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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 FY2023 Q1

East West Bancorp - 10-Q quarterly report FY2023 Q1


Text size:
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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, 2023

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: 141,460,241 shares as of April 30, 2023.


TABLE OF CONTENTS
Page
3
5
5
Consolidated Balance Sheet (Unaudited)
5
Consolidated Statement of Income (Unaudited)
6
Consolidated Statement of Comprehensive Income (Loss) (Unaudited)
7
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
8
Consolidated Statement of Cash Flows (Unaudited)
9
11
  1 — Basis of Presentation
11
  2 — Current Accounting Developments and Summary of Significant Accounting Policies
12
  3 — Fair Value Measurement and Fair Value of Financial Instruments
13
  4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements
22
  5 — Securities
24
  6 — Derivatives
30
  7 — Loans Receivable and Allowance for Credit Losses
37
  8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities
49
  9 — Goodwill
50
10 — Short-Term Borrowings and Long-Term Debt
50
11 — Commitments and Contingencies
51
12 — Stock Compensation Plans
52
13 — Stockholders’ Equity and Earnings Per Share
54
14 — Accumulated Other Comprehensive Income (Loss)
54
15 — Business Segments
55
57
93
93
94
94
94
95
95
96
97
2

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q (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, 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”) may make forward-looking statements in other documents that it files with, or furnishes to, the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and management may make forward-looking statements to analysts, investors, media members and others. Forward-looking statements are those that do not relate to historical facts, and that are based on current assumptions, beliefs, estimates, expectations and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Forward-looking statements may relate to various matters, including the Company’s financial condition, results of operations, plans, objectives, future performance, business or industry, and usually can be identified by the use of forward-looking words, such as “anticipates,” “assumes,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “likely,” “may,” “might,” “objective,” “plans,” “potential,” “projects,” “remains,” “should,” “target,” “trend,” “will,” “would,” or similar expressions or variations thereof, and the negative thereof, but these terms are not the exclusive means of identifying such statements. You should not place undue reliance on forward-looking statements, as they are subject to risks and uncertainties, including, but not limited to, those described below. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make.

There are various important factors that could cause future results to differ materially from historical performance and any forward-looking statements. Factors that might cause such differences, include, but are not limited to:

•changes in the global economy, including an economic slowdown, capital or financial market disruption, supply chain disruption, level of inflation, interest rate environment, housing prices, employment levels, rate of growth and general business conditions, which could result in, among other things, reduced demand for loans, reduced availability of funding or increased funding costs, declines in asset values and/or recognition of allowance for credit losses;
•changes in local, regional and global business, economic and political conditions and geopolitical events, such as Russia’s invasion of Ukraine;
•the impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements and costs and impacts on macroeconomic conditions, losses in the value of our investment portfolio, deposit withdrawals, or other adverse consequences of negative market perceptions of the banking industry or the Company;
•changes in laws or the regulatory environment, including regulatory reform initiatives and policies of the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), the SEC, the Consumer Financial Protection Bureau (“CFPB”), the California Department of Financial Protection and Innovation — Division of Financial Institutions, the China Banking and Insurance Regulatory Commission, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, and the Monetary Authority of Singapore;
•changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade, economic and political disputes between the U.S. and the People’s Republic of China and the monetary policies of the Federal Reserve;
•changes in the commercial and consumer real estate markets;
•changes in consumer or commercial spending, savings and borrowing habits, and patterns and behaviors;
•the impact from potential changes to income tax laws and regulations, federal spending and economic stimulus programs;
•the impact of any future U.S. federal government shutdown and uncertainty regarding the U.S. federal government’s debt limit and credit rating;
•the Company’s ability to compete effectively against financial institutions and other entities, including as a result of emerging technologies;
•the soundness of other financial institutions;
•the success and timing of the Company’s business strategies;
•the Company’s ability to retain key officers and employees;
•the impact on the Company’s funding costs, net interest income and net interest margin from changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;
•changes in the Company’s costs of operation, compliance and expansion;
•the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;
3

•the impact of the benchmark interest rate reform in the U.S. including the transition away from the U.S. dollar (“USD”) London Interbank Offered Rate (“LIBOR”) to alternative reference rates;
•the impact of communications or technology disruption, failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third party vendors with which the Company does business, including as a result of cyber-attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused, and materially impact the Company’s ability to provide services to its clients;
•the adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
•future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;
•the impact of adverse changes to the Company’s credit ratings from major credit rating agencies;
•the impact of adverse judgments or settlements in litigation;
•the impact on the Company’s operations due to political developments, pandemics, wars, civil unrest, terrorism or other hostilities that may disrupt or increase volatility in securities or otherwise affect business and economic conditions;
•heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;
•the impact of reputational risk from negative publicity, fines, penalties and other negative consequences from regulatory violations, legal actions and the Company’s interactions with business partners, counterparties, service providers and other third parties;
•the impact of regulatory investigations and enforcement actions;
•changes in accounting standards as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies and their impact on the Company’s critical accounting policies and assumptions;
•the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;
•the impact on the Company’s liquidity due to changes in the Company’s ability to receive dividends from its subsidiaries;
•any strategic acquisitions or divestitures;
•changes in the equity and debt securities markets;
•fluctuations in the Company’s stock price;
•fluctuations in foreign currency exchange rates;
•the impact of increased focus on social, environmental and sustainability matters, which may affect the Company’s operations as well as those of its customers and the economy more broadly; and
•the impact of climate change, natural or man-made disasters or calamities, such as wildfires, droughts, hurricanes, flooding and earthquakes or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (the “Company’s 2022 Form 10-K”) under the heading Item 1A. Risk Factors. You should treat forward-looking statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.
4

PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands, except shares)
(Unaudited)
March 31,
2023		December 31,
2022
(Unaudited)
ASSETS
Cash and due from banks$760,317 $534,980 
Interest-bearing cash with banks5,173,877 2,946,804 
Cash and cash equivalents5,934,194 3,481,784 
Interest-bearing deposits with banks10,249 139,021 
Assets purchased under resale agreements (“resale agreements”)654,288 792,192 
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $7,072,240 and $6,879,225)
6,300,868 6,034,993 
Held-to-maturity (“HTM”) debt securities, at amortized cost (fair value of $2,502,674 and $2,455,171)
2,993,421 3,001,868 
Loans held-for-sale6,861 25,644 
Loans held-for-investment (net of allowance for loan losses of $619,893 and $595,645)
48,298,155 47,606,785 
Investments in qualified affordable housing partnerships, tax credit and other investments, net741,354 763,256 
Premises and equipment (net of accumulated depreciation of $150,767 and $148,126)
90,212 89,191 
Goodwill465,697 465,697 
Operating lease right-of-use assets103,114 103,681 
Other assets1,646,485 1,608,038 
TOTAL$67,244,898 $64,112,150 
LIABILITIES
Deposits:
Noninterest-bearing$18,327,320 $21,051,090 
Interest-bearing36,410,082 34,916,759 
Total deposits54,737,402 55,967,849 
Short-term borrowings4,500,000 — 
Assets sold under repurchase agreements (“repurchase agreements”)— 300,000 
Long-term debt and finance lease liabilities152,467 152,400 
Operating lease liabilities112,676 111,931 
Accrued expenses and other liabilities1,433,022 1,595,358 
Total liabilities60,935,567 58,127,538 
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 169,199,767 and 168,459,045 shares issued
169 168 
Additional paid-in capital1,947,518 1,936,389 
Retained earnings5,832,291 5,582,546 
Treasury stock, at cost 27,803,967 and 27,511,199 shares
(790,653)(768,862)
Accumulated other comprehensive loss (“AOCI”), net of tax(679,994)(765,629)
Total stockholders’ equity6,309,331 5,984,612 
TOTAL$67,244,898 $64,112,150 
See accompanying Notes to Consolidated Financial Statements.

5

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
20232022
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees$728,386 $377,110 
Debt securities65,931 42,667 
Resale agreements4,503 8,383 
Restricted equity securities1,039 609 
Interest-bearing cash and deposits with banks35,647 3,260 
Total interest and dividend income835,506 432,029 
INTEREST EXPENSE
Deposits216,794 12,989 
Short-term borrowings8,825 9 
Federal Home Loan Bank (“FHLB”) advances6,430 578 
Repurchase agreements1,052 2,016 
Long-term debt and finance lease liabilities2,544 824 
Total interest expense235,645 16,416 
Net interest income before provision for credit losses599,861 415,613 
Provision for credit losses20,000 8,000 
Net interest income after provision for credit losses579,861 407,613 
NONINTEREST INCOME
Lending fees20,586 19,438 
Deposit account fees21,703 20,315 
Interest rate contracts and other derivative income2,564 11,133 
Foreign exchange income12,660 12,699 
Wealth management fees6,304 6,052 
Net (losses) gains on sales of loans(22)2,922 
Net realized (losses) gains on AFS debt securities(10,000)1,278 
Other investment income1,921 1,627 
Other income4,262 4,279 
Total noninterest income59,978 79,743 
NONINTEREST EXPENSE
Compensation and employee benefits129,654 116,269 
Occupancy and equipment expense15,587 15,464 
Deposit insurance premiums and regulatory assessments7,910 4,717 
Deposit account expense9,609 4,693 
Data processing3,347 3,665 
Computer software expense7,360 7,294 
Other operating expense30,998 23,448 
Amortization of tax credit and other investments10,110 13,900 
Repurchase agreements’ extinguishment cost3,872 — 
Total noninterest expense218,447 189,450 
INCOME BEFORE INCOME TAXES421,392 297,906 
INCOME TAX EXPENSE98,953 60,254 
NET INCOME$322,439 $237,652 
EARNINGS PER SHARE (“EPS”)
BASIC$2.28 $1.67 
DILUTED$2.27 $1.66 
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC141,112 142,025 
DILUTED141,913 143,223 
See accompanying Notes to Consolidated Financial Statements.

6

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
($ in thousands)
(Unaudited)
Three Months Ended March 31,
20232022
Net income$322,439 $237,652 
Other comprehensive income (loss), net of tax:
Net changes in unrealized gains (losses) on AFS debt securities51,319 (169,270)
Net changes in unrealized gains (losses) on securities transferred from AFS to HTM2,762 (110,680)
Net changes in unrealized gains (losses) on cash flow hedges28,613 (24,723)
Foreign currency translation adjustments2,941 129 
Other comprehensive income (loss)85,635 (304,544)
COMPREHENSIVE INCOME (LOSS)$408,074 $(66,892)
See accompanying Notes to Consolidated Financial Statements.

7

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

Common Stock and Additional Paid-in CapitalRetained EarningsTreasury StockAOCI, Net of TaxTotal Stockholders’ Equity
SharesAmount
BALANCE, JANUARY 1, 2022141,907,954 $1,893,725 $4,683,659 $(649,785)$(90,381)$5,837,218 
Net income— — 237,652 — — 237,652 
Other comprehensive loss— — — — (304,544)(304,544)
Issuance of common stock pursuant to various stock compensation plans and agreements588,114 9,317 — — — 9,317 
Repurchase of common stock pursuant to various stock compensation plans and agreements(239,548)— — (18,597)— (18,597)
Cash dividends on common stock ($0.40 per share)
— — (57,590)— — (57,590)
BALANCE, MARCH 31, 2022142,256,520 $1,903,042 $4,863,721 $(668,382)$(394,925)$5,703,456 
BALANCE, JANUARY 1, 2023140,947,846 $1,936,557 $5,582,546 $(768,862)$(765,629)$5,984,612 
Cumulative-effect of a change in accounting principle (1)
— — (4,262)— — (4,262)
Net income— — 322,439 — — 322,439 
Other comprehensive income— — — — 85,635 85,635 
Issuance of common stock pursuant to various stock compensation plans and agreements740,722 11,130 — — — 11,130 
Repurchase of common stock pursuant to various stock compensation plans and agreements(292,768)— — (21,791)— (21,791)
Cash dividends on common stock ($0.48 per share)
— — (68,432)— — (68,432)
BALANCE, MARCH 31, 2023141,395,800 $1,947,687 $5,832,291 $(790,653)$(679,994)$6,309,331 
(1)Represents the change in the Company’s allowance for loan losses as a result of the adoption of Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and the Vintage Disclosures on January 1, 2023. Refer to Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies in this Form 10-Q for additional information.
See accompanying Notes to Consolidated Financial Statements.

8

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended March 31,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $322,439 $237,652 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 32,567 26,555 
Amortization of premiums and accretion of discount, net(4,497)11,824 
Stock compensation costs11,075 8,433 
Deferred income tax expense (benefit) 609 (7,083)
Provision for credit losses20,000 8,000 
Net losses (gains) on sales of loans22 (2,922)
Net realized losses (gains) on AFS debt securities10,000 (1,278)
Loans held-for-sale:
Originations and purchases— (447)
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale— 461 
Proceeds from distributions received from equity method investees1,718 3,227 
Net change in accrued interest receivable and other assets (75,163)(81,628)
Net change in accrued expenses and other liabilities(93,948)83,042 
Other operating activities, net(1,921)49 
Total adjustments (99,538)48,233 
Net cash provided by operating activities222,901 285,885 
CASH FLOWS FROM INVESTING ACTIVITIES  
Net change in:  
Investments in qualified affordable housing partnerships, tax credit and other investments(27,358)(32,853)
Interest-bearing deposits with banks128,772 (79,633)
Resale agreements:
Proceeds from paydowns and maturities150,629 554,932 
Purchases(12,725)(158,251)
AFS debt securities:
Proceeds from sales— 103,945 
Proceeds from repayments, maturities and redemptions321,913 446,301 
Purchases(532,758)(746,855)
HTM debt securities:
Proceeds from repayments, maturities and redemptions12,387 15,448 
Loans held-for-investment:
Proceeds from sales of loans originally classified as held-for-investment179,237 135,517 
Purchases(155,016)(225,065)
Other changes in loans held-for-investment, net(695,646)(1,697,590)
Proceeds from sales of other real estate owned (“OREO”) and other foreclosed assets1,976 760 
Proceeds from distributions received from equity method investees2,244 4,348 
Other investing activities, net(6,501)(3,518)
Net cash used in investing activities(632,846)(1,682,514)
See accompanying Notes to Consolidated Financial Statements.

9

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

Three Months Ended March 31,
20232022
CASH FLOWS FROM FINANCING ACTIVITIES  
Net change in deposits(1,246,189)1,584,344 
Net change in short-term borrowings4,500,017 (31)
FHLB advances:
Proceeds 6,000,000 100 
Repayment(6,000,000)(175,100)
Repurchase agreements:
Repayment of repurchase agreements(300,000)— 
Repurchase agreements’ extinguishment cost(3,872)— 
Long-term debt and lease liabilities:
Repayment of long-term debt and lease liabilities(203)(229)
Common stock:
Stock tendered for payment of withholding taxes(21,791)(18,597)
Cash dividends paid(70,776)(58,900)
Net cash provided by financing activities2,857,186 1,331,587 
Effect of exchange rate changes on cash and cash equivalents5,169 807 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,452,410 (64,235)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,481,784 3,912,935 
CASH AND CASH EQUIVALENTS, END OF PERIOD$5,934,194 $3,848,700 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest$227,504 $20,881 
Income taxes, net$— $581 
Noncash investing and financing activities:
Securities transferred from AFS to HTM debt securities$— $3,010,003 
Loans transferred from held-for-investment to held-for-sale$160,476 $133,217 

See accompanying Notes to Consolidated Financial Statements.

10

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

Note 1 — Basis of Presentation

East West Bancorp, Inc. is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Form 10-Q include the accounts of East West, East West Bank and East West’s subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of March 31, 2023, East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with FASB Accounting Standards Codification (“ASC”) Topic 810, Consolidation, the Trusts are not included on the Consolidated Financial Statements.

The unaudited interim Consolidated Financial Statements are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and general practices in the banking industry. While the unaudited interim Consolidated Financial Statements reflect all adjustments that, in the opinion of management, are necessary for fair presentation, they primarily serve to update the most recently filed annual report on Form 10-K, and may not include all the information and notes necessary to constitute a complete set of financial statements. Accordingly, they should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s 2022 Form 10-K.

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

Risk and Uncertainties

The failures of Silicon Valley Bank and Signature Bank in March 2023 and of First Republic Bank in May 2023 have resulted in significant disruption in the financial services industry, adversely impacted the volatility and market prices of the securities of financial institutions and resulted in lower levels of deposits for us and many other financial institutions. These events have adversely impacted, and could continue to, adversely affect our business, results of operations, and financial condition, as well as the market price and volatility of our common stock. In response to these failures, many large depositors have withdrawn deposits in excess of FDIC insurance limits in order to diversify their risk. If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated interest rates and financial industry instability, both of which we are currently experiencing. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowing generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates. In addition, because our AFS debt securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may not be sufficient to recover the full amount of our exposure. Under these circumstances, we may be required to access funding from sources such as the Federal Reserve’s discount window or additional funding from its recently established Bank Term Funding Program (“BTFP”), from which we borrowed $4.50 billion during the first quarter of 2023, in order to manage our liquidity risk. See Note 10 — Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q for additional information related to the Company’s borrowings from the BTFP.

11

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

Accounting Pronouncements Adopted in 2023

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

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

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

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

Recent Accounting Pronouncements Yet to be Adopted

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

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

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

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

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

12

Significant Accounting Policies Update

Loan Modifications — Certain loans are modified in the normal course of business for competitive reasons or in conjunction with the Company’s loss mitigation activities. Upon the adoption of ASU 2022-02, the Company applies the general loan modification guidance provided in ASC 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: (1) the terms of the new loan are at least as favorable to the Company as the terms for comparable loans to other customers with similar collection risks; and (2) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the existing loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. A modification may vary by program and by borrower-specific characteristics, and may include rate reductions, principal forgiveness, term extensions, and payment delays, and is intended to minimize the company’s economic loss and to avoid foreclosure or repossession of collateral. The Company applies the same credit loss methodology it uses for similar loans that were not modified. For the Company’s accounting policy related to the loan modifications’ allowance for loan losses, see Note 7 — Loans Receivable and Allowance for Credit Losses — Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

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

Under applicable accounting standards, the Company measures a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly recorded at fair value on a recurring basis. From time to time, certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only as required through the application of an accounting method such as lower of cost or fair value or write-down of individual assets. The Company categorizes its assets and liabilities into three levels based on the established fair value hierarchy and conducts a review of fair value hierarchy classifications on a quarterly basis. For more information regarding the fair value hierarchy and how the Company measures fair value, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Fair Value to the Consolidated Financial Statements in the Company’s 2022 Form 10-K for additional information.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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

13

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

Equity Securities — Equity securities consisted of mutual funds as of both March 31, 2023 and December 31, 2022. The Company invested in these mutual funds for Community Reinvestment Act (“CRA”) purposes. The Company uses net asset value (“NAV”) information to determine the fair value of these equity securities. When NAV is available periodically and the equity securities can be put back to the transfer agents at the publicly available NAV, the fair value of the equity securities is classified as Level 1. When NAV is available periodically, but the equity securities may not be readily marketable at its periodic NAV in the secondary market, the fair value of these equity securities is classified as Level 2.

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

Foreign Exchange Contracts — The Company enters into foreign exchange contracts to accommodate the business needs of its customers. For a majority of the foreign exchange contracts entered with its customers, the Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. The fair value of foreign exchange contracts is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts is classified as Level 2. As of both March 31, 2023 and December 31, 2022, 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-USD functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency non-deliverable forward contracts is determined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include spot rates and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.

Credit Contracts — The Company may periodically enter into credit risk participation agreements (“RPAs”) to manage the credit exposure on interest rate contracts associated with the syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Due to the observable nature of all other significant inputs used in deriving the estimated fair value, RPAs are classified as Level 2.
14

Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase preferred and/or common stock of the borrowers, which are mainly in the technology and life sciences sectors. As of both March 31, 2023 and December 31, 2022, the warrants included on the Consolidated Financial Statements were from both public and private companies. The Company values these warrants based on the Black-Scholes option pricing model. For warrants from public companies, the model uses the underlying stock price, stated strike price, warrant expiration date, risk-free interest rate based on a duration-matched U.S. Treasury rate, and market-observable company-specific option volatility as inputs to value the warrants. Due to the observable nature of the inputs used in deriving the estimated fair value, warrants from public companies are classified as Level 2. For warrants from private companies, the model uses inputs such as the offering price observed in the most recent round of funding, stated strike price, warrant expiration date, risk-free interest rate based on duration-matched U.S. Treasury rate and option volatility. The Company applies proxy volatilities based on the industry sectors of the private companies. The model values are then adjusted for a general lack of liquidity due to the private nature of the underlying companies. Since both option volatility and liquidity discount assumptions are subject to management’s judgment, measurement uncertainty is inherent in the valuation of private company warrants. Due to the unobservable nature of the option volatility and liquidity discount assumptions used in deriving the estimated fair value, warrants from private companies are classified as Level 3. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement of uncertainty analysis on the option volatility and liquidity discount assumptions is performed.

