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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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)
(626) 768-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.001 Par Value |  | EWBC |  | NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 | ☐ | Smaller reporting company | ☐
Non-accelerated filer | ☐ |  |  | 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 ☒
The aggregate market value of the registrant’s common stock held by non-affiliates was approximately $6,765,665,370 (based on the June 30, 2019 closing price of Common Stock of $46.77 per share). As of January 31, 2020, 145,625,565 shares of East West Bancorp, Inc. Common Stock were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

EAST WEST BANCORP, INC.
2019 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

|  |  | Page
PART I |  | 3
| Forward-Looking Statements | 3
| Item 1. | Business | 5
| Item 1A. | Risk Factors | 15
| Item 1B. | Unresolved Staff Comments | 25
| Item 2. | Properties | 25
| Item 3. | Legal Proceedings | 25
| Item 4. | Mine Safety Disclosures | 25
PART II |  | 26
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 26
| Item 6. | Selected Financial Data | 28
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 78
| Item 8. | Financial Statements and Supplementary Data | 79
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 159
| Item 9A. | Controls and Procedures | 159
| Item 9B. | Other Information | 161
PART III |  | 161
| Item 10. | Directors, Executive Officers and Corporate Governance | 161
| Item 11. | Executive Compensation | 161
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 162
| Item 13. | Certain Relationships and Related Transactions and Director Independence | 162
| Item 14. | Principal Accountant Fees and Services | 162
PART IV |  | 163
| Item 15. | Exhibits and Financial Statement Schedules | 163
| Item 16. | Form 10-K Summary | 165
GLOSSARY OF ACRONYMS | 166
SIGNATURES | 167

2

PART I
Forward-Looking Statements
This Annual Report on Form 10-K (“this Form 10-K”) contains certain forward-looking information about us that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” “assumes,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs, and the negative thereof. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company.
There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such differences, some of which are beyond the Company’s control, include, but are not limited to:

• | the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the United States (“U.S.”) and the People’s Republic of China;

• | the Company’s ability to compete effectively against other financial institutions in its banking markets;

• | success and timing of the Company’s business strategies;

• | the Company’s ability to retain key officers and employees;

• | impact on the Company’s funding costs, net interest income and net interest margin due to changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;

• | changes in the Company’s costs of operation, compliance and expansion;

• | the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;

• | impact of benchmark interest rate reform in the U.S. that resulted in the Secured Overnight Financing Rate (“SOFR”) selected as the preferred alternative reference rate to the London Interbank Offered Rate (“LIBOR”);

• | impact of failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused;

• | adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;

• | future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;

• | impact of adverse changes to the Company’s credit ratings from major credit rating agencies;

• | impact of adverse judgments or settlements in litigation;

• | changes in the commercial and consumer real estate markets;

• | changes in consumer spending and savings habits;

• | changes in the U.S. economy, including inflation, deflation, employment levels, rate of growth and general business conditions;

• | government intervention in the financial system, including changes in government interest rate policies;

• | impact on the Company’s international operations due to political developments, disease pandemics, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;

• | changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission (“SEC”), the Consumer Financial Protection Bureau (“CFPB”) and the California Department of Business Oversight (“DBO”) - Division of Financial Institutions;

• | impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on the Company’s business, business practices, cost of operations and executive compensation;

• | heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;

3

• | impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions and from the Company’s interactions with business partners, counterparties, service providers and other third parties;

• | impact of regulatory enforcement actions;

• | changes in accounting standards as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies and their impact on critical accounting policies and assumptions;

• | changes in income tax laws and regulations;

• | impact of other potential federal tax changes and spending cuts;

• | the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;

• | impact on the Company’s liquidity due to changes in the Company’s ability to receive dividends from its subsidiaries;

• | any future strategic acquisitions or divestitures;

• | continuing consolidation in the financial services industry;

• | changes in the equity and debt securities markets;

• | fluctuations in the Company’s stock price;

• | fluctuations in foreign currency exchange rates;

• | a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, a reduction in investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment (“OTTI”) on securities held in the Company’s available-for-sale (“AFS”) investment securities portfolio; and

• | impact of natural or man-made disasters or calamities, such as wildfires, or conflicts 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 Item 1A. Risk Factors presented elsewhere in this report. 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

ITEM 1. BUSINESS
Organization
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”) 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 (“BHC Act”). The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of East West Bank (the “Bank”), which became its principal asset. In addition to the Bank, East West has six subsidiaries as of December 31, 2019 that were established as statutory business trusts for the purpose of issuing junior subordinated debt to third party investors. East West also owns East West Insurance Services, Inc. (“EWIS”). In 2017, the Company sold the insurance brokerage business of EWIS, and EWIS remains a subsidiary of East West and continues to maintain its insurance broker license. In 2019, East West acquired Enstream Capital Markets, LLC, a private broker dealer and also established East West Investment Management LLC, a registered investment adviser. Both Enstream Capital Markets, LLC (subsequently renamed as East West Markets, LLC) and East West Investment Management LLC are wholly-owned subsidiaries of East West.
East West’s principal business is to serve as a holding company for the Bank and other banking or banking-related subsidiaries that East West may establish or acquire. As a legal entity separate and distinct from its subsidiaries, East West’s principal source of funds is, and will continue to be, dividends that may be paid by its subsidiaries. As of December 31, 2019, the Company had $44.20 billion in total assets, $34.42 billion in total loans (including loans held-for-sale, net of allowance), $37.32 billion in total deposits and $5.02 billion in total stockholders’ equity.
As of December 31, 2019, the Bank has four wholly-owned subsidiaries. The first subsidiary, East-West Investment, Inc., primarily acts as a trustee in connection with real estate secured loans. The second subsidiary, E-W Services, Inc., is a California corporation organized by the Bank in 1977 to hold properties used by the Bank in its operations. The third subsidiary is East West Bank (China) Limited, a banking subsidiary in China. The remaining subsidiary is East West Velo Technology Service (Beijing) Limited Company, which provides technological support for the Bank’s global digital banking services.
On March 17, 2018, the Bank completed the sale of its eight Desert Community Bank (“DCB”) branches located in the High Desert area of Southern California to Flagstar Bank, a wholly-owned subsidiary of Flagstar Bancorp, Inc. The sale resulted in a pretax gain of $31.5 million during the year ended December 31, 2018, which was reported as Net gain on sale of business on the Consolidated Statement of Income.
The Bank continues to develop its international banking presence with its network of overseas branches and representative offices that include five full-service branches in Greater China, located in Hong Kong, Shanghai, Shantou and Shenzhen. The Bank has two branches in Shanghai with one in the Shanghai Pilot Free Trade Zone. The Bank also has four representative offices in Greater China, located in Beijing, Chongqing, Guangzhou and Xiamen. In addition to facilitating traditional letters of credit and trade financing to businesses, these representative offices allow the Bank to assist existing clients and to develop new business relationships. Through these branches and offices, the Bank is focused on growing its cross-border client base between the U.S. and Greater China, helping U.S. based businesses expand in Greater China and companies based in Greater China pursue business opportunities in the U.S.
The Bank continues to explore opportunities to establish other foreign offices, subsidiaries, strategic investments and partnerships to expand its international banking capabilities and to capitalize on long-term cross-border business opportunities between the U.S. and Greater China.
Banking Services
As of December 31, 2019, the Bank was the fourth largest independent commercial bank headquartered in California based on total assets. The Bank is the largest bank in the U.S. focused on the financial service needs of individuals and businesses that operate both in the U.S. and Greater China. The Bank also has a strong focus on the Chinese-American community. Through its network of over 125 banking locations in the U.S. and Greater China, the Bank provides a wide range of personal and commercial banking services to businesses and individuals. The Bank provides multilingual services to its customers in English, Chinese, Spanish and Vietnamese. The Bank also offers a variety of deposit products that include personal and business checking and savings accounts, money market, time deposits and also offers foreign exchange and wealth management services. The Bank’s lending activities include commercial and residential real estate, lines of credit, construction, trade finance, letters of credit, commercial business, affordable housing lending, asset-based lending and equipment financing. In addition, the Bank is focused on providing financing to clients in need of a financial bridge to facilitate their business transactions between the U.S. and Greater China.
5

Operating Segments
The Bank’s three operating segments, (1) Consumer and Business Banking, (2) Commercial Banking and (3) Other, are based on the Bank’s core strategy. The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network. The Commercial Banking segment primarily generates commercial loans and deposits. 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. For complete discussion and disclosure, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Operating Segment Results and Note 21 — Business Segments to the Consolidated Financial Statements.
Market Area and Competition
The Bank operates in a highly competitive environment. The Company faces competition from domestic and foreign lending institutions and numerous other providers of financial services. Competition is based on a number of factors including, among others, customer service, quality and range of products and services offered, reputation, interest rates on loans and deposits, lending limits and customer convenience. Competition also varies based on the types of customers and locations served. The Company has the leading banking market share among the Chinese-American community, and maintains a differentiated presence within selected markets by providing cross-border expertise to customers in a number of industry specializations between the U.S and Greater China.
The Bank believes that its customers benefit from the Bank’s understanding of the Greater China markets through its physical presence, corporate and organizational ties in Greater China, as well as the Bank’s international banking products and services. The Bank believes that this approach, combined with its senior managements’ and Board of Directors’ extensive ties to Chinese business opportunities and Chinese-American communities, provides the Bank with a competitive advantage. The Bank utilizes its presence in Greater China to identify and build corporate relationships, which the Bank may leverage to create business opportunities in California and other U.S. markets.
While the Company believes it is well positioned within a highly competitive industry, the industry could become even more competitive as a result of legislative, regulatory, economic, and technological changes, as well as continuing consolidation.
Supervision and Regulation
Overview
East West and the Bank are subject to extensive and comprehensive regulation under U.S. federal and state laws. Regulation and supervision by the federal and state banking agencies are intended primarily for the protection of depositors, the Deposit Insurance Fund (“DIF”) administered by the FDIC, consumers and the banking system as a whole, and not for the protection of our investors. As a bank holding company, East West is subject to primary inspection, supervision, regulation, and examination by the Federal Reserve under the BHC Act. The Bank is regulated, supervised, and examined by the Federal Reserve, the DBO, and, with respect to consumer laws, the CFPB. As insurer of the Bank’s deposits, the FDIC has back-up examination authority as well. In addition, the Bank is regulated by certain foreign regulatory agencies in international jurisdictions where we now, or may in the future wish to conduct business, including Greater China and Hong Kong.
The Company is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, both as administered by the SEC. Our common stock is listed on the NASDAQ Global Select Market under the trading symbol “EWBC” and is subject to NASDAQ rules for listed companies. The Company is also subject to the accounting oversight and corporate governance of the Sarbanes-Oxley Act of 2002.
Described below are material elements of selected laws and regulations applicable to East West and the Bank. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. A change in applicable statutes, regulations or regulatory policies may have a material effect on the Company’s business.
6

East West
As a bank holding company and pursuant to its election of the financial holding company status, East West is subject to regulations and examinations by the Federal Reserve under the BHC Act. The BHC Act provides a federal framework for the supervision and regulation of all domestic and foreign companies that control a bank and the subsidiaries of such companies. The BHC Act and other federal statutes grant the Federal Reserve authority to, among other things:

• | require periodic reports and such additional information as the Federal Reserve may require in its discretion;

• | require the Company to maintain certain levels of capital and, under the Dodd-Frank Act, limit the ability of bank holding companies to pay dividends or bonuses unless their capital levels exceed the capital conservation buffer (see Item 1. Business — Supervision and Regulation — Capital Requirements);

• | require bank holding companies to serve as a source of financial and managerial strength to subsidiary banks and commit resources, as necessary, to support each subsidiary bank, including at times when bank holding companies may not be inclined to do so, the failure to do so generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of Federal Reserve regulations or both;

• | restrict dividends and other distributions from subsidiary banks to their parent bank holding companies;

• | terminate an activity or terminate control of or liquidate or divest certain nonbank subsidiaries, affiliates or investments if the Federal Reserve believes that the activity or the control of the nonbank subsidiary or affiliate constitutes a serious risk to the financial safety, soundness or stability of the bank holding company; and if the activity, ownership, or control is inconsistent with the purposes of the BHC Act;

• | regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem the Company’s securities in certain situations;

• | approve in advance senior executive officer or director changes and prohibit (under certain circumstances) golden parachute payments to officers and employees, including change in control agreements and new employment agreements, that are contingent upon termination; and

• | approve in advance acquisitions of and mergers with bank holding companies, banks and other financial companies, and consider certain competitive, management, financial, financial stability and other factors in granting these approvals. DBO approvals may also be required for certain acquisitions and mergers.

East West’s election to be a financial holding company as permitted under the Gramm-Leach-Bliley Act of 1999 (“GLBA”), allows East West generally to engage in any activity, or acquire and retain the shares of a company engaged in any activity that the Federal Reserve has determined to be financial in nature or incidental or complementary to activities that are financial in nature without prior Federal Reserve approval. Activities that are considered to be financial in nature include securities underwriting and dealing, insurance agency and underwriting, merchant banking activities and activities that the Federal Reserve, in consultation with the Secretary of the U.S. Treasury, determines to be financial in nature or incidental to such financial activity. “Complementary activities” are activities that the Federal Reserve determines upon application to be complementary to a financial activity and do not pose a safety and soundness risk. To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized”, “well managed” and in satisfactory compliance with the Community Reinvestment Act (“CRA”). A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in the sections captioned “Capital Requirements” and “Prompt Corrective Action,” included elsewhere under this item. A depository institution subsidiary is considered “well managed” if it received a composite rating and a management rating of at least “satisfactory” in its most recent examination. See the section captioned “Community Reinvestment Act” included elsewhere under this item. As of December 31, 2019, East West is a financial holding company and has financial subsidiaries, as discussed in Item 1. Business — Organization.
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The Bank and its Subsidiaries
East West Bank is a California state-chartered bank, a member of the Federal Reserve and a bank whose deposits are insured by the FDIC. The Bank’s foreign operations are regulated and supervised by the Federal Reserve and the DBO, as well as by regulatory authorities in the host countries in which the Bank’s overseas offices reside. Specific federal and state laws and regulations that are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, and the nature and amount of collateral for certain loans. The regulatory structure also gives the bank regulatory agencies extensive discretion to impose various restrictions on management or operations and to issue policies and guidance in connection with their supervisory and enforcement activities and examination policies. California law permits state chartered commercial banks to engage in any activity permissible for national banks, unless such activity is expressly prohibited by state law. Therefore, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries, and further, pursuant to the GLBA, the Bank may conduct certain “financial” activities in a subsidiary to the same extent permitted for a national bank, provided the Bank is and remains “well capitalized,” “well managed” and in “satisfactory” compliance with the CRA.
Regulation of Subsidiaries/Branches
The Bank’s foreign-based subsidiary, East West Bank (China) Limited, is subject to applicable foreign laws and regulations, such as those implemented by the China Banking and Insurance Regulatory Commission. Nonbank subsidiaries are subject to additional or separate regulation and supervision by other state, federal and self-regulatory bodies. The East West Bank Hong Kong branch is subject to applicable foreign laws and regulations, such as those implemented by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong.
Economic Growth, Regulatory Relief, and Consumer Protection Act
The Dodd-Frank Act, enacted in 2010, enhanced regulation and supervision of the financial services industry and made other sweeping changes in the U.S. financial system. In May 2018, the U.S. Congress enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act, (“EGRRCPA”), which amended provisions in the Dodd-Frank Act and other statutes administered by the Federal Reserve. The changes can be grouped into several areas that impact us:

1. | Regulatory relief for bank holding companies and state member banks with assets between $10 billion and $50 billion. We are among the bank holding companies and banks in this range. Dodd-Frank required that bank holding companies in this size range establish a risk committee that satisfied certain requirements and conduct an annual stress-test. The stress-test requirement was extended to state member banks (and other insured depository institutions) as well. EGRRCPA lifted the size threshold for a formal risk committee from $10 billion to $50 billion, but the Federal Reserve will still examine the risk management practices of companies with assets in the $10 billion to $50 billion range for consistency with safety and soundness and prudent practices. With respect to stress-testing by the Bank, EGRRCPA raised the asset size threshold for required testing from $10 billion to $250 billion. Regarding the Company, the Federal Reserve in rulemaking (based on broad EGRRCPA authority) lifted the asset size threshold from $10 billion to $100 billion for required stress-testing bank holding companies. Accordingly, neither the Company nor the Bank is now required to conduct stress-tests.

2. | Regulatory relief for community banking organizations. Banks and bank holding companies with less than $10 billion in assets — that is, institutions smaller than the Company and the Bank — receive additional relief under EGRRCPA that may give them competitive advantages. Among other things, these banks and bank holding companies are generally exempt from the Volcker Rule, and they may maintain a new Community Bank Leverage Ratio of 9% in lieu of meeting existing risk-based capital ratio and leverage ratio requirements.

3. | Regulatory relief for larger bank holding companies. Our larger competitors also receive a degree of regulatory relief from previous requirements. Bank holding companies designated as global systemically important banking organizations and those with more than $250 billion in assets are still automatically subject to enhanced regulation. However, bank holding companies with between $100 billion and $250 billion in assets are automatically subject only to supervisory stress tests, while the Federal Reserve has discretion to apply other individual enhanced prudential provisions to these companies. Bank holding companies with assets between $50 billion and $100 billion will no longer be subject to enhanced regulation, except for the risk committee requirement. In addition, EGRRCPA relaxes leverage requirements for large custody banks and allows certain municipal bonds to be counted toward large bank holding companies’ liquidity requirements.

8

Capital Requirements
The federal banking agencies have imposed risk-based capital adequacy guidelines intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with their operations. In July 2013, the federal banking agencies adopted final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules revised the definitions and the components of regulatory capital, in part through the introduction of a Common Equity Tier 1 (“CET1”) capital requirement and a related regulatory capital ratio of CET1 to risk-weighted assets, restricted the type of instruments that may be recognized in Tier 1 and 2 capital (including the phase out of trust preferred securities from Tier 1 capital for bank holding companies). The Basel III Capital Rules also prescribed a new standardized approach for risk weighting assets and expanded the risk weighting categories to a larger and more risk-sensitive number of categories that affect the denominator in banking institutions’ regulatory capital ratios.
Under the Basel III Capital Rules, to be considered adequately capitalized, the Company and the Bank are required to maintain minimum capital ratios of 4.5% CET1 to risk-weighted assets, 6.0% Tier 1 capital to risk-weighted assets, 8.0% total capital (Tier 1 plus Tier 2) to risk-weighted assets and a 4.0% Tier 1 leverage ratio. The Basel III Capital Rules also introduced a “capital conservation buffer” of 2.5% that fully phased in on January 1, 2019, that is composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. To avoid constraints, a banking organization must maintain the following capital ratios (after any distribution): (i) CET1 to risk-weighted assets more than 7.0%, (ii) Tier 1 capital to risk-weighted assets more than 8.5% and (iii) total capital to risk-weighted assets more than 10.5%.
With respect to the Bank, the Basel III Capital Rules also resulted in changes to the Prompt Corrective Action (“PCA”) regulations pursuant to Section 38 of the Federal Deposit Insurance Act (“FDIA”), as discussed below under the Prompt Corrective Action section.
As of December 31, 2019, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for “well capitalized” institutions under the Basel III capital rules on a fully phased-in basis. For additional discussion and disclosure see Item 7. MD&A — Regulatory Capital and Ratios and Note 20 — Regulatory Requirements and Matters to the Consolidated Financial Statements in this Form 10-K.
Recent Regulatory Capital-Related Developments
From time to time, the regulatory agencies propose changes and amendments to, and issue interpretations of, risk-based capital guidelines and related reporting instructions. Such proposals and interpretations could, if implemented in the future, affect our reported capital ratios.
Pursuant to the EGRRCPA, the federal banking agencies issued a final rule in July 2019 (the “Simplified Capital Rule”) to reduce regulatory compliance burden by simplifying certain risk-based and leverage capital requirements of the Basel III Capital Rule for non-advanced approaches banking organizations (i.e., banking organizations with less than $250 billion in total consolidated assets or with less than $10 billion of on-balance sheet foreign exposures), including the Company and the Bank. Among other things, the final rule simplified the existing Basel III Capital Rules by: (1) setting a 25% CET1 capital reduction threshold for mortgage servicing assets, certain deferred tax assets arising from temporary differences, investments in the capital of unconsolidated financial institutions, resulting in potentially fewer deductions from CET1, together with revisions to the risk-weight treatment for investments in the capital of unconsolidated financial institutions; and (2) simplifying the limits on the amount of a third-party minority interest in a consolidated subsidiary that could be included in regulatory capital. The Simplified Capital Rule also makes technical amendments to, and clarifies certain aspects of, the agencies’ capital rule for non-advanced approaches banking organizations. The Simplified Capital rule is effective on January 1, 2020. Application of the Simplified Capital Rule to our consolidated balance sheet did not have a significant impact on the capital ratios of the Company and the Bank.
EGRRCPA also amended the capital requirements for certain acquisition, development and construction (“ADC”) loans. The Basel III Capital Rule required that an institution risk weight commercial real estate (“CRE”) loans that did not meet certain prerequisites, among them a requirement that a borrower contribute cash or marketable securities or pay development expenses out of pocket equal to at least 15% of the equity in the financed project, at 150%, rather than 100%. EGRRCPA narrowed the scope of ADC loans subject to the higher risk weight in several ways, including a provision that allows a borrower to make the 15% equity contribution in the form of real estate or improvements.
9

