fluctuation in energy commodity prices. Offsetting contracts entered with third-party financial institutions, labeled below as “other economic hedges” are used to manage the Company’s exposure on its customer-related positions. The following table presents the notional amounts in units and the gross fair values of the foreign exchange contracts recorded were an $11.9 million assetcommodity derivatives issued for customer-related positions and an $11.2 million liabilityother economic hedges as of June 30, 2023 and December 31, 2016.2022:

June 30, 2023December 31, 2022
Fair ValueFair Value
($ and unit in thousands)Notional UnitsAssetsLiabilitiesNotional UnitsAssetsLiabilities
Customer-related positions:
Commodity contracts:
Crude oil:
Swaps2,717 Barrels$9,106 $14,142 2,465 Barrels$39,955 $6,178 
Collars5,474 Barrels1,824 7,375 3,011 Barrels16,038 2,630 
Written options— Barrels— — — Barrels558 — 
Subtotal8,191 Barrels10,930 21,517 5,476 Barrels56,551 8,808 
Natural gas:
Swaps115,608 MMBTUs39,171 59,359 92,590 MMBTUs112,314 73,208 
Collars36,161 MMBTUs524 17,545 32,072 MMBTUs2,217 18,317 
Written options1,559 MMBTUs— 179 — MMBTUs— — 
Subtotal153,328 MMBTUs39,695 77,083 124,662 MMBTUs114,531 91,525 
Total$50,625 $98,600 $171,082 $100,333 
Other economic hedges:
Commodity contracts:
Crude oil:
Swaps2,781 Barrels$14,787 $8,770 2,587 Barrels$6,935 $36,060 
Collars5,474 Barrels6,580 1,700 3,942 Barrels1,378 12,856 
Purchased options— Barrels— — — Barrels— 516 
Subtotal8,255 Barrels21,367 10,470 6,529 Barrels8,313 49,432 
Natural gas:
Swaps115,453 MMBTUs50,828 38,326 91,900 MMBTUs69,767 106,883 
Collars35,821 MMBTUs16,082 524 31,142 MMBTUs12,451 1,960 
Purchased options1,559 MMBTUs179 — — MMBTUs— — 
Subtotal152,833 MMBTUs67,089 38,850 123,042 MMBTUs82,218 108,843 
Total$88,456 $49,320 $90,531 $158,275 

Credit Risk Participation AgreementsContracts — The Company has enteredperiodically enters into credit RPAs under whichwith institutional counterparties to manage the Company assumed its pro-rata sharecredit exposure of the interest rate contracts associated with syndication loans. Under the RPAs, a portion of the credit exposure associated withis transferred from one party (the purchaser of credit protection) to another party (the seller of credit protection). The seller of credit protection is required to make payments to the borrower’s performancepurchaser of credit protection if the underlying borrower defaults on the related to interest rate derivative contracts. contract. The Company may enter into protection sold 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 or receive payments under the RPAs if the borrower defaults on its obligation to perform under the interest rate derivative contract. The Company manages its creditprotection purchased RPAs.Credit risk on the RPAs is managed by monitoring the credit worthiness of the borrowers and the institutional counterparties, which is based ona part of the Company’s normal credit review and monitoring process. The notional amountAll referenced entities of the protection sold RPAs reflectwere investment grade and the Company’s pro-rata shareweighted-average remaining maturity was 2.5 years and 2.4 years, as of the derivative instrument. As of SeptemberJune 30, 2017, the notional amount2023 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,2022, respectively. Assuming allthat the underlying borrowers referenced in the interest rate derivative contracts defaulted, the Company would not have any current exposure in the protection sold RPAs as of Septemberboth June 30, 20172023 and December 31, 2016, the exposures from the2022. The Company did not have any outstanding protection purchased RPAs purchased would be $92 thousand and $179 thousand, respectively.  Asas of Septemberboth June 30, 20172023 and December 31, 2016, the weighted average remaining maturities of the outstanding RPAs were 3.0 years and 3.7 years, respectively.2022.


Warrants Equity Contracts — The Company obtained warrants to purchase preferred and common stock of technology and life sciences companies, as As part of the loan origination process. As of September 30, 2017,process, the Company held fourmay obtain warrants in public companies and 32 warrants in private companies. The fair valuesto purchase preferred and/or common stock of the warrants for publicborrowers’ companies, which are mainly in the technology and private companies were an $856 thousand asset andlife sciences sectors. Warrants grant the Company the right to buy a $599 thousand asset, respectively, totaling $1.5 million ascertain class of September 30, 2017.the underlying company’s equity at a certain price before expiration.



35


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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Classification on
Consolidated
Statement of Income		Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Derivatives not designated as hedging instruments:
Interest rate contractsInterest rate contracts and other derivative income$1,222 $5,984 $(1,261)$13,569 
Foreign exchange contractsForeign exchange income19,898 (4,557)30,340 2,765 
Credit contractsInterest rate contracts and other derivative income12 (9)7 65 
Equity contractsLending fees(14)93 (60)187 
Commodity contractsInterest rate contracts and other derivative income160 344 166 295 
Net gains$21,278 $1,855 $29,192 $16,881 
 
($ 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-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-related event. These events, which are defined by the existing derivative contracts,Such an event primarily relaterelates to a downgrade inof the credit rating of East West Bank to below investment grade.grade. As of June 30, 2023, the aggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled $13 thousand, and no collateral was posted to cover these positions. In comparison, as of December 31, 2022, the eventaggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled $2.6 million, of which $1.1 million of collateral was posted to cover these positions. If the credit rating of East West Bank’s credit rating isBank had been downgraded to below investment grade, nothe Company would have been required to post minimal additional collateral would be required to be posted, since the liabilities related to such contracts were fully collateralized as of Septemberboth June 30, 20172023 and December 31, 2016.2022.




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 inapplication of variation margin payments as settlements to the formfair values of other financial instruments, which are generally marketable securities and/or cash.contracts cleared through central clearing organizations, 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); thusliability. Therefore, instances of overcollateralizationover-collateralization are not shown:
($ in thousands)As of June 30, 2023
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$765,161 $(208,183)$(264,245)$292,733 $(258,757)$33,976 
 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$811,725 $(208,183)$— $603,542 $— $603,542 
36

 
  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, 2022
 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$755,328 $(242,745)$(372,038)$140,545 $(60,567)$79,978 
 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$887,264 $(242,745)$— $644,519 $(38,438)$606,081 
(1)Includes $287 thousand and $2.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of June 30, 2023 and December 31, 2022, 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)Includes $12 thousand and $566 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of June 30, 2023 and December 31, 2022, respectively.
(3)Gross cash collateral received under master netting arrangements or similar agreements was $275.7 million and $384.9 million as of June 30, 2023 and December 31, 2022, respectively. Of the gross cash collateral received, $264.2 million and $372.0 million were used to offset against derivative assets as of June 30, 2023 and December 31, 2022, respectively.
(4)Gross cash collateral pledged under master netting arrangements or similar agreements was zero and $490 thousand as of June 30, 2023 and December 31, 2022, respectively. No cash collateral was used to offset against derivative liabilities as of both June 30, 2023 and December 31, 2022.
(5)Represents the fair value of security collateral received or pledged limited to derivative assets or 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 the 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 54 — 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 3— Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures on derivatives.



37



Note 87 — 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 outstanding as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
($ in thousands)June 30, 2023December 31, 2022
Commercial:
C&I$15,670,084 $15,711,095 
CRE:
CRE14,373,385 13,857,870 
Multifamily residential4,764,180 4,573,068 
Construction and land781,068 638,420 
Total CRE19,918,633 19,069,358 
Total commercial35,588,717 34,780,453 
Consumer:
Residential mortgage:
Single-family residential12,308,613 11,223,027 
HELOCs1,862,928 2,122,655 
Total residential mortgage14,171,541 13,345,682 
Other consumer68,106 76,295 
Total consumer14,239,647 13,421,977 
Total loans held-for-investment (1)
$49,828,364 $48,202,430 
Allowance for loan losses(635,400)(595,645)
Loans held-for-investment, net (1)
$49,192,964 $47,606,785 
 
($ 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)(1)Includes $74.0 million and $1.2 million 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$70.4 million comprising unamortized deferred 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 spectrumunearned fees, net of industries.
Residential loans are comprisedpremiums as 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 SeptemberJune 30, 20172023 and December 31, 2016, the Company’s HELOCs were the largest component2022, respectively.

Accrued interest receivable on loans held-for-investment was $229.7 million and $208.4 million as of the consumer loan portfolio, 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 of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for both the three and six months ended June 30, 2023 and 2022. 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 — Loans Held-for-Investment to the Consolidated Financial Statements of the Company’s 2022 Form 10-K. The Company also has loans held-for-sale. For the Company’s accounting policy on loans held-for-sale, refer to Note 1 — Summary of Significant Accounting Policies— Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The Company’s FRBSF and FHLB borrowings are primarily secured by loans held-for-investment. Loans held-for-investment totaling $18.18$34.19 billion and $16.44$28.30 billion, respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the Federal Reserve Bankas of June 30, 2023 and the FHLB.December 31, 2022.


Credit Quality Indicators


All loans are subject to the Company’s internal and external credit review and monitoring. Loansmonitoring process. For the commercial loan 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,the consumer loan portfolio, payment performance/performance or delinquency is typically 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 1 through 10:
•Pass — loans risk rated 1 through 5 are assigned an internal risk rating category of “Pass.” Loans risk rated 1 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 Mentionmention — loans are considered toassigned a risk rating of 6 have potential weaknesses that warrant closer attention by management. Special Mention is consideredmanagement; these are assigned an internal risk rating category of “Special Mention.”
•Substandard — loans assigned a transitory grade. If potential weaknesses are resolved, the loan is upgraded to a Passrisk rating of 7 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 to8 have well-defined weaknesses that may jeopardize the full and timely repayment of the loan. Substandardloan; these are assigned an internal risk rating category of “Substandard.”
38

•Doubtful — loans haveassigned 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 loans9 have insufficient sources of repayment and a high probability of loss. loss; these are assigned an internal risk rating category of “Doubtful.”
•Loss — loans assigned a risk rating of 10 are considered to be 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.”

Loan 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.




The following tables presentsummarize the creditCompany’s loans held-for-investment and current year-to-date gross write-offs by loan portfolio segments, internal risk ratings for non-PCIand vintage year as of the periods presented. The vintage year is the year of loan origination, renewal or major modification. Revolving loans that are converted to term loans presented in the tables below are excluded from term loans by portfolio segment asvintage year columns.
June 30, 2023
Term Loans by Origination Year
($ in thousands)20232022202120202019PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Commercial:
C&I:
Pass$1,427,799 $2,285,112 $1,610,248 $415,562 $267,164 $217,673 $9,016,889 $20,345 $15,260,792 
Criticized (accrual)18,452 93,118 81,361 26,033 26,027 22,837 79,585 — 347,413 
Criticized (nonaccrual)2,657 22,800 1,773 8,987 7,798 12,697 5,167 — 61,879 
Total C&I1,448,908 2,401,030 1,693,382 450,582 300,989 253,207 9,101,641 20,345 15,670,084 
YTD gross write-offs (3)
185 1,996 95 15 4,930 1,683 — — 8,904 
CRE:
Pass1,358,049 4,119,439 2,323,453 1,481,659 1,689,335 2,936,955 111,043 53,747 14,073,680 
Criticized (accrual)36,966 2,757 23,746 68,936 37,981 111,969 1,455 — 283,810 
Criticized (nonaccrual)— 171 15,099 — 460 165 — — 15,895 
Subtotal CRE1,395,015 4,122,367 2,362,298 1,550,595 1,727,776 3,049,089 112,498 53,747 14,373,385 
YTD gross write-offs— — 2,253 — — 119 — — 2,372 
Multifamily residential:
Pass289,218 1,497,280 875,986 625,489 507,401 926,253 9,425 1,295 4,732,347 
Criticized (accrual)— — — — 700 26,430 — — 27,130 
Criticized (nonaccrual)— — — — — 4,703 — — 4,703 
Subtotal multifamily residential289,218 1,497,280 875,986 625,489 508,101 957,386 9,425 1,295 4,764,180 
Construction and land:
Pass85,733 355,949 259,113 34,103 816 2,986 14,952 — 753,652 
Criticized (accrual)5,865 — — — — 21,551 — — 27,416 
Subtotal construction and land91,598 355,949 259,113 34,103 816 24,537 14,952 — 781,068 
Total CRE1,775,831 5,975,596 3,497,397 2,210,187 2,236,693 4,031,012 136,875 55,042 19,918,633 
YTD gross write-offs
— — 2,253 — — 119 — — 2,372 
Total commercial$3,224,739 $8,376,626 $5,190,779 $2,660,769 $2,537,682 $4,284,219 $9,238,516 $75,387 $35,588,717 
YTD total commercial gross write-offs (3)
$185 $1,996 $2,348 $15 $4,930 $1,802 $— $— $11,276 
39

June 30, 2023
Term Loans by Origination Year
($ in thousands)20232022202120202019PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Consumer:
Residential mortgage:
Single-family residential:
Pass (2)
$1,585,454 $3,445,517 $2,369,777 $1,680,587 $1,044,089 $2,152,061 $— $— $12,277,485 
Criticized (accrual)547 574 934 1,708 471 5,647 — — 9,881 
Criticized (nonaccrual) (2)
1,470 138 1,103 2,432 3,581 12,523 — — 21,247 
Subtotal single-family residential mortgage1,587,471 3,446,229 2,371,814 1,684,727 1,048,141 2,170,231 — — 12,308,613 
HELOCs:
Pass978 751 1,793 6,004 2,033 12,007 1,711,411 115,557 1,850,534 
Criticized (accrual)— 801 208 — — — 232 102 1,343 
Criticized (nonaccrual)— — 223 835 — 5,022 704 4,267 11,051 
Subtotal HELOCs978 1,552 2,224 6,839 2,033 17,029 1,712,347 119,926 1,862,928 
YTD gross write-offs (3)
— — — — — — — 6 6 
Total residential mortgage1,588,449 3,447,781 2,374,038 1,691,566 1,050,174 2,187,260 1,712,347 119,926 14,171,541 
YTD gross write-offs (3)
— — — — — — — 6 6 
Other consumer:
Pass885 16,824 136 5,356 — 11,810 33,071 — 68,082 
Criticized (nonaccrual)— — — — — — 24 — 24 
Total other consumer885 16,824 136 5,356 — 11,810 33,095 — 68,106 
YTD gross write-offs— — — — — — 88 — 88 
Total consumer$1,589,334 $3,464,605 $2,374,174 $1,696,922 $1,050,174 $2,199,070 $1,745,442 $119,926 $14,239,647 
YTD total consumer gross write-offs (3)
$— $— $— $— $— $— $88 $6 $94 
Total loans held-for-investment:
Pass$4,748,116 $11,720,872 $7,440,506 $4,248,760 $3,510,838 $6,259,745 $10,896,791 $190,944 $49,016,572 
Criticized (accrual)61,830 97,250 106,249 96,677 65,179 188,434 81,272 102 696,993 
Criticized (nonaccrual)4,127 23,109 18,198 12,254 11,839 35,110 5,895 4,267 114,799 
Total$4,814,073 $11,841,231 $7,564,953 $4,357,691 $3,587,856 $6,483,289 $10,983,958 $195,313 $49,828,364 
YTD total loans held-for-investment gross write-offs (3)
$185 $1,996 $2,348 $15 $4,930 $1,802 $88 $6 $11,370 
40

December 31, 2022
Term Loans by Origination Year
($ in thousands)20222021202020192018PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Commercial:
C&I:
Pass$2,831,834 $2,053,215 $623,026 $392,013 $143,970 $97,605 $9,177,401 $20,548 $15,339,612 
Criticized (accrual)72,210 34,296 48,761 34,221 20,646 12,933 97,988 — 321,055 
Criticized (nonaccrual)18,722 4,797 10,733 243 5,618 10,315 — — 50,428 
Total C&I2,922,766 2,092,308 682,520 426,477 170,234 120,853 9,275,389 20,548 15,711,095 
CRE:
Pass4,178,780 2,404,634 1,505,150 1,771,679 1,471,710 1,909,925 165,653 22,009 13,429,540 
Criticized (accrual)3,518 60,573 159,424 40,095 91,132 32,173 1,455 16,716 405,086 
Criticized (nonaccrual)— 19,044 — — — 4,200 — — 23,244 
Subtotal CRE4,182,298 2,484,251 1,664,574 1,811,774 1,562,842 1,946,298 167,108 38,725 13,857,870 
Multifamily residential:
Pass1,500,289 892,598 641,677 519,614 350,044 625,293 11,325 — 4,540,840 
Criticized (accrual)— — — 707 4,276 27,076 — — 32,059 
Criticized (nonaccrual)— — — — — 169 — — 169 
Subtotal multifamily residential1,500,289 892,598 641,677 520,321 354,320 652,538 11,325 — 4,573,068 
Construction and land:
Pass288,394 276,839 31,804 3,104 2,805 231 9,073 — 612,250 
Criticized (accrual)4,504 — — — 21,666 — — — 26,170 
Subtotal construction and land292,898 276,839 31,804 3,104 24,471 231 9,073 — 638,420 
Total CRE5,975,485 3,653,688 2,338,055 2,335,199 1,941,633 2,599,067 187,506 38,725 19,069,358 
Total commercial$8,898,251 $5,745,996 $3,020,575 $2,761,676 $2,111,867 $2,719,920 $9,462,895 $59,273 $34,780,453 
Consumer:
Residential mortgage:
Single-family residential:
Pass (2)
$3,548,894 $2,453,717 $1,775,696 $1,101,965 $817,164 $1,500,359 $— $— $11,197,795 
Criticized (accrual)— 1,275 785 1,463 4,352 3,935 — — 11,810 
Criticized (nonaccrual) (2)
141 — 204 3,202 1,721 8,154 — — 13,422 
Subtotal single-family residential mortgage3,549,035 2,454,992 1,776,685 1,106,630 823,237 1,512,448 — — 11,223,027 
HELOCs:
Pass520 3,583 7,336 3,203 525 8,960 1,958,692 127,401 2,110,220 
Criticized (accrual)— 6 — — — — 4 1,079 1,089 
Criticized (nonaccrual)— — 483 231 1,017 4,844 1,001 3,770 11,346 
Subtotal HELOCs520 3,589 7,819 3,434 1,542 13,804 1,959,697 132,250 2,122,655 
Total residential mortgage3,549,555 2,458,581 1,784,504 1,110,064 824,779 1,526,252 1,959,697 132,250 13,345,682 
Other consumer:
Pass17,088 137 5,356 — — 15,808 37,804 — 76,193 
Criticized (accrual)3 — — — — — — — 3 
Criticized (nonaccrual)— — — — — — 99 — 99 
Total other consumer17,091 137 5,356 — — 15,808 37,903 — 76,295 
Total consumer$3,566,646 $2,458,718 $1,789,860 $1,110,064 $824,779 $1,542,060 $1,997,600 $132,250 $13,421,977 
Total by Risk Rating:
Pass$12,365,799 $8,084,723 $4,590,045 $3,791,578 $2,786,218 $4,158,181 $11,359,948 $169,958 $47,306,450 
Criticized (accrual)80,235 96,150 208,970 76,486 142,072 76,117 99,447 17,795 797,272 
Criticized (nonaccrual)18,863 23,841 11,420 3,676 8,356 27,682 1,100 3,770 98,708 
Total$12,464,897 $8,204,714 $4,810,435 $3,871,740 $2,936,646 $4,261,980 $11,460,495 $191,523 $48,202,430 
(1)$1.4 million and $13.5 million of Septembertotal commercial loans, primarily comprised of CRE revolving loans converted to term loans during the three and six months ended June 30, 20172023, respectively. In comparison, $26.4 million of total commercial loans, comprised of CRE revolving loans converted to term loans during both the three and six months ended June 30, 2022. $9.7 million and $14.5 million of total consumer loans, comprised of HELOCs were converted to term loans during three and six months ended June 30, 2023, respectively. In comparison, there were no consumer loans converted to term loans during the three and six months ended June 30, 2022.
(2)As of June 30, 2023 and December 31, 2016:2022, $734 thousand and $818 thousand, respectively, of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a “Pass” rating.
(3)Excludes gross write-offs associated with loans the Company sold or settled.
41
 
($ 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 credit risk ratings for PCI loans by portfolio segment as of September 30, 2017 and December 31, 2016:
 
($ 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
 
 
($ 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. The following tables present the aging analysis on non-PCIof loans held-for-investment as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
June 30, 2023
($ in thousands)Current
Accruing
Loans		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$15,602,567 $3,247 $2,391 $5,638 $61,879 $15,670,084 
CRE:
CRE14,342,301 15,189 — 15,189 15,895 14,373,385 
Multifamily residential4,758,515 962 — 962 4,703 4,764,180 
Construction and land759,516 21,552 — 21,552 — 781,068 
Total CRE19,860,332 37,703 — 37,703 20,598 19,918,633 
Total commercial35,462,899 40,950 2,391 43,341 82,477 35,588,717 
Consumer:
Residential mortgage:
Single-family residential12,254,680 21,752 10,200 31,952 21,981 12,308,613 
HELOCs1,840,064 10,471 1,342 11,813 11,051 1,862,928 
Total residential mortgage14,094,744 32,223 11,542 43,765 33,032 14,171,541 
Other consumer67,099 142 841 983 24 68,106 
Total consumer14,161,843 32,365 12,383 44,748 33,056 14,239,647 
Total$49,624,742 $73,315 $14,774 $88,089 $115,533 $49,828,364 
December 31, 2022
($ in thousands)Current
Accruing
Loans		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$15,651,312 $6,482 $2,873 $9,355 $50,428 $15,711,095 
CRE:
CRE13,820,441 14,185 — 14,185 23,244 13,857,870 
Multifamily residential4,571,899 678 322 1,000 169 4,573,068 
Construction and land638,420 — — — — 638,420 
Total CRE19,030,760 14,863 322 15,185 23,413 19,069,358 
Total commercial34,682,072 21,345 3,195 24,540 73,841 34,780,453 
Consumer:
Residential mortgage:
Single-family residential11,183,134 13,523 12,130 25,653 14,240 11,223,027 
HELOCs2,102,523 7,700 1,086 8,786 11,346 2,122,655 
Total residential mortgage13,285,657 21,223 13,216 34,439 25,586 13,345,682 
Other consumer73,004 109 3,083 3,192 99 76,295 
Total consumer13,358,661 21,332 16,299 37,631 25,685 13,421,977 
Total$48,040,733 $42,677 $19,494 $62,171 $99,526 $48,202,430 

42

 
($ 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, 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 onThe following table presents the policy for recording payments received and resuming accrualamortized cost of interest on non-PCI loans that are placed on nonaccrual status see for which there was no related allowance for loan losses as of both June 30, 2023 and December 31, 2022. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well-secured by the collateral value and there is no loss expectation.
($ in thousands)June 30, 2023December 31, 2022
Commercial:
C&I$27,690 $11,398 
CRE15,100 22,944 
Multifamily residential4,235 — 
Total commercial47,025 34,342 
Consumer:
Single-family residential6,077 2,998 
HELOCs5,076 7,245 
Total consumer11,153 10,243 
Total nonaccrual loans with no related allowance for loan losses$58,178 $44,585 

Foreclosed Assets

The Company acquires assets from borrowers through loan restructurings, workouts, and foreclosures. Assets acquired may include real properties (e.g., residential real estate, land, and buildings) and commercial and personal properties. The Company recognizes foreclosed assets upon receiving assets in satisfaction of a loan (e.g., taking legal title or physical possession).

Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had no foreclosed assets as of June 30, 2023, compared with $270 thousand as of December 31, 2022. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the CFPB guidelines. The carrying value of consumer real estate loans that were in an active or suspended foreclosure process was $7.1 million and $7.5 million as of June 30, 2023 and December 31, 2022, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company adopted ASU 2022-02, which in part eliminated the accounting for TDR and enhanced disclosures requirements for loan modifications to borrowers experiencing financial difficulty. SeeNote 12 — Current Accounting Developments and Summary of Significant Accounting Policies — Significant Accounting Policies Update — Loan Modifications to the Consolidated Financial Statements in this Form 10-Q for additional information. As part of the Company’s 2016 Form 10-K.

PCI loans are excluded from the above aging analysis tables asloss mitigation efforts, the Company has electedmay agree to account for these loans on a pool level basis under ASC 310-30 atmodify the time of acquisition. Refer to the discussion on PCI loans within this note for additional details on interest income recognition. As of September 30, 2017 and December 31, 2016, PCI loans on nonaccrual status totaled $5.7 million and $11.7 million, respectively.