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

15

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of March 31, 2023
($ in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Fair Value
AFS debt securities:
U.S. Treasury securities$916,982 $— $— $916,982 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 463,860 — 463,860 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 497,115 — 497,115 
Residential mortgage-backed securities— 1,772,082 — 1,772,082 
Municipal securities— 266,015 — 266,015 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 396,723 — 396,723 
Residential mortgage-backed securities— 638,409 — 638,409 
Corporate debt securities— 516,253 — 516,253 
Foreign government bonds— 185,883 — 185,883 
Asset-backed securities— 46,307 — 46,307 
Collateralized loan obligations (“CLOs”)— 601,239 — 601,239 
Total AFS debt securities
$916,982 $5,383,886 $— $6,300,868 
Investments in tax credit and other investments:
Equity securities$20,204 $4,217 $— $24,421 
Total investments in tax credit and other investments
$20,204 $4,217 $— $24,421 
Derivative assets:
Interest rate contracts$— $415,000 $— $415,000 
Foreign exchange contracts— 34,050 — 34,050 
Equity contracts— — 277 277 
Commodity contracts— 178,075 — 178,075 
Gross derivative assets$— $627,125 $277 $627,402 
Netting adjustments (1)
$— $(365,127)$— $(365,127)
Net derivative assets$— $261,998 $277 $262,275 
Derivative liabilities:
Interest rate contracts$— $462,411 $— $462,411 
Foreign exchange contracts— 32,791 — 32,791 
Credit contracts— 29 — 29 
Commodity contracts— 186,599 — 186,599 
Gross derivative liabilities$— $681,830 $— $681,830 
Netting adjustments (1)
$— $(169,849)$— $(169,849)
Net derivative liabilities$— $511,981 $— $511,981 
16

Assets and Liabilities Measured at Fair Value on a Recurring Basis
as of December 31, 2022
($ in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Fair Value
AFS debt securities:
U.S. Treasury securities$606,203 $— $— $606,203 
U.S. government agency and U.S. government-sponsored enterprise debt securities— 461,607 — 461,607 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities— 500,269 — 500,269 
Residential mortgage-backed securities— 1,762,195 — 1,762,195 
Municipal securities— 257,099 — 257,099 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities— 398,329 — 398,329 
Residential mortgage-backed securities— 649,224 — 649,224 
Corporate debt securities— 526,274 — 526,274 
Foreign government bonds— 227,053 — 227,053 
Asset-backed securities— 49,076 — 49,076 
CLOs— 597,664 — 597,664 
Total AFS debt securities
$606,203 $5,428,790 $— $6,034,993 
Investments in tax credit and other investments:
Equity securities$19,777 $4,177 $— $23,954 
Total investments in tax credit and other investments
$19,777 $4,177 $— $23,954 
Derivative assets:
Interest rate contracts$— $440,283 $— $440,283 
Foreign exchange contracts— 53,109 — 53,109 
Equity contracts— — 323 323 
Commodity contracts— 261,613 — 261,613 
Gross derivative assets$— $755,005 $323 $755,328 
Netting adjustments (1)
$— $(614,783)$— $(614,783)
Net derivative assets$— $140,222 $323 $140,545 
Derivative liabilities:
Interest rate contracts$— $584,516 $— $584,516 
Foreign exchange contracts— 44,117 — 44,117 
Credit contracts— 23 — 23 
Commodity contracts— 258,608 — 258,608 
Gross derivative liabilities$— $887,264 $— $887,264 
Netting adjustments (1)
$— $(242,745)$— $(242,745)
Net derivative liabilities$— $644,519 $— $644,519 
(1)Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-Q for additional information.

17

For the three months ended March 31, 2023 and 2022, Level 3 fair value measurements that were measured on a recurring basis consisted of equity contracts issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Equity contracts
Beginning balance$323 $215 
Total (losses) gains included in earnings (1)
(46)3 
Issuances— 91 
Ending balance$277 $309 
(1)Includes unrealized (losses) gains recorded in Lending fees on the Consolidated Statement of Income.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of March 31, 2023 and December 31, 2022. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.
($ in thousands)Fair Value Measurements (Level 3)Valuation TechniqueUnobservable InputsRange of Inputs
Weighted-Average of Inputs (1)
March 31, 2023
Derivative assets:
Equity contracts$277 
Black-Scholes option pricing model
Equity volatility
43% — 53%
47%
Liquidity discount47%47%
December 31, 2022
Derivative assets:
Equity contracts$323 
Black-Scholes option pricing model
Equity volatility
42% — 60%
54%
Liquidity discount47%47%
(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of both March 31, 2023 and December 31, 2022.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

•Discounted cash flow valuation techniques that consist of developing an expected stream of cash flows over the life of the loans, and then calculating the present value of the loans by discounting the expected cash flows at a designated discount rate.
•When the repayment of an individually evaluated loan is dependent on the sale of the collateral, the fair value of the loan is determined based on the fair value of the underlying collateral, which may take the form of real estate, inventory, equipment, contracts or guarantees. The fair value of the underlying collateral is generally based on third-party appraisals, or an internal valuation if a third-party appraisal is not required by regulations, or is unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches.

18

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

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

All available information is considered in assessing whether a decline in value is other-than-temporary. Generally, none of the aforementioned factors are individually conclusive and the relative importance placed on individual facts may vary depending on the situation. In accordance with ASC 323-10-35-32, Investments — Equity Method and Joint Ventures, an impairment charge would 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.

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

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

The following tables present the carrying amounts of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of March 31, 2023 and December 31, 2022:
Assets Measured at Fair Value on a Nonrecurring Basis
as of March 31, 2023
($ in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value
Measurements
Loans held-for-investment:
Commercial:
Commercial and industrial (“C&I”)$— $— $15,235 $15,235 
Total commercial— — 15,235 15,235 
Total loans held-for-investment$— $— $15,235 $15,235 
19

Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2022
($ in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value
Measurements
Loans held-for-investment:
Commercial:
C&I$— $— $40,011 $40,011 
Commercial real estate (“CRE”):
CRE— — 31,380 31,380 
Total commercial— — 71,391 71,391 
Consumer:
Residential mortgage:
Home equity lines of credit (“HELOCs”)— — 1,223 1,223 
Total consumer— — 1,223 1,223 
Total loans held-for-investment$— $— $72,614 $72,614 

The following table presents the increase (decrease) in the fair value of certain assets held at the end of the respective reporting periods, for which a nonrecurring fair value adjustment was recognized for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Loans held-for-investment:
Commercial:
C&I$(1,255)$(10,424)
CRE:
CRE— 2,864 
Total commercial(1,255)(7,560)
Consumer:
Residential mortgage:
HELOCs— 3 
Total consumer— 3 
Total loans held-for-investment$(1,255)$(7,557)
Investments in tax credit and other investments$174 $— 

20

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, 2023 and December 31, 2022:
($ in thousands)Fair Value Measurements (Level 3)Valuation TechniquesUnobservable InputsRange of Inputs
Weighted-Average of Inputs (1)
March 31, 2023
Loans held-for-investment$15,235 Fair value of collateralDiscount
15% — 81%
35%
December 31, 2022
Loans held-for-investment$23,322 Discounted cash flowsDiscount
4% — 6%
4%
$17,912 Fair value of collateralDiscount
15% — 75%
37%
$31,380 Fair value of propertySelling cost
8%
8%
(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of March 31, 2023 and December 31, 2022.

Disclosures about the Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of March 31, 2023 and December 31, 2022, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable, restricted equity securities, at cost, and mortgage servicing rights that are included in Other assets, and accrued interest payable which is included in Accrued expenses and other liabilities. These financial assets and liabilities are measured on an amortized cost basis on the Company’s Consolidated Balance Sheet.
March 31, 2023
($ in thousands)Carrying AmountLevel 1Level 2Level 3Estimated Fair Value
Financial assets:
Cash and cash equivalents$5,934,194 $5,934,194 $— $— $5,934,194 
Interest-bearing deposits with banks$10,249 $— $10,249 $— $10,249 
Resale agreements$654,288 $— $568,683 $— $568,683 
HTM debt securities$2,993,421 $481,611 $2,021,063 $— $2,502,674 
Restricted equity securities, at cost$78,872 $— $78,872 $— $78,872 
Loans held-for-sale$6,861 $— $6,861 $— $6,861 
Loans held-for-investment, net$48,298,155 $— $— $47,344,680 $47,344,680 
Mortgage servicing rights$5,879 $— $— $10,648 $10,648 
Accrued interest receivable$279,795 $— $279,795 $— $279,795 
Financial liabilities:
Demand, checking, savings and money market deposits$38,643,576 $— $38,643,576 $— $38,643,576 
Time deposits$16,093,826 $— $16,008,054 $— $16,008,054 
Short-term borrowings$4,500,000 $— $4,500,000 $— $4,500,000 
Long-term debt$148,022 $— $144,059 $— $144,059 
Accrued interest payable$45,339 $— $45,339 $— $45,339 
21

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

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

Assets Purchased under Resale Agreements

With resale agreements, the Company is exposed to credit risk for both the counterparties and the underlying collateral. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with the counterparties. The relevant agreements allow for the efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. It is also the Company’s policy to take possession, where possible, of the assets underlying resale agreements. As a result of the Company’s credit risk mitigation practices with respect to resale agreements as described above, the Company did not hold any reserves for credit impairment with respect to these agreements as of both March 31, 2023 and December 31, 2022.

Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $635.0 million as of March 31, 2023, and $760.0 million as of December 31, 2022. The weighted-average yields were 2.50% and 1.63% for the three months ended March 31, 2023 and 2022, respectively.

Loans Purchased under Resale Agreements — Total loans purchased under resale agreements were $19.3 million as of March 31, 2023, and $32.2 million as of December 31, 2022. The weighted-average yields were 7.12% and 1.60% for the three months ended March 31, 2023 and 2022, respectively.

Assets Sold under Repurchase Agreements — Gross repurchase agreements were $300.0 million as of December 31, 2022. During the first quarter of 2023, all previously outstanding repurchase agreements were extinguished and the Company recorded $3.9 million of charges related to the extinguishment of $300.0 million of repurchase agreements. In comparison, no extinguishment charges were recorded for the three months ended March 31, 2022. The weighted-average interest rates were 4.00% and 2.62% for the three months ended March 31, 2023 and 2022, respectively.

22

Balance Sheet Offsetting

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

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022:
($ in thousands)March 31, 2023
Gross
Amounts
of Recognized
Assets		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Assets Presented
on the Consolidated
Balance Sheet		Gross Amounts  Not Offset on the
Consolidated  Balance Sheet		Net
Amount
AssetsCollateral Received
Resale agreements$654,288 $— $654,288 $(574,103)
(1)
$80,185 
Gross
Amounts
of Recognized
Liabilities		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net
Amount
LiabilitiesCollateral Pledged
Repurchase agreements$— $— $— $— $— 
($ in thousands)December 31, 2022
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$792,192 $— $792,192 $(701,790)
(1)
$90,402 
LiabilitiesGross
Amounts
of Recognized
Liabilities		Gross Amounts
Offset on the
Consolidated
Balance Sheet		Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet
Net
Amount
Collateral Pledged
Repurchase agreements$300,000 $— $300,000 $(300,000)
(2)
$— 
(1)Represents the fair value of assets the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.
(2)Represents the fair value of assets the Company has pledged under repurchase agreements, limited for table presentation purposes to the amount of the recognized liability due to each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

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

23

Note 5 — Securities

The following tables present the amortized cost, gross unrealized gains and losses and fair value by major categories of AFS and HTM debt securities as of March 31, 2023 and December 31, 2022:
March 31, 2023
($ in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
AFS debt securities:
U.S. Treasury securities$976,615 $37 $(59,670)$916,982 
U.S. government agency and U.S. government-sponsored enterprise debt securities515,639 — (51,779)463,860 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities564,145 — (67,030)497,115 
Residential mortgage-backed securities1,997,737 46 (225,701)1,772,082 
Municipal securities305,125 47 (39,157)266,015 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities441,795 157 (45,229)396,723 
Residential mortgage-backed securities743,977 — (105,568)638,409 
Corporate debt securities663,502 — (147,249)516,253 
Foreign government bonds198,517 195 (12,829)185,883 
Asset-backed securities47,938 — (1,631)46,307 
CLOs617,250 — (16,011)601,239 
Total AFS debt securities7,072,240 482 (771,854)6,300,868 
HTM debt securities:
U.S. Treasury securities525,432 — (43,821)481,611 
U.S. government agency and U.S. government-sponsored enterprise debt securities999,855 — (193,514)806,341 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities505,492 — (83,532)421,960 
Residential mortgage-backed securities773,135 — (134,969)638,166 
Municipal securities189,507 — (34,911)154,596 
Total HTM debt securities2,993,421 — (490,747)2,502,674 
Total debt securities$10,065,661 $482 $(1,262,601)$8,803,542 
24

December 31, 2022
($ in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
AFS debt securities:
U.S. Treasury securities$676,306 $— $(70,103)$606,203 
U.S. government agency and U.S. government-sponsored enterprise debt securities517,806 67 (56,266)461,607 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities577,392 — (77,123)500,269 
Residential mortgage-backed securities2,011,054 41 (248,900)1,762,195 
Municipal securities303,884 3 (46,788)257,099 
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities447,512 213 (49,396)398,329 
Residential mortgage-backed securities762,202 — (112,978)649,224 
Corporate debt securities673,502 — (147,228)526,274 
Foreign government bonds241,165 174 (14,286)227,053 
Asset-backed securities51,152 — (2,076)49,076 
CLOs617,250 — (19,586)597,664 
Total AFS debt securities 6,879,225 498 (844,730)6,034,993 
HTM debt securities:
U.S. Treasury securities$524,081 $— $(52,612)471,469 
U.S. government agency and U.S. government-sponsored enterprise debt securities998,972 — (209,560)789,412 
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities506,965 — (98,566)408,399 
Residential mortgage-backed securities782,141 — (148,230)633,911 
Municipal securities189,709 — (37,729)151,980 
Total HTM debt securities3,001,868 — (546,697)2,455,171 
Total debt securities$9,881,093 $498 $(1,391,427)$8,490,164 

As of March 31, 2023 and December 31, 2022, the amortized cost of debt securities excluded accrued interest receivables of $39.1 million and $41.8 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to debt securities’ accrued interest receivable, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities and Allowance for Credit Losses on Held-to-Maturity Debt Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

25

Unrealized Losses of Available-for-Sale Debt Securities

The following tables present the fair value and the associated gross unrealized losses of the Company’s AFS debt securities, aggregated by investment category and the length of time that the securities have been in a continuous unrealized loss position as of March 31, 2023 and December 31, 2022.
March 31, 2023
Less Than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
AFS debt securities:
U.S. Treasury securities$201,775 $(52)$616,680 $(59,618)$818,455 $(59,670)
U.S. government agency and U.S. government sponsored enterprise debt securities207,936 (1,021)255,924 (50,758)463,860 (51,779)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities37,222 (1,722)459,893 (65,308)497,115 (67,030)
Residential mortgage-backed securities23,200 (721)1,741,855 (224,980)1,765,055 (225,701)
Municipal securities2,053 (24)256,240 (39,133)258,293 (39,157)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities6,833 (151)380,497 (45,078)387,330 (45,229)
Residential mortgage-backed securities332 (15)638,077 (105,553)638,409 (105,568)
Corporate debt securities48,026 (3,976)468,227 (143,273)516,253 (147,249)
Foreign government bonds71,392 (512)37,683 (12,317)109,075 (12,829)
Asset-backed securities— — 46,307 (1,631)46,307 (1,631)
CLOs— — 601,239 (16,011)601,239 (16,011)
Total AFS debt securities$598,769 $(8,194)$5,502,622 $(763,660)$6,101,391 $(771,854)
December 31, 2022
Less Than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
AFS debt securities:
U.S. Treasury securities$131,843 $(8,761)$474,360 $(61,342)$606,203 $(70,103)
U.S. government agency and U.S. government-sponsored enterprise debt securities97,403 (6,902)214,136 (49,364)311,539 (56,266)
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities252,144 (30,029)248,125 (47,094)500,269 (77,123)
Residential mortgage-backed securities307,536 (20,346)1,448,658 (228,554)1,756,194 (248,900)
Municipal securities95,655 (10,194)159,439 (36,594)255,094 (46,788)
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities106,184 (3,309)282,301 (46,087)388,485 (49,396)
Residential mortgage-backed securities22,715 (1,546)626,509 (111,432)649,224 (112,978)
Corporate debt securities173,595 (17,907)352,679 (129,321)526,274 (147,228)
Foreign government bonds107,576 (429)36,143 (13,857)143,719 (14,286)
Asset-backed securities12,450 (524)36,626 (1,552)49,076 (2,076)
CLOs144,365 (4,735)453,299 (14,851)597,664 (19,586)
Total AFS debt securities$1,451,466 $(104,682)$4,332,275 $(740,048)$5,783,741 $(844,730)

26

As of March 31, 2023, the Company had 555 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of 259 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 100 non-agency mortgage-backed securities, 67 corporate debt securities, and 17 U.S. Treasury securities. In comparison, as of December 31, 2022, the Company had 559 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of 263 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 100 non-agency mortgage-backed securities, 68 corporate debt securities, and 15 U.S. Treasury securities.

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

The Company evaluates each AFS debt security where the fair value declines below amortized cost. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The gross unrealized losses presented in the preceding tables were primarily attributable to interest rate movement and the widening of liquidity and/or credit spreads. U.S. Treasury, U.S. government agency, U.S. government-sponsored agency, and U.S. government-sponsored enterprise debt and mortgage-backed securities are issued, guaranteed, or otherwise supported by the U.S. government and have a zero credit loss assumption. The remaining securities that were in an unrealized loss position as of March 31, 2023 were mainly comprised of the following:

•Non-agency mortgage-backed securities — The market value decline as of March 31, 2023, was primarily due to interest rate movement and spread widening. Since these securities are rated investment grade by nationally recognized statistical rating organizations (“NRSROs”), or have high priority in the cash flow waterfall within the securitization structure, and the contractual payments have historically been on time, the Company believes the risk of credit losses on these securities is low.
•Corporate debt securities — The market value decline as of March 31, 2023 was primarily due to interest rate movement and spread widening. A portion of the corporate debt securities is comprised of subordinated debt securities issued by U.S. banks. Despite the reduction of the market value of these securities after the banking sector disruption during the first quarter of 2023, these securities are nearly all rated investment grade by NRSROs or issued by well-capitalized financial institutions with strong profitability. The contractual payments from these corporate debt securities have been and are expected to be received on time. The Company will continue to monitor the market developments in the banking sector and the credit performance of these securities.

As of both March 31, 2023 and December 31, 2022, the Company intended to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-likely-than-not that the Company would not have to sell these securities before the recovery of their amortized cost. The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities. As a result, the Company expects to recover the entire amortized cost basis of these securities. Accordingly, there was no allowance for credit losses provided against these securities as of both March 31, 2023 and December 31, 2022. In addition, there was no provision for credit losses recognized for the three months ended March 31, 2023 and 2022.

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

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

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

27

Realized Gains and Losses

The following table presents the gross realized gains and tax expense related to the sales and impairment write-off of AFS debt securities included in earnings for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Gross realized gains from sales$— $1,278 
Impairment write-off (1)
$10,000 $— 
Related tax (benefit) expense $(2,956)$378 
(1)During the first quarter of 2023, the Company fully wrote down a subordinated debt security and recorded the impairment loss as a component of noninterest income in the Company’s Consolidated Statement of Income.

Interest Income

The following table presents the composition of interest income on debt securities for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Taxable interest$61,049 $38,204 
Nontaxable interest4,882 4,463 
Total interest income on debt securities$65,931 $42,667 

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

The following tables present the contractual maturities, amortized cost, fair value and weighted average yields of AFS and HTM debt securities as of March 31, 2023. Expected maturities will differ from contractual maturities on certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.
($ in thousands)Within One Year
After One Year through Five Years
After Five Years through Ten Years After Ten Years Total
AFS debt securities:
U.S. Treasury securities
Amortized cost$300,316 $676,299 $— $— $976,615 
Fair value300,302 616,680 — — 916,982 
Weighted-average yield (1)
4.57 %1.20 %— %— %2.24 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost100,000 148,135 100,000 167,504 515,639 
Fair value99,798 143,681 83,478 136,903 463,860 
Weighted-average yield (1)
4.97 %3.72 %1.26 %2.10 %2.96 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities
Amortized cost— 31,502 154,131 2,376,249 2,561,882 
Fair value— 30,182 141,815 2,097,200 2,269,197 
Weighted-average yield (1) (2)
— %3.22 %2.67 %3.39 %3.34 %
Municipal securities
Amortized cost2,304 37,282 10,778 254,761 305,125 
Fair value2,287 34,889 9,610 219,229 266,015 
Weighted-average yield (1) (2)
2.21 %2.46 %2.73 %2.24 %2.28 %
Non-agency mortgage-backed securities
Amortized cost71,090 139,963 19,881 954,838 1,185,772 
Fair value70,089 134,268 19,290 811,485 1,035,132 
Weighted-average yield (1)
7.23 %4.42 %0.84 %2.61 %3.07 %
Corporate debt securities
Amortized cost10,000 — 349,502 304,000 663,502 
Fair value9,817 — 294,170 212,266 516,253 
Weighted average yield (1)
3.49 %— %3.48 %1.97 %2.79 %
Foreign government bonds
Amortized cost62,096 36,421 50,000 50,000 198,517 
Fair value62,280 36,390 49,530 37,683 185,883 
Weighted-average yield (1)
3.19 %2.35 %4.94 %1.50 %3.05 %
Asset-backed securities
Amortized cost— — — 47,938 47,938 
Fair value— — — 46,307 46,307 
Weighted-average yield (1)
— %— %— %5.59 %5.59 %
CLOs
Amortized cost— — 319,000 298,250 617,250 
Fair value— — 310,154 291,085 601,239 
Weighted average yield (1)
— %— %5.93 %5.99 %5.96 %
Total AFS debt securities
Amortized cost$545,806 $1,069,602 $1,003,292 $4,453,540 $7,072,240 
Fair value$544,573 $996,090 $908,047 $3,852,158 $6,300,868 
Weighted-average yield (1)
4.80 %2.11 %3.93 %3.19 %3.25 %
29

($ in thousands)Within One Year
After One Year through Five Years
After Five Years through Ten YearsAfter Ten YearsTotal
HTM debt securities:
U.S. Treasury securities
Amortized cost$—$525,432$—$—$525,432
Fair value—481,611——481,611
Weighted-average yield (1)
— %1.05 %— %— %1.05 %
U.S. government agency and U.S. government-sponsored enterprise debt securities
Amortized cost——280,289719,566999,855
Fair value——240,780565,561806,341
Weighted-average yield (1)
— %— %1.92 %1.89 %1.90 %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities
Amortized cost——95,6931,182,9341,278,627
Fair value——81,608978,5181,060,126
Weighted-average yield (1) (2)
— %— %1.56 %1.67 %1.66 %
Municipal securities
Amortized cost———189,507189,507
Fair value———154,596154,596
Weighted-average yield (1) (2)
— %— %— %1.98 %1.98 %
Total HTM debt securities
Amortized cost$—$525,432$375,982$2,092,007$2,993,421
Fair value$—$481,611$322,388$1,698,675$2,502,674
Weighted-average yield (1)
— %1.05 %1.83 %1.77 %1.65 %
(1)Weighted-average yields are computed based on amortized cost balances.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.

As of March 31, 2023 and December 31, 2022, AFS and HTM debt securities with carrying values of $7.34 billion and $794.2 million, respectively, were pledged to secure borrowings, public deposits, repurchase agreements and for other purposes required or permitted by law.