In December 2018, the regulatory agencies approved a final rule to address changes to credit loss accounting, including banking organizations’ implementation of the new Accounting Standards Update (“ASU”) 2016-13 Financial Instruments— Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which introduces the current expected credit losses (“CECL”) methodology. See Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K for additional information. The final rule provides banking organizations with the option to phase in over a three-year period the day-one adverse effects on regulatory capital upon the adoption of ASU 2016-13. In addition, it revises the regulatory capital rule, stress testing rules, disclosure requirements to reflect CECL and amends other regulations that reference credit loss allowances. The final rule is applicable to banking organizations that are subject to the regulatory capital rule, including the Company and the Bank, and is effective on April 1, 2019 upon banking organizations’ adoption of ASU 2016-13.
In December 2017, the Basel Committee on Banking Supervision completed updates to the Basel III Capital Rules, a process sometimes referred to as Basel IV. These changes to the regulatory framework are intended to restore credibility in the calculation of risk weighted assets. Changes potentially applicable to us include: (1) enhancement of the robustness and risk sensitivity of the standardized approaches for credit risk, credit valuation adjustment and operational risk, which will facilitate the comparability of banks’ capital ratios; and (2) constraints on the use of internally modeled approaches. Other changes apply to advanced approaches institutions and global systemically important banks. The Basel Committee on Banking Supervision intends that these standards become effective on January 1, 2022. The federal banking agencies have announced their support for these changes and have said that they will consider appropriate application of these revisions to the regulatory capital rules. Any changes to Basel III Capital Rules that are based on the Basel Committee’s reforms must go through the federal banking agencies’ standard notice-and-comment rulemaking process. The agencies have not begun the process and have not indicated when they may do so.
Prompt Corrective Action
The FDIA, as amended, requires federal banking agencies to take PCA with respect to depository institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The Basel III Capital Rules revised the PCA requirements effective January 1, 2015. Under the revised PCA provisions of the FDIA, an insured depository institution generally is classified in the following categories based on the capital measures indicated:

|  | Risk-Based Capital Ratios |  |
PCA Category |  | Total Capital |  | Tier 1 Capital |  | CET1 Leverage |  | Tier 1 Leverage
Well capitalized |  | ≥ 10% |  | ≥ 8% |  | ≥ 6.5% |  | ≥ 5%
Adequately capitalized |  | ≥ 8% |  | ≥ 6% |  | ≥ 4.5% |  | ≥ 4%
Undercapitalized |  | < 8% |  | < 6% |  | < 4.5% |  | < 4%
Significantly undercapitalized |  | < 6% |  | < 4% |  | < 3.0% |  | < 3%
Critically undercapitalized |  | Tangible Equity/Total Assets ≤ 2%

An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of any dividend) or paying any management fee to its parent holding company, if the depository institution would thereafter be “undercapitalized”. “Undercapitalized” institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”. “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets, cessation of receipt of deposits from correspondent banks and/or restrictions on interest rates paid on deposits. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator. The FDIA also permits only “well capitalized” insured depository institutions to accept brokered deposits, but an “adequately capitalized” institution may apply to the FDIC for a waiver of this restriction.
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Consumer Financial Protection Bureau Supervision
The Dodd-Frank Act established the CFPB, which has the authority to implement, examine and enforce compliance with federal consumer financial laws that apply to banking institutions and certain other companies. The CFPB has exclusive authority to examine insured depository institutions with assets exceeding $10 billion (such as the Bank) and their affiliates and may also take enforcement action. The CFPB is focused on:

• | risks to consumers and compliance with federal consumer financial laws when it evaluates the policies and practices of a financial institution;

• | unfair, deceptive, or abusive acts or practices, which the Dodd-Frank Act empowers the CFPB to prevent through rulemaking, enforcement and examination;

• | rulemaking to implement various federal consumer statutes such as the Home Mortgage Disclosure Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Electronic Fund Transfer Act, Equal Credit Opportunity Act and Fair Credit Billing Act; and

• | the markets in which firms operate and risks to consumers posed by activities in those markets.

The statutes and regulations that the CFPB enforces mandate certain disclosure and other requirements, and regulate the manner in which financial institutions must deal with consumers when taking deposits, making loans, collecting payments on loans and providing other services. Failure to comply with these laws can subject the Bank to various penalties, including, but not limited to, enforcement actions, injunctions, fines or criminal penalties, punitive damages or restitution to consumers, and the loss of certain contractual rights. The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.
Federal Home Loan Bank and the Federal Reserve’s Reserve Requirements
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of San Francisco. As a FHLB member, the Bank is required to own a certain amount of capital stock in the FHLB. The Bank may also access the FHLB for both short-term and long-term secured credit.
The Federal Reserve requires all depository institutions to maintain reserves at specified levels against their transaction accounts either in the form of vault cash or an interest-bearing account at the Federal Reserve Bank, or a pass-through account as defined by the Federal Reserve. The Bank is also a member bank and stockholder of the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, 2019, the Bank was in compliance with these requirements.
Dividends and Other Transfers of Funds
The principal source of income of East West is dividends received from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends. In addition, the banking agencies have an authority to prohibit or limit the Bank from paying dividends, depending upon the Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Furthermore, under the federal PCA regulations, the Federal Reserve or FDIC may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized” or below. It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only if the organization’s net income available to common stockholders over the past year has been sufficient to fully fund the dividends, and if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine the company’s ability to be a financial source of strength to its banking subsidiaries. The Federal Reserve requires bank holding companies to continuously review their dividend policy in light of their organizations’ financial condition and compliance with regulatory capital requirements, and has discouraged payment ratios that are at maximum allowable levels, unless both asset quality and capital are very strong.
11

Transactions with Affiliates and Insiders
Pursuant to Sections 23A and 23B of the Federal Reserve Act, as implemented by the Federal Reserve’s Regulation W, banks are subject to restrictions that strictly limit their ability to engage in transactions with their affiliates, including their parent bank holding companies. Regulations promulgated by the Federal Reserve limit the types, terms and amounts of these transactions and generally require the transactions to be on an arm's-length basis. In general, these regulations require that “covered transactions” typically transactions that create credit risk for a bank between a subsidiary bank and any one affiliate (e.g., its parent company or the non-bank subsidiaries of the bank holding company) are limited to 10% of the subsidiary bank's capital and surplus and, with respect to the aggregate of all covered transactions with all affiliates, the limit is 20% of the subsidiary bank's capital and surplus. The Dodd-Frank Act treats derivative transactions resulting in credit exposure to an affiliate as covered transactions. In addition, East West and other affiliates may not borrow from, or enter into other credit transactions with the Bank or its operating subsidiaries, unless the loans or other credit transactions are secured by specified amounts of collateral. In addition, the Volcker Rule under the Dodd-Frank Act establishes certain prohibitions, restrictions and requirements (known as “Super 23A” and “Super 23B”) on transactions between a covered fund and a banking entity that serves as an investment manager, investment adviser, organizer and offeror, or sponsor with respect to that covered fund, regardless of whether the banking entity has an ownership interest in the fund.
Federal law also limits a bank's authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. The terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank's capital.
Community Reinvestment Act
Under the terms of the CRA as implemented by Federal Reserve regulations, an insured depository institution has a continuing and affirmative obligation to help serve the credit needs of its communities, including the extension of credit to low to moderate-income neighborhoods. When evaluating a bank’s performance under the applicable performance criteria, the FDIC assigns a rating of “outstanding”, “satisfactory”, “needs to improve” or “substantial noncompliance”. The Federal Reserve periodically evaluates the CRA performance of state member banks and takes this performance into account when reviewing applications to expand branches, relocate, add subsidiaries and affiliates, expand into new financial activities and merge with or purchase other financial institutions. Unsatisfactory CRA performance may result in the denial of such applications.
FDIC Deposit Insurance Assessments
The FDIC insures the Bank’s customer deposits through the DIF up to $250,000 for each depositor, per FDIC-insured bank, per ownership category. The DIF is funded mainly through quarterly assessments on member banks. The Dodd-Frank Act revised the FDIC's fund management authority by setting requirements for the Designated Reserve Ratio (reserve ratio or “DRR”) that the DIF must meet and redefining the assessment base, which is used to calculate banks' quarterly assessments. The reserve ratio is the DIF balance divided by estimated insured deposits. The Bank’s DIF quarterly assessment is calculated by multiplying its assessment base, which is defined as the average consolidated total assets less the average tangible equity of the Bank by the applicable assessment rate. The initial base assessment rate is assigned based on an institution’s capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk ratings, certain financial measures to assess an institution’s ability to withstand asset related stress and funding related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the Bank’s failure. Assessment rates are subject to adjustment from the initial base assessment rate.
In addition to the quarterly assessment, the Bank has in the past been required to pay a quarterly surcharge, along with many other banks. The Dodd-Frank Act established a minimum DRR of 1.35% and required that the FDIC return the reserve ratio to that level by September 30, 2020. In order to do so, the FDIC in 2016 required insured depository institutions with $10 billion or more in total assets, such as the Bank, to pay a quarterly surcharge equal to an annual rate of 4.5 basis points applied to the Bank’s assessment base (with certain adjustments), in addition to regular assessments. The DRR first reached 1.36% in September 2018 which exceeded the statutory required minimum of 1.35%. The temporary surcharge imposed on large banks was lifted on October 1, 2018. As of December 31, 2019, the DRR was 1.41%. The FDIA requires the FDIC's Board to set a target or DRR for the DIF annually. The FDIC views the 2.0% DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises. The FDIC has adopted a set of progressively lower assessment rates when the reserve ratios exceeds 2.0% and 2.5%.
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The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound, that the institution has engaged in unsafe or unsound practices, or has violated any applicable rule, regulation, condition, or order imposed by the FDIC.
Anti-Money Laundering and Office of Foreign Assets Control Regulation
The Bank Secrecy Act (“BSA”) and its implementing regulations and parallel requirements of the federal banking regulators require the Bank to maintain a risk-based Anti-Money Laundering (“AML”) program reasonably designed to prevent and detect money laundering and terrorist financing and to comply with the recordkeeping and reporting requirements of the BSA, including the requirement to report suspicious activities. The Federal Reserve expects that the Bank will have an effective governance structure for the program which includes effective oversight by our Board of Directors and management. The program must include, at a minimum, a designated compliance officer, written policies, procedures and internal controls, training of appropriate personnel, and independent testing of the program and risk-based customer due diligence procedures. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and the federal banking agencies continue to issue regulations and guidance with respect to the application and requirements of the BSA and their expectations for effective AML programs. Banking regulators also examine banks for compliance with regulations administered by the Office of Foreign Assets Control (“OFAC”) for economic sanctions against targeted foreign countries, nationals and others. Failure of a financial institution to maintain and implement adequate BSA/AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.
Privacy and Cybersecurity
Several Federal statutes and regulations require state nonmember banks (and other insured depository institutions) to take several steps to protect nonpublic consumer financial information. The Bank has prepared a privacy policy, which it must disclose to consumers annually. In some cases, the Bank must obtain a consumer's consent before sharing information with an unaffiliated third party, and the Bank must allow a consumer to opt out of the Bank's sharing of information with its affiliates for marketing and certain other purposes. Additional conditions come into play in the Bank's information exchanges with credit reporting agencies. The Bank's privacy practices and the effectiveness of its systems to protect consumer privacy are one of the subjects covered in the Federal Reserve’s periodic compliance examinations.
Consumer data privacy and data protection are also the subject of state laws. For example, on January 1, 2020, the Bank became subject to the California Consumer Privacy Act (“CCPA”). This statute grants consumers several rights, including the right to request disclosure of information collected about them and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), and the right to opt out of the sale of their personal information. However, a consumer does not have these rights with respect to information that is collected, processed, sold, or disclosed pursuant to the GLBA. The California Attorney General has proposed but not yet finalized regulations to implement the CCPA.
The Federal Reserve pays close attention to the cybersecurity practices of state nonmember banks and their holding companies and affiliates. The interagency council of the agencies, the Federal Financial Institutions Examination Council, has issued several policy statements and other guidance for banks as new cybersecurity threats arise. FFIEC has recently focused on such matters as compromised customer credentials, cyber resilience and business continuity planning. Examinations by the banking agencies now include review of an institution’s information technology and its ability to thwart or mitigate cyber attacks.
Future Legislation and Regulation
From time to time, legislators, presidential administrations and regulators may enact rules, laws, and policies to regulate the financial services industry and public companies. Further legislative changes and additional regulations may change the Company’s operating environment in substantial and unpredictable ways. Such legislation and regulations could increase the cost of conducting business, impede the efficiency of the internal business processes, and restrict or expand the activities in which the Company may engage. The Company cannot predict whether future legislative proposals will be enacted and, if enacted, the impact they would have on the business strategy, results of operations or financial condition of the Company.
Employees
As of December 31, 2019, the Company had approximately 3,300 full-time equivalent employees. None of the Company’s employees are subject to a collective bargaining agreement.
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Available Information
The Company’s website is https://www.eastwestbank.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and other filings with the SEC are available free of charge at http://investor.eastwestbank.com under the heading “SEC Filings”, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These reports are also available for free on the SEC’s website at http://www.sec.gov. In addition, the Company’s Code of Conduct, Corporate Governance Guidelines, charters of the Audit Committee, Compensation Committee, Executive Committee, Risk Oversight Committee and Nominating/Corporate Governance Committee, and other corporate governance materials are available on the Investor Relations section of the Company’s website. The information contained on the Company’s website as referenced in this report is not part of this report.
Shareholders may also request a copy of any of the above-referenced reports and corporate governance documents free of charge by writing to: Investor Relations, East West Bancorp, Inc., 135 N. Los Robles Avenue, 7th Floor, Pasadena, California 91101; by calling (626) 768-6000; or by sending an e-mail to InvestorRelations@eastwestbank.com.
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ITEM 1A. RISK FACTORS
In the course of conducting the Company’s businesses, the Company is exposed to a variety of risks, some of which are inherent in the financial services industry and others which are more specific to the Company’s businesses. The Company’s Enterprise Risk Management (“ERM”) program incorporates risk management throughout the organization in identifying, managing, monitoring, and reporting risks. Our ERM program identifies EWBC’s major risk categories as market risk, capital and liquidity risks, credit risk, operational risk, regulatory, compliance and legal risks, accounting and tax risks, strategic, and reputational risks. The ERM is comprised of senior management of the Company and is headed by the Chief Risk Officer.
The discussion below addresses the most significant factors, of which we are currently aware, that could have a material and adverse effect on our businesses, results of operations and financial condition. These risks and uncertainties should not be considered a complete discussion of all the risks and uncertainties the Company may face.
Market Risks
Unfavorable general economic, political or industry conditions, either domestically or internationally, may adversely affect our business and operating results. Our businesses and results of operations are affected by the financial markets and general economic conditions in the U.S. and Greater China, including factors such as the level and volatility of short-term and long-term interest rates, inflation, deflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, fluctuations in both debt and equity capital markets and currencies, liquidity of the global financial markets, availability and cost of capital and credit, investor sentiment and confidence in the financial markets, and sustainability of economic growth in the U.S. and Greater China. The deterioration of any of these conditions could adversely affect our consumer and commercial businesses, our securities and derivatives portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels and liquidity, and our results of operations. In addition, because the Company’s operations and the collateral securing its real estate lending portfolio are concentrated in Northern and Southern California, the Company may be particularly susceptible to the adverse economic conditions in the state of California. Any unfavorable changes in the economic and market conditions could lead to the following risks:

• | the process the Company uses to estimate losses inherent in the Company’s credit exposure requires difficult, subjective and complex judgments, including consideration of how these economic conditions might impair the ability of the borrowers to repay their loans. The level of uncertainty concerning economic conditions may adversely affect the accuracy of the Company’s estimates of losses inherent in the Company’s credit exposure which may, in turn, adversely impact the Company’s operating results and financial condition;

• | the Company’s commercial and residential borrowers may not be able to make timely repayments of their loans, or a decrease in the value of real estate collateral securing the payment of such loans could result in credit losses, delinquencies, foreclosures and customer bankruptcies, any of which could have a material adverse effect on the Company’s operating results;

• | a decrease in the demand for loans and other products and services;

• | a decrease in deposit balances;

• | future disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations, may result in an inability to borrow on favorable terms or at all from other financial institutions;

• | the value of the AFS investment securities portfolio that the Company holds may be adversely affected by defaults by debtors; and

• | a loss of confidence in the financial services industry, our market sector and the equity markets by investors, placing pressure on the Company’s stock price.

Changes in the U.S. and Greater China trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact the Company’s business, financial condition and results of operations. There has been ongoing discussion regarding potential changes to trade policies, legislation, treaties and tariffs between the U.S. and Greater China. Tariffs and retaliatory tariffs have been imposed and proposed. Changes in tariffs, retaliatory tariffs or other trade restrictions on products and materials that the Company’s customers import or export could cause the prices of their products to increase and possibly reduce demand and hence may negatively impact the Company’s customer margins and their ability to service debt. The Company may also experience a decrease in the demand for loans and other financial products, or experience a deterioration in the credit quality of the loans extended to the customers whose industry sectors that are most sensitive to the tariffs.
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A portion of the Company’s loan portfolio is secured by real estate and thus the Company has a higher degree of risk from a downturn in real estate markets. Because many of the Company’s loans are secured by real estate, a decline in real estate markets could impact the Company’s business and financial condition. Real estate values and real estate markets are generally affected by changes in general economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and natural disasters, such as wildfires and earthquakes, which are particular to California, where a significant portion of the Company’s real estate collateral is located. If real estate values decline, the value of real estate collateral securing the Company’s loans could be significantly reduced. The Company’s ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and the Company would be more likely to suffer losses on defaulted loans. Furthermore, CRE and multifamily loans typically involve large balances to single borrowers or groups of related borrowers. Since payments on these loans are often dependent on the successful operation or management of the properties, as well as the business and financial condition of the borrower, repayment of such loans may be subject to adverse conditions in the real estate market, adverse economic conditions, or changes in applicable government regulations. Borrowers’ inability to repay such loans may have an adverse effect on the Company’s businesses, results of operations and financial condition.
The Company’s businesses are subject to interest rate risk and variations in interest rates may have a material adverse effect on the Company’s financial performance. Our financial results depend substantially on net interest income, which is the difference between the interest income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Interest-earning assets primarily include loans extended, securities held in our investment portfolio and excess cash held to manage short-term liquidity. We fund our assets using deposits and borrowings. While we offer interest-bearing deposit products, a portion of our deposit balances are from noninterest-bearing products. Overall, the interest rates we receive on our interest-earning assets and pay on our interest-bearing liabilities could be affected by a variety of factors, including market interest rate changes, competition, regulatory requirements and a change in our product mix. Changes in key variable market interest rates such as the Federal Funds, National Prime, LIBOR or Treasury rates generally impact our interest rate spread. Because of the differences in maturities and repricing characteristics of the Company’s interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Increases in interest rates may result in a change in the mix of noninterest and interest-bearing deposit accounts. Rising interest rates may cause our funding costs to increase at a faster pace than the yield we earn on our assets, ultimately causing our net interest margin to decrease. Higher interest rates may also result in lower mortgage production income and increased charge-offs in certain segments of the loan portfolio, such as CRE and home equity. In contrast, declining interest rates would increase the Bank’s lending capacity, decrease funding cost, increase prepayments of loans and mortgage related securities, as borrowers refinance to reduce borrowing costs. Accordingly, changes in levels of interest rates could materially and adversely affect our net interest income, net interest margin, cost of deposits, loan origination volume, average loan portfolio balance, asset quality, liquidity and overall profitability.
Reforms to and uncertainty regarding LIBOR may adversely affect our business. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it will no longer compel banks to submit rates for the calculation of LIBOR by the end of 2021. This indicates that LIBOR will be discontinued on December 31, 2021. In June 2017, U.S. Federal Reserve Bank's Alternative Reference Rates Committee (“ARRC”) selected the SOFR as the preferred alternative rate to LIBOR. SOFR differs from LIBOR in two respects: SOFR is a single overnight rate, while LIBOR includes rates of several tenors; and SOFR is deemed a credit risk-free rate while LIBOR incorporates an evaluation of credit risk. The ARRC and other entities intend for the transition to be economically neutral. The Federal Reserve Bank of New York has proposed a methodology for generating SOFRs of three different tenors and plans to publish an index on a daily basis beginning in the first half of 2020. The ARRC has developed a methodology for adjusting SOFR to reflect the risk considerations that underlie LIBOR. On July 12, 2019, the SEC issued a statement on LIBOR transition, indicating the significant impact that the discontinuation of LIBOR could have on financial markets and market participants. Since the volume of our products that are indexed to LIBOR is significant, the transition, if not sufficiently planned for and managed by our cross-functional teams, could adversely affect the Company’s financial condition and results of operations. Although implementation of the SOFR benchmark is intended to have minimal economic effect on the parties to a LIBOR-based contract, the transition from LIBOR to a new benchmark rate could result in significant operational, systems, increased compliance, legal and operational costs. This transition may also result in our customers challenging the determination of their interest payments or entering into fewer transactions or postponing their financing needs, which could reduce the Company’s revenue and adversely impact our business. In addition, the uncertainty regarding the future of LIBOR as well as the transition from LIBOR to another benchmark rate or rates could have adverse impacts on floating-rate obligations, loans, deposits, derivatives, and other financial instruments that currently use LIBOR as a benchmark rate and, ultimately, adversely affect the Company’s financial condition and results of operations.
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The monetary policies of the federal government and its agencies could have a material adverse effect on our earnings. The Federal Reserve Board regulates the supply of money and credit in the U.S. Its policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin. They can also materially decrease the value of financial assets we hold. Federal Reserve policies may also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans, or could adversely create asset bubbles which result from prolonged periods of accommodative policy. This, in turn, may result in volatile markets and rapidly declining collateral values. Changes in Federal Reserve policies are beyond our control and difficult to predict. Consequently, the impact of these changes on our business and results of operations is difficult to predict.
We face risks associated with international operations. A substantial number of our customers have economic and cultural ties to Asia. The Bank’s international presence includes five full-service branches in Greater China, located in Hong Kong, Shanghai, Shantou and Shenzhen. The Bank has two branches in Shanghai, including one in the Shanghai Pilot Free Trade Zone. The Bank also has four representative offices in Greater China located in Beijing, Chongqing, Guangzhou and Xiamen. Our efforts to expand our business in Greater China carries certain risks, including risks arising from the uncertainty regarding our ability to generate revenues from foreign operations, risks associated with leveraging and conducting business on an international basis, including among others, legal, regulatory and tax requirements and restrictions, cross-border trade restrictions or tariffs, uncertainties regarding liability, trade barriers, difficulties in staffing and managing foreign operations, political and economic risks, and financial risks including currency and payment risks. Additionally, our business could be adversely affected by the effects of a widespread outbreak of disease pandemics, including the recent outbreak of respiratory illness caused by a coronavirus first identified in Wuhan, Hubei Province, China. Any outbreak of disease pandemics, and other adverse public health developments, particularly in Asia, could have a material and adverse effect on our business operations. These could include temporary closures of our branches and offices and reduced consumer spending in the impacted regions or in the U.S., depending upon the severity, globally, which could adversely impact our operating results and the performance of loans to impacted borrowers in Greater China or in the U.S. In addition, a significant outbreak of disease pandemics in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could adversely affect our customers’ financial results. Further, volatility in the Shanghai and Hong Kong stock exchanges and/or a potential fall in real estate prices in China, among other things, may negatively impact asset values and the profitability and liquidity of the Company’s customers operating in this region. These risks could adversely affect the success of our international operations and could have a material adverse effect on our overall business, results of operations and financial condition. In addition, we face risks that our employees and affiliates may fail to comply with applicable laws and regulations governing our international operations, including the U.S. Foreign Corrupt Practices Act, anti-corruption laws, and other foreign laws and regulations. Failure to comply with such laws and regulations could, among other things, result in enforcement actions and fines against us, as well as limitations on our conduct, any of which could have a material adverse effect on our businesses, results of operations and financial condition.
The Company is subject to fluctuations in foreign currency exchange rates. The Company’s foreign currency translation exposure relates primarily to its China subsidiary that has its functional currency denominated in Chinese Renminbi (“RMB”). In addition, as the Company continues to expand its businesses in China and Hong Kong, certain transactions are conducted in currencies other than the U.S. Dollar (“USD”). Although the Company has entered into derivative instruments to offset the impact of the foreign exchange fluctuations, given the volatility of exchange rates, there is no assurance that the Company will be able to effectively manage foreign currency translation risk. Fluctuations in foreign currency exchange rates could have a material unfavorable impact on the Company’s net income, therefore adversely affecting the Company’s business, results of operations and financial condition.
Capital and Liquidity Risks
As a regulated entity, we are subject to capital requirements, and a failure to meet these standards could adversely affect our financial condition. The Company and the Bank are subject to certain capital and liquidity rules, including the Basel III Capital Rules, which establish the minimum capital adequacy requirements and may require us to increase our regulatory capital or liquidity targets, increase regulatory capital ratios, or change how we calculate regulatory capital. We may be required to increase our capital levels, even in the absence of actual adverse economic conditions or forecasts, and enhance capital planning based on hypothetical future adverse economic scenarios. As of January 1, 2020, we met the requirements of the Basel III Capital Rules, including the capital conservation buffer. Compliance with these capital requirements may limit capital-intensive operations and increase operational costs, and we may be limited or prohibited from distributing dividends or repurchasing stocks. This could adversely affect our ability to expand or maintain present business levels, which may adversely affect our businesses, results of operations and financial condition. Additional information on the regulatory capital requirements applicable to the Company and the Bank is set forth in Item 1. Business — Supervision and Regulation — Capital Requirements in this Form 10-K.
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The Company’s dependence on dividends from the Bank could affect the Company’s liquidity and ability to pay dividends. East West is dependent on the Bank for dividends, distributions and other payments. Our principal source of cash flows, including cash flows to pay dividends to our stockholders and principal and interest on our outstanding debt, is dividend income from the Bank. The ability of the Bank to pay dividends to East West is limited by federal and California law. Subject to the Bank meeting or exceeding regulatory capital requirements, regulatory approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the sum of the Bank’s net income for that year and its retained earnings for the preceding two years. Federal law also prohibits the Bank from paying dividends that would be greater than its undivided profits. In addition, Federal Reserve guidance sets forth the supervisory expectation that bank holding companies will inform and consult with the Federal Reserve in advance of issuing a dividend that exceeds earnings for the quarter and should not pay dividends in a rolling four quarter period in an amount that exceeds net income for the period.
The Company is subject to liquidity risk, which could negatively affect the Company’s funding levels. Market conditions or other events could negatively affect the level of or cost of funding, which in turn could affect the Company’s ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences. Although the Company has implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on the Company’s businesses, results of operations and financial condition. If the cost effectiveness or the availability of supply in the credit markets is reduced for a prolonged period of time, the Company’s funding needs may require the Company to access funding and manage liquidity by other means. These alternatives may include generating client deposits, securitizing or selling loans, and further managing loan growth and investment opportunities. These alternative means of funding may not be available under stressed market conditions or realized in a timely fashion.
Any downgrades in our credit ratings could have a material adverse effect on our liquidity, cost of funding, cash flows, results of operations and financial condition. Credit rating agencies regularly evaluate us, and their ratings are based on a number of factors, including our financial strength, capital adequacy, liquidity, asset quality and ability to generate earnings. Some of these factors are not entirely within our control, such as conditions affecting the financial services industry. Severe downgrades in credit ratings could impact our business and reduce the Company’s profitability in different ways, including a reduction in the Company’s access to capital markets, triggering additional collateral or funding obligations which could negatively affect our liquidity. In addition, our counterparties, as well as our clients, rely on our financial strength and stability and evaluate the risks of doing business with us. If we experience a decline in our credit rating, this could result in a decrease in the number of counterparties and clients who may be willing to transact with us. Our borrowing costs may also be affected by various external factors, including market volatility and concerns or perceptions about the financial services industry. There can be no assurance that we can maintain our credit ratings nor that they will be lowered in the future.
Credit Risks
The Company’s allowance for credit losses level may not be adequate to cover actual losses. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we maintain an allowance for loan losses to provide for loan defaults and non-performance, and an allowance for unfunded credit commitments which, when combined, are referred to as the allowance for credit losses. Our allowance for loan losses is based on our evaluation of risks associated with our loans held-for-investment portfolio, including historical loss experience, expected loss calculations, delinquencies, performing status, the size and composition of the loan portfolio, economic conditions, and concentrations within the portfolio. The allowance estimation process requires subjective and complex judgments, including analysis of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. Current economic conditions in the U.S. and in the international markets could deteriorate, which could result in, among other things, greater than expected deterioration in credit quality of our loan portfolio or in the value of collateral securing these loans. Our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results. The amount of future losses is influenced by changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates.
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Additionally, in order to maximize the collection of loan balances, we sometimes modify loan terms when there is a reasonable chance that an appropriate modification would allow the borrower to continue servicing the debt. If such modifications ultimately are less effective at mitigating loan losses than we expect, we may incur losses in excess of the specific amount of allowance for loan losses associated with a modified loan, and this would result in additional provision for loan losses. In addition, we establish a reserve for losses associated with our unfunded credit commitments. The level of the allowance for unfunded credit commitments is determined by following a methodology similar to that used to establish our allowance for loan losses in our loans held-for-investment portfolio. There can be no assurance that our allowance for unfunded credit commitments will be adequate to provide for the actual losses associated with our unfunded credit commitments. An increase in the allowance for unfunded credit commitments in any period may result in a charge to earnings.
We may be subject to increased credit risk and higher credit losses to the extent that our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. Our credit risk and credit losses can increase if our loans are concentrated in borrowers affected by the same or similar economic conditions in the markets in which we operate or elsewhere, which could result in materially higher credit losses. For example, the Bank has a concentration of real estate loans in California. Potential deterioration in the California real estate market could result in additional loan charge-offs and provision for loan losses, which could have a material adverse effect on the Company’s business, results of operations and financial condition. If any particular industry or market sector were to experience economic difficulties, loan collectability from customers operating in those industries or sectors may differ from what we expected, which could have a material adverse impact on our results of operations and financial condition.
Operational Risks
A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely impact our results of operations, financial condition, cash flows, and liquidity, as well as cause reputational harm. The potential for operational risk exposure exists throughout our organization and from our interactions with third parties. Our operational and security systems, infrastructure, including our computer systems, network infrastructure, data management and internal processes, as well as those of third parties, are integral to our performance. In addition, we rely on our employees and third parties in our ongoing operations, who may, as a result of human error or malfeasance or failure or breach of third-party systems or infrastructure, expose us to risk. We have taken measures to implement backup systems and safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to the third parties with whom we interact. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting, data processing, backup or other operating or security systems and infrastructure may fail to operate properly or may become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control which could adversely affect our ability to process transactions or provide certain services. There could be electrical, telecommunications or other major physical infrastructure outages, natural disasters such as wildfires, disease pandemics, earthquakes, tornadoes, hurricanes and floods, and events arising from local or larger scale political or social matters, including terrorist acts. We continuously update these systems to support our operations and growth, and this entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact our results of operations, financial condition, cash flows, and liquidity, and may result in loss of confidence, significant litigation exposure and harm to our reputation.
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A cyber-attack, information or security breach, or a technology failure of our systems or of a third party’s systems could adversely affect our ability to conduct businesses, manage our exposure to risk or expand our businesses. This could also result in the misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, financial condition, cash flows and liquidity, as well as result in reputational harm. The Company offers various internet-based services to its clients, including online banking services. The secure transmission of confidential information over the internet is essential in maintaining our clients’ confidence in the Company’s online services. In addition, our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact. Cyber security risks, including ransomware and malware attacks, for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunication technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states and other external parties. Our businesses rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. We rely on digital technologies, computer, database and email systems, software and networks. Notwithstanding our defensive systems and processes that are designed to prevent security breaches and periodically test the Company’s security. The Company utilizes combination of preventative and detective controls such as Firewalls, Intrusion Detection Systems, Data Loss Prevention, anti-malware, Endpoint Detection and Response solutions to safeguard against cyber-attacks. There is no assurance that all of our security measures will be effective, especially as the threat from cyber-attacks is continuous and severe, attacks are becoming more sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. Failure to mitigate breaches of security, or to comply with frequent imposition of increasingly demanding new and changing industry standards and regulatory requirements, could result in violation of applicable privacy laws, reputational damage, regulatory fines, litigation exposure, increase security compliance costs, affect the Company’s ability to offer and grow the online services, and could have an adverse effect on the Company’s businesses, results of operations and financial condition. We have not experienced any known attacks on our information technology systems that have resulted in any material system failure, incident or security breach to date.
Failure to keep pace with technological change could adversely affect the Company’s businesses. The Company may face risks associated with the ability to utilize information technology systems to support our operations effectively. The financial services industry is continuously undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s businesses and, in turn, the Company’s results of operations and financial condition. In addition, if we do not implement systems effectively or if our outsourcing business partners do not perform their functions properly, there could be an adverse effect on us. There can be no assurance that we will be able to effectively maintain or improve our systems and processes, or utilize outsourced talent, to meet our business needs efficiently. Any such failure could adversely affect our businesses, results of operations, financial condition, and reputation.
Natural disasters and geopolitical events beyond the Company’s control could adversely affect the Company. Natural disasters such as wildfires, earthquakes, extreme weather conditions, hurricanes, floods, disease pandemics and other acts of nature and geopolitical events involving political unrest, terrorism or military conflict could adversely affect the Company’s business operations and those of the Company’s customers and cause substantial damage and loss to real and personal property. For example, California, in which the Company’s operations and the collateral securing its real estate lending portfolio are concentrated, contains active earthquake zones and have been subject to numerous devastating wildfires. These natural disasters and geopolitical events could impair the borrowers’ ability to service their loans, decrease the level and duration of deposits by customers, erode the value of loan collateral, and result in an increase in the amount of nonperforming assets, net charge-offs, and provision for loan losses, which could adversely affect the Company’s businesses, results of operations and financial condition.
The actions and soundness of other financial institutions could affect the Company. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company executes transactions with various counterparties in the financial industry, including brokers and dealers, commercial banks and investment banks. Defaults by financial services institutions and uncertainty in the financial services industry in general could lead to market-wide liquidity problems and may expose the Company to credit risk in the event of default of its counterparties or clients. Further, the Company’s credit risk may increase when the underlying collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to the Company. Any such losses could materially and adversely affect the Company’s businesses, results of operations and financial condition.
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The Company’s controls and procedures could fail or be circumvented. Management regularly reviews and updates the Company’s internal controls, reporting controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, but not absolute, assurances of the effectiveness of these systems and controls, and that the objectives of these controls have been met. Any failure or circumvention of the Company’s controls and procedures, and any failure to comply with regulations related to controls and procedures could adversely affect the Company’s businesses, results of operations and financial condition.
The Company is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Company’s prospects. Competition for qualified personnel in the banking industry is intense and there is a limited number of qualified persons with knowledge of, and experience in, the regional banking industry, especially in the West Coast market. The process of recruiting personnel with the combination of skills and attributes required to carry out the Company’s strategies is often lengthy. The Company’s success depends, to a significant degree, upon its ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel, as well as upon the continued contributions of its management and personnel. In particular, the Company’s success has been and continues to be highly dependent upon the abilities of certain key executives.
We face strong competition in the financial services industry and we could lose business or suffer margin declines as a result. The Company operates in a highly competitive environment. The Company conducts the majority of its operations in California. Our competitors include commercial banks, savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other regional, national, and global financial institutions. Some of the major competitors include multinational financial service companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous locations and mount extensive promotional and advertising campaigns. Areas of competition include interest rates on loans and deposits, customer services, and a range of price and quality of products and services, including new technology-driven products and services. Failure to attract and retain banking customers may adversely impact the Company’s loan and deposit growth.
The Company has engaged in and may continue to engage in further expansion through acquisitions, which could negatively affect the Company’s businesses and earnings. There are risks associated with expanding through acquisitions. These risks include, among others, incorrectly assessing the asset quality of a bank acquired in a particular transaction, encountering greater than anticipated costs in integrating acquired businesses, facing resistance from customers or employees, and being unable to profitably deploy assets acquired in the transaction. Additional country or region-specific risks are associated with transactions outside the U.S., including in Greater China. To the extent the Company issues capital stock in connection with additional transactions, these transactions and related stock issuances may have a dilutive effect on earnings per share (“EPS”) and share ownership.
Regulatory, Compliance and Legal Risks
Changes in current and future legislation and regulation may require the Company to change its business practices, increase costs, limit the Company’s ability to make investments and generate revenue, or otherwise adversely affect business operations and/or competitiveness. EWBC is subject to extensive regulation under federal and state laws, as well as supervisions and examinations by the DBO, FDIC, Federal Reserve, FHLB, SEC, CFPB, U.S. and State Attorneys General, and other government bodies. Our overseas operations in Greater China are subject to extensive regulation under the laws of those jurisdictions as well as supervision and examinations by financial regulators for those jurisdictions. Moreover, regulation of the financial services industry continues to undergo major changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies could affect the manner in which EWBC conducts business. In addition, such changes could also subject us to additional costs and may limit the types of financial services and products we offer, and the investments we make.
Good standing with our regulators is of fundamental importance to the continuation and growth of our businesses given that banks operate in an extensively regulated environment under state and federal law. In the performance of their supervisory and enforcement duties, federal, state and non-U.S. regulators have significant discretion and power to initiate enforcement actions for violations of laws and regulations, and unsafe and unsound practices. Further, regulators and bank supervisors continue to exercise qualitative supervision and regulation of our industry and specific business operations and related matters. Violations of laws and regulations or deemed deficiencies in risk management or other qualitative practices also may be incorporated into the Company’s bank supervisory ratings. A downgrade in these ratings, or other regulatory actions and settlements could limit the Company’s ability to pursue acquisitions or conduct other expansionary activities and require new or additional regulatory approvals before engaging in certain other business activities.
21

Failure to comply with laws, regulations or policies could result in civil or criminal sanctions by state, federal and non-U.S. agencies, the loss of FDIC insurance, the revocation of our banking charter, civil or criminal monetary penalties and/or reputational damage, which could have a material adverse impact on the Company’s businesses, results of operations and financial condition. We continue to make adjustments to our business and operations, capital, policies, procedures and controls to comply with these laws and regulations, final rulemaking, and interpretations from the regulatory authorities. See Item 1. Business — Supervision and Regulation for more information about the regulations to which we are subject.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The BSA, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective AML program and file suspicious activity and currency transaction reports when appropriate. We are also required to ensure our third party vendors adhere to the same laws and regulations. FinCEN is authorized to implement, administer, and enforce compliance with the BSA and associated regulation. It has the authority to impose significant civil money penalties for violations of those requirements and has been engaging in coordinated enforcement efforts with the state and federal banking regulators, as well as the Department of Justice, CFPB, Drug Enforcement Administration, and the Internal Revenue Service (“IRS”).
We are also required to comply with U.S. economic and trade sanctions administered by OFAC regarding, among other things, the prohibition of transacting business with, and the need to freeze assets of, certain persons and organizations identified as a threat to the national security, foreign policy or economy of the U.S. A violation of any anti-corruption or AML laws and regulations could subject us to significant civil and criminal penalties as well as regulatory enforcement actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including any acquisition plans. Any violation also could damage our reputation. Any of these results could have a material adverse effect on our business, results of operations, financial condition and future prospects.
We are subject to significant financial and reputational risk arising from lawsuits and other legal proceedings. We face significant risk from lawsuits and claims brought by consumers, borrowers and counterparties. These actions include claims for monetary damages, penalties and fines, as well as demands for injunctive relief. If these lawsuits or claims, whether founded or unfounded, are not resolved in a favorable manner to us, they could lead to significant financial obligations for the Company, as well as restrictions or changes to how we conduct our businesses. Although we establish accruals for legal matters when and as required by GAAP and certain expenses and liabilities in connection with such matters may or may not be covered by insurance, the amount of loss ultimately incurred in relation to those matters may be substantially higher than the amounts accrued and/or insured. Substantial legal liability could adversely affect our business, financial condition, results of operations, and reputation. In addition, we may suffer significant reputational harm as a result of lawsuits and claims, adversely impacting our ability to attract and retain customers and investors. Moreover, it may be difficult to predict the outcome of certain legal proceedings, which may present additional uncertainty to our business prospects.
Accounting and Tax Risks
Changes in accounting standards or changes in how the accounting standards are interpreted or applied could materially impact the Company’s financial statements. The preparation of the Company’s financial statements is based on accounting standards established by the FASB and the SEC. From time to time, these accounting standards may change and such changes may have a material impact on the Company’s financial statements. In addition, the FASB, SEC, banking regulators and the Company’s independent registered public accounting firm may amend or reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact how we prepare and report the Company’s financial statements. In some cases, the Company could be required to adopt a new or revised standard retroactively, potentially resulting in restatements to the prior period’s financial statements. ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) issued by the FASB in June 2016, referred to as CECL, requires the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The Company adopted ASU 2016-13 on January 1, 2020. For more information related to the impacts of ASU 2016-13, see Note 1 — Summary of Significant Accounting Policies — Recent Accounting Pronouncements — Standards Adopted in 2020 to the Consolidated Financial Statements in this Form 10-K.
22