Loans in Process of Foreclosure

As of September 30, 2017 and December 31, 2016, the Company had $6.3 million and $3.1 million, respectively, of recorded investments in residential and consumer mortgage loans secured by residential real estate properties, for which formal foreclosure proceedings were in 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 thousand was included in total net OREO of $2.3 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 of December 31, 2016.

Troubled Debt Restructurings

Potential troubled debt restructurings (“TDRs”) are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty in order to maximize the Company’s recovery. A TDR is a modification of thecontractual terms of a loan when theto assist borrowers experiencing financial difficulty. The Company for economic or legal reasons relatednegotiates loan modifications on a case-by-case basis to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial difficulties, grantsneeds. The Company considers various factors to identify borrowers experiencing financial difficulty. The primary factor for consumer borrowers is delinquency status. For commercial loan borrowers, these factors include credit risk ratings, the probability of loan risk rating downgrades, and overall risk profile changes. The modification may include, but is not limited to, payment deferrals, interest rate reductions, term extensions, principal forgiveness, or a concession tocombination of such modifications. Commercial loan borrowers that require immaterial modifications such as insignificant interest rate changes, short-term extensions (90 days or less) from the borrower that itoriginal maturity date, or temporary waivers or extensions of financial covenants which would not have otherwise considered.constitute material credit actions are generally not considered to be experiencing financial difficulty and are not included in the disclosure. Insignificant payment deferrals (three months or less in the last 12 months) are also not included in the disclosure.


43

The following tables present the additions to non-PCI TDRs foramortized cost of loans that were modified during the three and ninesix months ended SeptemberJune 30, 20172023 by loan class and 2016:modification type:
Three Months Ended June 30, 2023
Modification Type
($ in thousands)Term ExtensionPayment DelayCombo- Term Extension/ Payment DelayCombo- Rate Reduction/ Term ExtensionCombo- Principal Forgiveness Rate Reduction/ Term ExtensionTotalModification as a % of Loan Class
Commercial:
C&I$13,475 $12,788 $— $— $298 $26,561 0.17 %
CRE:
CRE— — — 32,791 — 32,791 0.16 %
Total commercial13,475 12,788 — 32,791 298 59,352 
Consumer:
Residential mortgage:
Single-family residential:— 5,085 551 — — 5,636 0.05 %
HELOCs— 978 — — — 978 0.05 %
Total consumer— 6,063 551 — — 6,614 
Total$13,475 $18,851 $551 $32,791 $298 $65,966 
Six Months Ended June 30, 2023
Modification Type
($ in thousands)Term ExtensionPayment DelayCombo- Term Extension/ Payment DelayCombo- Rate Reduction/ Term ExtensionCombo- Principal Forgiveness Rate Reduction/ Term ExtensionTotalModification as a % of Loan Class
Commercial:
C&I$33,098 $26,799 $— $— $298 $60,195 0.38 %
CRE:
CRE526 — — 32,791 — 33,317 0.17 %
Total commercial33,624 26,799 — 32,791 298 93,512 
Consumer:
Residential mortgage:
Single-family residential:— 5,085 551 — — 5,636 0.05 %
HELOCs— 978 726 — — 1,704 0.09 %
Total consumer— 6,063 1,277 — — 7,340 
Total$33,624 $32,862 $1,277 $32,791 $298 $100,852 

44
 
  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 TDRfinancial effects of the loan modifications for the three and ninesix months ended SeptemberJune 30, 20172023 by loan class and 2016 by modification type:
Financial Effects of Loan Modifications
Three Months Ended June 30, 2023
($ in thousands)Principal ForgivenessWeighted-Average Interest Rate ReductionWeighted-Average Term Extension
(in years)		Weighted-Average Payment Delay
(in years)
Commercial:
C&I$345 (1)8.50 %(1)1.710.63
CRE— 3.00 %2.50— 
Consumer:
Single-family residential— — 9.700.89
HELOCs— — — 0.64
Total$345 
 
($ in thousands) Modification Type During the Three Months Ended September 30, 2017
 
Principal (1)
 
Principal
and
Interest (2)
 
Interest
Rate
Reduction
 
Interest
Deferments
 Other Total
CRE $172
 $—
 $—
 $—
 $—
 $172
C&I 14,903
 24
 —
 —
 —
 14,927
Total $15,075
 $24
 $—
 $—
 $—
 $15,099
  
Financial Effects of Loan Modifications
Six months ended June 30, 2023
($ in thousands)Principal ForgivenessWeighted-Average Interest Rate ReductionWeighted-Average Term Extension
(in years)		Weighted-Average Payment Delay
(in years)
Commercial:
C&I$345 (1)8.50 %(1)1.470.82
CRE— 3.00 %2.49— 
Consumer:
Single-family residential— — 9.700.89
HELOCs— — 14.750.51
Total$345 
(1)Comprised of a C&I loan modified during the three and six months ended June 30, 2023 where the interest is waived in addition to principal forgiveness.
 
($ 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
  

 
($ 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,A modified loan may become delinquent and may result in a TDR that becomes delinquent, generally beyondpayment 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. The following tables present information formodification. There were no loans modified as TDRs within the previous 12 months that havereceived modifications which subsequently defaulted during the three and ninesix months ended SeptemberJune 30, 2017 and 2016, and were still in default at the respective period end:2023.
 
($ 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 amountCompany closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of loans that were modified as of June 30, 2023 since the adoption of ASU 2022-02 on January 1, 2023.
Payment Performance as of June 30, 2023
($ in thousands)Current30 - 89 Days Past Due90+ Days Past DueTotal
Commercial:
C&I$48,206 $7,000 $4,989 $60,195 
CRE:
CRE33,317 — — 33,317 
Total commercial81,523 7,000 4,989 93,512 
Consumer:
Residential mortgage:
Single-family residential5,045 591 — 5,636 
HELOCs1,704 — — 1,704 
Total consumer6,749 591 — 7,340 
Total$88,272 $7,591 $4,989 $100,852 

45

As of June 30, 2023, commitments to lend additional funds committed to lendborrowers whose loans were modified were $15.1 million.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. ASU 2022-02 eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023.

The following table presents the additions to TDRs for the three and six months ended June 30, 2022:
Loans Modified as TDRs
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
($ in thousands)Number of LoansPre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment (1)
Financial Impact (2)
Number of LoansPre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment (1)
Financial Impact (2)
Commercial:
C&I2 $12,955 $12,245 $2,111 3 $30,134 $21,428 $10,157 
Total2 $12,955 $12,245 $2,111 3 $30,134 $21,428 $10,157 
(1)Includes subsequent payments after modification and reflects the balance as of June 30, 2022.
(2)Includes charge-offs since the modification date.

The following table presents the TDR post-modification outstanding balances by the primary modification type for the three and six months ended June 30, 2022:
Modification Type
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
($ in thousands)Principal
Other (1)
Total
Principal (2)
Other (1)
Total
Commercial:
C&I$— $12,245 $12,245 $9,183 $12,245 $21,428 
Total$— $12,245 $12,245 $9,183 $12,245 $21,428 
(1)Includes increase in new commitment.
(2)Includes principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.

After a loan is modified as a TDR, the Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent and result in payment default (generally 90 days past due) subsequent to restructuring. The following table presents information on loans that entered into default during the three and six months ended June 30, 2022 that were modified as TDRs during the 12 months preceding payment default:
Loan Modified as TDRs that Subsequently Defaulted
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
($ in thousands)Number of LoansRecorded InvestmentNumber of LoansRecorded Investment
Commercial:
C&I1 $1,055 2 $4,305 
Total1 $1,055 2 $4,305 

As of December 31, 2022, the remaining lending commitments to borrowers whose terms have beenof their outstanding owed balances were modified as TDRs was $612 thousand and $9.9 million as of September 30, 2017 and December 31, 2016, respectively.$16.2 million.


46
Impaired Loans


Allowance for Credit Losses

The Company has a current expected credit losses framework for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The Company’s allowance for credit losses, which includes both the allowance for loan losses and the allowance for unfunded credit commitments, is calculated with the objective of maintaining a reserve sufficient to absorb losses inherent in our credit portfolios. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses, and periodic evaluation of the loan portfolio, lending-related commitments, and other relevant factors.

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

The 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 that share risk characteristics with other similar exposures are collectively evaluated. The collectively evaluated loans are grouped into heterogeneousinclude performing loans and homogeneous (mostly consumer loans) categories. Classified loans inunfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the heterogeneous category are identified and evaluated for impairmentCompany generally estimates expected credit losses on an individual basis. A

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 Company applies quantitative methods to estimate loan islosses by considering 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, which 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, combined with 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 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.

There were no changes to the overall model methodology or the reasonable and supportable forecast period and reversion to the historical loss experience method for the three and six months ended June 30, 2023 and 2022.

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&IAge, size and spread at origination, and risk ratingVolatility Index and BBB yield to 10-year U.S. Treasury spread
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 consumerLoss rate approach
Immaterial (1)
(1)Macroeconomic variables are included in the qualitative estimate.

47

Allowance for Loan Losses for the Commercial Loan Portfolio

The Company’s C&I lifetime loss rate model estimates the 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 11 quarters, thereafter, immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate.

To generate estimates of expected loss at the loan level for CRE, multifamily residential, and construction and land loans, projected probabilities of default (“PDs”) and loss given defaults (“LGDs”) are applied to the estimated exposure at default, considering the term and payment structure of the loan. The forecast of future economic conditions returns to long-run historical economic trends within 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. To estimate the life of a loan for the single-family residential and HELOC loan portfolios, 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 and associates;
—    the effect of other external factors such as the regulatory and legal environments, or 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 principal or interest dueobtaining 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.

48

Allowance for Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in accordance with the original contractual terms. Impairedcase of certain nonaccrual loans, arethe Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is 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; or (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 June 30, 2023, collateral-dependent commercial and consumer loans totaled $22.0 million and $11.2 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $47.4 million and $13.4 million, respectively, as nonperformingof December 31, 2022. The collateral-dependent loans decreased from December 31, 2022, predominantly driven by the adoption of ASU 2022-02 related to the elimination of TDR guidance. The Company's collateral-dependent loans were secured by real estate. As of both June 30, 2023 and uncollectible,December 31, 2022, the deficiency is charged-off againstcollateral value of the allowance for loan losses. Impairedproperties securing the collateral-dependent loans, excludenet of selling costs, exceeded the homogeneous consumer loan 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.recorded value of the loans.




The following tables present information onsummarize 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 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
 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.



Allowance for Credit Losses

The following tables present a summary of activitiesactivity in the allowance for loan losses by portfolio segmentsegments for the three and ninesix months ended SeptemberJune 30, 2017 2023 and 2016:2022:
Three Months Ended June 30, 2023
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, beginning of period$376,325 $155,067 $24,526 $9,322 $48,007 $4,971 $1,675 $619,893 
Provision for (reversal of) credit losses on loans(a)5,259 15,685 (1,604)1,995 3,501 (444)(367)24,025 
Gross charge-offs(7,335)(2,366)— — — (6)(48)(9,755)
Gross recoveries2,065 119 16 8 5 5 — 2,218 
Total net (charge-offs) recoveries(5,270)(2,247)16 8 5 (1)(48)(7,537)
Foreign currency translation adjustment(981)— — — — — — (981)
Allowance for loan losses, end of period$375,333 $168,505 $22,938 $11,325 $51,513 $4,526 $1,260 $635,400 
Three Months Ended June 30, 2022
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, beginning of period$339,446 $147,104 $24,176 $11,016 $18,210 $3,748 $1,985 $545,685 
Provision for (reversal of) credit losses on loans(a)19,030 (6,819)1,976 (4,338)3,461 (339)(502)12,469 
Gross charge-offs(240)(671)(8)— — (193)(34)(1,146)
Gross recoveries6,514 631 408 4 169 4 — 7,730 
Total net recoveries
(charge-offs)
6,274 (40)400 4 169 (189)(34)6,584 
Foreign currency translation adjustment(1,468)— — — — — — (1,468)
Allowance for loan losses, end of period$363,282 $140,245 $26,552 $6,682 $21,840 $3,220 $1,449 $563,270 
49

 
($ 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
 
Six Months Ended June 30, 2023
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, December 31, 2022$371,700 $149,864 $23,373 $9,109 $35,564 $4,475 $1,560 $595,645 
Impact of ASU 2022-02 adoption5,683 337 6 — 1 1 — 6,028 
Allowance for loan losses, beginning of period377,383 150,201 23,379 9,109 35,565 4,476 1,560 601,673 
Provision for (reversal of) credit losses on loans(a)4,581 20,361 (469)2,205 15,943 136 (212)42,545 
Gross charge-offs(9,235)(2,372)— — — (97)(88)(11,792)
Gross recoveries3,276 315 28 11 5 11 — 3,646 
Total net (charge-offs) recoveries(5,959)(2,057)28 11 5 (86)(88)(8,146)
Foreign currency translation adjustment(672)— — — — — — (672)
Allowance for loan losses, end of period$375,333 $168,505 $22,938 $11,325 $51,513 $4,526 $1,260 $635,400 
Six Months Ended June 30, 2022
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, beginning of period$338,252 $150,940 $14,400 $15,468 $17,160 $3,435 $1,924 $541,579 
Provision for (reversal of) credit losses on loans(a)28,292 (10,312)11,633 (8,844)4,387 (40)(395)24,721 
Gross charge-offs(11,428)(1,069)(9)— — (193)(80)(12,779)
Gross recoveries9,516 686 528 58 293 18 — 11,099 
Total net (charge-offs) recoveries(1,912)(383)519 58 293 (175)(80)(1,680)
Foreign currency translation adjustment(1,350)— — — — — — (1,350)
Allowance for loan losses, end of period$363,282 $140,245 $26,552 $6,682 $21,840 $3,220 $1,449 $563,270 
 
($ 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 usedIn addition to estimate the allowance for loan losses, the Company maintains an allowance for unfunded credit 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.



commitments. The following table presents a summary of activities inCompany has three general areas for which it provides the allowance for unfunded credit reservescommitments: (1) recourse obligations for the threeloans sold, (2) letters of credit, 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 $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
         

(3) unfunded lending commitments. 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 11 — Commitments and Contingenciesto the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit reserves.

The following tables present the Company’s allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of September 30, 2017 and 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 Impaired Loans

At the date of acquisition, PCI loans are pooled and accounted for at fair value, which represents the discounted value of the expected cash flows of the loan portfolio. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. The cash flows expected over the life of the pools are estimated by an internal cash flow model that projects cash flows 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 investment in the loan represents the “accretable yield,” which is recognized as interest income on a level yield basis over the life of the loan. Prepayments affect the estimated life of PCI 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.”

commitments. The following table presentssummarizes the changesactivities in accretable yieldthe allowance for PCI loansunfunded credit commitments for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$27,741 $23,262 $26,264 $27,514 
Provision for (reversal of) credit losses on unfunded credit commitments(b)1,975 1,031 3,455 (3,221)
Foreign currency translation adjustment12 11 9 11 
Allowance for unfunded credit commitments, end of period$29,728 $24,304 $29,728 $24,304 
Provision for credit losses(a) + (b)$26,000 $13,500 $46,000 $21,500 

50
 
($ 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
 


The allowance for credit losses was $665.1 million as of June 30, 2023, an increase of $43.2 million, compared with $621.9 million as of December 31, 2022. The increase in the allowance for credit losses was primarily driven by the current economic outlook as well as loan growth. The current economic outlook reflected ongoing concerns with inflation, global supply chain disruptions and high interest rates.

Loans Held-for-SaleThe Company considers multiple economic scenarios to develop the estimate of the allowance for loan losses. The scenarios may consist of a baseline forecast representing management's view of the most likely outcome, and downside or upside scenarios that reflect possible worsening or improving economic conditions, respectively. As of June 30, 2023, the Company did not assign a weighting to its upside scenario. Instead, it assigned a slightly higher weighting to its downside scenario, while maintaining the same weighting to its baseline scenario, compared with the weightings assigned as of December 31, 2022. Management remains cautious regarding the economic outlook given the persistently high level of inflation, high interest rates, the recent strain to the financial system, and continued concerns on global oil prices and supply-chain issues. The U.S. baseline GDP growth forecast for the second half of 2023 has been lowered compared with the December 2022 forecast. The GDP growth forecast for the full year 2024, was lowered to 1.4% from the previous 2.0% forecasted as of December 31, 2022, reflecting an expected GDP slow-down as interest-sensitive spending weakens amid elevated interest rate environment. Average unemployment rates in the U.S. are expected to remain stable at 3.6% for the second half of 2023. However, job market softening is expected in 2024 and 2025. Compared with the baseline scenario, the downside scenario assumes that the combination of increasing supply shortages, political tensions between China and Taiwan, recent bank failures, still-elevated inflation, and the Federal Reserve’s decision to keep the federal funds rate elevated will lead to a recession in the third quarter of 2023.

Loans held-for-sale are carried at
Loan Transfers, Sales and Purchases

The Company’s primary business focus is on directly originated loans. The Company also purchases loans and participates in loan financing with other banks. In the lowernormal course of cost or fair value. When a determination is made atbusiness, the time of commitmentCompany also provides other financial institutions with the ability to originate or purchaseparticipate in commercial loans as held-for-investment,that it is the Company’s intent to hold theseoriginates, by selling 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 certainsuch institutions. Purchased loans the loans aremay be 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 on 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, 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 $418.5 millionportfolio, during the three and ninesix months ended SeptemberJune 30, 2017, respectively. These loan transfers were primarily comprised2023 and 2022:
Three Months Ended June 30, 2023
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICREConstruction and LandSingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$111,396 $— $8,154 $— $119,550 
Sales (2)(3)
$115,735 $— $8,154 $— $123,889 
Purchases (4)
$38,279 $— $— $79,137 $117,416 
Three Months Ended June 30, 2022
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICRESingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$208,335 $9,854 $— $218,189 
Loans transferred from held-for-sale to held-for-investment$— $— $631 $631 
Sales (2)(3)
$180,029 $9,854 $— $189,883 
Purchases (4)
$194,066 $— $122,723 $316,789 
51

Six Months Ended June 30, 2023
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICREConstruction and LandSingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$268,272 $3,600 $8,154 $— $280,026 
Sales (2)(3)
$291,667 $3,600 $8,154 $— $303,421 
Purchases (4)
$60,962 $— $— $211,136 $272,098 
Six Months Ended June 30, 2022
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICRESingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$319,772 $31,634 $— $351,406 
Loans transferred from held-for-sale to held-for-investment$— $— $631 $631 
Sales (2)(3)
$287,503 $31,634 $451 $319,588 
Purchases (4)
$304,662 $— $237,098 $541,760 
(1)Includes write-downs of C&I loans for both periods. In comparison, $144.9 million and $720.7 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$308 thousand and $441$581 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 ninesix months ended SeptemberJune 30, 2017, respectively. In comparison, there were no write-downs2023, respectively, 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$158 thousand and $217 thousand for the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively.

During(2)Includes originated loans sold of $92.2 million and $203.2 million for the three and ninesix months ended SeptemberJune 30, 2017, the Company sold $33.82023, respectively, and $55.4 million and $101.4$167.7 million respectively, in originated loans, resulting in net gains of $2.3 millionfor the three and $5.5 million,six months ended June 30, 2022, respectively. Originated loans sold during these periods wereconsisted 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 ninesix months ended SeptemberJune 30, 2017 were primarily comprised2023 and 2022.
(3)Includes $31.7 million and $100.3 million of C&I syndication loans. Purchasedpurchased loans for each ofsold in 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 purchasedsecondary market for the three and ninesix months ended SeptemberJune 30, 2016, primarily included $165.82023, respectively, and $134.5 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$151.9 million for the three and ninesix months ended SeptemberJune 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, 2016,2022, respectively.

(4)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 98 — 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 affordable housing requirements for affordable housing for a 15-year minimum 15-year compliance period to fully utilize the tax credits.period. In addition to affordable housing limited partnerships,projects, the Company invests in small business investment companies and new market tax credit projects that qualify for CRA credits andconsideration, as well as eligible projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, while theand investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas.

For the Company’s accounting policies on tax credit investments, see Note 1— Summary of Significant Accounting Policies — Significant Accounting Policies — Securitiesand Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net

The Company records its investments in qualified affordable housing partnerships, net, using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizesConsolidated Financial Statements in the amortization in Income tax expenseCompany’s 2022 Form 10-K for additional details. For a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments, refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments— Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net to the Consolidated Financial Statements of Income.in this Form 10-Q.


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The following table presents the balancesinvestments and unfunded commitments of the Company’s investments in qualified affordable housing partnerships, net,tax credit, and related unfunded commitmentsother investments as of June 30, 2023 and December 31, 2022:
June 30, 2023December 31, 2022
($ in thousands)Assets
Liabilities - Unfunded Commitments (1)
Assets
Liabilities - Unfunded Commitments (1)
Investments in qualified affordable housing partnerships, net$422,331 $255,066 $413,253 $266,654 
Investments in tax credit and other investments, net393,140 278,915 350,003 185,797 
Total$815,471 $533,981 $763,256 $452,451 
(1)Included in Accrued expenses and other liabilities on the periods indicated:Consolidated Balance Sheet.

 
($ 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
 
Investments in tax credit and other investments, net presented in the table above include equity securities that are mutual funds with readily determinable fair values of $24.2 million and $24.0 million as of June 30, 2023 and December 31, 2022, respectively. The Company invests in these mutual funds for CRA purposes. The Company also held equity securities without readily determinable fair values totaling $37.0 million and $36.5 million as of June 30, 2023 and December 31, 2022, respectively.


The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the periods indicated:
         
($ 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 for the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Investments in qualified housing partnerships, net:
Tax credits and other tax benefits recognized$15,304 $12,754 $31,398 $25,584 
Amortization expense included in income tax expense$10,506 $10,042 $23,172 $20,067 
Investments in tax credit and other investments, net:
Amortization of tax credit and other investments (1)
$55,914 $14,979 $66,024 $28,879 
Unrealized losses on equity securities with readily determinable values$(369)$(783)$(8)$(1,944)
(1)Includes net were $203.8impairment recoveries of $1.4 million and $173.3$1.6 million asfor the three and six months ended June 30, 2023, respectively, primarily related to historic tax credits. In comparison, there were no impairment recoveries or losses for three or six months ended June 30, 2022.

Variable Interest Entities

The majority of September 30, 2017 and December 31, 2016, respectively. The Company is notboth the primary beneficiaryinvestments in theseaffordable housing 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 influencediscussed above are variable interest entities where the Company is a limited partner in these partnerships, and an unrelated third party is typically the general partner or managing member who has oncontrol over the limited partnership,significant activities of these investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company applies either the equity or cost method of accounting.

Total unfunded commitments fordoes not consolidate these investments were $103.0 milliondue 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 maximum exposure to loss in connection with these partnerships consists of the unamortized investment balance and $117.0any tax credits claimed that may become subject to recapture.

Note 9—Goodwill

Total goodwill was $465.7 million as of Septemberboth June 30, 20172023 and December 31, 2016, respectively, and are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Amortization of tax credit and other investments was $23.8 million and $32.6 million for the three months ended September 30, 2017 and 2016, respectively. Amortization of tax credit and other investments was $66.1 million and $60.8 million for the nine months ended September 30, 2017 and 2016, respectively.


Note 10—Goodwill and Other Intangible Assets

Goodwill

Total2022. The Company’s goodwill of $469.4 million remained unchanged as of September 30, 2017 compared to December 31, 2016. Goodwillimpairment test is tested for impairment on an annual basisperformed annually, as of December 31,st, 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 equivalent tovalue. Based on the Company’s reporting units. For complete discussion and disclosure, see Note 15 — Business Segments to the Consolidated Financial Statements.

Impairment Analysis

The Company performed its annual goodwill impairment analysistest as of December 31, 2016 and concluded that2022, there was no impairment. Additional information pertaining to the Company’s accounting policy for goodwill impairment as the fair valuesis summarized in Note 1 — Summary 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 Assetsto the Consolidated Financial Statements in the Company’s 2022 Form 10-K. Given the recent volatility in the banking industry, the Company performed an analysis of goodwill during the second quarter of 2023 that consisted of a qualitative assessment to determine if it is more likely than not that the carrying values of each reporting unit exceeded their estimated fair values. The results of this analysis indicated that no impairment of goodwill existed as of June 30, 2023.

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Note 10 — Short-Term Borrowings and Long-Term Debt

Short-Term Borrowings — Bank Term Funding Program

As of June 30, 2023, the Company’s short-term borrowings consisted of funds from the Bank Term Funding Program (“BTFP”). In March 2023, the Federal Reserve announced the creation of the Company’s 2016 Form 10-K forBTFP, which was designed to provide additional details relatedliquidity to U.S. depository institutions. The advances will be limited to the Company’s annual goodwill impairment analysis.
Core Deposit Intangibles

Core deposit intangibles represent the intangiblepar value of depositor relationships resulting from deposit liabilities assumed in various acquisitions and were included in Other assets oneligible collateral pledged by the Consolidated Balance Sheets. These intangibles are testedborrower, for impairment on an annual basis, or more frequently as events occur, or as current circumstances and conditions warrant. There were no impairment write-downs on core deposit intangibles fora term of up to one year. U.S. federally insured depository institutions can request advances under the nine months ended September 30, 2017 and 2016.BTFP until at least March 11, 2024.


The following table presents details of the gross carrying value of intangible assets and accumulated amortizationCompany’s short-term borrowings as of SeptemberJune 30, 20172023. The Company pledged eligible U.S. government agency and U.S. government-sponsored enterprise debt and mortgage-backed securities, and U.S. Treasury securities as collateral for the borrowings under the BTFP. As of June 30, 2023, the carrying amount of the Company’s pledged securities to the BTFP totaled $4.46 billion with a remaining borrowing capacity of $299.4 million. In comparison, there were no short-term borrowings as of December 31, 2016:2022.
June 30, 2023
($ in thousands)Interest RateMaturity DateAmount
Short-term borrowings4.37%3/19/2024$4,500,000 
 
($ 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
 


Long-Term Debt — Junior Subordinated Debt
Amortization Expense

Long-term debt totaled $148.1 million as of June 30, 2023 and $148.0 million as of December 31, 2022. The Company amortizesinterest rates on the core deposit intangiblesjunior subordinated debt were based on London Interbank Offered Rate plus the applicable stated margin through June 30, 2023. The junior subordinated debt will be based on the projected useful livesSecured Overnight Financing Rate at the next scheduled repricing date, subsequent to June 30, 2023. The junior subordinated debt had coupon interest rates ranging from 6.90% to 7.45% as of June 30, 2023 and 6.12% to 6.67% as of December 31, 2022. The junior subordinated debt had remaining maturities ranging between 11.4 years and 14.2 years as of June 30, 2023. For additional information on the related deposits. The amortization expense relatedjunior subordinated debt, refer to Note 10— Federal Home Loan Bank Advances and Long-Term Debt to the intangible assets was $1.7 million and $2.0 million forConsolidated Financial Statements in the three months ended September 30, 2017 and 2016, respectively, and $5.3 million and $6.2 million for the nine months ended September 30, 2017 and 2016, respectively.Company’s 2022 Form 10-K.




The following table presents the estimated future amortization expense of core deposit intangibles:
 
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 11—Commitments and Contingencies

Commitments to Extend Credit Extensions — In the normal course of business, the Company has variousprovides loan commitments to customers 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 offrom these transactions, commitments to extend credit are included in determining the appropriate level of the allowance for unfunded credit commitments, and outstanding commercial letters of credit and standby letters of credit (“SBLCs”).


The following table presents the Company’s credit-related commitments as of the periods indicated:June 30, 2023 and December 31, 2022:
June 30, 2023December 31, 2022
($ in thousands)Expire in One Year or LessExpire After One Year
Through Three Years		Expire After Three Years
Through Five Years		Expire After Five YearsTotalTotal
Loan commitments$4,583,179 $3,734,399 $993,345 $125,704 $9,436,627 $8,211,571 
Commercial letters of credit and SBLCs717,105 513,359 90,696 1,094,248 2,415,408 2,291,966 
Total$5,300,284 $4,247,758 $1,084,041 $1,219,952 $11,852,035 $10,503,537 
 
($ 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.commitment fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements.


54

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 SeptemberJune 30, 2017,2023, total letters of credit which amounted to $1.76of $2.42 billion were comprisedconsisted of SBLCs of $1.70$2.38 billion and commercial letters of credit of $59.1$33.5 million. In comparison, as of December 31, 2022, total letters of credit of $2.29 billion consisted of SBLCs of $2.27 billion and commercial letters of credit of $21.6 million. As of both June 30, 2023 and December 31, 2022, substantially all SBLCs were graded as “Pass” utilizing 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, personal property, plant and equipment, and income-producing commercialreal estate property.

Estimated exposure to loss from these commitments is included in the allowance for unfunded credit reserves,commitments and amounted to $14.0$29.7 million and $26.2 million as of SeptemberJune 30, 20172023 and $15.7 million as of December 31, 2016. These amounts are included in Accrued expenses2022, respectively.

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 inof 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 SeptemberJune 30, 20172023 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 $150.5 million, respectively. 2022:
Maximum Potential Future PaymentsCarrying Value
June 30,
2023		December 31,
2022		June 30,
2023		December 31,
2022
($ in thousands)Expire in One Year or LessExpire After One Year
Through Three Years		Expire After Three Years
Through Five Years		Expire After Five YearsTotalTotalTotalTotal
Single-family residential loans sold or securitized with recourse$35 $39 $30 $6,258 $6,362 $6,781 $6,362 $6,781 
Multifamily residential loans sold or securitized with recourse— — — 14,996 14,996 14,996 20,726 21,320 
Total$35 $39 $30 $21,254 $21,358 $21,777 $27,088 $28,101 

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit reserves,commitments and totaled $256$36 thousand and $373$37 thousand as of SeptemberJune 30, 20172023 and December 31, 2016,2022, 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
55

While it is impossible to invest in qualified affordable housing partnerships, tax credit and other investments as discussed in Note 9 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net ascertain the ultimate resolution or range of financial liability, based on information known to the Consolidated Financial Statements. These commitments are payable on demand. AsCompany, as of SeptemberJune 30, 2017 and December 31, 2016, these commitments were $166.6 million and $174.3 million, respectively. These commitments are included2023, the Company does not believe there is any pending legal proceeding to which the Company is a party that, individually or in Accrued expenses and other liabilitiesthe aggregate, would reasonably be expected to have a material adverse effect on the Consolidated Balance Sheets.Company’s financial condition. In light of the inherent uncertainty in legal proceedings, however, there can be no assurance that the ultimate resolution will not exceed established reserves and it is possible that the outcome of a particular matter, or a combination of matters, may be material to the Company’s financial condition for a particular period, depending upon the size of the loss and the Company’s income for that particular period.



Note 12—Stock Compensation Plans


Pursuant to the Company’s 20162021 Stock Incentive Plan, as amended, the Company may issue stock, stock options, restricted stock, awardsrestricted stock units (“RSAs”RSUs”), including performance-based 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. The Company has granted RSUs as its primary incentive awards. There were no outstanding stock options or unvested RSAsawards other than RSUs as of Septemberboth June 30, 20172023 and 2016.December 31, 2022.

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.

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 associated with the Company’s various employee share-based compensation plans for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Stock compensation costs$9,364 $8,576 $20,439 $17,009 
Related net tax benefits for stock compensation plans$525 $109 $8,815 $5,268 
 
($ 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 in shares of this new guidance, all excess tax benefitsthe Company’s common stock. 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 percent 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. For information on 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 Income 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.Company’s 2022 Form 10-K.


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 ninesix months ended SeptemberJune 30, 2017 based2023. The number of performance-based RSUs stated below reflects the number of awards granted on the target amount of awards:grant date.
Time-Based RSUsPerformance-Based RSUs
SharesWeighted-Average Grant Date Fair ValueSharesWeighted-Average Grant Date Fair Value
Outstanding, January 1, 20231,296,866 $60.77 332,510 $60.40 
Granted483,906 74.32 96,271 57.50 
Vested(518,628)40.56 (152,558)39.39 
Forfeited(33,925)73.98 — — 
Outstanding, June 30, 20231,228,219 $74.28 276,223 $70.99 
 
  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 SeptemberJune 30, 2017, total2023, there were $36.7 million of unrecognized compensation costs related to unvested time-based and performance-based RSUs amounted to $28.2 million and $15.3 million, respectively. These costs are expected to be recognized over a weighted averageweighted-average period of 2.002.1 years, and 2.02 years, respectively.$21.0 million of unrecognized compensation costs related to unvested performance-based RSUs expected to be recognized over a weighted-average period of 2.1 years.



56

Note 13 — 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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022. 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 2022 Form 10-K.
($ and shares in thousands, except per share data)Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Basic:
Net income$312,031 $258,329 $634,470 $495,981 
Weighted-average number of shares outstanding141,468 141,429 141,291 141,725 
Basic EPS$2.21 $1.83 $4.49 $3.50 
Diluted:
Net income$312,031 $258,329 $634,470 $495,981 
Weighted-average number of shares outstanding141,468 141,429 141,291 141,725 
Add: Dilutive impact of unvested RSUs408 943 619 1,113 
Diluted weighted-average number of shares outstanding141,876 142,372 141,910 142,838 
Diluted EPS$2.20 $1.81 $4.47 $3.47 
 
  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.


For the three and ninesix months ended SeptemberJune 30, 2017, 42023, approximately 690 thousand and 6439 thousand weighted averageweighted-average shares of anti-dilutive shares from RSUs, respectively, were excluded from the diluted EPS computation. For the three and nine months ended September 30, 2016, 2computations. In comparison, 381 thousand and 770 thousand weighted averageweighted-average shares of anti-dilutive shares from RSUs respectively, were excluded from the diluted EPS computation.computations for the three and six months ended June 30, 2022, respectively.



Note 14 — Accumulated Other Comprehensive Income (Loss)


The following tables present the changes in the components of AOCI balances for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
($ in thousands)
Debt Securities (1)
Cash Flow Hedges
Foreign Currency Translation Adjustments (2)
Total
Balance, April 1, 2022$(365,653)$(24,466)$(4,806)$(394,925)
Net unrealized losses arising during the period(192,858)(5,582)(10,215)(208,655)
Amounts reclassified from AOCI3,730 (798)— 2,932 
Changes, net of tax(189,128)(6,380)(10,215)(205,723)
Balance, June 30, 2022$(554,781)$(30,846)$(15,021)$(600,648)
Balance, April 1, 2023$(640,734)$(20,918)$(18,342)$(679,994)
Net unrealized losses arising during the period(43,618)(68,207)(7,249)(119,074)
Amounts reclassified from AOCI2,816 14,320 — 17,136 
Changes, net of tax(40,802)(53,887)(7,249)(101,938)
Balance, June 30, 2023$(681,536)

$(74,805)$(25,591)$(781,932)
 
($ 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)
 
57

 
($ 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)
Debt Securities (1)
Cash Flow Hedges
Foreign Currency Translation Adjustments (2)
Total
Balance, January 1, 2022$(85,703)$257 $(4,935)$(90,381)
Net unrealized losses arising during the period(474,219)(28,809)(10,086)(513,114)
Amounts reclassified from AOCI5,141 (2,294)— 2,847 
Changes, net of tax(469,078)(31,103)(10,086)(510,267)
Balance, June 30, 2022$(554,781)$(30,846)$(15,021)$(600,648)
Balance, January 1, 2023$(694,815)$(49,531)$(21,283)$(765,629)
Net unrealized gains (losses) arising during the period657 (47,121)(4,308)(50,772)
Amounts reclassified from AOCI12,622 21,847 — 34,469 
Changes, net of tax13,279 (25,274)(4,308)(16,303)
Balance, June 30, 2023$(681,536)

$(74,805)$(25,591)$(781,932)

(1)Includes after-tax unamortized losses related to AFS debt securities that were transferred to HTM in 2022.

(2)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 is RMB and USD, respectively.

The following tables present the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended June 30,
20232022
($ in thousands)Before-TaxTax EffectNet-of-TaxBefore-TaxTax EffectNet-of-Tax
Debt securities:
Net unrealized losses on AFS debt securities arising during the period$(61,939)$18,321 $(43,618)$(273,840)$80,982 $(192,858)
Reclassification adjustments:
Net realized gains on AFS debt securities reclassified into net income (1)
— — — (28)8 (20)
Amortization of unrealized losses on transferred debt securities (2)
3,998 (1,182)2,816 5,324 (1,574)3,750 
Net change(57,941)17,139 (40,802)(268,544)79,416 (189,128)
Cash flow hedges:
Net unrealized losses arising during the period(96,457)28,250 (68,207)(7,837)2,255 (5,582)
Net realized losses (gains) reclassified into net income (3)
20,252 (5,932)14,320 (1,120)322 (798)
Net change(76,205)22,318 (53,887)(8,957)2,577 (6,380)
Foreign currency translation adjustments, net of hedges:
Net unrealized losses arising during the period(6,107)(1,142)(7,249)(9,278)(937)(10,215)
Net change(6,107)(1,142)(7,249)(9,278)(937)(10,215)
Other comprehensive loss$(140,253)$38,315 $(101,938)$(286,779)$81,056 $(205,723)
58

 
($ 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)
 
Six Months Ended June 30,
20232022
($ in thousands)Before-TaxTax EffectNet-of-TaxBefore-TaxTax EffectNet-of-Tax
Debt securities:
Net unrealized gains (losses) on AFS debt securities arising during the period$921 $(264)$657 $(512,886)$151,658 $(361,228)
Unrealized losses on debt securities transferred from AFS to HTM— — — (160,416)47,425 (112,991)
Reclassification adjustments:
Net realized losses (gains) on AFS debt securities reclassified into net income (1)
10,000 (4)(2,956)7,044 (1,306)386 (920)
Amortization of unrealized losses on transferred debt securities (2)
7,919 (2,341)5,578 8,605 (2,544)6,061 
Net change18,840 (5,561)13,279 (666,003)196,925 (469,078)
Cash flow hedges:
Net unrealized losses arising during the period(66,614)19,493 (47,121)(40,446)11,637 (28,809)
Net realized losses (gains) reclassified into net income (3)
30,896 (9,049)21,847 (3,220)926 (2,294)
Net change(35,718)10,444 (25,274)(43,666)12,563 (31,103)
Foreign currency translation adjustments, net of hedges:
Net unrealized losses arising during the period(3,481)(827)(4,308)(9,600)(486)(10,086)
Net change(3,481)(827)(4,308)(9,600)(486)(10,086)
Other comprehensive loss$(20,359)$4,056 $(16,303)$(719,269)$209,002 $(510,267)
(1)Pre-tax amounts were reported in Net gains (losses) on AFS debt securities on the Consolidated Statement of Income.
(2)Represents unrealized losses amortized over the remaining lives of securities that were transferred from the AFS to HTM portfolio in 2022.
(3)Pre-tax amounts related to cash flow hedges on variable rate loans and long-term borrowings, where applicable, were reported in Interest and dividend income andin Interest expense, respectively, on the Consolidated Statement of Income.
(4)Represents the full write-off of an impaired subordinated debt security during the first quarter of 2023.

 
($ 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 15—Business Segments

The Company utilizes an internal reporting system to measure the performance of variousorganizes its operations into three 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.

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, interest rate risk hedging and foreign exchange services.

The Commercial Banking segment primarily generates commercial loan and deposit products. Commercial loan products include CRE lending, construction financing, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance 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 two core segments, namely the Consumer and Business Banking and the provisionCommercial Banking segments.

59

The Company utilizes an internal reporting process to measure the performance of the three operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for 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 process is reflective of current market conditions.liquidity and interest rate management and the internal FTP process. The internal funds transfer pricingFTP 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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
($ in thousands)Consumer and Business BankingCommercial BankingOtherTotal
Three Months Ended June 30, 2023
Net interest income (loss) before provision for credit losses$307,522 $263,040 $(3,816)$566,746 
Provision for credit losses5,524 20,476 — 26,000 
Noninterest income27,120 42,538 8,973 78,631 
Noninterest expense107,027 88,333 66,429 261,789 
Segment income (loss) before income taxes222,091 196,769 (61,272)357,588 
Segment net income$156,853 $139,030 $16,148 $312,031 
As of June 30, 2023
Segment assets$18,411,209 $33,754,957 $16,366,515 $68,532,681 
($ in thousands)Consumer and Business BankingCommercial BankingOtherTotal
Three Months Ended June 30, 2022
Net interest income (loss) before provision for credit losses$284,373 $230,964 $(42,385)$472,952 
Provision for credit losses2,898 10,602 — 13,500 
Noninterest income28,384 48,032 2,028 78,444 
Noninterest expense94,295 81,023 21,542 196,860 
Segment income (loss) before income taxes215,564 187,371 (61,899)341,036 
Segment net income (loss)$153,549 $133,861 $(29,081)$258,329 
As of June 30, 2022
Segment assets$16,472,373 $32,256,044 $13,665,866 $62,394,283 
60

 
($ 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 BankingCommercial BankingOtherTotal
Six Months Ended June 30, 2023
Net interest income before provision for credit losses$611,764 $499,763 $55,080 $1,166,607 
Provision for credit losses20,536 25,464 — 46,000 
Noninterest income (loss)53,122 86,137 (650)138,609 
Noninterest expense220,850 175,581 83,805 480,236 
Segment income (loss) before income taxes423,500 384,855 (29,375)778,980 
Segment net income$299,100 $273,487 $61,883 $634,470 
As of June 30, 2023
Segment assets$18,411,209 $33,754,957 $16,366,515 $68,532,681 
($ in thousands)Consumer and Business BankingCommercial BankingOtherTotal
Six Months Ended June 30, 2022
Net interest income (loss) before provision for credit losses$497,587 $439,041 $(48,063)$888,565 
Provision for credit losses6,002 15,498 — 21,500 
Noninterest income53,583 97,109 7,495 158,187 
Noninterest expense190,390 154,418 41,502 386,310 
Segment income (loss) before income taxes354,778 366,234 (82,070)638,942 
Segment net income (loss)$252,713 $261,368 $(18,100)$495,981 
As of June 30, 2022
Segment assets$16,472,373 $32,256,044 $13,665,866 $62,394,283 
61
 
($ 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 16 — Subsequent Events
On October 19, 2017, the Company’s Board of Directors declared fourth quarter 2017 cash dividends for the Company’s common stock. The common stock cash dividend of $0.20 is payable on November 15, 2017 to stockholders of record as of November 1, 2017.




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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Financial Review
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62

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, 20162022, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 27, 20172023 (the “Company’s 20162022 Form 10-K”).

Organization and Strategy
Overview
East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the Bank Holding Company Act of 1956, as amended. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California and is the largest bank in the United States (“U.S.”) that has a strong focusfocuses on the financial service needs of the Chinese American community. The Bank operatesindividuals and businesses that operate in 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. WithAsia. Through over 130120 locations in the U.S. and Greater China, andAsia, the Company provides a full range of cross-borderconsumer and commercial products and services through the Company continuesfollowing three business segments: (1) Consumer and Business Banking and (2) Commercial Banking, with the remaining operations recorded in (3) Other. The Company’s principal activity is lending 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 ofand accepting deposits from businesses and individuals. We are committed to enhancing long-term stockholder 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. We expect our relationship-focused business model to continue generating organic growth from existing customers and to expand our targeted customer bases. As of June 30, 2023, the Company had $68.53 billion in assets and approximately 3,200 full-time equivalent employees. For additional information on our strategy, and the products and services provided by the Bank, see Item 1. Business — Strategy and Banking Services in the Company’s 2022 Form 10-K.

Current Developments

Economic Developments

Recent external data indicate that the pace of inflation has moderated in recent months and the volatility in the banking industry earlier in the year appears to have abated. However, inflation remains above the Board of Governors of the Federal Reserve System’s (“Federal Reserve”) 2% target and further interest rate hikes are anticipated later this year. The higher interest rate environment continues to negatively impact the market value of bank-held securities. Additionally, the commercial real estate market is under pressure due to tighter credit conditions and decreased demand. These factors have adversely affected economic activity and the banking sector. Despite these concerns, fears of a potential recession in 2023 have diminished slightly due to the continuing strength in the job market. The Company is actively monitoring changes in economic and industry conditions and their impacts on the Company’s business, customers, employees, communities and markets.

Further discussion of the potential impacts on the Company’s business due to interest rate hikes have been provided in Item 1A. — Risk Factors — Risks Related to Financial Matters in the Company’s 2022 Form 10-K.

LIBOR Transition and Phase Out

The London Interbank Offered Rate (“LIBOR”), a benchmark rate that was widely referenced in the past, ceased publication on July 1, 2023. In preparation for this phase out, beginning January 1, 2022, the Company ceased offering new loans or loan renewals based on LIBOR, and began offering loans based on alternative reference rates (“ARRs”) such as Term Secured Overnight Financing Rate (“SOFR”) and the Bloomberg Short-Term Bank Yield Index. The Company’s approach is concentratedLIBOR exposures were predominantly comprised of commercial loans and derivative contracts, which have been remediated (i.e., amended to reference an ARR either on organically growingor before June 30, 2023 or at the instrument’s next reset date after June 30, 2023), or already contained appropriate fallback provisions to transition to an ARR. As of July 3, 2023, the remaining small portion of the Company’s LIBOR-based assets and deepening client relationships that meet our risk/return measures.liabilities have all been amended to use the Adjustable Interest Rate (LIBOR) Act and other relevant legislation and regulation.


63

For additional information related to the potential impact surrounding the transition from LIBOR on the Company’s business, see item 1A. Risk Factors — Risks Related to Financial Highlights

The Company delivered strong financial performanceMatters in the third quarterCompany’s 2022 Form 10-K. For additional background information on the LIBOR transition, see Item 7. Management’s Discussion and Analysis of 2017 across key measuresFinancial Condition and Results of loan growth, revenue and net income growth, and credit quality. It isOperations (“MD&A”) — Overview in the Company’s priority2022 Form 10-K.

Potential Regulatory Reforms in Response to focusRecent Bank Failures

Following the bank failures of March 2023, Congress and federal regulatory agencies are considering potential changes to the laws and regulations that apply to banks. On April 28, 2023, the Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC”) issued reports on strengthening its risk management infrastructurethe failures of Silicon Valley Bank and complianceSignature Bank, respectively, identifying potential causes that the federal banking agencies may seek to address through changes to their supervisory and regulatory policies. On July 27, 2023, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency jointly issued a notice of proposed rulemaking that would revise the capital framework applicable to banking organizations with $100 billion or more in total consolidated assets or with significant trading activity and, if finalized, would likely result in meaningfully increased capital requirements for those organizations. By imposing additional costs on banking organizations with $100 billion or more in total consolidated assets, the proposal could reduce the benefits of growth beyond that size for a banking organization that has less than $100 billion in total consolidated assets. The extent of any further actions to be taken by these agencies or Congress in response to the bank failures, and potential causes highlighted in the Federal Reserve and FDIC reports, and the impact of any such actions on institutions with less than $100 billion in total consolidated assets, such as the Company, remains unclear.

FDIC Special Assessment and Uninsured Deposits

On May 11, 2023, the FDIC published a proposed rule that would impose a special deposit insurance assessment on banks in order to meet increasing regulatory expectations, while still providing strong returnsrecover losses that the FDIC's Deposit Insurance Fund (“DIF”) has incurred in the receiverships of failed institutions. The proposed rule would impose the special assessment for eight quarterly assessment periods beginning with the first quarter of 2024 assessment period, subject to stockholders.adjustments if the total amount collected is insufficient to cover the DIF’s costs. Each quarterly special assessment would be equal to 3.13 basis points (0.0313%) of a bank’s estimated uninsured deposits that exceeded $5 billion as of December 31, 2022.



On July 24, 2023, the FDIC issued Financial Institution Letter (“FIL”) 37-2023 — Estimated Uninsured Deposits Reporting Expectations, which clarifies the reporting of an insured depository institution’s estimated uninsured deposits in the Call Report Schedule RC-O, Memorandum item 2 (“RC-OM item 2”). This FIL specifies that uninsured deposits reported in RC-OM item 2 should include the deposit balances in excess of the FDIC limit that have been collateralized by pledged assets, and include all deposits of subsidiaries. The Company will evaluate previously filed call reports based on this recent FIL and revise as needed.

64

Financial PerformanceReview


Noteworthy items
Three Months Ended June 30,Six Months Ended June 30,
($ and shares in thousands, except per share, and ratio data)2023202220232022
Summary of operations:
Net interest income before provision for credit losses$566,746 $472,952 $1,166,607 $888,565 
Noninterest income78,631 78,444 138,609 158,187 
Total revenue645,377 551,396 1,305,216 1,046,752 
Provision for credit losses26,000 13,500 46,000 21,500 
Noninterest expense261,789 196,860 480,236 386,310 
Income before income taxes357,588 341,036 778,980 638,942 
Income tax expense45,557 82,707 144,510 142,961 
Net income$312,031 $258,329 $634,470 $495,981 
Per share:
Basic earnings$2.21 $1.83 $4.49 $3.50 
Diluted earnings$2.20 $1.81 $4.47 $3.47 
Dividends declared$0.48 $0.40 $0.96 $0.80 
Weighted-average number of shares outstanding:
Basic141,468 141,429 141,291 141,725 
Diluted141,876 142,372 141,910 142,838 
Performance metrics:
Return on average assets (“ROA”)1.85 %1.66 %1.93 %1.61 %
Return on average common equity (“ROE”)19.43 %18.23 %20.27 %17.36 %
Return on average tangible common equity (“TCE”) (1)
21.01 %19.94 %21.95 %18.96 %
Common dividend payout ratio21.98 %22.22 %21.60 %23.18 %
Net interest margin3.55 %3.23 %3.75 %3.05 %
Efficiency ratio (2)
40.56 %35.70 %36.79 %36.91 %
Adjusted efficiency ratio (1)
31.83 %32.90 %31.13 %34.05 %
At period end:June 30, 2023December 31, 2022
Total assets$68,532,681 $64,112,150 
Total loans$49,831,194 $48,228,074 
Total deposits$55,658,786 $55,967,849 
Common shares outstanding at period-end141,484 140,948 
Book value per share$45.67 $42.46 
Tangible book value per share (1)
$42.33 $39.10 
(1)For additional information regarding the reconciliation of these non-U.S. Generally Accepted Accounting Principles (“GAAP”) financial measures, refer to Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Quarterly Report on theForm 10-Q (this “Form 10-Q”).
(2)Efficiency ratio is calculated as noninterest expense divided by total revenue.

The Company’s performance included:

Netsecond quarter 2023 net income totaled $132.7was $312.0 million, for the three months ended September 30, 2017, an increase of $22.5$53.7 million or 20%21%, from $110.1 millioncompared with second quarter 2022 net income of $258.3 million. The increase was primarily due to higher net interest income and lower income tax expense, partially offset by higher noninterest expense and provision for credit losses. Net income for the same period in 2016. Thisfirst half of 2023 was $634.5 million, an increase of $138.5 million or 28% compared with first half of 2022 net income of $496.0 million. The increase was primarily due to higher net interest income, partially offset by higher noninterest expense and provision for credit losses, and a decrease in noninterest income. Noteworthy items about the Company’s second quarter and first half of 2023 performance included:

•Net interest income tax expense, reflecting a higher effective tax rate. Net income totaled $420.7 million for the nine months ended September 30, 2017, an increase of $99.8 million or 31%, from $320.9 million for the same period in 2016. This increase was primarily due to highergrowth and net interest income and noninterest income, partially offset by higher income tax expense due to a higher effective tax rate. The higher net interest income during 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 firstmargin expansion. Second 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 during the third quarter of 2017.
Diluted earnings per share (“EPS”) was $0.91 and $0.76 for the three months ended September 30, 2017 and 2016, respectively, which reflected an increase of $0.15 or 20%. Diluted EPS was $2.88 and $2.21 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $0.67 or 30%. The diluted EPS impact from the sale of EWIS’s business in the third quarter of 2017 was $0.02, and the diluted EPS impact from the commercial property sale in the first quarter of 2017 was $0.28.
Revenue, or the sum of2023 net interest income before provision for credit losses and noninterest income, increased $49.3was $566.7 million, an increase of $93.8 million or 16% to $352.820% from the second quarter of 2022. Second quarter 2023 net interest margin of 3.55% expanded by 32 basis points (“bps”) year-over-year. For the first half of 2023, net interest income before provision for credit losses was $1.17 billion, an increase of $278.0 million or 31% year-over-year. The net interest margin for the three months ended September 30, 2017, compared tofirst half of 2023 was 3.75%, up 70 bps year-over-year.

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•Expanding profitability. Second quarter 2023 ROA, ROE and the same period in 2016,return on average TCE of 1.85%, 19.43% and increased $184.4 million or 21% to $1.08 billion21.01%, respectively, all expanded year-over-year by 19 bps, 120 bps and 107 bps, respectively. Likewise, for the nine months ended September 30, 2017, compared tofirst half of 2023, ROA, ROE and 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 threereturn on average TCE of 1.93%, 20.27% and nine months ended September 30, 2017 was 24.3% and 25.0%21.95%, respectively, compared to 10.8%all expanded year-over-year by 32 bps, 291 bps and 21.9%, respectively, for the same periods in 2016.
299 bps, respectively. Return on average TCE is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Asset growth. Total 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 growthreached $68.53 billion, an increase of $1.52$4.42 billion or 4%7% from December 31, 2022, primarily driven by a $2.90 billion or 83% increase in cash and cash equivalents and a $1.60 billion or 3% increase in total assets as of September 30, 2017 compared to December 31, 2016. This growthloans. The increase in cash and cash equivalents was largely attributable to loan growth, partially offset by decreases in securities purchased under resale agreementsprimarily funded with borrowings from the Bank Term Funding Program (“resale agreements”BTFP”) and available-for-sale investment securities..


Gross•Loan growth. Total loans held-for-investment increased $3.02 billion or 12% to $28.53were $49.83 billion as of SeptemberJune 30, 2017, compared to $25.502023, an increase of $1.60 billion or 3% from $48.23 billion as of December 31, 2016, while2022. This was primarily driven by growth in the allowance forcommercial real estate (“CRE”) and residential mortgage loan losses to loans held-for-investment ratio slightly declined by two basis points to 1.00%segments.

•Strong capital levels. Stockholders’ equity was $6.46 billion or $45.67 per share as of SeptemberJune 30, 2017, compared to 1.02%2023, both up 8% from $5.98 billion or $42.46 per share as of December 31, 2016. Deposits increased $1.42 billion or 5% to $31.31 billion2022. Tangible book value per share of $42.33 as of SeptemberJune 30, 2017, compared to $29.89 billion2023, increased $3.23 or 8% from $39.10 as of December 31, 2016, consisting of a $1.24 billion or 5% increase in core deposits 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 the 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 $29.2 million and $87.6 million in cash dividends to our stockholders during the three and nine months ended September 30, 2017, respectively. Book2022. Tangible book value per common share increased 10%is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A - Reconciliation of GAAP to $26.17 as of September 30, 2017, compared to $23.78 as of December 31, 2016.non-GAAP Financial Measures in this Form 10-Q.


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.

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, the volume of noninterest-bearing sources of funds, and asset quality.


Net interest income for the three months ended September 30, 2017 was $303.2 million, an increase of $49.0 million or 19% compared to $254.1 million for the same period in 2016. Net interest income for the nine months ended September 30, 2017 was $865.4 million, an increase of $105.4 million or 14% compared to $759.9 million for the same period in 2016. 727

The notable increases in net interest income and net interest margin in the second quarter and the first half of 2023 compared with the same prior year periods primarily reflected higher interest-earning asset yields and strong loan growth, partially offset by a higher average cost of deposits. The changes in yield and rate reflected rising benchmark interest rates.
66

1246

Average interest-earning assets were $64.06 billion for the three and nine months ended September 30, 2017, compared tosecond quarter of 2023, an increase of $5.39 billion or 9% from $58.67 billion for the samesecond quarter of 2022. For the first half of 2023, the average interest-earning assets were $62.78 billion, an increase of $4.10 billion or 7% from $58.68 billion for the first half of 2022. The increases in average interest-earning assets in both periods in 2016, were primarily due to increased interest income resulting fromreflected 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, net 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 were 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 were partially offset by lower accretion income from the purchased credit impaired (“PCI”) 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% in average interest-bearing cash and deposits with banks, partially offset by decreases of $508.2 million or 28% in averageassets purchased under resale agreements and $310.7 million or 9% in average investment securities. For the nine months ended September 30, 2017,(“resale agreements”).

The yield on average interest-earning assets increased $2.73 billion or 9% to $33.54 billion from $30.81 billion for the same periodsecond quarter of 2023 was 5.67%, an increase of 225 bps from 3.42% for the second quarter of 2022. The yield on average interest-earning assets for the first half of 2023 was 5.59%, an increase of 239 bps from 3.20% for the first half of 2022. The year-over-year increases in 2016. Thisthe yield on average interest-earning assets primarily resulted from rising benchmark interest rates.

1871

The average loan yield for the second quarter of 2023 was 6.33%, an increase of 238 bps from 3.95% for the second quarter of 2022. The average loan yield for the first half of 2022 was primarily due6.24%, an increase of 244 bps from 3.80% for the first half of 2022. The changes in the average loan yield reflected the loan portfolio’s sensitivity to increasesrising benchmark interest rates. Approximately 61% and 63% of $2.78 billion or 12% in average loans held-for-investment were variable-rate as of June 30, 2023 and $305.1 million or 17% in average interest-bearing cash and deposits with banks, partially offset by a $228.3 million or 7% decrease in average investment securities.2022, respectively.


Customer deposits
67

2Q23NIBandIBDep.jpg

2Q23AvgCostofDep_FINAL_r071723.jpg

Deposits are an important source of fundingfunds and affectimpact both net interest income and net interest margin. Deposits are comprised of noninterest-bearing demand, interest-bearing checking, money market, savings and time deposits. Average deposits increased $2.79 billion or 10% to $31.07were $54.28 billion for the three months ended September 30, 2017, compared to $28.28second quarter of 2023, which increased $155.0 million from $54.13 billion for the same period in 2016. The ratiosecond quarter of 2022. For the first half of 2023, average noninterest-bearing demand deposits to total deposits increased to 34% for the three months ended September 30, 2017,were $54.62 billion, an increase of $539.7 million or 1% from 33% for the three months ended September 30, 2016. Average deposits increased $2.27 billion or 8% to $30.33$54.08 billion for the nine months ended September 30, 2017, compared to $28.06first half of 2022. Average noninterest-bearing deposits were $16.93 billion for the same period in 2016. The ratiosecond quarter of 2023, a decrease of $6.96 billion or 29% from $23.89 billion for the second quarter of 2022. For the first half of 2023, average noninterest-bearing deposits were $18.31 billion, a decrease of $5.35 billion or 23% from $23.66 billion for the first half of 2022. Average noninterest-bearing deposits made up 31% and 44% of average noninterest-bearing demand deposits to total deposits increased to 34% for the nine months ended September 30, 2017, from 32%second quarters of 2023 and 2022, respectively, and 34% and 44% for the nine months ended September 30, 2016. first halves of 2023 and 2022, respectively.

The average loans to averagecost of deposits ratio increased to 89%was 2.12% for the three months ended September 30, 2017,second quarter of 2023, a 195 bps increase from 86%0.17% for the three months ended September 30, 2016.second quarter of 2022. The average loans to averagecost of interest-bearing deposits ratio increased to 88%was 3.09% for the nine months ended September 30, 2017,second quarter of 2023, a 279 bps increase from 86%0.30% for the nine months ended September 30, 2016. In addition,second quarter of 2022. The average cost of deposits was 1.86% for the first half of 2023, a 173 bps increase from 0.13% for the first half of 2022. The average cost of interest-bearing deposits was 2.80% for the first half of 2023, a 256 bps increase from 0.24% for the first half of 2022. The year-over-year increases primarily reflected higher rates paid on time deposits, money market and checking deposits in response to the rising interest rate environment.

The average cost of funds increased 10 basis points to 0.46%calculation includes deposits, short-term borrowings, Federal Home Loan Bank (“FHLB”) advances, assets sold under repurchase agreements (“repurchase agreements”), and long-term debt. For the second quarter of 2023, the average cost of funds was 2.31%, a 211 bps increase from 0.20% for the three months ended September 30, 2017second quarter of 2022. For the first half of 2023, the average cost of funds was 2.01%, a 185 bps increase from 0.36%0.16% for the same periodfirst half of 2022. The increases in 2016. Costboth periods were mainly driven by the increased cost of funds increased eight basis points to 0.43% for the nine months ended September 30, 2017 from 0.35% for the same period in 2016.deposits discussed above.


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.

68


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, 2017second quarters of 2023 and 2016:2022:
Three Months Ended June 30,
20232022
($ in thousands)Average BalanceInterest
Average Yield/
Rate (1)
Average BalanceInterest
Average Yield/
Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks$5,247,755 $60,995 4.66 %$2,797,711 $4,787 0.69 %
Resale agreements641,939 3,969 2.48 %1,641,723 8,553 2.09 %
Available-for-sale (“AFS”) debt securities (2)(3)
6,257,397 56,292 3.61 %6,503,677 33,438 2.06 %
Held-to-maturity (“HTM”) debt securities (2)
2,983,780 12,678 1.70 %3,021,239 12,738 1.69 %
Loans (4)(5)
48,851,720 771,264 6.33 %44,626,488 439,416 3.95 %
Restricted equity securities78,978 936 4.75 %77,839 822 4.24 %
Total interest-earning assets$64,061,569 $906,134 5.67 %$58,668,677 $499,754 3.42 %
Noninterest-earning assets:
Cash and due from banks569,227 712,884 
Allowance for loan losses(619,868)(545,489)
Other assets3,486,439 3,396,769 
Total assets$67,497,367 $62,232,841 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$8,434,655 $49,571 2.36 %$6,712,890 $3,178 0.19 %
Money market deposits10,433,839 86,419 3.32 %12,319,930 8,892 0.29 %
Savings deposits2,200,124 3,963 0.72 %2,970,007 1,864 0.25 %
Time deposits16,289,320 147,524 3.63 %8,239,571 8,554 0.42 %
Federal funds purchased and other short-term borrowings4,500,566 49,032 4.37 %64,145 241 1.51 %
FHLB advances1 — — %138,960 559 1.61 %
Repurchase agreements15,579 211 5.43 %359,778 2,418 2.70 %
Long-term debt and finance lease liabilities152,760 2,668 7.01 %152,194 1,096 2.89 %
Total interest-bearing liabilities$42,026,844 $339,388 3.24 %$30,957,475 $26,802 0.35 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits16,926,937 23,887,452 
Accrued expenses and other liabilities2,102,590 1,705,487 
Stockholders’ equity6,440,996 5,682,427 
Total liabilities and stockholders’ equity$67,497,367 $62,232,841 
Interest rate spread2.43 %3.07 %
Net interest income and net interest margin$566,746 3.55 %$472,952 3.23 %
(1)Annualized.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(3)Includes the amortization of net premiums on AFS debt securities of $7.3 million and $20.3 million for the second quarters of 2023 and 2022, respectively.
(4)Average balances include nonperforming loans and loans held-for-sale.
(5)Loans include the accretion of net deferred loan fees and amortization of net premiums, which totaled $13.3 million and $11.4 million for the second quarters of 2023 and 2022, respectively.

69
 
($ 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 the nine months ended September 30, 2017first halves of 2023 and 2016:2022:
Six Months Ended June 30,
20232022
($ in thousands)Average BalanceInterest
Average Yield/
Rate (1)
Average BalanceInterest
Average Yield/
Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks$4,353,658 $96,642 4.48 %$3,627,253 $8,047 0.45 %
Resale agreements665,229 8,472 2.57 %1,868,600 16,936 1.83 %
AFS debt securities (2)(3)
6,183,522 109,489 3.57 %7,232,686 67,907 1.89 %
HTM debt securities (2)
2,989,695 25,412 1.71 %2,497,811 20,936 1.69 %
Loans (4)(5)
48,502,717 1,499,650 6.24 %43,376,398 816,526 3.80 %
Restricted equity securities84,852 1,975 4.69 %77,708 1,431 3.71 %
Total interest-earning assets$62,779,673 $1,741,640 5.59 %$58,680,456 $931,783 3.20 %
Noninterest-earning assets:
Cash and due from banks595,022 677,579 
Allowance for loan losses(611,358)(544,423)
Other assets3,548,733 3,183,144 
Total assets$66,312,070 $61,996,756 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$7,469,621 $72,745 1.96 %$6,680,657 $4,580 0.14 %
Money market deposits10,844,992 162,521 3.02 %12,614,994 12,095 0.19 %
Savings deposits2,317,702 7,632 0.66 %2,950,268 3,568 0.24 %
Time deposits15,674,457 261,373 3.36 %8,170,613 15,234 0.38 %
Federal funds purchased and other short-term borrowings2,666,249 57,857 4.38 %33,177 250 1.52 %
FHLB advances248,619 6,430 5.22 %149,431 1,137 1.53 %
Repurchase agreements60,931 1,263 4.18 %336,013 4,434 2.66 %
Long-term debt and finance lease liabilities152,591 5,212 6.89 %152,103 1,920 2.55 %
Total interest-bearing liabilities$39,435,162 $575,033 2.94 %$31,087,256 $43,218 0.28 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits18,310,770 23,661,355 
Accrued expenses and other liabilities2,253,266 1,486,067 
Stockholders’ equity6,312,872 5,762,078 
Total liabilities and stockholders’ equity$66,312,070 $61,996,756 
Interest rate spread2.65 %2.92 %
Net interest income and net interest margin$1,166,607 3.75 %$888,565 3.05 %
(1)Annualized.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(3)Includes the amortization of net premiums on AFS debt securities of $16.4 million and $43.8 million for the first halves of 2023 and 2022, respectively.
(4)Average balances include nonperforming loans and loans held-for-sale.
(5)Include the accretion of net deferred loan fees and amortization of net premiums, which totaled $27.0 million and $23.8 million for the first halves of 2023 and 2022, respectively.

70
             
($ 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 rates, 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 yield/rate. Nonaccrual loans are included in average loans used to compute the table below:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2023 vs. 20222023 vs. 2022
Total
Change		Changes Due toTotal
Change		Changes Due to
VolumeYield/RateVolumeYield/Rate
Interest-earning assets:
Interest-bearing cash and deposits with banks$56,208 $7,381 $48,827 $88,595 $1,927 $86,668 
Resale agreements(4,584)(5,953)1,369 (8,464)(13,619)5,155 
AFS debt securities22,854 (1,312)24,166 41,582 (11,078)52,660 
HTM debt securities(60)(158)98 4,476 4,177 299 
Loans331,848 45,009 286,839 683,124 106,131 576,993 
Restricted equity securities114 12 102 544 141 403 
Total interest and dividend income$406,380 $44,979 $361,401 $809,857 $87,679 $722,178 
Interest-bearing liabilities:
Checking deposits$46,393 $1,020 $45,373 $68,165 $604 $67,561 
Money market deposits77,527 (1,567)79,094 150,426 (1,933)152,359 
Savings deposits2,099 (593)2,692 4,064 (911)4,975 
Time deposits138,970 15,605 123,365 246,139 25,508 220,631 
Federal funds purchased and other short-term borrowings48,791 47,487 1,304 57,607 56,274 1,333 
FHLB advances(559)(279)(280)5,293 1,147 4,146 
Repurchase agreements(2,207)(3,453)1,246 (3,171)(4,851)1,680 
Long-term debt and finance lease liabilities1,572 4 1,568 3,292 6 3,286 
Total interest expense$312,586 $58,224 $254,362 $531,815 $75,844 $455,971 
Change in net interest income$93,794 $(13,245)$107,039 $278,042 $11,835 $266,207 
 
($ 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:
second quarters and first halves of 2023 and 2022:
 
($ 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 %
 
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)20232022% Change20232022% Change
Lending fees$20,901 $20,142 4%$41,487 $39,580 5%
Deposit account fees22,285 22,372 (0)%43,988 42,687 3%
Interest rate contracts and other derivative income7,373 9,801 (25)%9,937 20,934 (53)%
Foreign exchange income13,251 11,361 17%25,911 24,060 8%
Wealth management fees6,889 6,539 5%13,193 12,591 5%
Net (losses) gains on sales of loans(7)917 NM(29)3,839 NM
Net realized gains (losses) on AFS debt securities— 28 NM(10,000)1,306 NM
Other investment income4,003 4,863 (18)%5,924 6,490 (9)%
Other income3,936 2,421 63%8,198 6,700 22%
Total noninterest income$78,631 $78,444 0%$138,609 $158,187 (12)%
NM — Not Meaningful.meaningful.


The following discussion provides
71

Noninterest income comprised 12% and 11% of total revenue for the compositionsecond quarter and the first half of 2023, respectively, compared with 14% and 15% for the major changes insecond quarter and the first half of 2022, respectively. Second quarter 2023 noninterest income and the factors contributing to the changes.

Net gains on sales of fixed assets increased $71.2was $78.6 million, to $74.1 million for the nine months ended September 30, 2017, compared to $2.9with $78.4 million for the same period in 2016. This increase was primarily due to the $71.7 million of pre-tax gain recognized from the sale of the commercial property in California during2022. Noninterest income for the first quarterhalf of 2017. In the first quarter2023 was $138.6 million, a decrease 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$19.6 million or 52% to $3.7 million for the three months ended September 30, 2017 from $7.612%, compared with $158.2 million for the same period in 2016,2022. This decrease was primarily due to net realized losses on AFS debt securities and decreased $4.5a decrease in interest rate contracts and other derivative income during the first half of 2023.

Interest rate contracts and other derivative income was $7.4 million forthe second quarter of 2023, a decrease of $2.4 million or 23% to $15.3 million for the nine months ended September 30, 2017 from $19.725%, compared with $9.8 million for the same period in 2016. The $4.02022. For the first half of 2023, interest rate contracts and other derivative income was $9.9 million, a decrease for the three months ended September 30, 2017,of $11.0 million or 53%, compared towith $20.9 million for the same period in 2016,was mainly attributable2022. The decreases were primarily due to decreasesless favorable credit valuation adjustments, partially offset by an increase in rental income, as a resulttransaction volume during the second quarter and first half of 2023.

Net realized losses on AFS debt securities of $10.0 million forthe commercial property salefirst half of 2023 were due to the write-off of an impaired subordinated debt security during the first quarter of 2017,2023. In comparison, net realized gains on AFS debt securities were $917 thousand and decreases in dividend income from other investments. The $4.5$1.3 million decrease for the nine months ended September 30, 2017, compared to the same period in 2016, was largely due to a decrease in rental income as a resultsecond quarter and first half of sale of the commercial property during the first quarter of 2017.2022, respectively.




Noninterest Expense


NoninterestThe following table presents the components of noninterest expense totaled $164.5 million for the three months ended September 30, 2017, a decreasesecond quarters and first halves of $6.02023 and 2022:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)20232022% Change20232022% Change
Compensation and employee benefits$124,937 $113,364 10 %$254,591 $229,633 11 %
Occupancy and equipment expense16,088 15,469 4 %31,675 30,933 2 %
Deposit insurance premiums and regulatory assessments8,262 4,927 68 %16,172 9,644 68 %
Deposit account expense10,559 5,671 86 %20,168 10,364 95 %
Data processing3,213 3,486 (8)%6,560 7,151 (8)%
Computer software expense7,479 6,572 14 %14,839 13,866 7 %
Other operating expense35,337 32,392 9 %70,207 55,840 26 %
Amortization of tax credit and other investments55,914 14,979 273 %66,024 28,879 129 %
Total noninterest expense$261,789 $196,860 33 %$480,236 $386,310 24 %

Second quarter 2023 noninterest expense was $261.8 million, an increase of $64.9 million or 4%33%, compared to $170.5with $196.9 million for the same period in 2016. This decrease2022. For the first half of 2023, noninterest expense was $480.2 million, an increase of $93.9 million or 24%, compared with $386.3 million for the same period in 2022. The increases in both the second quarter and the first half of 2023, were primarily due to an $8.8 million decrease inhigher 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. Noninterestbenefits, other operating expense, totaled $486.7deposit account expense and deposit insurance premiums and regulatory assessments.

Compensation and employee benefits were $124.9 million for the nine months ended September 30, 2017,second quarter of 2023, an increase of $20.7$11.6 million or 4%10%, compared to $466.0with $113.4 million for the same period in 2016. This increase was primarily due to a $24.8 million increase in2022. For the first half of 2023, compensation and employee benefits and a $5.3were $254.6 million, an 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$25.0 million or 6% to $79.611%, compared with $229.6 million for the three months ended September 30, 2017,first half of 2022. These increases were primarily due to staffing growth and the year-over-year change in deferred loan costs.

Deposit insurance premiums and regulatory assessments were $8.3 million for the second quarter of 2023, an increase of $3.3 million or 68%, compared to $75.0with $4.9 million for the same period in 2016,2022. For the first half of 2023, deposit insurance premiums and increased $24.8regulatory assessments were $16.2 million, an increase of $6.5 million or 11% to $244.9 million for the nine months ended September 30, 2017,68%, compared to $220.2with $9.6 million for the same period in 2016. The2022. These increases were primarily due to a two bps increase in the base deposit insurance assessment rate under the FDIC’s Amended Restoration Plan.

Deposit account expense was $10.6 million for the three and nine months ended September 30, 2017second quarter of 2023, an increase of $4.9 million or 86%, compared with $5.7 million for the same period in 2022. For the first half of 2023, deposit account expense was $20.2 million, an increase of $9.8 million or 95%, compared with $10.4 million for the same period in 2022. These increases were primarily attributabledue to an increase in headcountdeposit referral fees which were driven by higher interest rates.

72

Other operating expense was $35.3 million for the second quarter of 2023, an increase of $2.9 million or 9%, compared with $32.4 million for the same period in 2022. For the first half of 2023, other operating expense was $70.2 million, an increase of $14.4 million or 26%, compared with $55.8 million for the same period in 2022. These increases were primarily due to support the Company’s growing businesshigher interest expense on cash collateral and risk management and compliance requirements, as well as additional severancecorporate expenses, partially offset by a reduction in foreclosure expenses.


Amortization of tax credit and other investments decreased $8.8 million or 27% to $23.8was $55.9 million for the three months ended September 30, 2017,second quarter of 2023, an increase of $40.9 million or 273%, compared to $32.6with $15.0 million for the same period in 2016,2022. For the first half of 2023, amortization of tax credit and increased $5.3other investments was $66.0 million, an increase of $37.1 million or 9% to $66.1 million for the nine months ended September 30, 2017,129%, compared to $60.8with $28.9 million for the same period in 2016.2022. 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 in the first nine months of 2017, compared with the prior year period, was primarily driven by additional renewable energy and historical rehabilitation tax credit investments placed in service during the nine months ended September 30, 2017.

Legal expense decreased $2.0 million or 38% to $3.3 million for the three months ended September 30, 2017, compared to $5.4 million for the same period in 2016, and decreased $3.8 million or 30% to $8.9 million for the nine months ended September 30, 2017, compared to $12.7 million for the same period in 2016. The decreases for the three and nine months ended September 30, 2017year-over-year changes were predominantlylargely due to lower legal fees and litigation expense following the resolutiontiming of previously outstanding litigation.investments that closed.




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
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)20232022% Change20232022% Change
Income before income taxes$357,588 $341,036 5 %$778,980 $638,942 22 %
Income tax expense$45,557 $82,707 (45)%$144,510 $142,961 1 %
Effective tax rate12.7 %24.3 %18.6 %22.4 %
Income
Second quarter 2023 income tax expense was $42.6$45.6 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%12.7%, compared with second quarter 2022 income tax expense of $82.7 million and 25.0% foran effective tax rate of 24.3%. For the threefirst half of 2023, income tax expense was $144.5 million and nine months ended September 30, 2017, respectively,the effective tax rate was 18.6%, compared to 10.8%with income tax expense of $143.0 million and 21.9%, respectively,an effective tax rate of 22.4% for the same periodsperiod in 2016.

2022. The higher effectivedecrease in income tax ratesexpense for the three and nine months ended September 30, 2017,second quarter 2023 compared towith the same periods in 2016, were mainlyyear-ago period was primarily due to higher projected 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. Fortax credit investments that closed during the three and nine months ended September 30, 2017,quarter. The increase in income 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,expense for the same periodsfirst half of 2023 compared with the first half of 2022 was primarily due to a higher level of pretax income in 2016. In addition,the first half of 2023. The year-over-year decreases in the effective tax rates forrate were primarily due to 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 excessaforementioned tax benefits for restricted stock units of $151 thousand and $4.6 million were recognized in Income tax expense on the Consolidated Statements of Incomecredit investments that closed during the three and nine months ended September 30, 2017, respectively, which partially offset the higher effective tax rates for the same periods.second quarter of 2023.


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 reversals 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, based 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.



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 a 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 15 — 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.



The following tables present the selectedresults by operating segment for the periods indicated:
Three Months Ended June 30,
Consumer and Business BankingCommercial BankingOther
($ in thousands)202320222023202220232022
Total revenue (loss)$334,642 $312,757 $305,578 $278,996 $5,157 $(40,357)
Provision for credit losses5,524 2,898 20,476 10,602 — — 
Noninterest expense107,027 94,295 88,333 81,023 66,429 21,542 
Segment income (loss) before income taxes222,091 215,564 196,769 187,371 (61,272)(61,899)
Segment net income (loss)$156,853 $153,549 $139,030 $133,861 $16,148 $(29,081)
73

($ in thousands)Six Months Ended June 30,
Consumer and Business BankingCommercial BankingOther
202320222023202220232022
Total revenue (loss)$664,886 $551,170 $585,900 $536,150 $54,430 $(40,568)
Provision for credit losses20,536 6,002 25,464 15,498 — — 
Noninterest expense220,850 190,390 175,581 154,418 83,805 41,502 
Segment income (loss) before income taxes423,500 354,778 384,855 366,234 (29,375)(82,070)
Segment net income (loss)$299,100 $252,713 $273,487 $261,368 $61,883 $(18,100)

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 through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management, interest rate risk hedging 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
   

Retail Banking
The RetailBusiness Banking segment reported pre-taxfor the periods indicated:
Three Months Ended June 30,
Change from 2022
($ in thousands)20232022$%
Net interest income before provision for credit losses$307,522 $284,373 $23,149 8 %
Noninterest income27,120 28,384 (1,264)(4)%
Total revenue334,642 312,757 21,885 7 %
Provision for credit losses5,524 2,898 2,626 91 %
Noninterest expense107,027 94,295 12,732 14 %
Segment income before income taxes222,091 215,564 6,527 3 %
Income tax expense65,238 62,015 3,223 5 %
Segment net income$156,853 $153,549 $3,304 2 %
Average loans$17,622,260 $15,314,974 $2,307,286 15 %
Average deposits$33,265,827 $33,429,541 $(163,714)(0) %
($ in thousands)Six Months Ended June 30,
Change from 2022
20232022$%
Net interest income before provision for credit losses$611,764 $497,587 $114,177 23 %
Noninterest income53,122 53,583 (461)(1)%
Total revenue664,886 551,170 113,716 21 %
Provision for credit losses20,536 6,002 14,534 242 %
Noninterest expense220,850 190,390 30,460 16 %
Segment income before income taxes423,500 354,778 68,722 19 %
Income tax expense124,400 102,065 22,335 22 %
Segment net income$299,100 $252,713 $46,387 18 %
Average loans$17,368,001 $14,962,667 $2,405,334 16 %
Average deposits$33,555,330 $33,272,553 $282,777 1 %

74

Consumer and Business Banking segment net income of $68.6increased $3.3 million and $204.6or 2% year-over-year to $156.9 million for the threesecond quarter of 2023, and nine months ended September 30, 2017, respectively, compared$46.4 million or 18% year-over-year to $32.3$299.1 million and $114.5 million, respectively, for the same periods in 2016.first half of 2023. The increases in pre-tax income for this segment for the three and nine months ended September 30, 2017, compared to the sameboth periods in 2016, were primarily driven by an increase in net interest income, partially offset by an increase inhigher noninterest expense, income tax, and provision for credit losses.
Net interest income before provision for this segmentcredit losses increased $40.8$23.1 million or 38%8% year-over-year to $147.5$307.5 million for the three months ended September 30, 2017, comparedsecond quarter of 2023, and $114.2 million or 23% year-over-year to $106.6$611.8 million for the same periodfirst half of 2023. The increases in 2016. Net interest incomeboth periods were primarily driven by higher deposit FTP credits due to the year-over-year increase in market rates. Provision for credit losses increased $101.3$2.6 million or 31%91% year-over-year to $430.4$5.5 million for the nine months ended September 30, 2017, comparedsecond quarter of 2023, and $14.5 million or 242% year-over-year to $329.1$20.5 million for the same period in 2016. Thefirst half of 2023. These increases in net interest income for the three and nine months ended September 30, 2017, compared to the sameboth periods in 2016, were primarily due to the growth in core deposits for the segment, for which the segment receives interest income credit under the Bank’s internal funds transfer pricing system.
current economic outlook as well as residential mortgage loan growth. Noninterest income for this segmentexpense increased $1.5$12.7 million or 10%14% year-over-year to $16.2$107.0 million for the three months ended September 30, 2017, comparedsecond quarter of 2023, and $30.5 million or 16% year-over-year to $14.7$220.9 million for the same period in 2016. Noninterest income increased $6.0 million or 16% to $43.8 million for the nine months ended September 30, 2017, compared to $37.8 million for the same period in 2016.first half of 2023. The increases in noninterest income for the three and nine months ended September 30, 2017, compared to the sameboth periods in 2016, were primarily attributable to increases in branch fees, derivative fees and other income, wealth management fees, and net gains on sales of loans. This was partially offset by a decrease in ancillary loan fees and other 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 million or 5% to $181.8 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 inreflected higher compensation and employee benefits occupancy and equipment expense and data processing expense, partially offset by a decrease in consulting expense.allocated corporate overhead expenses.

Commercial Banking

The Commercial Banking segment reported pre-taxprimarily generates commercial loan and deposit products. Commercial loan products include CRE lending, construction finance, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

The following tables present additional financial information for the Commercial Banking segment for the periods indicated:
Three Months Ended June 30,
Change from 2022
($ in thousands)20232022$%
Net interest income before provision for credit losses$263,040 $230,964 $32,076 14 %
Noninterest income42,538 48,032 (5,494)(11)%
Total revenue305,578 278,996 26,582 10 %
Provision for credit losses20,476 10,602 9,874 93 %
Noninterest expense88,333 81,023 7,310 9 %
Segment income before income taxes196,769 187,371 9,398 5 %
Income tax expense57,739 53,510 4,229 8 %
Segment net income$139,030 $133,861 $5,169 4 %
Average loans$31,229,460 $29,311,514 $1,917,946 7 %
Average deposits$16,788,456 $17,539,067 $(750,611)(4)%
($ in thousands)Six Months Ended June 30,
Change from 2022
20232022$%
Net interest income before provision for credit losses$499,763 $439,041 $60,722 14 %
Noninterest income86,137 97,109 (10,972)(11)%
Total revenue585,900 536,150 49,750 9 %
Provision for credit losses25,464 15,498 9,966 64 %
Noninterest expense175,581 154,418 21,163 14 %
Segment income before income taxes384,855 366,234 18,621 5 %
Income tax expense111,368 104,866 6,502 6 %
Segment net income$273,487 $261,368 $12,119 5 %
Average loans$31,134,716 $28,413,731 $2,720,985 10 %
Average deposits$17,034,343 $17,637,251 $(602,908)(3)%

75

Commercial Banking segment net income of $99.0increased $5.2 million and $284.2or 4% year-over-year to $139.0 million for the threesecond quarter of 2023, and nine months ended September 30, 2017, respectively, compared$12.1 million or 5% year-over-year to $80.4$273.5 million and $268.4 million, respectively, for the same periods in 2016.first half of 2023. The increases in pre-tax income for this segment for the three and nine months ended September 30, 2017, compared to the sameboth periods in 2016, were attributable to increasesreflected a growth in net interest income, partially offset by higher provision for credit losses and noninterest expense and lower noninterest income.
Net interest income before provision for this segmentcredit losses increased $6.8$32.1 million or 5%14% year-over-year to $138.2$263.0 million for the three months ended September 30, 2017, comparedsecond quarter of 2023, and $60.7 million or 14% year-over-year to $131.3$499.8 million for the same period in 2016. Netfirst half of 2023. The increases were primarily due to higher loan interest income increased $19.0from commercial loan growth and higher deposit FTP credits due to the year-over-year increase in market rates. Noninterest income decreased $5.5 million or 5%11% year-over-year to $408.6$42.5 million for the nine months ended September 30, 2017, comparedsecond quarter of 2023, mainly due to $389.6a decrease in foreign exchange income. Noninterest income decreased $11.0 million or 11% year-over-year to $86.1 million for the same periodfirst half of 2023, mainly due to a decrease in 2016. interest rate contracts and other derivative income. Provision for credit losses increased $9.9 million or 93% year-over-year to $20.5 million for the second quarter of 2023, and $10.0 million or 64% year-over-year to $25.5 million for the first half of 2023, primarily driven by the current economic outlook as well as commercial loan growth. Noninterest expense increased $7.3 million or 9% year-over-year to $88.3 million for the second quarter of 2023, and $21.2 million or 14% year-over-year to $175.6 million for the first half of 2023, primarily due to higher compensation and employee benefits, deposit account expense and allocated corporate overhead expenses.

Other

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

The increasesfollowing tables present additional financial information for the Other segment for the periods indicated:
Three Months Ended June 30,
Change from 2022
($ in thousands)20232022$%
Net interest loss before provision for credit losses$(3,816)$(42,385)$38,569 91 %
Noninterest income8,973 2,028 6,945 342 %
Total revenue (loss)5,157 (40,357)45,514 113 %
Noninterest expense66,429 21,542 44,887 208 %
Segment loss before income taxes(61,272)(61,899)627 1 %
Income tax benefit(77,420)(32,818)(44,602)136 %
Segment net income (loss)$16,148 $(29,081)$45,229 156 %
Average deposits$4,230,592 $3,161,242 $1,069,350 34 %
($ in thousands)Six Months Ended June 30,
Change from 2022
20232022$%
Net interest income (loss) before provision for credit losses$55,080 $(48,063)$103,143 215 %
Noninterest (loss) income(650)7,495 (8,145)(109)%
Total revenue (loss)54,430 (40,568)94,998 234 %
Noninterest expense83,805 41,502 42,303 102 %
Segment loss before income taxes(29,375)(82,070)52,695 64 %
Income tax benefit(91,258)(63,970)(27,288)43 %
Segment net income (loss)$61,883 $(18,100)$79,983 442 %
Average deposits$4,027,869 $3,168,083 $859,786 27 %

76

The Other segment reported segment loss before income taxes of $61.3 million and segment net income of $16.1 million, reflecting an income tax benefit of $77.4 million, for the second quarter of 2023. The decrease in segment loss before income taxes was primarily due to lower net interest loss and higher noninterest income, partially offset by higher noninterest expense. For the first half of 2023, the Other segment reported segment loss before income taxes of $29.4 million and segment net income of $61.9 million, reflecting an income tax benefit of $91.3 million. The decrease in segment loss before income taxes was primarily driven by higher net interest income, partially offset by an increase in noninterest expense. The $38.6 million decrease in net interest loss before provision for credit losses for the second quarter of 2023 and $103.1 million increase in net interest income before provision for credit losses for the three and nine months ended September 30, 2017, compared to the same periods in 2016,first half of 2023 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 million or 17% to $82.6 million for the nine months ended September 30, 2017, compared to $70.5 million for the same period in 2016. The increases in noninterest income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, were primarily due to a net gain on sale of the Company’s insurance brokerage business, EWIS, during the three and nine months ended September 30, 2017, and increases in branch fees, ancillary loan fees and other income, as well as letters 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. Noninterest expense increased $3.8 million or 3% to $149.5 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, partially offset by a decrease in legal expense.
Other
The Other segment includes the activities of the treasury function, which is responsible for liquidity and interest rate risk management of the Company, and supports the Retail Banking and Commercial Banking segments through internal funds transfer pricing credits and charges, which are included in net interest income. The Other segment reported pre-tax income of $7.7 million and $72.2 million for the three and nine months ended September 30, 2017, respectively, compared to $10.8 million and $28.1 million, respectively, for the same periods in 2016. 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 noninterest income and internal funds transfer pricing credits, partially offset by a decrease in noninterest expense and an increase in net interest income. The increase in pre-tax income for this segment for the nine months ended September 30, 2017, compared to the same period in 2016, was primarily driven by an increase in noninterest income as the result of the net gain on sale of the commercial property, partially offset by a decrease in net interest income from investments due to a higher yield on interest-bearing cash and an increase in noninterest expense.
Net interestdeposits with banks and debt securities. Noninterest income for this segment increased $1.4 million or 8% to $17.5$6.9 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 primarilysecond quarter of 2023, mainly due to an increase in interestforeign exchange income, from investments. The decrease in net interest income for the nine months ended September 30, 2017, compared to the same period in 2016, was due to increases in interest expense on borrowings and deposits.


Noninterest income for this segment decreased $5.3 million or 63% to $3.1$8.1 million for the three months ended September 30, 2017, comparedfirst half of 2023, primarily due to $8.4a write-off of an impaired subordinated debt security in the first quarter of 2023. Noninterest expense increased $44.9 million for the same period in 2016. Noninterest income increased $60.8 million or 235% to $86.6second quarter of 2023, and $42.3 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, wasfirst half of 2023, 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 sale 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. Noninterest expense increased $8.4 million or 6% to $155.4 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 inhigher 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 amortizationas a result of tax credit investments closed in the second quarter of 2023. This also contributed to higher income tax benefit in both the second quarter and other investments,first half of 2023.

The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments, and $6.5 million in compensationreflects the impact of tax credit investment activity. Income tax expense is allocated to the Consumer and employee benefits.Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes. Tax credit investment amortization is allocated to the Other segment.


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 short durations to minimizea moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks. The Company’s available-for-sale investmentdebt securities provide:


•interest income for earnings and yield enhancement;
•funding 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

During the first quarter of 2016,While 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 intentdoes not intend to sell the security under active liquidity management.

Available-for-sale investmentits debt securities,

As of September 30, 2017 and December 31, 2016, the Company’s available-for-sale investment it may sell AFS 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. Investment securities classified as available-for-sale are carried at their estimated fair value with the correspondingin response to changes in fair value recorded in Accumulated other comprehensive loss, net of tax, as a component of Stockholders’ equity on the Consolidated Balance Sheets.balance sheet and related interest rate risk to meet liquidity, regulatory and strategic requirements.


77

The following table presents the breakoutdistribution of the amortized costCompany’s AFS and fair value of available-for-sale investmentHTM debt securities by major categoriesportfolio as of SeptemberJune 30, 20172023 and December 31, 2016:2022, and by credit ratings as of June 30, 2023:
June 30, 2023December 31, 2022
Ratings as of June 30, 2023 (1)
($ in thousands)Amortized CostFair Value% of Fair ValueAmortized CostFair Value% of Fair ValueAAA/AAABBBBB and Lower
No Rating (2)
AFS debt securities:
U.S. Treasury securities$779,973 $711,706 12 %$676,306 $606,203 10 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities514,594 460,084 8 %517,806 461,607 8 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities2,519,765 2,200,014 37 %2,588,446 2,262,464 37 %100 %— %— %— %— %
Municipal securities304,204 263,873 4 %303,884 257,099 4 %97 %— %— %— %3 %
Non-agency mortgage-backed securities1,148,557 992,625 17 %1,209,714 1,047,553 17 %81 %— %— %— %19 %
Corporate debt securities653,502 485,750 7 %673,502 526,274 9 %— %32 %65 %3 %— %
Foreign government bonds236,392 224,766 4 %241,165 227,053 4 %48 %52 %— %— %— %
Asset-backed securities46,332 44,875 1 %51,152 49,076 1 %100 %— %— %— %— %
Collateralized loan obligations617,250 603,565 10 %617,250 597,664 10 %96 %4 %— %— %— %
Total AFS debt securities$6,820,569 $5,987,258 100 %$6,879,225 $6,034,993 100 %86 %5 %5 %— %4 %
HTM debt securities:
U.S. Treasury securities$526,794 $474,137 19 %$524,081 $471,469 19 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities1,000,415 797,871 33 %998,972 789,412 32 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities1,259,425 1,019,026 42 %1,289,106 1,042,310 43 %100 %— %— %— %— %
Municipal securities189,299 149,450 6 %189,709 151,980 6 %100 %— %— %— %— %
Total HTM debt securities$2,975,933 $2,440,484 100 %$3,001,868 $2,455,171 100 %100 %— %— %— %— %
Total debt securities$9,796,502 $8,427,742 $9,881,093 $8,490,164 
 
($ 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)Credit ratings express opinions about the credit quality of a debt security. The Company determines the credit rating of a security according to the lowest credit rating made available by nationally recognized statistical rating organizations (“NRSROs”). Debt securities rated investment grade, which are those with ratings similar to BBB- or above (as defined by NRSROs), are generally considered by the rating agencies and market participants to be low credit risk. Ratings percentages are allocated based on fair value.

(2)For debt securities not rated by NRSROs, the Company uses other factors which include but are not limited to the priority in collections within the securitization structure, and whether the contractual payments have historically been on time.


As of June 30, 2023, the Company’s AFS and HTM debt securities portfolios had an effective duration (defined as the sensitivity of the value of the portfolio to interest rate changes) of 3.9 and 7.7, respectively, compared with 4.1 and 8.0, respectively, as of December 31, 2022. The modest decreases in both the AFS and HTM effective durations were due to the reduction in variation of optionality under the current interest rate environment.

Available-for-Sale Debt Securities

The fair value of the available-for-sale investmentAFS debt securities portfolio totaled $2.96$5.99 billion as of SeptemberJune 30, 2017, compared to $3.342023, a decrease of $47.7 million or 1% from $6.03 billion as of December 31, 2016.2022. The decrease of $379.0 million or 11%was primarily reflected the sales of corporate debt securities, U.S. Treasury securities, U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, and municipal securities; and paydowns,due to 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 waspaydowns, partially offset 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 and municipal securities; and the transfer of a non-agency commercial mortgage-backed security from held-to-maturity security.

securities. The Company’s available-for-sale investmentAFS debt securities are carried at fair value with changesnoncredit-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$833.3 million as of June 30, 2023, compared to $49.6with $844.2 million as of December 31, 2016. The favorable change2022.

78

As of June 30, 2023 and December 31, 2022, 96% and 97%, respectively, of the carrying value of the AFS debt securities portfolio was rated investment grade by NRSROs. Of the AFS debt securities with gross unrealized losses, substantially all were rated investment grade as of both June 30, 2023 and December 31, 2022. There was no allowance for credit losses provided against the AFS debt securities as of each of June 30, 2023 and December 31, 2022. Additionally, there were no credit losses recognized in earnings for both the second quarters and first halves of 2023 and 2022.

Held-to-Maturity Debt Securities

All HTM debt securities were issued, guaranteed, or supported by the U.S. government or government-sponsored enterprises. Accordingly, the Company applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of both June 30, 2023 and December 31, 2022.

For additional information on AFS and HTM securities, see Note 1— Summary of Significant Accounting Policies to the Consolidated Financial Statements in the net unrealized losses was primarily attributed to 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 as of September 30, 2017, compared to $56.3 million as of December 31, 2016. As of September 30, 2017, the Company had no intention to sell securities with unrealized lossesCompany’s2022 Form 10-K and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost. No other-than-temporary impairment was recognized for the three and nine months ended September 30, 2017 and 2016. For a complete discussion and disclosure, see Note 43 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 65 — Securities to the Consolidated Financial Statements.Statements in this Form 10-Q.


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.


The following table presents the weighted average yields and contractual maturity distributions, excluding periodic principal payments, of the Company’s investment securities as of the periods indicated. Actual maturities of mortgage-backed securities can differ from contractual maturities as the borrowers have the right to prepay the obligations. In addition, such factors as prepayments and interest rate changes may affect the yields on the carrying value of mortgage-backed securities.
 
($ 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 commercial loans, which consist of commercial and industrial (“C&I”), CRE, C&I,multifamily residential, and construction and land loans, as well as consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Net loans, including loans held-for-sale, increased $2.97 billion or 12% to $28.24Loans held-for-investment totaled $49.83 billion as of SeptemberJune 30, 20172023, an increase of $1.63 billion or 3% from $25.27$48.20 billion as of December 31, 2016. The increase2022. This growth was broad based andprimarily driven by strong increases of $1.14 billion or 22% in residential loans, $1.00 billion or 10% in C&I loans, $836.3$849.3 million or 10%4% in total CRE loans and $44.1$825.9 million or 2%6% in consumer 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 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 CREtotal residential mortgage loans. The commercial lending portfolios comprised 70% and 72%composition of the total loan portfolio as of SeptemberJune 30, 20172023 was similar to the composition as of December 31, 2022.

The following table presents the composition of the Company’s total loan portfolio by loan type as of June 30, 2023 and December 31, 2016, respectively,2022:
June 30, 2023December 31, 2022
($ in thousands)Amount%Amount%
Commercial:
C&I$15,670,084 31 %$15,711,095 33 %
CRE:
CRE14,373,385 29 %13,857,870 29 %
Multifamily residential4,764,180 9 %4,573,068 9 %
Construction and land781,068 2 %638,420 1 %
Total CRE19,918,633 40 %19,069,358 39 %
Total commercial35,588,717 71 %34,780,453 72 %
Consumer:
Residential mortgage:
Single-family residential12,308,613 25 %11,223,027 23 %
HELOCs1,862,928 4 %2,122,655 5 %
Total residential mortgage14,171,541 29 %13,345,682 28 %
Other consumer68,106 0 %76,295 0 %
Total consumer14,239,647 29 %13,421,977 28 %
Total loans held-for-investment (1)
49,828,364 100 %48,202,430 100 %
Allowance for loan losses(635,400)(595,645)
Loans held-for-sale (2)
2,830 25,644 
Total loans, net$49,195,794 $47,632,429 
(1)Includes $74.0 million and are discussed further below.$70.4 million comprising unamortized deferred and unearned fees, net of premiums as of June 30, 2023 and December 31, 2022, respectively.

C&I Loans.(2)Consists of C&I loans of $10.65 billion and $9.64 billion, which accounted for 37% and 38% of the total loan portfolio as of Septemberboth June 30, 20172023 and December 31, 2016, respectively, include2022.

79

Commercial

The commercial businessloan portfolio comprised 71% of total loans as of June 30, 2023, compared with 72% as of December 31, 2022. The Company actively monitors the commercial lending portfolio for elevated levels of credit risk and trade financereviews credit exposures for sensitivity to changing economic conditions.

Commercial — Commercial and Industrial Loans. Total C&I loan commitments were $23.91 billion as of June 30, 2023, an increase of $1.13 billion or 5% from $22.78 billion as of December 31, 2022. Total C&I loans which comprised the largest sector in the lending portfolio. Over the last few years, the Company has experienced higher growth in specialized lending verticals in industries suchwere $15.67 billion as private equity, energy, entertainmentof June 30, 2023, a decrease of $41.0 million or 0.3% from $15.71 billion as of December 31, 2022, with a utilization rate of 66% as of June 30, 2023, compared with 69% as of December 31, 2022. Total C&I loans made up 31% and structured specialty finance. As33% of Septembertotal loans held-for-investment as of June 30, 20172023 and December 31, 2016, specialized lending verticals comprised 42% and 37% of total C&I loans,2022, respectively.

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 estate and leasing, entertainment and private equity. The Company’s C&I loan exposures within the wholesale trade sector, which totaled $1.63 billion and $1.38 billion as of September 30, 2017 and December 31, 2016, respectively, are largely related to U.S. domiciled companies, which import goods from Greater China for U.S. consumer consumption, many of which are companies based in California. 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 across a wide spectrum of industries. The Company offers a variety of C&I products, including commercial business lending, working capital lines of credit, trade finance, letters of credit, asset-based lending, asset-backed finance, project finance and equipment financing. 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. This portfolio totaled $627.9$788.6 million and $758.5$855.9 million as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. The majority of the C&I loans had variable interest rates as of both June 30, 2023 and December 31, 2022.

The C&I portfolio is well-diversified by industry. The Company monitors concentrations within the C&I loan portfolio by industry and customer exposure, and has exposure limits by industry classifications, setting limits for specialized lending verticals and setting diversification targets.loan product. The following table presents the industry mix within the Company’s C&I loan portfolio as of June 30, 2023 and December 31, 2022.

June 30, 2023December 31, 2022
($ in thousands)Amount%($ in thousands)Amount%
Industry:Industry:
Private equity$2,450,919 16 %Private equity$2,238,723 14 %
Media & entertainment1,848,479 12 %Media & entertainment1,841,719 12 %
Real estate investment & management1,331,558 8 %Real estate investment & management1,272,169 8 %
General manufacturing & wholesale993,604 6 %General manufacturing & wholesale1,091,933 7 %
Infrastructure & clean energy873,828 6 %Infrastructure & clean energy820,095 5 %
Tech & telecom614,839 4 %Food production & distribution738,636 5 %
Hospitality & leisure594,313 4 %Tech & telecom618,719 4 %
Food production & distribution594,213 4 %Hospitality & leisure562,234 4 %
Oil & gas534,951 3 %Oil & gas519,784 3 %
Healthcare services423,734 3 %Consumer goods425,214 3 %
All other C&I5,409,646 34 %All other C&I5,581,869 35 %
Total C&I$15,670,084 100 %Total C&I$15,711,095 100 %



CRECommercial — Total Commercial Real Estate Loans. Total CRE loans include income producing real estate,totaled $19.92 billion as of June 30, 2023, which grew $849.3 million or 4% from $19.07 billion as of December 31, 2022, and accounted for 40% of total loans held-for-investment as of June 30, 2023, compared with 39% as of December 31, 2022. The total CRE portfolio consists of CRE, multifamily residential, and construction and land loans, where the interest rates may be fixed, variable or hybrid.and affordable housing lending. The Company focuses on providing financing to experienced real estate investors and developers whoincrease in total CRE loans was driven by well-diversified growth across our major property types, partially offset by a decrease in office CRE loans. The Company’s underwriting parameters for CRE loans are long-time customers and have moderate levels of leverage. Loans are generally underwrittenestablished in compliance with high standards for cash flows, debt service coverage ratiossupervisory guidance, including: property type, geography and loan-to-value ratios. Due to the nature(“LTV”). The consistency of the Company’s geographical footprint and market presence, the Companylow LTV underwriting standards has CRE loan concentrations primarilyhistorically resulted in California, which comprised 74% of thelower credit losses.

80

The Company’s total CRE loan portfolio is well-diversified by property type with an average CRE loan size of $2.9 million as of eachJune 30, 2023, compared with $2.8 million as of SeptemberDecember 31, 2022. The following table summarizes the Company’s total CRE loans by property type as of June 30, 20172023 and December 31, 2016. Accordingly,2022:
June 30, 2023December 31, 2022
($ in thousands)Amount%Amount%
Property types:
Multifamily$4,764,180 24 %$4,573,067 24 %
Retail (1)
4,203,130 21 %4,075,769 22 %
Industrial (1)
3,798,162 19 %3,617,086 19 %
Office (1)
2,353,550 12 %2,522,554 13 %
Hotel (1)
2,249,020 11 %2,085,910 11 %
Healthcare (1)
843,825 4 %796,577 4 %
Construction and land781,068 4 %638,420 3 %
Other (1)
925,698 5 %759,975 4 %
Total CRE loans$19,918,633 100 %$19,069,358 100 %
(1)Included in CRE loans, which is a subset of Total CRE loans.

The weighted-average LTV ratio of the total CRE loan portfolio was 51% as of both June 30, 2023 and December 31, 2022. Weighted average LTV is based on the most recent LTV, which is based on the latest available appraisal and current loan commitment. Approximately 90% of total CRE loans had an LTV ratio of 65% or lower as of both June 30, 2023 and December 31, 2022.

The following tables provide a summary of the Company’s CRE, multifamily residential, and construction and land loans by geography as of June 30, 2023 and December 31, 2022. The distribution of the total CRE loan portfolio reflects the Company’s geographical branch footprint, which is primarily concentrated in California:
June 30, 2023
($ in thousands)CRE%Multifamily Residential%Construction and Land%Total CRE%
Geographic markets:
Southern California$7,372,267 51 %$2,290,962 48 %$280,881 36 %$9,944,110 50 %
Northern California2,712,476 19 %933,360 20 %266,151 34 %3,911,987 20 %
California10,084,743 70 %3,224,322 68 %547,032 70 %13,856,097 70 %
Texas1,158,735 8 %443,373 9 %16,693 2 %1,618,801 8 %
New York702,765 5 %224,769 5 %87,468 11 %1,015,002 5 %
Washington467,229 3 %170,163 4 %18,188 2 %655,580 3 %
Arizona345,760 2 %107,549 2 %18,705 3 %472,014 2 %
Nevada205,742 2 %108,331 2 %29,516 4 %343,589 2 %
Other markets1,408,411 10 %485,673 10 %63,466 8 %1,957,550 10 %
Total loans$14,373,385 100 %$4,764,180 100 %$781,068 100 %$19,918,633 100 %
81

December 31, 2022
($ in thousands)CRE%Multifamily Residential%Construction and Land%Total CRE%
Geographic markets:
Southern California$7,233,902 52 %$2,215,632 48 %$222,425 35 %$9,671,959 51 %
Northern California2,798,840 20 %890,002 20 %235,732 37 %3,924,574 20 %
California10,032,742 72 %3,105,634 68 %458,157 72 %13,596,533 71 %
Texas1,150,401 8 %410,872 9 %2,153 0 %1,563,426 8 %
New York682,096 5 %221,253 5 %99,595 16 %1,002,944 5 %
Washington449,423 3 %173,611 4 %15,557 2 %638,591 3 %
Arizona291,114 2 %95,460 2 %297 0 %386,871 2 %
Nevada159,092 1 %108,060 2 %30,673 5 %297,825 2 %
Other markets1,093,002 9 %458,178 10 %31,988 5 %1,583,168 9 %
Total loans$13,857,870 100 %$4,573,068 100 %$638,420 100 %$19,069,358 100 %

As 70% and 71% of total CRE loans were concentrated in California as of June 30, 2023 and December 31, 2022, 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 higher degree of risk from a downturn in the California real estate markets, see Item 1A. Risk Factors — Risks Related to Geopolitical Uncertainties to the Company’s2022 Form 10-K.

Commercial — Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $14.37 billion as of June 30, 2023, compared with $13.86 billion as of December 31, 2022, 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. As of June 30, 2023, 63% of our CRE portfolio was variable rate, of which 49% had customer-level interest rate derivative contracts in place. These are hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank's own exposure remained variable rate.In comparison, as of December 31, 2022, 65% of our CRE portfolio was variable rate, of which 47% had customer-level interest rate derivative contracts in place. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Owner-occupied properties comprised 20% of the CRE loans as of each of Septemberboth June 30, 20172023 and December 31, 20162022. 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). As of September 30, 2017 and December 31, 2016, the Company hadincome from an income-producing CRE portfolio that was broadly diversified across all property types.unaffiliated third party.


The Company had $572.0 million of construction loans and $507.3 million of unfunded commitments as of September 30, 2017, compared to $551.6 million of construction loans and $526.4 million of unfunded commitments as of December 31, 2016. The construction portfolio 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.

Commercial —Multifamily Residential Loans. Residential loans are comprised of single-family and The multifamily residential 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. The Company’s multifamily loan portfolio is largely comprised of loans secured by smaller multifamilyresidential properties ranging from 5 to 15 units in its primary lending areas. 71% and 73% of the Company’swith five or more units. Multifamily residential loans were concentrated in Californiatotaled $4.76 billion as of SeptemberJune 30, 20172023, compared with $4.57 billion as of December 31, 2022, and accounted for 9% of total loans held-for-investment as of both dates. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period of three to ten years. As of June 30, 2023, 56% of our multifamily residential loan portfolio was variable rate, of which 37% had customer-level interest rate derivative contracts in place. These are hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank's own exposure remained variable rate. In comparison, as of December 31, 2022, 57% of our multifamily residential loan portfolio was variable rate, of which 34% had customer-level interest rate derivative contracts in place.

Commercial —Construction and Land Loans. Construction and land loans provide financing for a portfolio of projects diversified by real estate property type. Construction and land loans totaled $781.1 million as of June 30, 2023, compared with $638.4 million as of December 31, 2022, and accounted for 2% and 1% of total loans held-for-investment as of June 30, 2023 and December 31, 2016,2022, respectively. ManyConstruction loan exposure was made up of $652.5 million in loans outstanding, plus $753.5 million in unfunded commitments as of June 30, 2023, compared with $536.8 million in loans outstanding, plus $611.4 million in unfunded commitments as of December 31, 2022. Land loans totaled $128.6 million as of June 30, 2023, compared with $101.7 million as of December 31, 2022.

82

Consumer

Residential mortgage loans are primarily originated through the Bank’s branch network. The following tables summarize the Company’s single-family residential and HELOC loan portfolios by geography as of June 30, 2023 and December 31, 2022. The average total residential loan size was $435 thousand and $434 thousand as of June 30, 2023 and December 31, 2022, respectively:
June 30, 2023
($ in thousands)Single-Family Residential%HELOCs%Total Residential Mortgage%
Geographic markets:
Southern California$4,530,084 37 %$857,601 46 %$5,387,685 38 %
Northern California1,477,224 12 %411,340 22 %1,888,564 13 %
California6,007,308 49 %1,268,941 68 %7,276,249 51 %
New York4,175,125 34 %256,468 14 %4,431,593 31 %
Washington676,043 5 %205,021 11 %881,064 6 %
Massachusetts340,553 3 %78,281 4 %418,834 3 %
Georgia371,723 3 %18,692 1 %390,415 3 %
Texas383,937 3 %— — %383,937 3 %
Nevada337,639 3 %34,029 2 %371,668 3 %
Other markets16,285 0 %1,496 0 %17,781 0 %
Total$12,308,613 100 %$1,862,928 100 %$14,171,541 100 %
Lien priority:
First mortgage$12,308,613 100 %$1,497,050 80 %$13,805,663 97 %
Junior lien mortgage— — %365,878 20 %365,878 3 %
Total$12,308,613 100 %$1,862,928 100 %$14,171,541 100 %
December 31, 2022
($ in thousands)Single-Family Residential%HELOCs%Total Residential Mortgage%
Geographic markets:
Southern California$4,142,623 37 %$959,632 45 %$5,102,255 38 %
Northern California1,294,721 11 %492,921 23 %1,787,642 14 %
California5,437,344 48 %1,452,553 68 %6,889,897 52 %
New York3,964,779 35 %286,285 14 %4,251,064 32 %
Washington632,892 6 %236,434 11 %869,326 7 %
Massachusetts299,051 3 %85,590 4 %384,641 3 %
Georgia303,615 3 %21,493 1 %325,108 2 %
Texas316,771 3 %— — %316,771 2 %
Nevada253,702 2 %40,300 2 %294,002 2 %
Other markets14,873 0 %— — %14,873 0 %
Total$11,223,027 100 %$2,122,655 100 %$13,345,682 100 %
Lien priority:
First mortgage$11,223,027 100 %$1,770,741 83 %$12,993,768 97 %
Junior lien mortgage— — %351,914 17 %351,914 3 %
Total$11,223,027 100 %$2,122,655 100 %$13,345,682 100 %

83

Consumer — Single-Family Residential Loans. Single-family residential loans totaled $12.31 billion or 25% of total loans held-for-investment as of June 30, 2023, compared with $11.22 billion or 23% of total loans held-for-investment as of December 31, 2022. Single-family residential loans increased $1.09 billion or 10% from December 31, 2022, primarily driven by organic growth in mortgages and residential properties in California and 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 June 30, 2023 and December 31, 2022. 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 60%65% or less. The weighted-average LTV ratio was 53% as of both dates. These loans have historically experienced low delinquency and defaultloss 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 on a regular basis, typically annually, after an initial fixed rate period.

Consumer Loans. Consumer— Home Equity Lines of Credit. Total HELOC commitments were $5.39 billion as of June 30, 2023, a decrease of $108.0 million or 2% from $5.50 billion, with a utilization rate of 35% as of June 30, 2023, compared with 39% as of December 31, 2022. A majority of unfunded HELOC commitments are unconditionally cancellable. HELOCs outstanding totaled $1.86 billion or 4% of total loans are comprisedheld-for-investment as of home equity linesJune 30, 2023, compared with $2.12 billion or 5% of credit (“HELOCs”), insurance premium financingtotal loans credit cardheld-for-investment as of December 31, 2022. HELOCs outstanding decreased $259.7 million or 12% from December 31, 2022. The Company was in a first lien position for 80% and auto loans. As83% of Septembertotal outstanding HELOCs as of June 30, 20172023 and December 31, 2016,2022, respectively. The weighted-average LTV ratio was 48% on HELOC commitments as of June 30, 2023, compared with 49% as of December 31, 2022. Weighted-average LTV ratio represents the Company’s HELOCs wereloan’s balance divided by the largest componentestimated current property value. For junior lien home equity loans, combined LTV ratios are used for junior lien home equity products. Many of the consumer loan portfolio, and were secured by one-to-four unit residential properties located in its primary lending areas. The HELOC loan portfolio is largely comprised ofthese loans originated through aare reduced documentation loan program whereloans, for which a substantial down payment is required, resulting in a low loan-to-valueLTV ratio at origination, typically 60%65% or less. The Company is inAs a first lien position for many ofresult, these reduced documentation HELOCs. These loans have historically experienced low delinquency and defaultloss rates.

The Substantially all of the Company’s total loan portfolio includes originated and purchased loans. Originated and purchasedHELOCs were variable-rate 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 Septemberboth June 30, 20172023 and December 31, 2016, respectively. For additional details regarding PCI2022.

All originated commercial and consumer loans see Note 8 — Loans Receivable and Allowance for Credit Lossesare subject to the Consolidated Financial Statements.Company’s conservative underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of quality control procedures and periodic audits, including the review of lending and legal requirements, to ensure that the Company is in compliance with these requirements.


84

Foreign Outstandings

The Company’s overseas offices, which include the branch in Hong Kong and the subsidiary bank in China.China, are subject to the general risks inherent in conducting business in foreign countries, such as regulatory, economic and political uncertainties. As of September 30, 2017such, the Company’s international operation risk exposure is largely concentrated in China and December 31, 2016, loansHong Kong. In addition, the Company’s financial assets 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. Thesemay be affected by fluctuations in currency exchange rates or other factors. The following table presents the major financial assets held in the Company’s 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 assetsoffices as of SeptemberJune 30, 20172023 and December 31, 2016.2022:

June 30, 2023December 31, 2022
($ in thousands)Amount% of Total Consolidated AssetsAmount% of Total Consolidated Assets
Hong Kong branch:
Cash and cash equivalents$594,333 1 %$911,784 1 %
Interest-bearing deposits with banks$— — %$28,772 0 %
AFS debt securities (1)
$388,170 1 %$281,804 0 %
Loans held-for-investment (2)
$890,249 1 %$968,450 2 %
Total assets$1,887,598 3 %$2,212,606 3 %
Subsidiary bank in China:
Cash and cash equivalents$677,828 1 %$556,656 1 %
AFS debt securities (3)
$117,821 0 %$122,053 0 %
Loans held-for-investment (2)
$1,216,970 2 %$1,170,437 2 %
Total assets$2,006,969 3 %$1,836,811 3 %


When a determination is made at the time(1)Comprised 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 at the lower 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,U.S. Treasury securities and foreign government bonds as of both June 30, 2023 and 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 during the three and nine months ended September 30, 2017, respectively. These loan transfers were primarily2022.
(2)Primarily comprised of C&I loans for both periods. In comparison, $144.9 million and $720.7 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, 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 Septemberboth June 30, 20172023 and December 31, 2016:2022.
 
($ 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(3)Comprised 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 millionforeign government bonds as of Septemberboth June 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, 20172023 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.2022.

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 TDRstotal revenue generated 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 8 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements, and Item 7. MD&A — Critical Accounting Policies and Estimates and 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 in the allowance for credit lossesoverseas offices for the threesecond quarters and nine months ended September 30, 2017first halves of 2023 and 2016:2022:
($ in thousands)Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
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$12,255 2 %$10,768 2 %$27,573 2 %$18,109 2 %
Subsidiary Bank in China:
Total revenue$11,425 2 %$11,236 2 %$19,310 1 %$19,036 2 %

Capital
 
($ 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 %



As of September 30, 2017, the allowance for loan losses amounted to $285.9 million or 1.00% of loans held-for-investment, compared to $260.5 million or 1.02% and $255.8 million or 1.03% of loans held-for-investment as of December 31, 2016 and 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, 2017 and December 31, 2016 was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date.

The following table presents the Company’s allocation of the allowance for loan losses by segment and the ratio of each loan segment to total loans held-for-investment as of September 30, 2017 and December 31, 2016:
($ 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 all regulatory capital guidelines. The Company engages in regular capital planning processes on at least an annual basis to optimize the use of available capital and to appropriately plan for future capital needs. Theneeds, allocating capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. In addition,Furthermore, the Company conducts 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.


The Company’s stockholders’ equity increased by $354.2 million or 10% to $3.78was $6.46 billion as of SeptemberJune 30, 2017, compared to $3.432023, an increase of $477.1 million or 8% from $5.98 billion as of December 31, 2016.2022. 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 $634.5 million of net income, of $420.7 million, reducedpartially offset by $87.6$137.0 million of cashcommon dividends during the 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.declared. 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.

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Book value per share was $26.17 per common share based on 144.5 million common shares outstanding$45.67 as of SeptemberJune 30, 2017, compared to $23.782023, an increase of 8% from $42.46 per common share based on 144.2 million common shares outstanding as of December 31, 2016. 2022, primarily as a result of the factors described above. Tangible book value per share was $42.33 as of June 30, 2023, compared with $39.10 as of December 31, 2022. For additional details, see the reconciliation of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

The Company madepaid a quarterly common stock cash dividend payments of $0.20$0.48 and $0.40 per common share in each quarter during the nine months ended September 30, 2017second quarters of 2023 and 2016.2022, respectively. In October 2017,July 2023, the Company’s Board of Directors (the “Board”) declared fourththird quarter 2017 cash dividends for the Company’s common stock. The common stock2023 cash dividend of $0.20$0.48 per shareshare. The dividend is payable on NovemberAugust 15, 20172023, to stockholders of record as of NovemberAugust 1, 2017.2023.




Deposits and Other Sources of Funding

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 funding as of June 30, 2023 and December 31, 2022:
June 30, 2023December 31, 2022Change
($ in thousands)Amount%Amount%$%
Deposits:
Noninterest-bearing demand$16,741,099 30 %$21,051,090 38 %$(4,309,991)(20)%
Interest-bearing checking8,348,587 15 %6,672,165 12 %1,676,422 25 %
Money market11,486,473 21 %12,265,024 22 %(778,551)(6)%
Savings2,102,850 4 %2,649,037 4 %(546,187)(21)%
Time deposits16,979,777 30 %13,330,533 24 %3,649,244 27 %
Total deposits$55,658,786 100 %$55,967,849 100 %$(309,063)(1)%
Other Funds:
Short-term borrowings$4,500,000 97 %$— — %$4,500,000 100 %
Repurchase agreements— — %300,000 67 %(300,000)(100)%
Long-term debt148,097 3 %147,950 33 %147 0 %
Total other funds$4,648,097 100 %$447,950 100 %$4,200,147 NM
Total sources of funds$60,306,883 $56,415,799 $3,891,084 7 %
NM — Not meaningful.

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. Total deposits were $55.66 billion as of June 30, 2023, a decrease of $309.1 million or 1% from $55.97 billion as of December 31, 2022. The decrease in deposits was primarily due to a decrease in noninterest-bearing demand accounts, which was partially offset by increases in time deposits and interest-bearing checking. The growth in time deposits and interest-bearing checking reflected customers seeking higher yields in a rising interest rate environment. Noninterest-bearing demand deposits comprised 30% and 38% of total deposits as of June 30, 2023 and December 31, 2022, respectively.

Uninsured deposits represent the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit. The Company calculates its uninsured deposits based on the methodologies and assumptions used for regulatory reporting. Total uninsured deposit balances reported on Schedule RC-OM item 2 of the Bank’s Call report were $25.74 billion and $31.04 billion as of June 30, 2023 and December 31, 2022, respectively.

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The following table summarizes the Company’s uninsured deposits information as of June 30, 2023 and December 31, 2022, after certain adjustments:
($ in thousands)June 30, 2023December 31, 2022
Uninsured deposits, per regulatory reporting requirements$25,738,814 $31,036,311 
Less: Collateralized deposits(3,866,970)(3,776,344)
Affiliate deposits(400,340)(351,181)
Uninsured deposits, excluding collateralized and affiliate deposits(a)$21,471,504 $26,908,786 
Total domestic deposits(b)$53,153,055 $53,225,764 
Uninsured deposits, excluding collateralized and affiliate deposits ratio(a) / (b)40 %51 %

Our deposit base is seasoned, stable and well-diversified. We offer our customers an insured cash sweep (“ICS”) product that allows customers to insure deposits above FDIC insurance limits. During the first half of 2023, we have seen an increase in the demand for the ICS product by our customers. The Company’s domestic uninsured deposits, excluding collateralized and affiliate deposits ratio improved to 40% as of June 30, 2023, compared with 51% as of December 31, 2022. Management believes that presenting uninsured deposits excluding collateralized and affiliate deposits provides a more accurate view of the deposits at risk, given that the collateralized deposits are secured, and the affiliate deposits are not customer-facing and eliminate in consolidation.

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. See also the discussion of the impact of deposits on liquidity at Item 2. MD&A — Liquidity Risk Management — Liquidity in this Form 10-Q.