Restricted Equity Securities

The following table presents the restricted equity securities included in Other assets on the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022:
($ in thousands)March 31, 2023December 31, 2022
Federal Reserve Bank of San Francisco (“FRBSF”) stock$61,622 $61,374 
FHLB stock17,250 17,250 
Total restricted equity securities$78,872 $78,624 

Note 6 — Derivatives

The Company uses derivative instruments to manage exposure to market risk, primarily interest rate and foreign currency risk, as well as to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility to mitigate the effect of interest rate changes on earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Bank’s investment in East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives serve as economic hedges. For additional information on the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 2022 Form 10-K.

30

The following table presents the notional amounts and fair values of the Company’s derivatives as of March 31, 2023 and December 31, 2022. The fair values are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the application of variation margin payments as settlement to fair values of contracts cleared through central clearing organizations. Total derivative asset and liability fair values are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
March 31, 2023December 31, 2022
Fair ValueFair Value
($ in thousands)Notional AmountDerivative Assets Derivative Liabilities Notional AmountDerivative Assets Derivative Liabilities 
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate contracts
$3,250,000 $27,535 $3,861 $3,450,000 $13,455 $19,687 
Net investment hedges:
Foreign exchange contracts
81,480 — 253 84,832 5,590 — 
Total derivatives designated as hedging instruments
$3,331,480 $27,535 $4,114 $3,534,832 $19,045 $19,687 
Derivatives not designated as hedging instruments:
Interest rate contracts
$17,568,116 $387,465 $458,550 $16,932,414 $426,828 $564,829 
Commodity contracts— (1)178,075 186,599 — (1)261,613 258,608 
Foreign exchange contracts3,887,403 34,050 32,538 2,982,891 47,519 44,117 
Credit contracts109,566 (2)— 29 140,950 (2)— 23 
Equity contracts
— (3)277 — — (3)323 — 
Total derivatives not designated as hedging instruments$21,565,085 $599,867 $677,716 $20,056,255 $736,283 $867,577 
Gross derivative assets/liabilities$627,402 $681,830 $755,328 $887,264 
Less: Master netting agreements(169,849)(169,849)(242,745)(242,745)
Less: Cash collateral received(195,278)— (372,038)— 
Net derivative assets/liabilities$262,275 $511,981 $140,545 $644,519 
(1)The notional amount of the Company’s commodity contracts totaled 24,954 thousand barrels of crude oil and 266,047 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of March 31, 2023. In comparison, the notional amount of the Company’s commodity contracts totaled 12,005 thousand barrels of crude oil and 247,704 thousand MMBTUs of natural gas as of December 31, 2022.
(2)Notional amount for credit contracts reflects the Company’s pro-rata share of the derivative instruments in RPAs.
(3)The Company held equity contracts in one public company and 11 private companies as of March 31, 2023. In comparison, the Company held equity contracts in one public company and 13 private companies as of December 31, 2022.

Derivatives Designated as Hedging Instruments

Cash Flow Hedges — The Company uses interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans, or paid on certain floating-rate borrowings due to changes in contractually specified interest rates. As of March 31, 2023, interest rate contracts in notional amounts of $3.25 billion were designated as cash flow hedges to convert certain variable-rate loans from floating-rate payments to fixed-rate payments. Gains and losses on the hedging derivative instruments are recognized in AOCI and reclassified to earnings in the same period the hedged cash flows impact earnings and within the same income statement line item as the hedged cash flows. Considering the interest rates, yield curve and notional amount as of March 31, 2023, the Company expects to reclassify an estimated $56.1 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

In the first quarter of 2023, the Company prepaid the variable-rate borrowing where an interest rate swap contract in notional amount of $200.0 million was designated as a cash flow hedge. The interest rate swap was terminated at the same date the borrowing was prepaid. Pre-tax gains in the amount of $696 thousand were reclassified from AOCI to Interest expense before the termination of the hedge and the remaining gains in the amount of $1.6 million in AOCI were immediately recognized into Noninterest income upon the termination of the hedge as the forecasted interest payments on the borrowing were no longer probable to occur.

31

The following table presents the pre-tax changes in AOCI from cash flow hedges for the three months ended March 31, 2023 and 2022. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.
Three Months Ended March 31,
($ in thousands)20232022
 Gains (losses) recognized in AOCI:
Interest rate contracts$29,843 $(32,609)
 Gains (losses) reclassified from AOCI into earnings:
Interest expense (for cash flow hedges on borrowings)696 (173)
Interest and dividend income (for cash flow hedges on loans)(12,954)2,273 
Noninterest income1,614 (1)— 
Total$(10,644)$2,100 
(1)Represents the reclassification of the remaining AOCI into earnings for the terminated cash flow hedge where the forecasted cash flows were no longer probable of occurring.

Net Investment Hedges — 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 were used to hedge against the risk of adverse changes in the foreign currency exchange rate of the Chinese Renminbi (“RMB”). The following table presents the pre-tax losses recognized in AOCI on net investment hedges for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Losses recognized in AOCI$(1,076)$(1,571)

Derivatives Not Designated as Hedging Instruments

Customer-Related Positions and other Economic Hedge Derivatives — The Company enters into interest rate, commodity, and foreign exchange derivatives at the request of its customers and generally enters into offsetting derivative contracts with third-party financial institutions to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position. Certain offsetting derivative contracts entered into by the Company are cleared though central clearing organizations where variation margin is applied daily as settlement to the fair values of the contracts. Applying variation margin payments as settlement to the fair values of derivative contracts cleared through the London Clearing House (“LCH”) and the Chicago Mercantile Exchange (“CME”) resulted in reductions in the derivative asset and liability fair values of $94.0 million and $3.8 million, respectively, as of March 31, 2023. In comparison, applying variation margin payments as settlement to LCH and CME-cleared derivative transactions resulted in reductions in the derivative asset and liability fair values of $163.4 million and $12.1 million, respectively, as of December 31, 2022.

The Company also utilizes foreign exchange contracts to mitigate the effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities. A majority of the foreign exchange contracts had original maturities of one year or less as of both March 31, 2023 and December 31, 2022.

32

The following table presents the notional amounts and the gross fair values of the interest rate and foreign exchange derivatives issued for customer-related positions and other economic hedges as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
Fair ValueFair Value
($ in thousands)Notional AmountAssetsLiabilitiesNotional AmountAssetsLiabilities
Customer-related positions:
Interest rate contracts:
Swaps$6,776,171 $8,537 $416,483 $6,656,491 $1,438 $521,719 
Written options1,693,002 — 24,329 1,548,158 — 30,904 
Collars and corridors269,340 252 7,341 215,773 — 8,924 
Subtotal8,738,513 8,789 448,153 8,420,422 1,438 561,547 
Foreign exchange contracts:
Forwards and spot1,439,521 9,866 18,300 993,588 17,009 18,090 
Swaps514,659 5,808 2,683 623,143 6,629 12,178 
Other127,000 1,876 — 121,631 2,070 245 
Subtotal2,081,180 17,550 20,983 1,738,362 25,708 30,513 
Total$10,819,693 $26,339 $469,136 $10,158,784 $27,146 $592,060 
Other economic hedges:
Interest rate contracts:
Swaps$6,803,027 $345,976 $9,209 $6,683,828 $384,201 $2,047 
Purchased options1,725,119 25,321 — 1,580,275 32,233 — 
Written options32,117 — 925 32,117 — 1,235 
Collars and corridors269,340 7,379 263 215,772 8,956 — 
Subtotal8,829,603 378,676 10,397 8,511,992 425,390 3,282 
Foreign exchange contracts:
Forwards and spot67,680 72 120 77,998 3,050 87 
Swaps1,611,543 16,428 9,559 1,044,900 18,516 11,447 
Other127,000 — 1,876 121,631 245 2,070 
Subtotal1,806,223 16,500 11,555 1,244,529 21,811 13,604 
Total$10,635,826 $395,176 $21,952 $9,756,521 $447,201 $16,886 

33

The following table presents the notional amounts in units and the gross fair values of the commodity derivatives issued for customer-related positions and other economic hedges as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
Fair ValueFair Value
($ and unit in thousands)Notional UnitsAssetsLiabilitiesNotional UnitsAssetsLiabilities
Customer-related positions:
Commodity contracts:
Crude oil:
Swaps7,443 Barrels$18,072 $8,088 2,465 Barrels$39,955 $6,178 
Collars4,597 Barrels6,337 4,528 3,011 Barrels16,038 2,630 
Written options— Barrels— — — Barrels558 — 
Subtotal12,040 Barrels24,409 12,616 5,476 Barrels56,551 8,808 
Natural gas:
Swaps99,111 MMBTUs50,825 71,736 92,590 MMBTUs112,314 73,208 
Collars34,015 MMBTUs1,003 29,501 32,072 MMBTUs2,217 18,317 
Written options367 MMBTUs— 49 — MMBTUs— — 
Subtotal133,493 MMBTUs51,828 101,286 124,662 MMBTUs114,531 91,525 
Total$76,237 $113,902 $171,082 $100,333 
Other economic hedges:
Commodity contracts:
Crude oil:
Swaps7,539 Barrels$8,900 $16,016 2,587 Barrels$6,935 $36,060 
Collars5,375 Barrels2,900 5,531 3,942 Barrels1,378 12,856 
Purchased options— Barrels— — — Barrels— 516 
Subtotal12,914 Barrels11,800 21,547 6,529 Barrels8,313 49,432 
Natural gas:
Swaps98,891 MMBTUs66,395 50,147 91,900 MMBTUs69,767 106,883 
Collars33,296 MMBTUs23,594 1,003 31,142 MMBTUs12,451 1,960 
Purchased options367 MMBTUs49 — — MMBTUs— — 
Subtotal132,554 MMBTUs90,038 51,150 123,042 MMBTUs82,218 108,843 
Total$101,838 $72,697 $90,531 $158,275 

Credit Contracts — The Company periodically enters into credit RPAs with institutional counterparties to manage the credit exposure of the interest rate contracts associated with syndication loans. Under the RPAs, a portion of the credit exposure is transferred from one party (the purchaser of credit protection) to another party (the seller of credit protection). The seller of credit protection is required to make payments to the purchaser of credit protection if the underlying borrower defaults on the related interest rate contract. The Company may enter into protection sold or protection purchased RPAs. Credit risk on RPAs is managed by monitoring the credit worthiness of the borrowers and the institutional counterparties, which is a part of the Company’s normal credit review and monitoring process. The majority of the referenced entities of the protection sold RPAs were investment grade and the weighted-average remaining maturity was 2.7 years and 2.4 years, respectively, as of March 31, 2023 and December 31, 2022. Assuming that the underlying borrowers referenced in the interest rate contracts defaulted, the Company would not have any current exposure in the protection sold RPAs as of both March 31, 2023 and December 31, 2022. The Company did not have any outstanding protection purchased RPAs as of both March 31, 2023 and December 31, 2022.

Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase preferred and/or common stock of their borrowers’ companies, which are mainly in the technology and life sciences sectors. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration.

34

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, 2023 and 2022:
Classification on
Consolidated
Statement of Income		Three Months Ended March 31,
($ in thousands)20232022
Derivatives not designated as hedging instruments:
Interest rate contractsInterest rate contracts and other derivative income$(2,484)$7,585 
Foreign exchange contractsForeign exchange income10,442 7,322 
Credit contractsInterest rate contracts and other derivative income(5)74 
Equity contractsLending fees(45)94 
Commodity contractsInterest rate contracts and other derivative income6 (49)
Net gains$7,914 $15,026 

Credit-Risk-Related Contingent Features — Certain of the Company’s over-the-counter derivative contracts contain early termination provisions that require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. Such an event primarily relates to a downgrade in the credit rating of East West Bank to below investment grade. As of March 31, 2023, the aggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled zero, and no collateral was posted to cover these positions. In comparison, as of December 31, 2022, the aggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled $2.6 million, of which $1.1 million of collateral was posted to cover these positions. If the credit rating of East West Bank had been downgraded to below investment grade, the Company would have been required to post minimal additional collateral as of both March 31, 2023 and December 31, 2022.

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 to the fair values of contracts cleared through central clearing organizations, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of overcollateralization are not shown:
($ in thousands)As of March 31, 2023
Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet 		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$627,402 $(169,849)$(195,278)$262,275 $(233,746)$28,529 
 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$681,830 $(169,849)$— $511,981 $— $511,981 
35

($ in thousands)As of December 31, 2022
 Gross
Amounts
Recognized (1)
Gross Amounts Offset on the
Consolidated Balance Sheet 		Net Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Received (3)
Security Collateral
Received (5)
Derivative assets$755,328 $(242,745)$(372,038)$140,545 $(60,567)$79,978 
 Gross
Amounts
Recognized (2)
Gross Amounts Offset on the Consolidated Balance SheetNet Amounts
Presented
on the
Consolidated
Balance Sheet		Gross Amounts Not Offset on the
Consolidated Balance Sheet		Net Amount
Master Netting Arrangements
Cash Collateral Pledged (4)
Security Collateral
Pledged (5)
Derivative liabilities$887,264 $(242,745)$— $644,519 $(38,438)$606,081 
(1)Includes $287 thousand and $2.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2023 and December 31, 2022, respectively.
(2)Includes $15 thousand and $566 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2023 and December 31, 2022, respectively.
(3)Gross cash collateral received under master netting arrangements or similar agreements was $205.7 million and $384.9 million as of March 31, 2023 and December 31, 2022, respectively. Of the gross cash collateral received, $195.3 million and $372.0 million were used to offset against derivative assets as of March 31, 2023 and December 31, 2022, respectively.
(4)Gross cash collateral pledged under master netting arrangements or similar agreements was $200 thousand and $490 thousand as of March 31, 2023 and December 31, 2022, respectively. None of the collateral was used to offset against derivative liabilities as of both March 31, 2023 and December 31, 2022.
(5)Represents the fair value of security collateral received or pledged limited to derivative assets or liabilities that are subject to enforceable master netting arrangements or similar agreements. U.S. GAAP does not permit the netting of noncash collateral on the Consolidated Balance Sheet but requires the disclosure of such amounts.

In addition to the amounts included in the tables above, the Company 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.

36

Note 7 — Loans Receivable and Allowance for Credit Losses

The following table presents the composition of the Company’s loans held-for-investment outstanding as of March 31, 2023 and December 31, 2022:
($ in thousands)March 31, 2023December 31, 2022
Commercial:
C&I$15,641,840 $15,711,095 
CRE:
CRE14,019,136 13,857,870 
Multifamily residential4,682,280 4,573,068 
Construction and land731,394 638,420 
Total CRE19,432,810 19,069,358 
Total commercial35,074,650 34,780,453 
Consumer:
Residential mortgage:
Single-family residential11,786,998 11,223,027 
HELOCs1,988,881 2,122,655 
Total residential mortgage13,775,879 13,345,682 
Other consumer67,519 76,295 
Total consumer13,843,398 13,421,977 
Total loans held-for-investment (1)
$48,918,048 $48,202,430 
Allowance for loan losses(619,893)(595,645)
Loans held-for-investment, net (1)
$48,298,155 $47,606,785 
(1)Includes $(75.4) million and $(70.4) million of net deferred loan fees and net unamortized premiums as of March 31, 2023 and December 31, 2022, respectively.

Loans held-for-investment accrued interest receivable was $221.6 million and $208.4 million as of March 31, 2023 and December 31, 2022, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for the three months ended March 31, 2023 and 2022. For the Company’s accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements of the Company’s 2022 Form 10-K.

The Company’s FRBSF and FHLB borrowings are primarily secured by loans held-for-investment. Loans held-for-investment totaling $34.17 billion and $28.30 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of March 31, 2023 and December 31, 2022.

Credit Quality Indicators

All loans are subject to the Company’s credit review and monitoring process. For the commercial loan 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 consumer loan portfolio, payment performance or delinquency is typically the driving indicator for risk ratings.

The Company utilizes internal credit risk ratings to assign each individual loan a risk rating of 1 through 10:
•Pass — loans risk rated 1 through 5 are assigned an internal risk rating category of “Pass.” Loans risk rated 1 are typically loans fully secured by cash. Pass loans have sufficient sources of repayment to repay the loan in full, in accordance with all terms and conditions.
•Special mention — loans assigned a risk rating of 6 have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating category of “Special Mention.”
•Substandard — 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 category of “Substandard.”
•Doubtful — 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 category of “Doubtful.”
37

•Loss — loans assigned a 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 category of “Loss.”

Loan 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 basis, and adjusts the ratings based on changes in the borrowers’ financial status and the collectability of the loans.

The following tables summarize the Company’s loans held-for-investment and current-period gross write-offs by loan portfolio segments, internal risk ratings and vintage year as of the periods presented. The vintage year is the year of loan origination, renewal or major modification. Revolving loans that are converted to term loans presented in the tables below are excluded from term loans by vintage year columns.
March 31, 2023
Term Loans by Origination Year
($ in thousands)20232022202120202019PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Commercial:
C&I:
Pass$674,825 $2,578,285 $1,783,684 $521,410 $333,681 $253,687 $9,060,947 $20,446 $15,226,965 
Criticized (accrual)2 76,947 90,595 30,558 33,825 9,511 129,690 — 371,128 
Criticized (nonaccrual)300 18,197 1,773 10,335 — 13,142 — — 43,747 
Total C&I675,127 2,673,429 1,876,052 562,303 367,506 276,340 9,190,637 20,446 15,641,840 
YTD gross write-offs (3)
185 68 72 — — 1,553 — — 1,878 
CRE:
Pass468,751 4,143,097 2,386,362 1,470,520 1,724,371 3,216,726 163,308 54,385 13,627,520 
Criticized (accrual)— — 53,948 155,649 55,225 106,071 1,455 — 372,348 
Criticized (nonaccrual)— 171 18,692 — — 405 — — 19,268 
Subtotal CRE468,751 4,143,268 2,459,002 1,626,169 1,779,596 3,323,202 164,763 54,385 14,019,136 
YTD gross write-offs— — — — — 6 — — 6 
Multifamily residential:
Pass159,286 1,498,094 882,113 633,118 515,423 951,669 9,253 1,301 4,650,257 
Criticized (accrual)— — — — 704 31,160 — — 31,864 
Criticized (nonaccrual)— — — — — 159 — — 159 
Subtotal multifamily residential159,286 1,498,094 882,113 633,118 516,127 982,988 9,253 1,301 4,682,280 
Construction and land:
Pass47,883 329,458 268,980 34,007 1,245 3,011 12,087 — 696,671 
Criticized (accrual)— 13,151 — — — 21,572 — — 34,723 
Criticized (nonaccrual)— — — — — — — — — 
Subtotal construction and land47,883 342,609 268,980 34,007 1,245 24,583 12,087 — 731,394 
Total CRE675,920 5,983,971 3,610,095 2,293,294 2,296,968 4,330,773 186,103 55,686 19,432,810 
YTD gross write-offs
— — — — — 6 — — 6 
Total commercial$1,351,047 $8,657,400 $5,486,147 $2,855,597 $2,664,474 $4,607,113 $9,376,740 $76,132 $35,074,650 
YTD total commercial gross write-offs (3)
$185 $68 $72 $— $— $1,559 $— $— $1,884 
38

March 31, 2023
Term Loans by Origination Year
($ in thousands)20232022202120202019PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Consumer:
Residential mortgage:
Single-family residential:
Pass (2)
$789,902 $3,504,956 $2,414,724 $1,728,663 $1,075,516 $2,246,626 $— $— $11,760,387 
Criticized (accrual)— — 629 733 2,436 3,100 — — 6,898 
Criticized (nonaccrual) (2)
— 142 676 1,006 3,240 14,649 — — 19,713 
Subtotal single-family residential mortgage789,902 3,505,098 2,416,029 1,730,402 1,081,192 2,264,375 — — 11,786,998 
HELOCs:
Pass— 1,683 1,183 4,240 2,351 10,592 1,835,459 119,520 1,975,028 
Criticized (accrual)— — 223 655 — 2,905 488 537 4,808 
Criticized (nonaccrual)— — 6 183 69 4,965 191 3,631 9,045 
Subtotal HELOCs— 1,683 1,412 5,078 2,420 18,462 1,836,138 123,688 1,988,881 
Total residential mortgage789,902 3,506,781 2,417,441 1,735,480 1,083,612 2,282,837 1,836,138 123,688 13,775,879 
Other consumer:
Pass889 16,824 137 5,356 — 7,229 36,715 — 67,150 
Criticized (accrual)3 — — — — — — — 3 
Criticized (nonaccrual)— — — — — — 366 — 366 
Total other consumer892 16,824 137 5,356 — 7,229 37,081 — 67,519 
YTD gross write-offs— — — — — — 40 — 40 
Total consumer$790,794 $3,523,605 $2,417,578 $1,740,836 $1,083,612 $2,290,066 $1,873,219 $123,688 $13,843,398 
YTD total consumer gross write-offs (3)
$— $— $— $— $— $— $40 $— $40 
Total loans held-for-investment:
Pass$2,141,536 $12,072,397 $7,737,183 $4,397,314 $3,652,587 $6,689,540 $11,117,769 $195,652 $48,003,978 
Criticized (accrual)5 90,098 145,395 187,595 92,190 174,319 131,633 537 821,772 
Criticized (nonaccrual)300 18,510 21,147 11,524 3,309 33,320 557 3,631 92,298 
Total$2,141,841 $12,181,005 $7,903,725 $4,596,433 $3,748,086 $6,897,179 $11,249,959 $199,820 $48,918,048 
YTD total loans held-for-investment gross write-offs (3)
$185 $68 $72 $— $— $1,559 $40 $— $1,924 
39