The Company’s consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future. Pursuant to GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, reserves related to litigation and the fair value of certain assets and liabilities, among other items. Accounting policies related to these estimates and assumptions are critical because they require management to make subjective and complex judgments about matters that are inherently uncertain. If these estimates and assumptions are incorrect, we may be required to restate prior-period financial statements. For a description of these policies, refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K.
Changes to fiscal policies and tax legislation may adversely affect our business. From time to time, the U.S. government may introduce new fiscal policies and tax laws or make substantial changes to existing tax legislation. These changes could have a material impact on the Company’s businesses, results of operations and financial condition. The Company’s positions or its actions taken prior to such changes, may be compromised by such changes. In addition, the Company’s actions taken in response to, or in reliance upon, such changes in the tax laws may impact our tax position in a manner that may result in adverse financial conditions. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted and made significant changes to the U.S. Internal Revenue Code. The Tax Act reformed a broad range of tax legislation affecting businesses, among other things, reducing the statutory corporate income tax rate from 35% to 21%, limiting on net interest expense deduction and accelerating expensing of investment in certain qualified property. It is possible that the U.S. government could further introduce new tax legislation or amend current tax laws that would adversely affect the Company. In addition, the President’s proposed budget, negotiations with Congress over the details of the budget, and the terms of the approved budget could create uncertainty about the U.S. economy, ultimately having an adverse effect on our business.
The Company’s investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on the Company’s results of operations. The Company invests in certain tax-advantaged investments that support qualified affordable housing projects, community development and renewable energy resources. The Company’s investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. Due diligence review is performed both prior to the initial investment and on an ongoing basis, however, there may be assessments that we failed or were unable to discover or identify in the course of performing due diligence review. The Company is subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, may fail to meet certain government compliance requirements and may not be able to be realized. The possible inability to realize these tax credits and other tax benefits may have a negative impact on the Company’s financial results. The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside the Company’s control, including changes in the applicable tax code and the ability of the projects to be completed.
Other Risks
Anti-takeover provisions could negatively impact the Company’s stockholders. Provisions of Delaware law and of the Company’s certificate of incorporation, as amended, and bylaws could make it more difficult for a third party to acquire control of the Company or could have the effect of discouraging a third party from attempting to acquire control of the Company. For example, the Company’s certificate of incorporation requires the approval of the holders of at least two-thirds of the outstanding shares of voting stock to approve certain business combinations. The Company is also subject to Section 203 of the Delaware General Corporation Law, which would make it more difficult for another party to acquire the Company without the approval of the Board of Directors. Additionally, the Company’s certificate of incorporation, as amended, authorizes the Board of Directors to issue preferred stock which could be issued as a defensive measure in response to a takeover proposal. These and other provisions could make it more difficult for a third party to acquire the Company, even if an acquisition might be in the best interest of the stockholders.
Managing reputational risk is important to attracting and maintaining customers, investors and employees. Threats to the Company’s reputation can come from many sources, including unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of the Company’s customers. The Company has policies and procedures in place to protect its reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding the Company’s businesses, employees or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.
23

The price of the Company’s common stock may be volatile or may decline. The price of the Company’s common stock may fluctuate in response to a number of factors that are outside the Company’s control. These factors include, among other things:

• | actual or anticipated quarterly fluctuations in the Company’s results of operations and financial condition;

• | changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

• | failure to meet analysts’ revenue or earnings estimates;

• | speculation in the press or investment community;

• | strategic actions by the Company or its competitors, such as acquisitions or restructurings;

• | actions by institutional stockholders;

• | addition or departure of key personnel;

• | fluctuations in the stock price and operating results of the Company’s competitors;

• | general market conditions and, in particular, developments related to market conditions in the financial services industry;

• | proposed or adopted regulatory changes or developments;

• | cyclical fluctuations;

• | trading volume of the Company’s common stock; and

• | anticipated or pending investigations, proceedings or litigation that involve or affect the Company.

Industry factors, general economic and political conditions and events, such as cyber or terrorist attacks, economic downturn or recessions, interest rate changes, credit loss trends, currency fluctuations, changes to trade policies or disease pandemics could also cause our stock price to decline regardless of our operating results. A significant decline in the Company’s stock price could result in substantial losses for stockholders.
If the Company’s goodwill was determined to be impaired, it would result in a charge against earnings and thus a reduction in stockholders’ equity. The Company tests goodwill for impairment on an annual basis, or more frequently, if necessary. Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measuring impairment, when available. Other acceptable valuation methods include present value measurements based on multiples of earnings or revenues, or similar performance measures. If the Company were to determine that the carrying amount of the goodwill exceeded its implied fair value, the Company would be required to write down the value of the goodwill on the balance sheet, adversely affecting earnings as well as capital.
24

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
East West’s corporate headquarters is located at 135 North Los Robles Avenue, Pasadena, California, an eight-story office building that it owns. The Company operates in 119 locations in the U.S. and 9 locations in Greater China. In the U.S., the Bank’s corporate headquarters and main administrative offices are located in California, and branches are located in California, Texas, New York, Washington, Georgia, Massachusetts and Nevada. In Greater China, East West’s presence includes full service branches in Hong Kong, Shanghai, Shantou and Shenzhen, and representative offices in Beijing, Chongqing, Guangzhou and Xiamen.
As of December 31, 2019, the Bank owns approximately 162 thousand square feet of property at 20 U.S. locations and leases approximately 780 thousand square feet in the remaining U.S. locations. Expiration dates for these leases range from 2020 to 2030, exclusive of renewal options. The Bank leases all of its branches and offices in Greater China, totaling approximately 84 thousand square feet. Expiration dates for these leases range from 2020 to 2022. All properties occupied by the Bank are used across all business segments and for corporate purposes. For further information concerning leases, see Note 10 — Leases to the Consolidated Financial Statements in this Form 10-K.
On an ongoing basis, the Company evaluates its current and projected space requirements and, from time to time, it may determine that certain premises or facilities are no longer necessary for its operations. The Company believes that, if necessary, it could secure alternative properties on similar terms without adversely affecting its operations.
ITEM 3. LEGAL PROCEEDINGS
See Note 15 — Commitments, Contingencies and Related Party Transactions — Litigation to the Consolidated Financial Statements in this Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25

PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders of Common Stock and Dividends
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “EWBC”. As of January 31, 2020, 145,625,565 shares of the Company’s common stock were held by 737 stockholders of record and by approximately 88,033 additional stockholders whose common stock were held for them in street name or nominee accounts.
Holders of the Company’s common stock are entitled to receive cash dividends when declared by the Company’s Board of Directors out of legally available funds. The Board of Directors presently intends to continue the policy of paying quarterly cash dividends, however, there can be no assurance as to future dividends because they are dependent on the Company’s future earnings, capital requirements and financial condition.
Securities Authorized for Issuance under Equity Compensation Plans
For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Note 16 — Stock Compensation Plans to the Consolidated Financial Statements and Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters presented elsewhere in this report, which are incorporated herein by reference.
26

Five-Year Stock Performance
The following graph and table compare the Company’s cumulative total return on its common stock with the cumulative total return of the Standard & Poor’s (“S&P”) 500 Index and the Keefe, Bruyette and Woods NASDAQ Regional Banking Index (“KRX”) over the five-year period through December 31, 2019. The S&P 500 Index is utilized as a benchmark against performance and is a commonly referenced U.S. equity benchmark consisting of leading companies from different economic sectors. The KRX is used to align EWBC with those companies of a relatively similar size. This index seeks to reflect the performance of publicly traded U.S. companies that do business as regional banks or thrifts, and is composed of 50 companies. The graph and table below assume that on December 31, 2014, $100 was invested in EWBC’s common stock, the S&P 500 Index and the KRX, and that all dividends were reinvested. Historical stock price performance shown on the graph is not necessarily indicative of future price performance. The information set forth under the heading “Five-Year Stock Performance” shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that such information to be treated as soliciting material or specifically to be incorporated by reference into a filing under the Securities Act or the Exchange Act.

|  | December 31,
Index |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019
East West Bancorp, Inc. |  | $100.00 |  | $109.40 |  | $136.60 |  | $165.80 |  | $120.50 |  | $138.00
KRX |  | $100.00 |  | $105.90 |  | $147.20 |  | $149.80 |  | $123.60 |  | $153.00
S&P 500 Index |  | $100.00 |  | $101.40 |  | $113.50 |  | $138.30 |  | $132.20 |  | $173.90

Repurchases of Equity Securities by the Issuer and Affiliated Purchasers
On July 17, 2013, the Company’s Board of Directors authorized a stock repurchase program to buy back up to $100.0 million of the Company’s common stock. The Company did not repurchase any shares under this program thereafter, including during 2019 and 2018. Although this program has no stated expiration date, the Company does not intend to repurchase any stock pursuant to this program absent further action of the Company’s Board of Directors.
27

ITEM 6. SELECTED FINANCIAL DATA
For selected financial data information, see Item 7. MD&A — Five-Year Summary of Selected Financial Data, which is incorporated herein by reference.
28

EAST WEST BANCORP, INC.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TABLE OF CONTENTS

|  |  | Page
| Overview | 30
| Five-Year Summary of Selected Financial Data | 31
| 2019 Financial Highlights | 32
| Results of Operations | 33
|  | Net Interest Income | 33
|  | Noninterest Income | 36
|  | Noninterest Expense | 38
|  | Income Taxes | 39
|  | Operating Segment Results | 41
| Balance Sheet Analysis | 44
|  | Selected Consolidated Balance Sheet Data | 44
|  | Investment Securities | 45
|  | Loan Portfolio | 48
|  | Deposits and Other Sources of Funds | 55
|  | Foreign Outstandings | 57
|  | Capital | 57
|  | Regulatory Capital and Ratios | 58
| Other Matters | 59
| Off-Balance Sheet Arrangements and Contractual Obligations | 59
|  | Off-Balance Sheet Arrangements | 59
|  | Contractual Obligations | 60
| Risk Management | 60
|  | Credit Risk Management | 61
|  | Liquidity Risk Management | 67
|  | Market Risk Management | 69
| Critical Accounting Policies and Estimates | 73
| Supplemental Information-Explanation of GAAP and Non-GAAP Financial Measures | 76

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Overview
The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of East West, 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.
Company Overview
East West is a bank holding company incorporated in Delaware on August 26, 1998 and is registered under the BHC Act. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California that has a strong focus on the financial service needs of the Chinese-American community. Through over 125 locations in the U.S. and Greater China, the Company provides a full range of consumer and commercial products and services through three business segments: Consumer and Business Banking, Commercial Banking, with the remaining operations included in Other. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is principally derived from the difference between interest earned on loans and investment securities and interest paid on deposits and other funding sources. As of December 31, 2019, the Company had $44.20 billion in assets and approximately 3,300 full-time equivalent employees. For additional information on products and services provided by the Bank, see Item 1. Business — Banking Services.
Corporate Strategy
We are committed to enhancing long-term shareholder value by executing on the fundamentals of growing loans, deposits and revenue, improving profitability, and investing for the future while managing risk, expenses and capital. Our business model is built on customer loyalty and engagement, understanding of our customers’ financial goals, and meeting our customers’ financial needs through our diverse products and services. The Company’s approach is concentrated on seeking out and deepening client relationships that meet our risk/return measures. This focus guides our decision-making across every aspect of our operations: the products we develop, the expertise we cultivate and the infrastructure we build to help our customers conduct business. We expect our relationship-focused business model to continue to generate organic growth and to expand our targeted customer bases. On an ongoing basis, we invest in technology related to critical business infrastructure and streamlining core processes, in the context of maintaining appropriate expense management. Our risk management activities are focused on ensuring that the Company identifies and manages risks to maintain safety and soundness while maximizing profitability.
30

Five-Year Summary of Selected Financial Data

($ and shares in thousands, except per share, ratio and headcount data) |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Summary of operations: |  |  |  |  |  |  |  |  |  |
Interest and dividend income |  | $ | 1,882,300 |  |  | $ | 1,651,703 |  |  | $ | 1,325,119 |  |  | $ | 1,137,481 |  |  | $ | 1,053,815 |
Interest expense |  | 414,487 |  |  | 265,195 |  |  | 140,050 |  |  | 104,843 |  |  | 103,376 |
Net interest income before provision for credit losses |  | 1,467,813 |  |  | 1,386,508 |  |  | 1,185,069 |  |  | 1,032,638 |  |  | 950,439 |
Provision for credit losses |  | 98,685 |  |  | 64,255 |  |  | 46,266 |  |  | 27,479 |  |  | 14,217 |
Net interest income after provision for credit losses |  | 1,369,128 |  |  | 1,322,253 |  |  | 1,138,803 |  |  | 1,005,159 |  |  | 936,222 |
Noninterest income (1) |  | 209,377 |  |  | 210,909 |  |  | 257,748 |  |  | 182,278 |  |  | 182,779 |
Noninterest expense |  | 734,588 |  |  | 714,466 |  |  | 661,451 |  |  | 615,249 |  |  | 540,280 |
Income before income taxes |  | 843,917 |  |  | 818,696 |  |  | 735,100 |  |  | 572,188 |  |  | 578,721 |
Income tax expense (2) |  | 169,882 |  |  | 114,995 |  |  | 229,476 |  |  | 140,511 |  |  | 194,044 |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |  |  | $ | 431,677 |  |  | $ | 384,677 |
Per common share: |  |  |  |  |  |  |  |  |  |
Basic earnings |  | $ | 4.63 |  |  | $ | 4.86 |  |  | $ | 3.50 |  |  | $ | 3.00 |  |  | $ | 2.67 |
Diluted earnings |  | $ | 4.61 |  |  | $ | 4.81 |  |  | $ | 3.47 |  |  | $ | 2.97 |  |  | $ | 2.66 |
Dividends declared |  | $ | 1.06 |  |  | $ | 0.86 |  |  | $ | 0.80 |  |  | $ | 0.80 |  |  | $ | 0.80 |
Book value |  | $ | 34.46 |  |  | $ | 30.52 |  |  | $ | 26.58 |  |  | $ | 23.78 |  |  | $ | 21.70 |
Non-GAAP tangible common equity per share (3) |  | $ | 31.15 |  |  | $ | 27.15 |  |  | $ | 23.13 |  |  | $ | 20.27 |  |  | $ | 18.15 |
Weighted-average number of shares outstanding: |  |  |  |  |  |  |  |  |  |
Basic |  | 145,497 |  |  | 144,862 |  |  | 144,444 |  |  | 144,087 |  |  | 143,818 |
Diluted |  | 146,179 |  |  | 146,169 |  |  | 145,913 |  |  | 145,172 |  |  | 144,512 |
Common shares outstanding at period-end |  | 145,625 |  |  | 144,961 |  |  | 144,543 |  |  | 144,167 |  |  | 143,909 |
At year end: |  |  |  |  |  |  |  |  |  |
Total assets (4) |  | $ | 44,196,096 |  |  | $ | 41,042,356 |  |  | $ | 37,121,563 |  |  | $ | 34,788,840 |  |  | $ | 32,350,922 |
Total loans (4) |  | $ | 34,778,973 |  |  | $ | 32,385,464 |  |  | $ | 29,053,935 |  |  | $ | 25,526,215 |  |  | $ | 23,675,706 |
Investment securities |  | $ | 3,317,214 |  |  | $ | 2,741,847 |  |  | $ | 3,016,752 |  |  | $ | 3,335,795 |  |  | $ | 3,773,226 |
Total deposits, excluding held-for-sale deposits |  | $ | 37,324,259 |  |  | $ | 35,439,628 |  |  | $ | 31,615,063 |  |  | $ | 29,890,983 |  |  | $ | 27,475,981 |
Long-term debt and finance lease liabilities |  | $ | 152,270 |  |  | $ | 146,835 |  |  | $ | 171,577 |  |  | $ | 186,327 |  |  | $ | 206,084 |
FHLB advances |  | $ | 745,915 |  |  | $ | 326,172 |  |  | $ | 323,891 |  |  | $ | 321,643 |  |  | $ | 1,019,424 |
Stockholders’ equity |  | $ | 5,017,617 |  |  | $ | 4,423,974 |  |  | $ | 3,841,951 |  |  | $ | 3,427,741 |  |  | $ | 3,122,950 |
Non-GAAP tangible common equity (3) |  | $ | 4,535,841 |  |  | $ | 3,936,062 |  |  | $ | 3,343,693 |  |  | $ | 2,922,638 |  |  | $ | 2,611,919 |
Head count (full-time equivalent) |  | 3,294 |  |  | 3,196 |  |  | 2,933 |  |  | 2,838 |  |  | 2,804 |
Performance metrics: |  |  |  |  |  |  |  |  |  |
Return on average assets (“ROA”) |  | 1.59 | % |  | 1.83 | % |  | 1.41 | % |  | 1.30 | % |  | 1.27 | %
Return on average equity (“ROE”) |  | 14.16 | % |  | 17.04 | % |  | 13.71 | % |  | 13.06 | % |  | 12.74 | %
Net interest margin |  | 3.64 | % |  | 3.78 | % |  | 3.48 | % |  | 3.30 | % |  | 3.35 | %
Efficiency ratio (5) |  | 43.80 | % |  | 44.73 | % |  | 45.84 | % |  | 50.64 | % |  | 47.68 | %
Non-GAAP efficiency ratio (3) |  | 38.43 | % |  | 39.55 | % |  | 41.44 | % |  | 44.21 | % |  | 41.75 | %
Credit quality metrics: |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses |  | $ | 358,287 |  |  | $ | 311,322 |  |  | $ | 287,128 |  |  | $ | 260,520 |  |  | $ | 264,959 |
Allowance for loan losses to loans held-for-investment (4) |  | 1.03 | % |  | 0.96 | % |  | 0.99 | % |  | 1.02 | % |  | 1.12 | %
Non-purchased credit-impaired (“PCI”) nonperforming assets to total assets (4) |  | 0.27 | % |  | 0.23 | % |  | 0.31 | % |  | 0.37 | % |  | 0.40 | %
Net charge-offs to average loans held-for-investment |  | 0.16 | % |  | 0.13 | % |  | 0.08 | % |  | 0.15 | % |  | 0.01 | %
Selected metrics: |  |  |  |  |  |  |  |  |  |
Total average equity to total average assets |  | 11.21 | % |  | 10.72 | % |  | 10.30 | % |  | 9.97 | % |  | 9.95 | %
Common dividend payout ratio |  | 23.04 | % |  | 17.90 | % |  | 23.14 | % |  | 27.01 | % |  | 30.21 | %
Loan-to-deposit ratio (4) |  | 93.18 | % |  | 91.38 | % |  | 90.17 | % |  | 85.40 | % |  | 86.17 | %
EWBC capital ratios: |  |  |  |  |  |  |  |  |  |
CET1 capital |  | 12.9 | % |  | 12.2 | % |  | 11.4 | % |  | 10.9 | % |  | 10.5 | %
Tier 1 capital |  | 12.9 | % |  | 12.2 | % |  | 11.4 | % |  | 10.9 | % |  | 10.7 | %
Total capital |  | 14.4 | % |  | 13.7 | % |  | 12.9 | % |  | 12.4 | % |  | 12.2 | %
Tier 1 leverage capital |  | 10.3 | % |  | 9.9 | % |  | 9.2 | % |  | 8.7 | % |  | 8.5 | %

(1) | Includes $31.5 million of pretax gain recognized from the sale of the DCB branches for 2018. Includes $71.7 million and $3.8 million of pretax gains recognized from the sales of a commercial property in California and EWIS’s insurance brokerage business, respectively, for 2017. Includes changes in FDIC indemnification asset and receivable/payable charges of $38.0 million for 2015. The Company terminated the United Commercial Bank and Washington First International Bank shared-loss agreements during 2015.

(2) | Includes $30.1 million of additional tax expense to reverse certain previously claimed tax credits related to DC Solar and affiliates (“DC Solar”) tax credit investments during 2019. Includes an additional $41.7 million in income tax expense recognized during 2017 due to the enactment of the Tax Act.

(3) | Tangible common equity, tangible common equity per share and adjusted efficiency ratio are non-GAAP financial measures. For a discussion of these measures, refer to Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.

(4) | Total assets and loans held-for-investment include PCI loans of $222.9 million, $308.0 million, $482.3 million, $642.4 million and $970.8 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(5) | The efficiency ratio is noninterest expense divided by total revenue (net interest income before provision for credit losses and noninterest income).

31

2019 Financial Highlights

Noteworthy items about the Company’s performance for 2019 included:

• | Earnings: 2019 net income was $674.0 million and diluted EPS was $4.61, compared with 2018 net income of $703.7 million and diluted EPS of $4.81. This $29.7 million or 4% decrease in net income was primarily due to increases in income tax expense, provision for credit losses and noninterest expense, partially offset by net interest income growth.