Other Sources of Funding

The Company had $4.50 billion of short-term borrowings outstanding as of June 30, 2023, consisting of funds borrowed from the BTFP in March 2023. These borrowings were more cost effective than other borrowing sources and have a positive carry as cash placed at the Federal Reserve Bank. There were no short-term borrowings outstanding as of December 31, 2022. Refer to Note 10—Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q for additional information on the BTFP and the Company’s related borrowings.

Repurchase agreements were $300.0 million as of December 31, 2022. During the first half of 2023, the Company recorded $3.9 million of charges related to the extinguishment of the $300.0 million of repurchase agreements. For additional details, see Note 4 — 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 consists of junior subordinated debt, which qualifies as Tier 2 capital for regulatory capital purposes. Refer to Note 10—Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q for additional information on the junior subordinated debt.

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 operationstheir operations. The Company and transactions. The guidelines cover transactions thatthe Bank are reported on the balance sheet as well as those recorded as off-balance sheet items. In 2013, the Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued the final Basel III Capital Rules establishing a new comprehensiveeach subject to these regulatory capital framework for strengthening international capital standards as well as implementing certain provisions of the “Dodd-Frank Act”.adequacy requirements. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements ofand Regulatory Capital-Related Development in the Company’s 20162022 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 2016-13 on January 1, 2015 (subject2020, which requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The Company has elected the phase-in periodsoption provided by a final rule that delays an estimate of the current expected credit losses (“CECL”) effect on regulatory capital for certain components).

two years and phases in the impact over three years. The Basel III Capital Rules require thatrule permits certain banking organizations maintain a minimum CET1 ratioto exclude from regulatory capital the initial adoption impact of 4.5%, a Tier 1 capital ratioCECL, plus 25% of 6.0%, and a total capital ratio of 8.0%. Moreover, the rules require that banking organizations maintain a capital conservation buffer of 2.5% abovecumulative changes in the capital minimums are being phased-in over four years beginning in 2016 (increasing by 0.625% onallowance for credit losses under CECL for each subsequent January 1,period until it reaches 2.5% on January 1, 2019). When fully phased-in in 2019, the banking organizations will be required to maintain a minimum CET1 capital ratio of 7.0%, a minimum Tier 1 capital ratio of 8.5% 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 capital at a level sufficient to assure the Company’s stockholders, customers and regulators that the Company and the Bank are financially sound. As of September 30, 2017 and December 31, 2016, both2021, followed by a three-year phase-out period in which the Companyaggregate benefit is reduced by 25% in 2022, 50% in 2023 and 75% in 2024. Accordingly, our capital ratios as of June 30, 2023 reflect a delay of 50% of the Bank were considered “well-capitalized,” and met all capital requirementsestimated impact of CECL on a fully phased-in basis under the Basel III Capital Rules.regulatory capital.


The following table presents the Company’s and the Bank’s capital ratios as of SeptemberJune 30, 20172023 and December 31, 20162022 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:
Basel III Capital Rules
June 30, 2023December 31, 2022
CompanyBankCompanyBankMinimum Regulatory RequirementsMinimum Regulatory Requirements including Capital Conservation BufferWell-Capitalized Requirements
Risk-based capital ratios:
Common Equity Tier 1 capital (1)
13.2 %12.9 %12.7 %12.5 %4.5 %7.0 %6.5 %
Tier 1 capital (1)
13.2 %12.9 %12.7 %12.5 %6.0 %8.5 %8.0 %
Total capital14.6 %14.1 %14.0 %13.5 %8.0 %10.5 %10.0 %
Tier 1 leverage (1)
10.0 %9.9 %9.8 %9.7 %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 andCommon Equity Tier 1 capital ratios have improved by 49 basis points, while the total risk-based and Tier 1 leverage well-capitalized requirements apply only to the Bank since there is no Common Equity Tier 1 capital ratios increased by 48component or Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The well-capitalized Tier 1 capital ratio requirements for the Company and 65 basis points, respectively, during the nine months ended SeptemberBank are 6.0% and 8.0%, respectively.

The Company is committed to maintaining strong capital levels to assure its investors, customers and regulators that the Company and the Bank are financially sound. As of both June 30, 2017. The improvement was primarily driven by2023 and December 31, 2022, the increases in revenues, primarily dueCompany and the Bank continued to increase in net interest incomeexceed all “well-capitalized” capital requirements and net gains recorded from the sale of commercial property duringrequired minimum capital requirements under the first quarter of 2017. The $1.82 billion or 7% increase inBasel III Capital Rules. Total risk-weighted assets increasedwere $51.70 billion as of June 30, 2023, an increase of $1.66 billion from $27.36$50.04 billion as of December 31, 2016 to $29.18 billion as of September 30, 20172022. The increase in the risk-weighted assets was primarily due to residential mortgage and CRE loan growth.

Risk Management

Overview

In the growthnormal course of business, 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 business. 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, liquidity, capital, market, operational, compliance, legal, strategic, technology and reputational.

The Risk Oversight Committee of the Board of Directors monitors the ERM program through identified risk categories and provides oversight of the Company’s Consolidated Balance Sheets. Asrisk appetite and control environment. The Risk Oversight Committee provides focused oversight of September 30, 2017, the Company’s CET1 risk-based capital, Tier 1 risk-based capital, total risk-based capital ratiosidentified 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 manage and Tier 1 leverage capital ratios were 11.4%, 11.4%, 12.9%reduce the risks to which the Company’s operations are exposed.

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The Company’s ERM program is executed along the three lines of defense model, which provides for a consistent and 9.4%, respectively, well abovestandardized risk management control environment across the well-capitalizedenterprise. 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 (“IAR”). Internal Audit and IAR provide assurance and evaluate the effectiveness of risk management, control and governance processes as established by the Company. Reporting directly to the Board’s Audit Committee, Internal Audit maintains organizational independence and objectivity. Further discussion and analysis of certain primary risk areas are detailed in the following subsections of Risk Management.

Credit Risk Management

Credit risk is the risk that a borrower or a 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, debt securities and certain derivatives. The majority of the Company’s credit risk is associated with lending activities.

The Risk Oversight Committee has primary oversight responsibility for identified enterprise risk categories including credit risk. The Risk Oversight Committee monitors management’s assessment of asset quality, credit risk trends, credit quality administration, underwriting standards, and 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 for the line of business transactional credit risk, assuring that all exposure is risk-rated according to the requirements of 6.5%, 8.0%, 10.0%the credit risk rating policy. The Senior Credit Supervision function evaluates and 5.0%, respectively.

Regulatory Matters

The Bank entered into a Written Agreement, dated November 9, 2015, withreports the Federal Reserve Bank of San Francisco (the “Written Agreement”),overall credit risk exposure to correct less than satisfactory BSA and AML programs detailed in a joint examination by the Federal Reserve Bank of San Francisco (“FRB”)senior management and the California DepartmentRisk Oversight Committee. Reporting directly to the Board’s Risk Oversight Committee, the IAR function provides additional support to the Company’s strong credit risk management culture by providing an independent and objective assessment of Business Oversight (“DBO”). underwriting and documentation quality. A key focus of our credit risk management is adherence to a well-controlled underwriting and audit monitoring process.

The Bank also entered intoCompany assesses the overall credit quality performance of the loans 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 and Allowance for Credit Losses.

Credit Quality

The Company utilizes a related Memorandumcredit risk rating system to assist in monitoring credit quality. Loans are evaluated using the Company’s internal credit risk rating of Understanding (“MOU”) with1 through 10. For more information on the DBO in 2015. See Item 7. MD&ACompany’s credit quality indicators and internal credit risk ratings, refer to Note 7 — Regulatory Matters Loans Receivable and Note 18 — Regulatory Requirements and Matters Allowance for Credit Lossesto the Consolidated Financial Statementsof the Company’s 2016 in this Form 10-K for further details.10-Q.




The Company believes that the Bank is making progress in executing the compliance plans and programs required by the Written Agreement and MOU, although there can be no assurances that our plans and progress 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 any 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 respect to the Bank and, if such further actions were taken, such actions could have a material adverse effect on the Bank. The operating and other conditions 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. 

Off-Balance Sheet Arrangements
In the course of the Company’s business, the Company may enter into or be a party to transactions that are not recorded on the Consolidated Balance Sheets and are considered to be off-balance sheet arrangements. Off-balance sheet arrangements are any contractual arrangements whereby an unconsolidated entity is a party, 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 unconsolidated 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.

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, SBLCs and financial guarantees. 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 the Company’s loan commitments, commercial letters of credit and SBLCscriticized loans as of SeptemberJune 30, 2017:2023 and December 31, 2022:
Change
($ in thousands)June 30, 2023December 31, 2022$%
Criticized loans:
Special mention loans$330,741 $468,471 $(137,730)(29)%
Classified loans (1)
481,051 427,509 53,542 13 %
Total criticized loans$811,792 $895,980 (2)$(84,188)(9)%
Special mention loans to loans held-for-investment0.66 %0.97 %
Classified loans to loans held-for-investment0.97 %0.89 %
Criticized loans to loans held-for-investment1.63 %1.86 %
(1)Consists of substandard, doubtful and loss categories.
(2)Excludes loans held-for-sale.

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($ in thousands) Commitments
Outstanding
Loan commitments $4,956,515
Commercial letters of credit and SBLCs $1,757,648
 


Nonperforming Assets
 A discussion
Nonperforming assets are comprised of significant contractual arrangements under whichnonaccrual 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. Nonperforming assets were $115.5 million or 0.17% of total assets as of June 30, 2023, an increase of $15.7 million or 16%, compared with $99.8 million or 0.16% of total assets as of December 31, 2022.

The following table presents nonperforming assets information as of June 30, 2023 and December 31, 2022:
Change
($ in thousands)June 30, 2023December 31, 2022$%
Commercial:
C&I$61,879 $50,428 $11,451 23 %
CRE:
CRE15,895 23,244 (7,349)(32)%
Multifamily residential4,703 169 4,534 NM
Total CRE20,598 23,413 (2,815)(12)%
Consumer:
Residential mortgage:
Single-family residential21,981 14,240 7,741 54 %
HELOCs11,051 11,346 (295)(3)%
Total residential mortgage33,032 25,586 7,446 29 %
Other consumer24 99 (75)(76)%
Total nonaccrual loans115,533 99,526 16,007 16 %
OREO, net— 270 (270)(100)%
Total nonperforming assets$115,533 $99,796 $15,737 16 %
Nonperforming assets to total assets
0.17 %0.16 %
Nonaccrual loans to loans held-for-investment0.23 %0.21 %
Allowance for loan losses to nonaccrual loans549.97 %598.48 %
NM — Not meaningful.

Loans are generally placed on nonaccrual status when they become 90 days past due or when the Company may be held contingently liablefull collection of principal or interest becomes uncertain regardless of the length of past due status. Collectability is included in 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 11 1 — Commitments and Contingencies to the Consolidated Financial Statements. In addition, the Company has commitments and obligations under post-retirement benefit plans as described in Note 15 Summary of Significant Accounting Policies — Employee Benefit Plans Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements ofin the Company’s 20162022 Form 10-K.

Nonaccrual loans were $115.5 million as of June 30, 2023, an increase of $16.0 million or 16% from $99.5 million as of December 31, 2022. This increase was predominantly due to an increase in commercial nonaccrual loans, partially offset by charge-offs of commercial loans. As of June 30, 2023, $68.1 million or 59% of nonaccrual loans were less than 90 days delinquent. In comparison, $68.3 million or 69% of nonaccrual loans were less than 90 days delinquent as of December 31, 2022.

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The following table presents the accruing loans past due by portfolio segment as of June 30, 2023 and December 31, 2022:
Total Accruing Past Due Loans (1)
ChangePercentage of Total Loans Outstanding
($ in thousands)June 30,
2023		December 31,
2022		$%June 30,
2023		December 31,
2022
Commercial:
C&I$5,638 $9,355 $(3,717)(40)%0.04 %0.06 %
CRE:
CRE15,189 14,185 1,004 7 %0.11 %0.10 %
Multifamily residential962 1,000 (38)(4)%0.02 %0.02 %
Construction and land21,552 — 21,552 100 %2.76 %— %
Total CRE37,703 15,185 22,518 148 %0.19 %0.08 %
Total commercial43,341 24,540 18,801 77 %0.12 %0.07 %
Consumer:
Residential mortgage:
Single-family residential31,952 25,653 6,299 25 %0.26 %0.23 %
HELOCs11,813 8,786 3,027 34 %0.63 %0.41 %
Total residential mortgage43,765 34,439 9,326 27 %0.31 %0.26 %
Other consumer983 3,192 (2,209)(69)%1.44 %4.18 %
Total consumer44,748 37,631 7,117 19 %0.31 %0.28 %
Total$88,089 $62,171 $25,918 42 %0.18 %0.13 %
(1)There were no accruing loans past due 90 days or more as of both June 30, 2023 and December 31, 2022.

Allowance for Credit Losses

The Company maintains the allowance for credit losses at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information on the policies, methodologies and judgments used to determine the allowance for credit losses, see Item 7. MD&A — Critical Accounting Estimates and Item 8. Financial Statements — Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Company’s 2022 Form 10-K, and has contractual obligations for future payments on debts, borrowings and lease obligations as detailed in ItemNote 7 — MD&A — Off-Balance Sheet ArrangementsLoans Receivable and Aggregate Contractual Obligations 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 Company’s 2016 Form 10-K.allowance for loan losses by loan portfolio segments and unfunded credit commitments as of June 30, 2023 and December 31, 2022:


June 30, 2023December 31, 2022
($ in thousands)Allowance Allocation% of Loan Type to Total LoansAllowance Allocation% of Loan Type to Total Loans
Allowance for loan losses
Commercial:
C&I$375,333 31 %$371,700 33 %
CRE:
CRE168,505 29 %149,864 29 %
Multifamily residential22,938 9 %23,373 10 %
Construction and land11,325 2 %9,109 1 %
Total CRE202,768 40 %182,346 40 %
Total commercial578,101 71 %554,046 73 %
Consumer:
Residential mortgage:
Single-family residential51,513 25 %35,564 23 %
HELOCs4,526 4 %4,475 4 %
Total residential mortgage56,039 29 %40,039 27 %
Other consumer1,260 0 %1,560 0 %
Total consumer57,299 29 %41,599 27 %
Total allowance for loan losses$635,400 100 %$595,645 100 %
Allowance for unfunded credit commitments$29,728 $26,264 
Total allowance for credit losses$665,128 $621,909 
Loans held-for-investment$49,828,364 $48,202,430 
Allowance for loan losses to loans held-for-investment1.28 %1.24 %
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Average loans held-for-investment$48,849,453 $44,625,760 $48,498,735 $43,375,718 
Annualized net charge-offs (recoveries) to average loans held-for-investment0.06 %(0.06)%0.03 %0.01 %


Asset Liability and MarketSecond quarter of 2023 net charge-offs were $7.5 million, or annualized 0.06% of average loans held-for-investment, compared with net recoveries of $6.6 million, or annualized 0.06% of average loans held-for-investment for the second quarter of 2022. First half of 2023 net charge-offs were $8.1 million or annualized 0.03% of average loans held-for-investment, compared with $1.7 million or annualized 0.01% of average loans held-for-investment for the first half of 2022. The increase in net charge-offs in the second quarter of 2023 was primarily driven by higher losses in our C&I portfolio. The increase in net charge-offs in the first half of 2023 was primarily driven by lower recoveries in our C&I portfolio.

Liquidity Risk Management

Liquidity

Liquidity refers torisk arises from the Company’s abilityinability to meet its contractualcustomer deposit withdrawals 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. Liquidity risk also considers the stability of deposits. 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 flow needs and requirementscollateral needs 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.

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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 strength for its subsidiaries. The ALCO regularly monitors the Company’s liquidity status and related management processes, and provides regular reports to the Board.Board of Directors. The Company’s 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 we believe is a relatively stable and low-cost source of funding. Our loans are funded by deposits, which amounted to $55.66 billion as of June 30, 2023, compared with $55.97 billion as of December 31, 2022. The Company’s loan-to-deposit ratio was 90% as of June 30, 2023, compared with 86% as of December 31, 2022.

In addition to deposits, the Company has access to various sources of wholesale financing, including borrowing capacity with the FHLB and Federal Reserve Bank of San Francisco (“FRBSF”), such as under the BTFP, unsecured federal funds lines of credit with various correspondent banks, and several master repurchase agreements with major brokerage companies to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute its business strategy. However, general financial market and economic conditions could impact our access and cost of external funding. Additionally, the Company’s access to capital markets is affected by the ratings received from various credit rating agencies.

Unencumbered loans and/or debt securities were pledged to the FHLB, the FRBSF discount window, and the FRBSF BTFP as collateral. The Company has 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. See Item 2— MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funding in this Form 10-Q for further details related to the Company’s funding sources. The Company believes its cash and cash equivalents and available borrowing capacity described below provide sufficient liquidity above its expected cash needs.

The Company maintains its source of liquidity in the form of cash and cash equivalents interest-bearing depositsand borrowing capacity with banksits eligible loans and available-for-sale investment securities. These assets totaled $5.10 billiondebt securities as collateral. The following table presents the Company’s total cash and $5.54 billion, accounting for 14%cash equivalents and 16% of total assets,borrowing capacity as of SeptemberJune 30, 20172023 and December 31, 2016, respectively. Traditional forms of funding such as customer deposits2022:
Change
($ in thousands)June 30, 2023December 31, 2022$%
Cash and cash equivalents$6,377,887 $3,481,784 $2,896,103 83 %
Interest-bearing deposits with banks17,169 139,021 (121,852)(88)%
Borrowing capacity:
FHLB12,846,387 12,773,996 72,391 1 %
FRBSF8,370,223 2,049,048 6,321,175 308 %
Unpledged available securities1,611,319 6,939,591 (5,328,272)(77)%
Federal funds facility941,000 1,136,000 (195,000)(17)%
Total$30,163,985 $26,519,440 $3,644,545 14 %

The Company’s total cash and borrowings augment these liquid assets. Total customer deposits amounted to $31.31cash equivalents and borrowing capacity totaled $30.16 billion as of SeptemberJune 30, 2017,2023, compared to $29.89with $26.52 billion as of December 31, 2016, of which core deposits comprised 81% of total deposits as of each of September 30, 2017 and December 31, 2016. As a means of augmenting the Company’s liquidity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and FRB, unsecured federal funds’ lines of credit with various correspondent banks for purchase of overnight funds, and several master repurchase agreements with major brokerage companies.2022. The Company’s available borrowing capacity with the FHLB and FRBincrease was $6.45 billion and $3.23 billion, respectively, as of September 30, 2017. The Bank’s unsecured federal funds’ lines of credit, subjectprimarily related to availability, totaled $731.0 million with correspondent banks as of September 30, 2017. The Company believes that its liquidity sources are sufficient to meet all reasonably foreseeable short-term and intermediate-term needs.
The Company experienced net cash inflows from operating activities of $665.0 million and $417.6 million during the nine months ended September 30, 2017 and 2016, respectively. The $247.4 millionan 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 incollateral available at 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,FRBSF and an increase in fair valuecash and cash equivalents, which was funded by borrowings from the BTFP in the first quarter of 2023. The BTFP was secured by pledged securities. The BTFP borrowings reflected the Company’s conservative liquidity management practices and were a cautionary measure in response to the volatility in the banking industry earlier in the year.

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Liquidity Risk — Cash Requirements. In the ordinary course of business, the Company enters contractual obligations that require future cash payments, including funding for customer deposit withdrawals, repayments for short- and long-term borrowings, and other cash commitments. For additional information on these obligations, see Note 9 — Deposits to the Consolidated Financial Statements in the Company’s 2022 Form 10-K, and Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements, Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities and Note 10— Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q.

The Company also has off-balance sheet arrangements which represent transactions that are not recorded on the Consolidated Balance Sheet. The Company’s off-balance sheet arrangements include (1) commitments to extend credit, such as loan commitments, commercial letters of credit for foreign and domestic trade, standby letters of credit (“SBLCs”), and financial guarantees, to meet the financing needs of its customers, (2) future interest rate swapsobligations related to customer deposits and options during the nineCompany’s borrowings, and (3) transactions with unconsolidated entities that provide financing, liquidity, market risk or credit risk support to the Company, or engage in leasing, hedging or research and development services with the Company. Because many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. The Company does not expect the total commitment amounts as of June 30, 2023 to have a material current or future impact on the Company’s financial conditions or results of operations. Information about the Company’s loan commitments, commercial letters of credit and SBLCs is provided in Note 11 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q.

The Consolidated Statement of Cash Flows summarizes the Company’s sources and uses of cash by type of activity for the six months ended SeptemberJune 30, 2016 contributing2023 and 2022. Excess cash generated by operating and investing activities may be used to repay outstanding debt or invest in liquid assets.

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 outflowsdividends 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 that period. The $76.2 million increase in net changes Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds in the cash flows from accrued expensesCompany’s 2022 Form 10-K. East West held $253.9 million 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$228.5 million in cash dividends paid. Netand cash inflows from financing activitiesequivalents as of $365.6 million duringJune 30, 2023 and December 31, 2022, respectively. Management believes that East West has sufficient cash and cash equivalents to meet the same periodprojected cash obligations for the coming year.

Liquidity Risk — Liquidity Stress Testing. The Company utilizes liquidity stress analysis to determine the appropriate amounts of liquidity to maintain at the Company, foreign subsidiary and foreign branch to meet contractual and contingent cash outflows under a range of scenarios. Scenario analyses include assumptions about significant changes in 2016key funding sources, market triggers, potential uses of funding and economic conditions in certain countries. In addition, Company-specific events are incorporated into the stress testing. For example, based on the Company’s analysis of the banking industry disruption in the first half of 2023, deposit runoffs were primarily comprisedassumed to be more front-loaded to trigger earlier remediation actions. Liquidity stress tests are conducted to ascertain potential mismatches between liquidity sources and uses over a variety of time horizons, both immediate and longer term, and over a $1.13 billion net increase in customer depositsvariety of stressed conditions. Given the range of potential stresses, the Company maintains contingency funding plans on a consolidated basis 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.for individual entities.


As of SeptemberJune 30, 2017,2023, the Company believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business, and is not aware of any trends, events or uncertainties that had or wereare reasonably likely to have a material adverse effect on its liquidity, position. Furthermore,capital resources or operations. Given the uncertain and rapidly changing market and economic conditions, the Company is not aware of any material commitments for capital expenditures will continue to actively evaluate the impact on its business and financial position. For more details on how economic conditions may impact our liquidity, see Item 1A. Risk Factors in the foreseeable future.Company’s 2022 Form 10-K.



Market Risk Management
East West’s liquidity has historically
Market risk refers to the risk of potential loss due to adverse movements in market risk factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company is primarily exposed to interest rate risk through its core business activities of extending loans and acquiring deposits. There have been dependent on the payment of cash dividends by its subsidiary, East West Bank, subject to applicable statutes, regulations and special approval. The Bank paid total dividends of $255.0 million and $100.0 million to East West during the nine months ended September 30, 2017 and 2016, respectively. In addition,no significant changes in October 2017, the Board declared a quarterly cash dividend of $0.20 per share forour risk management practices as described in Item 7. MD&A — Market Risk Management in the Company’s common stock payable on November 15, 2017 to stockholders of record on November 1, 2017.2022 Form 10-K.


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Interest Rate Risk Management


Interest rate risk results primarily from the Company’s traditional banking activities of gathering deposits and extending loans, and is the primaryrisk that market risk for the Company. Economic and financial conditions, movements in interest rates and consumer preferences 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. In addition, changesfluctuations in interest rates can influencehave a negative impact on the Company’s earnings and capital stemming from mismatches in the Company’s asset and liability cash flows primarily arising from customer-related activities such as lending and deposit-taking. The Company is subject to interest rate of principal prepayments on loansrisk because:

•Assets and speed of deposit withdrawals. Due toliabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;
•Assets and liabilities may reprice at the pricing term mismatchessame time but by different amounts;
•Short- and embedded options inherent in certain products, changes inlong-term market interest rates not onlymay change by different amounts. For example, the shape of the yield curve may affect expected near-term earnings, but also the economicyield of new loans and funding costs differently;
•The remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change. For example, if long-term mortgage interest rates increase sharply, mortgage-related products may pay down at a slower rate than anticipated, which could impact portfolio income and valuation; or
•Interest rates may have a direct or indirect effect on loan demand, collateral values, mortgage origination volume, and the fair 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 risk and no separate quantitative information concerning these risks is presented herein.other financial instruments.