December 31, 2022
Term Loans by Origination Year
($ in thousands)20222021202020192018PriorRevolving Loans
Revolving Loans Converted to Term Loans (1)
Total
Commercial:
C&I:
Pass$2,831,834 $2,053,215 $623,026 $392,013 $143,970 $97,605 $9,177,401 $20,548 $15,339,612 
Criticized (accrual)72,210 34,296 48,761 34,221 20,646 12,933 97,988 — 321,055 
Criticized (nonaccrual)18,722 4,797 10,733 243 5,618 10,315 — — 50,428 
Total C&I2,922,766 2,092,308 682,520 426,477 170,234 120,853 9,275,389 20,548 15,711,095 
CRE:
Pass4,178,780 2,404,634 1,505,150 1,771,679 1,471,710 1,909,925 165,653 22,009 13,429,540 
Criticized (accrual)3,518 60,573 159,424 40,095 91,132 32,173 1,455 16,716 405,086 
Criticized (nonaccrual)— 19,044 — — — 4,200 — — 23,244 
Subtotal CRE4,182,298 2,484,251 1,664,574 1,811,774 1,562,842 1,946,298 167,108 38,725 13,857,870 
Multifamily residential:
Pass1,500,289 892,598 641,677 519,614 350,044 625,293 11,325 — 4,540,840 
Criticized (accrual)— — — 707 4,276 27,076 — — 32,059 
Criticized (nonaccrual)— — — — — 169 — — 169 
Subtotal multifamily residential1,500,289 892,598 641,677 520,321 354,320 652,538 11,325 — 4,573,068 
Construction and land:
Pass288,394 276,839 31,804 3,104 2,805 231 9,073 — 612,250 
Criticized (accrual)4,504 — — — 21,666 — — — 26,170 
Criticized (nonaccrual)— — — — — — — — — 
Subtotal construction and land292,898 276,839 31,804 3,104 24,471 231 9,073 — 638,420 
Total CRE5,975,485 3,653,688 2,338,055 2,335,199 1,941,633 2,599,067 187,506 38,725 19,069,358 
Total commercial
$8,898,251 $5,745,996 $3,020,575 $2,761,676 $2,111,867 $2,719,920 $9,462,895 $59,273 $34,780,453 
Consumer:
Residential mortgage:
Single-family residential:
Pass (2)
$3,548,894 $2,453,717 $1,775,696 $1,101,965 $817,164 $1,500,359 $— $— $11,197,795 
Criticized (accrual)— 1,275 785 1,463 4,352 3,935 — — 11,810 
Criticized (nonaccrual) (2)
141 — 204 3,202 1,721 8,154 — — 13,422 
Subtotal single-family residential mortgage3,549,035 2,454,992 1,776,685 1,106,630 823,237 1,512,448 — — 11,223,027 
HELOCs:
Pass520 3,583 7,336 3,203 525 8,960 1,958,692 127,401 2,110,220 
Criticized (accrual)— 6 — — — — 4 1,079 1,089 
Criticized (nonaccrual)— — 483 231 1,017 4,844 1,001 3,770 11,346 
Subtotal HELOCs520 3,589 7,819 3,434 1,542 13,804 1,959,697 132,250 2,122,655 
Subtotal residential mortgage3,549,555 2,458,581 1,784,504 1,110,064 824,779 1,526,252 1,959,697 132,250 13,345,682 
Other consumer:
Pass17,088 137 5,356 — — 15,808 37,804 — 76,193 
Criticized (accrual)3 — — — — — — — 3 
Criticized (nonaccrual)— — — — — — 99 — 99 
Total other consumer
17,091 137 5,356 — — 15,808 37,903 — 76,295 
Total consumer$3,566,646 $2,458,718 $1,789,860 $1,110,064 $824,779 $1,542,060 $1,997,600 $132,250 $13,421,977 
Total by Risk Rating:
Pass$12,365,799 $8,084,723 $4,590,045 $3,791,578 $2,786,218 $4,158,181 $11,359,948 $169,958 $47,306,450 
Criticized (accrual)80,235 96,150 208,970 76,486 142,072 76,117 99,447 17,795 797,272 
Criticized (nonaccrual)18,863 23,841 11,420 3,676 8,356 27,682 1,100 3,770 98,708 
Total
$12,464,897 $8,204,714 $4,810,435 $3,871,740 $2,936,646 $4,261,980 $11,460,495 $191,523 $48,202,430 
(1)$12.2 million of total commercial loans, primarily comprised of CRE revolving loans and $5.1 million of total consumer loans, comprised of HELOC revolving loans converted to term loans during the three months ended March 31, 2023. In comparison, no commercial or consumer loans were converted to term loans during the three months ended March 31, 2022.
(2)As of March 31, 2023 and December 31, 2022, $827 thousand and $818 thousand, respectively, of nonaccrual loans whose payments are guaranteed by the Federal Housing Administration were classified with a “Pass” rating.
(3)Excludes current-period gross write-offs associated with loans the Company sold or settled.
40

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. The following tables present the aging analysis of loans held-for-investment as of March 31, 2023 and December 31, 2022:
March 31, 2023
($ in thousands)Current
Accruing
Loans		Accruing
Loans
30-59 Days
Past Due		Accruing
Loans
60-89 Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$15,589,505 $4,758 $3,830 $8,588 $43,747 $15,641,840 
CRE:
CRE13,998,080 1,304 484 1,788 19,268 14,019,136 
Multifamily residential4,681,411 391 319 710 159 4,682,280 
Construction and land723,240 — 8,154 8,154 — 731,394 
Total CRE19,402,731 1,695 8,957 10,652 19,427 19,432,810 
Total commercial34,992,236 6,453 12,787 19,240 63,174 35,074,650 
Consumer:
Residential mortgage:
Single-family residential11,740,953 17,964 7,541 25,505 20,540 11,786,998 
HELOCs1,969,546 5,485 4,805 10,290 9,045 1,988,881 
Total residential mortgage13,710,499 23,449 12,346 35,795 29,585 13,775,879 
Other consumer67,008 89 56 145 366 67,519 
Total consumer13,777,507 23,538 12,402 35,940 29,951 13,843,398 
Total$48,769,743 $29,991 $25,189 $55,180 $93,125 $48,918,048 
December 31, 2022
($ in thousands)Current
Accruing
Loans		Accruing
Loans
30-59 Days
Past Due		Accruing
Loans
60-89 Days
Past Due		Total
Accruing
Past Due
Loans		Total
Nonaccrual
Loans		Total
Loans
Commercial:
C&I$15,651,312 $6,482 $2,873 $9,355 $50,428 $15,711,095 
CRE:
CRE13,820,441 14,185 — 14,185 23,244 13,857,870 
Multifamily residential4,571,899 678 322 1,000 169 4,573,068 
Construction and land638,420 — — — — 638,420 
Total CRE19,030,760 14,863 322 15,185 23,413 19,069,358 
Total commercial34,682,072 21,345 3,195 24,540 73,841 34,780,453 
Consumer:
Residential mortgage:
Single-family residential11,183,134 13,523 12,130 25,653 14,240 11,223,027 
HELOCs2,102,523 7,700 1,086 8,786 11,346 2,122,655 
Total residential mortgage
13,285,657 21,223 13,216 34,439 25,586 13,345,682 
Other consumer73,004 109 3,083 3,192 99 76,295 
Total consumer13,358,661 21,332 16,299 37,631 25,685 13,421,977 
Total$48,040,733 $42,677 $19,494 $62,171 $99,526 $48,202,430 

41

The following table presents the amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of both March 31, 2023 and December 31, 2022. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well-secured by the collateral value and there is no loss expectation.
($ in thousands)March 31, 2023December 31, 2022
Commercial:
C&I$16,227 $11,398 
CRE18,693 22,944 
Total commercial34,920 34,342 
Consumer:
Single-family residential7,206 2,998 
HELOCs5,050 7,245 
Total consumer12,256 10,243 
Total nonaccrual loans with no related allowance for loan losses$47,176 $44,585 

Foreclosed Assets

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

Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $270 thousand of foreclosed assets as of both March 31, 2023 and December 31, 2022. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the CFPB guidelines. The carrying value of consumer real estate loans that were in an active or suspended foreclosure process was $8.4 million and $7.5 million as of March 31, 2023 and December 31, 2022, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty

As part of the Company’s loss mitigation efforts, the Company may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty. In addition to loan modifications, the Company also provides other loss mitigation options to assist borrowers who are experiencing financial difficulties. The Company offers restructurings mainly in the form of payment deferrals and term extensions. Upon the adoption of ASU 2022-02, which was effective as of January 1, 2023, the Company applies the loan refinancing and restructuring guidance provided in ASU 310-20 to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan. See Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies — Significant Accounting Policies Update — Loan Modifications to the Consolidated Financial Statements in this Form 10-Q for additional information. The disclosures below provide information on loan modifications to borrowers experiencing financial difficulty. Loans that were both modified and paid off or charged-off during the period, resulting in an amortized cost balance of zero at the end of each period, were excluded from the disclosures below.

42

The following table presents the amortized cost of modified loans and the financial effects of the modifications for the three months ended March 31, 2023 by loan class and modification type:
For the Three Months Ended March 31, 2023
Modification TypeFinancial Effects of
Loan Modifications
($ in thousands)Term ExtensionPayment DelayTotalModification as a % of Loan ClassWeighted-Average Term Extension
(in years)		Weighted-Average Payment Delay
(in years)
Commercial:
C&I$19,974 $14,364 $34,338 0.22 %0.9 years1.0 year
CRE:
CRE543 — 543 0.00 %2.0 years
Total commercial20,517 14,364 34,881 
Consumer:
Residential mortgage:
HELOCs738 — 738 0.04 %14.8 years
Total consumer738 — 738 
Total$21,255 $14,364 $35,619 

The Company tracks the performance of modified loans. A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification. There were no loans that received a modification during the three months ended March 31, 2023 that subsequently defaulted.

The following table presents the performance of loans that were modified during the three months ended March 31, 2023.
Payment Performance as of March 31, 2023
($ in thousands)Current30 - 89 Days
Past Due		90+ Days
Past Due		Total
Commercial:
C&I$27,393 $6,945 $— $34,338 
CRE:
CRE543 — — 543 
Total commercial27,936 6,945 — 34,881 
Consumer:
Residential mortgage:
HELOCs738 — — 738 
Total consumer738 — — 738 
Total$28,674 $6,945 $— $35,619 

As of March 31, 2023, there were no additional commitments to lend to borrowers whose loans were modified.

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

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

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The following table presents the additions to TDRs for the three months ended March 31, 2022:
Loans Modified as TDRs During the three months ended March 31, 2022
($ in thousands)Number of LoansPre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment (1)
Financial Impact (2)
Commercial:
C&I1 $17,179 $9,224 $7,545 
Total1 $17,179 $9,224 $7,545 
(1)Includes subsequent payments after modification and reflects the balance as of March 31, 2022.
(2)Includes charge-offs since the modification date.

The following table presents the TDR post-modification outstanding balances by the primary modification type for the three months ended March 31, 2022:
Modification Type
During the Three Months Ended March 31, 2022
($ in thousands)
Principal (1)
Total
Commercial:
C&I$9,224 $9,224 
Total$9,224 $9,224 
(1)Includes principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.

After a loan is modified as a TDR, the Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent and result in payment default (generally 90 days past due) subsequent to restructuring. The following table presents information on loans that entered into default during the three months ended March 31, 2022 that were modified as TDRs during the 12 months preceding payment default:
Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended March 31, 2022
($ in thousands)Number of LoansRecorded Investment
Commercial:
C&I1 $3,250 
Total1 $3,250 

As of December 31, 2022, the remaining lending commitments to borrowers whose terms of their outstanding owed balances were modified as TDRs was $16.2 million.

Allowance for Credit Losses

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

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

The allowance for credit losses estimation involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures that share risk characteristics with other similar exposures are collectively evaluated. The collectively evaluated loans include performing 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.
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Allowance for Collectively Evaluated Loans

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

Quantitative Component — The Company applies quantitative methods to estimate loan losses by considering a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios, which include variables that are considered 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 or upside scenarios reflecting possible worsening or improving economic conditions. The quantitative models incorporate a probability-weighted calculation of these macroeconomic scenarios over a reasonable and supportable forecast period. If the life of loans extends beyond the reasonable and supportable forecast period, the Company will consider historical experience or long-run macroeconomic trends over the remaining lives of the loans to estimate the allowance for loan losses.

There were no changes to the overall model methodology or the reasonable and supportable forecast period and reversion to the historical loss experience method for the three months ended March 31, 2023 and 2022.

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&IAge, size and spread at origination, and risk rating
Volatility Index and BBB yield to 10-year U.S. Treasury spread
CRE, Multifamily residential, and Construction and landDelinquency status, maturity date, collateral value, property type, and geographic locationUnemployment rate, Gross Domestic Product (“GDP”), and U.S. Treasury rates
Single-family residential and HELOCsFICO score, delinquency status, maturity date, collateral value, and geographic locationUnemployment rate, GDP, and home price index
Other consumerLoss rate approach
Immaterial (1)
(1)Macroeconomic variables are included in the qualitative estimate.

Allowance for Loan Losses for the Commercial Loan Portfolio

The Company’s C&I lifetime loss rate model estimates the loss rate expected over the life of a loan. This loss rate is applied to the amortized cost basis, excluding accrued interest receivable, to determine expected credit losses. The lifetime loss rate model’s reasonable and supportable period spans 11 quarters, thereafter, immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate.

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

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

Allowance for Loan Losses for the Consumer Loan Portfolio

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

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Qualitative Component — The Company also considers the following qualitative factors in the determination of the collectively evaluated allowance if these factors have not already been captured by the quantitative model. Such qualitative factors may include, but are not limited to:

—     loan growth trends;
—    the volume and severity of past due financial assets, and the volume and severity of adversely classified financial assets;
—    the Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off, and recovery practices;
—    knowledge of a borrower’s operations;
—    the quality of the Company’s credit review system;
—    the experience, ability and depth of the Company’s management and associates;
—    the effect of other external factors such as the regulatory and legal environments, or changes in technology;
—    actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates; and
—    risk factors in certain industry sectors not captured by the quantitative models.

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

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.

Allowance for Individually Evaluated Loans

When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual 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; or (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 — The allowance of a collateral-dependent loan 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, 2023, collateral-dependent commercial and consumer loans totaled $18.7 million and $12.3 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $47.4 million and $13.4 million, respectively, as of December 31, 2022. The collateral-dependent loans decreased from December 31, 2022, predominantly driven by the adoption of ASU 2022-02 related to the elimination of TDR guidance. The Company's collateral-dependent loans were secured by real estate. As of both March 31, 2023 and December 31, 2022, the collateral value of the properties securing the collateral-dependent loans, net of selling costs, exceeded the recorded value of the loans.

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The following tables summarize the activity in the allowance for loan losses by portfolio segments for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31, 2023
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, December 31, 2022$371,700 $149,864 $23,373 $9,109 $35,564 $4,475 $1,560 $595,645 
Impact of ASU 2022-02 adoption5,683 337 6 — 1 1 — 6,028 
Allowance for loan losses, January 1, 2023377,383 150,201 23,379 9,109 35,565 4,476 1,560 601,673 
(Reversal of) provision for credit losses on loans(a)(678)4,676 1,135 210 12,442 580 155 18,520 
Gross charge-offs(1,900)(6)— — — (91)(40)(2,037)
Gross recoveries1,211 196 12 3 — 6 — 1,428 
Total net (charge-offs) recoveries(689)190 12 3 — (85)(40)(609)
Foreign currency translation adjustment309 — — — — — — 309 
Allowance for loan losses, end of period$376,325 $155,067 $24,526 $9,322 $48,007 $4,971 $1,675 $619,893 
Three Months Ended March 31, 2022
CommercialConsumer
CREResidential Mortgage
($ in thousands)C&ICREMultifamily ResidentialConstruction and LandSingle-Family ResidentialHELOCsOther ConsumerTotal
Allowance for loan losses, beginning of period
$338,252 $150,940 $14,400 $15,468 $17,160 $3,435 $1,924 $541,579 
Provision for (reversal of) credit losses on loans(a)9,262 (3,493)9,657 (4,506)926 299 107 12,252 
Gross charge-offs(11,188)(398)(1)— — — (46)(11,633)
Gross recoveries3,002 55 120 54 124 14 — 3,369 
Total net (charge-offs) recoveries(8,186)(343)119 54 124 14 (46)(8,264)
Foreign currency translation adjustment118 — — — — — — 118 
Allowance for loan losses, end of period$339,446 $147,104 $24,176 $11,016 $18,210 $3,748 $1,985 $545,685 

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 11 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q for additional information related to unfunded credit commitments. The following table summarizes the activities in the allowance for unfunded credit commitments for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Unfunded credit facilities
Allowance for unfunded credit commitments, beginning of period$26,264 $27,514 
Provision for (reversal of) credit losses on unfunded credit commitments(b)1,480 (4,252)
Foreign currency translation adjustment(3)— 
Allowance for unfunded credit commitments, end of period$27,741 $23,262 
Provision for credit losses(a) + (b)$20,000 $8,000 

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The allowance for credit losses was $647.6 million as of March 31, 2023, an increase of $25.7 million, compared with $621.9 million as of December 31, 2022. The increase in the allowance for credit losses was primarily driven by the current economic outlook as well as loan growth. The current economic outlook reflected ongoing concerns with inflation, global supply chain disruptions and rising interest rates.

The Company considers multiple economic scenarios to develop the estimate of the allowance for loan losses. The scenarios may consist of a baseline forecast representing management's view of the most likely outcome, and downside or upside scenarios that reflect possible worsening or improving economic conditions, respectively. As of March 31, 2023, the Company did not assign a weighting to its upside scenario. Instead, it assigned a slightly higher weighting to its downside scenario, while maintaining the same weighting to its baseline scenario, compared with the weightings assigned as of December 31, 2022. Management remains cautious regarding the economic outlook given the persistently high level of inflation, rising interest rates, the recent strain to the financial system, and continued concerns on global oil prices and supply-chain issues. The baseline GDP growth forecast for the first two quarters of 2023 rose to 2.5% and 1.0%, compared with 0.1% and 0.7% in the December 2022 forecast. Additionally, the GDP growth forecast for the second half of 2023 has been lowered compared with the December 2022 forecast. GDP growth for the full year 2024, was lowered to 1.9% from the previous 2.0% forecasted as of December 31, 2022, reflecting an expected GDP slow-down as interest-sensitive spending weakens amid elevated interest rates. Average unemployment rates are expected to remain stable at 3.5% for 2023. However, job market softening is expected in 2024 and 2025. Compared with the baseline scenario, the downside scenario assumes that the combination of increasing supply shortages, political tensions between China and Taiwan, recent bank failures, still-elevated inflation, and the Federal Reserve’s decision to keep the federal funds rate elevated will lead to a recession in the second quarter of 2023.

Loans Held-for-Sale

Loans held-for-sale consisted of $6.9 million and $25.6 million of C&I loans as of March 31, 2023 and December 31, 2022, respectively. Refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements in the Company’s 2022 Form 10-K for additional details.

Loan Transfers, Sales and Purchases

The Company’s primary business focus is on directly originated loans. The Company also purchases loans and participates in loans with other banks. In the normal course of business, the Company also provides other financial institutions with the ability to participate in commercial loans that it originates, by selling loans to such institutions. 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 on the carrying value of loans transferred, sold and purchased for the held-for-investment portfolio, during the three months ended March 31, 2023 and 2022:
Three Months Ended March 31, 2023
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICRESingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$156,876 $3,600 $— $160,476 
Sales (2)(3)(4)
$175,932 $3,600 $— $179,532 
Purchases (5)
$22,683 $— $131,999 $154,682 
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Three Months Ended March 31, 2022
CommercialConsumer
Residential Mortgage
($ in thousands)C&ICRESingle-Family ResidentialTotal
Loans transferred from held-for-investment to held-for-sale (1)
$111,437 $21,780 $— $133,217 
Sales (2)(3)(4)
$107,474 $21,780 $451 $129,705 
Purchases (5)
$110,596 $— $114,375 $224,971 
(1)Includes write-downs of $273 thousand and $59 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, 2023 and 2022, respectively.
(2)Includes originated loans sold of $111.0 million and $112.3 million for the three months ended March 31, 2023 and 2022, respectively. Originated loans sold consisted primarily of C&I loans for both periods.
(3)Includes $68.5 million and $17.4 million of purchased loans sold in the secondary market for the three months ended March 31, 2023 and 2022, respectively.
(4)Net (losses) gains on sales of loans were $(22) thousand and $2.9 million for the three months ended March 31, 2023 and 2022, 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 invests in small business investment companies and 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 investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas. For the Company’s accounting policies on tax credit investments, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Securities and Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net to the Consolidated Financial Statements in the Company’s 2022 Form 10-K for additional details. For a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments, refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net to the Consolidated Financial Statements in this Form 10-Q.

The following table presents investments and unfunded commitments of the Company’s qualified affordable housing partnerships, tax credit, and other investments as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Assets
Liabilities - Unfunded Commitments (1)
Assets
Liabilities - Unfunded Commitments (1)
Investments in qualified affordable housing partnerships, net$388,926 $241,371 $413,253 $266,654 
Investments in tax credit and other investments, net352,428 190,010 350,003 185,797 
Total$741,354 $431,381 $763,256 $452,451 
(1)Included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Investments in tax credit and other investments, net presented in the table above include equity securities that are mutual funds with readily determinable fair values of $24.4 million and $24.0 million as of March 31, 2023 and December 31, 2022, respectively. The Company invests in these mutual funds for CRA purposes. The Company also held equity securities without readily determinable fair values totaling $36.0 million and $36.5 million as of March 31, 2023 and December 31, 2022, respectively.

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The following table presents additional information related to the investments in qualified affordable housing partnerships, tax credit and other investments for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Investments in qualified housing partnerships, net
Tax credits and other tax benefits recognized$16,094 $12,830 
Amortization expense included in income tax expense$12,666 $10,025 
Investments in tax credit and other investments, net
Amortization of tax credit and other investments (1)
$10,110 $13,900 
Unrealized gains (losses) on equity securities with readily determinable values$361 $(1,161)
(1)Includes $174 thousand in impairment recovery related to the $3.7 million cash settlement received from the Company’s investment in DC Solar that was previously written off.

Variable Interest Entities

The majority of both the investments in affordable housing partnerships and tax credit and other investments discussed above are variable interest entities (“VIEs”) where the Company is a limited partner in these partnerships, and an unrelated third party is typically the general partner or managing member who has control over the significant activities of these investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these structures due to the general partner’s or managing member’s ability to manage the entity, which is indicative of the general partner’s or managing member’s power over the entity. The Company’s maximum exposure to loss in connection with these partnerships consists of the unamortized investment balance and any tax credits claimed that may become subject to recapture.

Note 9 — Goodwill

Total goodwill was $465.7 million as of both March 31, 2023 and December 31, 2022. The Company’s goodwill impairment test is performed annually, as of December 31, 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. Based on the Company’s annual goodwill impairment testing as of December 31, 2022, there was no impairment. Additional information pertaining to the Company’s accounting policy for goodwill is summarized in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Goodwill to the Consolidated Financial Statements in the Company’s 2022 Form 10-K. Given the recent volatility in the banking industry, the Company performed an analysis of goodwill during the first quarter of 2023 that consisted of a qualitative assessment to determine if it is more likely than not that the carrying values of each reporting unit exceeded their estimated fair values. The results of this analysis indicated that no impairment of goodwill existed as of March 31, 2023.