• | Adjusted Earnings: Adjusting for non-recurring items, 2019 non-GAAP net income and non-GAAP diluted EPS were $707.9 million and $4.84, respectively, compared with $681.5 million and $4.66 for 2018, respectively, a year-over-year increase of 4%. During 2019, the Company recorded a $5.4 million net pre-tax impairment charge (equivalent to $3.8 after-tax) and $30.1 million in additional income tax expense to reverse certain previously claimed tax credits related to DC Solar. (Refer to Item 7. MD&A — Results of Operations — Income Taxes in this Form 10-K for a more detailed discussion related to the Company’s investment in DC Solar.) During 2018, the Company recognized a $31.5 million pre-tax gain from the sale of its DCB branches, equivalent to $22.2 million after-tax. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

• | Revenue: Revenue, or the sum of net interest income before provision for credit losses and noninterest income, was $1.68 billion in 2019, compared with $1.60 billion in 2018, an increase of $79.8 million or 5%. This increase was primarily due to an increase in net interest income.

32

• | Net Interest Income and Net Interest Margin: 2019 net interest income was $1.47 billion, compared with 2018 net interest income of $1.39 billion, an increase of $81.3 million or 6%. 2019 net interest margin of 3.64% contracted by 14 basis points, compared with 2018 net interest margin of 3.78%. Net interest income growth was primarily driven by loan growth, partially offset by a higher cost of deposits.

• | Operating Efficiency: Efficiency ratio, calculated as noninterest expense divided by revenue, was 43.80% in 2019, an improvement of 93 basis points compared with 44.73% in 2018. Adjusting for non-recurring items, amortization of tax credit and other investments, and the amortization of core deposit intangibles in both 2019 and 2018, non-GAAP efficiency ratio was 38.43% in 2019, a 112 basis point improvement from 39.55% in 2018. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

• | Tax: The 2019 annual effective income tax rate was 20.1%, compared with 14.0% in 2018. The higher effective tax rate in 2019 was primarily due to the $30.1 million reversal of certain previously claimed tax credits related to DC Solar in the second quarter of 2019.

• | Profitability: ROA for 2019 and 2018 were 1.59% and 1.83%, respectively. ROE for 2019 and 2018 were 14.16% and 17.04%, respectively. Adjusting for non-recurring items, non-GAAP ROA was 1.67% for 2019, compared with 1.77% for 2018. For 2019, non-GAAP ROE was 14.87%, compared with 16.50% for 2018. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

• | Loans: Total loans were $34.78 billion as of December 31, 2019, an increase of $2.39 billion or 7% from $32.39 billion as of December 31, 2018. The largest increase in loans was in single-family residential loans, followed by CRE loans.

• | Deposits: Total deposits were $37.32 billion as of December 31, 2019, an increase of $1.88 billion or 5% from $35.44 billion as of December 31, 2018. This increase was primarily due to the $1.15 billion or 13% increase in time deposits.

• | Asset Quality Metrics: The allowance for loan losses was $358.3 million or 1.03% of loans held-for-investment as of December 31, 2019, compared with $311.3 million or 0.96% of loans held-for-investment as of December 31, 2018. Non-PCI nonperforming assets were $121.5 million or 0.27% of total assets as of December 31, 2019, an increase from $93.0 million or 0.23% of total assets as of December 31, 2018. For 2019, net charge-offs were $52.8 million or 0.16% of average loans held-for-investment, compared with $40.1 million or 0.13% of average loans held-for-investment for 2018.

• | Capital Levels: Our capital levels are strong. As of December 31, 2019, all of the Company’s and the Bank’s regulatory capital ratios were well above the required well-capitalized levels. See Item 7. MD&A — Balance Sheet Analysis — Regulatory Capital and Ratios in this Form 10-K for more information regarding capital.

• | Cash Dividend: Our annual cash dividend on common stock was $1.055 per share in 2019, compared with $0.86 per share in 2018, an increase of $0.195 or 23%. The Company returned $155.1 million and $126.0 million in cash dividends to stockholders during 2019 and 2018, respectively.

Results of Operations
Net Interest Income
The Company’s primary source of revenue is net interest income, which is the difference between 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 composition of interest-earning assets and funding sources, market interest rate fluctuations and slope of the yield curve, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities, volume of noninterest-bearing sources of funds and asset quality.

33

Net interest income for 2019 was $1.47 billion, an increase of $81.3 million or 6%, compared with $1.39 billion in 2018. The increase in net interest income for 2019 was primarily driven by loan growth and higher loan yields, partially offset by a higher cost of deposits. Net interest income for 2018 was $1.39 billion, an increase of $201.4 million or 17%, compared with $1.19 billion in 2017. The increase in net interest income for 2018 was primarily due to the expansion of loan yields and loan growth, partially offset by a higher cost of funds. Net interest margin for 2019 was 3.64%, a 14 basis point decrease from 3.78% in 2018. Net interest margin for 2018 increased 30 basis points from 3.48% in 2017.
Average loan yield for 2019 was 5.15%, an 18 basis point increase from 4.97% in 2018. Average loan yield in 2018 increased 57 basis points from 4.40% in 2017. The increases in the average loan yield in 2019 and 2018 reflected the upward repricing of the Company’s loan portfolio in response to higher short-term interest rates during the periods. Approximately 64%, 66% and 69% of total loans were variable-rate or hybrid that were in their adjustable rate periods as of December 31, 2019, 2018 and 2017, respectively. The increase in the 2019 average loan yield was primarily due to the higher prime rate during the first half of 2019, which increased the yield on prime-based loans. Approximately 32% of loans were tied to the prime index as of December 31, 2019. Average loans were $33.37 billion in 2019, an increase of $3.14 billion or 10% from $30.23 billion in 2018. Average loans in 2018 increased $2.98 billion or 11% from $27.25 billion in 2017. Loan growth in both 2019 and 2018 was broad-based across single-family residential, commercial and industrial (“C&I”) and CRE loan portfolios.
Average interest-earning assets were $40.32 billion in 2019, an increase of $3.61 billion or 10% from $36.71 billion in 2018. This was primarily due to increases of $3.14 billion in average loans and $441.5 million in average interest-bearing cash and deposits with banks. Average interest-earning assets were $36.71 billion in 2018, an increase of $2.67 billion or 8% from $34.03 billion in 2017. This was primarily due to increases of $2.98 billion in average loans and $367.2 million in average interest-bearing cash and deposits with banks, partially offset by decreases of $417.9 million in average securities purchased under resale agreements (“resale agreements”) and $253.5 million in average investment securities.
Deposits are an important source of funds and impact both net interest income and net interest margin. Average noninterest-bearing demand deposits totaled $10.50 billion in 2019, compared with $11.09 billion in 2018, a decrease of $586.9 million or 5%. Average noninterest-bearing demand deposits in 2018 increased $461.8 million or 4% from $10.63 billion in 2017. Average noninterest-bearing demand deposits made up 29%, 33% and 34% of average total deposits in 2019, 2018 and 2017, respectively. Average interest-bearing deposits of $25.54 billion in 2019 increased $3.40 billion or 15% from $22.14 billion in 2018. Average interest-bearing deposits in 2018 increased $1.95 billion or 10% from $20.19 billion in 2017.
The average cost of funds was 1.12%, 0.78% and 0.44% in 2019, 2018 and 2017, respectively. The year-over-year increases in the average cost of funds were primarily due to increase s in the cost of interest-bearing deposits. The average cost of interest-bearing deposits increased 41 basis points to 1.47% in 2019, and 48 basis points to 1.06% in 2018, up from 0.58% in 2017. Other sources of funding included in the calculation of the average cost of funds primarily consist of FHLB advances, long-term debt and securities sold under repurchase agreements (“repurchase agreements”).
The Company utilizes various tools to manage interest rate risk. Refer to the “Interest Rate Risk Management” section of Item 7. MD&A — Risk Management — Market Risk Management for details.
34

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 in 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing cash and deposits with banks |  | $ | 3,050,954 |  |  | $ | 66,760 |  |  | 2.19 | % |  | $ | 2,609,463 |  |  | $ | 54,804 |  |  | 2.10 | % |  | $ | 2,242,256 |  |  | $ | 33,390 |  |  | 1.49 | %
Resale agreements (1) |  | 969,384 |  |  | 27,819 |  |  | 2.87 | % |  | 1,020,822 |  |  | 29,328 |  |  | 2.87 | % |  | 1,438,767 |  |  | 32,095 |  |  | 2.23 | %
Investment securities (2)(3) |  | 2,850,476 |  |  | 67,838 |  |  | 2.38 | % |  | 2,773,152 |  |  | 60,911 |  |  | 2.20 | % |  | 3,026,693 |  |  | 58,670 |  |  | 1.94 | %
Loans (4)(5) |  | 33,373,136 |  |  | 1,717,415 |  |  | 5.15 | % |  | 30,230,014 |  |  | 1,503,514 |  |  | 4.97 | % |  | 27,252,756 |  |  | 1,198,440 |  |  | 4.40 | %
Restricted equity securities |  | 76,854 |  |  | 2,468 |  |  | 3.21 | % |  | 73,691 |  |  | 3,146 |  |  | 4.27 | % |  | 73,593 |  |  | 2,524 |  |  | 3.43 | %
Total interest-earning assets |  | $ | 40,320,804 |  |  | $ | 1,882,300 |  |  | 4.67 | % |  | $ | 36,707,142 |  |  | $ | 1,651,703 |  |  | 4.50 | % |  | $ | 34,034,065 |  |  | $ | 1,325,119 |  |  | 3.89 | %
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | 471,060 |  |  |  |  |  |  | 445,768 |  |  |  |  |  |  | 395,092 |  |  |  |  |
Allowance for loan losses |  | (330,125 | ) |  |  |  |  |  | (298,600 | ) |  |  |  |  |  | (272,765 | ) |  |  |  |
Other assets |  | 2,023,146 |  |  |  |  |  |  | 1,688,259 |  |  |  |  |  |  | 1,631,221 |  |  |  |  |
Total assets |  | $ | 42,484,885 |  |  |  |  |  |  | $ | 38,542,569 |  |  |  |  |  |  | $ | 35,787,613 |  |  |  |  |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Checking deposits (6) |  | $ | 5,244,867 |  |  | $ | 58,168 |  |  | 1.11 | % |  | $ | 4,477,793 |  |  | $ | 34,657 |  |  | 0.77 | % |  | $ | 3,951,930 |  |  | $ | 18,305 |  |  | 0.46 | %
Money market deposits (6) |  | 8,220,236 |  |  | 111,081 |  |  | 1.35 | % |  | 7,985,526 |  |  | 83,696 |  |  | 1.05 | % |  | 8,026,347 |  |  | 44,181 |  |  | 0.55 | %
Saving deposits (6) |  | 2,118,060 |  |  | 9,626 |  |  | 0.45 | % |  | 2,245,644 |  |  | 8,621 |  |  | 0.38 | % |  | 2,369,398 |  |  | 6,431 |  |  | 0.27 | %
Time deposits (6) |  | 9,961,289 |  |  | 196,927 |  |  | 1.98 | % |  | 7,431,749 |  |  | 107,778 |  |  | 1.45 | % |  | 5,838,382 |  |  | 47,474 |  |  | 0.81 | %
Federal funds purchased and other short-term borrowings |  | 44,881 |  |  | 1,763 |  |  | 3.93 | % |  | 32,222 |  |  | 1,398 |  |  | 4.34 | % |  | 34,546 |  |  | 1,003 |  |  | 2.90 | %
FHLB advances |  | 592,257 |  |  | 16,697 |  |  | 2.82 | % |  | 327,435 |  |  | 10,447 |  |  | 3.19 | % |  | 391,480 |  |  | 7,751 |  |  | 1.98 | %
Repurchase agreements (1) |  | 74,926 |  |  | 13,582 |  |  | 18.13 | % |  | 50,000 |  |  | 12,110 |  |  | 24.22 | % |  | 140,000 |  |  | 9,476 |  |  | 6.77 | %
Long-term debt and finance lease liabilities |  | 152,445 |  |  | 6,643 |  |  | 4.36 | % |  | 159,185 |  |  | 6,488 |  |  | 4.08 | % |  | 178,882 |  |  | 5,429 |  |  | 3.03 | %
Total interest-bearing liabilities |  | $ | 26,408,961 |  |  | $ | 414,487 |  |  | 1.57 | % |  | $ | 22,709,554 |  |  | $ | 265,195 |  |  | 1.17 | % |  | $ | 20,930,965 |  |  | $ | 140,050 |  |  | 0.67 | %
Noninterest-bearing liabilities and stockholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits (6) |  | 10,502,618 |  |  |  |  |  |  | 11,089,537 |  |  |  |  |  |  | 10,627,718 |  |  |  |  |
Accrued expenses and other liabilities |  | 812,461 |  |  |  |  |  |  | 612,656 |  |  |  |  |  |  | 541,717 |  |  |  |  |
Stockholders’ equity |  | 4,760,845 |  |  |  |  |  |  | 4,130,822 |  |  |  |  |  |  | 3,687,213 |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 42,484,885 |  |  |  |  |  |  | $ | 38,542,569 |  |  |  |  |  |  | $ | 35,787,613 |  |  |  |  |
Interest rate spread |  |  |  |  |  | 3.10 | % |  |  |  |  |  | 3.33 | % |  |  |  |  |  | 3.22 | %
Net interest income and net interest margin |  |  |  | $ | 1,467,813 |  |  | 3.64 | % |  |  |  | $ | 1,386,508 |  |  | 3.78 | % |  |  |  | $ | 1,185,069 |  |  | 3.48 | %

(1) | Average balances of resale and repurchase agreements are reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.65%, 2.63% and 2.19% for 2019, 2018 and 2017, respectively. The weighted-average interest rates of gross repurchase agreements were 4.74%, 4.46% and 3.48% for 2019, 2018 and 2017, respectively.

(2) | Yields on tax-exempt securities are not presented on a tax-equivalent basis.

(3) | Includes the amortization of premiums on investment securities of $10.9 million, $16.1 million and $21.2 million for 2019, 2018 and 2017, respectively.

(4) | Average balances include nonperforming loans and loans held-for-sale.

(5) | Includes the accretion of net deferred loan fees, unearned fees, ASC 310-30 discounts and amortization of premiums, which totaled $36.8 million, $39.2 million and $30.8 million for 2019, 2018 and 2017, respectively.

(6) | Average balance of deposits for 2018 and 2017 includes average deposits held-for-sale related to the sale of the DCB branches.

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The following table summarizes the extent to which changes in (1) interest rates; and (2) 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 interest rates. Changes that are not solely due to either volume or rate are allocated proportionally based on the absolute value of the change related to average volume and average rate. Nonaccrual loans are included in average loans to compute the table below:

($ in thousands) |  | Year Ended December 31,
| 2019 vs. 2018 |  | 2018 vs. 2017
| Total Change |  | Changes Due to |  | Total Change |  | Changes Due to
|  | Volume |  | Yield/Rate |  |  | Volume |  | Yield/Rate
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing cash and deposits with banks |  | $ | 11,956 |  |  | $ | 9,584 |  |  | $ | 2,372 |  |  | $ | 21,414 |  |  | $ | 6,108 |  |  | $ | 15,306 |
Resale agreements |  | (1,509 | ) |  | (1,476 | ) |  | (33 | ) |  | (2,767 | ) |  | (10,671 | ) |  | 7,904 |
Investment securities |  | 6,927 |  |  | 1,734 |  |  | 5,193 |  |  | 2,241 |  |  | (5,167 | ) |  | 7,408 |
Loans |  | 213,901 |  |  | 160,392 |  |  | 53,509 |  |  | 305,074 |  |  | 138,724 |  |  | 166,350 |
Restricted equity securities |  | (678 | ) |  | 130 |  |  | (808 | ) |  | 622 |  |  | 3 |  |  | 619 |
Total interest and dividend income |  | $ | 230,597 |  |  | $ | 170,364 |  |  | $ | 60,233 |  |  | $ | 326,584 |  |  | $ | 128,997 |  |  | $ | 197,587 |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Checking deposits |  | $ | 23,511 |  |  | $ | 6,666 |  |  | $ | 16,845 |  |  | $ | 16,352 |  |  | $ | 2,706 |  |  | $ | 13,646 |
Money market deposits |  | 27,385 |  |  | 2,526 |  |  | 24,859 |  |  | 39,515 |  |  | (226 | ) |  | 39,741 |
Saving deposits |  | 1,005 |  |  | (511 | ) |  | 1,516 |  |  | 2,190 |  |  | (351 | ) |  | 2,541 |
Time deposits |  | 89,149 |  |  | 43,130 |  |  | 46,019 |  |  | 60,304 |  |  | 15,579 |  |  | 44,725 |
Federal funds purchased and other short-term borrowings |  | 365 |  |  | 507 |  |  | (142 | ) |  | 395 |  |  | (71 | ) |  | 466 |
FHLB advances |  | 6,250 |  |  | 7,590 |  |  | (1,340 | ) |  | 2,696 |  |  | (1,432 | ) |  | 4,128 |
Repurchase agreements |  | 1,472 |  |  | 5,028 |  |  | (3,556 | ) |  | 2,634 |  |  | (9,226 | ) |  | 11,860 |
Long-term debt |  | 155 |  |  | (282 | ) |  | 437 |  |  | 1,059 |  |  | (648 | ) |  | 1,707 |
Total interest expense |  | $ | 149,292 |  |  | $ | 64,654 |  |  | $ | 84,638 |  |  | $ | 125,145 |  |  | $ | 6,331 |  |  | $ | 118,814 |
Change in net interest income |  | $ | 81,305 |  |  | $ | 105,710 |  |  | $ | (24,405 | ) |  | $ | 201,439 |  |  | $ | 122,666 |  |  | $ | 78,773 |

Noninterest Income
The following table presents the components of noninterest income for the periods indicated:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017 |  | 2019 vs. 2018 % Change |  | 2018 vs. 2017 % Change
Lending fees |  | $ | 63,670 |  |  | $ | 59,758 |  |  | $ | 58,395 |  |  | 7 | % |  | 2 | %
Deposit account fees |  | 38,648 |  |  | 39,176 |  |  | 40,299 |  |  | (1 | )% |  | (3 | )%
Foreign exchange income |  | 26,398 |  |  | 21,259 |  |  | 9,908 |  |  | 24 | % |  | 115 | %
Wealth management fees |  | 16,668 |  |  | 13,785 |  |  | 13,974 |  |  | 21 | % |  | (1 | )%
Interest rate contracts and other derivative income |  | 39,865 |  |  | 18,980 |  |  | 17,671 |  |  | 110 | % |  | 7 | %
Net gains on sales of loans |  | 4,035 |  |  | 6,590 |  |  | 8,870 |  |  | (39 | )% |  | (26 | )%
Net gains on sales of AFS investment securities |  | 3,930 |  |  | 2,535 |  |  | 8,037 |  |  | 55 | % |  | (68 | )%
Net gains on sales of fixed assets |  | 114 |  |  | 6,683 |  |  | 77,388 |  |  | (98 | )% |  | (91 | )%
Net gain on sale of business |  | — |  |  | 31,470 |  |  | 3,807 |  |  | (100 | )% |  | NM |
Other investment income |  | 5,249 |  |  | 1,207 |  |  | 3,903 |  |  | 335 | % |  | (69 | )%
Other income |  | 10,800 |  |  | 9,466 |  |  | 15,496 |  |  | 14 | % |  | (39 | )%
Total noninterest income |  | $ | 209,377 |  |  | $ | 210,909 |  |  | $ | 257,748 |  |  | (1 | )% |  | (18 | )%

NM — Not meaningful
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Noninterest income represented 12%, 13% and 18% of total revenue for 2019, 2018 and 2017, respectively. 2019 noninterest income was $209.4 million, a decrease of $1.5 million or 1%, compared with $210.9 million in 2018. This decrease was primarily due to a decrease in net gain on sale of business and a decrease in net gains on sales of fixed assets, partially offset by increases in interest rate contracts and other derivative income, and foreign exchange income. 2018 noninterest income was $210.9 million, a decrease of $46.8 million or 18%, compared with $257.7 million in 2017. This decrease was primarily due to decreases in net gains on sales of fixed assets, other income, and net gains on sales of AFS investment securities, partially offset by increases in net gain on sale of business and foreign exchange income.
Foreign exchange income increase d $5.1 million or 24% to $26.4 million in 2019, primarily driven by an increased volume of foreign exchange transactions, partially offset by revaluation losses of certain foreign currency-denominated balance sheet items. The $11.4 million or 115% increase in foreign exchange income to $21.3 million in 2018 was primarily due to the favorable revaluation of certain foreign currency-denominated balance sheet items, partially offset by a decrease in foreign exchange derivative gains.
Interest rate contracts and other derivative income increased $20.9 million or 110% to $39.9 million in 2019, which primarily reflected strong customer demand for interest rate swaps in response to the inverted yield curve and overall low level of interest rates. This increase was partially offset by the fair value changes of the interest rate derivative contracts that were primarily driven by the decline in long-term interest rates. The $1.3 million or 7% increase in interest rate contracts and other derivative income from $17.7 million in 2017 to $19.0 million in 2018 was primarily related to energy commodity contracts which the Bank began offering during the year.
Net gains on sales of AFS investment securities increased $1.4 million or 55% to $3.9 million in 2019, and decreased $5.5 million or 68% from $8.0 million in 2017 to $2.5 million in 2018. These changes were primarily due to the quantities of AFS investment securities sold each year.
Net gains on sales of fixed assets decreased to $114 thousand in 2019, down from $6.7 million in 2018. This was due to the Company’s adoption of ASU 2016-02, Leases (Topic 842) on January 1, 2019, under which deferred gains on sale and leaseback transactions were no longer amortized to gain on sales of fixed assets in 2019. In 2017, net gains on sales of fixed assets included the $71.7 million pre-tax gain recognized from the sale of a commercial property in California. During 2017, East West Bank completed the sale and leaseback of a commercial property in California for cash consideration of $120.6 million and entered into a lease agreement for part of the property, consisting of a retail branch and office facilities.
Net gain on sale of business in 2018 reflected the $31.5 million pre-tax gain recognized from the sale of the Bank’s eight DCB branches while the net gain on sale of business in 2017 reflected the $3.8 million pre-tax gain recognized from the sale of the EWIS insurance brokerage business, as discussed in Note 2 — Dispositions to the Consolidated Financial Statements in this Form 10-K.
Other income increased $1.3 million or 14% to $10.8 million in 2019, primarily due to interest earned on cash collateral. The $6.0 million or 39% decrease in other income to $9.5 million in 2018 was primarily due to a decrease in rental income due to the aforementioned sale of the commercial property in California.
37

