XML 24 R13.htm IDEA: XBRL DOCUMENT
v3.5.0.2

DERIVATIVES | 9 Months Ended
--- | ---
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | NOTE 6 — DERIVATIVES The Company uses derivatives to manage exposure to market risk, including interest rate risk and foreign currency risk and to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates are not significant to earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Company’s investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The Company recognizes all derivatives on the Consolidated Balance Sheets at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives consist of economic hedges. For additional information on the Company’s derivatives and hedging activities, please see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2015 Form 10-K. The following table presents the total notional and fair values of the Company’s derivatives as of September 30, 2016 and December 31, 2015:
($ in thousands) |  | September 30, 2016 |  | December 31, 2015
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
|  | Derivative Assets (1) |  | Derivative Liabilities (1) |  |  | Derivative Assets (1) |  | Derivative Liabilities (1)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps on certificates of deposit |  | $ | 48,365 |  |  | $ | — |  |  | $ | 2,137 |  |  | $ | 112,913 |  |  | $ | — |  |  | $ | 5,213 |
Foreign currency forward contracts |  | 83,026 |  |  | — |  |  | 78 |  |  | 86,590 |  |  | 2,365 |  |  | — |
Total derivatives designated as hedging instruments |  | $ | 131,391 |  |  | $ | — |  |  | $ | 2,215 |  |  | $ | 199,503 |  |  | $ | 2,365 |  |  | $ | 5,213 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps and options |  | $ | 7,450,492 |  |  | $ | 144,293 |  |  | $ | 146,623 |  |  | $ | 6,494,900 |  |  | $ | 67,215 |  |  | $ | 67,325 |
Foreign exchange contracts |  | 605,439 |  |  | 6,065 |  |  | 3,334 |  |  | 652,993 |  |  | 10,254 |  |  | 9,350 |
RPAs |  | 66,845 |  |  | — |  |  | 8 |  |  | 43,033 |  |  | — |  |  | 4 |
Total derivatives not designated as hedging instruments |  | $ | 8,122,776 |  |  | $ | 150,358 |  |  | $ | 149,965 |  |  | $ | 7,190,926 |  |  | $ | 77,469 |  |  | $ | 76,679 |
(1) | Derivative assets are included in Other assets on the Consolidated Balance Sheets. Derivative liabilities are included in Accrued expenses and other liabilities and Interest-bearing deposits on the Consolidated Balance Sheets.
Derivatives Designated as Hedging Instruments Interest Rate Swaps on Certificates of Deposit — The Company is exposed to changes in the fair value of certain fixed rate certificates of deposit due to changes in the benchmark interest rate, London Interbank Offered Rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreements without the exchange of the underlying notional amount. The total notional amounts of the interest rate swaps on certificates of deposit were $48.4 million and $112.9 million, as of September 30, 2016 and December 31, 2015, respectively. The fair value liabilities of the interest rate swaps were $2.1 million and $5.2 million as of September 30, 2016 and December 31, 2015, respectively. This decrease was primarily due to $63.7 million notional amounts of interest rate swaps on certificates of deposit that were called during the nine months ended September 30, 2016. The following table presents the net gains (losses) recognized on the Consolidated Statements of Income related to the derivatives designated as fair value hedges for the three and nine months ended September 30, 2016 and 2015:
($ in thousands) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
(Losses) gains recorded in interest expense: |  |  |  |  |  |  |  |
Recognized on interest rate swaps |  | $ | (1,327 | ) |  | $ | 4,616 |  |  | $ | 3,044 |  |  | $ | 5,336 |
Recognized on certificates of deposit |  | 674 |  |  | (4,247 | ) |  | (2,688 | ) |  | (4,647 | )
Net amount recognized on fair value hedges (ineffective portion) |  | $ | (653 | ) |  | $ | 369 |  |  | $ | 356 |  |  | $ | 689 |
Net Investment Hedges — Consistent with ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions, ASC 815 allows hedging of the foreign currency risk of a net investment in a foreign operation. During the fourth quarter of 2015, the Company entered into foreign currency forward contracts to hedge its investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The hedging instruments designated as net investment hedges, involve hedging the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in China, against the risk of adverse changes in the foreign currency exchange rate. During the three months ended September 30, 2016, the Company designated new foreign currency forward contracts as new hedge relationships. The Company expects that the hedging instrument will be highly effective in offsetting the changes in the value of the hedged net investment attributable to the hedged risk. The Company recorded the changes in the carrying amount of its China subsidiary in the Foreign currency translation adjustment account within AOCI. Simultaneously, the effective portion of the hedge of this exposure was also recorded in the Foreign Currency Translation Adjustment account and the ineffective portion, if any, was recorded in current earnings. As of September 30, 2016, the notional amounts and fair values of the foreign currency forward contracts were $83.0 million and a $78 thousand liability, respectively. The following table presents the gains recorded in the Foreign currency translation adjustment account within AOCI related to the effective portion of the net investment hedges and the ineffectiveness recorded on the Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015:
($ in thousands) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Gains recognized in AOCI on net investment hedges (effective portion) |  | $ | 69 |  |  | $ | — |  |  | $ | 296 |  |  | $ | — |
Losses recognized in Foreign exchange income (ineffective portion) |  | $ | (236 | ) |  | $ | — |  |  | $ | (667 | ) |  | $ | — |
Derivatives Not Designated as Hedging Instruments Interest Rate Swaps and Options — The Company enters into interest rate derivatives including interest rate swaps and options with its customers to allow them to hedge against the risk of rising interest rates on their variable rate loans. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored interest rate contracts with institutional counterparties. As of September 30, 2016, the total notional amounts of interest rate swaps and options, including mirrored transactions with institutional counterparties and the Company’s customers totaled $3.73 billion for derivatives that were in an asset valuation position and $3.73 billion for derivatives that were in a liability valuation position. As of December 31, 2015, the total notional amounts of interest rate swaps and options, including mirrored transactions with institutional counterparties and the Company’s customers totaled $3.25 billion for derivatives that were in an asset valuation position and $3.25 billion for derivatives that were in a liability valuation position. The fair values of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $144.3 million asset and a $146.6 million liability as of September 30, 2016. The fair values of interest rate swap and option contracts with institutional counterparties and the Company’s customers amounted to a $67.2 million asset and a $67.3 million liability as of December 31, 2015. Foreign Exchange Contracts — The Company enters into foreign exchange contracts on a regular basis to economically hedge against foreign exchange rate fluctuations. A majority of these contracts have original maturities of one year or less. As of September 30, 2016 and December 31, 2015, the notional amounts of the short-term foreign exchange contracts were $605.4 million and $653.0 million, respectively. The fair values of the short-term foreign exchange contracts recorded were a $6.1 million asset and a $3.3 million liability as of September 30, 2016. The fair values of the short-term foreign exchange contracts recorded were a $10.3 million asset and a $9.4 million liability as of December 31, 2015. RPAs — The Company has entered into RPAs under which the Company assumed its pro-rata share of the credit exposure associated with the borrower’s performance related to interest rate derivative contracts. The Company may or may not be a party to the interest rate derivative contract and enters into such RPAs in instances where the Company is a party to the related loan participation agreement with the borrower. The Company will make/receive payments under the RPAs if the borrower defaults on its obligation to perform under the interest rate derivative contract. The Company manages its credit risk on the RPAs by monitoring the credit worthiness of the borrowers, which is based on the normal credit review process. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. As of September 30, 2016, the notional amount and the fair values of RPAs purchased were approximately a $43.0 million and an $8 thousand liability, respectively. As of September 30, 2016, the notional amount of the RPAs sold was approximately $23.9 million and the fair value of the derivative asset was insignificant. As of December 31, 2015, the notional amount and the fair values of RPAs purchased were approximately $33.7 million and a $4 thousand liability, respectively. As of December 31, 2015, the notional amount of the RPA sold was approximately $9.3 million and the fair value of the derivative asset was insignificant. Assuming all underlying borrowers referenced in the interest rate derivative contracts defaulted as of September 30, 2016 and December 31, 2015, the exposures from the RPAs purchased would be $278 thousand and $257 thousand, respectively. As of September 30, 2016 and December 31, 2015, the weighted average remaining maturities of the outstanding RPAs were 3.7 years and 3.2 years, respectively. Foreign Exchange Options — During 2010, the Company entered into foreign exchange option contracts with major brokerage firms to economically hedge against foreign exchange fluctuations in certain certificates of deposit available to its customers. These certificates of deposit had a term of five years and paid interest based on the performance of the Chinese Renminbi relative to the USD. Under ASC 815, a certificate of deposit that pays interest based on changes in foreign exchange rates is a hybrid instrument with an embedded derivative that must be accounted for separately from the host contract (i.e., the certificate of deposit). In accordance with ASC 815, both the embedded derivative instruments and the freestanding foreign exchange option contracts are recorded at fair value. These instruments expired in the second quarter of 2015. The following table presents the net gains (losses) recognized on the Company’s Consolidated Statements of Income related to derivatives not designated as hedging instruments for the three and nine months ended September 30, 2016 and 2015:
($ in thousands) |  | Location in Consolidated Statements of Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest rate swaps and options |  | Other fees and operating income |  | $ | 411 |  |  | $ | (864 | ) |  | $ | (2,219 | ) |  | $ | (243 | )
Foreign exchange contracts |  | Foreign exchange income |  | 3,787 |  |  | (3,764 | ) |  | 10,982 |  |  | (1,548 | )
RPAs |  | Other fees and operating income |  | 4 |  |  | — |  |  | (8 | ) |  | — |
Foreign exchange options |  | Foreign exchange income |  | — |  |  | — |  |  | — |  |  | 236 |
Embedded derivative liabilities |  | Other operating expense |  | — |  |  | — |  |  | — |  |  | (136 | )
Net gains (losses) |  |  |  | $ | 4,202 |  |  | $ | (4,628 | ) |  | $ | 8,755 |  |  | $ | (1,691 | )
Credit-Risk-Related Contingent Features — Certain over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. These events, which are defined by the existing derivative contracts, primarily relate to a downgrade in the credit rating of East West Bank to below investment grade. In the event that East West Bank’s credit rating is downgraded to below investment grade, no additional collateral would be required to be posted as of September 30, 2016 and December 31, 2015, since the liabilities related to such contracts were already fully collateralized. Offsetting of Derivatives The Company has entered into agreements with counterparty financial institutions, which include master netting agreements. However, the Company has elected to account for all derivatives with counterparty institutions on a gross basis. The following tables present gross derivatives on the Consolidated Balance Sheets and the respective collateral received or pledged in the form of other financial instruments, which are generally marketable securities and/or cash. The collateral amounts in these tables are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of overcollateralization are not shown:
($ in thousands) |  | As of September 30, 2016
|  | Gross Amounts of Recognized Assets |  | Gross Amounts Offset on the Consolidated Balance Sheets |  | Net Amounts of Assets Presented on the Consolidated Balance Sheets |  | Gross Amounts Not Offset on the Consolidated Balance Sheets |  |  |
Assets |  |  |  |  | Financial Instruments |  |  | Collateral Received |  |  | Net Amount
Derivatives |  | $ | 3,811 |  |  | $ | — |  |  | $ | 3,811 |  |  | $ | (2,560 | ) | (1) |  | $ | (1,155 | ) | (2) |  | $ | 96 |
|  | Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset on the Consolidated Balance Sheets |  | Net Amounts of Liabilities Presented on the Consolidated Balance Sheets |  | Gross Amounts Not Offset on the Consolidated Balance Sheets |  |  |
Liabilities |  |  |  |  | Financial Instruments |  |  | Collateral Posted |  |  | Net Amount
Derivatives |  | $ | 151,442 |  |  | $ | — |  |  | $ | 151,442 |  |  | $ | (2,560 | ) | (1) |  | $ | (148,102 | ) | (3) |  | $ | 780 |
($ in thousands) |  | As of December 31, 2015
|  | Gross Amounts of Recognized Assets |  | Gross Amounts Offset on the Consolidated Balance Sheets |  | Net Amounts of Assets Presented on the Consolidated Balance Sheets |  | Gross Amounts Not Offset on the Consolidated Balance Sheets |  |  |
Assets |  |  |  |  | Financial Instruments |  |  | Collateral Received |  |  | Net Amount
Derivatives |  | $ | 8,733 |  |  | $ | — |  |  | $ | 8,733 |  |  | $ | (5,293 | ) | (1) |  | $ | (3,068 | ) | (2) |  | $ | 372 |
|  | Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset on the Consolidated Balance Sheets |  | Net Amounts of Liabilities Presented on the Consolidated Balance Sheets |  | Gross Amounts Not Offset on the Consolidated Balance Sheets |  |  |
Liabilities |  |  |  |  | Financial Instruments |  |  | Collateral Posted |  |  | Net Amount
Derivatives |  | $ | 78,779 |  |  | $ | — |  |  | $ | 78,779 |  |  | $ | (5,293 | ) | (1) |  | $ | (73,109 | ) | (3) |  | $ | 377 |
(1) | Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable master netting arrangements if the Company has elected to net.
(2) | Represents $1.2 million and $3.1 million of cash collateral received against derivative assets with the same counterparty that are subject to enforceable master netting arrangements as of September 30, 2016 and December 31, 2015, respectively.
(3) | Represents cash and securities pledged against derivative liabilities with the same counterparty that are subject to enforceable master netting arrangements. Includes approximately $51.1 million and $21.1 million of cash collateral posted as of September 30, 2016 and December 31, 2015, respectively.
In addition to the amounts included in the table above, the Company also has balance sheet netting related to resale and repurchase agreements, please refer to Note 4 — Securities Purchased Under Resale Agreements And Sold Under Repurchase Agreements to the Consolidated Financial Statements. Please refer to Note 3 — Fair Value Measurement And Fair Value Of Financial Instruments to the Consolidated Financial Statements for fair value measurement disclosures on derivatives.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration