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Fair Value Measurement and Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2017
Fair Value Disclosures [Abstract] |
Fair Value Measurement and Fair Value of Financial Instruments | Fair Value Measurement and Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value of financial instruments, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing an asset or a liability. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy noted below is based on the quality and reliability of the information used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories:
• | Level 1 | — | Valuation is based on quoted prices for identical instruments traded in active markets.
• | Level 2 | — | Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.
• | Level 3 | — | Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.
The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable, and the significance of those inputs in the fair valuation measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements. Level 3 Assets and Liabilities Valuation Process The Company generally determines the fair value of Level 3 assets and liabilities by using internal valuation methodologies, which primarily include discounted cash flows techniques that require both observable and unobservable inputs. Unobservable inputs (such as volatility and liquidity discount) are generally derived from historic performance of similar instruments or determined from previous market trades in similar instruments. Such inputs can be derived from similar portfolios with known historic experience or recent trades where particular unobservable inputs may be implied. The Company compares each unobservable input to historic experience and other third-party data where available. The models developed under internal valuation methodologies are subject to review according to the Company’s risk management policies and procedures, which include model validation. Model validation assesses the adequacy and appropriateness of the model, including reviewing its supporting model documentation and key components such as inputs, logic, processing components and output results. Validation also includes ensuring significant unobservable model inputs are appropriate given observable market transactions or other market data within the same or similar asset classes. The Company has ongoing monitoring procedures in place for Level 3 assets and liabilities that use internal valuation methodologies, which include but are not limited to, the following:
• | review of valuation results against expectations, including review of significant or unusual value fluctuations; and
• | quarterly analysis related to market data, where available.
The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017 and 2016:
($ in thousands) |  | Assets (Liabilities) Measured at Fair Value on a Recurring Basis as of December 31, 2017
| Fair Value Measurements |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available-for-sale investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 640,280 |  |  | $ | 640,280 |  |  | $ | — |  |  | $ | — |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 203,392 |  |  | — |  |  | 203,392 |  |  | — |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 318,957 |  |  | — |  |  | 318,957 |  |  | — |
Residential mortgage-backed securities |  | 1,190,271 |  |  | — |  |  | 1,190,271 |  |  | — |
Municipal securities |  | 99,982 |  |  | — |  |  | 99,982 |  |  | — |
Non-agency residential mortgage-backed securities: |  |  |  |  |  |  |  |
Investment grade |  | 9,117 |  |  | — |  |  | 9,117 |  |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |
Investment grade |  | 37,003 |  |  | — |  |  | 37,003 |  |  | — |
Foreign bonds: |  |  |  |  |  |  |  |
Investment grade |  | 486,408 |  |  | — |  |  | 486,408 |  |  | — |
Other securities |  | 31,342 |  |  | 20,735 |  |  | 10,607 |  |  | — |
Total available-for-sale investment securities |  | $ | 3,016,752 |  |  | $ | 661,015 |  |  | $ | 2,355,737 |  |  | $ | — |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate swaps and options |  | $ | 58,633 |  |  | $ | — |  |  | $ | 58,633 |  |  | $ | — |
Foreign exchange contracts |  | 5,840 |  |  | — |  |  | 5,840 |  |  | — |
Credit risk participation agreements (“RPAs”) |  | 1 |  |  | — |  |  | 1 |  |  | — |
Warrants |  | 1,672 |  |  | — |  |  | 993 |  |  | 679 |