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

Short-Term Borrowings — Bank Term Funding Program

As of March 31, 2023, the Company’s short-term borrowings consisted of funds from the BTFP. In March 2023, the Federal Reserve announced the creation of the BTFP, which was designed to provide additional liquidity to U.S. depository institutions. The advances will be limited to the par value of eligible collateral pledged by the borrower, for a term of up to one year. U.S. federally insured depository institutions can request advances under the BTFP until at least March 11, 2024.

The following table presents details of the Company’s short-term borrowings as of March 31, 2023. The Company pledged eligible U.S. government agency and U.S. government-sponsored enterprise debt and mortgage-backed securities, and U.S. Treasury securities as collateral for the borrowings under the BTFP. As of March 31, 2023, the face amount of the Company’s pledged securities to the BTFP totaled $4.84 billion with a remaining borrowing capacity of $339.0 million. There were no short-term borrowings as of December 31, 2022.
March 31, 2023
($ in thousands)Interest RateMaturity DateAmount
Short-term borrowings4.37%3/19/2024$4,500,000 

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Long-Term Debt — Junior Subordinated Debt

Long-term debt totaled $148.0 million as of both March 31, 2023 and December 31, 2022. The interest rates on the junior subordinated debt are based on LIBOR plus the applicable stated margin. The junior subordinated debt had a weighted-average interest rate of 6.39% and 3.49% as of March 31, 2023 and December 31, 2022, respectively, with remaining maturities ranging between 11.6 years and 14.5 years as of March 31, 2023. For additional information on the junior subordinated debt, refer to Note 10 — Federal Home Loan Bank Advances and Long-Term Debt to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

Note 11 — Commitments and Contingencies

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

The following table presents the Company’s credit-related commitments as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Expire in One Year or LessExpire After One Year
Through Three Years		Expire After Three Year
Through Five Years		Expire After Five YearsTotalTotal
Loan commitments$2,984,815 $2,391,830 $1,091,375 $2,076,229 $8,544,249 $8,211,571 
Commercial letters of credit and SBLCs703,038 567,135 84,709 1,075,196 2,430,078 2,291,966 
Total$3,687,853 $2,958,965 $1,176,084 $3,151,425 $10,974,327 $10,503,537 

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 existing accounts. As of March 31, 2023, total letters of credit of $2.43 billion consisted of SBLCs of $2.40 billion and commercial letters of credit of $29.6 million. In comparison, as of December 31, 2022, total letters of credit of $2.29 billion consisted of SBLCs of $2.27 billion and commercial letters of credit of $21.6 million. As of both March 31, 2023 and December 31, 2022, substantially all SBLCs were rated as “Pass” by the Bank’s internal credit risk rating system.

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 risk. Collateral may include cash, accounts receivable, inventory, property, plant and equipment, and real estate property.

Estimated exposure to loss from these commitments is included in the allowance for unfunded credit commitments and amounted to $27.7 million and $26.2 million as of March 31, 2023 and December 31, 2022, respectively.

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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 component 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, 2023 and December 31, 2022:
Maximum Potential Future PaymentsCarrying Value
March 31,
2023		December 31,
2022		March 31,
2023		December 31,
2022
($ in thousands)Expire in One Year or LessExpire After One Year
Through Three Years		Expire After Three Years
Through Five Years		Expire After Five YearsTotalTotalTotalTotal
Single-family residential loans sold or securitized with recourse$37 $67 $— $6,404 $6,508 $6,781 $6,508 $6,781 
Multifamily residential loans sold or securitized with recourse— — — 14,996 14,996 14,996 21,016 21,320 
Total $37 $67 $— $21,400 $21,504 $21,777 $27,524 $28,101 

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit commitments and totaled $36 thousand and $37 thousand as of March 31, 2023 and December 31, 2022, 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.

While it is impossible to ascertain the ultimate resolution or range of financial liability, based on information known to the Company, as of March 31, 2023, the Company does not believe there is any pending legal proceeding to which the Company is a party that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company’s financial condition. In light of the inherent uncertainty in legal proceedings, however, there can be no assurance that the ultimate resolution will not exceed established reserves and it is possible that the outcome of a particular matter, or a combination of matters, may be material to the Company’s financial condition for a particular period, depending upon the size of the loss and the Company’s income for that particular period.

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, 2023 and December 31, 2022, these commitments were $431.4 million and $452.5 million, respectively. These commitments are included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Note 12 — Stock Compensation Plans

Pursuant to the Company’s 2021 Stock Incentive Plan, as amended, the Company may issue stock, stock options, restricted stock, restricted stock units (“RSUs”) including performance-based 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. There were no outstanding awards other than RSUs as of both March 31, 2023 and December 31, 2022.

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The following table presents a summary of the total share-based compensation expense and the related net tax benefits associated with the Company’s various employee share-based compensation plans for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022
Stock compensation costs$11,075 $8,433 
Related net tax benefits for stock compensation plans$8,290 $5,159 

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 in shares of the Company’s common stock. Dividends 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. For accounting on stock-based compensation plans, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Stock-Based Compensation to the Consolidated Financial Statements of the Company’s 2022 Form 10-K.

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, 2023. 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 ValueSharesWeighted-Average Grant Date Fair Value
Outstanding, January 1, 2023
1,296,866 $60.77 332,510 $60.40 
Granted479,758 74.53 96,271 57.50 
Vested(462,248)42.35 (152,558)39.39 
Forfeited(9,280)70.26 — — 
Outstanding, March 31, 2023
1,305,096 $72.28 276,223 $70.99 

As of March 31, 2023, there were $41.8 million of unrecognized compensation costs related to unvested time-based RSUs expected to be recognized over a weighted-average period of 2.2 years, and $24.1 million of unrecognized compensation costs related to unvested performance-based RSUs expected to be recognized over a weighted-average period of 2.3 years.

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Note 13 — Stockholders’ Equity and Earnings Per Share

The following table presents the basic and diluted EPS calculations for the three months ended March 31, 2023 and 2022. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Earnings Per Share to the Consolidated Financial Statements of the Company’s 2022 Form 10-K.
Three Months Ended March 31,
($ and shares in thousands, except per share data)20232022
Basic:
Net income$322,439 $237,652 
Weighted-average number of shares outstanding141,112 142,025 
Basic EPS$2.28 $1.67 
Diluted:
Net income$322,439 $237,652 
Weighted-average number of shares outstanding 141,112 142,025 
Add: Dilutive impact of unvested RSUs801 1,198 
Diluted weighted-average number of shares outstanding141,913 143,223 
Diluted EPS$2.27 $1.66 

Approximately 417 thousand and 123 thousand weighted-average shares of anti-dilutive RSUs were excluded from the diluted EPS computations for the three months ended March 31, 2023 and 2022, respectively.

Note 14 — Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in the components of AOCI balances for the three months ended March 31, 2023 and 2022:
($ in thousands)
Debt Securities (1)
Cash Flow Hedges
Foreign Currency Translation Adjustments (2)
Total
Balance, January 1, 2022$(85,703)$257 $(4,935)$(90,381)
Net unrealized (losses) gains arising during the period(281,361)(23,227)129 (304,459)
Amounts reclassified from AOCI1,411 (1,496)— (85)
Changes, net of tax(279,950)(24,723)129 (304,544)
Balance, March 31, 2022
$(365,653)$(24,466)$(4,806)$(394,925)
Balance, January 1, 2023$(694,815)$(49,531)$(21,283)$(765,629)
Net unrealized gains arising during the period44,275 21,086 2,941 68,302 
Amounts reclassified from AOCI9,806 7,527 — 17,333 
Changes, net of tax54,081 28,613 2,941 85,635 
Balance, March 31, 2023
$(640,734)

$(20,918)$(18,342)$(679,994)
(1)Includes after-tax unamortized losses related to AFS debt securities that were transferred to HTM in 2022.
(2)Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary is RMB and USD, respectively.

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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, 2023 and 2022:
Three Months Ended March 31,
20232022
($ in thousands)Before-TaxTax EffectNet-of-TaxBefore-TaxTax EffectNet-of-Tax
Debt securities:
Net unrealized gains (losses) arising during the period$62,860 $(18,585)$44,275 $(399,462)$118,101 $(281,361)
Reclassification adjustments:
Net realized losses (gains) reclassified into net income (1)
10,000 
(2)
(2,956)7,044 (1,278)378 (900)
Amortization of unrealized losses on transferred securities (3)
3,921 (1,159)2,762 3,281 (970)2,311 
Net change76,781 (22,700)54,081 (397,459)117,509 (279,950)
Cash flow hedges:
Net unrealized gains (losses) arising during the period29,843 (8,757)21,086 (32,609)9,382 (23,227)
Net realized losses (gains) reclassified into net income (4)
10,644 (3,117)7,527 (2,100)604 (1,496)
Net change40,487 (11,874)28,613 (34,709)9,986 (24,723)
Foreign currency translation adjustments, net of hedges:
Net unrealized gains (losses) arising during the period2,626 315 2,941 (322)451 129 
Net change2,626 315 2,941 (322)451 129 
Other comprehensive income (loss)$119,894 $(34,259)$85,635 $(432,490)$127,946 $(304,544)
(1)Pre-tax amounts were reported in Net realized (losses) gains on AFS debt securities on the Consolidated Statement of Income.
(2)Represents the full write-off of an impaired subordinated debt security during the first quarter of 2023.
(3)Represents unrealized losses amortized over the remaining lives of securities that were transferred from the AFS to HTM portfolio.
(4)Pre-tax amounts related to cash flow hedges on CRE loans and long-term borrowings were reported in Interest and dividend income and in Interest expense, respectively, on the Consolidated Statement of Income.

Note 15 — 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 and digital banking platform. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small- and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management, interest rate risk hedging and foreign exchange services.

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

The 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 recorded to the segment directly associated with the respective loans charged off, and provision for credit losses is recorded to the segments based on the 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 included 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, 2023 and 2022:
($ in thousands)Consumer and Business BankingCommercial BankingOtherTotal
Three Months Ended March 31, 2023
Net interest income before provision for credit losses$304,242 $236,723 $58,896 $599,861 
Provision for credit losses15,012 4,988 — 20,000 
Noninterest income (loss)26,002 43,599 (9,623)59,978 
Noninterest expense113,823 87,248 17,376 218,447 
Segment income before income taxes 201,409 188,086 31,897 421,392 
Segment net income$142,247 $134,457 $45,735 $322,439 
As of March 31, 2023
Segment assets$17,880,525 $33,647,465 $15,716,908 $67,244,898 
($ in thousands)Consumer and Business BankingCommercial BankingOtherTotal
Three Months Ended March 31, 2022
Net interest income (loss) before provision for credit losses$213,214 $208,077 $(5,678)$415,613 
Provision for credit losses3,104 4,896 — 8,000 
Noninterest income25,199 49,077 5,467 79,743 
Noninterest expense96,095 73,395 19,960 189,450 
Segment income (loss) before income taxes139,214 178,863 (20,171)297,906 
Segment net income$99,164 $127,507 $10,981 $237,652 
As of March 31, 2022
Segment assets$15,338,579 $30,199,416 $16,703,461 $62,241,456 
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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, 2022, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 27, 2023 (the “Company’s 2022 Form 10-K”).

Organization and Strategy

East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the Bank Holding Company Act of 1956, as amended. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California that focuses on the financial service needs of individuals and businesses that operate in both the U.S. and Asia. Through over 120 locations in the U.S. and Asia, the Company provides a full range of consumer and commercial products and services through the following three business segments: (1) Consumer and Business Banking and (2) Commercial Banking, with the remaining operations recorded in (3) Other. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. We are committed to enhancing long-term stockholder value by 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. We expect our relationship-focused business model to continue generating organic growth from existing customers and to expand our targeted customer bases. As of March 31, 2023, the Company had $67.24 billion in assets and approximately 3,200 full-time equivalent employees. For additional information on our strategy, and the products and services provided by the Bank, see Item 1. Business — Strategy and Banking Services in the Company’s 2022 Form 10-K.

Current Developments

Economic Developments

In response to the recent volatility in the banking industry, the U.S. government intervened to maintain financial stability by implementing a “systemic risk exception” which allowed the Federal Deposit Insurance Corporation (“FDIC”) to protect all the depositors of certain failed banks, while the Board of Governors of the Federal Reserve System (“Federal Reserve”) created a new lending facility to mitigate liquidity pressures on the banking system. Although the broader banking system remains well capitalized, the market value of U.S. Treasury and government-backed mortgage securities held by banks continues to decline due to rising interest rates. Meanwhile, inflationary concerns continue to drive higher interest rates and weigh on the economy. The Federal Reserve’s monetary policy has included multiple interest rate hikes that have slowed the pace of inflation. Despite the slowdown in inflation, the Federal Reserve has indicated that additional measures are necessary to bring inflation in line with its 2% annual target. The combination of higher interest rates, depressed global equity prices, elevated market volatility and a slowdown in global economies has led to concerns of a potential recession. The Company continues to monitor the economy and its effects on the Company’s business, customers, employees, communities and markets.

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

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LIBOR Transition

London Interbank Offered Rate (“LIBOR”), a benchmark rate that has historically been widely referenced, will no longer be published after June 30, 2023. On January 1, 2022, the Company ceased offering new loans or loan renewals based on LIBOR, and began offering loans based on alternative reference rates (“ARRs”) such as Term Secured Overnight Financing Rate (“SOFR”) and the Bloomberg Short-Term Bank Yield Index. A significant majority of the Company’s LIBOR exposure, predominantly comprised of commercial loans and derivative contracts have been remediated (i.e., amended to reference an ARR either before or immediately after June 2023) or already contains appropriate fallback provisions to transition to an ARR. The remaining LIBOR exposure represents a small minority of the Company’s assets and liabilities. The Company will leverage the appropriate contractual and statutory provisions, including the Adjustable Interest Rate (LIBOR) Act and other relevant legislation, to transition any remaining LIBOR-based product exposures maturing after June 2023 to the appropriate benchmark replacement rates. The Company’s LIBOR transition is anticipated to continue through June 30, 2023.

For additional information related to the potential impact surrounding the transition from LIBOR on the Company’s business, see item 1A. Risk Factors — Risks Related to Financial Matters in the Company’s 2022 Form 10-K. For additional background information on the LIBOR transition, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Overview in the Company’s 2022 Form 10-K.

Potential Regulatory Reforms in Response to Recent Bank Failures

The recent failures of Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York, New York, in March 2023, and First Republic Bank, San Francisco, California, in May 2023, may lead to regulatory changes and initiatives that could impact the Company. For example, the FDIC has stated that it plans to impose a special deposit insurance assessment on banks in order to recover losses that the FDIC’s Deposit Insurance Fund incurs in the receivership of these institutions. Changes in the financial services industry, including an increase in uninsured deposits and technological advances, have also prompted the FDIC to explore options and potential reforms to the deposit insurance system. Additionally, in response to these bank failures, President Biden has encouraged the federal banking agencies to adopt various reforms, including establishing more stringent capital and liquidity rules and other enhanced prudential standards for banking organizations with $100 billion or more in assets and completing an incentive compensation rule for bank executives pursuant to Section 956 of the Dodd-Frank Act. On April 28, 2023, the Federal Reserve and the FDIC issued reports on the potential causes of failures of Silicon Valley Bank and Signature Bank, respectively. Among the changes discussed, the Federal Reserve and the FDIC highlighted potential changes needed to supervisory approaches for banks of all sizes as well as to regulatory requirements. Currently, it is unclear what actions federal regulatory agencies will take as a result of these failures.

Small Business Lending Data Collection Rule

On March 30, 2023, the Consumer Financial Protection Bureau finalized a rule under section 1071 of the Dodd-Frank Act requiring lenders to collect and report data regarding small business lending activity. The Company is evaluating the impact of the new rule.

Bank Term Funding Program

In March 2023, the Federal Reserve announced the creation of the Bank Term Funding Program (“BTFP”), which was designed to make additional funding available to eligible depository institutions by allowing them to receive short-term advances backed by collateral pledged at par value. See Note 10 — Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements and Item 2. MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funding — Other Sources of Funding in this Quarterly Report on Form 10-Q (this “Form 10-Q”) for additional information related to the Company’s borrowings from the BTFP.

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Financial Review

Three Months Ended March 31,
($ and shares in thousands, except per share, and ratio data)20232022
Summary of operations:
Net interest income before provision for credit losses$599,861 $415,613 
Noninterest income59,978 79,743 
Total revenue659,839 495,356 
Provision for credit losses20,000 8,000 
Noninterest expense218,447 189,450 
Income before income taxes421,392 297,906 
Income tax expense98,953 60,254 
Net income $322,439 $237,652 
Per share:
Basic earnings$2.28 $1.67 
Diluted earnings$2.27 $1.66 
Dividends declared$0.48 $0.40 
Weighted-average number of shares outstanding:
Basic141,112 142,025 
Diluted141,913 143,223 
Performance metrics:
Return on average assets (“ROA”)2.01 %1.56 %
Return on average common equity (“ROE”)21.15 %16.50 %
Return on average tangible common equity (“TCE”) (1)
22.94 %18.00 %
Common dividend payout ratio21.22 %24.23 %
Net interest margin3.96 %2.87 %
Efficiency ratio (2)
33.11 %38.25 %
Adjusted efficiency ratio (1)
30.46 %35.34 %
At period end:March 31, 2023December 31, 2022
Total assets$67,244,898 $64,112,150 
Total loans$48,924,909 $48,228,074 
Total deposits$54,737,402 $55,967,849 
Common shares outstanding at period-end141,396 140,948 
Book value per share$44.62 $42.46 
Tangible book value per share (1)
$41.28 $39.10 
(1)For additional information regarding the reconciliation of these non-U.S. Generally Accepted Accounting Principles (“GAAP”) financial measures, refer to Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.
(2)Efficiency ratio is calculated as noninterest expense divided by total revenue.

The Company’s first quarter 2023 net income was $322.4 million, an increase of $84.8 million or 36%, compared with first quarter 2022 net income of $237.7 million. The increase was primarily due to higher net interest income, partially offset by higher income tax and noninterest expense and lower noninterest income. Noteworthy items about the Company’s first quarter 2023 performance included:

•Net interest income growth and net interest margin expansion. First quarter 2023 net interest income before provision for credit losses was $599.9 million, an increase of $184.2 million or 44% from the first quarter of 2022. First quarter 2023 net interest margin of 3.96%, expanded by 109 basis points (“bps”), compared with the first quarter of 2022.

•Expanding profitability. First quarter 2023 ROA, ROE and the return on average TCE of 2.01%, 21.15% and 22.94%, respectively, all expanded year-over-year by 45 bps, 465 bps and 494 bps, respectively. Return on average TCE is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

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•Improved efficiency. Efficiency ratio of 33.11% and adjusted efficiency ratio of 30.46% for the first quarter of 2023 both improved year-over-year. Adjusted efficiency ratio is a non-GAAP measure. For additional details, see the reconciliation of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Asset growth. Total assets reached $67.24 billion, growing $3.13 billion or 5% from December 31, 2022, primarily driven by the $2.45 billion or 70% increase in cash and cash equivalents. This increase in on-balance sheet liquidity was in response to the recent volatility in the banking industry and reflects the Company’s conservative liquidity management practices. The increase in cash and cash equivalent was primarily funded with borrowings from the BTFP totaling $4.50 billion as of March 31, 2023.

•Loan growth. Total loans were $48.92 billion as of March 31, 2023, an increase of $696.8 million or 1% from $48.23 billion as of December 31, 2022. This was primarily driven by growth in the residential mortgage and commercial real estate (“CRE”) loan segments.

•Strong capital levels. Stockholders’ equity was $6.31 billion or $44.62 per share as of March 31, 2023, both up 5% from $5.98 billion or $42.46 per share as of December 31, 2022. Tangible book value per share of $41.28 as of March 31, 2023, increased by $2.18 or 6% from $39.10 as of December 31, 2022. Tangible book value per share is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A - Reconciliation of GAAP to non-GAAP Financial Measures in this Form 10-Q.

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

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First quarter 2023 net interest income before provision for credit losses was $599.9 million, an increase of $184.2 million or 44%, compared with $415.6 million for the first quarter of 2022. First quarter 2023 net interest margin was 3.96%, an increase of 109 bps from 2.87% for the first quarter of 2022. The increases in net interest income and net interest margin primarily reflected higher interest-earning asset yields and strong loan growth, partially offset by a higher average cost of deposits. The changes in yields and rates reflected rising benchmark interest rates.

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1657

Average interest-earning assets were $61.48 billion for the first quarter of 2023, an increase of $2.79 billion or 5% from $58.69 billion for the first quarter of 2022. The increase in average interest-earning assets primarily reflected loan growth, partially offset by decreases in assets purchased under resale agreements (“resale agreements”) and interest-bearing cash and deposits with banks.

The yield on average interest-earning assets for the first quarter of 2023 was 5.51%, an increase of 252 bps from 2.99% for the first quarter of 2022. The year-over-year increase in the yield on average interest-bearing assets primarily resulted from rising benchmark interest rates.

2624

The average loan yield for the first quarter of 2023 was 6.14%, an increase of 251 bps from 3.63% for the first quarter of 2022. The changes in the average loan yield reflected the loan portfolio’s sensitivity to rising benchmark interest rates. Approximately 61% and 65% of loans held-for-investment were variable-rate or hybrid loans in their adjustable-rate period as of March 31, 2023 and 2022, respectively.
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image.jpg

1Q23_AvgCostofFunds.jpg

Deposits are an important source of funds and impact both net interest income and net interest margin. Average deposits were $54.95 billion for the first quarter of 2023, an increase of $928.6 million or 2% from $54.03 billion for the first quarter of 2022. Average noninterest-bearing deposits were $19.71 billion for the first quarter of 2023, a decrease of $3.72 billion or 16% from $23.43 billion for the first quarter of 2022. Average noninterest-bearing deposits made up 36% and 43% of average deposits for the first quarters of 2023 and 2022, respectively.

The average cost of deposits was 1.60% for the first quarter of 2023, a 150 bps increase from 0.10% for the first quarter of 2022. The increase primarily reflected higher rates paid on time deposits and money market deposits in response to the rising interest rate environment.

The average cost of funds calculation includes deposits, Federal Home Loan Bank (“FHLB”) advances, assets sold under repurchase agreements (“repurchase agreements”), long-term debt and short-term borrowings. For the first quarter of 2023, the average cost of funds was 1.69%, a 157 bps increase from 0.12% for the first quarter of 2022. The increase in the average cost of funds was primarily driven by the increase in the cost of deposits discussed above.

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 2023 and 2022:
Three Months Ended March 31,
20232022
($ in thousands)Average BalanceInterest
Average Yield/
Rate (1)
Average
Balance		Interest
Average Yield/
Rate (1)
ASSETS
Interest-earning assets:
Interest-bearing cash and deposits with banks$3,449,626 $35,647 4.19 %$4,466,012 $3,260 0.30 %
Resale agreements688,778 4,503 2.65 %2,097,998 8,383 1.62 %
Available-for-sale (“AFS”) debt securities (2)(3)
6,108,825 53,197 3.53 %7,969,795 34,469 1.75 %
Held-to-maturity (“HTM”) debt securities (2)(4)
2,995,677 12,734 1.72 %1,968,568 8,198 1.69 %
Loans (5)(6)
48,149,837 728,386 6.14 %42,112,418 377,110 3.63 %
Restricted equity securities90,790 1,039 4.64 %77,575 609 3.18 %
Total interest-earning assets$61,483,533 $835,506 5.51 %$58,692,366 $432,029 2.99 %
Noninterest-earning assets:
Cash and due from banks621,104 641,882 
Allowance for loan losses(602,754)(543,345)
Other assets3,611,721 2,967,145 
Total assets$65,113,604 $61,758,048 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Checking deposits$6,493,865 $23,174 1.45 %$6,648,065 $1,402 0.09 %
Money market deposits11,260,715 76,102 2.74 %12,913,336 3,203 0.10 %
Savings deposits2,436,587 3,669 0.61 %2,930,309 1,704 0.24 %
Time deposits15,052,762 113,849 3.07 %8,100,890 6,680 0.33 %
Federal funds purchased and other short-term borrowings811,551 8,825 4.41 %1,866 9 1.96 %
FHLB advances500,000 6,430 5.22 %160,018 578 1.46 %
Repurchase agreements106,785 1,052 4.00 %311,984 2,016 2.62 %
Long-term debt and finance lease liabilities152,420 2,544 6.77 %152,011 824 2.20 %
Total interest-bearing liabilities$36,814,685 $235,645 2.60 %$31,218,479 $16,416 0.21 %
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits19,709,980 23,432,746 
Accrued expenses and other liabilities2,405,615 1,264,208 
Stockholders’ equity6,183,324 5,842,615 
Total liabilities and stockholders’ equity$65,113,604 $61,758,048 
Interest rate spread2.91 %2.78 %
Net interest income and net interest margin$599,861 3.96 %$415,613 2.87 %
(1)Annualized.
(2)Yields on tax-exempt securities are not presented on a tax-equivalent basis.
(3)Includes the amortization of premiums on AFS debt securities of $9.1 million and $23.5 million for the first quarters of 2023 and 2022, respectively.
(4)Includes the amortization of premiums on HTM debt securities of $18 thousand and $134 thousand for the first quarters of 2023 and 2022, respectively.
(5)Average balances include nonperforming loans and loans held-for-sale.
(6)Loans include the accretion of net deferred loan fees and amortization of net premiums, which totaled $13.7 million and $12.4 million for the first quarters of 2023 and 2022, 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 yield/rate.
Three Months Ended March 31,
2023 vs. 2022
Changes Due to
($ in thousands)Total ChangeVolumeYield/Rate
Interest-earning assets:
Interest-bearing cash and deposits with banks$32,387 $(908)$33,295 
Resale agreements(3,880)(7,471)3,591 
AFS debt securities18,728 (9,576)28,304 
HTM debt securities4,536 4,362 174 
Loans 351,276 60,480 290,796 
Restricted equity securities430 117 313 
Total interest and dividend income$403,477 $47,004 $356,473 
Interest-bearing liabilities:
Checking deposits$21,772 $(33)$21,805 
Money market deposits72,899 (462)73,361 
Savings deposits1,965 (331)2,296 
Time deposits107,169 10,184 96,985 
Federal funds purchased and other short-term borrowings8,816 8,791 25 
FHLB advances5,852 2,654 3,198 
Repurchase agreements(964)(1,713)749 
Long-term debt and finance lease liabilities1,720 2 1,718 
Total interest expense$219,229 $19,092 $200,137 
Change in net interest income$184,248 $27,912 $156,336 

Noninterest Income

The following table presents the components of noninterest income for the first quarters of 2023 and 2022:
Three Months Ended March 31,
Change from 2022
($ in thousands)20232022$%
Lending fees$20,586 $19,438 $1,148 6%
Deposit account fees
21,703 20,315 1,388 7%
Interest rate contracts and other derivative income2,564 11,133 (8,569)(77)%
Foreign exchange income12,660 12,699 (39)0%
Wealth management fees6,304 6,052 252 4%
Net (losses) gains on sales of loans(22)2,922 (2,944)NM
Net realized (losses) gains on AFS debt securities(10,000)1,278 (11,278)NM
Other investment income1,921 1,627 294 18%
Other income4,262 4,279 (17)0%
Total noninterest income
$59,978 $79,743 $(19,765)(25)%
NM — Not meaningful.

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Noninterest income comprised 9% of total revenue for the first quarter of 2023, compared with 16% for the first quarter of 2022. First quarter 2023 noninterest income was $60.0 million, a decrease of $19.8 million or 25%, compared with $79.7 million for the same period in 2022. This decrease was primarily due to net realized losses on AFS debt securities and a decrease in interest rate contracts and other derivative income.

The $10.0 million net realized losses on AFS debt securities was due to the write-off of an impaired subordinated debt security during the first quarter of 2023. Net realized gains on AFS debt securities was $1.3 million during the first quarter of 2022.

Interest rate contracts and other derivative income was $2.6 million for the first quarter of 2023, a decrease of $8.6 million or 77%, compared with $11.1 million for the same period in 2022. The decrease was primarily due to unfavorable credit valuation adjustments during the first quarter of 2023, partially offset by an increase in transaction volume.

Noninterest Expense

The following table presents the components of noninterest expense for the first quarters of 2023 and 2022:
Three Months Ended March 31,
Change from 2022
($ in thousands)20232022$%
Compensation and employee benefits$129,654 $116,269 $13,385 12 %
Occupancy and equipment expense15,587 15,464 123 1 %
Deposit insurance premiums and regulatory assessments
7,910 4,717 3,193 68 %
Deposit account expense9,609 4,693 4,916 105 %
Data processing3,347 3,665 (318)(9)%
Computer software expense7,360 7,294 66 1 %
Other operating expense30,998 23,448 7,550 32 %
Amortization of tax credit and other investments
10,110 13,900 (3,790)(27)%
Repurchase agreements’ extinguishment cost3,872 — 3,872 100 %
Total noninterest expense
$218,447 $189,450 $28,997 15 %

First quarter 2023 noninterest expense was $218.4 million, an increase of $29.0 million or 15%, compared with $189.5 million for the same period in 2022. The increase was primarily due to higher compensation and employee benefits, other operating expense, deposit account expense, repurchase agreements’ extinguishment cost and deposit insurance premiums and regulatory assessments, partially offset by a decrease in the amortization of tax credit and other investments.

Compensation and employee benefits were $129.7 million for the first quarter of 2023, an increase of $13.4 million or 12%, compared with $116.3 million for the same period in 2022. The change was primarily due to staffing growth to support the Company’s growing business and annual employee merit increases.

Deposit insurance premiums and regulatory assessments were $7.9 million for the first quarter of 2023, an increase $3.2 million or 68%, compared with $4.7 million for the same period in 2022. The increase was primarily due to a two bps increase in the base deposit insurance assessment rate under the FDIC’s Amended Restoration Plan.

Deposit account expense was $9.6 million for the first quarter of 2023, an increase of $4.9 million or 105%, compared with $4.7 million for the same period in 2022. The change was primarily due to an increase in deposit referral fees which was driven by higher interest rates.

Other operating expense was $31.0 million for the first quarter of 2023, an increase of $7.6 million or 32%, compared with $23.4 million for the same period in 2022. This increase was primarily due to higher interest expense on cash collateral and corporate expenses.

Amortization of tax credit and other investments was $10.1 million for the first quarter of 2023, a decrease of $3.8 million or 27%, compared with $13.9 million for the same period in 2022. The year-over-year change was largely due to the timing of investments that closed, which have differing amortization periods.

66

During the first quarter of 2023, the Company prepaid $300.0 million of repurchase agreements and incurred debt extinguishment costs of $3.9 million. No such expense was incurred in the same period in 2022.

Income Taxes
Three Months Ended March 31,
($ in thousands)20232022% Change
Income before income taxes
$421,392 $297,906 41 %
Income tax expense$98,953 $60,254 64 %
Effective tax rate23.5 %20.2 %

First quarter 2023 income tax expense was $99.0 million and the effective tax rate was 23.5%, compared with first quarter 2022 income tax expense of $60.3 million and an effective tax rate of 20.2%. The increases in the income tax expense and the effective tax rate primarily reflected a higher level of income in 2023 and the timing of tax credits recognized.

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 a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 15 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the 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:
Three Months Ended March 31,
Consumer and Business BankingCommercial BankingOther
($ in thousands)202320222023202220232022
Total revenue (loss)$330,244 $238,413 $280,322 $257,154 $49,273 $(211)
Provision for credit losses15,012 3,104 4,988 4,896 — — 
Noninterest expense113,823 96,095 87,248 73,395 17,376 19,960 
Segment income (loss) before income taxes201,409 139,214 188,086 178,863 31,897 (20,171)
Segment net income$142,247 $99,164 $134,457 $127,507 $45,735 $10,981 

Consumer and Business Banking

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

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The following table presents additional financial information for the Consumer and Business Banking segment for the periods indicated:
Three Months Ended March 31,
Change from 2022
($ in thousands)20232022$%
Net interest income before provision for credit losses$304,242 $213,214 $91,028 43 %
Noninterest income26,002 25,199 803 3 %
Total revenue330,244 238,413 91,831 39 %
Provision for credit losses15,012 3,104 11,908 384 %
Noninterest expense 113,823 96,095 17,728 18 %
Segment income before income taxes201,409 139,214 62,195 45 %
Income tax expense59,162 40,050 19,112 48 %
Segment net income$142,247 $99,164 $43,083 43 %
Average loans$17,110,917 $14,606,446 $2,504,471 17 %
Average deposits$33,848,051 $33,113,820 $734,231 2 %

Consumer and Business Banking segment net income increased $43.1 million or 43%, year-over-year to $142.2 million for the first quarter of 2023. The increase reflected revenue growth, partially offset by higher income tax expense, noninterest expense, and provision for credit losses. Net interest income before provision for credit losses increased $91.0 million or 43%, year-over-year to $304.2 million for the first quarter of 2023. The increase was primarily driven by higher deposit fund transfer pricing credits due to the year-over-year increase in market rates. Provision for credit losses increased $11.9 million or 384%, year-over-year to $15.0 million, primarily driven by changes to the macroeconomic outlook and residential mortgage loan growth. Noninterest expense increased $17.7 million or 18%, year-over-year to $113.8 million for the first quarter of 2023. The increase primarily reflected higher compensation and employee benefits expense and allocated corporate overhead expenses.

Commercial Banking

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

The following table presents additional financial information for the Commercial Banking segment for the periods indicated:
Three Months Ended March 31,
Change from 2022
($ in thousands)20232022$%
Net interest income before provision for credit losses$236,723 $208,077 $28,646 14 %
Noninterest income43,599 49,077 (5,478)(11)%
Total revenue280,322 257,154 23,168 9 %
Provision for credit losses4,988 4,896 92 2 %
Noninterest expense 87,248 73,395 13,853 19 %
Segment income before income taxes188,086 178,863 9,223 5 %
Income tax expense53,629 51,356 2,273 4 %
Segment net income$134,457 $127,507 $6,950 5 %
Average loans$31,038,920 $27,505,972 $3,532,948 13 %
Average deposits$17,282,964 $17,736,525 $(453,561)(3)%
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Commercial Banking segment net income increased $7.0 million or 5%, year-over-year to $134.5 million for the first quarter of 2023, driven by an increase in net interest income, partially offset by an increase in noninterest expense and a decrease in noninterest income. Net interest income before provision for credit losses increased $28.6 million or 14%, year-over-year to $236.7 million for the first quarter of 2023. The increase was primarily due to higher loan interest income from commercial loan growth and higher deposit fund transfer pricing credits due to the year-over-year increase in market rates. Noninterest income decreased $5.5 million or 11%, to $43.6 million, mainly due to a decrease in interest rate contracts and other derivative income. Noninterest expense increased $13.9 million or 19%, year-over-year to $87.2 million for the first quarter of 2023, primarily due to higher compensation and employee benefits and allocated corporate overhead expenses.

Other

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

The following table presents additional financial information for the Other segment for the periods indicated:
Three Months Ended March 31,
Change from 2022
($ in thousands)20232022$%
Net interest income (loss) before provision for credit losses$58,896 $(5,678)$64,574 NM
Noninterest (loss) income(9,623)5,467 (15,090)(276)%
Total revenue (loss)49,273 (211)49,484 NM
Noninterest expense 17,376 19,960 (2,584)(13)%
Segment income (loss) before income taxes 31,897 (20,171)52,068 258 %
Income tax benefit13,838 31,152 (17,314)(56)%
Segment net income $45,735 $10,981 $34,754 316 %
Average deposits$3,822,894 $3,175,001 $647,893 20 %
NM — Not meaningful.

The Other segment reported segment income before income taxes of $31.9 million and segment net income of $45.7 million for the first quarter of 2023, reflecting an income tax benefit of $13.8 million. The increase in segment income before income taxes was primarily driven by higher net interest income, partially offset by a decrease in noninterest income. The $64.6 million increase in net interest income before provision for credit losses was primarily driven by an increase in interest income from investments due to a higher yield on debt securities and interest-bearing cash with banks, and a higher FTP spread income absorbed by the Other segment. The $15.1 million decrease in noninterest income was mainly due to a $10.0 million write-off of an impaired subordinated debt security during the first quarter of 2023 and a $6.5 million decrease in 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, and reflects the impact of tax credit investment activity. Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes. Tax credit investment amortization is allocated to the Other segment.

Balance Sheet Analysis

Debt Securities

The Company maintains a portfolio of high quality and liquid debt securities with a moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks. The Company’s debt securities provide:

•interest income for earnings and yield enhancement;
•funding availability for 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.

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While the Company does not intend to sell its debt securities, it may sell AFS securities in response to changes in the balance sheet and related interest rate risk to meet liquidity, regulatory and strategic requirements.

The following table presents the distribution of the Company’s AFS and HTM debt securities portfolio as of March 31, 2023 and December 31, 2022, and by credit ratings as of March 31, 2023:
March 31, 2023December 31, 2022
Ratings as of March 31, 2023 (1)
($ in thousands)Amortized CostFair Value% of Fair ValueAmortized CostFair Value% of Fair ValueAAA/AAABBBBB and Lower
No Rating (2)
AFS debt securities:
U.S. Treasury securities$976,615 $916,982 15 %$676,306 $606,203 10 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities515,639 463,860 7 %517,806 461,607 8 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities2,561,882 2,269,197 36 %2,588,446 2,262,464 37 %100 %— %— %— %— %
Municipal securities305,125 266,015 4 %303,884 257,099 4 %97 %— %— %— %3 %
Non-agency mortgage-backed securities1,185,772 1,035,132 16 %1,209,714 1,047,553 17 %81 %— %— %— %19 %
Corporate debt securities663,502 516,253 8 %673,502 526,274 9 %— %33 %64 %3 %— %
Foreign government bonds198,517 185,883 3 %241,165 227,053 4 %57 %43 %— %— %— %
Asset-backed securities47,938 46,307 1 %51,152 49,076 1 %100 %— %— %— %— %
Collateralized loan obligations (“CLOs”)617,250 601,239 10 %617,250 597,664 10 %96 %4 %— %— %— %
Total AFS debt securities$7,072,240 $6,300,868 100 %$6,879,225 $6,034,993 100 %87 %5 %5 %— %3 %
HTM debt securities:
U.S. Treasury securities$525,432 $481,611 19 %$524,081 $471,469 19 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise debt securities999,855 806,341 32 %998,972 789,412 32 %100 %— %— %— %— %
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities1,278,627 1,060,126 43 %1,289,106 1,042,310 43 %100 %— %— %— %— %
Municipal securities189,507 154,596 6 %189,709 151,980 6 %100 %— %— %— %— %
Total HTM debt securities$2,993,421 $2,502,674 100 %$3,001,868 $2,455,171 100 %100 %— %— %— %— %
Total debt securities$10,065,661 $8,803,542 $9,881,093 $8,490,164 
(1)Credit ratings express opinions about the credit quality of a debt security. The Company determines the credit rating of a security according to the lowest credit rating made available by nationally recognized statistical rating organizations (“NRSROs”). Debt securities rated investment grade, which are those with ratings similar to BBB- or above (as defined by NRSROs), are generally considered by the rating agencies and market participants to be low credit risk. Ratings percentages are allocated based on fair value.
(2)For debt securities not rated by NRSROs, the Company uses other factors which include but are not limited to the priority in collections within the securitization structure, and whether the contractual payments have historically been on time.

As of March 31, 2023, the Company’s AFS and HTM debt securities portfolios had an effective duration (defined as the sensitivity of the value of the portfolio to interest rate changes) of 3.9 and 7.9, respectively, compared with 4.1 and 8.0, respectively, as of December 31, 2022. The slight decrease in both the AFS and HTM effective durations was primarily due to the change in the level and shape of the yield curve as a result of a more bearish economic outlook.

Available-for-Sale Debt Securities

The fair value of the AFS debt securities portfolio totaled $6.30 billion as of March 31, 2023, an increase of $265.9 million or 4% from $6.03 billion as of December 31, 2022. The increase was primarily due to purchases of U.S. Treasury securities. 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 $771.4 million as of March 31, 2023, compared with $844.2 million as of December 31, 2022.

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

Held-to-Maturity Debt Securities

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

For additional information on AFS and HTM securities, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Company’s 2022 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.

Loan Portfolio

The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include commercial loans, which consist of commercial and industrial (“C&I”), CRE, multifamily residential, and construction and land loans, as well as consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Loans held-for-investment totaled $48.92 billion as of March 31, 2023, an increase of $715.6 million or 1% from $48.20 billion as of December 31, 2022. This growth was primarily driven by increases of $430.2 million or 3% in total residential mortgage loans and $363.5 million or 2% in total CRE loans. The composition of the loan portfolio as of March 31, 2023 was similar to the composition as of December 31, 2022.

The following table presents the composition of the Company’s total loan portfolio by loan type as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Amount%Amount%
Commercial:
C&I
$15,641,840 32 %$15,711,095 33 %
CRE:
CRE14,019,136 29 %13,857,870 29 %
Multifamily residential4,682,280 10 %4,573,068 9 %
Construction and land731,394 1 %638,420 1 %
Total CRE19,432,810 40 %19,069,358 39 %
Total commercial 35,074,650 72 %34,780,453 72 %
Consumer:
Residential mortgage:
Single-family residential11,786,998 24 %11,223,027 23 %
HELOCs1,988,881 4 %2,122,655 5 %
Total residential mortgage13,775,879 28 %13,345,682 28 %
Other consumer67,519 0 %76,295 0 %
Total consumer 13,843,398 28 %13,421,977 28 %
Total loans held-for-investment (1)
48,918,048 100 %48,202,430 100 %
Allowance for loan losses
(619,893)(595,645)
Loans held-for-sale (2)
6,861 25,644 
Total loans, net$48,305,016 $47,632,429 
(1)Includes $(75.4) million and $(70.4) million of net deferred loan fees and net unamortized premiums as of March 31, 2023 and December 31, 2022, respectively.
(2)Consists of C&I loans as of both March 31, 2023 and December 31, 2022.

71

Commercial

The commercial loan portfolio comprised 72% of total loans as of both March 31, 2023 and December 31, 2022. 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. Total C&I loan commitments were $23.06 billion as of March 31, 2023, an increase of $275.0 million or 1% from $22.78 billion as of December 31, 2022. Total C&I loans were $15.64 billion as of March 31, 2023, a decrease of $69.3 million or less than 0.5% from $15.71 billion as of December 31, 2022, with a utilization rate of 68% as of March 31, 2023, compared with 69% as of December 31, 2022. Total C&I loans made up 32% and 33% of total loans held-for-investment as of March 31, 2023 and December 31, 2022, respectively. The C&I loan portfolio includes loans and financing for businesses across a wide spectrum of industries, comprised of commercial business lending, working capital lines of credit, trade finance, letters of credit, asset-based lending, asset-backed finance, project finance and equipment financing. Additionally, the Company has a portfolio of broadly syndicated C&I loans, which represent revolving or term loan facilities that are marketed and sold primarily to institutional investors. This portfolio totaled $812.1 million and $855.9 million as of March 31, 2023 and December 31, 2022, respectively. The majority of the C&I loans had variable interest rates as of both March 31, 2023 and December 31, 2022.

The C&I portfolio is well-diversified by industry. The Company monitors concentrations within the C&I loan portfolio by industry and customer exposure, and has exposure limits by industry and loan product. The following charts illustrate the industry mix within the Company’s C&I loan portfolio as of March 31, 2023 and December 31, 2022.

28852886
(1)Includes loans held-for-sale.
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Commercial — Total Commercial Real Estate Loans. Total CRE loans totaled $19.43 billion as of March 31, 2023, which grew by $363.5 million or 2% from $19.07 billion as of December 31, 2022, and accounted for 40% of total loans held-for-investment as of March 31, 2023, compared with 39% as of December 31, 2022. The total CRE portfolio consists of CRE, multifamily residential, and construction and land loans, and affordable housing lending. The increase in total CRE loans was driven by well-diversified growth across our major property types, partially offset by a decrease in office CRE loans. The Company’s underwriting parameters for CRE loans are established in compliance with supervisory guidance, including: property type, geography and loan-to-value (“LTV”). The consistency of the Company’s low LTV underwriting standards has historically resulted in lower credit losses.

The Company’s total CRE loan portfolio is well-diversified by property type with an average CRE loan size of $2.8 million as of both March 31, 2023 and December 31, 2022. The following table summarizes the Company’s total CRE loans by property type as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Amount%Amount%
Property types:
Retail (1)
$4,144,837 21 %$4,075,769 22 %
Multifamily4,682,280 24 %4,573,067 24 %
Office (1)
2,376,552 12 %2,522,554 13 %
Industrial (1)
3,661,352 19 %3,617,086 19 %
Hotel (1)
2,152,237 11 %2,085,910 11 %
Healthcare (1)
836,826 4 %796,577 4 %
Construction and land731,394 4 %638,420 3 %
Other (1)
847,332 5 %759,975 4 %
Total CRE loans$19,432,810 100 %$19,069,358 100 %
(1)Included in CRE loans, which is a subset of Total CRE loans.

