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COMMITMENTS AND CONTINGENCIES | 9 Months Ended
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Sep. 30, 2014
COMMITMENTS AND CONTINGENCIES. |
COMMITMENTS AND CONTINGENCIES | NOTE 12 — COMMITMENTS AND CONTINGENCIES Credit Extensions — In the normal course of business, the Company has various outstanding commitments to extend credit that are not reflected in the accompanying consolidated financial statements. As of September 30, 2014 and December 31, 2013, undisbursed loan commitments amounted to $4.00 billion and $4.02 billion, respectively. Commercial and standby letters of credit amounted to $1.21 billion and $1.16 billion as of September 30, 2014 and December 31, 2013, respectively. Guarantees — From time to time, the Company sells or securitizes loans with recourse in the ordinary course of business. For loans that have been sold or securitized with recourse, the recourse component is considered a guarantee. When the Company sells or securitizes a loan with recourse, it commits to stand ready to perform if the loan defaults and to make payments to remedy the default. As of September 30, 2014, the maximum potential future payment, which is generally the unpaid principal balance of total loans sold or securitized with recourse amounted to $273.4 million and was comprised of $36.5 million in single-family loans with full recourse and $236.9 million in multifamily loans with limited recourse. In comparison, total loans sold or securitized with recourse amounted to $338.8 million at December 31, 2013, which was comprised of $42.2 million in single-family loans with full recourse and $296.6 million in multifamily loans with limited recourse. The recourse provision on multifamily loans varies by loan sale and is limited to 4% of the top loss on the underlying loans. The carrying value, which is the Company’s recourse reserve related to loan sales and securitizations totaled $2.4 million as of September 30, 2014 and $3.2 million as of December 31, 2013, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. The Company continues to experience minimal losses from the single-family and multifamily loan portfolios. The Company also sells or securitizes loans without recourse that may have to be subsequently repurchased if a defect that occurred during the loan origination process results in a violation of a representation or warranty made in connection with the securitization or sale of the loan. When a loan that is sold or securitized to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred and if such defects give rise to a violation of a representation or warranty made to the investor in connection with the sale or securitization. If such a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no such defects, the Company has no commitment to repurchase the loan. As of September 30, 2014 and December 31, 2013, the amount of loans sold without recourse totaled $788.8 million and $818.2 million, respectively. Total loans securitized without recourse amounted to $169.3 million and $193.8 million, at September 30, 2014 and December 31, 2013, respectively. Litigation — In the ordinary course of the Company’s business, the Company is a party to various legal actions, which the Company believes are incidental to the operation of our business. In accordance with ASC 450, Contingencies, the Company accrues reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. The outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of the legal or regulatory matters, if any, currently pending or threatened could have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations. Based on the information currently available, advice of counsel and established reserves, the Company believes that the eventual outcome of the matters described below, will not, individually or in the aggregate have a material adverse effect on the Company’s consolidated financial position. On September 8, 2014, a jury in the case titled “F&F, LLC and 618 Investment, Inc. v. East West Bank,” Superior Court of the State of California for the County of Los Angeles, Case No. BC462714, delivered a verdict awarding F&F, LLC, damages of $38.9 million, of which $16.9 million were compensatory and $22.0 million were punitive damages, against the Bank. The jury’s verdict is subject to further legal proceedings and an appeal will be considered. A subsequent motion for attorney’s fees from the plaintiff is also expected to be filed with the court. While the Company disagrees that any damages are appropriate and appeals will be filed if necessary, punitive damages are expected to be reduced, and any amounts ultimately payable at the conclusion of the litigation are expected to be reduced by duplicate damages previously paid to the plaintiff by a third party in a related litigation not against the Bank. As of September 30, 2014, a litigation accrual of $28.8 million has been recorded. Other Commitments — The Company has commitments to invest in affordable housing funds, and other investments qualifying for community reinvestment credits and other tax credits. These commitments are payable on demand. As of September 30, 2014 and December 31, 2013, these commitments were $112.7 million and $73.1 million, respectively. These commitments are recorded in accrued expenses and other liabilities in the consolidated balance sheet.

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