Total derivative assets |  | $ | 66,146 |  |  | $ | — |  |  | $ | 65,467 |  |  | $ | 679 |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps on certificates of deposit |  | $ | (6,799 | ) |  | $ | — |  |  | $ | (6,799 | ) |  | $ | — |
Interest rate swaps and options |  | (57,958 | ) |  | — |  |  | (57,958 | ) |  | — |
Foreign exchange contracts |  | (10,170 | ) |  | — |  |  | (10,170 | ) |  | — |
RPAs |  | (8 | ) |  | — |  |  | (8 | ) |  | — |
Total derivative liabilities |  | $ | (74,935 | ) |  | $ | — |  |  | $ | (74,935 | ) |  | $ | — |
|  | Assets (Liabilities) Measured at Fair Value on a Recurring Basis as of December 31, 2016
($ in thousands) |  | Fair Value Measurements |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Available-for-sale investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 720,479 |  |  | $ | 720,479 |  |  | $ | — |  |  | $ | — |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 274,866 |  |  | — |  |  | 274,866 |  |  | — |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 266,799 |  |  | — |  |  | 266,799 |  |  | — |
Residential mortgage-backed securities |  | 1,258,747 |  |  | — |  |  | 1,258,747 |  |  | — |
Municipal securities |  | 147,654 |  |  | — |  |  | 147,654 |  |  | — |
Non-agency residential mortgage-backed securities: |  |  |  |  |  |  |  |
Investment grade |  | 11,477 |  |  | — |  |  | 11,477 |  |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |
Investment grade |  | 222,377 |  |  | — |  |  | 222,377 |  |  | — |
Non-investment grade |  | 9,173 |  |  | — |  |  | 9,173 |  |  | — |
Foreign bonds: |  |  |  |  |  |  |  |
Investment grade |  | 383,894 |  |  | — |  |  | 383,894 |  |  | — |
Other securities |  | 40,329 |  |  | 30,991 |  |  | 9,338 |  |  | — |
Total available-for-sale investment securities |  | $ | 3,335,795 |  |  | $ | 751,470 |  |  | $ | 2,584,325 |  |  | $ | — |
Derivative assets: |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | 4,325 |  |  | $ | — |  |  | $ | 4,325 |  |  | $ | — |
Interest rate swaps and options |  | 67,578 |  |  | — |  |  | 67,578 |  |  | — |
Foreign exchange contracts |  | 11,874 |  |  | — |  |  | 11,874 |  |  | — |
RPAs |  | 3 |  |  | — |  |  | 3 |  |  | — |
Total derivative assets |  | $ | 83,780 |  |  | $ | — |  |  | $ | 83,780 |  |  | $ | — |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps on certificates of deposit |  | $ | (5,976 | ) |  | $ | — |  |  | $ | (5,976 | ) |  | $ | — |
Interest rate swaps and options |  | (65,131 | ) |  | — |  |  | (65,131 | ) |  | — |
Foreign exchange contracts |  | (11,213 | ) |  | — |  |  | (11,213 | ) |  | — |
RPAs |  | (3 | ) |  | — |  |  | (3 | ) |  | — |
Total derivative liabilities |  | $ | (82,323 | ) |  | $ | — |  |  | $ | (82,323 | ) |  | $ | — |
At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. There were no assets or liabilities measured using significant unobservable inputs (Level 3) on a recurring basis as of and during the year ended December 31, 2016. The following table presents a reconciliation of the beginning and ending balances for the major asset and liability categories measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2017 and 2015:
($ in thousands) |  | Year Ended December 31,
| 2017 |  | 2015
| Other Securities |  | Warrants |  | Corporate Debt Securities: Non-Investment Grade |  | Embedded Derivative Liabilities
Beginning balance |  | $ | — |  |  | $ | — |  |  | $ | 6,528 |  |  | $ | (3,392 | )
Transfer of investment security from held-to-maturity to available-for-sale |  | 115,615 |  |  | — |  |  | — |  |  | — |
Total gains (losses) for the period: |  |  |  |  |  |  |  |
Included in earnings (1) |  | 1,156 |  |  | — |  |  | 960 |  |  | (20 | )
Included in other comprehensive income (loss)(2) |  | — |  |  | — |  |  | 922 |  |  | — |
Issuances, sales and settlements: |  |  |  |  |  |  |  |
Issuances |  | — |  |  | 679 |  |  | — |  |  | — |
Sales |  | (116,771 | ) |  | — |  |  | (7,219 | ) |  | — |
Settlements |  | — |  |  | — |  |  | (98 | ) |  | 3,412 |
Transfers out of Level 3 |  | — |  |  | — |  |  | (1,093 | ) |  | — |
Ending balance |  | $ | — |  |  | $ | 679 |  |  | $ | — |  |  | $ | — |
(1) | Net realized gains of other securities and corporate debt securities are included in Net gains on sales of available-for-sale investment securities on the Consolidated Statement of Income. Net realized and unrealized losses of embedded derivative liabilities are included in Other operating expense on the Consolidated Statement of Income.