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

The following tables provide a summary of the Company’s CRE, multifamily residential, and construction and land loans by geography as of March 31, 2023 and December 31, 2022. The distribution of the total CRE loan portfolio reflects the Company’s geographical branch footprint, which is primarily concentrated in California:
March 31, 2023
($ in thousands)CRE%Multifamily Residential%Construction and Land%Total CRE%
Geographic markets:
Southern California$7,265,568 $2,269,854 $258,852 $9,794,274 
Northern California2,739,749 917,513 248,528 3,905,790 
California10,005,317 71 %3,187,367 68 %507,380 69 %13,700,064 71 %
Texas1,144,156 8 %413,534 9 %13,384 2 %1,571,074 8 %
New York673,182 5 %213,656 5 %108,851 15 %995,689 5 %
Washington445,604 3 %192,710 4 %17,616 3 %655,930 3 %
Arizona296,275 2 %107,916 2 %9,521 1 %413,712 2 %
Nevada178,916 1 %107,874 2 %27,335 4 %314,125 2 %
Other markets1,275,686 10 %459,223 10 %47,307 6 %1,782,216 9 %
Total loans $14,019,136 100 %$4,682,280 100 %$731,394 100 %$19,432,810 100 %
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December 31, 2022
($ in thousands)CRE%Multifamily Residential%Construction and Land%Total CRE%
Geographic markets:
Southern California
$7,233,902 $2,215,632 $222,425 $9,671,959 
Northern California
2,798,840 890,002 235,732 3,924,574 
California10,032,742 72 %3,105,634 68 %458,157 72 %13,596,533 71 %
Texas1,150,401 8 %410,872 9 %2,153 0 %1,563,426 8 %
New York682,096 5 %221,253 5 %99,595 16 %1,002,944 5 %
Washington449,423 3 %173,611 4 %15,557 2 %638,591 3 %
Arizona291,114 2 %95,460 2 %297 0 %386,871 2 %
Nevada159,092 1 %108,060 2 %30,673 5 %297,825 2 %
Other markets1,093,002 9 %458,178 10 %31,988 5 %1,583,168 9 %
Total loans$13,857,870 100 %$4,573,068 100 %$638,420 100 %$19,069,358 100 %

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

Commercial — Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $14.02 billion as of March 31, 2023, compared with $13.86 billion as of December 31, 2022, and accounted for 29% of total loans held-for-investment as of both dates. Interest rates on CRE loans may be fixed, variable or hybrid. As of March 31, 2023, 64% of our CRE portfolio was variable rate, of which 47% had customer-level interest rate derivative contracts in place. These are hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank's own exposure remained variable rate. In comparison, as of December 31, 2022, 65% of our CRE portfolio was variable rate, of which 47% had customer-level interest rate derivative contracts in place. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Owner-occupied properties comprised 21% and 20% of the CRE loans as of March 31, 2023 and December 31, 2022, respectively. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by rental income from an unaffiliated third party.

Commercial — Multifamily Residential Loans. The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $4.68 billion as of March 31, 2023, compared with $4.57 billion as of December 31, 2022, and accounted for 10% and 9% of total loans held-for-investment as of March 31, 2023 and December 31, 2022, respectively. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period of three to ten years. As of March 31, 2023, 55% of our multifamily residential loan portfolio was variable rate, of which 35% had customer-level interest rate derivative contracts in place. These are hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank's own exposure remained variable rate. In comparison, as of December 31, 2022, 57% of our multifamily residential loan portfolio was variable rate, of which 34% had customer-level interest rate derivative contracts in place.

Commercial — Construction and Land Loans. Construction and land loans provide financing for a portfolio of projects diversified by real estate property type. Construction and land loans totaled $731.4 million as of March 31, 2023, compared with $638.4 million as of December 31, 2022, and accounted for 1% of total loans held-for-investment as of both dates. Construction loan exposure was made up of $609.2 million in loans outstanding, plus $668.5 million in unfunded commitments as of March 31, 2023, compared with $536.8 million in loans outstanding, plus $611.4 million in unfunded commitments as of December 31, 2022. Land loans totaled $122.2 million as of March 31, 2023, compared with $101.7 million as of December 31, 2022.

74

Consumer

Residential mortgage loans are primarily originated through the Bank’s branch network. The following tables summarize the Company’s single-family residential and HELOC loan portfolios by geography as of March 31, 2023 and December 31, 2022. The average total residential loan size was $434 thousand as of both dates:
March 31, 2023
($ in thousands)Single-Family Residential%HELOCs%Total Residential Mortgage%
Geographic markets:
Southern California$4,367,943 $899,214 $5,267,157 
Northern California1,381,289 452,056 1,833,345 
California5,749,232 49 %1,351,270 68 %7,100,502 52 %
New York4,062,782 34 %272,715 14 %4,335,497 31 %
Washington655,327 5 %226,904 11 %882,231 6 %
Massachusetts313,153 3 %82,003 4 %395,156 3 %
Georgia338,646 3 %19,948 1 %358,594 3 %
Texas351,105 3 %— — %351,105 3 %
Nevada301,936 3 %36,041 2 %337,977 2 %
Other markets14,817 0 %— — %14,817 0 %
Total$11,786,998 100 %$1,988,881 100 %$13,775,879 100 %
Lien priority:
First mortgage$11,786,998 100 %$1,627,886 82 %$13,414,884 97 %
Junior lien mortgage— — %360,995 18 %360,995 3 %
Total$11,786,998 100 %$1,988,881 100 %$13,775,879 100 %
December 31, 2022
($ in thousands)Single-Family Residential%HELOCs%Total Residential Mortgage%
Geographic markets:
Southern California$4,142,623 $959,632 $5,102,255 
Northern California1,294,721 492,921 1,787,642 
California5,437,344 48 %1,452,553 68 %6,889,897 52 %
New York3,964,779 35 %286,285 14 %4,251,064 32 %
Washington632,892 6 %236,434 11 %869,326 7 %
Massachusetts299,051 3 %85,590 4 %384,641 3 %
Georgia303,615 3 %21,493 1 %325,108 2 %
Texas316,771 3 %— — %316,771 2 %
Nevada253,702 2 %40,300 2 %294,002 2 %
Other markets14,873 0 %— — %14,873 0 %
Total$11,223,027 100 %$2,122,655 100 %$13,345,682 100 %
Lien priority:
First mortgage$11,223,027 100 %$1,770,741 83 %$12,993,768 97 %
Junior lien mortgage— — %351,914 17 %351,914 3 %
Total $11,223,027 100 %$2,122,655 100 %$13,345,682 100 %

75

Consumer — Single-Family Residential Loans. Single-family residential loans totaled $11.79 billion or 24% of total loans held-for-investment as of March 31, 2023, compared with $11.22 billion or 23% of total loans held-for-investment as of December 31, 2022. Single-family residential loans increased $564.0 million or 5% from December 31, 2022, primarily driven by organic growth in mortgages and residential properties in California and New York. The Company was in a first lien position for all of its single-family residential loans as of both March 31, 2023 and December 31, 2022. 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. The weighted-average LTV ratio was 53% as of both dates. 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 on a regular basis, typically annually, after an initial fixed rate period.

Consumer — Home Equity Lines of Credit. Total HELOC commitments were $3.49 billion as of March 31, 2023, an increase of $108.0 million or 3% from $3.38 billion, with a utilization rate of 36% as of March 31, 2023, compared with 39% as of December 31, 2022. Unfunded HELOC commitments are unconditionally cancellable. HELOCs outstanding totaled $1.99 billion or 4% of total loans held-for-investment as of March 31, 2023, compared with $2.12 billion or 5% of total loans held-for-investment as of December 31, 2022. HELOCs outstanding decreased $133.8 million or 6% from December 31, 2022. The Company was in a first lien position for 82% and 83% of total outstanding HELOCs as of March 31, 2023 and December 31, 2022, respectively. The weighted-average LTV ratio was 49% on HELOC commitments as of both March 31, 2023 and December 31, 2022. Weighted-average LTV ratio represents the loan’s balance divided by the estimated current property value. For junior lien home equity loans, combined LTV ratios are used for junior lien home equity products. 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. As a result, these loans have historically experienced low delinquency and loss rates. Substantially all of the Company’s HELOCs were variable-rate loans as of both March 31, 2023 and December 31, 2022.

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

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 regulatory, economic and political uncertainties. As such, the Company’s international operation risk exposure is largely concentrated in China and Hong Kong. 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 following table presents the major financial assets held in the Company’s overseas offices as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Amount% of Total Consolidated AssetsAmount% of Total Consolidated Assets
Hong Kong branch:
Cash and cash equivalents$611,510 1 %$911,784 1 %
Interest-bearing deposits with banks$— — %$28,772 0 %
AFS debt securities (1)
$586,296 1 %$281,804 0 %
Loans held-for-investment (2)
$972,736 1 %$968,450 2 %
Total assets$2,181,807 3 %$2,212,606 3 %
Subsidiary bank in China:
Cash and cash equivalents$592,076 1 %$556,656 1 %
AFS debt securities (3)
$80,061 0 %$122,053 0 %
Loans held-for-investment (2)
$1,191,178 2 %$1,170,437 2 %
Total assets$1,853,752 3 %$1,836,811 3 %
(1)Comprised of U.S. Treasury securities and foreign government bonds as of both March 31, 2023 and December 31, 2022.
(2)Primarily comprised of C&I loans as of both March 31, 2023 and December 31, 2022.
(3)Comprised of foreign government bonds as of both March 31, 2023 and December 31, 2022.
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The following table presents the total revenue generated by the Company’s overseas offices for the first quarters of 2023 and 2022:
Three Months Ended March 31,
20232022
($ in thousands)Amount% of Total Consolidated RevenueAmount% of Total Consolidated Revenue
Hong Kong Branch:
Total revenue$15,318 2 %$7,341 1 %
Subsidiary Bank in China:
Total revenue$7,885 1 %$7,866 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 in compliance with all regulatory capital guidelines. The Company engages in regular capital planning processes on at least an annual basis to optimize the use of available capital and to appropriately plan for future capital needs, 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.

The Company’s stockholders’ equity was $6.31 billion as of March 31, 2023, an increase of $324.7 million or 5% from $5.98 billion as of December 31, 2022. The increase in the Company’s stockholders’ equity was primarily due to $322.4 million in net income and a positive change in accumulated other comprehensive income (“AOCI”) of $85.6 million, partially offset by $68.4 million in common dividends declared. The positive change in AOCI was primarily due to increased unrealized gains in AFS debt securities and cash flow hedges. 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 per share was $44.62 as of March 31, 2023, an increase of 5% from $42.46 per share as of December 31, 2022, primarily as a result of the factors described above. Tangible book value per share was $41.28 as of March 31, 2023, compared with $39.10 as of December 31, 2022. For additional details, see the reconciliation of non-GAAP measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

The Company paid common stock cash dividends of $0.48 and $0.40 per share during the first quarter of 2023 and 2022, respectively. In April 2023, the Company’s Board of Directors declared second quarter 2023 cash dividend of $0.48 per share. The dividend is payable on May 15, 2023, to stockholders of record as of May 1, 2023.

77

Deposits and Other Sources of Funding

Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short- and long-term borrowings, and long-term debt. See Item 2. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-Q for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funding as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022Change
($ in thousands)Amount%Amount%$%
Deposits:
Noninterest-bearing demand$18,327,320 34 %$21,051,090 38 %$(2,723,770)(13)%
Interest-bearing checking8,742,580 16 %6,672,165 12 %2,070,415 31 %
Money market9,293,114 17 %12,265,024 22 %(2,971,910)(24)%
Savings2,280,562 4 %2,649,037 4 %(368,475)(14)%
Time deposits16,093,826 29 %13,330,533 24 %2,763,293 21 %
Total deposits$54,737,402 100 %$55,967,849 100 %$(1,230,447)(2)%
Other Funds:
Short-term borrowings$4,500,000 97 %$— — %$4,500,000 100 %
Repurchase agreements— — %300,000 67 %(300,000)(100)%
Long-term debt148,022 3 %147,950 33 %72 0 %
Total other funds$4,648,022 100 %$447,950 100 %$4,200,072 NM
Total sources of funds$59,385,424 $56,415,799 $2,969,625 5 %
NM — Not meaningful.

Deposits

The Company offers a wide variety of deposit products to consumer and commercial customers. To provide a stable and low-cost source of funding and liquidity, the Company’s strategy is to grow and retain relationship-based deposits. Total deposits were $54.74 billion as of March 31, 2023, a decrease of $1.23 billion or 2% from $55.97 billion as of December 31, 2022. The decrease in deposits was primarily due to decreases in money market and noninterest-bearing demand accounts which reflected changing client behavior due to high interest rates as well as the recent events that impacted the banking industry. The decrease was partially offset by increases in time deposits and interest-bearing checking deposits. The growth in time deposits reflected a successful branch-based Lunar New Year certificate of deposit campaign. Noninterest-bearing demand deposits comprised 34% and 38% of total deposits as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company’s domestic deposits were $52.30 billion, of which insured or otherwise collateralized deposits were estimated at $29.49 billion. In comparison, as of December 31, 2022, the Company’s domestic deposits were $53.23 billion, of which insured or otherwise collateralized deposits were estimated at $26.48 billion. The Company’s domestic uninsured deposit ratio improved to 44% as of March 31, 2023, compared with 50% as of December 31, 2022. The Company maintains a granular and relationship-based deposit base, which is well diversified by industry and customer type. The Company gathers deposits through its more than 120 retail branches and locations in the U.S. and Asia. As of March 31, 2023, total commercial deposits, state and public agency, brokered and foreign office deposits totaled $36.72 billion, or 67% of total deposits, and comprised approximately 98,000 accounts with an approximate average account size of $375,000. Commercial deposit accounts were diversified across various industry sectors, with no one sector representing more than 10% of deposits. As of March 31, 2023, $18.02 billion or 33% of total deposits were consumer deposits and comprised over 468,000 accounts with an approximate average account size of $40,000.

Additional information regarding the impact of deposits on net interest income, with a comparison of average deposit balances and rates, is provided in Item 2. MD&A — Results of Operations — Net Interest Income in this Form 10-Q. See also the discussion of the impact of deposits on liquidity at Item 2. MD&A — Liquidity Risk Management — Liquidity in this Form 10-Q.

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Other Sources of Funding

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

Repurchase agreements were $300.0 million as of December 31, 2022. During the first quarter of 2023, the Company recorded $3.9 million of charges related to the extinguishment of $300.0 million of repurchase agreements. Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the assets are sold. To ensure the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under the repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funds from a diverse group of counterparties, and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 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 $148.0 million as of both March 31, 2023 and December 31, 2022. Long-term debt consists of junior subordinated debt, which qualifies as Tier 2 capital for regulatory capital purposes. Refer to Note 10 — Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q for additional information on the junior subordinated debt.

Regulatory Capital and Ratios

The federal banking agencies have risk-based capital adequacy requirements intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with their operations. The Company and the Bank are each subject to these regulatory capital adequacy requirements. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and Regulatory Capital-Related Development in the Company’s 2022 Form 10-K for additional details.

The Company adopted Accounting Standards Update 2016-13 on January 1, 2020, which requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The Company has elected the phase-in option provided by a final rule that delays an estimate of the current expected credit losses (“CECL”) effect on regulatory capital for two years and phases in the impact over three years. The rule permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL, plus 25% of the cumulative changes in the allowance for credit losses under CECL for each period until December 31, 2021, followed by a three-year phase-out period in which the aggregate benefit is reduced by 25% in 2022, 50% in 2023 and 75% in 2024. Accordingly, our capital ratios as of March 31, 2023 reflect a delay of 50% of the estimated impact of CECL on regulatory capital.

79

The following table presents the Company’s and the Bank’s capital ratios as of March 31, 2023 and December 31, 2022 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, 2023December 31, 2022
CompanyBankCompanyBankMinimum Regulatory RequirementsMinimum Regulatory Requirements including Capital Conservation BufferWell-Capitalized Requirements
Risk-based capital ratios:
Common Equity Tier 1 capital (1)
13.1 %12.8 %12.7 %12.5 %4.5 %7.0 %6.5 %
Tier 1 capital (1)
13.1 %12.8 %12.7 %12.5 %6.0 %8.5 %8.0 %
Total capital14.5 %14.0 %14.0 %13.5 %8.0 %10.5 %10.0 %
Tier 1 leverage (1)
10.0 %9.9 %9.8 %9.7 %4.0 %4.0 %5.0 %
(1)The Common Equity Tier 1 capital and Tier 1 leverage well-capitalized requirements apply only to the Bank since there is no Common Equity Tier 1 capital component or Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The minimum Tier 1 risk-based capital ratio requirement for the Company to be considered well-capitalized is 6.0%.

The Company is committed to maintaining strong capital levels to assure its investors, customers and regulators that the Company and the Bank are financially sound. As of both March 31, 2023 and December 31, 2022, the Company and the Bank continued to exceed all “well-capitalized” capital requirements and the required minimum capital requirements under the Basel III Capital Rules. Total risk-weighted assets were $50.23 billion as of March 31, 2023, an increase of $190.6 million from $50.04 billion as of December 31, 2022. The increase in the risk-weighted assets was primarily due to residential mortgage and CRE loan growth.

Risk Management

Overview

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

The Risk Oversight Committee of the Board of Directors monitors the ERM program through identified risk categories and provides oversight of the Company’s 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 manage and 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 (“IAR”). Internal Audit and IAR provide assurance and evaluate the effectiveness of risk management, control and governance processes as established by the Company. Reporting directly to the Board’s Audit Committee, Internal Audit maintains organizational independence and objectivity. Further discussion and analysis of the primary risk areas are detailed in the following subsections of Risk Management.

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Credit Risk Management

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

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

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

Credit Quality

The Company utilizes a 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. For more information on the Company’s credit quality indicators and internal credit risk ratings, refer to Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-Q.

The following table presents the Company’s criticized loans as of March 31, 2023 and December 31, 2022:
Change
($ in thousands)March 31, 2023December 31, 2022$%
Criticized loans:
Special mention loans$461,356 $468,471 $(7,115)(2)%
Classified loans452,715 427,509 25,206 6 %
Total criticized loans (1)
$914,071 $895,980 $18,091 2 %
Special mention loans to loans held-for-investment0.94 %0.97 %
Classified loans to loans held-for-investment0.93 %0.89 %
Criticized loans to loans held-for-investment1.87 %1.86 %
(1)Excludes loans held-for-sale.

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. Nonperforming assets were $93.4 million or 0.14% of total assets as of March 31, 2023, a decrease of $6.4 million or 6%, compared with $99.8 million or 0.16% of total assets as of December 31, 2022.

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The following table presents nonperforming assets information as of March 31, 2023 and December 31, 2022:
Change
($ in thousands)March 31, 2023December 31, 2022$%
Commercial:
C&I$43,747 $50,428 $(6,681)(13)%
CRE:
CRE19,268 23,244 (3,976)(17)%
Multifamily residential159 169 (10)(6)%
Total CRE19,427 23,413 (3,986)(17)%
Consumer:
Residential mortgage:
Single-family residential20,540 14,240 6,300 44 %
HELOCs9,045 11,346 (2,301)(20)%
Total residential mortgage29,585 25,586 3,999 16 %
Other consumer366 99 267 270 %
Total nonaccrual loans93,125 99,526 (6,401)(6)%
OREO, net270 270 — — %
Total nonperforming assets$93,395 $99,796 $(6,401)(6)%
Nonperforming assets to total assets
0.14 %0.16 %
Nonaccrual loans to loans held-for-investment
0.19 %0.21 %
Allowance for loan losses to nonaccrual loans665.66 %598.48 %

Loans are generally placed on nonaccrual status when they become 90 days past due or when the full collection of principal or interest becomes uncertain regardless of the length of past due status. Collectability is generally assessed based on economic and business conditions, the borrower’s financial condition, and the adequacy of collateral, if any. For additional details regarding the Company’s nonaccrual loan policy, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements in the Company’s 2022 Form 10-K.

Nonaccrual loans were $93.1 million as of March 31, 2023, a decrease of $6.4 million or 6% from $99.5 million as of December 31, 2022. This decrease was predominantly due to increases in paydowns, charge-offs and pay-offs of commercial loans, partially offset by an increase in single-family residential nonaccrual loans. As of March 31, 2023, $61.4 million or 66% of nonaccrual loans were less than 90 days delinquent. In comparison, $68.3 million or 69% of nonaccrual loans were less than 90 days delinquent as of December 31, 2022.

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The following table presents the accruing loans past due by portfolio segment as of March 31, 2023 and December 31, 2022:
Total Accruing Past Due Loans (1)
ChangePercentage of Total Loans Outstanding
($ in thousands)March 31,
2023		December 31,
2022		$%March 31,
2023		December 31,
2022
Commercial:
C&I$8,588 $9,355 $(767)(8)%0.05 %0.06 %
CRE:
CRE1,788 14,185 (12,397)(87)%0.01 %0.10 %
Multifamily residential
710 1,000 (290)(29)%0.02 %0.02 %
Construction and land
8,154 — 8,154 100 %1.11 %— %
Total CRE
10,652 15,185 (4,533)(30)%0.05 %0.08 %
Total commercial
19,240 24,540 (5,300)(22)%0.05 %0.07 %
Consumer:
Residential mortgage:
Single-family residential
25,505 25,653 (148)(1)%0.22 %0.23 %
HELOCs10,290 8,786 1,504 17 %0.52 %0.41 %
Total residential mortgage
35,795 34,439 1,356 4 %0.26 %0.26 %
Other consumer145 3,192 (3,047)(95)%0.21 %4.18 %
Total consumer
35,940 37,631 (1,691)(4)%0.26 %0.28 %
Total
$55,180 $62,171 $(6,991)(11)%0.11 %0.13 %
(1)There were no accruing loans past due 90 days or more as of both March 31, 2023 and December 31, 2022.

