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East West Bancorp
EWBC
#1399
Rank
$16.21 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$117.83
Share price
0.50%
Change (1 day)
22.23%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. East West Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q1

East West Bancorp - 10-Q quarterly report FY2021 Q1


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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 March 31, 2021

OR

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

For the transition period from to

Commission file number 000-24939

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

Delaware
(State or other jurisdiction of incorporation or organization)

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

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

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

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

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

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

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

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

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
    Number of shares outstanding of the issuer’s common stock on the latest practicable date: 141,863,399 shares as of April 30, 2021.


TABLE OF CONTENTS
Page
3
3
Consolidated Balance Sheet (Unaudited)
3
Consolidated Statement of Income (Unaudited)
4
Consolidated Statement of Comprehensive Income (Unaudited)
5
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
6
Consolidated Statement of Cash Flows (Unaudited)
7
9
1 — Basis of Presentation
9
2 — Current Accounting Developments
10
3 — Fair Value Measurement and Fair Value of Financial Instruments
11
4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements
21
5 — Securities
22
6 — Derivatives
26
7 — Loans Receivable and Allowance for Credit Losses
33
8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities
43
9 — Goodwill and Other Intangible Assets
45
10 — Commitments and Contingencies
46
11 — Stock Compensation Plans
47
12 — Stockholders’ Equity and Earnings Per Share
49
13 — Accumulated Other Comprehensive Income (Loss)
49
14 — Business Segments
50
15 — Subsequent Events
52
53
104
104
105
105
105
105
106
107
108
2

PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands, except shares)
(Unaudited)
March 31,
2021		December 31,
2020
(Unaudited)
ASSETS
Cash and due from banks$582,270 $592,117 
Interest-bearing cash with banks4,036,863 3,425,854 
Cash and cash equivalents4,619,133 4,017,971 
Interest-bearing deposits with banks741,923 809,728 
Assets purchased under resale agreements (“resale agreements”)2,160,038 1,460,000 
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $7,904,546 in 2021 and $5,470,523 in 2020; includes assets pledged as collateral of $590,858 in 2021 and $588,484 in 2020)
7,789,213 5,544,658 
Restricted equity securities, at cost 83,250 83,046 
Loans held-for-sale— 1,788 
Loans held-for-investment (net of allowance for loan losses of $607,506 in 2021 and $619,983 in 2020; includes assets pledged as collateral of $23,591,704 in 2021 and $23,263,517 in 2020)
38,981,242 37,770,972 
Investments in qualified affordable housing partnerships, net284,862 213,555 
Investments in tax credit and other investments, net361,438 266,525 
Premises and equipment (net of accumulated depreciation of $130,926 in 2021 and $127,884 in 2020)
102,120 103,251 
Goodwill465,697 465,697 
Operating lease right-of-use assets94,483 95,460 
Other assets1,190,747 1,324,262 
TOTAL$56,874,146 $52,156,913 
LIABILITIES
Deposits:
Noninterest-bearing$18,919,298 $16,298,301 
Interest-bearing30,627,838 28,564,451 
Total deposits49,547,136 44,862,752 
Short-term borrowings— 21,009 
Federal Home Loan Bank (“FHLB”) advances653,035 652,612 
Assets sold under repurchase agreements (“repurchase agreements”)300,000 300,000 
Long-term debt and finance lease liabilities152,195 151,739 
Operating lease liabilities101,828 102,830 
Accrued expenses and other liabilities834,925 796,796 
Total liabilities51,589,119 46,887,738 
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 167,716,333 and 167,240,600 shares issued in 2021 and 2020, respectively
168 167 
Additional paid-in capital1,865,933 1,858,352 
Retained earnings4,158,032 4,000,414 
Treasury stock, at cost 25,873,297 shares in 2021 and 25,675,371 shares in 2020
(649,066)(634,083)
Accumulated other comprehensive (loss) income (“AOCI”), net of tax(90,040)44,325 
Total stockholders’ equity5,285,027 5,269,175 
TOTAL$56,874,146 $52,156,913 
See accompanying Notes to Consolidated Financial Statements.

3

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
20212020
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees$342,008 $411,869 
AFS debt securities29,100 20,142 
Resale agreements6,099 5,625 
Restricted equity securities547 446 
Interest-bearing cash and deposits with banks3,632 11,108 
Total interest and dividend income381,386 449,190 
INTEREST EXPENSE
Deposits21,822 76,403 
Short-term borrowings
42 556 
FHLB advances3,069 4,166 
Repurchase agreements1,978 3,991 
Long-term debt and finance lease liabilities780 1,367 
Total interest expense27,691 86,483 
Net interest income before provision for credit losses353,695 362,707 
Provision for credit losses— 73,870 
Net interest income after provision for credit losses353,695 288,837 
NONINTEREST INCOME
Lending fees18,357 15,773 
Deposit account fees15,383 10,447 
Interest rate contracts and other derivative income16,997 7,073 
Foreign exchange income9,526 7,819 
Wealth management fees6,911 5,353 
Net gains on sales of loans1,781 950 
Gains on sales of AFS debt securities192 1,529 
Other investment income925 3,378 
Other income2,794 3,184 
Total noninterest income72,866 55,506 
NONINTEREST EXPENSE
Compensation and employee benefits107,808 101,960 
Occupancy and equipment expense15,922 17,076 
Deposit insurance premiums and regulatory assessments3,876 3,427 
Deposit account expense3,892 3,563 
Data processing4,478 3,826 
Computer software expense7,159 6,166 
Consulting expense1,475 1,217 
Legal expense1,502 3,197 
Other operating expense19,607 21,119 
Amortization of tax credit and other investments25,358 18,782 
Total noninterest expense191,077 180,333 
INCOME BEFORE INCOME TAXES235,484 164,010 
INCOME TAX EXPENSE30,490 19,186 
NET INCOME$204,994 $144,824 
EARNINGS PER SHARE (“EPS”)
BASIC$1.45 $1.00 
DILUTED$1.44 $1.00 
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC141,646 144,814 
DILUTED142,844 145,285 
See accompanying Notes to Consolidated Financial Statements.

4

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Net income$204,994 $144,824 
Other comprehensive (loss) income, net of tax:
Net changes in unrealized (losses) gains on AFS debt securities(133,448)27,453 
Net changes in unrealized gains on cash flow hedges432 — 
Foreign currency translation adjustments(1,349)(2,164)
Other comprehensive (loss) income(134,365)25,289 
COMPREHENSIVE INCOME$70,629 $170,113 
See accompanying Notes to Consolidated Financial Statements.

5

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

Common Stock and
Additional Paid-in Capital		Retained EarningsTreasury StockAOCI,
Net of Tax		Total
Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2020145,625,385 $1,826,512 $3,689,377 $(479,864)$(18,408)$5,017,617 
Cumulative-effect of change in accounting principle related to credit losses (1)
— — (97,967)— — (97,967)
Net income— — 144,824 — — 144,824 
Other comprehensive income— — — — 25,289 25,289 
Net activity of common stock pursuant to various stock compensation plans and agreements
281,396 7,272 — (7,609)— (337)
Repurchase of common stock pursuant to the Stock Repurchase Program(4,471,682)— — (145,966)— (145,966)
Cash dividends on common stock ($0.275 per share)
— — (40,475)— — (40,475)
BALANCE, MARCH 31, 2020141,435,099 $1,833,784 $3,695,759 $(633,439)$6,881 $4,902,985 
BALANCE, JANUARY 1, 2021141,565,229 $1,858,519 $4,000,414 $(634,083)$44,325 $5,269,175 
Net income— — 204,994 — — 204,994 
Other comprehensive income— — — — (134,365)(134,365)
Net activity of common stock pursuant to various stock compensation plans and agreements
277,807 7,582 — (14,983)— (7,401)
Cash dividends on common stock ($0.330 per share)
— — (47,376)— — (47,376)
BALANCE, MARCH 31, 2021141,843,036 $1,866,101 $4,158,032 $(649,066)$(90,040)$5,285,027 
(1)Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326) on January 1, 2020.
See accompanying Notes to Consolidated Financial Statements.

6

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $204,994 $144,824 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 37,490 31,186 
Amortization of premiums and accretion of discount , net5,770 (4,519)
Stock compensation costs7,817 7,209 
Deferred income tax benefit224 28 
Provision for credit losses— 73,870 
Net gains on sales of loans(1,781)(950)
Gains on sales of AFS debt securities(192)(1,529)
Loans held-for-sale:
Originations and purchases(5,718)(5,802)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale7,644 4,657 
Proceeds from distributions received from equity method investees2,505 973 
Net change in accrued interest receivable and other assets 185,677 (462,766)
Net change in accrued expenses and other liabilities(72,935)304,680 
Other net operating activities20 (158)
Total adjustments 166,521 (53,121)
Net cash provided by operating activities371,515 91,703 
CASH FLOWS FROM INVESTING ACTIVITIES  
Net (increase) decrease in:  
Investments in qualified affordable housing partnerships, tax credit and other investments(52,756)(27,581)
Interest-bearing deposits with banks29,000 (115,419)
Resale agreements:
Proceeds from paydowns and maturities223,952 250,000 
Purchases(923,990)— 
AFS debt securities:
Proceeds from sales46,397 306,463 
Proceeds from repayments, maturities and redemptions473,808 308,620 
Purchases(2,969,640)(987,130)
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment147,115 110,945 
Purchases(311,030)(133,185)
Other changes in loans held-for-investment, net(1,046,727)(1,116,358)
Purchases of premises and equipment(1,563)(916)
Proceeds from distributions received from equity method investees2,832 374 
Other net investing activities(1,307)(1,143)
Net cash used in investing activities(4,383,909)(1,405,330)
See accompanying Notes to Consolidated Financial Statements.

7

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

Three Months Ended March 31,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES  
Net increase in deposits4,559,929 1,374,287 
Net (decrease) increase in short-term borrowings(21,143)39,962 
Repayment of FHLB advances— (99,999)
Repayment of long-term debt and lease liabilities(315)(289)
Common stock:
Repurchase of common stocks pursuant to the Stock Repurchase Program— (145,966)
Stocks tendered for payment of withholding taxes(14,983)(7,609)
Cash dividends paid(48,213)(41,358)
Net cash provided by financing activities4,475,275 1,119,028 
Effect of exchange rate changes on cash and cash equivalents138,281 13,492 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 601,162 (181,107)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,017,971 3,261,149 
CASH AND CASH EQUIVALENTS, END OF PERIOD$4,619,133 $3,080,042 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest$29,680 $88,520 
Income taxes, net$— $2,904 
Noncash investing and financing activities:
Loans transferred from held-for-investment to held-for-sale$145,872 $110,223 
Loans transferred to other real estate owned (“OREO”) and other nonperforming assets$10,360 $23,394 


See accompanying Notes to Consolidated Financial Statements.

8

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

Note 1 — Basis of Presentation

East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Quarterly Report on Form 10-Q (“this Form 10-Q”) include the accounts of East West, East West Bank and East West’s subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of March 31, 2021, East West also has six wholly owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, the Trusts are not included on the Consolidated Financial Statements.

The unaudited interim Consolidated Financial Statements are presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and general practices in the banking industry. They reflect all adjustments that, in the opinion of management, are necessary for fair presentation of the interim Consolidated Financial Statements. Certain items on the Consolidated Financial Statements and notes for the prior periods have been reclassified to conform to the current period presentation.

The current period’s results of operations are not necessarily indicative of results that may be expected for any future interim period or for the year as a whole. Events subsequent to the Consolidated Balance Sheet date have been evaluated through the date the Consolidated Financial Statements are issued for inclusion in the accompanying Consolidated Financial Statements. The unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission on February 26, 2021 (the “Company’s 2020 Form 10-K”).

9

Note 2 — Current Accounting Developments

New Accounting Pronouncements Adopted
StandardRequired Date of AdoptionDescriptionEffect on Financial Statements
Standards Adopted in 2021
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent related ASU 2021-01, Reference Rate Reform (Topic 848): Scope

Effective for all entities from the dates of issuance through December 31, 2022.
In March 2020, the FASB issued an ASU related to contracts or hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued due to reference rate reform. This ASU provides temporary optional expedients and exceptions regarding the accounting requirements related to the modification of certain contracts, hedging relationships and other transactions that are affected by the reference rate reform. The guidance permits the Company to make a one-time election to sell and/or transfer qualifying held-to-maturity securities, and not to apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationships and the assessment of hedge effectiveness during the transition period. This one time election may be made at any time after March 12, 2020, but no later than December 31, 2022. In January 2021, the FASB issued ASU 2021-01 as subsequent amendments, which expanded the scope of Topic 848 to include all affected derivatives and clarified certain optional expedients and exceptions regarding the hedge accounting for derivative contracts affected by the discounting transition.

The amendments of this guidance could be elected retrospectively or prospectively to new modifications made on or after the date of issuance of this ASU, January 7, 2021.
The Company adopted this guidance on a prospective basis in January 2021. At the time of adoption, the guidance did not have a material impact on the Company’s Consolidated Financial Statements. The Company will continue to track the exposure as of each reporting period and to assess the impact as the reference rate transition occurs through the cessation of LIBOR.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
January 1, 2021

Early adoption is permitted on January 1, 2020.		This ASU simplifies the accounting for income taxes by removing certain exceptions to the existing guidance. This includes removing exceptions to: 1) the incremental approach for intraperiod tax allocation, 2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred tax liability when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In addition, this ASU simplifies the accounting for income taxes related to franchise taxes, the tax basis of goodwill and the method for recognizing an enacted change in tax laws. This ASU also specifies that an entity is not required to allocate the consolidated amount of tax expense to a legal entity that is not subject to tax in its separate financial statements. This ASU also makes improvements in the accounting for income taxes related to employee stock ownership plans and equity method investments in qualified affordable housing projects.

This guidance should be applied on either a retrospective, modified retrospective or prospective basis depending on the amendments.
The Company adopted this guidance in January 2021 using the transition guidance prescribed by this ASU. At the time of adoption, this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
10

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

Fair Value Determination

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Available-for-Sale Debt Securities — When available, the Company uses quoted market prices to determine the fair value of AFS debt securities, which are classified as Level 1. Level 1 AFS debt securities are comprised of U.S. Treasury securities. The fair value of other AFS debt securities is generally determined by independent external pricing service providers who have experience in valuing these securities or by taking the average quoted market prices obtained from independent external brokers. The valuations provided by the third-party pricing service providers are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, prepayment expectation and reference data obtained from market research publications. Inputs used by the third-party pricing service providers in valuing collateralized mortgage obligations and other securitization structures also include new issue data, monthly payment information, whole loan collateral performance, tranche evaluation and “To Be Announced” prices. In valuing securities issued by state and political subdivisions, inputs used by third-party pricing service providers also include material event notices.

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

When pricing is unavailable from third-party pricing service providers for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. These valuations are based on observable inputs in the current marketplace and are classified as Level 2. The Company periodically communicates with the independent external brokers to validate their pricing methodology. Information such as pricing sources, pricing assumptions, data inputs and valuation technique are reviewed.

11

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

Interest Rate Contracts — The Company enters into interest rate swap and option contracts that are not designated as hedging instruments with its borrowers to lock in attractive intermediate and long-term interest rates, resulting in the customer obtaining a synthetic fixed-rate loan. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certain variable interest rate borrowings. These interest rate swap contracts with institutional counterparties were designated as cash flow hedges. The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The fair value of the interest rate options, which consist of floors and caps, is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (rise above) the strike rate of the floors (caps). In addition, to comply with the provisions of ASC 820, Fair Value Measurement, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with the Company’s derivatives utilize model-derived credit spreads, which are Level 3 inputs. As of March 31, 2021 and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these interest rate contracts and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivative portfolios. The Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts to accommodate the business needs of its customers. For a majority of the foreign exchange contracts entered with its customers, the Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. The fair value is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts are classified as Level 2. As of March 31, 2021 and December 31, 2020, the Bank held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency contracts is determined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include spot rates and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

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

12

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

Commodity Contracts — The Company enters into energy commodity contracts in the form of swaps and options with its commercial loan customers to allow them to hedge against the risk of fluctuation in energy commodity prices. The fair value of the commodity option contracts is determined using the Black-Scholes model and assumptions that include expectations of future commodity price and volatility. The future commodity contract price is derived from observable inputs such as the market price of the commodity. Commodity swaps are structured as an exchange of fixed cash flows for floating cash flows. The fixed cash flows are predetermined based on the known volumes and fixed price as specified in the swap agreement. The floating cash flows are correlated with the change of forward commodity prices, which is derived from market corroborated futures settlement prices. The fair value of the commodity swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) based on the market prices of the commodity. As a result, the Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.
The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:
13

($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of March 31, 2021
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Fair Value
AFS debt securities:
U.S. Treasury securities$826,342 $— $— $826,342 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 1,194,005 — 1,194,005 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 1,169,391 — 1,169,391 
Residential mortgage-backed securities— 2,247,406 — 2,247,406 
Municipal securities— 420,065 — 420,065 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 281,027 — 281,027 
Residential mortgage-backed securities— 523,500 — 523,500 
Corporate debt securities— 496,643 — 496,643 
Foreign government bonds— 276,328 — 276,328 
Asset-backed securities— 63,040 — 63,040 
Collateralized loan obligations (“CLOs”)— 291,466 — 291,466 
Total AFS debt securities
$826,342 $6,962,871 $— $7,789,213 
Investments in tax credit and other investments:
Equity securities (1)
$22,233 $4,460 $— $26,693 
Total investments in tax credit and other investments
$22,233 $4,460 $— $26,693 
Derivative assets:
Interest rate contracts$— $319,049 $— $319,049 
Foreign exchange contracts— 39,562 — 39,562 
Credit contracts— 5 — 5 
Equity contracts— — 272 272 
Commodity contracts— 98,429 — 98,429 
Gross derivative assets$— $457,045 $272 $457,317 
Netting adjustments (2)
$— $(108,235)$— $(108,235)
Net derivative assets$— $348,810 $272 $349,082 
Derivative liabilities:
Interest rate contracts$— $230,290 $— $230,290 
Foreign exchange contracts— 27,287 — 27,287 
Credit contracts— 153 — 153 
Commodity contracts— 86,405 — 86,405 
Gross derivative liabilities$— $344,135 $— $344,135 
Netting adjustments (2)
$— $(186,687)$— $(186,687)
Net derivative liabilities$— $157,448 $— $157,448 
(1)Equity securities consist of mutual funds with readily determinable fair values. The Company invested in these mutual funds for CRA purposes.
(2)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.
14

($ in thousands)Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Fair Value
AFS debt securities:
U.S. Treasury securities$50,761 $— $— $50,761 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 814,319 — 814,319 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 1,153,770 — 1,153,770 
Residential mortgage-backed securities— 1,660,894 — 1,660,894 
Municipal securities— 396,073 — 396,073 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 239,842 — 239,842 
Residential mortgage-backed securities— 289,775 — 289,775 
Corporate debt securities— 405,968 — 405,968 
Foreign government bonds— 182,531 — 182,531 
Asset-backed securities— 63,231 — 63,231 
CLOs— 287,494 — 287,494 
Total AFS debt securities
$50,761 $5,493,897 $— $5,544,658 
Investments in tax credit and other investments:
Equity securities (1)
$22,548 $8,724 $— $31,272 
Total investments in tax credit and other investments
$22,548 $8,724 $— $31,272 
Derivative assets:
Interest rate contracts$— $489,132 $— $489,132 
Foreign exchange contracts— 30,300 — 30,300 
Credit contracts— 13 — 13 
Equity contracts— 585 273 858 
Commodity contracts— 82,451 — 82,451 
Gross derivative assets$— $602,481 $273 $602,754 
Netting adjustments (2)
$— $(101,512)$— $(101,512)
Net derivative assets$— $500,969 $273 $501,242 
Derivative liabilities:
Interest rate contracts$— $317,698 $— $317,698 
Foreign exchange contracts— 22,759 — 22,759 
Credit contracts— 206 — 206 
Commodity contracts— 84,165 — 84,165 
Gross derivative liabilities$— $424,828 $— $424,828 
Netting adjustments (2)
$— $(184,697)$— $(184,697)
Net derivative liabilities$— $240,131 $— $240,131 
(1)Equity securities consist of mutual funds with readily determinable fair values. The Company invested in these mutual funds for CRA purposes.
(2)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

15

For the three months ended March 31, 2021 and 2020, Level 3 fair value measurements that were measured on a recurring basis consisted of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity warrants for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Equity Contracts
Beginning balance$273 $421 
Total (losses) gains included in earnings (1)
(1)292 
Ending balance$272 $713 
(1)Includes unrealized (losses) gains of $(1) thousand and $292 thousand for the three months ended March 31, 2021 and 2020, respectively. The realized/unrealized gains (losses) of equity warrants are included 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 March 31, 2021 and December 31, 2020, respectively. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.
($ in thousands)Fair Value
Measurements
(Level 3)		Valuation
Technique		Unobservable
Inputs		Range of Inputs
Weighted-
Average (1)
March 31, 2021
Derivative assets:
Equity contracts$272 
Black-Scholes option pricing model
Equity volatility
48% — 56%
52%
Liquidity discount47%47%
December 31, 2020
Derivative assets:
Equity contracts$273 
Black-Scholes option pricing model
Equity volatility
46% — 61%
53%
Liquidity discount47%47%
(1)Weighted-average is calculated based on the fair value of equity warrants as of March 31, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis include certain individually evaluated loans held-for-investment, investments in qualified affordable housing partnerships, tax credit and other investments, OREO, loans held-for-sale, and other nonperforming assets. Nonrecurring fair value adjustments result from impairment on certain individually evaluated loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, 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 an individually evaluated loan is collateral-dependent, the fair value of the loan is determined based on the fair value of the underlying collateral, which may take the form of real estate, inventory, equipment, contracts or guarantees. The fair value of the underlying collateral is generally based on third-party appraisals, or an internal valuation if a third-party appraisal is not required by regulations, or unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches.

16

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, which includes the quarterly review of the financial statements, the annual review of tax returns of the investment entity, the annual review of the financial statements of the guarantor (if any) and a comparison of the actual performance of the investment against the financial projections prepared at the time when the investment was made. The Company assesses its tax credit and other investments for possible other-than-temporary impairment (“OTTI”) on an annual basis or when events or circumstances suggest that the carrying amount of the investments may not be realizable. These circumstances can include, but are not limited to the following factors:

•expected future cash flows that are less than the carrying amount of the investment;
•changes in the economic, market or technological environment that could adversely affect the investee’s operations; and
•other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

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

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

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

17

The following tables present the carrying amounts of assets that were still held and had fair value changes measured on a nonrecurring basis as of March 31, 2021 and December 31, 2020:
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of March 31, 2021
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value
Measurements
Loans held-for-investment:
Commercial:
Commercial and industrial (“C&I”)$— $— $143,630 $143,630 
Commercial real estate (“CRE”):
CRE— — 47,639 47,639 
Multifamily residential— — 2,332 2,332 
Construction and land— — 4,191 4,191 
Total commercial— — 197,792 197,792 
Consumer:
Residential mortgage:
Home equity lines of credit (“HELOCs”)— — 4,791 4,791 
Total consumer— — 4,791 4,791 
Total loans held-for-investment$— $— $202,583 $202,583 
($ in thousands)Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value
Measurements
Loans held-for-investment:
Commercial:
C&I$— $— $143,331 $143,331 
CRE:
CRE— — 42,894 42,894 
Total commercial— — 186,225 186,225 
Consumer:
Residential mortgage:
HELOCs— — 1,146 1,146 
Other consumer— — 2,491 2,491 
Total consumer— — 3,637 3,637 
Total loans held-for-investment$— $— $189,862 $189,862 
Investments in tax credit and other investments, net
$— $— $3,140 $3,140 
OREO (1)
$— $— $15,824 $15,824 
(1)Amounts are included in Other assets on the Consolidated Balance Sheet and represent the carrying value of OREO properties that were written down subsequent to their initial classification as OREO.
18

The following table presents the increase (decrease) in fair value of assets for which a nonrecurring fair value adjustment has been recognized for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Loans held-for-investment:
Commercial:
C&I$(5,309)$(21,501)
CRE:
CRE(7,062)(5)
Multifamily residential(16)— 
Construction and land(71)— 
Total commercial(12,458)(21,506)
Consumer:
Residential mortgage:
HELOCs(37)(193)
Other consumer— 2,491 
Total consumer
(37)2,298 
Total loans held-for-investment$(12,495)$(19,208)
Investments in tax credit and other investments, net
$— $150 
Other nonperforming assets$(3,890)$(300)

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 March 31, 2021 and December 31, 2020:
($ in thousands)Fair Value
Measurements
(Level 3)		Valuation
Techniques		Unobservable
Inputs		Range of 
Inputs
Weighted-
Average of Inputs (1)
March 31, 2021
Loans held-for-investment$108,918 Discounted cash flowsDiscount
4% — 15%
11%
$24,356 Fair value of collateralDiscount
10% — 20%
15%
$9,902 Fair value of collateralContract valueNMNM
$59,407 Fair value of propertySelling cost
8% — 26%
9%
December 31, 2020
Loans held-for-investment$104,783 Discounted cash flowsDiscount
3% — 15%
11%
$22,207 Fair value of collateralDiscount
10% — 26%
15%
$15,879 Fair value of collateralContract valueNMNM
$46,993 Fair value of propertySelling cost
7% — 26%
10%
Investments in tax credit and other investments, net
$3,140 Individual analysis of each investmentExpected future tax benefits and distributionsNMNM
OREO$15,824 Fair value of propertySelling cost8%8%
NM — Not meaningful.
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of March 31, 2021 and December 31, 2020.