(2) | Net unrealized gains of corporate debt securities are included in Net changes in unrealized losses on available-for-sale investment securities on the Consolidated Statement of Comprehensive Income.
Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair value of the assets and liabilities become unobservable or observable in the current marketplace. The Company’s policy, with respect to transfers between levels of the fair value hierarchy, is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers of assets and liabilities measured on a recurring basis into and out of Level 1, Level 2 and Level 3 during the years ended December 31, 2017 and 2016. During the third quarter of 2017, the Company transferred a non-agency commercial mortgage-backed security with a net carrying amount of $115.6 million from held-to-maturity to available-for-sale to reflect the Company’s intent to sell the security as part of its active liquidity management. This non-agency commercial mortgage-backed security was sold during the fourth quarter of 2017. During the year ended December 31, 2015, the Company transferred $1.1 million of pooled trust preferred securities measured on a recurring basis out of Level 3 into Level 2 due to increased market liquidity and price observability. There were no transfers of assets and liabilities measured on a recurring basis between Level 1 and Level 2 during the year ended December 31, 2015. The following table presents quantitative information about significant unobservable inputs used in the valuation of assets measured on a recurring basis classified as Level 3 as of December 31, 2017. Significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets or liabilities. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets or liabilities would be impacted by a predetermined percentage change.
($ in thousands) |  | Fair Value Measurements (Level 3) |  | Valuation Technique |  | Unobservable Inputs |  | Weighted- Average
Derivative assets: |  |  |  |  |  |  |  |
Warrants |  | $ | 679 |  |  | Black-Scholes option pricing model |  | Volatility |  | 44%
|  |  |  |  |  | Liquidity discount |  | 47%
Assets measured at fair value on a nonrecurring basis include certain non-PCI loans that were impaired, OREO and loans held-for-sale. These fair value adjustments result from impairments recognized during the period on certain non-PCI impaired loans, application of fair value less cost to sell on OREO and application of the lower of cost or fair value on loans held-for-sale. The following tables present the carrying amounts of assets included on the Consolidated Balance Sheet that had fair value changes measured on a nonrecurring basis as of December 31, 2017 and 2016:
($ in thousands) |  | Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2017
| Fair Value Measurements |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Non-PCI impaired loans: |  |  |  |  |  |  |  |
Commercial lending: |  |  |  |  |  |  |  |
C&I |  | $ | 31,404 |  |  | $ | — |  |  | $ | — |  |  | $ | 31,404 |
CRE |  | 2,667 |  |  | — |  |  | — |  |  | 2,667 |
Construction and land |  | 3,973 |  |  | — |  |  | — |  |  | 3,973 |
Consumer lending: |  |  |  |  |  |  |  |  |
Single-family residential |  | 144 |  |  | — |  |  | — |  |  | 144 |
HELOCs |  | — |  |  | — |  |  | — |  |  | — |
Total non-PCI impaired loans |  | $ | 38,188 |  |  | $ | — |  |  | $ | — |  |  | $ | 38,188 |
OREO |  | $ | 9 |  |  | $ | — |  |  | $ | — |  |  | $ | 9 |
($ in thousands) |  | Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2016