Allowance for Credit Losses

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

For 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. For 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 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, 2023 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. This evaluation is inherently subjective as it requires numerous estimates and judgements. For a description of the policies, methodologies and judgments used to determine the allowance for credit losses, see Item 7. MD&A — Critical Accounting Estimates and Item 8. Financial Statements — Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Company’s 2022 Form 10-K, and 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, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)Allowance Allocation% of Loan Type to Total LoansAllowance Allocation% of Loan Type to Total Loans
Allowance for loan losses
Commercial:
C&I$376,325 32 %$371,700 33 %
CRE:
CRE155,067 29 %149,864 29 %
Multifamily residential24,526 10 %23,373 10 %
Construction and land9,322 1 %9,109 1 %
Total CRE188,915 40 %182,346 40 %
Total commercial565,240 72 %554,046 73 %
Consumer:
Residential mortgage:
Single-family residential48,007 24 %35,564 23 %
HELOCs4,971 4 %4,475 4 %
Total residential mortgage52,978 28 %40,039 27 %
Other consumer1,675 0 %1,560 0 %
Total consumer54,653 28 %41,599 27 %
Total allowance for loan losses$619,893 100 %$595,645 100 %
Allowance for unfunded credit commitments$27,741 $26,264 
Total allowance for credit losses$647,634 $621,909 
Loans held-for-investment$48,918,048 $48,202,430 
Allowance for loan losses to loans held-for-investment1.27 %1.24 %
Three Months Ended March 31,
20232022
Average loans held-for-investment$48,144,120 $42,111,786 
Annualized net charge-offs to average loans held-for-investment0.01 %0.08 %

First quarter 2023 net charge-offs were $609 thousand, or annualized 0.01% of average loans held-for-investment, compared with $8.3 million, or annualized 0.08% of average loans held-for-investment, for the first quarter of 2022. The decrease in net charge-offs was primarily due to a decrease in C&I charge-offs.

Liquidity Risk Management

Liquidity

Liquidity risk arises from the Company’s inability to meet its customer deposit withdrawals and obligations to other counterparties as they come due, or to obtain adequate funding at a reasonable cost to meet those obligations. Liquidity risk also considers the stability of deposits. 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.

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The Board of Directors’ Risk Oversight Committee has primary oversight responsibility over liquidity risk management. At the management level, the Company’s Asset/Liability Committee (“ALCO”) 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 East West on a stand-alone basis to ensure that the Company can serve as a source of strength for its subsidiaries. The ALCO regularly monitors the Company’s liquidity status and related management processes, 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 we believe is a relatively stable and low-cost source of funding. Our loans are funded by deposits, which amounted to $54.74 billion as of March 31, 2023, compared with $55.97 billion as of December 31, 2022. The Company’s loan-to-deposit ratio was 89% as of March 31, 2023, compared with 86% as of December 31, 2022.

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

Unencumbered loans and/or debt securities were pledged to the FHLB, the FRBSF discount window, and the FRBSF BTFP as collateral. The Company has established operational procedures to enable borrowing against these assets, including regular monitoring of the total pool of loans and debt securities eligible as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRBSF and is subject to change at their discretion. See Item 2 — MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funding in this Form 10-Q for further detail related to the Company’s funding sources. The Company believes its cash and cash equivalents and available borrowing capacity described below provide sufficient liquidity above its expected cash needs.

The Company maintains its source of liquidity in the form of cash and cash equivalents and borrowing capacity with its eligible loans and debt securities as collateral. The following table presents the Company’s total cash and cash equivalents and borrowing capacity as of March 31, 2023 and December 31, 2022:
Change
($ in thousands)March 31, 2023December 31, 2022$%
Cash and cash equivalents$5,934,194 $3,481,784 $2,452,410 70 %
Interest-bearing deposits with banks10,249 139,021 (128,772)(93)%
Borrowing capacity:
FHLB13,066,246 12,773,996 292,250 2 %
FRBSF8,822,513 2,049,048 6,773,465 331 %
Unpledged securities available1,770,416 6,939,591 (5,169,175)(74)%
Federal funds facility1,056,000 1,136,000 (80,000)(7)%
Total$30,659,618 $26,519,440 $4,140,178 16 %

The Company’s total cash and cash equivalents and borrowing capacity totaled $30.66 billion as of March 31, 2023, compared with $26.52 billion as of December 31, 2022. The quarter-over-quarter increase was primarily related to an increase in collateral available at the FRBSF and an increase in cash and cash equivalents, which was funded by borrowings from the BTFP during the first quarter of 2023. The BTFP was secured by pledged securities.

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

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

The Consolidated Statement of Cash Flows summarizes the Company’s sources and uses of cash by type of activity for the three months ended March 31, 2023 and 2022. Excess cash generated by operating and investing activities may be used to repay outstanding debt or invest in liquid assets.

Liquidity Risk — Liquidity for East West. In addition to bank level liquidity management, the Company manages liquidity at the parent company level for various operating needs including payment of dividends, repurchases of common stock, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries. East West’s primary source of liquidity is from cash 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 in the Company’s 2022 Form 10-K. East West held $243.0 million and $228.5 million in cash and cash equivalents as of March 31, 2023 and December 31, 2022, respectively. Management believes that East West has sufficient cash and cash equivalents to meet the projected cash obligations for the coming year.

Liquidity Risk — Liquidity Stress Testing. The Company utilizes liquidity stress analysis to determine the appropriate amounts of liquidity to maintain at the Company, foreign subsidiary and foreign branch to meet contractual and contingent cash outflows under a range of scenarios. Scenario analyses include assumptions about significant changes in 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.

As of March 31, 2023, the Company believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business, and is not aware of any events that are reasonably likely to have a material adverse effect on its liquidity, capital resources or operations. Given the uncertain and rapidly changing market and economic conditions, the Company will continue to actively evaluate the impact on its business and financial position. For more information on how economic conditions may impact our liquidity, see Item 1A. Risk Factors in the Company’s 2022 Form 10-K.

Market Risk Management

Market risk refers to the risk of potential loss due to adverse movements in market risk factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company is primarily exposed to interest rate risk through its core business activities of extending loans and acquiring deposits. There have been no significant changes in our risk management practices as described in Item 7. MD&A — Market Risk Management in the Company’s 2022 Form 10-K.

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Interest Rate Risk Management

Interest rate risk results primarily from the Company’s traditional banking activities of gathering deposits and extending loans, which are the primary areas of market risk for the Company. The ALCO coordinates the overall management of the Company’s interest rate risk, meets regularly to review the Company’s open market positions and establishes policies to monitor and limit exposure to market risk. Interest rate risk management 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.

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 against a baseline. The simulation model incorporates the market’s forward rate expectations and the Company’s earning assets and liabilities. 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 the results.

Simulation results are highly dependent on input assumptions. To the extent the actual behavior is different from the assumptions used in the models, there could be material changes in interest rate sensitivity results. The assumptions applied in the model are documented, supported, and periodically back-tested to assess the reasonableness and effectiveness. For a more detailed discussion of the Company’s interest income simulation model, refer to Item 7. MD&A — Market Risk Management in the Company’s 2022 Form 10-K.

The Federal Reserve continued its aggressive response to inflation by incrementally raising the target range for the fed funds rate to a range of 4.75% to 5.00% in March 2023, from the 2022 year-end range of 4.25% to 4.50%. On May 3, 2023 the Federal Reserve raised the target rate range to 5.00% to 5.25%. However, increased uncertainty regarding a potential recession has also led to the expectation of rate cuts potentially starting in September 2023.

Twelve-Month Net Interest Income Simulation

Net interest income simulation modeling measures interest rate risk through earnings volatility. The simulation projects the cash flow changes in interest rate sensitive assets and liabilities, expressed in terms of net interest income, over a specified time horizon for defined interest rate scenarios. Net interest income simulations provide insight into the impact of market rate changes on earnings, which help guide risk management decisions. The Company assesses interest rate risk by comparing the changes of net interest income in different interest rate scenarios.

The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates by 100 and 200 bps as of March 31, 2023 and December 31, 2022, based on a static balance sheet as of the date of the analysis.
Net Interest Income Volatility (1)
Change in Interest Rates (in bps)March 31, 2023December 31, 2022
+2009.0 %11.6 %
+1004.8 %5.9 %
-100(4.7)%(5.3)%
-200(9.3)%(8.6)%
(1)The percentage change represents net interest income change over a 12-month period in a stable interest rate environment versus in the various interest rate scenarios.

The composition of the Company’s loan portfolio creates sensitivity to interest rate movements due to a mismatch of repricing behavior between the floating-rate loan portfolio and deposit products. In the table above, net interest income volatility expressed in relation to base-case net interest income, decreased quarter-over-quarter primarily as a result of changes in the Company’s balance sheet composition.

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While an instantaneous and sustained non-parallel shift in market interest rates was used in the simulation model described in the preceding paragraph, the Company also models scenarios based on gradual shifts in interest rates and assesses the corresponding impacts. These interest rate scenarios provide additional information to estimate the Company’s underlying interest rate risk. The rate ramp table below shows the net interest income volatility under a gradual non-parallel shift of the yield curve, in even monthly increments over the first 12 months, followed by rates held constant thereafter based on a static balance sheet as of the date of the analysis.
Net Interest Income Volatility
Change in Interest Rates (in bps)March 31, 2023December 31, 2022
+200 Rate Ramp4.5 %6.3 %
+100 Rate Ramp2.3 %3.4 %
-100 Rate Ramp(2.4)%(2.4)%
-200 Rate Ramp(4.8)%(4.9)%

As of March 31, 2023, the Company’s net interest income profile reflects an asset sensitive position. Net interest income is expected to increase when interest rates rise as the Company has a large population of variable rate loans, primarily linked to Prime, LIBOR, and Term SOFR indices. The Company’s interest income is sensitive to changes in short-term interest rates. As of March 31, 2023, the Company designated interest rate contracts with a notional amount of $3.25 billion as cash flow hedges. The modeled results incorporated an additional $1.00 billion of interest rate contracts that were designated as cash flow hedges during April 2023. The increase in the total notional amount of cash flow hedges to $4.25 billion reduced net interest income volatility by approximately 1.5% of the base net interest income for every 100 bps change in interest rates. The Company’s deposit portfolio is primarily composed of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates. The modeled results are highly sensitive to deposit durations, beta, deposit mix and other behavioral assumptions, which were derived using a combination of quantitative and qualitative approaches. Actual results may deviate from the model results in terms of net interest income due to earning asset growth variation and deposit mix changes based on customer preferences relative to the interest rate environment. During a period of declining interest rates, balance sheet growth could offset headwinds to net interest income from yield compression.

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

The following table presents the Company’s EVE sensitivity related to an instantaneous non-parallel shift in market interest rates by 100 and 200 bps as of March 31, 2023 and December 31, 2022:
EVE Volatility (1)
Change in Interest Rates (in bps)March 31, 2023December 31, 2022
+200 (1.8)%(6.0)%
+100(1.0)%(2.9)%
-1001.0 %1.1 %
-2002.0 %2.3 %
(1)The percentage change represents net portfolio value change of the Company in a stable interest rate environment versus in the various interest rate scenarios.
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As of March 31, 2023, the Company’s EVE profile reflects a liability sensitive position as the Company’s EVE is expected to decrease when interest rates rise. The EVE sensitivity decreased quarter-over-quarter primarily due to increases in fixed-rate short-term borrowings and cash and cash equivalents.

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

In addition, the Company enters into derivative transactions in order to accommodate its customers with their business needs or to assist customers with their risk management objectives, such as managing exposure to fluctuations in interest rates, foreign currencies and commodity prices. To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into offsetting derivative contracts with third-party financial institutions, some of which are cleared through central clearing organizations. The exposures from derivative transactions are collateralized by cash and/or eligible securities based on limits as set forth in the respective agreements between the Company and counterparty financial institutions. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component in the contracts and the spread variances between the customer derivatives and the offsetting financial counterparty positions. The Company also utilizes foreign exchange contracts 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 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 risk 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 agreements and by requiring collateral arrangements, where possible. The Company may also transfer counterparty credit risk related to interest rate swaps to institutional third-parties through the use of credit risk participation agreements. Certain derivative contracts are required to be cleared through central clearinghouses, to further mitigate counterparty credit risk, where variation margin is applied daily as settlement to the fair value of the derivative contracts. In addition, the Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect the counterparty’s and its own nonperformance risk in the fair value measurement of its derivatives. As of March 31, 2023, the Company anticipates performance by its counterparties and has not incurred any related credit losses.

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The following table summarizes certain information on derivative instruments designated as accounting hedges and utilized by the Company in its management of interest rate and foreign currency risk as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
($ in thousands)
Interest Rate Contracts Hedging Loans (1)
Interest Rate Contracts Hedging Borrowings (2)
Interest Rate Contracts Hedging Loans (1)
Interest Rate Contracts Hedging Borrowings (2)
Cash flow hedges
Notional amount$3,000,000 (3)$— $3,000,000 (3)$200,000 
Weighted average:
Receive rate4.91 %NA4.91 %3.83 %
Pay rate6.78 %NA6.23 %0.48 %
Remaining term (in months)43.6 NA46.6 3.2 
($ in thousands)Foreign Exchange ContractsForeign Exchange Contracts
Net investment hedges
Notional amount$81,480$84,832
Hedged percentage (4)
44 %44 %
Remaining term (in months)11.7 2.6 
NA — Not applicable.
(1)Represents receive-fixed/pay-floating interest rate swaps and excludes interest rate collars. Floating rates paid are based on one-month LIBOR and Prime.
(2)Represents receive-floating/pay-fixed interest rate swaps. Floating rate received was based on three-month LIBOR. The hedge was terminated during the first quarter of 2023.
(3)Interest rate collars in notional amount of $250.0 million designated to hedge loans were not included as of both March 31, 2023 and December 31, 2022.
(4)Represents percentage between the notional of outstanding foreign exchange contracts and the net RMB exposure from East West Bank (China) Limited.

Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements in the Company’s 2022 Form 10-K, 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.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Company’s 2022 Form 10-K. Certain of these policies include critical accounting estimates, which are subject to valuation assumptions, subjective or complex judgments about matters that are inherently uncertain, and it is likely that materially different amounts could be reported under different assumptions and conditions. The Company has procedures and processes in place to facilitate making these judgments. The following accounting policies are critical to the Company’s Consolidated Financial Statements:

•allowance for credit losses;
•fair value estimates;
•goodwill impairment; and
•income taxes.
For additional information on the Company’s critical accounting estimates involving significant judgments, see Item 7. MD&A — Critical Accounting Estimates in the Company’s 2022 Form 10-K.

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Reconciliation of GAAP to Non-GAAP Financial Measures

To supplement the Company’s unaudited interim Consolidated Financial Statements presented in accordance with U.S. GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not prepared in accordance with, or as an alternative to U.S. GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts, or is subject to adjustments that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures discussed in this Form 10-Q are return on average TCE, adjusted efficiency ratio, and tangible book value per share. Certain additional non-GAAP financial measures that are components of the foregoing non-GAAP financial measures are also set forth and reconciled in the table below. The Company believes these non-GAAP financial measures, when taken together with the corresponding U.S. GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

The following tables present the reconciliations of U.S. GAAP to non-GAAP financial measures for the periods presented:
Three Months Ended March 31,
($ in thousands)20232022
Net income(a)$322,439 $237,652 
Add: Amortization of core deposit intangibles441 511 
  Amortization of mortgage servicing assets356 392 
Tax effect of amortization adjustments (1)
(233)(260)
Tangible net income (non-GAAP)(b)$323,003 $238,295 
Average stockholders’ equity(c)$6,183,324 $5,842,615 
Less: Average goodwill(465,697)(465,697)
  Average other intangible assets (2)
(7,696)(9,207)
Average TCE (non-GAAP)(d)$5,709,931 $5,367,711 
Return on average common equity (3)
(a)/(c)21.15 %16.50 %
Return on average TCE (3) (non-GAAP)
(b)/(d)22.94 %18.00 %
(1)Applied statutory tax rate of 29.29% for the first quarter of 2023 and 28.77% for the first quarter of 2022.
(2)Includes core deposit intangibles and mortgage servicing assets.
(3)Annualized.

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Three Months Ended March 31,
($ in thousands)20232022
Net interest income before provision for credit losses(a)$599,861 $415,613 
Total noninterest income59,978 79,743 
Total revenue(b)$659,839 $495,356 
Noninterest income$59,978 $79,743 
Add: Write-off of AFS debt security (1)
10,000 — 
Adjusted noninterest income (non-GAAP)(c)69,978 79,743 
Adjusted revenue (non-GAAP)(a)+(c)=(d)$669,839 $495,356 
Total noninterest expense
(e)$218,447 $189,450 
Less: Amortization of tax credit and other investments(10,110)(13,900)
 Amortization of core deposit intangibles(441)(511)
 Repurchase agreements’ extinguishment cost (1)
(3,872)— 
Adjusted noninterest expense (non-GAAP)(f)$204,024 $175,039 
Efficiency ratio(e)/(b)33.11 %38.25 %
Adjusted efficiency ratio (non-GAAP)(f)/(d)30.46 %35.34 %
(1)During the first quarter of 2023, the Company recorded a $10.0 million pre-tax impairment write-off of an AFS debt security. In addition, the Company prepaid $300.0 million of repurchase agreements and incurred a debt extinguishment cost of $3.9 million.

($ and shares in thousands, except per share data)March 31, 2023December 31, 2022
Stockholders’ equity(a)$6,309,331 $5,984,612 
Less: Goodwill
(465,697)(465,697)
  Other intangible assets (1)
(7,201)(7,998)
TCE (non-GAAP)(b)$5,836,433 $5,510,917 
Number of common shares at period-end(c)141,396 140,948 
Book value per share(a)/(c)$44.62 $42.46 
Tangible book value per share (non-GAAP)(b)/(c)$41.28 $39.10 
(1)Includes core deposit intangibles and mortgage servicing assets.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of March 31, 2023, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the 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, 2023.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the 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, 2023, 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 Note 11 — Commitments and Contingencies — Litigation to the Consolidated Financial Statements in Part I of this Form 10-Q, incorporated herein by reference.

ITEM 1A. RISK FACTORS

The Company’s 2022 Form 10-K contains disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors. There have been no material changes to the Company’s risk factors as presented in the Company’s 2022 Form 10-K, except as described below:

Risks Related to Our Operations

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

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

The cost of resolving the recent bank failures may lead to further increases in FDIC premiums or additional special assessments. Such events may also increase the risk of a recession or lead to regulatory changes and initiatives that could adversely impact the Company. Changes to laws or regulations, or the impositions of additional restrictions through supervisory or enforcement activities, could have a material impact on our business. Regulatory changes could also adversely impact our ability to access funding, increase the cost of funding, limit our access to capital markets, or negatively impact our overall financial condition.

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

A significant factor in the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank appears to have been the proportion of the deposits held by each institution that exceeded applicable FDIC insurance limits. In response to these failures, many large depositors have withdrawn deposits in excess of FDIC insurance limits in order to diversify their risk. If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated interest rates and financial industry instability, both of which we are currently experiencing. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowing generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates. In addition, because our AFS debt securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may not be sufficient to recover the full amount of our exposure. Under these circumstances, we may be required to access funding from sources such as the Federal Reserve’s discount window or additional funding from its recently established Bank Term Funding Program, from which we borrowed $4.50 billion during the first quarter of 2023, in order to manage our liquidity risk. See Note 10 — Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-Q for additional information related to the Company’s borrowings from the BTFP.

(1)     Represents an update to Item 1A. Risk Factors in the Company's 2022 Form 10-K under the heading, "The actions and soundness of other financial institutions could affect us." 
94

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, 2023.
ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this report:
Exhibit No.Exhibit Description
3.1
Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i) from Registrant’s Registration Statement on Form S-4 filed with the Commission on September 17, 1998 (File No. 333-63605).]
3.1.1
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i).1 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Commission on March 28, 2003 (File No. 000-24939).]
3.1.2
Amendment to Certificate of Incorporation to Increase Authorized Shares of the Registrant [Incorporated by reference from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 15, 2005 (File No. 000-24939).]
3.1.3
Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit A from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2008 (File No. 000-24939).]
3.1.4
Certificate of Designations of 8.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series A of the Registrant [Incorporated by reference to Exhibit 3.1 from Registrant’s Current Report on Form 8-K, filed with the Commission on April 30, 2008 (File No. 000-24939).]
3.1.5
Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series B of the Registrant [Incorporated by reference to Exhibit 3.1, 4.1 from Registrant’s Current Report on Form 8-K filed with the Commission on December 9, 2008 (File No. 000-24939).]
3.1.6
Certificate of Designations of Mandatorily Convertible Cumulative Non-Voting Perpetual Preferred Stock, Series C of the Registrant [Incorporated by reference to Exhibit 3.1, 4.1 from Registrant’s Current Report on Form 8-K filed with the Commission on November 12, 2009 (File No. 000-24939).]
3.2
Amended and Restated Bylaws of the Registrant dated March 14, 2023 [Incorporated by reference to Exhibit 3.1 from Registrant’s Current Report on Form 8-K filed with the Commission on March 17, 2023 (File No. 000-24939).]
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.
95

GLOSSARY OF ACRONYMS

AFSAvailable-for-saleHTMHeld-to-maturity
ALCOAsset/Liability CommitteeLCHLondon Clearing House
AOCIAccumulated other comprehensive (loss) incomeLGDLoss given default
ARRAlternative reference rateLIBORLondon Interbank Offered Rate
ASCAccounting Standards CodificationLTVLoan-to-value
ASUAccounting Standards UpdateMD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
BTFPBank Term Funding ProgramMMBTUMillion British thermal unit
C&ICommercial and industrialNAVNet asset value
CECLCurrent expected credit lossesNRSRONationally recognized statistical rating organizations
CFPBConsumer Financial Protection BureauOREOOther real estate owned
CLOCollateralized loan obligationsPDProbability of default
CMEChicago Mercantile ExchangeRMBChinese Renminbi
CRACommunity Reinvestment ActROAReturn on average assets
CRECommercial real estateROEReturn on average equity
EPSEarnings per shareRPACredit risk participation agreement
ERMEnterprise risk managementRSURestricted stock unit
EVEEconomic value of equitySBLCStandby letters of credit
FASBFinancial Accounting Standards BoardSECU.S. Securities and Exchange Commission
FDICFederal Deposit Insurance CorporationSOFRSecured Overnight Financing Rate
FHLBFederal Home Loan BankTCETangible Common Equity
FRBSFFederal Reserve Bank of San FranciscoTDRTroubled debt restructuring
FTPFunds transfer pricingU.S.United States
GAAPGenerally Accepted Accounting PrinciplesUSDU.S. dollar
GDPGross Domestic ProductVIEVariable interest entity
HELOCHome equity lines of credit

96

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 9, 2023
EAST WEST BANCORP, INC.
(Registrant)
By/s/ IRENE H. OH
Irene H. Oh
Executive Vice President and
Chief Financial Officer

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