19

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of March 31, 2021 and December 31, 2020, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable and mortgage servicing rights that are included in Other assets, and accrued interest payable that is included in Accrued expenses and other liabilities. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheet.
($ in thousands)March 31, 2021
Carrying
Amount		Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$4,619,133 $4,619,133 $— $— $4,619,133 
Interest-bearing deposits with banks$741,923 $— $741,923 $— $741,923 
Resale agreements$2,160,038 $— $2,152,392 $— $2,152,392 
Restricted equity securities, at cost$83,250 $— $83,250 $— $83,250 
Loans held-for-investment, net$38,981,242 $— $— $38,922,550 $38,922,550 
Mortgage servicing rights$5,506 $— $— $8,740 $8,740 
Accrued interest receivable$149,953 $— $149,953 $— $149,953 
Financial liabilities:
Demand, checking, savings and money market deposits$40,748,303 $— $40,748,303 $— $40,748,303 
Time deposits$8,798,833 $— $8,811,048 $— $8,811,048 
FHLB advances$653,035 $— $657,460 $— $657,460 
Repurchase agreements$300,000 $— $316,099 $— $316,099 
Long-term debt$147,445 $— $151,015 $— $151,015 
Accrued interest payable$9,966 $— $9,966 $— $9,966 
($ in thousands)December 31, 2020
Carrying
Amount		Level 1Level 2Level 3Estimated
Fair Value
Financial assets:
Cash and cash equivalents$4,017,971 $4,017,971 $— $— $4,017,971 
Interest-bearing deposits with banks$809,728 $— $809,728 $— $809,728 
Resale agreements$1,460,000 $— $1,464,635 $— $1,464,635 
Restricted equity securities, at cost$83,046 $— $83,046 $— $83,046 
Loans held-for-sale$1,788 $— $1,788 $— $1,788 
Loans held-for-investment, net$37,770,972 $— $— $37,803,940 $37,803,940 
Mortgage servicing rights$5,522 $— $— $8,435 $8,435 
Accrued interest receivable$150,140 $— $150,140 $— $150,140 
Financial liabilities:
Demand, checking, savings and money market deposits$35,862,403 $— $35,862,403 $— $35,862,403 
Time deposits$9,000,349 $— $9,016,884 $— $9,016,884 
Short-term borrowings$21,009 $— $21,009 $— $21,009 
FHLB advances$652,612 $— $659,631 $— $659,631 
Repurchase agreements$300,000 $— $317,850 $— $317,850 
Long-term debt$147,376 $— $150,131 $— $150,131 
Accrued interest payable$11,956 $— $11,956 $— $11,956 
20

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

Assets Purchased under Resale Agreements

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

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $1.31 billion and $1.16 billion as of March 31, 2021 and December 31, 2020, respectively. The weighted-average yields were 1.57% and 2.50% for the three months ended March 31, 2021 and 2020, respectively.

Loans Purchased under Resale Agreements — The Company participated in resale agreements collateralized with loans with multiple counterparties starting in the fourth quarter of 2020. Total loans purchased under resale agreements were $850.0 million and $300.0 million as of March 31, 2021 and December 31, 2020, respectively. The weighted-average yield was 2.02% for the three months ended March 31, 2021.

Assets Sold under Repurchase Agreements — As of March 31, 2021, the collateral for the repurchase agreements were comprised of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities and U.S. Treasury securities. Gross repurchase agreements were $300.0 million as of both March 31, 2021 and December 31, 2020. The weighted-average interest rates were 2.67% and 4.10% for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, all repurchase agreements will mature in 2023.

Balance Sheet Offsetting

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

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Gross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet
AssetsNet
Amount
Collateral Received
Resale agreements$2,160,038 $— $2,160,038 $(2,138,721)
(1)
$21,317 
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
LiabilitiesNet
Amount
Collateral Pledged
Repurchase agreements$300,000 $— $300,000 $(300,000)
(2)
$— 
21

($ in thousands)December 31, 2020
Gross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet
AssetsNet
Amount
Collateral Received
Resale agreements$1,460,000 $— $1,460,000 $(1,458,700)
(1)
$1,300 
Gross
Amounts
of Recognized
Liabilities		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet
LiabilitiesNet
Amount
Collateral Pledged
Repurchase agreements$300,000 $— $300,000 $(300,000)
(2)
$— 
(1)Represents the fair value of securities the Company has received under resale agreements, limited to the amount of the recognized asset due from each counterparty for presentation purposes. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.
(2)Represents the fair value of securities the Company has pledged under repurchase agreements, limited to the amount of the recognized liability due to each counterparty for presentation purpose. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

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

Note 5 — Securities

The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of AFS debt securities as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
AFS debt securities:
U.S. Treasury securities$841,711 $328 $(15,697)$826,342 
U.S. government agency and U.S. government-sponsored enterprise debt securities1,236,446 5,145 (47,586)1,194,005 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities1,178,238 16,407 (25,254)1,169,391 
Residential mortgage-backed securities2,271,645 17,026 (41,265)2,247,406 
Municipal securities417,676 7,348 (4,959)420,065 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities281,099 4,311 (4,383)281,027 
Residential mortgage-backed securities525,560 1,599 (3,659)523,500 
Corporate debt securities517,309 4,677 (25,343)496,643 
Foreign government bonds278,100 320 (2,092)276,328 
Asset-backed securities62,762 292 (14)63,040 
CLOs294,000 — (2,534)291,466 
Total AFS debt securities$7,904,546 $57,453 $(172,786)$7,789,213 
22

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

As of March 31, 2021 and December 31, 2020, the amortized cost of AFS debt securities excluded accrued interest receivables of $22.9 million and $22.3 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to AFS debt securities’ accrued interest receivable, see Note 1 — Summary of Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in the Company’s 2020 Form 10-K.

23

Unrealized Losses

The following tables present the fair value and the associated gross unrealized losses of the Company’s AFS debt securities, aggregated by investment category and the length of time that the securities have been in a continuous unrealized loss position as of March 31, 2021 and December 31, 2020.
($ in thousands)March 31, 2021
Less Than 12 Months12 Months or MoreTotal
Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$775,801 $(15,697)$— $— $775,801 $(15,697)
U.S. government agency and U.S. government sponsored enterprise debt securities954,894 (47,586)— — 954,894 (47,586)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities615,193 (25,203)3,474 (51)618,667 (25,254)
Residential mortgage-backed securities1,464,574 (41,264)358 (1)1,464,932 (41,265)
Municipal securities199,225 (4,959)— — 199,225 (4,959)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities114,971 (4,374)15,578 (9)130,549 (4,383)
Residential mortgage-backed securities391,444 (3,659)— — 391,444 (3,659)
Corporate debt securities347,934 (25,316)9,974 (27)357,908 (25,343)
Foreign government bonds155,299 (2,092)— — 155,299 (2,092)
Asset-backed securities11,904 (14)— — 11,904 (14)
CLOs— — 291,466 (2,534)291,466 (2,534)
Total AFS debt securities$5,031,239 $(170,164)$320,850 $(2,622)$5,352,089 $(172,786)
($ in thousands)December 31, 2020
Less Than 12 Months12 Months or MoreTotal
Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
AFS debt securities:
U.S. Treasury securities$352,521 $(1,260)$— $— $352,521 $(1,260)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities292,596 (5,656)3,543 (54)296,139 (5,710)
Residential mortgage-backed securities342,561 (1,611)— — 342,561 (1,611)
Municipal securities24,529 (88)— — 24,529 (88)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities58,738 (1,230)7,920 — 66,658 (1,230)
Residential mortgage-backed securities90,156 (506)— — 90,156 (506)
Corporate debt securities251,674 (3,645)9,798 (203)261,472 (3,848)
Foreign government bonds106,828 (1,460)— — 106,828 (1,460)
Asset-backed securities— — 34,104 (242)34,104 (242)
CLOs— — 287,494 (6,506)287,494 (6,506)
Total AFS debt securities$1,519,603 $(15,456)$342,859 $(7,005)$1,862,462 $(22,461)

24

As of March 31, 2021, the Company had a total of 291 AFS debt securities in a gross unrealized loss position with no credit impairment that were comprised primarily of 112 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, 41 U.S. government agency and U.S. government sponsored enterprise debt securities and 26 corporate debt securities. In comparison, as of December 31, 2020, the Company had a total of 104 AFS debt securities in a gross unrealized loss position with no credit impairment that were comprised primarily of 46 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities and 17 corporate debt securities.

Allowance for Credit Losses

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

The gross unrealized losses presented in the above tables were primarily attributable to yield curve movements and widened spreads. Securities that were in unrealized loss positions as of March 31, 2021 were mainly comprised of the following:

•U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities — The market value decline as of March 31, 2021 was primarily due to interest rate movement. Since these securities (issued by Fannie Mae, Ginnie Mae and Freddie Mac) are guaranteed or sponsored by agencies of the U.S. government, and the credit profiles are strong (rated Aaa, AA+ and AAA by Moody’s Investors Service (“Moody’s”), Standard and Poor's (“S&P”) and Fitch Ratings (“Fitch”), respectively), the Company expects to receive all contractual interest payments on-time, and believes the risk of credit losses on these securities is remote.
•U.S. government agency and U.S. government-sponsored enterprise debt securities — The market value decline as of March 31, 2021 was primarily due to interest rate movement. The securities consisted of the debt securities issued by:
–Federal Farm Credit Bank, Fannie Mae, Freddie Mac, and U.S. International Development Finance Corporation (rated Aaa, AA+ and AAA rated by Moody’s, S&P and Fitch, respectively).
–FHLB debt obligations (rated Aaa and AA+ rated by Moody’s and S&P, respectively).
As these securities are guaranteed or sponsored by the U.S. government and the credit profiles are strong, the Company expects to receive all contractual interest payments on time, and believes the risk of credit losses on these securities is remote.
•Corporate debt securities — The market value decline as of March 31, 2021 was primarily due to interest rate movement and the widening in spreads. Since credit profiles of the securities are strong (rated BBB- or higher by Moody’s, S&P, Kroll Bond Rating Agency and Fitch), and the contractual payments from these bonds have been and are expected to be received on time, the Company believes that the risk of credit losses on these securities is remote.

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

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

25

Realized Gains and Losses

The following table presents the gross realized gains and tax expense related to the sales of AFS debt securities for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Gross realized gains$192 $1,529 
Related tax expense$57 $452 

Contractual Maturities of Available-for-Sale Debt Securities

The following table presents the contractual maturities of AFS debt securities as of March 31, 2021. Expected maturities will differ from contractual maturities on certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.
($ in thousands)Amortized CostFair Value
Due within one year$1,403,404 $1,347,808 
Due after one year through five years688,387 681,602 
Due after five years through ten years1,427,893 1,414,362 
Due after ten years4,384,862 4,345,441 
Total AFS debt securities$7,904,546 $7,789,213 

As of March 31, 2021 and December 31, 2020, AFS debt securities with fair value of $590.9 million and $588.5 million, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.

Restricted Equity Securities

The following table presents the restricted equity securities on the Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Federal Reserve Bank of San Francisco (“FRBSF”) stock$59,453 $59,249 
FHLB stock23,797 23,797 
Total restricted equity securities$83,250 $83,046 

Note 6 — Derivatives

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

26

The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments on an aggregate basis as of March 31, 2021 and December 31, 2020. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of March 31, 2021 and December 31, 2020. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
($ in thousands)March 31, 2021December 31, 2020
Notional
Amount		Fair ValueNotional
Amount		Fair Value
Derivative
Assets 		Derivative
 Liabilities 		Derivative
Assets 		Derivative
 Liabilities 
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate contracts
$275,000 $— $1,258 $275,000 $— $1,864 
Net investment hedges:
Foreign exchange contracts
83,936 908 — 84,269 — 235 
Total derivatives designated as hedging instruments
$358,936 $908 $1,258 $359,269 $— $2,099 
Derivatives not designated as hedging instruments:
Interest rate contracts
$17,891,960 $319,049 $229,032 $18,155,678 $489,132 $315,834 
Foreign exchange contracts4,036,958 38,654 27,287 3,108,488 30,300 22,524 
Credit contracts76,992 5 153 76,992 13 206 
Equity contracts
— 272 — — 858 — 
Commodity contracts
— 98,429 86,405 — 82,451 84,165 
Total derivatives not designated as hedging instruments$22,005,910 $456,409 $342,877 $21,341,158 $602,754 $422,729 
Gross derivative assets/liabilities$457,317 $344,135 $602,754 $424,828 
Less: Master netting agreements(100,454)(100,454)(93,063)(93,063)
Less: Cash collateral received/paid(7,781)(86,233)(8,449)(91,634)
Net derivative assets/liabilities$349,082 $157,448 $501,242 $240,131 
(1)The Company held equity contracts in 18 private companies as of March 31, 2021. In comparison, the Company held equity contracts in two public companies and 17 private companies as of December 31, 2020.
(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 8,258 thousand barrels of crude oil and 102,996 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of March 31, 2021. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 6,321 thousand barrels of crude oil and 109,635 thousand MMBTUs of natural gas as of December 31, 2020. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

Derivatives Designated as Hedging Instruments

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

As of both March 31, 2021 and December 31, 2020, there were no fair value hedges or hedged certificates of deposit outstanding. There were no gains or losses recognized on the Consolidated Statement of Income related to the derivatives designated as fair value hedges for the three months ended March 31, 2021. The net gains recognized on interest rate swaps were $2.0 million and the net losses recognized on certificates of deposit were $1.4 million, both recorded in interest expense on the Consolidated Statement of Income for the three months ended March 31, 2020.

27

Cash Flow Hedges — The Company entered into interest rate swaps that were designated and qualified as cash flow hedges to limit the exposure to the variability in interest payments on certain floating rate borrowings. For cash flow hedges, the entire change in the fair value of the hedging instruments is recognized in AOCI and reclassified to earnings in the same period when the hedged cash flows impact earnings. Reclassified gains and losses on interest rate swaps are recorded in the same line item as the interest payments of the hedged long-term borrowings within Interest expense in the Consolidated Statements of Income. Considering the interest rates, yield curve and notional amounts as of March 31, 2021, the Company expected to reclassify an estimated $560 thousand of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

The following table presents the pre-tax changes in AOCI from cash flow hedges for the three months ended March 31, 2021 and 2020. The after-tax impact of cash flow hedges on AOCI is shown in Note 13 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.
($ in thousands)Three Months Ended March 31,
20212020
Gains recognized in AOCI$426 $— 
(Losses) reclassified from AOCI to interest expense$(177)$— 

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

The following table presents the after-tax (losses) gains recognized in AOCI on net investment hedges for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Gains recognized in AOCI$101 $1,004 

Derivatives Not Designated as Hedging Instruments

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

The following tables present the notional amounts and the gross fair values of interest rate derivative contracts outstanding as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Written options
$800,962 $— $544 
Purchased options
$800,962 $551 $— 
Sold collars and corridors
531,840 5,849 158 
Collars and corridors
531,840 160 5,888 
Swaps7,597,856 279,361 53,975 Swaps7,628,500 33,128 168,467 
Total
$8,930,658 $285,210 $54,677 
Total
$8,961,302 $33,839 $174,355 
28

($ in thousands)December 31, 2020
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Written options
$957,393 $— $115 
Purchased options
$957,393 $101 $15 
Sold collars and corridors
518,477 7,673 — 
Collars and corridors
518,477 — 7,717 
Swaps7,586,414 479,634 1,364 Swaps7,617,524 1,724 306,623 
Total
$9,062,284 $487,307 $1,479 
Total
$9,093,394 $1,825 $314,355 

In January 2018, the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments made to and received from LCH as settlements of derivatives, and not as collateral against derivatives. Included in the total notional amount of $8.96 billion of interest rate contracts entered into with financial counterparties as of March 31, 2021, was a notional amount of $2.93 billion of interest rate swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair value of $27.2 million and liability fair values of $116.2 million as of March 31, 2021. In comparison, included in the total notional amount of $9.09 billion of interest rate contracts entered into with financial counterparties as of December 31, 2020, was a notional amount of $2.98 billion of interest rate swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $1.3 million and liability fair values of $187.4 million as of December 31, 2020.

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forwards, spot, swap and option contracts to accommodate the business needs of its customers. The Company enters into offsetting foreign exchange contracts with third-party financial institutions to manage its foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. The Company also utilizes foreign exchange contracts, which are not designated as hedging instruments, to mitigate the economic effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily foreign currency-denominated deposits offered to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both March 31, 2021 and December 31, 2020.

The following tables present the notional amounts and the gross fair values of foreign exchange derivative contracts outstanding as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$2,468,974 $27,803 $21,835 Forwards and spot$168,942 $869 $494 
Swaps184,584 1,902 247 Swaps974,974 7,733 4,364 
Written options116,575 — 336 Purchased options116,575 336 — 
Collars3,167 — 11 Collars3,167 11 — 
Total$2,773,300 $29,705 $22,429 Total$1,263,658 $8,949 $4,858 
($ in thousands)December 31, 2020
Customer Counterparty($ in thousands)Financial Counterparty
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
Forwards and spot$1,522,888 $17,575 $17,928 Forwards and spot$145,197 $1,230 $273 
Swaps13,590 872 91 Swaps1,191,355 10,049 3,658 
Written options117,729 — 574 Purchased options117,729 574 — 
Total$1,654,207 $18,447 $18,593 Total$1,454,281 $11,853 $3,931 

29

Credit Contracts — The Company may periodically enter into RPA contracts with institutional counterparties to manage the credit exposure on interest rate contracts associated with syndicated loans. The Company may enter into protection sold or protection purchased RPAs. Under the RPAs, the Company will make or receive a payment if a borrower defaults on the related interest rate contract. Credit risk on RPAs is managed by monitoring the credit worthiness of the borrowers and institutional counterparties, which is based on the normal credit review process. The majority of the reference entities of the protection sold RPAs were investment grade as of March 31, 2021, while all were investment grade as of December 31, 2020. Assuming the underlying borrower referenced in the interest rate contracts defaulted as of March 31, 2021 and December 31, 2020, the maximum exposure of protection sold RPAs would be $4.9 million and $6.0 million, respectively. As of March 31, 2021 and December 31, 2020, the weighted-average remaining maturities of the outstanding protection sold RPAs were 3.3 years and 3.5 years, respectively.

The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. The following table presents the notional amounts and the gross fair values of RPAs sold and purchased outstanding as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Notional
Amount		Fair ValueNotional
Amount		Fair Value
AssetsLiabilitiesAssetsLiabilities
RPAs - protection sold$66,278 $— $153 $66,278 $— $206 
RPAs - protection purchased10,714 5 — 10,714 13 — 
Total RPAs$76,992 $5 $153 $76,992 $13 $206 

Equity Contracts — Periodically, as part of the Company’s loan origination process, the Company obtains warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The Company held warrants in 18 private companies as of March 31, 2021, and held warrants in two public companies and 17 private companies as of December 31, 2020. The total fair value of the warrants held in both public and private companies was $272 thousand and $858 thousand as of March 31, 2021 and December 31, 2020, respectively.

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

The following tables present the notional amounts and fair values of the commodity derivative positions outstanding as of March 31, 2021 and December 31, 2020:
($ and units in thousands)
March 31, 2021
Customer Counterparty
($ and units in thousands)
Financial Counterparty
Notional
Unit		Fair ValueNotional
Unit		Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Written options248 Barrels$211 $25 
Purchased options
248 Barrels$— $48 
Collars
2,361 Barrels11,181 219 
Collars
2,361 Barrels219 10,989 
Swaps
5,649 Barrels37,076 1,206 
Swaps
5,649 Barrels1,058 28,624 
Total
8,258 $48,468 $1,450 
Total
8,258 $1,277 $39,661 
Natural gas:
Natural gas:
Written options8,065 MMBTUs$52 $319 Purchased options8,065 MMBTUs$319 $52 
Collars
10,823 MMBTUs879 — 
Collars
14,023 MMBTUs— 555 
Swaps
84,108 MMBTUs28,878 18,449 
Swaps
91,790 MMBTUs18,556 25,919 
Total
102,996 $29,809 $18,768 
Total
113,878 $18,875 $26,526 
Total$78,277 $20,218 Total$20,152 $66,187 
30

($ and units in thousands)
December 31, 2020
Customer Counterparty
($ and units in thousands)
Financial Counterparty
Notional
Unit		Fair ValueNotional
Unit		Fair Value
AssetsLiabilitiesAssetsLiabilities
Crude oil:Crude oil:
Collars
2,022 Barrels$2,344 $2,193 
Collars
2,022 Barrels$2,217 $2,402 
Swaps
4,299 Barrels9,282 14,283 
Swaps
4,299 Barrels8,220 7,135 
Total
6,321 $11,626 $16,476 
Total
6,321 $10,437 $9,537 
Natural gas:
Natural gas:
Written options
597 MMBTUs$— $59 
Purchased options
597 MMBTUs$59 $— 
Collars
12,733 MMBTUs1,063 205 
Collars
16,293 MMBTUs205 813 
Swaps
96,305 MMBTUs32,073 27,238 
Swaps
103,973 MMBTUs26,988 29,837 
Total
109,635 $33,136 $27,502 
Total
120,863 $27,252 $30,650 
Total$44,762 $43,978 Total$37,689 $40,187 

Beginning in January 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook to legally characterize variation margin payments made to and received from CME as settlements of derivatives and not as collateral against derivatives. As of March 31, 2021, the notional quantities that cleared through CME totaled 1,320 thousand barrels of crude oil and 27,850 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in reductions to the gross derivative asset fair value of $897 thousand and to the liability fair value of $10.0 million as of March 31, 2021, to a net fair value of zero. In comparison, the notional quantities that cleared through CME totaled 1,275 thousand barrels of crude oil and 29,733 thousand MMBTUs of natural gas as of December 31, 2020. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction to the gross derivative asset fair value of $7.9 million and to the liability fair value of $3.7 million, respectively, as of December 31, 2020, to a net fair value of zero.

The following table presents the net gains (losses) recognized on the Company’s Consolidated Statement of Income related to derivatives not designated as hedging instruments for the three months ended March 31, 2021 and 2020:
($ in thousands)Classification on
Consolidated
Statement of Income		Three Months Ended March 31,
20212020
Derivatives not designated as hedging instruments:
Interest rate contracts
Interest rate contracts and other derivative income$13,901 $(7,011)
Foreign exchange contracts
Foreign exchange income
10,243 2,861 
Credit contractsInterest rate contracts and other derivative income45 (23)
Equity contractsLending fees311 309 
Commodity contractsInterest rate contracts and other derivative income169 24 
Net gains (losses)$24,669 $(3,840)

Credit Risk-Related Contingent Features — Certain over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit risk-related event. These events, which are defined by the existing derivative contracts, primarily relate to a downgrade in the credit rating of East West Bank to below investment grade. As of March 31, 2021, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $64.9 million, in which $64.9 million of collateral was posted to cover these positions. As of December 31, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $107.4 million, in which $106.8 million of collateral was posted to cover these positions. In the event that the credit rating of East West Bank had been downgraded to below investment grade, minimal additional collateral would have been required to be posted as of March 31, 2021 and December 31, 2020.

31

Offsetting of Derivatives

The following tables present the gross derivative fair values, the balance sheet netting adjustments and the resulting net fair values recorded on the consolidated balance sheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements with central counterparties, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability, after the application of netting; therefore instances of overcollateralization are not shown:
($ in thousands)As of March 31, 2021
Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet 		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$457,317 $(100,454)$(7,781)$349,082 $— $349,082 
 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$344,135 $(100,454)$(86,233)$157,448 $(64,816)$92,632 
($ in thousands)As of December 31, 2020
 Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet 		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$602,754 $(93,063)$(8,449)$501,242 $(35)$501,207 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the Consolidated Balance SheetNet Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities
$424,828 $(93,063)$(91,634)$240,131 $(221,150)$18,981 
(1)Includes $532 thousand and $1.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes $151 thousand and $220 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2021 and December 31, 2020, respectively.
(3)Gross cash collateral received under master netting arrangements or similar agreements were $11.9 million and $15.8 million as of March 31, 2021 and December 31, 2020, respectively. Of the gross cash collateral received, $7.8 million and $8.4 million were used to offset against derivative assets, respectively, as of March 31, 2021 and December 31, 2020.
(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $90.8 million and $91.6 million as of March 31, 2021 and December 31, 2020, respectively. Of the gross cash collateral pledged, $86.2 million and $91.6 million were used to offset against derivative liabilities, respectively, as of March 31, 2021 and December 31, 2020.
(5)Represents the fair value of security collateral received and pledged limited to derivative assets and liabilities that are subject to enforceable master netting arrangements or similar agreements. GAAP does not permit the netting of noncash collateral on the consolidated balance sheet but requires disclosure of such amounts.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to resale and repurchase agreements. Refer to Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q for additional information. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures on derivatives.
32

Note 7 — Loans Receivable and Allowance for Credit Losses

The following table presents the composition of the Company’s loans held-for-investment as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Commercial:
C&I (1)
$14,081,110 $13,631,726 
CRE:
CRE11,563,034 11,174,611 
Multifamily residential3,066,515 3,033,998 
Construction and land459,254 599,692 
Total CRE15,088,803 14,808,301 
Total commercial29,169,913 28,440,027 
Consumer:
Residential mortgage:
Single-family residential8,524,287 8,185,953 
HELOCs1,749,172 1,601,716 
Total residential mortgage10,273,459 9,787,669 
Other consumer145,376 163,259 
Total consumer10,418,835 9,950,928 
Total loans held-for-investment (2)
$39,588,748 $38,390,955 
Allowance for loan losses(607,506)(619,983)
Loans held-for-investment, net (2)
$38,981,242 $37,770,972 
(1)Includes Paycheck Protection Program (“PPP”) loans of $2.07 billion and $1.57 billion as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(76.9) million and $(58.8) million as of March 31, 2021 and December 31, 2020, respectively. Net origination fees related to PPP loans were $(34.3) million and $(12.7) million as of March 31, 2021 and December 31, 2020, respectively.

Loans held-for-investment accrued interest receivable was $106.6 million and $107.5 million as of March 31, 2021 and December 31, 2020, respectively, and is presented in Other assets on the Consolidated Balance Sheets. For the accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

Loans totaling $23.59 billion and $23.26 billion as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure borrowings and provide additional borrowing capacity from the FRBSF and the FHLB.

Credit Quality Indicators

All loans are subject to the Company’s credit review and monitoring. For the commercial portfolio, loans are risk rated based on an analysis of the borrower’s current payment performance or delinquency, repayment sources, financial and liquidity factors, including industry and geographic considerations. For the majority of the consumer portfolio, payment performance or delinquency is the driving indicator for the risk ratings. For the Company’s internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk rated 1 through 5 are assigned an internal risk rating of “Pass,” with loans risk rated 1 being fully secured by cash or U.S. government and its agencies. Pass loans have sufficient sources of repayment to repay the loan in full, in accordance with all terms and conditions. Loans assigned a risk rating of 6 have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating of “Special Mention.” Loans assigned a risk rating of 7 or 8 have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating of “Substandard.” Loans assigned a risk rating of 9 have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating of “Doubtful.” Loans assigned a risk rating of 10 are uncollectable and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating of “Loss.” Exposures categorized as criticized consist of special mention, substandard, doubtful and loss categories. The Company reviews the internal risk ratings of its loan portfolio on a regular and ongoing basis, and adjusts the ratings based on changes in the borrowers’ financial status and the collectability of the loans.

33

The following tables summarize the Company’s loans held-for-investment as of March 31, 2021 and December 31, 2020, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification.
($ in thousands)March 31, 2021
Term LoansRevolving Loans
Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
20212020201920182017Prior
Commercial:
C&I:
Pass$1,661,034 $3,043,315 $1,220,618 $385,813 $228,364 $280,748 $6,492,230 $29,327 $13,341,449 
Criticized (accrual)55,239 145,506 83,989 29,315 18,541 6,809 274,726 — 614,125 
Criticized (nonaccrual)288 1,540 17,422 21,368 14,858 2,797 67,263 — 125,536 
Total C&I1,716,561 3,190,361 1,322,029 436,496 261,763 290,354 6,834,219 29,327 14,081,110 
CRE:
CRE:
Pass664,626 2,303,031 2,354,998 2,253,230 1,284,384 2,128,975 193,541 24,104 11,206,889 
Criticized (accrual)28,915 34,902 63,620 25,343 61,238 91,993 — — 306,011 
Criticized (nonaccrual)— — — 42,067 5,868 2,199 — — 50,134 
Total CRE693,541 2,337,933 2,418,618 2,320,640 1,351,490 2,223,167 193,541 24,104 11,563,034 
Multifamily residential:
Pass160,470 764,482 762,001 470,223 352,094 488,260 5,889 — 3,003,419 
Criticized (accrual)— — 731 22,309 6,067 29,296 — — 58,403 
Criticized (nonaccrual)— — — 1,447 1,125 2,121 — — 4,693 
Total multifamily residential
160,470 764,482 762,732 493,979 359,286 519,677 5,889 — 3,066,515 
Construction and land:
Pass5,642 141,475 146,701 121,364 — 20,691 — — 435,873 
Criticized (accrual)3,481 — — — — — — — 3,481 
Criticized (nonaccrual)— — — — — 19,900 — — 19,900 
Total construction and land
9,123 141,475 146,701 121,364 — 40,591 — — 459,254 
Total CRE863,134 3,243,890 3,328,051 2,935,983 1,710,776 2,783,435 199,430 24,104 15,088,803 
Total commercial
2,579,695 6,434,251 4,650,080 3,372,479 1,972,539 3,073,789 7,033,649 53,431 29,169,913 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
669,660 2,427,430 1,704,855 1,385,623 956,307 1,360,015 — — 8,503,890 
Criticized (accrual)— — — 194 347 2,207 — — 2,748 
Criticized (nonaccrual) (1)
— — 1,205 1,038 2,246 13,160 — — 17,649 
Total single-family residential mortgage
669,660 2,427,430 1,706,060 1,386,855 958,900 1,375,382 — — 8,524,287 
HELOCs:
Pass— 690 548 3,235 4,319 14,931 1,458,199 255,538 1,737,460 
Criticized (accrual)— — — — — 1 287 547 835 
Criticized (nonaccrual)— — 151 188 4,019 1,838 449 4,232 10,877 
Total HELOCs— 690 699 3,423 8,338 16,770 1,458,935 260,317 1,749,172 
Total residential mortgage
669,660 2,428,120 1,706,759 1,390,278 967,238 1,392,152 1,458,935 260,317 10,273,459 
Other consumer:
Pass849 8,168 — — 1,830 83,547 48,455 — 142,849 
Criticized (nonaccrual)— — — — 2,492 — 35 — 2,527 
Total other consumer
849 8,168 — — 4,322 83,547 48,490 — 145,376 
Total consumer670,509 2,436,288 1,706,759 1,390,278 971,560 1,475,699 1,507,425 260,317 10,418,835 
Total
$3,250,204 $8,870,539 $6,356,839 $4,762,757 $2,944,099 $4,549,488 $8,541,074 $313,748 $39,588,748 

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($ in thousands)December 31, 2020
Term LoansRevolving Loans
Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost BasisTotal
Amortized Cost Basis by Origination Year
20202019201820172016Prior
Commercial:
C&I:
Pass$3,912,147 $1,477,740 $483,725 $245,594 $69,482 $245,615 $6,431,003 $29,487 $12,894,793 
Criticized (accrual)120,183 74,601 56,785 19,426 1,487 5,872 324,640 — 602,994 
Criticized (nonaccrual)2,125 25,267 22,240 18,787 4,964 1,592 58,964 — 133,939 
Total C&I4,034,455 1,577,608 562,750 283,807 75,933 253,079 6,814,607 29,487 13,631,726 
CRE:
CRE:
Pass2,296,649 2,402,136 2,310,748 1,328,251 732,694 1,529,681 173,267 19,064 10,792,490 
Criticized (accrual)47,459 63,654 43,447 98,259 2,094 80,662 — — 335,575 
Criticized (nonaccrual)— — 42,067 1,115 — 3,364 — — 46,546 
Total CRE2,344,108 2,465,790 2,396,262 1,427,625 734,788 1,613,707 173,267 19,064 11,174,611 
Multifamily residential:
Pass783,671 783,589 479,959 411,945 181,213 348,751 5,895 — 2,995,023 
Criticized (accrual)— 735 22,330 6,101 264 5,877 — — 35,307 
Criticized (nonaccrual)— — 1,475 — — 2,193 — — 3,668 
Total multifamily residential
783,671 784,324 503,764 418,046 181,477 356,821 5,895 — 3,033,998 
Construction and land:
Pass224,924 172,707 156,712 — 20,897 1,028 — — 576,268 
Criticized (accrual)3,524 — — — — 19,900 — — 23,424 
Criticized (nonaccrual)— — — — — — — — — 
Total construction and land
228,448 172,707 156,712 — 20,897 20,928 — — 599,692 
Total CRE3,356,227 3,422,821 3,056,738 1,845,671 937,162 1,991,456 179,162 19,064 14,808,301 
Total commercial
7,390,682 5,000,429 3,619,488 2,129,478 1,013,095 2,244,535 6,993,769 48,551 28,440,027 
Consumer:
Residential mortgage:
Single-family residential:
Pass (1)
2,385,853 1,813,200 1,501,660 1,021,707 523,170 921,714 — — 8,167,304 
Criticized (accrual)— 1,429 — — 119 1,034 — — 2,582 
Criticized (nonaccrual) (1)
— 226 812 1,789 1,994 11,246 — — 16,067 
Total single-family residential mortgage
2,385,853 1,814,855 1,502,472 1,023,496 525,283 933,994 — — 8,185,953 
HELOCs:
Pass1,131 880 2,879 5,363 8,433 13,475 1,328,919 225,810 1,586,890 
Criticized (accrual)— — 200 — 996 — 1,328 606 3,130 
Criticized (nonaccrual)— 151 285 4,617 164 1,962 — 4,517 11,696 
Total HELOCs1,131 1,031 3,364 9,980 9,593 15,437 1,330,247 230,933 1,601,716 
Total residential mortgage
2,386,984 1,815,886 1,505,836 1,033,476 534,876 949,431 1,330,247 230,933 9,787,669 
Other consumer:
Pass9,531 — — 1,830 — 83,255 66,136 — 160,752 
Criticized (accrual)16 — — — — — — — 16 
Criticized (nonaccrual)— — — 2,491 — — — — 2,491 
Total other consumer
9,547 — — 4,321 — 83,255 66,136 — 163,259 
Total consumer2,396,531 1,815,886 1,505,836 1,037,797 534,876 1,032,686 1,396,383 230,933 9,950,928 
Total
$9,787,213 $6,816,315 $5,125,324 $3,167,275 $1,547,971 $3,277,221 $8,390,152 $279,484 $38,390,955 
(1)As of March 31, 2021 and December 31, 2020, $647 thousand and $747 thousand of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a pass rating.

35

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns. During the three months ended March 31, 2021 and 2020, HELOCs totaling $44.3 million and $31.3 million, respectively, were converted to term loans. During the three months ended March 31, 2021 and 2020, there were no conversions of C&I revolving loans to term loans. Two CRE revolving loans of $5.0 million were converted to term loans during the three months ended March 31, 2021. There were no conversions of CRE revolving loans to term loans during the three months ended March 31, 2020.

Nonaccrual and Past Due Loans

Loans that are 90 or more days past due are generally placed on nonaccrual status, unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. Payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies for customers who otherwise would have moved into nonaccrual status. The following table presents the aging analysis of total loans held-for-investment as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Current
Accruing
Loans (1)
Accruing
Loans
30-59  Days
Past Due		Accruing
Loans
60-89  Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$13,923,524 $26,417 $5,633 $32,050 $125,536 $14,081,110 
CRE:
CRE11,473,405 5,688 33,807 39,495 50,134 11,563,034 
Multifamily residential3,061,822 — — — 4,693 3,066,515 
Construction and land439,354 — — — 19,900 459,254 
Total CRE14,974,581 5,688 33,807 39,495 74,727 15,088,803 
Total commercial28,898,105 32,105 39,440 71,545 200,263 29,169,913 
Consumer:
Residential mortgage:
Single-family residential8,493,416 9,827 2,748 12,575 18,296 8,524,287 
HELOCs1,735,692 1,769 834 2,603 10,877 1,749,172 
Total residential mortgage10,229,108 11,596 3,582 15,178 29,173 10,273,459 
Other consumer142,604 242 4 246 2,526 145,376 
Total consumer10,371,712 11,838 3,586 15,424 31,699 10,418,835 
Total$39,269,817 $43,943 $43,026 $86,969 $231,962 $39,588,748 

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($ in thousands)December 31, 2020
Current
Accruing
Loans (1)
Accruing
Loans
30-59 Days
Past Due		Accruing
Loans
60-89 Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$13,488,070 $8,993 $724 $9,717 $133,939 $13,631,726 
CRE:
CRE11,127,690 375 — 375 46,546 11,174,611 
Multifamily residential3,028,512 1,818 — 1,818 3,668 3,033,998 
Construction and land579,792 19,900 — 19,900 — 599,692 
Total CRE14,735,994 22,093 — 22,093 50,214 14,808,301 
Total commercial28,224,064 31,086 724 31,810 184,153 28,440,027 
Consumer:
Residential mortgage:
Single-family residential8,156,645 9,911 2,583 12,494 16,814 8,185,953 
HELOCs1,583,968 2,922 3,130 6,052 11,696 1,601,716 
Total residential mortgage
9,740,613 12,833 5,713 18,546 28,510 9,787,669 
Other consumer160,534 217 17 234 2,491 163,259 
Total consumer9,901,147 13,050 5,730 18,780 31,001 9,950,928 
Total$38,125,211 $44,136 $6,454 $50,590 $215,154 $38,390,955 
(1)As of March 31, 2021 and December 31, 2020, the “Current Accruing Loans” balance of loans in payment deferral programs offered in response to the COVID-19 pandemic which are performing according to their modified terms are generally not considered delinquent.

The following table presents the amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of March 31, 2021 and December 31, 2020. Nonaccrual loans may not have an allowance for credit losses if the loss expectation is zero as the loan balances are supported by the collateral value.
($ in thousands)March 31, 2021December 31, 2020
Commercial:
C&I$63,312 $62,040 
CRE:
CRE49,137 45,537 
Multifamily residential3,578 2,519 
Construction and land19,900 — 
Total CRE72,615 48,056 
Total commercial135,927 110,096 
Consumer:
Residential mortgage:
Single-family residential6,014 6,013 
HELOCs7,353 8,076 
Total residential mortgage13,367 14,089 
Other consumer2,491 2,491 
Total consumer15,858 16,580 
Total nonaccrual loans with no related allowance for loan losses$151,785 $126,676 

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Foreclosed Assets

Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $26.2 million in foreclosed assets as of March 31, 2021 compared with $19.7 million as of December 31, 2020. The Company commences the foreclosure process on consumer mortgage loans when a borrower becomes more than 120 days delinquent in accordance with Consumer Finance Protection Bureau guidelines. The carrying value of consumer real estate loans that were in the process of active or suspended foreclosure was $5.8 million and $4.1 million as of March 31, 2021 and December 31, 2020, respectively. The Company has suspended certain mortgage foreclosure activities in connection with our actions to support our customers during the COVID-19 pandemic.

Troubled Debt Restructurings

Troubled debt restructurings (“TDRs”) are individually evaluated, and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered. Since March 2020, the Company has implemented various commercial and consumer loan modification programs to provide its borrowers relief from the economic impacts of the COVID-19 pandemic. These COVID-related modifications are generally not classified as TDRs due to the relief under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Consolidated Appropriations Act, 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), and therefore are not included in the discussion below. Assistance provided in response to the COVID-19 pandemic could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those borrowers who would have otherwise moved into past due or nonaccrual status. See Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

The following table presents the additions to TDRs for the three months ended March 31, 2021 and 2020:
($ in thousands)Loans Modified as TDRs During the Three Months Ended March 31,
20212020
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Number
of
Loans		Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
   Investment (1)
Financial
   Impact (2)
Commercial:
C&I1$443 $433 $203 3$16,604 $15,735 $98 
Total1$443 $433 $203 3$16,604 $15,735 $98 
(1)Includes subsequent payments after modification and reflects the balance as of March 31, 2021 and 2020.
(2)Includes charge-offs and specific reserves recorded since the modification date.

The following table presents the TDR post-modification outstanding balances for the three months ended March 31, 2021 and 2020 by modification type:
($ in thousands)Modification Type During the Three Months Ended March 31,
20212020
Principal (1)
Principal
  and Interest (2)
Total
Principal (1)
Principal
  and Interest (2)
Total
Commercial:
C&I$433 $— $433 $4,564 $11,171 $15,735 
Total$433 $— $433 $4,564 $11,171 $15,735 
(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.

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After a loan is modified as 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 for which a subsequent payment default occurred during the three months ended March 31, 2021, which had been modified as TDR within the previous 12 months of its default, and were still in default as of March 31, 2021. In comparison, there were no TDRs that experienced payment default after modifications within the previous 12 months during the three months ended March 31, 2020.
($ in thousands)Loans Modified as TDRs that Subsequently Defaulted
During the Three Months Ended March 31,
2021
Number of
Loans		Recorded
Investment
Commercial:
C&I1 $11,538 
Total1 $11,538 

The amount of additional funds committed to lend to borrowers whose terms have been modified as TDRs was $2.2 million and $3.0 million as of March 31, 2021 and December 31, 2020, respectively.

Allowance for Credit Losses

The Company has an allowance framework under ASU 2016-13 for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets.

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

The process of the allowance for credit losses involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively evaluated. The collectively evaluated loans cover performing risk-rated loans and unfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the Company generally estimates expected credit losses on an individual basis. The individually assessed loans cover loans modified in a TDR, collateral-dependent loans, as well as, risk-rated loans that have been placed on nonaccrual status.

Allowance for Collectively Evaluated Loans

The allowance for collectively evaluated loans consists of a quantitative component that assesses many different risk factors that we consider in our models and a qualitative component that considers risk factors external to the models. Each of these components are described below.

Quantitative Component — The allowance for loan losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio, as well as an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the loans. The forward-looking information is limited to the reasonable and supportable period. These macroeconomic scenarios include variables that are considered key drivers of increases and decreases in credit losses. The Company utilizes a probability-weighted multiple scenario forecast approach. These scenarios may consist of a base forecast representing management's view of the most likely outcome, combined with downside and upside scenarios reflecting possible worsening or improving economic conditions. A probability-weighted average of these macroeconomic scenarios over a reasonable and supportable forecast period is incorporated into the quantitative models. If the loans’ life extends beyond the reasonable and supportable forecast period, then historical experience, or long-run macroeconomic trends is considered over the remaining life of the loans in estimation of the allowance for loan losses.

39

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 or rated financial assets;
•The Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices,
•Knowledge of the borrower’s operations;
•The quality of the Company’s credit review system;
•The experience, ability and depth of the Company’s management, lending staff and other relevant staff;
•The effect of other external factors such as the regulatory, legal and technological environments; and
•Actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates, including the actual and expected conditions of various market segments.

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 dependent on whether they are already reflected in quantitative loss estimates during the current period and the extent changes in these factors diverge from period to period. For the three months ended March 31, 2021 and 2020, there were no changes to the reasonable and supportable forecast period and reversion to historical loss experience method.

The following table provides key credit risk characteristics and macroeconomic variables that the Company uses to estimate the expected credit losses by portfolio segment:
Portfolio SegmentRisk CharacteristicsMacroeconomic Variables
C&IInternal risk rating; size and credit spread at origination, and time to maturityUnemployment rate, and two and ten year treasury spread
CRE, Multifamily residential, and Construction and landDelinquency status; maturity date; collateral value; property type, and geographic locationUnemployment rate; GDP, and U.S. Treasury rates
Single-family residential and HELOCsFICO; delinquency status; maturity date; collateral value, and geographic locationUnemployment rate; GDP, and home price index
Other consumerHistorical loss experience
Immaterial (1)
(1)Macroeconomic variables are included in the qualitative estimate.

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

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

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

Allowance for Loan Losses for the Consumer Loan Portfolio — For single-family residential and HELOC loans, 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. Within the reasonable and supportable period, the forecast of future economic conditions returns to long-run historical economic trends.

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

40

Qualitative Allowance for Collectively Evaluated Loans — While the Company’s allowance methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. The Company may hold additional qualitative reserves that are designed to provide coverage for losses attributable to such risk. The allowance for loan losses as of March 31, 2021 and December 31, 2020 also included qualitative adjustments for certain industry sectors, such as oil & gas, included as part of the C&I loan portfolio.

Allowance for Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case for certain nonaccrual or TDR loans, the Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and their fair value. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; and (3) the loan's observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan.

Collateral-Dependent Loans — When a loan is collateral dependent, the allowance is measured on an individual loan basis and is limited to the difference between the recorded value and fair value of the collateral less cost of disposal or sale. As of March 31, 2021, collateral-dependent commercial and consumer loans totaled $99.9 million and $16.6 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $97.2 million and $17.3 million as of December 31, 2020, respectively. The Company's commercial collateral-dependent loans were secured by real estate or other collateral. The Company's consumer collateral-dependent loans were all residential mortgage loans, secured by the underlying real estate. As of both March 31, 2021 and December 31, 2020, the collateral value of the properties securing each of these collateral-dependent loans, net of selling costs, exceeded the recorded value of the individual loans.

The following tables summarize the activity in the allowance for loan losses by portfolio segments for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period
$398,040 $163,791 $27,573 $10,239 $15,520 $2,690 $2,130 $619,983 
Provision for (reversal of) credit losses on loans
(a)3,839 (10,277)(1,391)8,592 376 22 (113)1,048 
Gross charge-offs(8,436)(7,195)(17)(71)(134)(45)(1)(15,899)
Gross recoveries760 80 1,242 329 77 3 2 2,493 
Total net (charge-offs) recoveries
(7,676)(7,115)1,225 258 (57)(42)1 (13,406)
Foreign currency translation adjustment(119)— — — — — — (119)
Allowance for loan losses, end of period
$394,084 $146,399 $27,407 $19,089 $15,839 $2,670 $2,018 $607,506 
41

($ in thousands)Three Months Ended March 31, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period
$238,376 $40,509 $22,826 $19,404 $28,527 $5,265 $3,380 $358,287 
Impact of ASU 2016-13 adoption
74,237 72,169 (8,112)(9,889)(3,670)(1,798)2,221 125,158 
Provision for (reversal of) credit losses on loans
(a)60,618 11,435 1,281 1,482 1,700 412 (2,272)74,656 
Gross charge-offs(11,977)(954)— — — — (26)(12,957)
Gross recoveries1,575 9,660 535 21 265 2 1 12,059 
Total net (charge-offs) recoveries
(10,402)8,706 535 21 265 2 (25)(898)
Foreign currency translation adjustment(200)— — — — — — (200)
Allowance for loan losses, end of period
$362,629 $132,819 $16,530 $11,018 $26,822 $3,881 $3,304 $557,003 

The following table summarizes the activities in the allowance for unfunded credit commitments for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$33,577 $11,158 
Impact of ASU 2016-13 adoption— 10,457 
Reversal of credit losses on unfunded credit commitments(b)(1,048)(786)
Allowance for unfunded credit commitments, end of period32,529 20,829 
Provision for credit losses(a) + (b)$— $73,870 

The allowance for credit losses as of March 31, 2021 was $640.0 million, a decrease of $13.6 million compared with $653.6 million as of December 31, 2020. The decrease in the allowance for credit losses was comprised of a net decrease of $12.5 million in the allowance for loan losses and a $1.1 million decrease in the allowance for unfunded credit commitments. The improved macroeconomic outlook resulted in an overall decrease in the required allowance for credit losses as of March 31, 2021, and no provision for credit losses was recorded for the three months ended March 31, 2021. The Company uses a multi-scenario approach in calculating the allowance for loan losses and applies management judgment to add qualitative factors for the impact of the COVID-19 pandemic on industry and CRE sectors that are affected by the pandemic.

The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. See Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit commitments.

Loans Held-for-Sale

As of March 31, 2021, the Company had no loans held-for-sale. As of December 31, 2020, loans held-for-sale of $1.8 million consisted of single-family residential loans. Refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements of the Company’s 2020 Form 10-K for additional details related to the Company’s loans held-for-sale.

42

Loan Transfers, Sales and Purchases

The Company purchases and sells loans in the secondary market in the ordinary course of business. Purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information about the carrying value of loans purchased for the held-for-investment portfolio, loans sold and loans transferred during the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31, 2021
CommercialConsumerTotal
C&ICREResidential Mortgage
CREMultifamily
Residential		Single-Family
Residential
Loans transferred from held-for-investment to held-for-sale (1)
$125,840 $20,032 $— $— $145,872 
Sales (2)(3)(4)
$125,879 $20,032 $— $7,506 $153,417 
Purchases (5)
$178,678 $— $370 $131,800 $310,848 
($ in thousands)Three Months Ended March 31, 2020
CommercialConsumerTotal
C&ICREResidential Mortgage
CREMultifamily
Residential		Single-Family
Residential
Loans transferred from held-for-investment to held-for-sale (1)
$102,973 $7,250 $— $— $110,223 
Sales (2)(3)(4)
$102,973 $7,250 $— $4,642 $114,865 
Purchases (5)
$130,583 $— $1,513 $1,084 $133,180 
(1)Includes write-downs of $39 thousand to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three months ended March 31, 2021. There were no write-downs for the three months ended March 31, 2020.
(2)Includes originated loans sold of $131.0 million and $114.9 million for the three months ended March 31, 2021 and 2020, respectively. Originated loans sold consisted primarily of C&I loans for both periods.
(3)Includes $22.4 million of purchased loans sold in the secondary market for the three months ended March 31, 2021. There were no purchased loans sold in the secondary market for the three months ended March 31, 2020.
(4)Net gains on sales of loans were $1.8 million and $950 thousand for the three months ended March 31, 2021 and 2020, respectively.
(5)C&I loan purchases were comprised primarily of syndicated C&I term loans.

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

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

Investments in Qualified Affordable Housing Partnerships, Net

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

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The following table presents the Company’s investments in qualified affordable housing partnerships, net, and related unfunded commitments as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Investments in qualified affordable housing partnerships, net$284,862 $213,555 
Accrued expenses and other liabilities — Unfunded commitments$142,103 $77,444 

The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Tax credits and other tax benefits recognized$11,028 $11,031 
Amortization expense included in income tax expense
$8,712 $8,384 

Investments in Tax Credit and Other Investments, Net

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

The following table presents the Company’s investments in tax credit and other investments, net, and related unfunded commitments as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Investments in tax credit and other investments, net$361,438 $266,525 
Accrued expenses and other liabilities — Unfunded commitments$192,644 $105,282 

Amortization of tax credit and other investments was $25.4 million and $18.8 million for the three months ended March 31, 2021 and 2020, respectively.