| Fair Value Measurements |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Non-PCI impaired loans: |  |  |  |  |  |  |  |
Commercial lending: |  |  |  |  |  |  |  |
C&I |  | $ | 52,172 |  |  | $ | — |  |  | $ | — |  |  | $ | 52,172 |
CRE |  | 14,908 |  |  | — |  |  | — |  |  | 14,908 |
Consumer lending: |  |  |  |  |  |  |  |  |
Single-family residential |  | 2,464 |  |  | — |  |  | — |  |  | 2,464 |
HELOCs |  | 610 |  |  | — |  |  | — |  |  | 610 |
Total non-PCI impaired loans |  | $ | 70,154 |  |  | $ | — |  |  | $ | — |  |  | $ | 70,154 |
OREO |  | $ | 345 |  |  | $ | — |  |  | $ | — |  |  | $ | 345 |
Loans held-for-sale |  | $ | 22,703 |  |  | $ | — |  |  | $ | 22,703 |  |  | $ | — |
The following table presents the fair value adjustments of assets measured on a nonrecurring basis recognized during the years ended and which were included on the Consolidated Balance Sheet as of December 31, 2017, 2016 and 2015:
($ in thousands) |  | Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Non-PCI impaired loans: |  |  |  |  |  |
Commercial lending: |  |  |  |  |  |
C&I |  | $ | (19,703 | ) |  | $ | (27,106 | ) |  | $ | (5,612 | )
CRE |  | (272 | ) |  | 1,084 |  |  | (2,629 | )
Multifamily residential |  | — |  |  | — |  |  | (115 | )
Construction and land |  | (147 | ) |  | — |  |  | (118 | )
Consumer lending: |  |  |  |  |  |
Single-family residential |  | (11 | ) |  | (224 | ) |  | (496 | )
HELOCs |  | — |  |  | 34 |  |  | (59 | )
Other consumer |  | (2,491 | ) |  | — |  |  | — |
Total non-PCI impaired loans |  | $ | (22,624 | ) |  | $ | (26,212 | ) |  | $ | (9,029 | )
OREO |  | $ | (1 | ) |  | $ | (23 | ) |  | $ | (233 | )
Loans held-for-sale |  | $ | — |  |  | $ | (5,565 | ) |  | $ | (1,991 | )
The following table presents the quantitative information about the significant unobservable inputs used in the valuation of assets measured on a nonrecurring basis classified as Level 3 as of December 31, 2017 and 2016:
($ in thousands) |  | Fair Value Measurements (Level 3) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range of Input(s) |  | Weighted- Average
December 31, 2017 |  |  |  |  |  |  |  |  |  |
Non-PCI impaired loans |  | $ | 22,802 |  |  | Discounted cash flows |  | Discount |  | 4% — 10% |  | 6 | %
|  | $ | 9,773 |  |  | Fair value of property |  | Selling cost |  | 8% |  | 8 | %
|  | $ | 3,207 |  |  | Fair value of collateral |  | Discount |  | 20% — 32% |  | 29 | %
|  | $ | 2,406 |  |  | Fair value of collateral |  | Contract value |  | NM |  | NM |
OREO |  | $ | 9 |  |  | Fair value of property |  | Selling cost |  | 8% |  | 8 | %
December 31, 2016 |  |  |  |  |  |  |  |  |  |
Non-PCI impaired loans |  | $ | 31,835 |  |  | Discounted cash flows |  | Discount |  | 4% — 8% |  | 5 | %
|  | $ | 14,941 |  |  | Fair value of property |  | Selling cost |  | 4% — 8% |  | 6 | %
|  | $ | 18,417 |  |  | Fair value of collateral |  | Discount |  | 0% — 75% |  | 35 | %
|  | $ | 4,961 |  |  | Fair value of collateral |  | Contract value |  | NM |  | NM |
OREO |  | $ | 345 |  |  | Fair value of property |  | Selling cost |  | 8% |  | 8 | %
NM — Not meaningful. The following tables present the fair value estimates for financial instruments as of December 31, 2017 and 2016, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in Note 4 — Fair Value Measurement and Fair Value of Financial Instruments. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable and accrued interest payable, which are included in Other assets.