With oversight by the Company’s Board, theThe ALCO coordinates the overall management of the Company’s interest rate risk. The ALCOrisk, meets regularly and is responsible for reviewingto review the Company’s open market positions and establishingestablishes policies to monitor and limit exposure to market risk. Management of interestInterest rate risk management is carried out primarily through strategies involving the Company’s investmentloan portfolio, debt 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 interestInterest 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 scenarios. The model includes the Company’s loans, investment securities, resale agreements, customer deposits and borrowing portfolios, including repurchase agreements. The 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 shiftagainst a baseline. The simulation model incorporates the market’s forward rate expectations 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. The Company incorporates both a static balance sheet and a forward growth balance sheet in order to perform these evaluations. Results of these various simulations are used to formulate and gauge strategies to achieve a desired risk profile within the Company’s capitalearning assets and liquidity guidelines.

liabilities. The net interest income simulation model is based on the actual maturity and re-pricingrepricing characteristics of the Company’s interest-rateinterest rate sensitive assets, liabilities, and related derivative contracts. The modeledIt also incorporates various assumptions, which management believes to be reasonable but may have a significant impact on the results.

Simulation results are highly sensitive todependent on input assumptions. To the deposit decayextent the actual behavior is different from the assumptions used for deposits that do not have specific maturities. The Company uses historical regression analysis ofin the Company’s internal deposit data as a guide to set deposit decay assumptions. In addition, the model is also highly sensitive to certain assumptions on the correlation of the changemodels, there could be material changes 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. The model is also sensitive to the loan and investment prepayment assumption. The loan and investment prepayment assumption, which considers the anticipated prepayments under different interest rate environments, is based on an independent model, as well as the Company’s historical prepayment experiences.

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.sensitivity results. The assumptions applied in the model are documented, supported, 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 testingperiodically back-tested to assess the impactreasonableness and effectiveness. For a more detailed discussion of the assumptions. Company’s interest income simulation model, refer to Item 7. MD&A — Market Risk Management in the Company’s 2022 Form 10-K.

The Company also makes appropriate calibrations when necessary. Scenarios do not reflect strategies that management could employFederal Reserve continued its aggressive response to limitinflation by incrementally raising the impact astarget range for the fed funds rate during the first half of 2023. On July 26, 2023 the Federal Reserve raised the target rate range to 5.25% to 5.50%.

Twelve-Month Net Interest Income Simulation

Net interest income simulation modeling measures interest rate expectations change. Simulation results are highly dependent on these assumptions. Torisk through earnings volatility. The simulation projects the extent actual behavior is different from the assumptions in the models, there could be a material changecash flow changes in interest rate sensitivity.sensitive assets and liabilities, expressed in terms of net interest income, over a specified time horizon for defined interest rate scenarios. Net interest income simulations provide insight into the impact of market rate changes on earnings, which help guide risk management decisions. The Company assesses interest rate risk by comparing the changes of net interest income in different interest rate scenarios.



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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 ofby 100 and 200 basis points in both directions:bps as of June 30, 2023 and December 31, 2022, based on a static balance sheet as of the date of the analysis.
Net Interest Income Volatility (1)
Change in Interest Rates (in bps)June 30, 2023December 31, 2022
+2003.9 %11.6 %
+1002.3 %5.9 %
-100(3.0)%(5.3)%
-200(6.3)%(8.6)%
 
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)(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.

Twelve-Month Net Interest Income Simulation

The Company’s estimated twelve-month net interest income change over a 12-month period in a stable interest rate environment versus in the various interest rate scenarios.

The composition of the Company’s loan portfolio creates sensitivity to interest rate movements due to a mismatch of repricing behavior between the floating-rate loan portfolio and deposit products. In the table above, net interest income volatility expressed in relation to base-case net interest income decreased as of SeptemberJune 30, 2017 was slightly lower compared2023. This decrease reflected updates to December 31, 2016 for both upwardthe deposit repricing assumptions and deposit product mix. Noninterest-bearing deposit account balances are assumed to be sensitive to interest rate levels and migrate to interest-bearing deposit accounts.

The Company also models scenarios based on gradual shifts in interest rates and assesses the corresponding impacts. These interest rate scenarios as simulated increases inprovide additional information to estimate the Company’s underlying interest rate risk. The rate ramp table below shows the net interest income are offset by an increase in the rate of repricing for the Company’s deposit portfolio. Involatility under a simulated downward interest rate scenario, sensitivity increased overall for bothgradual non-parallel shift of the downward interest rate scenarios, mainly due toyield curve, in even monthly increments over the impactfirst 12 months, followed by rates held constant thereafter based on a flat balance sheet as of the recent interest rate increases on December 14, 2016, March 15, 2017, anddate of the analysis.
Net Interest Income Volatility
Change in Interest Rates (in bps)June 30, 2023December 31, 2022
+200 Rate Ramp1.7 %6.3 %
+100 Rate Ramp0.9 %3.4 %
-100 Rate Ramp(1.1)%(2.4)%
-200 Rate Ramp(2.3)%(4.9)%

As of 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, and between 1.00% and 1.25% as of September 30, 2017. It should be noted that despite the two interest rate increases in 2017, as of September 30, 2017, the Company has not experienced this deposit movement, though there can be no assurance as to how long this is expected to last.

The following table presents2023, the Company’s net interest income sensitivityprofile reflects an asset sensitive position, where assets reprice more than liabilities. Net interest income is expected to increase when interest rates rise as the Company has a large population of Septembervariable rate loans, primarily tied to Prime and Term SOFR indices. The Company’s interest income is sensitive to changes in short-term interest rates. As of June 30, 2017 for2023, the +100 and +200 basis pointsCompany designated interest rate scenarios assumingcontracts with a $1.00notional amount of $5.25 billion $2.00 billionas cash flow hedges, which reduced net interest income volatility by approximately 1.6% of the base net interest income for every 100 bps change in interest rate. The Company’s deposit portfolio is primarily composed 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 modeled results are highly sensitive to deposit durations, beta, deposit mix and $3.00 billion demandother behavioral assumptions, which were derived using a combination of quantitative and qualitative approaches. Actual results may deviate from the model results in terms of net interest income due to earning asset growth variation and deposit migrations:mix changes based on customer preferences relative to the interest rate environment. During a period of declining interest rates, balance sheet growth could offset headwinds to net interest income from yield compression.
 
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


The Company’s EVE sensitivity increased asEconomic value of September 30, 2017, compared to December 31, 2016,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 both of the upward interest rate scenarios. In the simulated upward 100 basis pointsasset/liability management and 200 basis points interest rate scenarios, 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 was primarily due tomeasures changes in the balance sheet portfolio mix. EVE declined 3.7% and 9.6%economic value of the base level as of September 30, 2017 in declining rate scenarios of 100 and 200 basis points, respectively.bank.



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The Company’s net interest income and EVE profile as of September 30, 2017, as presented ineconomic value approach provides a comparatively broader scope than the net interest income volatility approach since it represents the discounted present value of cash flows over the expected life of the instruments. Due to this longer horizon, EVE is useful to identify risks arising from repricing, prepayment and maturity gaps between assets and liabilities on the balance sheet, as well as from off-balance sheet derivative exposure, over their lifetime. This long-term economic perspective into the Company’s interest rate risk profile allows the Company to identify anticipated negative effects of interest rate fluctuations.However, the difference in time horizons can cause the EVE tables, reflects an asset sensitiveanalysis to diverge from the shorter term net 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.analysis presented above. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, and the shape of the yield curve, and potential changes to the balance sheet, actual results may vary from those predicted by the Company’s model.


The following table presents the Company’s EVE sensitivity related to an instantaneous non-parallel shift in market interest rates by 100 and 200 bps as of June 30, 2023 and December 31, 2022:
EVE Volatility (1)
Change in Interest Rates (in bps)June 30, 2023December 31, 2022
+200(8.1)%(6.0)%
+100(3.5)%(2.9)%
-1001.5 %1.1 %
-2003.0 %2.3 %
(1)The percentage change represents net portfolio value change of the Company in a stable interest rate environment versus in the various interest rate scenarios.

As of June 30, 2023, the Company’s EVE is expected to decrease when interest rates rise. The change in EVE sensitivity was primarily due to updated deposit modeling assumptions, which decreased the duration of the non-maturity deposit portfolio.

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, enterperiodically enters into derivativesderivative transactions in order to reducemanage its exposure to market risks, includingrisk, primarily interest rate risk and foreign currency risk. The Company believes these derivative transactions, when properly structured and managed, may provide a hedge against inherent risk in certain assets orand liabilities andor against risk in specific transactions. Hedging transactions may be implemented using a variety of derivative instruments such as swaps, caps, floors, financial futures, forwards, options, and options.collars. The Company uses interest rate swaps to hedge the variability in interest received on certain floating-rate commercial loans and interest paid on certain floating-rate borrowings. Foreign exchange derivatives are used in net investment hedging strategies to mitigate the risk of changes in the U.S. dollar equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited. Prior to entering into any hedgingaccounting hedge activities, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies.

Interest Rate Swaps on Certificates of Deposit — As of September 30, 2017 and December 31, 2016, the The Company had two cancellable interest rate swap contracts with original terms of 20 years. The objective of these interest rate swaps, which were designated as fair value hedges, was to obtain low-cost floating rate fundingalso repositions its hedging derivatives portfolio 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, 2017its cash and December 31, 2016,derivative positions.

In addition, 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 million as of September 30, 2017 and December 31, 2016, respectively.

Interest Rate Swaps and Options — The Company also offers various interest rate derivative products to its customers. Whenenters into derivative transactions are executedin order to accommodate its customers with itstheir business needs or 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 are offset by paired tradesentered into with registered swap dealers. These contracts allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are not linked to specific Company assets or liabilities on the Consolidated Balance Sheets or to forecasted transactions in a hedge relationship and, therefore, are economic hedges.  The contracts are marked 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 the fair values of the client derivative contracts.

As of September 30, 2017, 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 were 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 option contracts with institutional counterparties and the Company’s customers amounted to a $64.8 million asset 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.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, primarily comprised of forward, swap and spot contracts to enable 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.

For a majority of the foreign exchange transactions entered with its customers, the Company enters into offsetting derivative contracts with third-party financial institutions, some of which are cleared through central clearing organizations. The exposures from derivative transactions are collateralized by cash and/or eligible securities based on limits as set forth in the respective agreements between the Company and counterparty financial institutions. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component in the contracts and the spread variances between the customer derivatives and the offsetting financial counterparty positions. The Company also utilizes foreign exchange contracts with institutional counterpartiesthat are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign exchange risk. These transactionscurrency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits offered to its customers.

97

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 economic hedgessensitive to market-induced changes. The Company’s Credit Risk Management Committee provides oversight of credit risk and the Company does not apply hedge accounting. The Company’s policies also permit taking proprietary currency positions within approvedhas guidelines in place to manage counterparty concentration, tenor limits, in compliance with the proprietary trading exemption provided under Section 619 of the Dodd-Frank Act.and collateral. The Company does not speculate inmanages 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, allow hedging of the foreign currencycredit risk of a net investment in a foreign operation. During the fourth quarter of 2015, the Company beganits derivative positions by diversifying its positions among various counterparties, by entering into foreign currency forwardlegally enforceable master netting agreements, 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 hedge its investment in East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. The hedging instruments, designatedbe cleared through central clearinghouses, to further mitigate counterparty credit risk, where variation margin is applied daily as net investment hedges, involve hedgingsettlement to 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 adverse changes in the foreign currency exchange rate. The notional amount and fair value of the net investmentderivative contracts. In addition, the Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect the counterparty’s and the Company’s own nonperformance risk in the fair value measurement of its derivatives. As of June 30, 2023, the Company anticipates performance by its counterparties and has not incurred any related credit losses.

The following table summarizes certain information on derivative instruments designated as accounting hedges were $83.0 million and a $4.3 million asset, respectively,utilized by the Company in its management of interest rate and foreign currency risk as of June 30, 2023 and December 31, 2016. Since recent policy changes by the People’s Bank of China, the central bank of the People’s Republic of China, as well as market sentiments have caused a divergence in the exchange2022:
June 30, 2023December 31, 2022
($ in thousands)
Interest Rate Contracts Hedging Loans (1)
Interest Rate Contracts Hedging Borrowings (2)
Interest Rate Contracts Hedging Loans (1)
Interest Rate Contracts Hedging Borrowings (2)
Cash flow hedges
Notional amount$5,000,000 (3)$— $3,000,000 (3)$200,000 
Weighted average:
Receive rate4.95 %NA4.91 %3.83 %
Pay rate7.10 %NA6.23 %0.48 %
Remaining term (in months)41.9 NA46.6 3.2 
($ in thousands)Foreign Exchange ContractsForeign Exchange Contracts
Net investment hedges
Notional amount$81,480$84,832
Hedged percentage (4)
43 %44 %
Remaining term (in months)8.7 2.6 
NA — Not applicable.
(1)Represents receive-fixed/pay-floating interest rate movements of the on-shore Chinese Renminbiswaps and off-shore Chinese Renminbi, the net investmentexcludes interest rate collars. Floating rates paid are based on one-month LIBOR, SOFR, or Prime.
(2)Represents receive-floating/pay-fixed interest rate swaps. Floating rate received was based on three-month LIBOR. The hedge relationships were dedesignatedwas terminated 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 included2023.
(3)Interest rate collars in the foreign exchange contracts’ notional amount of $1.13 billion and fair value$250.0 million designated to hedge loans were not included as of $14.2 million disclosed below.

As of Septemberboth June 30, 20172023 and December 31, 2016,2022.
(4)Represents percentage between the Company’s total notional amounts of theoutstanding 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 exchange 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.net RMB exposure from East West Bank (China) Limited.


Credit Risk Participation Agreements — The Company has entered into credit risk participation agreements (“RPAs”) under which the Company assumed its pro-rata share of the credit exposure associated with the borrower’s performance related to interest rate derivative 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.

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 ofin the Company’s 20162022 Form 10-K,, Note 4 3 —Fair Value Measurement and Fair Value of Financial Instruments, and Note 7 6 — Derivatives to the Consolidated Financial Statements.Statements in this Form 10-Q.


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Critical Accounting Policies and Estimates


SignificantThe Company’s significant accounting policies (see are described in Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements and Item 7. MD&A — Critical Accounting Policies and Estimates ofin the Company’s 20162022 Form 10-K)10-K. Certain of these policies include critical accounting estimates, which are fundamentalsubject to understanding the Company’s reported results. Some accounting policies, by their nature,valuation assumptions, subjective or complex judgments about matters that are inherently subject to estimation techniques, valuationuncertain, and it is likely that materially different amounts could be reported under different assumptions and other subjective assessments. In addition, some accounting policies require significant judgment in applying complex accounting principles to individual transactions to determine the most appropriate treatment.conditions. The Company has procedures and processes in place to facilitate making these judgments.



Certain The following accounting policies are consideredcritical to have a critical effect on the Company’s Consolidated Financial Statements in 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:Statements:


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

For additional information on the Company’s critical accounting estimates involving significant judgments, see Item 7. MD&A — Critical Accounting Estimates in the Company’s 2022 Form 10-K.
Recently Issued Accounting Standards
For detailed discussion and disclosure on new accounting pronouncements adopted and recent accounting pronouncements issued, see Note 2 — Current Accounting Developments
Reconciliation of GAAP to Non-GAAP Financial Measures

To supplement the Company’s unaudited interim Consolidated Financial Statements.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, or is subject to adjustments that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures discussed in this Form 10-Q are return on average TCE, adjusted efficiency ratio, and tangible book value per share. Certain additional non-GAAP financial measures that are components of the foregoing non-GAAP financial measures are also set forth and reconciled in the table below. 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.



The following tables present the reconciliations of U.S. GAAP to non-GAAP financial measures for the periods presented:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Net income(a)$312,031 $258,329 $634,470 $495,981 
Add: Amortization of core deposit intangibles440 488 881 999 
  Amortization of mortgage servicing assets342 364 698 756 
Tax effect of amortization adjustments (1)
(230)(245)(463)(505)
Tangible net income (non-GAAP)(b)$312,583 $258,936 $635,586 $497,231 
Average stockholders’ equity(c)$6,440,996 $5,682,427 $6,312,872 $5,762,078 
Less: Average goodwill(465,697)(465,697)(465,697)(465,697)
  Average other intangible assets (2)
(6,921)(8,827)(7,306)(9,016)
Average tangible book value (non-GAAP)(d)$5,968,378 $5,207,903 $5,839,869 $5,287,365 
Return on average common equity (3)
(a)/(c)19.43 %18.23 %20.27 %17.36 %
Return on average TCE (3) (non-GAAP)
(b)/(d)21.01 %19.94 %21.95 %18.96 %
(1)Applied statutory tax rate of 29.29% for the second quarter and first half of 2023. Applied statutory tax rate of 28.77% for the second quarter and first half of 2022.
(2)Includes core deposit intangibles and mortgage servicing assets.
(3)Annualized.

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Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)2023202220232022
Net interest income before provision for credit losses(a)$566,746 $472,952 $1,166,607 $888,565 
Total noninterest income78,631 78,444 138,609 158,187 
Total revenue(b)$645,377 $551,396 $1,305,216 $1,046,752 
Noninterest income78,631 78,444 138,609 158,187 
Add: Write-off of AFS debt security (1)
— — 10,000 — 
Adjusted noninterest income (non-GAAP)(c)78,631 78,444 148,609 158,187 
Adjusted revenue (non-GAAP)(a)+(c)=(d)$645,377 $551,396 $1,315,216 $1,046,752 
Total noninterest expense
(e)$261,789 $196,860 $480,236 $386,310 
Less: Amortization of tax credit and other investments(55,914)(14,979)(66,024)(28,879)
 Amortization of core deposit intangibles(440)(488)(881)(999)
 Repurchase agreements’ extinguishment cost (1)
— — (3,872)— 
Adjusted noninterest expense (non-GAAP)(f)$205,435 $181,393 $409,459 $356,432 
Efficiency ratio(e)/(b)40.56 %35.70 %36.79 %36.91 %
Adjusted efficiency ratio (non-GAAP)(f)/(d)31.83 %32.90 %31.13 %34.05 %
(1)During the first quarter of 2023, the Company recorded a $10.0 million pre-tax impairment write-off of an AFS debt security. In addition, the Company prepaid $300.0 million of repurchase agreements and incurred a debt extinguishment cost of $3.9 million.

($ and shares in thousands, except per share data)June 30, 2023December 31, 2022
Stockholders’ equity(a)$6,461,697 $5,984,612 
Less: Goodwill(465,697)(465,697)
  Other intangible assets (1)
(6,418)(7,998)
Tangible book value (non-GAAP)(b)$5,989,582 $5,510,917 
Number of common shares at period-end(c)141,484 140,948 
Book value per share(a)/(c)$45.67 $42.46 
Tangible book value per share (non-GAAP)(b)/(c)$42.33 $39.10 
(1)Includes core deposit intangibles and mortgage servicing assets.

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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 6 — 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 SeptemberJune 30, 2017,2023, 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 SeptemberJune 30, 2017.2023.


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 SeptemberJune 30, 2017,2023, that hashave materially affected or isare reasonably likely to materially affect the Company’s internal control over financial reporting.



101



PART II — OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

See Note 11—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 20162022 Form 10-K contains disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors. There hashave been no material changechanges to the Company’s risk factors as presented in the Company’s 20162022 Form 10-K.10-K, except as described below:



Risks Related to Our Operations

We may be impacted by the actions, soundness or creditworthiness of other financial institutions, which can cause disruption within the industry and increase expenses. (1)

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We execute transactions with various counterparties in the financial industry, including broker-dealers, commercial banks, and investment banks. Defaults or failures of financial services institutions and instability in the financial services industry in general can lead to market-wide liquidity problems, increased credit risk and withdrawals of uninsured deposits. The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in the first half of 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for us and many other financial institutions. These events have adversely impacted and could continue to adversely affect our business, results of operations, and financial condition, as well as the market price and volatility of our common stock.

The cost of resolving the recent bank failures is expected to lead to special assessments by the FDIC to replenish the DIF, pursuant to a rule the FDIC proposed on May 11, 2023. Such events may also increase the risk of a recession or lead to regulatory changes and initiatives that could adversely impact the Company. Changes to laws or regulations, or the impositions of additional restrictions through supervisory or enforcement activities, could have a material impact on our business. Regulatory changes could also adversely impact our ability to access funding, increase the cost of funding, limit our access to capital markets, and negatively impact our overall financial condition.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose us to enhanced liquidity risk.

A significant factor in the bank failures in the first half of 2023 appears to have been the proportion of the deposits held by each institution that exceeded applicable FDIC insurance limits, and the withdrawal of such deposits over a short period of time. If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated interest rates and financial industry instability. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowing generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates. In addition, because our AFS debt securities lose value when interest rates rise, our ability to cover liquidity needs from sale or pledging of these securities may be negatively impacted during periods of elevated interest rates. Under these circumstances, we may be required to access additional funding from other sources in order to manage our liquidity risk.

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 SeptemberJune 30, 2017.2023.



(1)    Represents an update to Item 1A. Risk Factors in the Company's 2022 Form 10-K under the heading, "The actions and soundness of other financial institutions could affect us."
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ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2023, none of the Company’s directors or Section 16 reporting officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of the SEC’s Regulation S-K).

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 filed with the Commission on September 17, 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 Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2008 (File No. 000-24939).]
3.1.4
Certificate of Designations of 8.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series A of the Registrant [Incorporated by reference to Exhibit 3.1 from Registrant’s Current Report on Form 8-K, filed with the Commission on April 30, 2008 (File No. 000-24939).]
3.1.5
Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series B of the Registrant [Incorporated by reference to Exhibit 3.1, 4.1 from Registrant’s Current Report on Form 8-K filed with the Commission on December 9, 2008 (File No. 000-24939).]
3.1.6
Certificate of Designations of Mandatorily Convertible Cumulative Non-Voting Perpetual Preferred Stock, Series C of the Registrant[IncorporatedbyreferencetoExhibit3.1, 4.1fromRegistrant’sCurrentReportonForm8-Kfiledwith the Commission on November 12, 2009 (File No. 000-24939).]
3.2
Amended and Restated Bylaws of the Registrant dated March 14, 2023 [Incorporated by reference to Exhibit 3.1 from Registrant’s Current Report on Form 8-K filed with the Commission on March 17, 2023 (File No. 000-24939).]
Exhibit No.Exhibit Description
31.1
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.

103
All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted.





GLOSSARY OF ACRONYMS

ALCOAFSAsset/Liability Committee
AMLAvailable-for-saleAnti-Money Laundering
AOCIHELOCAccumulated other comprehensive income (loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
BPBasis 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
ALCOAsset/Liability CommitteeHTMHeld-to-maturity
AOCIAccumulated other comprehensive (loss) incomeICSInsured cash sweep
ARRAlternative reference rateLCHLondon Clearing House
ASCAccounting Standards CodificationLGDLoss given default
ASUAccounting Standards UpdateLIBORLondon Interbank Offered Rate
BTFPBank Term Funding ProgramLTVLoan-to-value
C&ICommercial and industrialMD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MOUCECLMemorandum of UnderstandingCurrent expected credit lossesMMBTUMillion British thermal unit
Non-GAAPCFPBNon-Generally Accepted Accounting PrinciplesConsumer Financial Protection BureauNAVNet asset value
Non-PCICLONon-purchased credit impairedCollateralized loan obligationsNRSRONationally recognized statistical rating organizations
OREOCMEChicago Mercantile ExchangeOREOOther real estate owned
OTTICRAOther-than-temporary impairmentCommunity Reinvestment ActPDProbability of default
PCICREPurchased credit impairedCommercial real estateRMBChinese Renminbi
RPAsDIFDeposit Insurance FundROAReturn on average assets
EPSEarnings per shareROEReturn on average equity
ERMEnterprise risk managementRPACredit risk participation agreementsagreement
RSAsEVEEconomic value of equityRSURestricted stock awardsunit
RSUsFASBRestricted stock units
SBLCsFinancial Accounting Standards BoardSBLCStandby letters of credit
S&PFDICStandardFederal Deposit Insurance CorporationSECU.S. Securities and Poor’sExchange Commission
TDRsFHLBFederal Home Loan BankSOFRSecured Overnight Financing Rate
FILFinancial Institution LetterTCETangible Common Equity
FRBSFFederal Reserve Bank of San FranciscoTDRTroubled debt restructuringsrestructuring
U.S.FTPFunds transfer pricingU.S.United States
U.S. GAAPUnited States Generally Accepted Accounting PrinciplesUSDU.S. dollar
USDGDPU.S. DollarGross 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, 2017August 8, 2023
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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