The Company held equity securities that are mutual funds with readily determinable fair values of $26.7 million and $31.3 million, as of March 31, 2021 and December 31, 2020, respectively. The Company invested in these mutual funds for CRA purposes. These equity securities were measured at fair value with changes in fair value recorded in net income. For these investments, the Company recorded a $497 thousand unrealized loss compared to a $38 thousand unrealized gain during the three months ended March 31, 2021 and 2020, respectively. Equity securities with readily determinable fair value were included in Investments in tax credit and other investments, net on the Consolidated Balance Sheet.

The Company held equity securities without readily determinable fair values totaling $27.2 million and $23.7 million as of March 31, 2021 and December 31, 2020, respectively, which were measured using the measurement alternative at cost less impairment and adjusted for observable price changes. For the three months ended March 31, 2021 and 2020, there were no adjustments made to these securities. Equity securities without readily determinable fair values were included in Investments in tax credit and other investments, net and Other assets on the Consolidated Balance Sheet.

Tax credit investments are evaluated for possible OTTI on an annual basis or when events or changes in circumstances suggest that the carrying amount of the tax credit investments may not be realizable. OTTI charges are recorded within Amortization of tax credit and other investments, net on the Consolidated Statement of Income. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments. For the three months ended March 31, 2021, the Company recorded an impairment recovery of $374 thousand related to one historic tax credit and recorded no OTTI charge within Amortization of tax credit and other investments on the Consolidated Statement of Income. In comparison, the Company recorded an impairment recovery of $150 thousand related to one historic tax credit and recorded no OTTI charge for the three months ended March 31, 2020.

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Variable Interest Entities

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

Special purpose entities formed in connection with securitization transactions are generally considered VIEs. A CLO is a VIE that purchases a pool of assets consisting primarily of non-investment grade corporate loans, and issues multiple tranches of notes to investors to fund the asset purchases and pay upfront expenses associated with forming the CLO. The Company served as the collateral manager of a CLO that closed in 2019 and subsequently reassigned its portfolio manager responsibilities in 2020. The Company retained the top 3 investment grade-rated tranches issued by the CLO, for which the total carrying amount was $291.5 million and $287.5 million as of March 31, 2021 and December 31, 2020, respectively.

Note 9 — Goodwill and Other Intangible Assets

Goodwill

Total goodwill was $465.7 million as of both March 31, 2021 and December 31, 2020. The Company’s annual goodwill impairment testing is performed as of December 31 of each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Additional information pertaining to our accounting policy for goodwill is summarized in Note 1 — Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets to the Consolidated Financial Statements of the Company’s 2020 Form 10-K. The Company completed an annual goodwill impairment testing as of December 31, 2020, and determined there was no goodwill impairment.

As of March 31, 2021, while COVID-19 cases have begun to ease from the January 2021 peak, the spread of new, more contagious variants could impact the magnitude and duration of this health crisis. However, ongoing virus containment efforts and vaccination progress, as well as the possibility of further government stimulus, could accelerate the macroeconomic recovery. The Company conducted a qualitative interim impairment test as of March 31, 2021, and concluded goodwill was not impaired. There were no changes in the carrying amount of goodwill during the three months ended March 31, 2021 and 2020.

Core Deposit Intangibles

The following table presents the gross carrying amount of core deposit intangible assets and accumulated amortization as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Gross balance (1)
$86,099 $86,099 
Accumulated amortization (1)
(80,454)(79,722)
Net carrying balance (1)
$5,645 $6,377 
(1)Excludes fully amortized core deposit intangible assets.

There were no impairment write-downs of the core deposit intangibles for the three months ended March 31, 2021 and 2020.

Amortization Expense

The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $732 thousand and $953 thousand for the three months ended March 31, 2021 and 2020, respectively.

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The following table presents the estimated future amortization expense of core deposit intangibles as of March 31, 2021:
($ in thousands)Amount
Remainder of 2021$2,017 
20221,865 
20231,199 
2024553 
202511 
Total$5,645 

Note 10 — Commitments and Contingencies

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

The following table presents the Company’s credit-related commitments as of March 31, 2021 and December 31, 2020:
($ in thousands)March 30, 2021December 31, 2020
Expire in One Year or LessExpire After One Year Through Three YearsExpire After Three Years Through
Five Years		Expire After Five YearsTotalTotal
Loan commitments$3,090,244 $1,943,216 $638,815 $172,171 $5,844,446 $5,690,917 
Commercial letters of credit and SBLCs1,263,991 398,670 166,496 513,202 2,342,359 2,240,813 
Total$4,354,235 $2,341,886 $805,311 $685,373 $8,186,805 $7,931,730 

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

Commercial letters of credit are issued to facilitate domestic and foreign trade transactions, while SBLCs are generally contingent upon the failure of the customers to perform according to the terms of the underlying contract with the third party. As a result, the total contractual amounts do not necessarily represent future funding requirements. The Company’s historical experience is that SBLCs typically expire without being funded. Additionally, in many cases, the Company holds collateral in various forms against these SBLCs. As part of its risk management activities, the Company monitors the creditworthiness of customers in conjunction with its SBLC exposure. Customers are obligated to reimburse the Company for any payment made on the customers’ behalf. If the customers fail to pay, the Company would, as applicable, liquidate the collateral and/or offset accounts. As of March 31, 2021, total letters of credit of $2.34 billion consisted of SBLCs of $2.22 billion and commercial letters of credit of $125.0 million. As of December 31, 2020, total letters of credit of $2.24 billion consisted of SBLCs of $2.12 billion and commercial letters of credit of $124.9 million.

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

Estimated exposure to loss from these commitments is included in the allowance for unfunded credit commitments and amounted to $32.4 million and $33.5 million as of March 31, 2021 and December 31, 2020, respectively.

46

Guarantees — From time to time, the Company sells or securitizes single-family and multifamily residential loans with recourse in the ordinary course of business. The Company is obligated to repurchase up to the recourse percentage of the loans if the loans default. The following table presents the carrying amounts of loans sold or securitized with recourse and the maximum potential future payments as of March 31, 2021 and December 31, 2020:
($ in thousands)Maximum Potential Future PaymentsCarrying Value
March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Expire After One Year Through Three YearsExpire After Three Years Through
Five Years		Expire After Five YearsTotalTotalTotalTotal
Single-family residential loans sold or securitized with recourse$392 $369 $9,525 $10,286 $10,526 $10,286 $10,526 
Multi-family residential loans sold or securitized with recourse195 — 14,995 15,190 15,672 25,117 26,619 
Total $587 $369 $24,520 $25,476 $26,198 $35,403 $37,145 

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit commitments and totaled $83 thousand and $88 thousand as of March 31, 2021 and December 31, 2020, respectively. The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. The Company continues to experience minimal losses from the single-family and multifamily residential loan portfolios sold or securitized with recourse.

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

Other Commitments — The Company has commitments to invest in qualified affordable housing partnerships, tax credit and other investments as discussed in Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities to the Consolidated Financial Statements in this Form 10-Q. As of March 31, 2021 and December 31, 2020, these commitments were $334.7 million and $182.7 million, respectively. These commitments are included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Note 11 — Stock Compensation Plans

Pursuant to the Company’s 2016 Stock Incentive Plan, as amended, the Company may issue stocks, stock options, restricted stock, restricted stock units (“RSUs”), stock purchase warrants, stock appreciation rights, phantom stock and dividend equivalents to eligible employees, non-employee directors, consultants, and other service providers of the Company and its subsidiaries. The Company has granted RSUs as its primary incentive awards. Stock options have not been issued during the last three years and no stock options were outstanding as of both March 31, 2021 and December 31, 2020.

The following table presents a summary of the total share-based compensation expense and the related net tax benefits (deficiencies) associated with the Company’s various employee share-based compensation plans for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Stock compensation costs$7,817 $7,209 
Related net tax benefits (deficiencies) for stock compensation plans$1,620 $(1,566)

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Restricted Stock Units — RSUs are granted under the Company’s long-term incentive plan at no cost to the recipient. RSUs generally cliff vest after three years of continued employment from the date of the grant, and are authorized to settle predominantly in shares of the Company’s common stock. Certain RSUs are settled in cash. Dividend are accrued during the vesting period and paid at the time of vesting. While a portion of RSUs are time-based vesting awards, others vest subject to the attainment of specified performance goals referred to as “performance-based RSUs.” Performance-based RSUs are granted annually upon approval by the Company’s Compensation Committee based on the performance in the year prior to the grant date of the award. The number of awards that vest can range from zero to a maximum of 200% of the granted number of awards based on the Company’s achievement of specified performance criteria over a performance period of three years.

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

The following table presents a summary of the activities for the Company’s time-based and performance-based RSUs that will be settled in shares for the three months ended March 31, 2021. The number of performance-based RSUs stated below reflects the number of awards granted on the grant date.
Time-Based RSUsPerformance-Based RSUs
SharesWeighted-Average
Grant Date
Fair Value		SharesWeighted-Average
Grant Date
Fair Value
Outstanding, January 1, 20211,345,635 $50.22 398,057 $53.66 
Granted374,875 71.40 91,960 77.67 
Vested(275,503)67.30 (120,286)70.13 
Forfeited(26,369)60.94 — — 
Outstanding, March 31, 20211,418,638 $52.30 369,731 $54.28 

The following table presents a summary of the activities for the Company’s time-based RSUs that will be vested in cash for the three months ended March 31, 2021:
Shares
Outstanding, January 1, 202121,802 
Granted15,803 
Vested— 
Forfeited(4,075)
Outstanding, March 31, 202133,530 

As of March 31, 2021, there were $37.0 million and $22.1 million of total unrecognized compensation costs related to unvested time-based and performance-based RSUs, respectively. These costs are expected to be recognized over a weighted-average period of 2.21 years and 2.29 years, respectively.

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Note 12 — Stockholders’ Equity and Earnings Per Share

The following table presents the basic and diluted EPS calculations for the three months ended March 31, 2021 and 2020. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Earnings Per Share to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.
($ and shares in thousands, except per share data)Three Months Ended March 31,
20212020
Basic:
Net income$204,994 $144,824 
Basic weighted-average number of shares outstanding141,646 144,814 
Basic EPS$1.45 $1.00 
Diluted:
Net income$204,994 $144,824 
Basic weighted-average number of shares outstanding 141,646 144,814 
Diluted potential common shares (1)
1,198 471 
Diluted weighted-average number of shares outstanding (1)
142,844 145,285 
Diluted EPS$1.44 $1.00 
(1)Includes dilutive shares from RSUs for the three months ended March 31, 2021 and 2020.

For the three months ended March 31, 2021 and 2020, 140 thousand and 328 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation.

Stock Repurchase Program — In 2020, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $500.0 million of the Company’s common stock, and the Company repurchased 4,471,682 shares at an average price of $32.64 per share and a total cost of $146.0 million. The Company did not repurchase any shares during the three months ended March 31, 2021.

Note 13 — Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in the components of AOCI balances for the three months ended March 31, 2021 and 2020:
($ in thousands)AFS
Debt
Securities		Cash
Flow
Hedges
Foreign
Currency
Translation
Adjustments (1)
Total
Balance, January 1, 2020$(2,419)$— $(15,989)$(18,408)
Net unrealized gains (losses) arising during the period28,530 — (2,164)26,366 
Amounts reclassified from AOCI(1,077)— — (1,077)
Changes, net of tax27,453 — (2,164)25,289 
Balance, March 31, 2020
$25,034 $— $(18,153)$6,881 
Balance, January 1, 2021$52,247 $(1,230)$(6,692)$44,325 
Net unrealized (losses) gains arising during the period(133,313)305 (1,349)(134,357)
Amounts reclassified from AOCI(135)127 — (8)
Changes, net of tax(133,448)432 (1,349)(134,365)
Balance, March 31, 2021
$(81,201)$(798)$(8,041)$(90,040)
(1)Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was RMB and USD, respectively.

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The following table presents the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the three months ended March 31, 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Before-TaxTax Effect Net-of-TaxBefore-TaxTax Effect Net-of-Tax
AFS debt securities:
Net unrealized (losses) gains arising during the period$(189,276)$55,963 $(133,313)$40,493 $(11,963)$28,530 
Net realized (gains) reclassified into net income (1)
(192)57 (135)(1,529)452 (1,077)
Net change(189,468)56,020 (133,448)38,964 (11,511)27,453 
Cash flow hedges:
Net unrealized gains arising during the period426 (121)305 — — — 
Net realized losses reclassified into net income (2)
177 (50)127 — — — 
Net change603 (171)432 — — — 
Foreign currency translation adjustments, net of hedges:
Net unrealized losses arising during the period(1,309)(40)(1,349)(1,766)(398)(2,164)
Net change(1,309)(40)(1,349)(1,766)(398)(2,164)
Other comprehensive (loss) income$(190,174)$55,809 $(134,365)$37,198 $(11,909)$25,289 
(1)For the three months ended March 31, 2021 and 2020, pre-tax amounts were reported in Gains on sales of AFS debt securities on the Consolidated Statement of Income.
(2)For the three months ended March 31, 2021 and 2020, pre-tax amounts were reported in Interest expense on the Consolidated Statement of Income.

Note 14 — Business Segments

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

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

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

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

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

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

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three months ended March 31, 2021 and 2020:
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Three Months Ended March 31, 2021
Net interest income before (reversal of) provision for credit losses$149,899 $177,092 $26,704 $353,695 
(Reversal of) provision for credit losses(4,249)4,249 — — 
Noninterest income20,828 50,010 2,028 72,866 
Noninterest expense89,286 69,257 32,534 191,077 
Segment income (loss) before income taxes85,690 153,596 (3,802)235,484 
Segment net income$61,378 $110,080 $33,536 $204,994 
As of March 31, 2021
Segment assets$14,147,094 $27,222,272 $15,504,780 $56,874,146 
($ in thousands)Consumer and
Business
Banking		Commercial
Banking		OtherTotal
Three Months Ended March 31, 2020
Net interest income before provision for credit losses
$152,591 $183,501 $26,615 $362,707 
Provision for credit losses7,788 66,082 — 73,870 
Noninterest income16,402 32,456 6,648 55,506 
Noninterest expense86,964 70,126 23,243 180,333 
Segment income before income taxes74,241 79,749 10,020 164,010 
Segment net income$53,195 $57,131 $34,498 $144,824 
As of March 31, 2020
Segment assets$11,894,691 $26,412,726 $7,641,128 $45,948,545 
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Note 15 — Subsequent Events

On April 22, 2021, the Company’s Board of Directors declared second quarter 2021 cash dividends for the Company’s common stock. The common stock cash dividend of $0.33 per share is payable on May 17, 2021 to stockholders of record as of May 3, 2021.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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,” “we” or “EWBC”), and its subsidiaries, including its subsidiary bank, East West Bank and its subsidiaries (referred to herein as “East West Bank” or the “Bank”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes presented elsewhere in this report, and the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 26, 2021 (the “Company’s 2020 Form 10-K”).

Company Overview

East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the Bank Holding Company Act. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California that has a strong focus on the financial service needs of the Asian-American community. Through over 120 locations in the U.S. and China, the Company provides a full range of consumer and commercial products and services through three business segments: Consumer and Business Banking, Commercial Banking, and Other (which includes the remaining operations). The Company’s principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is principally derived from the difference between interest earned on loans and debt securities and interest paid on deposits and other funding sources. As of March 31, 2021, the Company had $56.87 billion in assets and approximately 3,200 full-time equivalent employees. For additional information on products and services provided by the Bank, see Item 1. Business — Banking Services of the Company’s 2020 Form 10-K.

Corporate Strategy

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

Coronavirus Disease 2019 Global Pandemic

The Coronavirus Disease 2019 (“COVID-19”) pandemic has caused significant disruption around the world, as well as economic and financial market deterioration. The economic and operating conditions caused by the COVID-19 pandemic have created financial difficulties for many of the Company’s commercial and consumer customers. As a result, some borrowers may not be able to satisfy their obligations to us. As many of the Company’s loans are secured by real estate, a potential decline in the real estate markets could also negatively impact the Company’s business, financial condition and the credit quality of the Company’s loan portfolio. We do not know and cannot quantify all of the specific impacts, and the extent to which the COVID-19 pandemic may negatively affect our business, financial condition and results of operations, as well as our regulatory capital and liquidity ratios, in 2021. The impact will depend on future developments which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic, including vaccinations; the effect on our customers and employees; and the effect on the economy and markets. While COVID-19 cases have begun to ease during the first quarter of 2021, the spread of new, more contagious variants could impact the magnitude and duration of this health crisis. However, ongoing virus containment efforts and vaccination progress, as well as the possibility of further government stimulus measures, could accelerate the macroeconomic recovery.

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Regulatory Developments Relating to the COVID-19 Pandemic

Coronavirus Aid, Relief, and Economic Security Act — The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 to lessen the economic impact of the COVID-19 pandemic on individuals, businesses and local economies. The CARES Act initiatives included extended unemployment benefits, mortgage forbearance, the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) and funding, and authorization for the Main Street Lending Program (“MSLP”). The Company participated in the Board of Governors of the Federal Reserve System’s (the “Federal Reserve”) MSLP and funded $233.6 million in MSLP loans as of December 31, 2020. The related Main Street special purpose vehicle purchased participations in these loans amounting to $221.9 million or 95% of the total amount of MSLP loans funded as of March 31, 2021. The MSLP was terminated on January 8, 2021 and the Company did not further participate in the program during the first quarter of 2021. The CARES Act also required mortgage servicers to grant, on a borrower’s request, forbearance for up to 180 days (which could be extended for up to another 180 days) on a federally-backed single-family mortgage loan or forbearance up to 30 days (which could be extended for two additional 30-day periods) on a federally-backed multifamily mortgage loan, when the borrowers experience financial hardship due to the COVID-19 pandemic.

In response to the continued market disruption and economic impact of the COVID-19 pandemic, the Consolidated Appropriations Act, 2021 (“CAA”) enacted on December 27, 2020, contained a number of provisions that affect banking organizations. Among other things, the CAA provided additional funding to the PPP in early January 2021, expanded eligibility of businesses for the PPP, extended the PPP to March 31, 2021, and allowed eligible borrowers to obtain a second PPP loan (“second draw”) up to a maximum amount of $2.0 million. The SBA pays the originating bank a processing fee ranging from 3% to 5% based on the size of the loans. Second draw PPP borrowers are eligible for loan forgiveness on the same terms as the first draw borrowers. The CAA also simplified the loan forgiveness process for first and second draw borrowers with PPP loans of $150,000 or less. The PPP for first draw loans reopened in January 2021. The SBA also started allowing certain eligible borrowers, who previously received a PPP loan to apply for a second draw PPP with the same general terms as their first draw PPP loan and an extended maturity date of five years.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) to provide additional relief for individuals and businesses affected by the COVID-19 pandemic, including additional funding for the PPP, expansion of eligibility criteria for both first and second draw PPP loans and revision of the exclusions from payroll costs for purposes of loan forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021.

Paycheck Protection Program — The PPP provides forgivable loans to businesses in order to keep their employees on the payroll and make certain other eligible payments. PPP loans carry an interest rate of 1%. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount and any accrued interest on the loans are eligible to be forgiven in whole or in part, if certain conditions are met, at which point the SBA will pay the bank that originated the PPP loan the forgiven amount. The Company is a participant in the PPP and elected to extend the application deadline to May 31, 2021. As of March 31, 2021, the Company had approximately 8,300 PPP loans outstanding with balances totaling $2.07 billion, which were recorded in the commercial and industrial (“C&I”) portfolio. During the first quarter of 2021, the Company funded 5,075 new PPP loans totaling $828.2 million. Related to the PPP loans made in 2020, as of May 6, 2021, the Company had submitted and received SBA approval for the forgiveness of approximately 5,300 PPP loan applications, totaling $647.5 million.

Other U.S. Government Facilities and Programs — During the second quarter of 2020, the Federal Reserve established the Paycheck Protection Program Liquidity Facility (“PPPLF”) to allow eligible lenders to facilitate lending under the SBA’s PPP, taking PPP loans as collateral. The Company participated in the PPPLF during 2020, borrowing $1.44 billion, which it repaid in full in October 2020. As of both March 31, 2021 and December 31, 2020, the Company had no outstanding borrowings under the PPPLF.

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Loan Modifications — The CARES Act and related guidance from the federal banking agencies provide financial institutions the option to temporarily suspend requirements under generally accepted accounting principles (“GAAP”) related to the classification of certain loan modifications as troubled debt restructurings (“TDRs”) to account for the current and anticipated effects of the COVID-19 pandemic. The CARES Act, as amended by the CAA, specified that COVID-19 related loan modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency declared by the President and (ii) January 1, 2022, on loans that were current as of December 31, 2019 are not TDRs. Additionally, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief are not TDRs under Accounting Standards Codification (“ASC”) Subtopic 310-40, “Troubled Debt Restructuring by Creditors.” These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. We have granted loan modifications to our customers in the form of maturity extensions, payment deferrals and forbearance. For a summary of the loans that we have modified in response to the COVID-19 pandemic, please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Risk Management — Credit Risk Management in this Quarterly Report on Form 10-Q (“this Form 10-Q”).

Our Response to the COVID-19 Pandemic

In response to the pandemic, the Company has implemented protocols and processes to execute its business continuity plans to help protect its employees and support its customers. The Company is managing its response to the COVID-19 pandemic according to its Enterprise Business Continuity Policy, which invokes centralized management of the crisis event and the integration of its response. The CEO and key members of the Company’s management team meet regularly with senior executives to help drive decisions, communication and consistency of response across all businesses and functions. In addition, we have implemented measures to assist our employees and customers as discussed below:

•Employees:
The majority of the Company’s employees are able to work from home. The Company continues to evaluate its continuity plans and work-from-home strategy to best protect the health and safety of its employees, and the Company has developed workplace re-entry plans with proper protocols. For employees with jobs that are required to be performed on-site, we have taken significant actions to ensure employee safety by providing personal protection equipment, adopting social distancing measures, placing visual safety reminders related to social distancing, implementing an enhanced cleaning program, installing plexiglass panels, requiring temperature screenings and the wearing of masks for all employees.
•Customers:
We assisted our commercial, consumer and small business clients affected by the COVID-19 pandemic through payment deferrals, suspension of foreclosures on certain residential mortgage loans and participation in the SBA PPP and the MSLP. We intend to evaluate participation in additional new government-sponsored programs, as they are established. In addition, the Company continues to make a wide range of banking services accessible to customers through mobile and other digital channels to reduce the need for in-person branch visits.

Impact on our Financial Position and Results of Operations — Our financial position and results of operations are sensitive to the ability of our customers to meet their loan obligations, the availability of our workforce and the decline in the value of assets which we hold. While its effects continue to materialize, the COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout our operating footprint. This decrease in commercial activity has caused and may continue to cause our customers to be unable to meet existing payment or other obligations to us. Despite the financial impact of the COVID-19 pandemic, we maintained solid profitability for the first quarter of 2021, earning a 1.50% return on average assets (“ROA”) and a 15.57% return on average equity (“ROE”). Our capital ratios are strong, and we remain well-positioned from a liquidity perspective, enabling us to weather adverse economic scenarios while continuing to support our customers and invest in our business.

For additional information, see Item 2. MD&A — Risk Management — Credit Risk Management and — Liquidity Risk Management, and — Balance Sheet Analysis — Regulatory Capital and Ratios in this Form 10-Q. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided in Part I, Item 1A — Risk Factors of the Company’s 2020 Form 10-K.
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Selected Financial Data
($ and shares in thousands, except per share, ratio and headcount data)
Three Months Ended
March 31,
2021		December 31,
2020		March 31,
2020
Summary of operations:
Net interest income before provision for credit losses (1)
$353,695 $346,581 $362,707 
Noninterest income72,866 69,832 55,506 
Total revenue426,561 416,413 418,213 
Provision for credit losses— 24,340 73,870 
Noninterest expense (2)
191,077 178,651 180,333 
Income before income taxes235,484 213,422 164,010 
Income tax expense (3)
30,490 49,338 19,186 
Net income (1)(2)(3)
$204,994 $164,084 $144,824 
Per common share:
Basic earnings$1.45 $1.16 $1.00 
Diluted earnings$1.44 $1.15 $1.00 
Dividends declared$0.33 $0.28 $0.28 
Book value$37.26 $37.22 $34.67 
Non-GAAP tangible common equity per share (4)
$33.90 $33.85 $31.27 
Weighted-average number of shares outstanding:
Basic141,646 141,564 144,814 
Diluted142,844 142,529 145,285 
Common shares outstanding at period-end141,843 141,565 141,435 
Performance metrics:
ROA1.50 %1.24 %1.30 %
ROE15.57 %12.45 %11.60 %
Return on average non-GAAP tangible equity (4)
17.17 %13.77 %12.93 %
Total average equity to total average assets9.60 %9.99 %11.22 %
Common dividend payout ratio23.11 %24.00 %27.95 %
Net interest margin2.71 %2.77 %3.44 %
Efficiency ratio (5)
44.79 %42.90 %43.12 %
Non-GAAP efficiency ratio (4)
38.68 %39.76 %38.40 %
At period end:
Total assets $56,874,146 $52,156,913 $45,948,545 
Interest earning assets$54,400,035 $49,716,029 $43,475,811 
Total loans (6)
$39,588,748 $38,392,743 $35,894,987 
Available-for-sale (“AFS”) debt securities$7,789,213 $5,544,658 $3,695,943 
Total deposits$49,547,136 $44,862,752 $38,686,958 
Long-term debt$147,445 $147,376 $147,169 
Federal Home Loan Bank (“FHLB”) advances$653,035 $652,612 $646,336 
Stockholders’ equity (7)
$5,285,027 $5,269,175 $4,902,985 
Non-GAAP tangible common equity (4)
$4,808,179 $4,791,579 $4,422,519 
Head count (full-time equivalent)3,180 3,214 3,285 
EWBC capital ratios:
Common Equity Tier 1 (“CET1”) capital12.7 %12.7 %12.4 %
Tier 1 capital12.7 %12.7 %12.4 %
Total capital14.3 %14.3 %13.9 %
Tier 1 leverage capital9.1 %9.4 %10.2 %
Total stockholders’ equity to total assets
9.3 %10.1 %10.7 %
Non-GAAP tangible common equity to tangible assets (4)
8.5 %9.3 %9.7 %
(1)Included $15.0 million and $14.2 million of interest income related to PPP loans for the first quarter of 2021 and fourth quarter of 2020, respectively.
(2)Fourth quarter 2020 included $10.7 million in recoveries related to DC Solar and affiliates (“DC Solar”) tax credit investments, of which $1.1 million was recorded as an impairment recovery.
(3)Included $5.1 million of uncertain tax position related to DC Solar for the fourth quarter of 2020.
(4)For a discussion of non-GAAP tangible common equity per share, return on average non-GAAP tangible equity, non-GAAP efficiency ratio, non-GAAP tangible common equity and non-GAAP tangible common equity to tangible assets, refer to Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.
(5)The efficiency ratio is noninterest expense divided by total revenue.
(6)Includes $2.07 billion and $1.57 billion of PPP loans as of March 31, 2021 and December 31, 2020, respectively.
(7)On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments using the modified retrospective approach. The Company recorded a $125.2 million increase to allowance for loan losses and $98.0 million after-tax decrease to opening retained earnings as of January 1, 2020.

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Financial Review

Noteworthy items about the Company’s performance for the first quarter of 2021 included:

•Earnings: First quarter 2021 net income was $205.0 million, or $1.44 per diluted share, compared with first quarter 2020 net income of $144.8 million, or $1.00 per diluted share, an increase of $60.2 million or 42%. The increase was primarily due to no provision for credit losses in the first quarter of 2021 and an increase in noninterest income, partially offset by increases in income tax expense and noninterest expense, and lower net interest income.

•Net Interest Income and Net Interest Margin: First quarter 2021 net interest income before provision for credit losses was $353.7 million, a decrease of $9.0 million or 2%, compared with first quarter 2020 net interest income of $362.7 million. First quarter 2021 net interest margin was 2.71%, a decrease of 73 basis points from 3.44% for the first quarter of 2020. The net interest income and net interest margin decreases reflect the current low interest rate environment with the upper limit of the federal funds target range of 0.25%; the federal funds rate was cut by 150 basis points in March 2020.

•Provision for Credit Losses: During the first quarter of 2021, the Company did not record a provision for credit losses, compared with a provision of $73.9 million for the first quarter of 2020. The year-over-year change in the provision for credit losses was primarily due to an improved macroeconomic outlook as compared with the first quarter of 2020. First quarter 2021 net charge-offs were $13.4 million or annualized 0.14% of average loans held-for-investment, compared with $898 thousand or annualized 0.01% of average loans held-for-investment, for the first quarter of 2020.

•Tax: Income tax expense was $30.5 million and the effective tax rate was 12.9% for the first quarter of 2021, compared with income tax expense of $19.2 million and an effective tax rate of 11.7% for the first quarter of 2020.

•Profitability: First quarter 2021 ROA was 1.50%, compared with 1.30% for the first quarter of 2020. First quarter 2021 ROE was 15.57%, compared with 11.60% for the first quarter of 2020.

•Total Assets: As of March 31, 2021, total assets were $56.87 billion, an increase of $4.71 billion or 9% from $52.16 billion as of December 31, 2020, primarily due to purchases of AFS debt securities, loan growth, and an increase in assets purchased under resale agreements (“resale agreements”).

•Loans: Total loans were $39.59 billion as of March 31, 2021, an increase of $1.20 billion or 3% from $38.39 billion as of December 31, 2020. Loan growth was well-diversified across each of the Company’s major loan portfolios, with increases from C&I, driven by PPP loan funding, commercial real estate (“CRE”) and residential mortgage.

•Total Liabilities: As of March 31, 2021, total liabilities were $51.59 billion, an increase of $4.70 billion or 10% from $46.89 billion as of December 31, 2020, primarily due to deposit growth.

•Deposits: Total deposits were $49.55 billion as of March 31, 2021, an increase of $4.69 billion or 10% from $44.86 billion as of December 31, 2020. Growth was primarily driven by noninterest-bearing demand deposits, money market accounts and interest-bearing checking.

•Allowance for Loan Losses: The allowance for loan losses was $607.5 million or 1.53% of loans held-for-investment as of March 31, 2021, compared with $620.0 million or 1.61% of loans held-for-investment as of December 31, 2020.

•Asset Quality Metrics: As of March 31, 2021, criticized loans totaled $1.22 billion or 3.07% of loans held-for-investment, compared with the same amount of $1.22 billion or 3.17% of loans held-for-investment as of December 31, 2020. Nonperforming assets were $258.1 million or 0.45% of total assets as of March 31, 2021, compared with $234.9 million or 0.45% of total assets as of December 31, 2020.

•Capital Levels: Our capital levels are strong. As of March 31, 2021, all of the Company’s and the Bank’s regulatory capital ratios were well above the regulatory requirements to be considered well-capitalized. See Item 2. MD&A — Balance Sheet Analysis — Regulatory Capital and Ratios in this Form 10-Q for more information regarding capital.

•Capital Return: The quarterly cash common stock dividend for the first quarter of 2021 was $0.33 per share, an increase of $0.055 or 20% from $0.275 per share for the first quarter of 2020. The Company returned $47.4 million in cash dividends to stockholders during the first quarter of 2021, compared with $40.5 million during the first quarter of 2020.

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Results of Operations

Net Interest Income

The Company’s primary source of revenue is net interest income, which is the interest income earned on interest-earning assets less interest expense paid on interest-bearing liabilities. Net interest margin is the ratio of net interest income to average interest-earning assets. Net interest income and net interest margin are impacted by several factors, including changes in average balances and the composition of interest-earning assets and funding sources, market interest rate fluctuations and the slope of the yield curve, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities, volume of noninterest-bearing sources of funds and asset quality.
ewbc-20210331_g1.jpgewbc-20210331_g2.jpg
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First quarter 2021 net interest income was $353.7 million, a decrease of $9.0 million or 2%, compared with $362.7 million for the first quarter of 2020. The year-over-year decline in net interest income was due to a decrease in interest-earning asset yields, which reflected significantly lower benchmark interest rates, partially offset by a decrease in the cost of funds. First quarter 2021 net interest margin was 2.71%, a decrease of 73 basis points from 3.44% for the first quarter of 2020. The upper limit of the federal funds target range was 0.25% in the first quarter of 2021; the federal funds rate was cut by 150 basis points in March 2020.

Average interest-earning assets was $52.85 billion for the first quarter of 2021, an increase of $10.49 billion or 25% from $42.36 billion for the first quarter of 2020. This was primarily driven by growth in average loans, average AFS debt securities, and average interest-bearing cash and deposits with banks, which increased by $3.58 billion, $3.19 billion and $3.14 billion, respectively.

The yield on average interest-earning assets for the first quarter of 2021 was 2.93%, a decrease of 133 basis points from 4.26% for the first quarter of 2020. The year-over-year change reflected yield compression for all earning asset categories, in response to the drop in benchmark interest rate at the end of the first quarter 2020. The average loan yield for the first quarter of 2021 was 3.58%, a decrease of 113 basis points from 4.71% for the first quarter of 2020. Approximately 64% and 69% of loans held-for-investment were variable-rate or hybrid loans in their adjustable rate period as of March 31, 2021 and 2020, respectively.

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Deposits are an important source of funds and impact both net interest income and net interest margin. Average total deposits were $47.85 billion for the first quarter of 2021, an increase of $10.38 billion or 28% from $37.47 billion for the first quarter of 2020. Average noninterest-bearing demand deposits were $18.09 billion for the first quarter of 2021, an increase of $6.96 billion or 63% from $11.12 billion for the first quarter of 2020. Average interest-bearing deposits were $29.76 billion for the first quarter of 2021, an increase of $3.41 billion or 13% from $26.35 billion for the first quarter of 2020. Due to the strong growth in average noninterest-bearing deposits, the share of noninterest-bearing demand deposits increased to 38% of average total deposits in the first quarter of 2021, compared with 30% in the same period of 2020.

The average cost of funds was 0.23% for the first quarter of 2021, a decrease of 67 basis points from 0.90% for the first quarter of 2020. The decrease in the average cost of funds primarily reflected the changed interest rate environment. The average cost of interest-bearing deposits was 0.30% for the first quarter of 2021, a decrease of 87 basis points from 1.17% for the first quarter of 2020. Other sources of funding included in the calculation of the average cost of funds primarily consist of FHLB advances, assets sold under repurchase agreements (“repurchase agreements”), long-term debt and short-term borrowings.

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

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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 first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Average
Balance		Interest
Average
Yield/
Rate (1)
Average
Balance		Interest
Average
Yield/
Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks
$6,117,799 $3,632 0.24 %$2,973,006 $11,108 1.50 %
Resale agreements (2)
1,461,900 6,099 1.69 %882,142 5,625 2.56 %
AFS debt securities (3)(4)
6,459,875 29,100 1.83 %3,274,740 20,142 2.47 %
Loans (5)(6)
38,729,307 342,008 3.58 %35,153,968 411,869 4.71 %
Restricted equity securities83,164 547 2.67 %78,675 446 2.28 %
Total interest-earning assets
$52,852,045 $381,386 2.93 %$42,362,531 $449,190 4.26 %
Noninterest-earning assets:
Cash and due from banks580,277 510,512 
Allowance for loan losses(618,589)(492,297)
Other assets2,780,550 2,374,763 
Total assets$55,594,283 $44,755,509 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$6,393,034 $4,214 0.27 %$5,001,672 $10,246 0.82 %
Money market deposits11,573,847 4,711 0.17 %9,013,381 22,248 0.99 %
Savings deposits2,674,476 1,741 0.26 %2,076,270 1,817 0.35 %
Time deposits9,112,662 11,156 0.50 %10,264,007 42,092 1.65 %
Short-term borrowings
4,703 42 3.62 %59,978 556 3.73 %
FHLB advances652,758 3,069 1.91 %693,357 4,166 2.42 %
Repurchase agreements (2)
300,000 1,978 2.67 %332,417 3,991 4.83 %
Long-term debt and finance lease liabilities152,088 780 2.08 %152,259 1,367 3.61 %
Total interest-bearing liabilities
$30,863,568 $27,691 0.36 %$27,593,341 $86,483 1.26 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits18,093,696 11,117,710 
Accrued expenses and other liabilities1,298,921 1,022,453 
Stockholders’ equity5,338,098 5,022,005 
Total liabilities and stockholders’ equity
$55,594,283 $44,755,509 
Interest rate spread2.57 %3.00 %
Net interest income and net interest margin
$353,695 2.71 %$362,707 3.44 %
(1)Annualized.
(2)Average balances of resale and repurchase agreements for the first quarter of 2020 have been reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 1.69% and 2.50% for the first quarters of 2021 and 2020, respectively. The weighted-average interest rates of gross repurchase agreements were 2.67% and 4.10% for the first quarters of 2021 and 2020, respectively.
(3)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(4)Includes the amortization of premiums on debt securities of $19.0 million and $3.3 million for the first quarters of 2021 and 2020, respectively.
(5)Average balances include nonperforming loans and loans held-for-sale.
(6)Loans include the accretion of net deferred loan fees, unearned fees and amortization of premiums, which totaled $13.9 million and $8.0 million for the first quarters of 2021 and 2020, respectively.
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The following table summarizes the extent to which changes in (1) interest rates, and (2) volume of average interest-earning assets and average interest-bearing liabilities affected the Company’s net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average rate.
($ in thousands)Three Months Ended March 31,
2021 vs. 2020
Total
Change		Changes Due to
VolumeYield/Rate
Interest-earning assets:
Interest-bearing cash and deposits with banks
$(7,476)$6,146 $(13,622)
Resale agreements474 2,814 (2,340)
AFS debt securities8,958 15,293 (6,335)
Loans (69,861)37,560 (107,421)
Restricted equity securities101 25 76 
Total interest and dividend income$(67,804)$61,838 $(129,642)
Interest-bearing liabilities:
Checking deposits$(6,032)$2,245 $(8,277)
Money market deposits(17,537)4,893 (22,430)
Savings deposits(76)442 (518)
Time deposits(30,936)(4,278)(26,658)
Short-term borrowings
(514)(499)(15)
FHLB advances(1,097)(238)(859)
Repurchase agreements(2,013)(361)(1,652)
Long-term debt and finance lease liabilities
(587)(2)(585)
Total interest expense$(58,792)$2,202 $(60,994)
Change in net interest income$(9,012)$59,636 $(68,648)

Noninterest Income

The following table presents the components of noninterest income for the first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020Change from 2020
$%
Lending fees$18,357 $15,773 $2,584 16 %
Deposit account fees
15,383 10,447 4,936 47 %
Interest rate contracts and other derivative income
16,997 7,073 9,924 140 %
Foreign exchange income9,526 7,819 1,707 22 %
Wealth management fees6,911 5,353 1,558 29 %
Net gains on sales of loans1,781 950 831 87 %
Gains on sales of AFS debt securities
192 1,529 (1,337)(87)%
Other investment income925 3,378 (2,453)(73)%
Other income2,794 3,184 (390)(12)%
Total noninterest income
$72,866 $55,506 $17,360 31 %

Noninterest income comprised 17% and 13% of total revenue for the first quarters of 2021 and 2020, respectively. First quarter of 2021 noninterest income was $72.9 million, an increase of $17.4 million or 31%, compared with $55.5 million for the same period in 2020. The increase was primarily due to interest rate contracts and other derivative income, deposit account fees, and lending fees, partially offset by a decrease in other investment income.

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Lending fees were $18.4 million for the first quarter of 2021, an increase of $2.6 million or 16%, compared with $15.8 million for the same period in 2020. The increase was primarily due to an increase in letter of credit issuance fees.

Deposit account fees were $15.4 million for the first quarter of 2021, an increase of $5.0 million or 47%, compared with $10.4 million for the same period in 2020. The increase was primarily due to an increase in customer-driven transactions.

Interest rate contracts and other derivative income was $17.0 million for the first quarter of 2021, an increase of $9.9 million or 140%, compared with $7.1 million for the same period in 2020. The increase was primarily due to favorable credit valuation adjustments, partially offset by lower transaction volumes.

Other investment income was $925 thousand for the first quarter of 2021, a decrease of $2.5 million or 73%, compared with $3.4 million for the same period in 2020. The decrease was primarily due to decreased distributions from investments in qualified affordable housing partnerships and lower unrealized gains on mutual funds.

Noninterest Expense

The following table presents the components of noninterest expense for the first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020Change from 2020
$%
Compensation and employee benefits$107,808 $101,960 $5,848 6 %
Occupancy and equipment expense15,922 17,076 (1,154)(7)%
Deposit insurance premiums and regulatory assessments
3,876 3,427 449 13 %
Deposit account expense3,892 3,563 329 9 %
Data processing4,478 3,826 652 17 %
Computer software expense7,159 6,166 993 16 %
Consulting expense1,475 1,217 258 21 %
Legal expense1,502 3,197 (1,695)(53)%
Other operating expense19,607 21,119 (1,512)(7)%
Amortization of tax credit and other investments
25,358 18,782 6,576 35 %
Total noninterest expense
$191,077 $180,333 $10,744 6 %
Efficiency ratio (1)
44.79 %43.12 %
(1)Refer to Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q for the detailed calculation of GAAP and non-GAAP efficiency ratios.

First quarter of 2021 noninterest expense was $191.1 million, an increase of $10.8 million or 6%, compared with $180.3 million for the same period in 2020. This increase was primarily due to increases in amortization of tax credit and other investments, and compensation and employee benefits.

Compensation and employee benefits were $107.8 million for the first quarter of 2021, an increase of $5.8 million or 6%, compared with $102.0 million for the same period in 2020. The year-over-year increase was primarily related to an increase in bonus accrual.

Amortization of tax credit and other investments was $25.4 million for the first quarter of 2021, an increase of $6.6 million or 35%, compared with $18.8 million for the same period in 2020. The year-over-year increase was primarily due to new tax credit investments that were placed in service during the first quarter of 2021.

Efficiency ratio, calculated as noninterest expense divided by total revenue, was 44.79% and 43.12% for the first quarters of 2021 and 2020, respectively. Non-GAAP efficiency ratio, adjusted for the amortization of tax credit and other investments and the amortization of core deposit intangibles, was 38.68% for the first quarter of 2021, an increase of 28 basis points from 38.40% for the same period in 2020. For additional details, see the reconciliations of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

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Income Taxes
($ in thousands)Three Months Ended March 31,
20212020% Change
Income before income taxes
$235,484 $164,010 44 %
Income tax expense$30,490 $19,186 59 %
Effective tax rate12.9 %11.7 %

Income tax expense was $30.5 million and the effective tax rate was 12.9% for the first quarter of 2021, compared with first quarter 2020 income tax expense of $19.2 million and effective tax rate of 11.7%. The increase in effective tax rate for the first quarter of 2021, compared with the same period in 2020 was primarily due to an increase in income before income taxes, partially offset by a year-over-year increase in investments in tax credits and other investments.

Operating Segment Results

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers served and the related products and services provided. The segments reflect how financial information is currently evaluated by management. For additional description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 14 — 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 segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process.

The following table presents the results by operating segment for the periods indicated:
($ in thousands)Three Months Ended March 31,
Consumer and Business BankingCommercial BankingOther
202120202021202020212020
Total revenue$170,727 $168,993 $227,102 $215,957 $28,732 $33,263 
(Reversal of) provision for credit losses(4,249)7,788 4,249 66,082 — — 
Noninterest expense89,286 86,964 69,257 70,126 32,534 23,243 
Segment income (loss) before income taxes85,690 74,241 153,596 79,749 (3,802)10,020 
Segment net income$61,378 $53,195 $110,080 $57,131 $33,536 $34,498 

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. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small- and medium-sized enterprises. Other products and services provided by this segment include wealth management, treasury management and foreign exchange services. The integration of digital channels and our brick and mortar channels has been a priority for the Bank. The Company is developing a digital consumer banking platform to enhance the customer user experience and offer a full suite of banking services. Customer adoption of the digital banking application is in progress, and has contributed to growth in segment fee income and deposit growth.
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The following table presents additional financial information for the Consumer and Business Banking segment for the periods indicated:
($ in thousands)Three Months Ended March 31,
Change from 2020
20212020$%
Net interest income before provision for credit losses$149,899 $152,591 $(2,692)(2)%
Noninterest income20,828 16,402 4,426 27 %
Total revenue170,727 168,993 1,734 1 %
(Reversal of) provision for credit losses(4,249)7,788 (12,037)(155)%
Noninterest expense 89,286 86,964 2,322 3 %
Segment income before income taxes 85,690 74,241 11,449 15 %
Income tax expense24,312 21,046 3,266 16 %
Segment net income $61,378 $53,195 $8,183 15 %
Average loans$13,300,153 $11,269,489 $2,030,664 18 %
Average deposits$30,224,844 $25,593,064 $4,631,780 18 %

Segment net income increased $8.2 million or 15% to $61.4 million during the first quarter of 2021, compared with $53.2 million in the same period in 2020, primarily due to lower provision for credit losses and higher noninterest income, partially offset by lower net interest income before provision for credit losses and an increase in income tax expense. The increase in income tax expense reflected higher segment income before income taxes.

Net interest income before provision for credit losses decreased $2.7 million or 2% to $149.9 million during the first quarter of 2021, compared with $152.6 million in the same period in 2020, primarily reflecting a lower credit assigned to deposits under the FTP system in a near-zero interest rate environment.

The Consumer and Business Banking segment recorded a $4.2 million reversal of provision for credit losses during the first quarter of 2021, compared with a $7.8 million provision for credit losses recorded in the same period in 2020. The year-over-year decrease in the provision for credit losses was primarily driven by improved macroeconomic conditions and outlook.

First quarter of 2021 noninterest income increased $4.4 million or 27% to $20.8 million, compared with $16.4 million in the same period in 2020. The increase was primarily driven by increases in deposit account fees, wealth management fees and foreign exchange income due to higher customer-driven transactions.


Commercial Banking

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

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The following table presents additional financial information for Commercial Banking for the periods indicated:
($ in thousands)Three Months Ended March 31,
Change from 2020
20212020$%
Net interest income before provision for credit losses$177,092 $183,501 $(6,409)(3)%
Noninterest income50,010 32,456 17,554 54 %
Total revenue227,102 215,957 11,145 5 %
Provision for credit losses4,249 66,082 (61,833)(94)%
Noninterest expense 69,257 70,126 (869)(1)%
Segment income before income taxes 153,596 79,749 73,847 93 %
Income tax expense43,516 22,618 20,898 92 %
Segment net income $110,080 $57,131 $52,949 93 %
Average loans$25,429,154 $23,884,479 $1,544,675 6 %
Average deposits$15,095,700 $9,175,430 $5,920,270 65 %

Segment net income increased $52.9 million or 93% to $110.1 million during the first quarter of 2021, compared with $57.1 million in the same period in 2020, reflecting a lower provision for credit losses and higher noninterest income, partially offset by lower net interest income before provision for credit losses and an increase in income tax expense. The increase in income tax expense reflected higher segment income before income taxes.

Net interest income before provision for credit losses decreased $6.4 million or 3% to $177.1 million during the first quarter of 2021, compared with $183.5 million in the same period in 2020, primarily driven by lower interest income earned on loans, partially offset by lower FTP charges assessed for loans due to the lower interest rate environment.

The first quarter of 2021 provision for credit losses for the Commercial Banking segment was $4.2 million, compared with $66.1 million in the same period of 2020. The year-over-year decrease in the provision for credit losses was primarily driven by improved macroeconomic conditions and outlook.

Noninterest income increased $17.6 million or 54% to $50.0 million in the first quarter 2021, compared with $32.5 million in the same period in 2020, primarily driven by higher interest rate contracts and other derivative income, deposit account fees and lending fees.

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 following table presents additional financial information for the Other segment for the periods indicated:
($ in thousands)Three Months Ended March 31,
Change from 2020
20212020$%
Net interest income before provision for credit losses$26,704 $26,615 $89 0 %
Noninterest income2,028 6,648 (4,620)(69)%
Total revenue28,732 33,263 (4,531)(14)%
Noninterest expense 32,534 23,243 9,291 40 %
Segment (loss) income before income taxes (3,802)10,020 (13,822)(138)%
Income tax benefit(37,338)(24,478)(12,860)53 %
Segment net income $33,536 $34,498 $(962)(3)%
Average deposits$2,527,171 $2,704,546 $(177,375)(7)%

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Segment net income decreased $1.0 million or 3% to $33.5 million during the first quarter of 2021, compared with $34.5 million in the same period in 2020, primarily driven by higher noninterest expense and lower noninterest income.

Noninterest expense increased $9.3 million or 40% to $32.5 million during the first quarter of 2021, compared with $23.2 million in the same period in 2020, primarily reflecting higher amortization of tax credit and other investments.

Noninterest income decreased $4.6 million or 69% to $2.0 million compared with $6.6 million for the same period in 2020, primarily reflecting decreases in other investment income, gains on sales of AFS debt securities and foreign exchange income.

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

Balance Sheet Analysis

Debt Securities

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

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

Available-for-Sale Debt Securities

Debt securities classified as AFS are carried at their fair value with the corresponding changes in fair value recorded in Accumulated other comprehensive income (loss), net of tax, as a component of Stockholders’ equity on the Consolidated Balance Sheet.

The following table presents the distribution of the Company’s AFS debt securities portfolio by fair value and percentage of fair value as of March 31, 2021 and December 31, 2020, and by credit ratings as of March 31, 2021:
March 31, 2021December 31, 2020
Ratings as of March 31, 2021 (2)
Fair
Value		% of TotalFair
Value		% of TotalAAA/AAABBBNo Rating
AFS debt securities:
U.S. Treasury securities$826,342 11 %$50,761 1 %100 %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities1,194,005 15 %814,319 15 %100 %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities3,416,797 44 %2,814,664 51 %100 %— %— %— %
Municipal securities (1)
420,065 5 %396,073 7 %92 %4 %— %4 %
Non-agency mortgage-backed securities (1)
804,527 10 %529,617 10 %91 %— %— %9 %
Corporate debt securities (1)
496,643 6 %405,968 7 %— %28 %72 %— %
Foreign government bonds (1)
276,328 4 %182,531 3 %45 %55 %— %— %
Asset-backed securities (1)
63,040 1 %63,231 1 %100 %— %— %— %
Collateralized loan obligations (CLOs) (1)
291,466 4 %287,494 5 %92 %8 %— %— %
Total AFS debt securities$7,789,213 100 %$5,544,658 100 %90 %4 %5 %1 %
(1)There were no securities of a single non-federal governmental agency issuer that exceeded 10% of stockholder’s equity as of both March 31, 2021 and December 31, 2020.
(2)Primarily based upon the lowest of the credit ratings issued by Standard and Poor's (“S&P”), Moody’s Investors Service (“Moody’s”) or Fitch Ratings (“Fitch”). Rating percentages are allocated based on fair value.