($ in thousands) |  | December 31, 2017
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 2,174,592 |  |  | $ | 2,174,592 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,174,592 |
Interest-bearing deposits with banks |  | $ | 398,422 |  |  | $ | — |  |  | $ | 398,422 |  |  | $ | — |  |  | $ | 398,422 |
Resale agreements (1) |  | $ | 1,050,000 |  |  | $ | — |  |  | $ | 1,035,158 |  |  | $ | — |  |  | $ | 1,035,158 |
Restricted equity securities |  | $ | 73,521 |  |  | $ | — |  |  | $ | 73,521 |  |  | $ | — |  |  | $ | 73,521 |
Loans held-for-sale |  | $ | 85 |  |  | $ | — |  |  | $ | 85 |  |  | $ | — |  |  | $ | 85 |
Loans held-for-investment, net |  | $ | 28,688,590 |  |  | $ | — |  |  | $ | — |  |  | $ | 28,956,349 |  |  | $ | 28,956,349 |
Branch assets held-for-sale |  | $ | 91,318 |  |  | $ | 5,143 |  |  | $ | 10,970 |  |  | $ | 78,132 |  |  | $ | 94,245 |
Accrued interest receivable |  | $ | 121,719 |  |  | $ | — |  |  | $ | 121,719 |  |  | $ | — |  |  | $ | 121,719 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Customer deposits: |  |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits |  | $ | 25,974,314 |  |  | $ | — |  |  | $ | 25,974,314 |  |  | $ | — |  |  | $ | 25,974,314 |
Time deposits |  | $ | 5,640,749 |  |  | $ | — |  |  | $ | 5,626,855 |  |  | $ | — |  |  | $ | 5,626,855 |
Branch liability held-for-sale |  | $ | 605,111 |  |  | $ | — |  |  | $ | — |  |  | $ | 643,937 |  |  | $ | 643,937 |
FHLB advances |  | $ | 323,891 |  |  | $ | — |  |  | $ | 335,901 |  |  | $ | — |  |  | $ | 335,901 |
Repurchase agreements (1) |  | $ | 50,000 |  |  | $ | — |  |  | $ | 104,830 |  |  | $ | — |  |  | $ | 104,830 |
Long-term debt |  | $ | 171,577 |  |  | $ | — |  |  | $ | 171,673 |  |  | $ | — |  |  | $ | 171,673 |
Accrued interest payable |  | $ | 10,724 |  |  | $ | — |  |  | $ | 10,724 |  |  | $ | — |  |  | $ | 10,724 |
(1) | Resale and repurchase agreements are reported net pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of December 31, 2017, $400.0 million out of $450.0 million of repurchase agreements were eligible for netting against resale agreements.
($ in thousands) |  | December 31, 2016
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,878,503 |  |  | $ | 1,878,503 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,878,503 |
Interest-bearing deposits with banks |  | $ | 323,148 |  |  | $ | — |  |  | $ | 323,148 |  |  | $ | — |  |  | $ | 323,148 |
Resale agreements (1) |  | $ | 2,000,000 |  |  | $ | — |  |  | $ | 1,980,457 |  |  | $ | — |  |  | $ | 1,980,457 |
Held-to-maturity investment security |  | $ | 143,971 |  |  | $ | — |  |  | $ | — |  |  | $ | 144,593 |  |  | $ | 144,593 |
Restricted equity securities |  | $ | 72,775 |  |  | $ | — |  |  | $ | 72,775 |  |  | $ | — |  |  | $ | 72,775 |
Loans held-for-sale |  | $ | 23,076 |  |  | $ | — |  |  | $ | 23,076 |  |  | $ | — |  |  | $ | 23,076 |
Loans held-for-investment, net |  | $ | 25,242,619 |  |  | $ | — |  |  | $ | — |  |  | $ | 24,915,143 |  |  | $ | 24,915,143 |
Accrued interest receivable |  | $ | 100,524 |  |  | $ | — |  |  | $ | 100,524 |  |  | $ | — |  |  | $ | 100,524 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Customer deposits: |  |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits |  | $ | 24,275,714 |  |  | $ | — |  |  | $ | 24,275,714 |  |  | $ | — |  |  | $ | 24,275,714 |
Time deposits |  | $ | 5,615,269 |  |  | $ | — |  |  | $ | 5,611,746 |  |  | $ | — |  |  | $ | 5,611,746 |
Short-term borrowings |  | $ | 60,050 |  |  | $ | — |  |  | $ | 60,050 |  |  | $ | — |  |  | $ | 60,050 |
FHLB advances |  | $ | 321,643 |  |  | $ | — |  |  | $ | 334,859 |  |  | $ | — |  |  | $ | 334,859 |
Repurchase agreements (1) |  | $ | 350,000 |  |  | $ | — |  |  | $ | 411,368 |  |  | $ | — |  |  | $ | 411,368 |
Long-term debt |  | $ | 186,327 |  |  | $ | — |  |  | $ | 186,670 |  |  | $ | — |  |  | $ | 186,670 |
Accrued interest payable |  | $ | 9,440 |  |  | $ | — |  |  | $ | 9,440 |  |  | $ | — |  |  | $ | 9,440 |
(1) | Resale and repurchase agreements are reported net pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreement. As of December 31, 2016, $100.0 million out of $450.0 million of repurchase agreements were eligible for netting against resale agreements.