Noninterest Expense
The following table presents the components of noninterest expense for the periods indicated:

|  | Year Ended December 31,
($ in thousands) |  | 2019 |  | 2018 |  | 2017 |  | 2019 vs. 2018 % Change |  | 2018 vs. 2017 % Change
Compensation and employee benefits |  | $ | 401,700 |  |  | $ | 379,622 |  |  | $ | 335,291 |  |  | 6 | % |  | 13 | %
Occupancy and equipment expense |  | 69,730 |  |  | 68,896 |  |  | 64,921 |  |  | 1 | % |  | 6 | %
Deposit insurance premiums and regulatory assessments |  | 12,928 |  |  | 21,211 |  |  | 23,735 |  |  | (39 | )% |  | (11 | )%
Legal expense |  | 8,441 |  |  | 8,781 |  |  | 11,444 |  |  | (4 | )% |  | (23 | )%
Data processing |  | 13,533 |  |  | 13,177 |  |  | 12,093 |  |  | 3 | % |  | 9 | %
Consulting expense |  | 9,846 |  |  | 11,579 |  |  | 14,922 |  |  | (15 | )% |  | (22 | )%
Deposit related expense |  | 14,175 |  |  | 11,244 |  |  | 9,938 |  |  | 26 | % |  | 13 | %
Computer software expense |  | 26,471 |  |  | 22,286 |  |  | 18,183 |  |  | 19 | % |  | 23 | %
Other operating expense |  | 92,249 |  |  | 88,042 |  |  | 82,974 |  |  | 5 | % |  | 6 | %
Amortization of tax credit and other investments |  | 85,515 |  |  | 89,628 |  |  | 87,950 |  |  | (5 | )% |  | 2 | %
Total noninterest expense |  | $ | 734,588 |  |  | $ | 714,466 |  |  | $ | 661,451 |  |  | 3 | % |  | 8 | %

2019 noninterest expense was $734.6 million, an increase of $20.1 million or 3%, compared with $714.5 million in 2018. This increase was primarily due to increases in compensation and employee benefits, computer software expense, deposit related expenses and other operating expense, partially offset by lower deposit insurance premiums and regulatory assessments and a decrease in amortization of tax credit and other investments. 2018 noninterest expense of $714.5 million, increased $53.0 million or 8%, compared with $661.5 million in 2017. This increase was primarily due to increases in compensation and employee benefits, other operating expense and computer software expense.
Compensation and employee benefits increase d $22.1 million or 6% to $401.7 million in 2019 from $379.6 million in 2018, and increased $44.3 million or 13% from $335.3 million in 2017. These increases were primarily attributable to the annual employee merit increases and staffing growth to support the Company’s growing business. The larger increase in 2018, compared with 2017, was primarily due to an increase in stock-based compensation and severance costs recognized in 2018 as a result of the departure of one of the Company’s executives.
Deposit insurance premiums and regulatory assessments decreased $8.3 million or 39% to $12.9 million in 2019, and decreased $2.5 million or 11% to $21.2 million in 2018. These decreases were primarily due to lower FDIC assessment rates. Effective October 1, 2018, the FDIC eliminated the temporary surcharge applied on the larger banks’ assessment base.
Computer software expense increase d $4.2 million or 19% to $26.5 million in 2019, and increased $4.1 million or 23% to $22.3 million in 2018. The increases in both 2019 and 2018 were due to new system implementations and software upgrades to support the Company’s growing business.
Other operating expense primarily consists of marketing, travel, telecommunication and postage expenses, charitable contributions, loan related expenses and other miscellaneous expense categories. The $4.2 million or 5% increase to $92.2 million in 2019, was primarily due to an increase in marketing expense and a decrease in gains on sale of other real estate owned (“OREO”), partially offset by a decrease in charitable contributions. Other operating expense increase d $5.1 million or 6% to $88.0 million in 2018 primarily due to increases in charitable contributions, marketing, travel, and telecommunication and postage expenses, partially offset by an increase in gains on sale of OREO.
Amortization of tax credit and other investments decreased $4.1 million or 5% from $89.6 million in 2018 to $85.5 million in 2019. This decrease in 2019 compared with 2018, was primarily due to fewer tax credit investments placed in service during 2019, partially offset by $7.6 million of OTTI charges related to five historic tax credit investments and a CRA investment and the $5.4 million net write-off of the DC Solar tax credit investments. The $1.7 million or 2% increase in amortization of tax credit and other investments to $89.6 million in 2018, compared with 2017, was primarily due to an increase in renewable energy tax credit investments placed in service in 2018, partially offset by a reduction in historical tax credit investments.
38

Income Taxes

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Income before income taxes |  | $ | 843,917 |  |  | $ | 818,696 |  |  | $ | 735,100 |
Income tax expense |  | $ | 169,882 |  |  | $ | 114,995 |  |  | $ | 229,476 |
Effective tax rate |  | 20.1 | % |  | 14.0 | % |  | 31.2 | %

The increase in 2019 effective tax rate and income tax expense, compared with 2018, was primarily due to $30.1 million of income tax expense recorded to reverse certain previously claimed tax credits related to the Company’s investment in DC Solar, as well as $14.7 million decrease in tax credits recognized from investments in renewable energy and historic rehabilitation tax credit projects as further discussed below. Excluding the $30.1 million income tax expense, 2019 non-GAAP effective tax rate was 16.6%. The 2018 effective tax rate of 14.0%, compared to 2017 effective tax rate of 31.2%, reflected the reduction of the U.S. federal income tax rate from 35% in 2017 to 21% in 2018 as a result of the Tax Act enactment in December 2017. GAAP requires companies to recognize the effect of tax law changes on deferred tax assets and liabilities and other recognized assets in the period of enactment. During the year ended December 31, 2017, the Company recorded $41.7 million in income tax expense related to the impact of the Tax Act, of which this amount was primarily related to the remeasurements of certain deferred tax assets and liabilities of $33.1 million, as well as the remeasurements of tax credits and other tax benefits related to qualified affordable housing partnerships of $7.9 million, resulting in an effective tax rate of 31.2% during 2017. Excluding the $41.7 million in income tax expense related to the impact of the Tax Act, 2017 non-GAAP effective tax rate was 25.5%. See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K. In December 2017, the SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”). SAB 118 allows the recording of a provisional estimate to reflect the income tax impact of the U.S. tax legislation and provides a measurement period up to one year from the enactment date. During 2018, management finalized its assessment of the initial impact of the Tax Act, which resulted in an increase in income tax expense by $985 thousand during the same period ensuing from the remeasurements of deferred tax assets and liabilities. The overall impact of the Tax Act was a one-time increase in income tax expense of $42.7 million.
Management regularly reviews the Company’s tax positions and deferred tax balances. Factors considered in this analysis include the Company’s ability to generate future taxable income, implement tax-planning strategies (as defined in ASC 740, Income Taxes) and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversals of existing taxable temporary differences. The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized and settled. Net deferred tax assets decreased $11.2 million or 9% to $106.5 million as of December 31, 2019, compared with $117.6 million as of December 31, 2018, mainly attributable to the decreases in tax credit carryover and unrealized loss on securities, offset by the write-off of deferred tax liabilities related to DC Solar.
A valuation allowance is used, as needed, to reduce the deferred tax assets to the amount that is more-likely-than-not to be realized. To determine whether a valuation allowance is needed, the Company considers evidence such as the Company’s ability to generate future taxable income, implement tax-planning strategies (as defined in ASC 740, Income Taxes), and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversals of existing taxable temporary differences. The Company expects to have sufficient taxable income in future years to fully realize its deferred tax assets. The Company also performed an overall assessment by weighing all positive evidence against all negative evidence and concluded that it is more-likely-than-not that all of the benefits of the deferred tax assets will be realized, with the exception of the deferred tax assets related to certain state net operating losses (“NOL”) carryforwards. For states other than California, Georgia, Massachusetts and New York, because management believes that the state NOL carryforwards may not be fully utilized, a valuation allowance of $21 thousand and $128 thousand was recorded for such carryforwards as of December 31, 2019 and 2018, respectively. For additional details on the components of net deferred tax assets, see Note 14 — Income Taxes to the Consolidated Financial Statements.
39

Impact of Investment in DC Solar Tax Credit Funds
The Company invested in four solar energy tax credit funds in the years 2014, 2015, 2017 and 2018 as a limited member. These tax credit funds engaged in the acquisition and leasing of mobile solar generators through DC Solar entities. The Company’s investments in the DC Solar tax credit funds qualified for federal energy tax credit under Section 48 of the Internal Revenue Code of 1986, as amended. The Company also received a “should” level legal opinion from an external law firm supporting the legal structure of the investments for tax credit purposes. These investments were recorded in Investments in tax credit and other investments, net on the Consolidated Balance Sheet and were accounted for under the equity method of accounting. DC Solar had its assets frozen in December 2018 and filed for bankruptcy protection in February 2019. In February 2019, an affidavit from a Federal Bureau of Investigation special agent stated that DC Solar was operating a fraudulent “Ponzi-like scheme” and that the majority of the mobile solar generators sold to investors and managed by DC Solar, as well as the majority of the related lease revenues claimed to have been received by DC Solar might not have existed.
During the first quarter of 2019, the Company fully wrote off its tax credit investments related to DC Solar and recorded a $7.0 million OTTI charge within Amortization of tax credit and other investments on the Consolidated Statement of Income. The Company concluded at that time that there would be no material future cash flows related to these investments, in part because of the fact that DC Solar has ceased operations and its bankruptcy case had been converted from Chapter 11 to Chapter 7 on March 22, 2019. During the fourth quarter of 2019, the Company recorded a $1.6 million pre-tax impairment recovery related to DC Solar. There were no balances recorded in Accrued expenses and other liabilities — Unfunded commitments related to DC Solar as of December 31, 2019 and December 31, 2018. More discussion on the Company’s impairment evaluation and monitoring process of tax credit investments is provided in Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K.
ASC 740-10-25-6 states in part, that an entity shall initially recognize the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination. The term “more-likely-than-not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” include resolution of the related appeals or litigation processes, if any. The level of evidence that is necessary and appropriate to support the technical merits of a tax position is subject to judgment and depends on available information as of the balance sheet date. The Company received a “should” level legal opinion from an external law firm supporting the legal structure of these investments for tax credit purposes. A subsequent measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the latest quarterly reporting date. A change in judgment that results in a subsequent derecognition or change in measurement of a tax position is recognized as a discrete item in the period in which the change occurs.
Investors in DC Solar funds, including the Company, received tax credits for making renewable energy investments. Between 2014 and 2018, the Company had invested in four DC Solar energy tax credit funds and claimed tax credits of approximately $53.9 million, partially reduced by a deferred tax liability of $5.7 million related to the 50% tax basis reduction, for a net impact of $48.2 million to the Consolidated Financial Statements.
The Company, in coordination with other fund investors, engaged an unaffiliated third party inventory firm to investigate the actual number of mobile solar generators in existence. Based on the inventory report, none of the mobile service generators that had been purchased by the Company’s 2017 and 2018 tax credit funds were found. On the other hand, a vast majority of the mobile solar generators purchased by the Company’s 2014 and 2015 tax credit funds were found. Based on the inventory information, as well as management’s best judgments regarding the future settlement of the related tax positions with the IRS, the Company concluded that a portion of the previously claimed tax credits would be recaptured. During the year ended December 31, 2019, the Company reversed $33.6 million out of the $53.9 million previously claimed tax credits, and $3.5 million out of the $5.7 million deferred tax liability, resulting in $30.1 million of additional income tax expense. The Company continues to conduct an ongoing investigation related to this matter. For additional information on the risks surrounding the Company’s investments in tax-advantaged projects, see Item 1A. Risk Factors in this Form 10-K. Management regularly reviews the Company’s tax positions and deferred tax balances. Factors considered in this analysis include the Company’s ability to generate future taxable income, implement tax-planning strategies (as defined in ASC 740, Income Taxes) and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversals of existing taxable temporary differences. The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized and settled. Net deferred tax assets decreased $11.2 million or 9% to $106.5 million as of December 31, 2019, compared to $117.6 million as of December 31, 2018, mainly attributable to a decrease in tax credit carryforwards. For additional details on the components of net deferred tax assets, see Note 14 — Income Taxes to the Consolidated Financial Statements.
40

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 and the related products and services provided, and reflect how financial information is currently evaluated by management. For additional description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 21 — Business Segments to the Consolidated Financial Statements in this Form 10-K.
During the first quarter of 2019, the Company enhanced its segment cost allocation methodology related to stock compensation expense and bonus accrual. Effective first quarter of 2019, stock compensation expense is allocated to all three segments, whereas it was previously recorded in the Other segment as a corporate expense. In addition, bonus expense is now allocated at a more granular level at the segment level at the time of accrual. For comparability, segment information for the years ended December 31, 2018 and 2017 have been restated to conform to the current presentation. During the third quarter of 2019, the Company enhanced its funds transfer pricing (“FTP”) methodology related to deposits by setting a minimum floor rate for the FTP credits for deposits in consideration of the flattened and inverted yield curve. This methodology has been retrospectively applied to segment financial results throughout the year of 2019. This change in FTP methodology related to deposits had no impact on 2018 and 2017 segment results.
The following tables present the selected segment information in 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31, 2019
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Net interest income before provision for credit losses |  | $ | 696,551 |  |  | $ | 651,413 |  |  | $ | 119,849 |  |  | $ | 1,467,813 |
Provision for credit losses |  | 14,178 |  |  | 84,507 |  |  | — |  |  | 98,685 |
Noninterest income |  | 57,920 |  |  | 134,622 |  |  | 16,835 |  |  | 209,377 |
Noninterest expense |  | 343,001 |  |  | 263,064 |  |  | 128,523 |  |  | 734,588 |
Segment income before income taxes |  | 397,292 |  |  | 438,464 |  |  | 8,161 |  |  | 843,917 |
Segment net income |  | $ | 284,161 |  |  | $ | 313,833 |  |  | $ | 76,041 |  |  | $ | 674,035 |
Average loans |  | $ | 10,647,814 |  |  | $ | 22,725,322 |  |  | $ | — |  |  | $ | 33,373,136 |
Average deposits |  | $ | 25,124,827 |  |  | $ | 8,591,285 |  |  | $ | 2,330,958 |  |  | $ | 36,047,070 |

($ in thousands) |  | Year Ended December 31, 2018
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Net interest income before provision for credit losses |  | $ | 727,215 |  |  | $ | 605,650 |  |  | $ | 53,643 |  |  | $ | 1,386,508 |
Provision for credit losses |  | 9,364 |  |  | 54,891 |  |  | — |  |  | 64,255 |
Noninterest income |  | 85,607 |  |  | 110,287 |  |  | 15,015 |  |  | 210,909 |
Noninterest expense |  | 341,396 |  |  | 237,520 |  |  | 135,550 |  |  | 714,466 |
Segment income (loss) before income taxes |  | 462,062 |  |  | 423,526 |  |  | (66,892 | ) |  | 818,696 |
Segment net income |  | $ | 330,683 |  |  | $ | 303,553 |  |  | $ | 69,465 |  |  | $ | 703,701 |
Average loans |  | $ | 9,469,764 |  |  | $ | 20,760,250 |  |  | $ | — |  |  | $ | 30,230,014 |
Average deposits |  | $ | 24,700,474 |  |  | $ | 6,897,424 |  |  | $ | 1,632,351 |  |  | $ | 33,230,249 |

41

($ in thousands) |  | Year Ended December 31, 2017
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Net interest income before provision for credit losses |  | $ | 590,821 |  |  | $ | 553,817 |  |  | $ | 40,431 |  |  | $ | 1,185,069 |
Provision for credit losses |  | 1,812 |  |  | 44,454 |  |  | — |  |  | 46,266 |
Noninterest income |  | 54,451 |  |  | 110,089 |  |  | 93,208 |  |  | 257,748 |
Noninterest expense |  | 323,318 |  |  | 200,153 |  |  | 137,980 |  |  | 661,451 |
Segment income (loss) before income taxes |  | 320,142 |  |  | 419,299 |  |  | (4,341 | ) |  | 735,100 |
Segment net income |  | $ | 187,571 |  |  | $ | 246,404 |  |  | $ | 71,649 |  |  | $ | 505,624 |
Average loans |  | $ | 8,107,502 |  |  | $ | 19,145,254 |  |  | $ | — |  |  | $ | 27,252,756 |
Average deposits |  | $ | 24,647,741 |  |  | $ | 4,893,341 |  |  | $ | 1,272,693 |  |  | $ | 30,813,775 |

Consumer and Business Banking
The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management, and foreign exchange services.
The Consumer and Business Banking segment reported net income of $284.2 million in 2019, compared with $330.7 million in 2018. The $46.5 million or 14% decrease in segment income reflected decreases in net interest income before provision for credit losses and noninterest income, partially offset by a decrease in income tax expense. Net interest income before provision for credit losses for this segment was $696.6 million in 2019, a decrease of $30.7 million or 4%, compared with $727.2 million in 2018. This decrease was primarily due to an increase in deposit cost of funds, partially offset by the impact of loan growth. Noninterest income was $57.9 million in 2019, a decrease of $27.7 million or 32%, compared with $85.6 million in 2018. Noninterest income in 2018 included a pre-tax gain of $31.5 million recognized in 2018 from the sale of the Bank’s eight DCB branches. Excluding the impact of this non-recurring item, Consumer and Business Banking’s noninterest income in 2019 increased $3.8 million or 7% from $54.1 million in 2018. The decrease in income tax expense reflected the decrease in segment income before income taxes between 2019 and 2018. Average loans for this segment was $10.65 billion in 2019, an increase of $1.18 billion or 12% from $9.47 billion in 2018, which was primarily driven by an increase in single-family residential loans. Average deposits for this segment was $25.12 billion in 2019, which remained relatively flat as compared with average deposits of $24.7 billion in 2018.
The Consumer and Business Banking segment reported net income of $330.7 million in 2018, compared with $187.6 million in 2017. The $143.1 million or 76% increase in segment net income reflected increases in net interest income before provision for credit losses and noninterest income, partially offset by an increase in noninterest expense. Net interest income before provision for credit losses was $727.2 million in 2018, an increase of $136.4 million or 23%, compared with $590.8 million in 2017. This increase was primarily attributable to higher FTP credits received for deposits, partially offset by the impact of an increase in deposit cost of funds. Noninterest income was $85.6 million in 2018, an increase of $31.2 million or 57%, compared with $54.5 million in 2017. Excluding the impact of the aforementioned non-recurring sale of the Bank’s eight DCB branches, noninterest income in 2018 remained relatively flat compared with 2017. Noninterest expense was $341.4 million in 2018, an increase of $18.1 million or 6%, compared with $323.3 million in 2017. The increase was primarily due to an increase in compensation and employee benefits driven by increased investment in human capital and technology. Average loans for this segment were $9.47 billion in 2018, an increase of $1.36 billion or 17% from $8.11 billion in 2017, which was primarily driven by an increase in single-family residential loans. Average deposits for this segment were $24.70 billion in 2018 which remained relatively flat as compared with average deposits of $24.65 billion in 2017.
Commercial Banking
The Commercial Banking segment primarily generates commercial loans and deposits. Commercial loan products include commercial business loans and lines of credit, trade finance loans and letters of credit, CRE loans, construction lending, affordable housing loans and letters of credit, asset-based lending, and equipment financings. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.
42