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The fair value of AFS debt securities totaled $7.79 billion as of March 31, 2021, an increase of $2.24 billion or 40% from $5.54 billion as of December 31, 2020. The largest changes came from U.S. Treasury securities, which increased $775.6 million, followed by U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, which increased $602.1 million, and U.S. government agency and U.S. government-sponsored enterprise debt securities, which increased $379.7 million.

The Company’s debt securities portfolio had an effective duration, defined as a change in the price of a portfolio due to a 100 basis point shift in the yield curve, of 6.3 as of March 31, 2021 which increased from 4.2 as of December 31, 2020, primarily due to an increase in the target duration of securities purchased to achieve enhancement in portfolio yield. As of March 31, 2021, 90% of the carrying value of the Company’s debt securities portfolio was rated “AA-” or “Aa3” or higher by nationally recognized credit rating agencies, compared with 88% as of December 31, 2020. The increase in higher-rated securities was primarily due to the growth in U.S. Treasury securities and U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities within the portfolio mix. Credit ratings of BBB- or higher by S&P and Fitch, or Baa3 or higher by Moody’s, are considered investment grade.

The Company’s AFS debt securities are carried at fair value with noncredit-related unrealized gains and losses, net of tax, reported in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income. Pre-tax net unrealized losses on AFS debt securities were $115.3 million as of March 31, 2021, a net change of $189.4 million from pre-tax net unrealized gains of $74.1 million as of December 31, 2020. This change was primarily due to increases in benchmark interest rates and widening of spreads. As of March 31, 2021, the Company had no intention to sell securities with unrealized losses and believed it is more-likely-than-not that it would not be required to sell such securities before recovery of their amortized costs.

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

If a credit loss exists, the Company records an impairment related to credit losses through the allowance for credit losses with a corresponding Provision for credit losses on the Consolidated Statement of Income. There were no credit losses recognized in earnings for both the first quarter of 2021 and 2020. The Company assesses individual securities for credit losses for each reporting period. For additional information of the Company’s accounting policies, valuation and composition, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K and Note 3 — Fair Value Measurement and Fair Value of Financial Instruments and Note 5 — Securities to the Consolidated Financial Statements in this Form 10-Q.

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The following table presents the weighted-average yields and contractual maturity distribution, excluding periodic principal payments, of the Company’s AFS debt securities as of March 31, 2021 and December 31, 2020. Actual maturities of certain securities can differ from contractual maturities as the borrowers have the right to prepay obligations with or without prepayment penalties. In addition, factors such as prepayments and interest rates may affect the yields on the carrying values of these securities.
($ in thousands)March 31, 2021December 31, 2020
Amortized
Cost		Fair
Value
Yield (1)
Amortized
Cost		Fair
Value
Yield (1)
AFS debt securities:
U.S. Treasury securities:
Maturing in one year or less
$50,213 $50,541 1.26 %$50,310 $50,761 1.26 %
Maturing after five years through ten years
791,498 775,801 0.95 %— — — %
Total
841,711 826,342 0.97 %50,310 50,761 1.26 %
U.S. government agency and U.S. government- sponsored enterprise debt securities:
Maturing in one year or less
1,068,821 1,024,439 1.86 %640,153 640,366 1.78 %
Maturing after one year through five years
114,316 114,854 2.38 %118,053 122,012 2.38 %
Maturing after five years through ten years
9,064 9,438 2.60 %11,091 11,697 2.54 %
Maturing after ten years
44,245 45,274 2.58 %37,517 40,244 2.74 %
Total
1,236,446 1,194,005 1.94 %806,814 814,319 1.92 %
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Maturing in one year or less
10,578 10,679 2.77 %4,185 4,232 3.46 %
Maturing after one year through five years
14,968 15,762 2.89 %21,566 22,668 2.72 %
Maturing after five years through ten years
248,668 248,359 2.05 %216,332 222,905 2.17 %
Maturing after ten years
3,175,669 3,141,997 1.76 %2,517,644 2,564,859 2.11 %
Total
3,449,883 3,416,797 1.79 %2,759,727 2,814,664 2.12 %
Municipal securities (2):
Maturing in one year or less
18,598 18,777 2.98 %18,663 18,868 3.04 %
Maturing after one year through five years
34,862 36,207 2.88 %36,000 37,716 2.89 %
Maturing after five years through ten years
236,146 239,229 2.06 %230,851 239,883 2.07 %
Maturing after ten years
128,070 125,852 2.05 %97,059 99,606 2.08 %
Total
417,676 420,065 2.17 %382,573 396,073 2.20 %
Non-agency mortgage-backed securities:
Maturing in one year or less
7,920 7,920 2.46 %7,920 7,920 0.63 %
Maturing after one year through five years
62,606 62,771 3.81 %49,704 49,870 3.80 %
Maturing after five years through ten years
60,517 60,524 1.11 %21,332 21,376 1.50 %
Maturing after ten years
675,616 673,312 1.84 %444,529 450,451 2.48 %
Total
806,659 804,527 1.95 %523,485 529,617 2.48 %
Corporate debt securities:
Maturing in one year or less
156,306 145,377 1.81 %126,250 124,846 1.71 %
Maturing after one year through five years
324,503 315,902 3.37 %276,073 277,103 3.56 %
Maturing after five years through ten years
32,000 30,864 2.59 %4,000 4,019 4.50 %
Maturing after ten years
4,500 4,500 3.50 %— — — %
Total
517,309 496,643 2.85 %406,323 405,968 2.99 %
Foreign government bonds:
Maturing in one year or less
90,968 90,075 1.19 %45,681 45,655 0.85 %
Maturing after one year through five years
137,132 136,106 2.41 %138,147 136,876 2.41 %
Maturing after five years through ten years
50,000 50,147 0.39 %— — — %
Total
278,100 276,328 1.65 %183,828 182,531 2.02 %
Asset-backed securities:
Maturing after ten years
62,762 63,040 0.80 %63,463 63,231 0.85 %
CLOs:
Maturing after ten years
294,000 291,466 1.35 %294,000 287,494 1.34 %
Total AFS debt securities
$7,904,546 $7,789,213 1.80 %$5,470,523 $5,544,658 2.13 %
Total aggregated by maturities:
Maturing in one year or less
$1,403,404 $1,347,808 1.82 %$893,162 $892,648 1.72 %
Maturing after one year through five years
688,387 681,602 3.02 %639,543 646,245 3.05 %
Maturing after five years through ten years
1,427,893 1,414,362 1.36 %483,606 499,880 2.12 %
Maturing after ten years
4,384,862 4,345,441 1.75 %3,454,212 3,505,885 2.08 %
Total AFS debt securities$7,904,546 $7,789,213 1.80 %$5,470,523 $5,544,658 2.13 %
(1)Weighted-average yields are computed based on amortized cost balances.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

69

Loan Portfolio

The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include commercial loans, which consist of C&I, CRE, multifamily residential, and construction and land loans; and consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Total net loans were $38.98 billion as of March 31, 2021, an increase of $1.21 billion or 3% from $37.77 billion as of December 31, 2020. This was primarily driven by increases of $449.4 million or 3% in C&I loans, primarily driven by PPP loan growth; $280.5 million or 2% in total CRE loans; and $484.0 million or 5% in residential mortgage. As of March 31, 2021, the Company had no loans held-for-sale. The composition of the loan portfolio as of March 31, 2021 was similar to the composition as of December 31, 2020.

The following table presents the composition of the Company’s total loan portfolio by loan type as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Amount (1)
%
Amount (1)
%
Commercial:
C&I (2)
$14,081,110 36 %$13,631,726 36 %
CRE:
CRE11,563,034 29 %11,174,611 29 %
Multifamily residential3,066,515 8 %3,033,998 8 %
Construction and land459,254 1 %599,692 2 %
Total CRE15,088,803 38 %14,808,301 39 %
Total commercial 29,169,913 74 %28,440,027 75 %
Consumer:
Residential mortgage:
Single-family residential8,524,287 22 %8,185,953 21 %
HELOCs1,749,172 4 %1,601,716 4 %
Total residential mortgage10,273,459 26 %9,787,669 25 %
Other consumer145,376 0 %163,259 0 %
Total consumer 10,418,835 26 %9,950,928 25 %
Total loans held-for-investment
39,588,748 100 %38,390,955 100 %
Allowance for loan losses
(607,506)(619,983)
Loans held-for-sale (3)
— 1,788 
Total loans, net$38,981,242 $37,772,760 
(1)Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(76.9) million and $(58.8) million as of March 31, 2021 and December 31, 2020, respectively. Net origination fees related to PPP loans were $(34.3) million and $(12.7) million as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes $2.07 billion and $1.57 billion of PPP loans as of March 31, 2021 and December 31, 2020, respectively.
(3)Consists of single-family residential loans as of December 31, 2020.

Actions to Support Customers during the COVID-19 Pandemic

In response to the COVID-19 pandemic, the Company assists customers by offering SBA PPP loans to help struggling businesses in our communities pay their employees and sustain their businesses. Given that PPP loans are guaranteed by the SBA, the Company does not expect to realize credit losses on these loans. PPP processing fees are deferred and accreted into interest income over the estimated life of the loans, but may be accelerated upon forgiveness or prepayment. For more information on PPP loans, refer to Item 2. MD&A — Overview — Regulatory Developments Relating to the COVID-19 Pandemic — Paycheck Protection Program in this Form 10-Q and Note 1 — Summary of Significant Accounting Policies — Paycheck Protection Program to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

In addition, the Company also provides payment relief through various loan modification programs. For a summary of the loans that the Company has modified in response to the COVID-19 pandemic, refer to Item 2. MD&A — Risk Management — Credit Risk Management in this Form 10-Q.
70

Commercial

The commercial loan portfolio comprised 74% of total loans as of March 31, 2021, compared with 75% of total loans as of December 31, 2020. The Company actively monitors the commercial lending portfolio for elevated levels of credit risk and reviews credit exposures for sensitivity to changing economic conditions.

Commercial — Commercial and Industrial Loans. C&I loans totaled $14.08 billion as of March 31, 2021, compared with $13.63 billion as of December 31, 2020, and accounted for 36% of total loans held-for-investment as of both dates. Year-to-date, C&I loans increased $449.4 million or 3%, primarily driven by PPP loan funding. The C&I loan portfolio includes loans and financing for businesses in a wide spectrum of industries, and includes asset-based lending, equipment financing and leasing, project-based finance, revolving lines of credit, SBA lending, structured finance, term loans and trade finance. The Company also has a portfolio of broadly syndicated C&I loans, primarily Term B, which totaled $999.0 million and $892.1 million as of March 31, 2021 and December 31, 2020, respectively. The majority of the C&I loans have variable interest rates.

The C&I portfolio is well-diversified by industry. The Company monitors concentrations within the C&I loan portfolio by customer exposure and industry classification, setting diversification targets and exposure limits by industry or loan product. The following charts illustrate the industry mix within our C&I portfolio as of March 31, 2021 and December 31, 2020.
ewbc-20210331_g5.jpgewbc-20210331_g6.jpg
Commercial — Commercial Real Estate Loans. The total CRE loan portfolio consists of income-producing CRE, multifamily residential, and construction and land loans. Total CRE loans outstanding totaled $15.09 billion as of March 31, 2021, or 38% of total loans held-for-investment, compared with $14.81 billion or 39% of total loans held-for-investment as of December 31, 2020. Year-to-date total CRE loans increased $280.5 million or 2%, primarily driven by growth in income-producing CRE, partially offset by declines in construction and land loans.

The Company’s total CRE portfolio is granular and broadly diversified by property type, which serves partially to mitigate its geographical concentration in California. The average size of total CRE loans was $2.4 million as of both March 31, 2021 and December 31, 2020. The following table summarizes the Company’s total CRE loan portfolio by property type as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Amount%Amount%
Property types:
Retail$3,590,096 24 %$3,466,141 23 %
Multifamily3,066,515 20 %3,033,998 20 %
Offices2,821,985 19 %2,747,082 19 %
Industrial2,531,512 17 %2,407,594 16 %
Hospitality1,953,478 13 %1,888,797 13 %
Construction and land459,254 3 %599,692 4 %
Other665,963 4 %664,997 5 %
Total CRE loans$15,088,803 100 %$14,808,301 100 %

71

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

The following tables provide a summary of the Company’s income-producing CRE, multifamily residential, and construction and land loans by geography as of March 31, 2021 and December 31, 2020. The distribution of the CRE loan portfolio reflects the Company’s geographical footprint, which is concentrated in California:
($ in thousands)March 31, 2021
CRE%Multifamily
Residential		%Construction
and Land		%Total CRE%
Geographic markets:
Southern California
$6,174,824 $1,904,193 $154,643 $8,233,660 
Northern California
2,546,418 674,848 169,569 3,390,835 
California8,721,242 75 %2,579,041 84 %324,212 71 %11,624,495 77 %
New York708,214 6 %142,056 5 %79,599 17 %929,869 6 %
Texas898,278 8 %118,285 4 %2,557 1 %1,019,120 7 %
Washington310,307 3 %96,057 3 %11,329 2 %417,693 3 %
Arizona150,091 1 %951 0 %— — %151,042 1 %
Nevada89,374 1 %86,206 3 %27,272 6 %202,852 1 %
Other markets685,528 6 %43,919 1 %14,285 3 %743,732 5 %
Total loans $11,563,034 100 %$3,066,515 100 %$459,254 100 %$15,088,803 100 %

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

Since 77% of these loans were concentrated in California as of both March 31, 2021 and December 31, 2020, changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses. For additional information related to the risk of real estate markets in California, see Item 1A. Risk Factors to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

Commercial — Income-Producing Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. Income-producing CRE loans totaled $11.56 billion as of March 31, 2021, compared with $11.17 billion as of December 31, 2020, and accounted for 29% of total loans held-for-investment as of both dates. Interest rates on CRE loans may be fixed, variable or hybrid. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

72

Owner-occupied properties comprised 19% and 20% of the income-producing CRE loans as of March 31, 2021 and December 31, 2020, respectively. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by unaffiliated rental income from a third party.

Commercial — Multifamily Residential Loans. The multifamily residential loan portfolio is largely made up of loans secured by residential properties with five or more units. Multifamily residential loans totaled $3.07 billion as of March 31, 2021, compared with $3.03 billion as of December 31, 2020, and accounted for 8% 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.

Commercial — Construction and Land Loans. Construction and land loans provide financing for a portfolio of projects diversified by real estate property type. These loans totaled $459.3 million or 1% of total loans held-for-investment as of March 31, 2021, compared with $599.7 million or 2% of total loans held-for-investment as of December 31, 2020. Construction loans exposure was made up of $415.6 million in loans outstanding and $255.9 million in unfunded commitments as of March 31, 2021, compared with $554.7 million in loans outstanding, plus $288.2 million in unfunded commitments as of December 31, 2020.

Consumer

The following tables summarize the Company’s single-family residential and HELOC loan portfolios by geography as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021
Single-
Family
Residential		%HELOCs%Total
Residential
Mortgage		%
Geographic markets:
Southern California$3,511,096 $794,333 $4,305,429 
Northern California1,038,503 402,700 1,441,203 
California4,549,599 53 %1,197,033 68 %5,746,632 57 %
New York2,557,497 30 %254,019 15 %2,811,516 27 %
Washington577,234 7 %192,408 11 %769,642 7 %
Massachusetts257,540 3 %54,888 3 %312,428 3 %
Texas217,532 3 %— — %217,532 2 %
Georgia227,781 3 %17,973 1 %245,754 2 %
Other markets137,104 1 %32,851 2 %169,955 2 %
Total$8,524,287 100 %$1,749,172 100 %$10,273,459 100 %
Lien priority:
First mortgage$8,524,287 100 %$1,516,570 87 %$10,040,857 98 %
Junior lien mortgage— — %232,602 13 %232,602 2 %
Total$8,524,287 100 %$1,749,172 100 %$10,273,459 100 %
73

($ in thousands)December 31, 2020
Single-
Family
Residential		%HELOCs%Total
Residential
Mortgage		%
Geographic markets:
Southern California$3,462,067 $728,733 $4,190,800 
Northern California1,059,832 354,014 1,413,846 
California4,521,899 55 %1,082,747 68 %5,604,646 57 %
New York2,277,722 28 %244,425 15 %2,522,147 26 %
Washington597,231 7 %180,765 11 %777,996 8 %
Massachusetts259,368 3 %44,633 3 %304,001 3 %
Texas209,737 3 %— — %209,737 2 %
Other markets319,996 4 %49,146 3 %369,142 4 %
Total$8,185,953 100 %$1,601,716 100 %$9,787,669 100 %
Lien priority:
First mortgage$8,185,953 100 %$1,372,270 86 %$9,558,223 98 %
Junior lien mortgage— — %229,446 14 %229,446 2 %
Total $8,185,953 100 %$1,601,716 100 %$9,787,669 100 %

Consumer — Single-Family Residential Loans. Single-family residential loans totaled $8.52 billion as of March 31, 2021, compared with $8.19 billion as of December 31, 2020, and accounted for 22% and 21% of total loans held-for-investment as of March 31, 2021 and December 31, 2020. Year-to-date single-family residential loans increased $336.5 million or 4%, primarily driven by net growth in New York. The Company was in a first lien position for virtually all of the single-family residential loans as of both March 31, 2021 and December 31, 2020. Many of these loans are reduced documentation loans, for which a substantial down payment is required, resulting in a low LTV ratio at origination, typically 65% or less. These loans have historically experienced low delinquency and loss rates. The Company offers a variety of single-family residential first lien mortgage loan programs, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed-rate period.

Consumer — Home Equity Lines of Credit. HELOCs totaled $1.75 billion as of March 31, 2021, compared with $1.60 billion as of December 31, 2020, and accounted for 4% of total loans held-for-investment as of both dates. Year-to-date HELOCs increased $147.5 million or 9%, primarily driven by growth in California. The Company was in a first lien position for 87% and 86% of total HELOCs as of March 31, 2021 and December 31, 2020, respectively. Many of the loans within this portfolio are reduced documentation loans, for which a substantial down payment is required, resulting in a low LTV ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and loss rates. Virtually all of the Company’s HELOCs were variable-rate loans.

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

Loans Held-for-Sale

As of March 31, 2021, the Company had no loans held-for-sale. As of December 31, 2020, loans held-for-sale of $1.8 million consisted of single-family residential loans. At the time of commitment to originate or purchase a loan, a loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s evaluation processes, including liquidity and credit risk management. If the Company subsequently changes its intent to hold certain loans, those loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value.

74

Sales of Originated Loans and Purchased Loans

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

The following tables provide information on loan sales during the first quarters of 2021 and 2020. Refer to Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q for additional information on loan purchases and transfers.
($ in thousands)Three Months Ended March 31, 2021
CommercialConsumerTotal
C&ITotal CREResidential Mortgage
CRESingle-Family
Residential
Loans sold:
Originated loans:
Amount$103,485 $20,032 $7,506 $131,023 
Net gains$229 $1,263 $214 $1,706 
Purchased loans:
Amount$22,394 $— $— $22,394 
Net gains$75 $— $— $75 
($ in thousands)Three Months Ended March 31, 2020
CommercialConsumerTotal
C&ITotal CREResidential Mortgage
CRESingle-Family
Residential
Loans sold:
Originated loans:
Amount$102,973 $7,250 $4,642 $114,865 
Net gains$235 $665 $50 $950 

75

Foreign Outstandings

The Company’s overseas offices, which include the branch in Hong Kong and the subsidiary bank in China, are subject to the general risks inherent in conducting business in foreign countries, such as regulations, or economic and political uncertainties. In addition, the Company’s financial assets held in the Hong Kong branch and the subsidiary bank in China may be affected by fluctuations in currency exchange rates or other factors. The Company’s country risk exposure is largely concentrated in these locations. The following table presents the major financial assets held in the Company’s overseas offices as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Amount% of Total
Consolidated
Assets		Amount% of Total
Consolidated
Assets
Hong Kong branch:
Cash and cash equivalents$626,081 1 %$647,883 1 %
AFS debt securities (1)
$256,160 0 %$66,170 0 %
Loans held-for-investment (2)
$670,406 1 %$704,415 1 %
Total assets$1,561,250 3 %$1,426,479 3 %
Subsidiary bank in China:
Cash and cash equivalents$660,323 1 %$611,088 1 %
Interest-bearing deposits with banks$6,674 0 %$74,079 0 %
AFS debt securities (3)
$151,343 0 %$152,219 0 %
Loans held-for-investment (2)
$789,789 1 %$796,153 2 %
Total assets$1,605,617 3 %$1,634,896 3 %
(1)Comprised of U.S. Treasury securities, corporate debt securities and foreign government bonds as of March 31, 2021; comprised of U.S. Treasury securities and foreign government bonds as of December 31, 2020.
(2)Primarily comprised of C&I loans as of both March 31, 2021 and December 31, 2020.
(3)Comprised of foreign government bonds as of both March 31, 2021 and December 31, 2020.

The following table presents the total revenue generated by the Company’s overseas offices for the first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Amount% of Total
Consolidated
Revenue		Amount% of Total
Consolidated
Revenue
Hong Kong branch:
Total revenue$5,467 1 %$6,929 2 %
Subsidiary bank in China:
Total revenue$6,521 2 %$7,179 2 %

Capital

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

76

In March 2020, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s common stock. This $500.0 million repurchase authorization was inclusive of the Company’s $100.0 million stock repurchase authorization previously outstanding. The Company determines the timing and amount of stock repurchases, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. During the first quarter of 2020, the Company repurchased 4,471,682 shares at an average price of $32.64 per share and a total cost of $146.0 million. The Company did not repurchase any shares during the remainder of 2020 or in the first quarter of 2021. As of March 31, 2021, the total remaining available capital authorized for repurchase was $354.0 million.

The Company’s stockholders’ equity was $5.29 billion as of March 31, 2021, an increase of $15.9 million or 0.3% from $5.27 billion as of December 31, 2020. The increase in the Company’s stockholders’ equity was primarily due to net income of $205.0 million for the first quarter of 2021, partially offset by an increase in other comprehensive loss of $134.4 million and cash dividends declared of $47.4 million during the first quarter of 2021. For other factors that contributed to the changes in stockholders’ equity, refer to Item 1. Consolidated Financial Statements — Consolidated Statement of Changes in Stockholders’ Equity in this Form 10-Q.

Book value was $37.26 per common share as of March 31, 2021, an increase of 0.1% from $37.22 per common share as of December 31, 2020. The Company paid a quarterly cash dividends of $0.33 and $0.275 per common share for the first quarters of 2021 and 2020, respectively. In April 2021, the Company’s Board of Directors declared second quarter 2021 cash dividends of $0.33 per common share. The dividend is payable on May 17, 2021 to stockholders of record as of May 3, 2021.

Deposits and Other Sources of Funds

Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short- and long-term borrowings, and long-term debt. See Item 2. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-Q for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funds as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020Change
Amount%Amount%$%
Deposits
Noninterest-bearing demand$18,919,298 38 %$16,298,301 36 %$2,620,997 16 %
Interest-bearing checking7,005,693 14 %6,142,193 14 %863,500 14 %
Money market12,218,957 25 %10,740,667 24 %1,478,290 14 %
Savings2,604,355 5 %2,681,242 6 %(76,887)(3)%
Time deposits8,798,833 18 %9,000,349 20 %(201,516)(2)%
Total deposits$49,547,136 100 %$44,862,752 100 %$4,684,384 10 %
Other Funds
Short-term borrowings$— $21,009 $(21,009)(100)%
FHLB advances653,035 652,612 423 0 %
Repurchase agreements300,000 300,000 — — %
Long-term debt147,445 147,376 69 0 %
Total other funds$1,100,480 $1,120,997 $(20,517)(2)%
Total sources of funds$50,647,616 $45,983,749 $4,663,867 10 %

Deposits

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

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Total deposits were $49.55 billion as of March 31, 2021, an increase of $4.68 billion or 10% from $44.86 billion as of December 31, 2020. Deposit growth was attributable to strong growth from both commercial and consumer customers, partially offset by a reduction in higher-cost time deposits. The strongest growth was in noninterest-bearing demand deposits, which increased by $2.62 billion or 16% compared with December 31, 2020. Noninterest-bearing demand deposits were $18.92 billion or 38% of total deposits as of March 31, 2021, up from $16.30 billion or 36% of total deposits as of December 31, 2020. Additional information regarding the impact of deposits on net interest income, with a comparison of average deposit balances and rates, is provided in Item 2. MD&A — Results of Operations — Net Interest Income in this Form 10-Q.

Other Sources of Funding

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

FHLB advances were $653.0 million as of March 31, 2021, an increase of $423 thousand from $652.6 million as of December 31, 2020. As of March 31, 2021, FHLB advances had fixed and floating interest rates ranging from zero percent to 2.34% and remaining maturities between one month and 1.6 years. Of these, $405.0 million have a blended interest rate of 2.22% and will mature in the second quarter of 2021.

Gross repurchase agreements totaled $300.0 million as of both March 31, 2021 and December 31, 2020. Resale and repurchase agreements are reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of both March 31, 2021 and December 31, 2020, the Company did not have any gross resale agreements that were eligible for netting pursuant to ASC 210-20-45-11. As of March 31, 2021, gross repurchase agreements had interest rates ranging from 2.41% to 2.49%, with original terms between 4.0 years and 8.5 years and remaining maturities between 2.3 years and 2.4 years.

Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the assets are sold. As of March 31, 2021, the collateral for the repurchase agreements was comprised of U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, and U.S. Treasury securities. To ensure the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funds from a diverse group of counterparties, and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q.

The Company uses long-term debt to provide funding to acquire interest-earning assets, and to enhance liquidity and regulatory capital adequacy. Long-term debt totaled $147.4 million as of both March 31, 2021 and December 31, 2020, respectively. Long-term debt consists of junior subordinated debt, which qualifies as Tier 2 capital for regulatory purposes. The junior subordinated debt was issued in connection with the Company’s various pooled trust preferred securities offerings, as well as with common stock issued by the six wholly owned subsidiaries of the Company in conjunction with these offerings. The junior subordinated debt had a weighted-average interest rate of 1.78% and 3.13% for the first quarters of 2021 and 2020, respectively, with remaining maturities ranging between 13.7 years and 16.5 years as of March 31, 2021.

Regulatory Capital and Ratios

The federal banking agencies have risk-based capital adequacy guidelines intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with a banking organization’s operations. The Company and the Bank are subject to regulatory capital adequacy requirements. The Bank is a member bank of the Federal Reserve System and is primarily regulated by the Federal Reserve and the California Department of Financial Protection and Innovation (“DFPI”). The Company and the Bank are required to comply with the Basel III Capital Rules adopted by the federal banking agencies. Both the Company and the Bank are standardized approaches institutions under Basel III Capital Rules. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and Recent Regulatory Capital-Related Development of the Company’s 2020 Form 10-K for additional details.
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The Company adopted ASU 2016-13 on January 1, 2020. The Company has elected the phase-in option provided by regulatory guidance, which delays the estimated impact of Current Expected Credit Losses (“CECL”) on regulatory capital for two years and phases the impact over three years. As a result, the effects of CECL on the Company’s and the Bank’s regulatory capital will be delayed through the year 2021, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. In April 2020, in recognition of CARES Act requirements, and to facilitate the use of the PPPLF, the U.S. banking agencies issued an interim final rule that banking organizations may exclude from leverage and risk-based capital requirements any eligible assets sold or pledged to the Federal Reserve on a non-recourse basis as part of the PPPLF. In addition, under the CARES Act, loans originated by a banking organization under the PPP (whether or not sold or pledged in the PPPLF) will be risk-weighted at zero percent for regulatory capital purposes. Accordingly, the March 31, 2021 capital ratios exclude the impact of the increased allowance for loan losses due to CECL, and PPP loans are risk-weighted at zero percent. As of March 31, 2021, the Company did not have any PPP loans pledged as collateral to the PPPLF.

The following table presents the Company’s and the Bank’s capital ratios as of March 31, 2021 and December 31, 2020 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:
Basel III Capital Rules
March 31, 2021December 31, 2020Minimum
Regulatory
Requirements
Fully Phased-in
Minimum
Regulatory
Requirements (2)
Well-
Capitalized
Requirements
CompanyEast West
Bank		CompanyEast West
Bank
Risk-based capital ratios:
CET1 capital12.7 %12.2 %12.7 %12.1 %4.5 %7.0 %6.5 %
Tier 1 capital12.7 %12.2 %12.7 %12.1 %6.0 %8.5 %8.0 %
Total capital14.3 %13.4 %14.3 %13.4 %8.0 %10.5 %10.0 %
Tier 1 leverage (1)
9.1 %8.7 %9.4 %9.0 %4.0 %4.0 %5.0 %
(1)The Tier 1 leverage well-capitalized requirement applies only to the Bank since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank-holding company.
(2)As of January 1, 2019, the 2.5% capital conservation buffer above the minimum risk-based capital ratios was required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonus payments to executive officers.

The Company is committed to maintaining strong capital levels to assure the Company’s investors, customers and regulators that the Company and the Bank are financially sound. As of March 31, 2021 and December 31, 2020, both the Company and the Bank continued to exceed all “well-capitalized” capital requirements and the fully phased-in required minimum capital requirements under the Basel III Capital Rules. Total risk-weighted assets were $39.57 billion as of March 31, 2021, an increase of $1.17 billion or 3% from $38.41 billion as of December 31, 2020. The increase in the risk-weighted assets was primarily due to loan growth and increased AFS debt securities.

Other Matters

London Interbank Offered Rate Transition

On March 5, 2021, the United Kingdom’s Financial Conduct Authority (“FCA”) confirmed that the 1-week and 2-month U.S. dollar (“USD”) London Interbank Offered Rate (“LIBOR”) settings will permanently cease following the LIBOR publication on December 31, 2021, and that the overnight and 12-month USD LIBOR settings will permanently cease following the LIBOR publication on June 30, 2023. The 1-month, 3-month and 6-month USD LIBOR settings will either cease to be provided or will be provided on a synthetic basis, subject to FCA consideration, after the LIBOR publication on June 30, 2023. To the extent the 1-month, 3-month and 6-month USD LIBOR settings are provided on a synthetic basis, they will not be considered representative of the underlying market or economic reality they are intended to measure. The federal banking agencies have continued to encourage banks to transition away from LIBOR as soon as practicable. The Alternative Reference Rates Committee (“ARRC”) has proposed the Secured Overnight Financing Rate (“SOFR”) as its preferred rate as an alternative to LIBOR, although the ARRC has not proposed that SOFR be required.

Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The majority of the Company’s LIBOR-based loans, derivatives, debt securities, resale agreements, junior subordinated debt and repurchase agreements are indexed to LIBOR tenors that will cease to be published on June 30, 2023. The volume of the Company’s LIBOR-based products that mature after June 30, 2023 is significant and, if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to the Company.
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The transition is anticipated to span several reporting periods through mid-2023 (depending on the setting) with the recently confirmed LIBOR cessation dates. The Company has created a cross-functional team to manage the communication of the Company’s transition plans with both internal and external stakeholders and to ensure that the Company appropriately updates its business processes, analytical tools, information systems and contract language to minimize disruptions during and after the LIBOR transition. The Company has completed a review of LIBOR contracts maturing after the LIBOR cessation dates and has begun taking steps to convert these contracts to alternative rates. For additional information related to the potential impact surrounding the transition from LIBOR on the Company’s business, see Item 1A. Risk Factors in the Company’s 2020 Form 10-K.

Off-Balance Sheet Arrangements

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

Commitments to Extend Credit

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

Guarantees

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

A discussion of significant contractual arrangements under which the Company may be held contingently liable is included in Note 10 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q. In addition, the Company has commitments and obligations under post-retirement benefit plans as described in Note 14 — Employee Benefit Plans to the Consolidated Financial Statements of the Company’s 2020 Form 10-K, and has contractual obligations for future payments on debts, borrowings and lease obligations as detailed in Item 7. MD&A — Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2020 Form 10-K.

Risk Management

Overview

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

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

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

Credit Risk Management

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

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

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

Credit Quality

The Company utilizes a credit risk rating system to assist in monitoring credit quality. Loans are evaluated using the Company’s internal credit risk rating of 1 through 10. Loans risk rated 1 through 5 are assigned an internal risk rating of “Pass.” Loans assigned with a credit risk rating of 6 have potential weaknesses that warrant closer attention by management and are assigned an internal risk rating of “Special mention.” Loans assigned a credit risk rating of 7 or 8 have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating of “Substandard.” Loans assigned a credit risk rating of 9 have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating of “Doubtful.” Loans assigned a credit risk rating of 10 are uncollectible and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating of “Loss.” Exposures categorized as criticized consist of “Special mention,” “Substandard,” “Doubtful” and “Loss” categories. Exposures categorized as classified consist of “Substandard,” “Doubtful” and “Loss” categories. For more information on credit quality indicators, refer to Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

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The following table presents the Company’s criticized loans as of March 31, 2021 and December 31, 2020.
($ in thousands)Change
March 31, 2021December 31, 2020$%
Criticized loans
Special mention loans$504,226 $564,555 $(60,329)(11)%
Classified loans712,693 652,880 59,813 9 %
Total criticized loans$1,216,919 $1,217,435$(516)0 %
Special mention loans to loans held-for-investment1.27 %1.47 %
Classified loans to loans held-for-investment1.80 %1.70 %
Criticized loans to loans held-for-investment3.07 %3.17 %

As of March 31, 2021, criticized loans totaled $1.22 billion, or 3.07% of loans held-for-investment, compared with $1.22 billion, or 3.17% of loans held-for-investment, as of December 31, 2020. Quarter-over-quarter, special mention loans decreased to $504.2 million as of March 31, 2021, from $564.6 million as of December 31, 2020. Classified loans increased to $712.7 million as of March 31, 2021, from $652.9 million as of December 31, 2020. The quarter-over-quarter increase in classified loans was more than offset by the quarter-over-quarter decrease in special mention loans.

Nonperforming Assets

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

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The following table presents information regarding nonperforming assets as of the periods indicated:
($ in thousands)Change
March 31, 2021December 31, 2020$%
Commercial:
C&I$125,536 $133,939 $(8,403)(6)%
CRE:
CRE50,134 46,546 3,588 8 %
Multifamily residential4,693 3,668 1,025 28 %
Construction and land19,900 — 19,900 100 %
Total CRE74,727 50,214 24,513 49 %
Consumer:
Residential mortgage:
Single-family residential18,296 16,814 1,482 9 %
HELOCs10,877 11,696 (819)(7)%
Total residential mortgage29,173 28,510 663 2 %
Other consumer2,526 2,491 35 1 %
Total nonaccrual loans231,962 215,154 16,808 8 %
OREO, net15,824 15,824 — — %
Other nonperforming assets10,360 3,890 6,470 166 %
Total nonperforming assets$258,146 $234,868 $23,278 10 %
Nonperforming assets to total assets
0.45 %0.45 %
Nonaccrual loans to loans held-for-investment
0.59 %0.56 %
Allowance for loan losses to nonaccrual loans261.90 %288.16 %
TDRs included in nonperforming loans$83,732 $71,924 

Period-over-period changes to nonaccrual loans represent loans that are placed on nonaccrual status in accordance with the Company’s accounting policy, offset by reductions from loans that are repaid, paid down, charged off, sold, foreclosed or no longer classified as nonaccrual as a result of continued performance and improvement in the borrowers’ financial condition and loan repayment capabilities. Nonaccrual loans were $232.0 million or 0.59% of loans held-for-investment as of March 31, 2021, compared with $215.2 million or 0.56% of loans held-for-investment as of December 31, 2020. Quarter-over-quarter, nonaccrual loans increased by $16.8 million or 8%, primarily driven by the inflow of a construction and land loan, and a CRE loan to nonaccrual status, partially offset by paydowns. C&I nonaccrual loans were 54% and 62% of total nonaccrual loans as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, $123.6 million or 53% of nonaccrual loans were less than 90 days delinquent. In comparison, $106.4 million or 49% of nonaccrual loans were less than 90 days delinquent as of December 31, 2020.

OREO was $15.8 million as of both March 31, 2021 and December 31, 2020 due to the Company taking possession of one retail CRE property located in Southern California.

Other nonperforming assets totaled $10.4 million and $3.9 million as of March 31, 2021 and December 31, 2020, respectively, an increase of $6.5 million or 166% due to one oil & gas loan that was transferred to foreclosed assets.
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The following table presents the accruing loans past due by portfolio segment as of March 31, 2021 and December 31, 2020:
($ in thousands)
Total Accruing Past Due Loans (1)
ChangePercentage of
Total Loans Outstanding
March 31,
2021		December 31,
2020		$%March 31,
2021		December 31,
2020
Commercial:
C&I$32,050 $9,717 $22,333 230 %0.23 %0.07 %
CRE:
CRE39,495 375 39,120 NM0.34 %0.00 %
Multifamily residential
— 1,818 (1,818)(100)%— %0.06 %
Construction and land
— 19,900 (19,900)(100 %)— %3.32 %
Total CRE
39,495 22,093 17,402 79 %0.26 %0.15 %
Total commercial
71,545 31,810 39,735 125 %0.25 %0.11 %
Consumer:
Residential mortgage:
Single-family residential
12,575 12,494 81 1 %0.15 %0.15 %
HELOCs2,603 6,052 (3,449)(57)%0.15 %0.38 %
Total residential mortgage
15,178 18,546 (3,368)(18)%0.15 %0.19 %
Other consumer246 234 12 5 %0.17 %0.14 %
Total consumer
15,424 18,780 (3,356)(18)%0.15 %0.19 %
Total
$86,969 $50,590 $36,379 72 %0.22 %0.13 %
NM — Not meaningful.
(1)There were no accruing loans past due 90 days or more as of both March 31, 2021 and December 31, 2020.

Troubled Debt Restructurings

TDRs are loans for which contractual terms have been modified by the Company for economic or legal reasons related to a borrower’s financial difficulties, and for which a concession to the borrower was granted that the Company would not otherwise consider. The Company’s loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and to meet the borrower’s financial needs. The following table presents the performing and nonperforming TDRs by portfolio segment as of March 31, 2021 and December 31, 2020. The allowance for loan losses for TDRs was $5.3 million as of March 31, 2021 and $10.3 million as of December 31, 2020.
($ in thousands)March 31, 2021December 31, 2020
Performing
TDRs		Nonperforming
TDRs		TotalPerforming
TDRs		Nonperforming
TDRs		Total
Commercial:
C&I$85,553 $60,405 $145,958 $85,767 $68,451 $154,218 
CRE:
CRE24,798 — 24,798 24,851 — 24,851 
Multifamily residential3,305 1,423 4,728 3,310 1,448 4,758 
Construction and land— 19,900 19,900 19,900 — 19,900 
Total CRE28,103 21,323 49,426 48,061 1,448 49,509 
Consumer:
Residential mortgage:
Single-family residential6,822 1,150 7,972 6,748 1,169 7,917 
HELOCs2,617 854 3,471 2,631 856 3,487 
Total residential mortgage9,439 2,004 11,443 9,379 2,025 11,404 
Total TDRs$123,095 $83,732 $206,827 $143,207 $71,924 $215,131 

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Performing TDRs were $123.1 million as of March 31, 2021, a decrease of $20.1 million or 14% from $143.2 million as of December 31, 2020. This decrease primarily reflected the transfer of one construction loan of $19.0 million from performing TDR to nonperforming TDR. The C&I performing TDRs are mainly comprised of borrowers from the oil and gas, and general manufacturing & wholesale sectors. Over 99% and 85% of the performing TDRs were current as of March 31, 2021 and December 31, 2020, respectively.

Nonperforming TDRs were $83.7 million as of March 31, 2021, an increase of $11.8 million or 16% from $71.9 million as of December 31, 2020. This increase primarily reflected the migration of a construction loan from performing TDR to nonperforming TDR, partially offset by paydowns and a transfer of one C&I loan to other nonperforming assets. The C&I nonperforming TDRs are mainly comprised of borrowers from the oil and gas sector.

Existing TDRs that were subsequently modified in response to the COVID-19 pandemic continue to be classified as TDRs. As of March 31, 2021, there were six TDRs totaling $21.8 million that were provided subsequent modifications related to the COVID-19 pandemic.

Loan Modifications Due to COVID-19 Pandemic

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

The delinquency aging of loans modified related to the COVID-19 pandemic is frozen at the time of the modification. As a result, the recognition of delinquent loans, nonaccrual status and loan net charge-offs may be delayed for certain borrowers who are enrolled in these loan modification programs, which would have otherwise moved into past due or nonaccrual status. Interest income continues to be recognized over the accommodation period.
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The following table provides a summary of the COVID-19 pandemic-related loan modifications that remained under their modified terms as of March 31, 2021 and December 31, 2020. These amounts represent loan modifications that meet the criteria under Section 4013 of the CARES Act, as amended by the CAA, or Interagency Statement and therefore are not considered TDRs. These amounts also exclude loan modifications related to the COVID-19 pandemic made on existing TDRs. A loan is counted once in the table regardless of the number of accommodations the borrower has received.
($ in thousands)March 31, 2021December 31, 2020
Number of LoansOutstanding Balance% of Balance
to Respective Loan Portfolio		Number of LoansOutstanding Balance% of Balance
to Respective Loan Portfolio
Payment deferral and forbearance
Commercial:
C&I20$57,004 0 %16$54,215 0 %
CRE:
CRE78719,5266 %63597,9725 %
Multifamily residential962,7382 %417,1111 %
Construction and land254,16012 %366,62911 %
Total CRE89836,424 6 %70681,712 5 %
Total commercial109893,428 3 %86735,927 3 %
Consumer:
Residential mortgage:
Single-family residential460214,8303 %498207,7973 %
HELOCs8635,9642 %10239,4692 %
Total residential mortgage546250,794 2 %600247,266 3 %
Total consumer546250,794 2 %600247,266 2 %
Total payment deferral and forbearance655$1,144,222 3 %686$983,193 3 %

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

The COVID-19 pandemic-related loan modifications primarily consisted of payment deferrals six months or less in duration, in the form of either principal payment deferrals, where the borrower was still paying interest, or full principal and interest payment deferrals. Other forbearance programs consisted of interest rate concessions. The deferred payments for commercial loans are either repaid at contractual maturity, or spread over the remaining contractual term of the loan. The deferred payments for consumer loans are repaid under defined payment plans between six to 60 months after the deferral period ends, or the loan term is extended beyond the contractual maturity by the number of payments deferred.

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As of March 31, 2021, the Company had $1.14 billion of loans under payment deferral and forbearance programs, an increase of $161.0 million or 16% from $983.2 million as of December 31, 2020. The loans on deferral as of March 31, 2021 and December 31, 2020 largely consist of CRE loans (hotel, retail and others) and residential mortgage loans. The increase in deferrals during the three months ended March 31, 2021 was primarily driven by an increase in hotel CRE loans on deferral, reflecting the impact of resumed COVID-19-related business shutdowns, restrictions on travel and limitations on restaurant dining over the winter months. Of the CRE COVID-19 loan modifications, 92% were making partial payments, generally interest-only payments, while 8% were under full payment deferral as of March 31, 2021. This contrasts with 73% which were making partial payments, generally as interest-only payments and 27% which were under full payment deferral as of December 31, 2020. Modifications are considered to have exited active accommodation after the borrower exited the modification program or after the modification period expired. The loans with expired COVID-19 modifications were predominantly current as of March 31, 2021. The Company monitors the delinquency status of loans exiting relief programs on an ongoing basis. The impacts of the COVID-19 loan modifications were considered in the determination of the allowance for credit loss.

Allowance for Credit Losses

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

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

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

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

The Company is committed to maintaining the allowance for credit losses at a level that is commensurate with the estimated inherent losses in the loan portfolio, including unfunded credit facilities. While the Company believes that the allowance for credit losses as of March 31, 2021 was appropriate to absorb losses inherent in the loan portfolio and in unfunded credit commitments based on the information available, future allowance levels may increase or decrease based on a variety of factors, including but not limited to, accounting standard and regulatory changes, loan growth, portfolio performance and general economic conditions. For a description of the policies, methodologies and judgements used to determine the allowance for credit losses, see 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 2020 Form 10-K, and Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

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The following table presents an allocation of the allowance for loan losses by loan portfolio segments and unfunded credit commitments as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Allowance
Allocation		% of Loan Type to Total LoansAllowance
Allocation		% of Loan Type to Total Loans
Allowance for loan losses
Commercial:
C&I$394,084 36 %$398,040 36 %
CRE:
CRE146,399 29 %163,791 29 %
Multifamily residential
27,407 8 %27,573 8 %
Construction and land
19,089 1 %10,239 2 %
Total CRE192,895 38 %201,603 39 %
Total commercial586,979 74 %599,643 75 %
Consumer:
Residential mortgage:
Single-family residential
15,839 22 %15,520 21 %
HELOCs2,670 4 %2,690 4 %
Total residential mortgage
18,509 26 %18,210 25 %
Other consumer2,018 0 %2,130 0 %
Total consumer20,527 26 %20,340 25 %
Total$607,506 100 %$619,983 100 %
Allowance for unfunded credit commitments$32,529 $33,577 
Total allowance for credit losses$640,035 $653,560 
Three Months Ended March 31,
20212020
Average loans held-for-investment$38,728,635 $35,153,522 
Loans held-for-investment$39,588,748 $35,893,393 
Allowance for loan losses to loans held-for-investment1.53 %1.55 %
Annualized net charge-offs to average loans held-for-investment0.14 %0.01 %

The allowance for loan losses was $607.5 million as of March 31, 2021, a decrease of $12.5 million from $620.0 million as of December 31, 2020. The decrease in the allowance largely reflected an improvement in the macroeconomic forecast, partially offset by loan growth, resulting in $8.7 million and $4.0 million reductions in the allowance for loan losses against the CRE and C&I loan portfolios, respectively.

The Company considers multiple economic scenarios to develop the estimate of the allowance for loans. The scenarios consist of a base forecast representing management's view of the most likely outcome, combined with downside and upside scenarios reflecting possible worsening or improving economic conditions. The base forecast assumed better near-term economic conditions with a steadier long-term recovery period, based on economic stimulus from the government and the Federal Reserve maintaining its target fed funds range. The downside scenario assumed COVID-19 mortality increasing and causing a pull-back in the expected economic recovery and decline in consumer confidence and spending, as compared to the base forecast. The upside scenario assumed a more optimistic view for the economic recovery, as compared with the base forecast, including faster GDP growth, declining unemployment rate and improved consumer optimism based on more rapid distribution of COVID-19 vaccines. The Company applies management judgment to add qualitative factors for the impact of the COVID-19 pandemic on industry sectors that are affected by the pandemic.

As of March 31, 2021 and December 31, 2020, PPP loans outstanding were $2.07 billion and $1.57 billion, respectively. As these loans are 100% guaranteed by SBA, the Company believes they will have zero expected loss. Accordingly, as of March 31, 2021 and December 31, 2020, these loans had no related allowance for loan losses.
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First quarter of 2021 net charge-offs were $13.4 million or annualized 0.14% of average loans-held-for-investment, compared with $898 thousand or 0.01% of average loan held-for-investment for the first quarter of 2020. The year-over-year change in net loan charge-offs was largely due to higher CRE charge-offs in the first quarter of 2021, compared with CRE recoveries in the first quarter of 2020. Although the COVID-19 pandemic may continue to impact the credit quality of our loan portfolio, the potential effects have been considered in our allowance for loan losses. However, payment deferral activities instituted in response to the COVID-19 pandemic could delay the recognition of certain loan charge-offs.

The following tables summarize activity in the allowance for loan losses for loans by portfolio segments for the first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31, 2021
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period
$398,040 $163,791 $27,573 $10,239 $15,520 $2,690 $2,130 $619,983 
Provision for (reversal of) credit losses on loans
(a)3,839 (10,277)(1,391)8,592 376 22 (113)1,048 
Gross charge-offs(8,436)(7,195)(17)(71)(134)(45)(1)(15,899)
Gross recoveries760 80 1,242 329 77 3 2 2,493 
Total net (charge-offs) recoveries
(7,676)(7,115)1,225 258 (57)(42)1 (13,406)
Foreign currency translation adjustment(119)— — — — — — (119)
Allowance for loan losses, end of period
$394,084 $146,399 $27,407 $19,089 $15,839 $2,670 $2,018 $607,506 
($ in thousands)Three Months Ended March 31, 2020
CommercialConsumerTotal
C&ICREResidential MortgageOther
Consumer
CREMultifamily
Residential		Construction
and Land		Single-
Family
Residential		HELOCs
Allowance for loan losses, beginning of period
$238,376 $40,509 $22,826 $19,404 $28,527 $5,265 $3,380 $358,287 
Impact of ASU 2016-13 adoption
74,237 72,169 (8,112)(9,889)(3,670)(1,798)2,221 125,158 
Provision for (reversal of) credit losses on loans
(a)60,618 11,435 1,281 1,482 1,700 412 (2,272)74,656 
Gross charge-offs(11,977)(954)— — — — (26)(12,957)
Gross recoveries1,575 9,660 535 21 265 2 1 12,059 
Total net (charge-offs) recoveries
(10,402)8,706 535 21 265 2 (25)(898)
Foreign currency translation adjustment(200)— — — — — — (200)
Allowance for loan losses, end of period
$362,629 $132,819 $16,530 $11,018 $26,822 $3,881 $3,304 $557,003 

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The following table summarizes activity in the allowance for unfunded credit commitments for the first quarters of 2021 and 2020:
($ in thousands)Three Months Ended March 31,
20212020
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$33,577 $11,158 
Impact of ASU 2016-13 adoption— 10,457 
Reversal of credit losses on unfunded credit commitments(b)(1,048)(786)
Allowance for unfunded credit commitments, end of period32,529 20,829 
Provision for credit losses(a) + (b)$— $73,870 

The allowance for unfunded credit commitments was $32.5 million as of March 31, 2021, compared with $33.6 million as of December 31, 2020.

Liquidity Risk Management

Liquidity

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

The Board of Directors’ Risk Oversight Committee has primary oversight responsibility. At the management level, the Company’s Asset/Liability Committee (“ALCO”) establishes the liquidity guidelines that govern the day-to-day active management of the Company’s liquidity 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 for East West on a stand-alone basis to ensure that the Company is a source of strength for its subsidiaries. The ALCO regularly monitors the Company’s liquidity status and related management processes, providing regular reports to the 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 are relatively stable and low-cost. Total deposits amounted to $49.55 billion as of March 31, 2021, compared with $44.86 billion as of December 31, 2020. The Company’s loan-to-deposit ratio was 80% as of March 31, 2021, compared with 86% as of December 31, 2020.