The following is a description of the valuation methodologies and significant assumptions used to measure financial assets and liabilities at fair value, and to estimate fair value for certain financial instruments not recorded at fair value. The description also includes the level of the fair value hierarchy in which the assets or liabilities are classified. Cash and Cash Equivalents — The carrying amount approximates fair value due to the short-term nature of these instruments. As such, the estimated fair value is classified as Level 1. Interest-Bearing Deposits with Banks — The fair value of interest-bearing deposits with banks generally approximates their book value due to their short maturities. In addition, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Resale Agreements — The fair value of resale agreements is estimated by discounting the cash flows based on expected maturities or repricing dates utilizing estimated market discount rates. In addition, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Available-for-Sale Investment Securities — When available, the Company uses quoted market prices to determine the fair value of available-for-sale investment securities, which are classified as Level 1. Level 1 available-for-sale investment securities are primarily comprised of U.S. Treasury securities. The fair value of other available-for-sale investment securities is generally determined by independent external pricing service providers who have experience in valuing these securities or by the average quoted market prices obtained from independent external brokers. In obtaining such valuation information from third parties, the Company reviewed the methodologies used to develop the resulting fair value. The available-for-sale investment securities valued using such methods are classified as Level 2. Held-to-Maturity Investment Security — As of December 31, 2017 the Company had no investments that were designated as held-to-maturity investment security. As of December 31, 2016, the held-to-maturity investment security was comprised of a floating rate non-agency commercial mortgage-backed security. The fair value of this security is estimated by discounting the future expected cash flows utilizing the underlying index and a discount margin. Other unobservable inputs include conditional prepayment rate, constant default rate and loss severity. Due to the significant unobservable inputs used in estimating the fair value, this security is classified as Level 3. Restricted Equity Securities — Restricted equity securities are comprised of Federal Reserve Bank stock and FHLB stock. Ownership of these securities is restricted to member banks and these securities do not have a readily determinable fair value. Purchases and sales of these securities are at par value. The carrying amounts of the Company’s restricted equity securities approximate fair value. These investments are classified as Level 2. Loans Held-for-Sale — The Company’s loans held-for-sale are carried at the lower of cost or fair value. Loans held-for-sale were comprised of single-family residential loans and primarily of other consumer loans as of December 31, 2017 and 2016, respectively. The fair value of loans held-for-sale is derived from current market prices and comparative current sales. The Company records any fair value adjustments on a nonrecurring basis. Loans held-for-sale are classified as Level 2. Loans Held-for-Investment, net — The fair value of loans held-for-investment other than non-PCI impaired loans is determined using a discounted cash flows approach based on the exit price notion. The discount rate is derived from the associated yield curve plus spreads that reflect the rates in the market for loans with similar financial characteristics. No adjustments have been made for changes in credit within any of the loan portfolios. It is management’s opinion that the allowance for loan losses pertaining to performing and nonperforming loans results in a fair value adjustment of credit for such loans. Due to the unobservable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 3. Non-PCI Impaired Loans — The Company typically adjusts the carrying amount of impaired loans when there is evidence of probable loss and when the expected fair value of the loan is less than its carrying amount. Impaired loans with specific reserves are classified as Level 3 assets. The following two methods are used to derive the fair value of impaired loans:
• | Discounted cash flows valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of the loan and then discounting these cash flows. The fair values are estimated using a discounted cash flow model that employs a discount rate that reflects the contractual effective interest rates of the loan, adjusted by credit losses inherent for similar loans.