The Commercial Banking segment reported net income of $313.8 million in 2019, compared with $303.6 million in 2018. The $10.3 million or 3% increase in segment net income reflected increases in net interest income before provision for credit losses and noninterest income, partially offset by increases in provision for credit losses and noninterest expense. Net interest income before provision for credit loss was $651.4 million in 2019, an increase of $45.7 million or 8%, compared with $605.7 million in 2018. This increase was primarily due to loan growth. Noninterest income was $134.6 million in 2019, an increase of $24.3 million or 22%, compared with $110.3 million in 2018. This increase was mainly attributable to an increase in interest rate contracts and other derivative income driven by strong customer demand for interest rate swaps. Provision for credit losses was $84.5 million in 2019, an increase of $29.6 million or 54%, compared with $54.9 million in 2018. This increase was primarily due to loan portfolio growth, increased charge-offs, and a downward migration in the credit risk ratings of C&I loans. Noninterest expense was $263.1 million in 2019, an increase of $25.6 million or 11%, compared with $237.5 million in 2018. The increase was primarily due to increases in compensation and employee benefits driven by increased investments in human capital to support the business growth. Average Loans for this segment were $22.73 billion in 2019, an increase of $1.97 billion or 9% from $20.76 billion in 2018, which was primarily driven by growth in C&I and CRE loans. Average deposits for this segment was $8.59 billion in 2019, an increase of $1.69 billion or 25% from $6.90 billion in 2018, which was primarily driven by growth in time deposits and interest-bearing checking deposits.
The Commercial Banking segment reported net income of $303.6 million in 2018, compared with $246.4 million in 2017. The $57.2 million or 23% increase in segment net income reflected a decrease in income tax expense and an increase in net interest income before provision for credit losses, partially offset by an increase in noninterest expense. The decrease in income tax expense was primarily due to the decrease of the effective income tax rate as a result of the enactment of the Tax Act. Net interest income before provision for credit losses was $605.7 million in 2018, an increase of $51.9 million or 9%, compared with $553.8 million in 2017. This increase was primarily attributable to loan growth and higher FTP credits received for deposits, partially offset by higher FTP charges on loans. Noninterest expense was $237.5 million in 2018, an increase of $37.3 million or 19% from $200.2 million in 2017. The increase was primarily due to increases in compensation and employee benefits driven by increased investments in human capital. Average loans for this segment were $20.76 billion in 2018, an increase of $1.61 billion or 8% from $ 19.15 billion in 2017, which was primarily driven by increases in CRE and C&I loans. Average deposits for this segment was $6.90 billion in 2018, an increase of $2.01 billion or 41% from $4.89 billion in 2017, which was primarily driven by growth in noninterest-bearing demand deposits, money market accounts and time deposits.
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, the Consumer and Business Banking and the Commercial Banking segments.
The Other segment reported segment income before income taxes of $8.2 million and segment net income of $76.0 million in 2019, reflecting an income tax benefit of $67.9 million. The Other segment reported segment loss before income taxes of $66.9 million and segment net income of $69.5 million in 2018, reflecting income tax benefit of $136.4 million. The increase in segment income before income taxes between 2019 and 2018 was primarily driven by an increase in net interest income before provision for credit losses and a decrease in noninterest expense. Net interest income before provision for credit loss was $119.8 million in 2019, an increase of $66.2 million or 123%, compared with $53.6 million in 2018. This increase reflected an increase in the net spread between the total internal FTP charges for loans and the total internal FTP credits for deposits, which widened due to the flattened and inverted yield curve in 2019. Noninterest expense was $128.5 million in 2019, a decrease of $7.0 million or 5%, compared with $135.6 million in 2018, primarily due to a decrease in compensation and employee benefits. This decrease reflected a one-time stock-based compensation and severance expense recognized in 2018.
The Other segment reported segment loss before income taxes of $66.9 million and segment net income of $69.5 million in 2018, reflecting income tax benefit of $136.4 million. The Other segment reported segment loss before income taxes of $4.3 million and segment net income of $71.6 million in 2017, reflecting income tax benefit of $76.0 million. This change in segment loss before income taxes was primarily driven by a decrease in noninterest income, partially offset by an increase in net interest income before provision for credit loss. Noninterest income was $15.0 million in 2018, a decrease of $78.2 million or 84%, compared with $93.2 million in 2017. Noninterest income in 2017 included a pre-tax gain of $71.7 million from the sale of a commercial property in California. Excluding the impact of this nonrecurring item, noninterest income for this segment decreased $6.5 million or 30% during 2018. This $6.5 million decrease was primarily driven by decreases in rental income and lower net gains on sales of AFS investment securities, partially offset by an increase in foreign exchange income due to remeasurement of balance sheet items denominated in foreign currencies. Net interest income before provision for credit loss was $53.6 million in 2018, an increase of $13.2 million or 33%, compared with $40.4 million in 2017. This increase reflected an increase in the net spread between the total internal FTP charges for loans and the total internal FTP credits for deposits provided to the Consumer and Business Banking and Commercial Banking segments.
43

The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments. Income tax expense is allocated to the Consumer and Business Banking, as well as the Commercial Banking segments by applying segment effective tax rates to the segment income before income taxes.
Balance Sheet Analysis
The following table presents a discussion of the significant changes between December 31, 2019 and 2018:
Selected Consolidated Balance Sheet Data

($ in thousands) |  | December 31, |  | Change
| 2019 |  | 2018 |  | $ |  | %
ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,261,149 |  |  | $ | 3,001,377 |  |  | $ | 259,772 |  |  | 9 | %
Interest-bearing deposits with banks |  | 196,161 |  |  | 371,000 |  |  | (174,839 | ) |  | (47 | )%
Resale agreements |  | 860,000 |  |  | 1,035,000 |  |  | (175,000 | ) |  | (17 | )%
AFS investment securities, at fair value |  | 3,317,214 |  |  | 2,741,847 |  |  | 575,367 |  |  | 21 | %
Restricted equity securities, at cost |  | 78,580 |  |  | 74,069 |  |  | 4,511 |  |  | 6 | %
Loans held-for-sale |  | 434 |  |  | 275 |  |  | 159 |  |  | 58 | %
Loans held-for-investment (net of allowance for loan losses of $358,287 in 2019 and $311,322 in 2018) |  | 34,420,252 |  |  | 32,073,867 |  |  | 2,346,385 |  |  | 7 | %
Investments in qualified affordable housing partnerships, net |  | 207,037 |  |  | 184,873 |  |  | 22,164 |  |  | 12 | %
Investments in tax credit and other investments, net |  | 254,140 |  |  | 231,635 |  |  | 22,505 |  |  | 10 | %
Premises and equipment |  | 118,364 |  |  | 119,180 |  |  | (816 | ) |  | (1 | )%
Goodwill |  | 465,697 |  |  | 465,547 |  |  | 150 |  |  | 0 | %
Operating lease right-of-use assets |  | 99,973 |  |  | — |  |  | 99,973 |  |  | 100 | %
Other assets |  | 917,095 |  |  | 743,686 |  |  | 173,409 |  |  | 23 | %
TOTAL |  | $ | 44,196,096 |  |  | $ | 41,042,356 |  |  | $ | 3,153,740 |  |  | 8 | %
LIABILITIES |  |  |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 11,080,036 |  |  | $ | 11,377,009 |  |  | $ | (296,973 | ) |  | (3 | )%
Interest-bearing |  | 26,244,223 |  |  | 24,062,619 |  |  | 2,181,604 |  |  | 9 | %
Total deposits |  | 37,324,259 |  |  | 35,439,628 |  |  | 1,884,631 |  |  | 5 | %
Short-term borrowings |  | 28,669 |  |  | 57,638 |  |  | (28,969 | ) |  | (50 | )%
FHLB advances |  | 745,915 |  |  | 326,172 |  |  | 419,743 |  |  | 129 | %
Repurchase agreements |  | 200,000 |  |  | 50,000 |  |  | 150,000 |  |  | 300 | %
Long-term debt and finance lease liabilities |  | 152,270 |  |  | 146,835 |  |  | 5,435 |  |  | 4 | %
Operating lease liabilities |  | 108,083 |  |  | — |  |  | 108,083 |  |  | 100 | %
Accrued expenses and other liabilities |  | 619,283 |  |  | 598,109 |  |  | 21,174 |  |  | 4 | %
Total liabilities |  | 39,178,479 |  |  | 36,618,382 |  |  | 2,560,097 |  |  | 7 | %
STOCKHOLDERS’ EQUITY |  | 5,017,617 |  |  | 4,423,974 |  |  | 593,643 |  |  | 13 | %
TOTAL |  | $ | 44,196,096 |  |  | $ | 41,042,356 |  |  | $ | 3,153,740 |  |  | 8 | %

As of December 31, 2019, total assets were $44.20 billion, an increase of $3.15 billion or 8% from December 31, 2018, primarily due to loan growth and an increase in AFS investment securities. The loan growth was primarily driven by strong increases in single-family residential and CRE loans. These increases were partially offset by decrease s in resale agreements and interest-bearing deposits with banks.
As of December 31, 2019, total liabilities were $39.18 billion, an increase of $2.56 billion or 7% from December 31, 2018, primarily due to an increase in deposits, which was largely driven by an increase in time deposits.
As of December 31, 2019, total stockholders’ equity was $5.02 billion, an increase of $593.6 million or 13% from December 31, 2018. This increase was primarily due to $674.0 million in net income and a $39.8 million increase in accumulated other comprehensive income, partially offset by $155.3 million of cash dividends declared on common stock.
44

Investment Securities
The Company maintains an investment securities portfolio that consists of high quality and liquid securities with relatively short durations to minimize overall interest rate and liquidity risks. The Company’s AFS investment securities provide:

• | interest income for earnings and yield enhancement;

• | availability for funding needs arising during the normal course of business;

• | the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and

• | collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.

Available-for-Sale Investment Securities
As of December 31, 2019 and 2018, the Company’s AFS investment securities portfolio was primarily comprised of mortgage-backed securities and debt securities issued by U.S. government agency and U.S. government sponsored enterprises, foreign bonds and U.S. Treasury securities. The portfolio also included collateralized loan obligations (“CLOs”) as of December 31, 2019. Investment securities classified as AFS are carried at their fair value with the corresponding changes in fair value recorded in Accumulated other comprehensive loss, net of tax, as a component of Stockholders’ equity on the Consolidated Balance Sheet.
The following table presents the amortized cost and fair value of AFS investment securities by major categories as of December 31, 2019, 2018 and 2017:

($ in thousands) |  | December 31,
| 2019 |  | 2018 |  | 2017
| Amortized Cost (1) |  | Fair Value (1) |  | Amortized Cost (1) |  | Fair Value (1) |  | Amortized Cost |  | Fair Value
AFS investment securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 177,215 |  |  | $ | 176,422 |  |  | $ | 577,561 |  |  | $ | 564,815 |  |  | $ | 651,395 |  |  | $ | 640,280 |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 584,275 |  |  | 581,245 |  |  | 219,485 |  |  | 217,173 |  |  | 206,815 |  |  | 203,392 |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities |  | 1,598,261 |  |  | 1,607,368 |  |  | 1,377,705 |  |  | 1,355,296 |  |  | 1,528,217 |  |  | 1,509,228 |
Municipal securities |  | 101,621 |  |  | 102,302 |  |  | 82,965 |  |  | 82,020 |  |  | 99,636 |  |  | 99,982 |
Non-agency mortgage-backed securities |  | 133,439 |  |  | 135,098 |  |  | 35,935 |  |  | 35,983 |  |  | 9,136 |  |  | 9,117 |
Corporate debt securities |  | 11,250 |  |  | 11,149 |  |  | 11,250 |  |  | 10,869 |  |  | 37,585 |  |  | 37,003 |
Foreign bonds (1) |  | 354,481 |  |  | 354,172 |  |  | 489,378 |  |  | 463,048 |  |  | 505,396 |  |  | 486,408 |
Asset-backed securities |  | 66,106 |  |  | 64,752 |  |  | 12,621 |  |  | 12,643 |  |  | — |  |  | — |
CLOs |  | 294,000 |  |  | 284,706 |  |  | — |  |  | — |  |  | — |  |  | — |
Other securities (2) |  | — |  |  | — |  |  | — |  |  | — |  |  | 31,887 |  |  | 31,342 |
Total AFS investment securities |  | $ | 3,320,648 |  |  | $ | 3,317,214 |  |  | $ | 2,806,900 |  |  | $ | 2,741,847 |  |  | $ | 3,070,067 |  |  | $ | 3,016,752 |

(1) | There were no securities of a single non-governmental agency issuer that exceeded 10% of stockholder’s equity as of December 31, 2019. As of December 31, 2018, securities issued by the International Bank for Reconstruction and Development with an amortized cost of $474.9 million and a fair value of $448.6 million, exceeded 10% of stockholders’ equity.

(2) | Other securities are comprised of mutual funds, which are equity securities with readily determinable fair value. Prior to the adoption of ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, these securities were reported as AFS investment securities with changes in fair value recorded in other comprehensive income (loss). Upon adoption of ASU 2016-01, which became effective January 1, 2018, these securities were reclassified from AFS investment securities, at fair value to Investments in tax credit and other investments, net, on the Consolidated Balance Sheet with changes in fair value recorded in net income.

The fair value of AFS investment securities totaled $3.32 billion as of December 31, 2019, compared with $2.74 billion as of December 31, 2018. The $575.4 million or 21% increase was primarily attributable to purchases of U.S. government agency and U.S. government sponsored enterprise debt securities, U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities and CLOs, partially offset by the sales, repayments and redemptions of U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities and U.S. government agency and U.S. government sponsored enterprise debt securities, and maturities and sales of U.S. Treasury securities.
45

The Company’s investment securities portfolio had an effective duration of 3.1 years as of December 31, 2019, which shortened from 4.1 years as of December 31, 2018, primarily due to the decline in interest rates. As of December 31, 2019 and 2018, 97% and 99%, respectively, of the carrying value of the investment securities portfolio was rated “AA-” or “Aa3” or higher by nationally recognized statistical rating organizations. Credit ratings of BBB- or higher by S&P and Fitch Ratings (“Fitch”), or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are considered investment grade.
The Company’s AFS investment securities are carried at fair value with changes in fair value reflected in Other comprehensive income (loss) unless a security is deemed to be OTTI. Net unrealized losses on AFS investment securities were $3.4 million as of December 31, 2019, which improved from net unrealized losses of $65.1 million as of December 31, 2018. This change was primarily due to the decrease in interest rates. Gross unrealized losses on AFS investment securities totaled $23.2 million as of December 31, 2019, compared with $70.8 million as of December 31, 2018. Of the securities with gross unrealized losses, substantially all were rated investment grade as of both December 31, 2019 and 2018, classified primarily based upon the lowest of the credit ratings issued by S&P, Moody’s, or Fitch. As of December 31, 2019, the Company had no intention to sell securities with unrealized losses and believed it was more-likely-than-not that it would not be required to sell such securities before recovery of their amortized cost.
The Company assesses individual securities for OTTI for each reporting period. There were no OTTI credit losses recognized in earnings for both 2019 and 2018. For a complete discussion and disclosure related to the Company’s investment securities, see Note 1 — Summary of Significant Accounting Policies, Note 3 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 5 — Securities to the Consolidated Financial Statements in this Form 10-K.
46

The following table presents the weighted-average yields and contractual maturity distribution, excluding periodic principal payments, of the Company’s investment securities as of December 31, 2019 and 2018. Actual maturities of mortgage-backed securities can differ from contractual maturities as the borrowers have the right to prepay obligations with or without prepayment penalties. In addition, factors such as prepayments and interest rates may affect the yields on the carrying values of mortgage-backed securities.

|  | December 31,
($ in thousands) |  | 2019 |  | 2018
| Amortized Cost |  | Fair Value |  | Yield (1) |  | Amortized Cost |  | Fair Value |  | Yield (1)
AFS investment securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | $ | — |  |  | $ | — |  |  | — | % |  | $ | 50,134 |  |  | $ | 49,773 |  |  | 1.08 | %
Maturing after one year through five years |  | 177,215 |  |  | 176,422 |  |  | 1.33 | % |  | 527,427 |  |  | 515,042 |  |  | 1.69 | %
Total |  | 177,215 |  |  | 176,422 |  |  | 1.33 | % |  | 577,561 |  |  | 564,815 |  |  | 1.64 | %
U.S. government agency and U.S. government sponsored enterprise debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | 328,628 |  |  | 326,341 |  |  | 2.62 | % |  | 26,955 |  |  | 26,909 |  |  | 3.51 | %
Maturing after one year through five years |  | 158,490 |  |  | 156,431 |  |  | 2.69 | % |  | 10,181 |  |  | 10,037 |  |  | 2.18 | %
Maturing after five years through ten years |  | 44,908 |  |  | 45,189 |  |  | 2.38 | % |  | 114,771 |  |  | 113,812 |  |  | 2.30 | %
Maturing after ten years |  | 52,249 |  |  | 53,284 |  |  | 2.78 | % |  | 67,578 |  |  | 66,415 |  |  | 2.79 | %
Total |  | 584,275 |  |  | 581,245 |  |  | 2.63 | % |  | 219,485 |  |  | 217,173 |  |  | 2.59 | %
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | 112 |  |  | 113 |  |  | 2.72 | % |  | 2,633 |  |  | 2,600 |  |  | 1.62 | %
Maturing after one year through five years |  | 23,144 |  |  | 23,289 |  |  | 2.29 | % |  | 30,808 |  |  | 30,487 |  |  | 2.11 | %
Maturing after five years through ten years |  | 85,970 |  |  | 88,261 |  |  | 2.72 | % |  | 96,822 |  |  | 95,365 |  |  | 2.68 | %
Maturing after ten years |  | 1,489,035 |  |  | 1,495,705 |  |  | 2.66 | % |  | 1,247,442 |  |  | 1,226,844 |  |  | 2.74 | %
Total |  | 1,598,261 |  |  | 1,607,368 |  |  | 2.66 | % |  | 1,377,705 |  |  | 1,355,296 |  |  | 2.72 | %
Municipal securities (2): |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | 37,136 |  |  | 37,291 |  |  | 2.67 | % |  | 29,167 |  |  | 28,974 |  |  | 2.60 | %
Maturing after one year through five years |  | 18,699 |  |  | 18,948 |  |  | 2.52 | % |  | 48,398 |  |  | 47,681 |  |  | 2.39 | %
Maturing after five years through ten years |  | 12,151 |  |  | 12,451 |  |  | 3.15 | % |  | 500 |  |  | 476 |  |  | 2.38 | %
Maturing after ten years |  | 33,635 |  |  | 33,612 |  |  | 2.63 | % |  | 4,900 |  |  | 4,889 |  |  | 5.03 | %
Total |  | 101,621 |  |  | 102,302 |  |  | 2.69 | % |  | 82,965 |  |  | 82,020 |  |  | 2.62 | %
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing after one year through five years |  | 7,920 |  |  | 7,914 |  |  | 3.78 | % |  | — |  |  | — |  |  | — | %
Maturing after ten years |  | 125,519 |  |  | 127,184 |  |  | 3.21 | % |  | 35,935 |  |  | 35,983 |  |  | 3.67 | %
Total |  | 133,439 |  |  | 135,098 |  |  | 3.24 | % |  | 35,935 |  |  | 35,983 |  |  | 3.67 | %
Corporate debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | 1,250 |  |  | 1,262 |  |  | 5.20 | % |  | 1,250 |  |  | 1,231 |  |  | 5.50 | %
Maturing after one year through five years |  | 10,000 |  |  | 9,887 |  |  | 4.00 | % |  | 10,000 |  |  | 9,638 |  |  | 4.00 | %
Total |  | 11,250 |  |  | 11,149 |  |  | 4.13 | % |  | 11,250 |  |  | 10,869 |  |  | 4.17 | %
Foreign bonds: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | 354,481 |  |  | 354,172 |  |  | 2.22 | % |  | 439,378 |  |  | 414,065 |  |  | 2.19 | %
Maturing after one year through five years |  | — |  |  | — |  |  | — | % |  | 50,000 |  |  | 48,983 |  |  | 3.12 | %
Total |  | 354,481 |  |  | 354,172 |  |  | 2.22 | % |  | 489,378 |  |  | 463,048 |  |  | 2.28 | %
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing after ten years |  | 66,106 |  |  | 64,752 |  |  | 2.65 | % |  | 12,621 |  |  | 12,643 |  |  | 3.22 | %
CLOs: |  |  |  |  |  |  |  |  |  |  |  |
Maturing after ten years |  | 294,000 |  |  | 284,706 |  |  | 3.08 | % |  | — |  |  | — |  |  | — | %
Total AFS investment securities |  | $ | 3,320,648 |  |  | $ | 3,317,214 |  |  | 2.60 | % |  | $ | 2,806,900 |  |  | $ | 2,741,847 |  |  | 2.43 | %
Total aggregated by maturities: |  |  |  |  |  |  |  |  |  |  |  |
Maturing in one year or less |  | $ | 721,607 |  |  | $ | 719,179 |  |  | 2.43 | % |  | $ | 549,517 |  |  | $ | 523,552 |  |  | 2.18 | %
Maturing after one year through five years |  | 395,468 |  |  | 392,891 |  |  | 2.11 | % |  | 676,814 |  |  | 661,868 |  |  | 1.91 | %
Maturing after five years through ten years |  | 143,029 |  |  | 145,901 |  |  | 2.65 | % |  | 212,093 |  |  | 209,653 |  |  | 2.47 | %
Maturing after ten years |  | 2,060,544 |  |  | 2,059,243 |  |  | 2.76 | % |  | 1,368,476 |  |  | 1,346,774 |  |  | 2.78 | %
Total AFS investment securities |  | $ | 3,320,648 |  |  | $ | 3,317,214 |  |  | 2.60 | % |  | $ | 2,806,900 |  |  | $ | 2,741,847 |  |  | 2.43 | %

(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.