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

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The Company maintains liquidity in the form of cash and cash equivalents, interest-bearing deposits with banks, short-term resale agreements and unencumbered high-quality and liquid AFS debt securities. The following table presents the Company’s liquid assets as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
EncumberedUnencumberedTotalEncumberedUnencumberedTotal
Cash and cash equivalents$— $4,619,133 $4,619,133 $— $4,017,971 $4,017,971 
Interest-bearing deposits with banks— 741,923 741,923 — 809,728 809,728 
Short-term resale agreements— 1,550,037 1,550,037 — 900,000 900,000 
U.S. Treasury, and U.S. government agency and U.S. government-sponsored enterprise debt securities77,795 1,942,552 2,020,347 91,637 773,443 865,080 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities510,438 2,906,359 3,416,797 494,132 2,320,532 2,814,664 
Foreign government bonds— 276,328 276,328 — 182,531 182,531 
Municipal securities1,031 419,034 420,065 1,033 395,040 396,073 
Non-agency mortgage-backed securities, asset-backed securities and CLOs356 1,158,677 1,159,033 434 879,908 880,342 
Corporate debt securities1,238 495,405 496,643 1,249 404,719 405,968 
Total$590,858 $14,109,448 $14,700,306 $588,485 $10,683,872 $11,272,357 

Unencumbered liquid assets totaled $14.11 billion as of March 31, 2021, compared with $10.68 billion as of December 31, 2020. AFS debt securities, included as part of liquidity sources, consist of high quality and liquid securities with moderate durations to minimize overall interest rate and liquidity risks. The Company believes these AFS debt securities provide quick sources of liquidity to obtain financing, regardless of market conditions, through sale or pledging.

As a means to generate incremental liquidity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and FRBSF, unsecured federal funds lines of credit with various correspondent banks, and several master repurchase agreements with major brokerage companies. As of March 31, 2021, the Company had available borrowing capacity of $20.78 billion, including $7.37 billion with the FHLB and $6.06 billion with the FRBSF. The Company believes that its liquidity sources are sufficient to meet all reasonably foreseeable short-term needs over the next 12 months. Unencumbered loans and/or securities were pledged to the FHLB and the FRBSF discount window as collateral. The Company has established operational procedures to enable borrowing against these assets, including regular monitoring of the total pool of loans and securities eligible as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRBSF and is subject to change at their discretion. The Bank’s unsecured federal funds lines of credit with correspondent banks, subject to availability, totaled $1.01 billion as of March 31, 2021. Estimated borrowing capacity from unpledged AFS debt securities totaled $6.34 billion as of March 31, 2021.

In connection with the Company’s participation in the PPP under the CARES Act, the Company has the ability to pledge loans originated under the SBA’s PPP program to the PPPLF, and receive term funding matching the balance and term of the pledged loans. As of March 31, 2021, the Company did not have any outstanding balance under the PPPLF. In comparison, the Company drew down $1.44 billion from the Federal Reserve PPPLF and pledged the same amount in PPP loans as collateral in the second quarter of 2020 and paid off the outstanding amounts under the PPPLF in full during the fourth quarter of 2020.

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 dividends distributed by its subsidiary, East West Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends as discussed in Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds of the Company’s 2020 Form 10-K. As of March 31, 2021, East West held $340.1 million in cash and cash equivalents, after receiving $50.0 million in dividends from the Bank. In comparison, as of December 31, 2020, East West held $439.1 million in cash and cash equivalents. Each year, the dividends from the Bank to East West are sufficient to meet the projected cash obligations of the parent company for the coming year.

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

Liquidity Risk — COVID-19 Pandemic. In response to the ongoing developments related to the COVID-19 pandemic, the Company continues to closely monitor the impact of the pandemic on its business. The uncertainty surrounding the COVID-19 pandemic, and its impact on the financial services industry, could potentially impact the liquidity of the Company. The prolonged strained economic, capital, credit and/or financial market conditions may expose the Company to liquidity risk. However, the Company believes that market conditions have shown signs of improvement after the Federal Reserve stepped in with a broad array of actions to stabilize financial markets and to lower borrowing costs. In December 2020, the CAA, which issued new relief provisions, extended certain provisions of the CARES Act, and provided additional stimulus funding, was signed into law. In addition, the ARPA was signed into law to provide additional relief for individuals and businesses affected by the COVID-19 pandemic in March 2021. The combination of the CAA and additional stimulus legislation passed in 2021 may further enhance economic recovery.

As of March 31, 2021, the Company was not aware of any material commitments for capital expenditures in the foreseeable future and believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business. Given the uncertainty and the rapidly changing market and economic conditions related to the COVID-19 pandemic, the Company will continue to actively evaluate the nature and extent of the impact on its business and financial position.

Consolidated Cash Flows Analysis

The following table presents a summary of the Company’s Consolidated Statement of Cash Flows for the periods indicated. While this information may be helpful to highlight business strategies and certain macroeconomic trends, the cash flow analysis may not be as relevant when analyzing changes in the Company’s net earnings and assets. The Company believes that in addition to this traditional cash flow analysis, the discussion related to liquidity in Item 2. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-Q may provide a useful context in evaluating the Company’s liquidity position and related activity.
($ in thousands)Three Months Ended March 31,
20212020
Net cash provided by operating activities$371,515 $91,703 
Net cash used in investing activities(4,383,909)(1,405,330)
Net cash provided by financing activities4,475,275 1,119,028 
Effect of exchange rate changes on cash and cash equivalents138,281 13,492 
Net increase (decrease) in cash and cash equivalents601,162 (181,107)
Cash and cash equivalents, beginning of period4,017,971 3,261,149 
Cash and cash equivalents, end of period$4,619,133 $3,080,042 

Operating Activities — Net cash provided by operating activities was $371.5 million and $91.7 million for the first quarters of 2021 and 2020, respectively. During the first quarter of 2021, net cash provided by operating activities mainly reflected inflow of $205.0 million from net income, $185.7 million decrease in accrued interest receivable and other assets primarily driven by lower derivative assets, and net income adjusted for certain noncash items of $49.3 million, partially offset by $72.9 million decrease in accrued expenses and other liabilities. In comparison, during the same period in 2020, net cash provided by operating activities mainly reflected inflow of $144.8 million from net income, net income adjusted for certain noncash items of $105.3 million primarily driven by higher provision for credit losses recognized and $304.7 million increase in accrued expenses and other liabilities, partially offset by $462.8 million increase in accrued interest receivable and other assets.

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Investing Activities — Net cash used in investing activities was $4.38 billion and $1.41 billion for the first quarters of 2021 and 2020, respectively. During the first quarter of 2021, cash used in investing activities primarily reflected $2.45 billion from net purchases of AFS debt securities (net of sales, maturities and paydowns), $1.21 billion used cash for growth in the loan portfolio, and $700.0 million net increase in resale agreements (net of maturities and paydowns). During the same period in 2020, net cash used in investing activities primarily reflected growth in the loan portfolio of $1.14 billion in used cash, $372.0 million net purchases of AFS debt securities (net of sales, maturities and paydowns), and $115.4 million in cash used for interest-bearing deposits with banks. The cash used was partially offset by proceeds of $250.0 million from resale agreements.

Financing Activities — Net cash provided by financing activities was $4.48 billion and $1.12 billion for the first quarters of 2021 and 2020, respectively. During the first quarter of 2021, net cash provided by financing activities primarily reflected a net increase of $4.56 billion in deposits, partially offset by $48.2 million in cash dividends paid. During the same period in 2020, net cash provided by financing activities primarily reflected net increases of $1.37 billion in deposits and $40.0 million in short-term borrowings, partially offset by $146.0 million of cash used in shares repurchased, $100.0 million repayment in FHLB advances and $41.4 million in cash dividends paid.

Market Risk Management

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

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

Interest Rate Risk Management

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

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

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

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

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

Since the federal funds rate range was lowered to near zero in March 2020 and the Federal Reserve has committed its resources to support the financial markets, business, and state and local governments, it is not expected that rates will decline further, nor is it expected that rates will enter into the negative territory. Consequently, the simulation results for the downward interest rate scenarios as of March 31, 2021 are not provided.

Twelve-Month Net Interest Income Simulation

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

The federal funds rate range was between 0.00% and 0.25% as of both March 31, 2021 and December 31, 2020. After lowering the range to between 0.00% and 0.25% in March 2020, the Federal Open Market Committee (“FOMC”) pledged to maintain monetary support for the economy. Moreover, in December 2020, acknowledging the uncertain and likely lengthy path to a full post-pandemic economic recovery, the majority of FOMC members projected that the federal funds rate range will likely remain unchanged through 2023. The FOMC statement indicated that the federal funds target rate will remain unchanged until maximum employment has been reached and inflation rises to and remains at 2% for some time. In April 2021, the FOMC confirmed the federal funds target rate at between 0.00% and 0.25% and continuance of its quantitative easing program which suggests a low probability of increases in short term interest rates over the next two years.

The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in upward direction as of March 31, 2021 and December 31, 2020.
Change in Interest Rates
(Basis Points)
Net Interest Income Volatility (1)
March 31, 2021December 31, 2020
+20013.2 %12.6 %
+1006.0 %5.6 %
-100NMNM
-200NMNM
NM — Not meaningful.
(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.

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The Company’s net interest income profile as of March 31, 2021 reflects an asset sensitive position. Net interest income would be expected to increase if interest rates rise and to decrease if interest rates decline. The potential impact of rate decreases is somewhat muted due to the current low rate environment with the federal funds rate floored and the federal funds rate range between 0.00% and 0.25%. The Company is naturally asset sensitive due to the large share of variable rate loans in its loan portfolio, which are primarily linked to Prime and LIBOR indices. The Company’s interest income is vulnerable to changes in short-term interest rates. However, given the current low level of interest rates, the potential for further rate decreases is limited, which reduces the Bank’s exposure to risks associated with falling rates. The Company’s deposit portfolio is primarily comprised of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates.

The Company’s estimated twelve-month net interest income sensitivity as of March 31, 2021 was slightly higher as compared with the sensitivity as of December 31, 2020 under both higher rate scenarios. This reflects both an increased asset rate sensitivity in the Company’s assets and an increase in noninterest bearing deposits.

While an instantaneous and sustained non-parallel shift in market interest rates was used in the simulation model described in the preceding paragraphs, the Company believes that any shift in interest rates would likely be more gradual and would therefore have a more modest impact. The rate ramp table below shows the net income volatility under a gradual non-parallel shift of the yield curve upward direction, in even quarterly increments over the first 12 months, followed by rates held constant thereafter:
Change in Interest Rates
(Basis Points)
Net Interest Income Volatility (1)
March 31, 2021December 31, 2020
+200 Rate Ramp5.4 %4.9 %
+100 Rate Ramp2.2 %2.2 %
-100 Rate RampNMNM
-200 Rate RampNMNM
NM — Not meaningful.
(1)The percentage change represents net interest income under a gradual non-parallel shift in even quarterly increments over 12 months.

The Company believes that the rate ramp table, shown above, when evaluated together with the results of the rate shock simulation, presents a more meaningful indication of the potential impact of rising interest rates to the Company’s twelve-month net interest income. During the first quarter of 2021, the Company’s modeled asset sensitivity increased slightly under a ramp simulation for the up 200 basis point ramp scenario and remained virtually unchanged for the up 100 basis point ramp interest rate scenario.

Economic Value of Equity at Risk

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

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

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The following table presents the Company’s EVE sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in an upward direction as of March 31, 2021 and December 31, 2020:
Change in Interest Rates
(Basis Points)
EVE Volatility (1)
March 31, 2021December 31, 2020
+200 4.6 %9.6 %
+1002.4 %4.8 %
-100NMNM
-200NMNM
NM — Not meaningful.
(1)The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

The Company’s EVE sensitivity for the upward interest rate scenarios decreased as of March 31, 2021 compared with the results as of December 31, 2020. The changes in EVE sensitivity during this period were primarily due to changes in level and shape of the yield curve.

The Company’s EVE profile as of March 31, 2021 reflects an asset sensitive EVE position under the higher interest rate scenarios. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, and the shape of the yield curve, actual results may vary from those predicted by the Company’s model.

Derivatives

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

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

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The following table summarizes certain information concerning derivative financial instruments utilized by the Company in its management of interest rate risk and foreign currency risk as of March 31, 2021 and December 31, 2020:
($ in thousands)March 31, 2021December 31, 2020
Interest Rate ContractsForeign Exchange ContractsInterest Rate ContractsForeign Exchange Contracts
Derivatives designated as hedging instruments:Cash Flow HedgesNet Investment HedgesCash Flow HedgesNet Investment Hedges
Notional amounts:$275,000 $83,936 $275,000 $84,269 
Fair value:
Recognized as an asset— 908 — — 
Recognized as a liability1,258 — 1,864 235 
Net fair value$(1,258)$908 $(1,864)$(235)
Weighted average interest rates:
Pay fixed (receive floating)0.483%
(3-month USD-LIBOR)		NM0.483%
(3-month USD-LIBOR)		NM
Weighted average remaining term to maturity (in months):
22.9 2.8 25.8 2.6 
Derivatives not designated as hedging instruments:Interest Rate ContractsForeign Exchange ContractsInterest Rate ContractsForeign Exchange Contracts
Notional amounts:$17,891,960 $4,036,958 $18,155,678 $3,108,488 
Fair value:
Recognized as an asset319,04938,654489,13230,300
Recognized as a liability229,03227,287315,83422,524
Net fair value$90,017 $11,367 $173,298 $7,776 
NM — Not meaningful.

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

The fluctuation in foreign currency translation of the hedged exposure is expected to be offset by changes in the fair value of the forwards. As of March 31, 2021, the outstanding foreign currency forwards effectively hedged approximately 50% of the Chinese Renminbi exposure in East West Bank (China) Limited.

Changes to the composition of the Company’s derivatives designated as hedging instruments reflect actions taken for interest rate risk and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions, including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.

Derivatives Not Designated as Hedging Instruments — The Company enters into interest rate, foreign exchange and energy commodity contracts to support the business requirements of its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions. The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through a clearinghouse or over-the-counter.

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

The Company enters into foreign exchange contracts with its customers, consisting of forward, spot, swap and option contracts to accommodate the business needs of its customers. For the foreign exchange contracts entered into with its customers, the Company managed its foreign exchange and credit exposures by entering into offsetting foreign exchange contracts with third-party financial institutions and/or entering into bilateral collateral and master netting agreements with customer counterparties. The changes in the fair values entered with third-party financial institutions are expected to be largely comparable to the changes in fair values of the foreign exchange transactions executed with customers throughout the terms of these contracts. As of March 31, 2021, the Company anticipates performance by all counterparties and has not experienced nonperformance by any of its counterparties, and therefore did not incur any related losses. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits offered to its customers. The Company’s policies permit taking proprietary currency positions within approved limits, in compliance with exemptions to proprietary trading restrictions provided under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Volcker Rule. The Company does not speculate in the foreign exchange markets, and actively manages its foreign exchange exposures within prescribed risk limits and defined controls.

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

Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 2020 Form 10-K and Note 3 — Fair Value Measurement and Fair Value of Financial Instruments and Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q.

Impact of Inflation

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

98

Critical Accounting Policies and Estimates

The Company’s significant accounting policies and use of estimates are fundamental to understanding its results of operations and financial condition. Some accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In addition, some significant accounting policies require significant judgments in applying complex accounting principles to individual transaction and determining the most appropriate treatment. The Company has procedures and processes in place to facilitate making these judgments. For significant accounting policies and use of estimates, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2020 Form 10-K.

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

•fair value of financial instruments;
•allowance for loan losses and unfunded credit commitments;
•goodwill impairment; and
•income taxes.

Recently Issued Accounting Standards

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

Reconciliation of GAAP to Non-GAAP Financial Measures

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

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The following tables present the reconciliations of GAAP to non-GAAP financial measures for the periods presented:
($ in thousands)Three Months Ended
March 31, 2021December 31, 2020March 31, 2020
Net interest income before provision for credit losses(a)$353,695 $346,581 $362,707 
Total noninterest income (1)
72,866 69,832 55,506 
Total revenue(b)$426,561 $416,413 $418,213 
Total noninterest expense (1)
(c)$191,077 $178,651 $180,333 
Less: Amortization of tax credit and other investments (1)
(25,358)(12,263)(18,782)
 Amortization of core deposit intangibles(732)(823)(953)
Non-GAAP noninterest expense(d)$164,987 $165,565 $160,598 
Efficiency ratio(c)/(b)44.79 %42.90 %43.12 %
Non-GAAP efficiency ratio(d)/(b)38.68 %39.76 %38.40 %
(1)In the fourth quarter of 2020, the Company reclassified certain income/losses from equity-method investments from Amortization of tax credit and other investments to Other investment income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.

($ and shares in thousands, except per share data)		March 31, 2021December 31, 2020March 31, 2020
Stockholders’ equity(a)$5,285,027 $5,269,175 $4,902,985 
Less: Goodwill
(465,697)(465,697)(465,697)
Other intangible assets (1)
(11,151)(11,899)(14,769)
Non-GAAP tangible common equity(b)$4,808,179 $4,791,579 $4,422,519 
Total assets(c)$56,874,146 $52,156,913 $45,948,545 
Less: Goodwill(465,697)(465,697)(465,697)
Other intangible assets (1)
(11,151)(11,899)(14,769)
Non-GAAP tangible assets(d)$56,397,298 $51,679,317 $45,468,079 
Total stockholders’ equity to total assets(a)/(c)9.29 %10.10 %10.67 %
Non-GAAP tangible common equity to tangible assets(b)/(d)8.53 %9.27 %9.73 %
Number of common shares at period-end(e)141,843 141,565 141,435 
Non-GAAP tangible common equity per share
(b)/(e)$33.90 $33.85 $31.27 
(1)Includes core deposit intangibles and mortgage servicing assets.

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($ in thousands)Three Months Ended
March 31, 2021December 31, 2020March 31, 2020
Net income$204,994 $164,084 $144,824 
Add: Amortization of core deposit intangibles732 823 953 
  Amortization of mortgage servicing assets414 428 584 
Tax effect of adjustments (1)
(325)(355)(436)
Non-GAAP tangible net income(a)$205,815 $164,980 $145,925 
Average stockholders’ equity$5,338,098 $5,243,203 $5,022,005 
Less: Average goodwill(465,697)(465,697)(465,697)
  Average other intangible asset (2)
(11,594)(12,182)(15,588)
Average non-GAAP tangible equity(b)$4,860,807 $4,765,324 $4,540,720 
Return on average non-GAAP tangible equity (3)
(a)/(b)17.17 %13.77 %12.93 %
(1)Applied statutory rates of 28.37% for the three month ended March 31, 2021 and December 31, 2020, and 28.35% for the three months ended March 31, 2020.
(2)Includes core deposit intangibles and mortgage servicing assets.
(3)Annualized.
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Forward-Looking Statements

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

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

•the impact of disease pandemics, such as the resurgences and subsequent waves of the COVID-19 pandemic, on the Company, its operations, customers and employees and the markets in which the Company operates and in which its loans are concentrated; and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address such a pandemic, which may precipitate or exacerbate one or more of the below-mentioned or other risks, and significantly disrupt or prevent the Company from operating its business in the ordinary course for an extended period;
•changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the SBA’s PPP, the CARES Act and any similar or related rules and regulations, efforts of the Federal Reserve to provide liquidity to the U.S. financial system, including changes in government interest rate policies, and to provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic, as well as the resulting effect of all such items on the Company’s operations, liquidity and capital position, and on the financial condition of the Company’s borrowers and other customers;
•changes in the U.S. economy, including an economic slowdown or recession, inflation, deflation, housing prices, employment levels, rate of growth and general business conditions;
•changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the SEC, the Consumer Financial Protection Bureau, the DFPI - Division of Financial Institutions and the SBA;
•the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the U.S. and the People’s Republic of China;
•changes in the commercial and consumer real estate markets;
•changes in consumer spending and savings habits;
•fluctuations in the Company’s stock price;
•changes in income tax laws and regulations;
•the Company’s ability to compete effectively against other financial institutions in its banking markets;
•the soundness of other financial institutions;
•success and timing of the Company’s business strategies;
•the Company’s ability to retain key officers and employees;
•impact on the Company’s funding costs, net interest income and net interest margin from changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;
•changes in the Company’s costs of operation, compliance and expansion;
•the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;
•impact of the benchmark interest rate reform in the U.S. including the transition away from USD LIBOR to alternative reference rates;
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•impact of a communications or technology disruption, 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, and materially impact the Company’s ability to provide services to its clients;
•adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
•future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;
•impact of adverse changes to the Company’s credit ratings from major credit rating agencies;
•impact of adverse judgments or settlements in litigation;
•impact on the Company’s international operations due to political developments, disease pandemics, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;
•heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;
•impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions and from the Company’s interactions with business partners, counterparties, service providers and other third parties;
•impact of regulatory enforcement actions;
•changes in accounting standards as may be required by the FASB or other regulatory agencies and their impact on critical accounting policies and assumptions;
•impact of other potential federal tax changes and spending cuts;
•the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;
•impact on the Company’s liquidity due to changes in the Company’s ability to pay dividends and repurchase common stock and to receive dividends from its subsidiaries;
•any future strategic acquisitions or divestitures;
•changes in the equity and debt securities markets;
•fluctuations in foreign currency exchange rates;
•impact of climate change, social and sustainability concerns;
•significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, a reduction in investor demand for mortgage loans and declines in asset values and/or recognition of allowance for credit losses on securities held in the Company’s AFS debt securities portfolio; and
•impact of natural or man-made disasters or calamities, such as wildfires and earthquakes, which are particular to California, or conflicts, terrorism or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

Given the ongoing and dynamic nature of the COVID-19 pandemic, it is difficult to predict the full impact of the COVID-19 pandemic on the Company’s business. The extent to which the COVID-19 pandemic impacts the Company will depend on future developments that are uncertain and unpredictable, including the scope, severity and duration of the pandemic and its impact on the Company’s customers, the actions taken by governmental authorities in response to the pandemic as well as its impact on global and regional economies, and the pace of recovery when the COVID-19 pandemic subsides, among others.

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

For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 1. Consolidated Financial Statements — Note 6 — Derivatives and Item 2. MD&A — Risk Management — Market Risk Management in Part I of this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of March 31, 2021, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the 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 March 31, 2021.

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

Change in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2021, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Item 1. Consolidated Financial Statements — Note 10 — Commitments and Contingencies — Litigation in Part I of this Form 10-Q, incorporated herein by reference.

ITEM 1A. RISK FACTORS

The Company’s 2020 Form 10-K contains disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors. There has been no material change to the Company’s risk factors as presented in the Company’s 2020 Form 10-K.

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

There were no unregistered sales of equity securities or repurchase activities during the three months ended March 31, 2021.

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ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this report:
Exhibit No.Exhibit Description
3.1
Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i) from Registrant’s Registration Statement on Form S-4/A filed with the Commission on November 13, 1998 (File No. 333-63605).]
3.1.1
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i).1 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Commission on March 28, 2003 (File No. 000-24939).]
3.1.2
Amendment to Certificate of Incorporation to Increase Authorized Shares of the Registrant [Incorporated by reference from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 15, 2005 (File No. 000-24939).]
3.1.3
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit A from the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2008 (File No. 000-24939).]
3.2
Amended and Restated Bylaws of the Registrant dated January 29, 2013 [Incorporated by reference to Exhibit 3.10 from Registrant’s Current Report on Form 8-K, filed with the Commission on January 30, 2013 (File No. 000-24939).]
10.1
10.2
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 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.
* Denotes management contract or compensatory plan or arrangement.
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GLOSSARY OF ACRONYMS

AFSAvailable-for-saleLCHLondon Clearing House
ALCOAsset/Liability CommitteeLGDLoss given default
AOCIAccumulated other comprehensive (loss) incomeLIBORLondon Interbank Offered Rate
ARPAAmerican Rescue Plan Act of 2021LTVLoan-to-value
ASCAccounting Standards CodificationMD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
ASUAccounting Standards UpdateMMBTUMillion British thermal unit
C&ICommercial and industrial Moody'sMoody’s Investors Service
CAAConsolidated Appropriations Act, 2021MSLPMain Street Lending Program
CARES ActCoronavirus Aid, Relief, and Economic Security ActNAVNet asset value
CECLCurrent expected credit LossesOREOOther real estate owned
CET1Common Equity Tier 1OTTIOther-than-temporary impairment
CLOCollateralized loan obligationPDProbability of default
CMEChicago Mercantile ExchangePPPPaycheck Protection Program
COVID-19Coronavirus Disease 2019PPPLFPaycheck Protection Program Liquidity Facility
CRACommunity Reinvestment ActRMBChinese Renminbi
CRECommercial real estateROAReturn on average assets
DFPICalifornia Department of Financial Protection and InnovationROEReturn on average equity
EPSEarnings per shareRPACredit risk participation agreement
EVEEconomic value of equityRSURestricted stock unit
FASBFinancial Accounting Standards BoardS&P Standard and Poor's
FCAFinancial Conduct AuthoritySBASmall Business Administration
FHLBFederal Home Loan BankSBLCStandby letter of credit
FOMCFederal Open Market CommitteeSECU.S. Securities and Exchange Commission
FRBSFFederal Reserve Bank of San FranciscoTDRTroubled debt restructuring
FTPFunds transfer pricingU.S.United States
GAAPGenerally accepted accounting principlesUSDU.S. dollar
HELOCHome equity line of creditVIEVariable interest entity

107

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

108

What is the market capitalization of a company?

The market capitalization sometimes referred as Marketcap, is the value of a publicly listed company.
In most cases it can be easily calculated by multiplying the share price with the amount of outstanding shares.

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