• | The Company establishes a specific reserve for an impaired loan based on the fair value of the underlying collateral (which may take the form of real estate, inventory, equipment, contract or guarantee). The fair value of the other underlying collateral is generally based on third party appraisals (or internal evaluation if a third party appraisal is not required by regulations), which utilize one or more valuation techniques (income, market and/or cost approaches). Updated appraisals and evaluations are generally obtained within the last 12 months. All appraisals include an “as is” market value without conditions as of the effective date of the appraisal. In respect of those loans that are collateralized by either real estate, inventory or equipment, the significant unobservable inputs used to determine the fair values of such loans generally include discounts applied to the liquidation cost of the underlying collateral and/or selling cost of the collateral. In respect of those loans that are collateralized by contracts or guarantees, the fair value of these loans are determined based on the fair value of the underlying contract or guarantee.
Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment, which are recorded at estimated fair value less the cost to sell at the time of foreclosure and at the lower of cost or estimated fair value less the cost to sell subsequent to acquisition. The fair value of OREO properties is based on third party appraisals or accepted written offers. Refer to the Non-PCI Impaired Loans section above for a detailed discussion on the Company’s policies and procedures related to appraisals and evaluations. On a monthly basis, the current fair market value of each OREO property is reviewed to ensure that the current carrying value is appropriate. The significant unobservable input used is the selling cost. OREO properties are classified as Level 3. Accrued Interest Receivable — The carrying amount approximates fair value due to the short-term nature of these instruments. Considering the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Branch Assets Held-for-Sale — This includes loans receivable, premises and equipment, and the cash balances related to DCB that were held-for-sale pursuant to the DCB Purchase and Assumption Agreement. Due to the short-term nature of the cash balances, the carrying value of cash approximates its fair value and hence is classified as Level 1. The fair value of the premises and equipment is determined based on third party appraisals of similar properties, and hence is classified as Level 2. The fair value of the DCB loans held-for-sale is determined based on the terms of the DCB Purchase and Assumption Agreement where the terms are derived from unobservable assumptions over the sale of the combination of loans and deposits and hence is classified as Level 3. Deposits — The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking, savings and money market deposits, approximates the carrying amount as these deposits are payable on demand at the measurement date. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. For time deposits, the fair value is based on the discounted value of contractual cash flows using current market rates for instruments with similar maturities. Due to the observable nature of the inputs used in deriving the estimated fair value, time deposits are classified as Level 2. Branch Liability Held-for-Sale — The fair value of the DCB deposits held-for-sale is determined based on the terms of the DCB Purchase and Assumption Agreement where the terms are derived from unobservable assumptions over the sale of the combination of loans and deposits as discussed in Note 2 — Dispositions and Held-for-Sale to the Consolidated Financial Statements, and hence classified as Level 3. Short-Term Borrowing — The carrying amount approximates fair value due to the short-term nature of these instruments. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Federal Home Loan Bank Advances — The fair value of FHLB advances is estimated based on the discounted value of contractual cash flows, using rates currently offered by the FHLB of San Francisco for advances with similar remaining maturities at each reporting date. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Repurchase Agreements — The fair value of the repurchase agreements is calculated by discounting future cash flows based on expected maturities or repricing dates, utilizing estimated market discount rates and taking into consideration the call features of each instrument. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Long-Term Debt — The fair value of long-term debt is estimated by discounting the cash flows through maturity based on current market rates the Company would pay for new issuances. Due to the observable nature of the inputs used in deriving the estimated fair value, long-term debt is classified as Level 2. Accrued Interest Payable — The carrying amount approximates fair value due to the short-term nature of these instruments. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Interest Rate Swaps and Options — The Company enters into interest rate swap and option contracts with institutional counterparties to hedge against interest rate swap and option products offered to bank customers. These products allow borrowers to lock in attractive intermediate and long-term interest rates by entering into an interest rate swap or option contract with the Company, resulting in the customer obtaining a synthetic fixed rate loan. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certificates of deposit issued. This product allows the Company to lock in attractive floating rate funding. The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. The fair value of the interest rate options, consisting 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 fell below (rise above) the strike rate of the floors (caps). The variable interest rates used in the calculation of projected receipts on the floors (caps) are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. In addition, to comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, model-derived credit spreads. As of December 31, 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these interest rate contracts and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies these derivative instruments as Level 2 of the fair value hierarchy due to the observable nature of the significant inputs utilized. Foreign Exchange Contracts — The Company enters into short-term foreign exchange contracts to purchase/sell foreign currencies at set rates in the future. These contracts economically hedge against foreign exchange rate fluctuations. The Company also enters into contracts with institutional counterparties to hedge against foreign exchange products offered to bank customers. These products allow customers to hedge the foreign exchange risk of their deposits and loans denominated in foreign currencies. The Company assumes minimal foreign exchange rate risk because the contracts with the customer and the institutional party mirror each other. The fair value is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Valuation depends on the type of derivative, and the nature of the underlying rate and contractual terms including period of maturity, price and index upon which the derivative’s value is based. Key inputs include foreign exchange rates (spot and/or forward rates), volatility of currencies and the correlation of such inputs. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and 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, foreign exchange contracts are classified as Level 2. As of December 31, 2017, foreign exchange forward contracts used to economically hedge the Company’s net investment in East West Bank (China) Limited, a non-U.S. Dollar functional currency subsidiary in China, are included in this caption. See Foreign Currency Forward Contracts in the section below for details on valuation methodologies and significant assumptions. Credit Risk Participation Agreements — The Company enters into RPAs, under which the Company assumes its pro-rata share of the credit exposure associated with the borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. The credit spreads of the borrowers used in the calculation are estimated by the Company based on current market conditions, including consideration of current borrowing spreads for similar customers and transactions, review of existing collateralization or other credit enhancements, and changes in credit sector and entity-specific credit information. The Company has determined that the majority of the inputs used to value RPAs are observable. Accordingly, RPAs fall within Level 2 of the fair value hierarchy. Warrants — The Company has obtained warrants to purchase preferred and common stock of technology and life sciences companies as part of the loan origination process. As of December 31, 2017, the warrants included on the Consolidated Financial Statements were from public and private companies. The Company valued these warrants based on the Black-Scholes option pricing model. For warrants from public companies, the model uses the underlying stock price, stated strike price, warrant expiration date, risk-free interest rate based on duration-matched U.S. Treasury rate and market-observable company-specific option volatility as inputs to value the warrants. Due to the observable nature of the inputs used in deriving the estimated fair value, warrants from public companies are classified as Level 2. For warrants from private companies, the model uses inputs such as the offering price observed in the most recent round of funding, stated strike price, warrant expiration date, risk-free interest rate based on duration-matched U.S. Treasury rate and option volatility. The option volatility assumption is based on public market indices that include members that operate in similar industries as the private companies that issued the warrants. The model values are further adjusted for a general lack of liquidity due to the private nature of the underlying companies. Due to the unobservable nature of the option volatility and liquidity discount assumptions used in deriving the estimated fair value, warrants from private companies are classified as Level 3. There is a direct correlation between changes in the volatility assumption and the fair value measurement of warrants from private companies, while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement of warrants from private companies. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a sensitivity analysis on the option volatility and liquidity discount assumptions is performed. Foreign Currency Forward Contracts — During the three months ended December 31, 2015, the Company began entering into foreign currency forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited. Previously, the foreign currency forward contracts were eligible for hedge accounting. During the year ended December 31, 2017, the foreign currency forward contracts were dedesignated when the hedge relationship ceased to be highly effective. The Company continues to economically hedge its foreign currency exposure resulting from East West Bank (China) Limited and the foreign currency forward contracts are included as part of the Foreign Exchange Contracts caption as of December 31, 2017. The fair value of foreign currency forward contracts is valued by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Inputs include spot rates, forward rates and the interest rate curves of the domestic and foreign currency. Interest rate 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. The fair value estimates presented herein are based on pertinent information available to management as of each reporting date. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Consolidated Financial Statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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