47

Loan Portfolio
The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include commercial loans, which consist of C&I, CRE, multifamily residential, and construction and land loans; and consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Total net loans, including loans held-for-sale, were $34.42 billion as of December 31, 2019, an increase of $2.35 billion or 7% from $32.07 billion as of December 31, 2018. This was primarily driven by increases of $1.07 billion or 18% in single-family residential loans and $1.02 billion or 11% in CRE loans. The composition of the loan portfolio as of December 31, 2019 was similar as compared with December 31, 2018.
The following table presents the composition of the Company’s total loan portfolio by loan type as of the periods indicated:

($ in thousands) |  | December 31,
| 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
| Amount (1) |  | % |  | Amount (1) |  | % |  | Amount (1) |  | % |  | Amount (1) |  | % |  | Amount (1) |  | %
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 12,150,931 |  |  | 35 | % |  | $ | 12,056,970 |  |  | 37 | % |  | $ | 10,697,231 |  |  | 37 | % |  | $ | 9,640,563 |  |  | 38 | % |  | $ | 8,991,535 |  |  | 38 | %
CRE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 10,278,448 |  |  | 30 | % |  | 9,260,199 |  |  | 28 | % |  | 8,758,818 |  |  | 31 | % |  | 7,890,368 |  |  | 31 | % |  | 7,471,812 |  |  | 32 | %
Multifamily residential |  | 2,856,374 |  |  | 8 | % |  | 2,470,668 |  |  | 8 | % |  | 2,094,255 |  |  | 7 | % |  | 1,711,680 |  |  | 6 | % |  | 1,524,367 |  |  | 6 | %
Construction and land |  | 628,499 |  |  | 2 | % |  | 538,794 |  |  | 2 | % |  | 659,697 |  |  | 2 | % |  | 674,754 |  |  | 3 | % |  | 628,260 |  |  | 3 | %
Total CRE |  | 13,763,321 |  |  | 40 | % |  | 12,269,661 |  |  | 38 | % |  | 11,512,770 |  |  | 40 | % |  | 10,276,802 |  |  | 40 | % |  | 9,624,439 |  |  | 41 | %
Total commercial |  | 25,914,252 |  |  | 75 | % |  | 24,326,631 |  |  | 75 | % |  | 22,210,001 |  |  | 77 | % |  | 19,917,365 |  |  | 78 | % |  | 18,615,974 |  |  | 79 | %
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 7,108,590 |  |  | 20 | % |  | 6,036,454 |  |  | 19 | % |  | 4,646,289 |  |  | 16 | % |  | 3,509,779 |  |  | 14 | % |  | 3,069,969 |  |  | 13 | %
HELOCs |  | 1,472,783 |  |  | 4 | % |  | 1,690,834 |  |  | 5 | % |  | 1,782,924 |  |  | 6 | % |  | 1,760,776 |  |  | 7 | % |  | 1,681,228 |  |  | 7 | %
Total residential mortgage |  | 8,581,373 |  |  | 24 | % |  | 7,727,288 |  |  | 24 | % |  | 6,429,213 |  |  | 22 | % |  | 5,270,555 |  |  | 21 | % |  | 4,751,197 |  |  | 20 | %
Other consumer |  | 282,914 |  |  | 1 | % |  | 331,270 |  |  | 1 | % |  | 336,504 |  |  | 1 | % |  | 315,219 |  |  | 1 | % |  | 276,577 |  |  | 1 | %
Total consumer |  | 8,864,287 |  |  | 25 | % |  | 8,058,558 |  |  | 25 | % |  | 6,765,717 |  |  | 23 | % |  | 5,585,774 |  |  | 22 | % |  | 5,027,774 |  |  | 21 | %
Total loans held-for-investment (2) |  | 34,778,539 |  |  | 100 | % |  | 32,385,189 |  |  | 100 | % |  | 28,975,718 |  |  | 100 | % |  | 25,503,139 |  |  | 100 | % |  | 23,643,748 |  |  | 100 | %
Allowance for loan losses |  | (358,287 | ) |  |  |  | (311,322 | ) |  |  |  | (287,128 | ) |  |  |  | (260,520 | ) |  |  |  | (264,959 | ) |  |
Loans held-for-sale (3) |  | 434 |  |  |  |  | 275 |  |  |  |  | 78,217 |  |  |  |  | 23,076 |  |  |  |  | 31,958 |  |  |
Total loans, net |  | $ | 34,420,686 |  |  |  |  | $ | 32,074,142 |  |  |  |  | $ | 28,766,807 |  |  |  |  | $ | 25,265,695 |  |  |  |  | $ | 23,410,747 |  |  |

(1) | Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(43.2) million, $(48.9) million, $(34.0) million, $1.2 million and $(16.0) million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2) | Includes ASC 310-30 discount of $14.3 million, $22.2 million, $35.3 million, $49.4 million and $80.1 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(3) | Includes $78.1 million of loans held-for-sale in Branch assets held-for-sale as of December 31, 2017.

Commercial
The commercial loan portfolio, which comprised 75% of total loans as of both December 31, 2019 and 2018, is discussed as follows.
Commercial — Commercial and Industrial Loans. C&I loans totaled $12.15 billion or 35% of total loans as of December 31, 2019 and $12.06 billion or 37% of total loans as of December 31, 2018. The C&I loan portfolio is well diversified by industry, with higher concentrations in the wholesale trade, manufacturing, energy, private equity, entertainment, and technology and life sciences. The Company monitors concentrations within C&I loan portfolio by customer exposure and industry classifications, setting diversification targets and limits for specialized portfolios. The Company’s wholesale trade exposure largely consists of U.S. domiciled companies, many of which are based in California, that import goods from Greater China for U.S. consumer consumption. The Company also had a portfolio of broadly syndicated C&I term loans, which totaled $894.6 million and $778.7 million as of December 31, 2019 and 2018, respectively. The majority of the C&I loans have variable interest rates.
48

Commercial — Commercial Real Estate Loans. CRE loans totaled $10.28 billion or 30% of total loans as of December 31, 2019, and $9.26 billion or 28% of total loans as of December 31, 2018. 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. Loans are underwritten with conservative standards for cash flows, debt service coverage and loan-to-value. As of December 31, 2019 and 2018, 20% and 21%, respectively, of the total CRE loans were owner occupied properties; the remainder were non-owner occupied properties where 50% or more of the debt service for the loan is primarily provided by unaffiliated rental income from a third party. Interest rates on CRE loans may be fixed, variable or hybrid.
The following tables provide a summary of the Company’s CRE, multifamily residential, and construction and land loans by geographic market as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| CRE |  | % |  | Multifamily Residential |  | % |  | Construction and Land |  | % |  | Total |  | %
Geographic markets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Southern California |  | $ | 5,446,786 |  |  |  |  | $ | 1,728,086 |  |  |  |  | $ | 247,170 |  |  |  |  | $ | 7,422,042 |  |  |
Northern California |  | 2,359,808 |  |  |  |  | 603,135 |  |  |  |  | 203,706 |  |  |  |  | 3,166,649 |  |  |
California |  | 7,806,594 |  |  | 76 | % |  | 2,331,221 |  |  | 82 | % |  | 450,876 |  |  | 72 | % |  | 10,588,691 |  |  | 77 | %
New York |  | 701,902 |  |  | 7 | % |  | 116,923 |  |  | 4 | % |  | 79,962 |  |  | 13 | % |  | 898,787 |  |  | 7 | %
Texas |  | 628,576 |  |  | 6 | % |  | 124,646 |  |  | 4 | % |  | 8,604 |  |  | 1 | % |  | 761,826 |  |  | 6 | %
Washington |  | 306,247 |  |  | 3 | % |  | 55,913 |  |  | 2 | % |  | 37,552 |  |  | 6 | % |  | 399,712 |  |  | 3 | %
Arizona |  | 149,151 |  |  | 1 | % |  | 37,208 |  |  | 1 | % |  | 6,951 |  |  | 1 | % |  | 193,310 |  |  | 1 | %
Nevada |  | 102,891 |  |  | 1 | % |  | 138,577 |  |  | 5 | % |  | 40 |  |  | 0 | % |  | 241,508 |  |  | 2 | %
Other markets |  | 583,087 |  |  | 6 | % |  | 51,886 |  |  | 2 | % |  | 44,514 |  |  | 7 | % |  | 679,487 |  |  | 4 | %
Total loans (1) |  | $ | 10,278,448 |  |  | 100 | % |  | $ | 2,856,374 |  |  | 100 | % |  | $ | 628,499 |  |  | 100 | % |  | $ | 13,763,321 |  |  | 100 | %

49

($ in thousands) |  | December 31, 2018
| CRE |  | % |  | Multifamily Residential |  | % |  | Construction and Land |  | % |  | Total |  | %
Geographic markets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Southern California |  | $ | 5,106,098 |  |  |  |  | $ | 1,512,753 |  |  |  |  | $ | 215,370 |  |  |  |  | $ | 6,834,221 |  |  |
Northern California |  | 2,112,789 |  |  |  |  | 600,566 |  |  |  |  | 133,828 |  |  |  |  | 2,847,183 |  |  |
California |  | 7,218,887 |  |  | 79 | % |  | 2,113,319 |  |  | 86 | % |  | 349,198 |  |  | 65 | % |  | 9,681,404 |  |  | 79 | %
New York |  | 651,510 |  |  | 7 | % |  | 110,840 |  |  | 4 | % |  | 46,702 |  |  | 9 | % |  | 809,052 |  |  | 7 | %
Texas |  | 508,473 |  |  | 5 | % |  | 72,585 |  |  | 3 | % |  | 12,055 |  |  | 2 | % |  | 593,113 |  |  | 5 | %
Washington |  | 288,522 |  |  | 3 | % |  | 58,294 |  |  | 2 | % |  | 29,079 |  |  | 5 | % |  | 375,895 |  |  | 3 | %
Arizona |  | 108,102 |  |  | 1 | % |  | 24,808 |  |  | 1 | % |  | 24,890 |  |  | 5 | % |  | 157,800 |  |  | 1 | %
Nevada |  | 94,924 |  |  | 1 | % |  | 44,052 |  |  | 2 | % |  | 47,897 |  |  | 9 | % |  | 186,873 |  |  | 2 | %
Other markets |  | 389,781 |  |  | 4 | % |  | 46,770 |  |  | 2 | % |  | 28,973 |  |  | 5 | % |  | 465,524 |  |  | 3 | %
Total loans (1) |  | $ | 9,260,199 |  |  | 100 | % |  | $ | 2,470,668 |  |  | 100 | % |  | $ | 538,794 |  |  | 100 | % |  | $ | 12,269,661 |  |  | 100 | %

(1) | Loans net of ASC 310-30 discount.

As illustrated by the above tables, the distribution of the CRE loan portfolio reflects the Company’s geographical footprint, with a primary concentration in California accounting for 76% and 79% of the CRE loan portfolio as of December 31, 2019 and 2018, respectively. 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.
The Company’s CRE portfolio is broadly diversified by property type, which serves to mitigate some of the geographical concentration in California. The following table summarizes the Company’s CRE loan portfolio by property type, as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
| Amount |  | % |  | Amount |  | %
Property types: |  |  |  |  |  |  |  |
Retail |  | $ | 3,300,106 |  |  | 32 | % |  | $ | 3,171,374 |  |  | 34 | %
Office |  | 2,375,087 |  |  | 23 | % |  | 2,160,382 |  |  | 23 | %
Industrial |  | 2,163,769 |  |  | 21 | % |  | 1,883,444 |  |  | 20 | %
Hotel/Motel |  | 1,865,031 |  |  | 18 | % |  | 1,619,905 |  |  | 17 | %
Other |  | 574,455 |  |  | 6 | % |  | 425,094 |  |  | 6 | %
Total CRE loans (1) |  | $ | 10,278,448 |  |  | 100 | % |  | $ | 9,260,199 |  |  | 100 | %

(1) | Loans net of ASC 310-30 discount.

Commercial — Multifamily Residential Loans. Multifamily residential loans totaled $2.86 billion and $2.47 billion as of December 31, 2019 and 2018, respectively, and accounted for 8% of total loans as of both dates. The multifamily residential loan portfolio is largely made up of loans secured by residential properties with five or more units in the Bank’s primary lending areas. As of December 31, 2019 and 2018, 82% and 86%, respectively, of the Company’s multifamily residential loans were concentrated in California. 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 seven years.
Commercial — Construction and Land Loans. Construction and land loans totaled $628.5 million and $538.8 million as of December 31, 2019 and 2018, respectively, and accounted for 2% of total loans as of both dates. Included in the portfolio were construction loans of $558.2 million with additional unfunded commitments of $351.4 million as of December 31, 2019, and construction loans of $477.2 million with additional unfunded commitments of $525.1 million as of December 31, 2018. The construction loans provide financing for hotels, offices and industrial structures. Similar to CRE and multifamily residential loans, the Company has a geographic concentration of construction and land loans in California.
50

Consumer
The following tables summarize the Company’s single-family residential and HELOC loan portfolios by geographic market as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Single- Family Residential |  | % |  | HELOCs |  | % |  | Total |  | %
Geographic markets: |  |  |  |  |  |  |  |  |  |  |  |
Southern California |  | $ | 3,081,368 |  |  |  |  | $ | 702,915 |  |  |  |  | $ | 3,784,283 |  |  |
Northern California |  | 1,038,945 |  |  |  |  | 309,883 |  |  |  |  | 1,348,828 |  |  |
California |  | 4,120,313 |  |  | 58 | % |  | 1,012,798 |  |  | 69 | % |  | 5,133,111 |  |  | 60 | %
New York |  | 1,657,732 |  |  | 23 | % |  | 257,344 |  |  | 17 | % |  | 1,915,076 |  |  | 22 | %
Washington |  | 630,307 |  |  | 9 | % |  | 133,625 |  |  | 9 | % |  | 763,932 |  |  | 9 | %
Massachusetts |  | 235,393 |  |  | 3 | % |  | 31,310 |  |  | 2 | % |  | 266,703 |  |  | 3 | %
Texas |  | 188,838 |  |  | 3 | % |  | — |  |  | — | % |  | 188,838 |  |  | 2 | %
Other markets |  | 276,007 |  |  | 4 | % |  | 37,706 |  |  | 3 | % |  | 313,713 |  |  | 4 | %
Total (1) |  | $ | 7,108,590 |  |  | 100 | % |  | $ | 1,472,783 |  |  | 100 | % |  | $ | 8,581,373 |  |  | 100 | %
Lien priority: |  |  |  |  |  |  |  |  |  |  |  |
First mortgage |  | $ | 7,108,588 |  |  | 100 | % |  | $ | 1,238,186 |  |  | 84 | % |  | $ | 8,346,774 |  |  | 97 | %
Junior lien mortgage |  | 2 |  |  | 0 | % |  | 234,597 |  |  | 16 | % |  | 234,599 |  |  | 3 | %
Total (1) |  | $ | 7,108,590 |  |  | 100 | % |  | $ | 1,472,783 |  |  | 100 | % |  | $ | 8,581,373 |  |  | 100 | %

($ in thousands) |  | December 31, 2018
| Single- Family Residential |  | % |  | HELOCs |  | % |  | Total |  | %
Geographic markets: |  |  |  |  |  |  |  |  |  |  |  |
Southern California |  | $ | 2,768,725 |  |  |  |  | $ | 839,790 |  |  |  |  | $ | 3,608,515 |  |  |
Northern California |  | 954,835 |  |  |  |  | 350,008 |  |  |  |  | 1,304,843 |  |  |
California |  | 3,723,560 |  |  | 62 | % |  | 1,189,798 |  |  | 70 | % |  | 4,913,358 |  |  | 64 | %
New York |  | 1,165,135 |  |  | 19 | % |  | 279,792 |  |  | 17 | % |  | 1,444,927 |  |  | 19 | %
Washington |  | 572,017 |  |  | 9 | % |  | 149,579 |  |  | 9 | % |  | 721,596 |  |  | 9 | %
Massachusetts |  | 206,920 |  |  | 3 | % |  | 32,333 |  |  | 2 | % |  | 239,253 |  |  | 3 | %
Texas |  | 165,873 |  |  | 3 | % |  | — |  |  | — | % |  | 165,873 |  |  | 2 | %
Other markets |  | 202,949 |  |  | 4 | % |  | 39,332 |  |  | 2 | % |  | 242,281 |  |  | 3 | %
Total (1) |  | $ | 6,036,454 |  |  | 100 | % |  | $ | 1,690,834 |  |  | 100 | % |  | $ | 7,727,288 |  |  | 100 | %
Lien priority: |  |  |  |  |  |  |  |  |  |  |  |
First mortgage |  | $ | 6,036,450 |  |  | 100 | % |  | $ | 1,438,414 |  |  | 85 | % |  | $ | 7,474,864 |  |  | 97 | %
Junior lien mortgage |  | 4 |  |  | 0 | % |  | 252,420 |  |  | 15 | % |  | 252,424 |  |  | 3 | %
Total (1) |  | $ | 6,036,454 |  |  | 100 | % |  | $ | 1,690,834 |  |  | 100 | % |  | $ | 7,727,288 |  |  | 100 | %

(1) | Loans net of ASC 310-30 discount.

Consumer — Single-Family Residential Loans. Single-family residential loans totaled $7.11 billion or 20% of total loans as of December 31, 2019, and $6.04 billion or 19% of total loans as of December 31, 2018. The Company was in a first lien position for virtually all of the single-family residential loans as of both December 31, 2019 and 2018. Many of these loans are reduced documentation loans where a substantial down payment is required, resulting in a low loan-to-value ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and default rates. As of December 31, 2019 and 2018, 58% and 62% of the Company’s single-family residential loans, respectively, were concentrated in California. The Company offers a variety of first lien mortgage loan programs, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period.
51

Consumer — Home Equity Lines of Credit Loans. HELOCs totaled $1.47 billion or 4% of total loans as of December 31, 2019, and $1.69 billion or 5% of total loan portfolio as of December 31, 2018. The Company was in a first lien position for 84% and 85% of total HELOCs as of December 31, 2019 and 2018, respectively. Many of the loans within this portfolio are reduced documentation loans, where a substantial down payment is required, resulting in a low loan-to-value ratio at origination, typically 60% or less. These loans have historically experienced low delinquency and default rates. As of December 31, 2019 and 2018, 69% and 70% of the Company’s HELOCs, respectively, were concentrated in California. The HELOC portfolio is comprised largely of variable-rate loans.
All commercial and consumer loans originated are subject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of quality control procedures and periodic audits, including the review of lending and legal requirements, to ensure that the Company is in compliance with these requirements.
The following table presents the contractual loan maturities by loan categories and the contractual distribution of loans in those categories to changes in interest rates as of December 31, 2019:

($ in thousands) |  | Due within one year |  | Due after one year through five years |  | Due after five years |  | Total
Commercial: |  |  |  |  |  |  |  |
C&I |  | $ | 4,376,313 |  |  | $ | 6,365,319 |  |  | $ | 1,409,299 |  |  | $ | 12,150,931 |
CRE: |  |  |  |  |  |  |  |
CRE |  | 811,433 |  |  | 4,067,649 |  |  | 5,399,366 |  |  | 10,278,448 |
Multifamily residential |  | 89,387 |  |  | 564,010 |  |  | 2,202,977 |  |  | 2,856,374 |
Construction and land |  | 354,755 |  |  | 222,276 |  |  | 51,468 |  |  | 628,499 |
Total CRE |  | 1,255,575 |  |  | 4,853,935 |  |  | 7,653,811 |  |  | 13,763,321 |
Total commercial |  | 5,631,888 |  |  | 11,219,254 |  |  | 9,063,110 |  |  | 25,914,252 |
Consumer: |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | 159 |  |  | 9,389 |  |  | 7,099,042 |  |  | 7,108,590 |
HELOCs |  | — |  |  | 159 |  |  | 1,472,624 |  |  | 1,472,783 |
Total residential mortgage |  | 159 |  |  | 9,548 |  |  | 8,571,666 |  |  | 8,581,373 |
Other consumer |  | 193,319 |  |  | 75,238 |  |  | 14,357 |  |  | 282,914 |
Total consumer |  | 193,478 |  |  | 84,786 |  |  | 8,586,023 |  |  | 8,864,287 |
Total loans held-for-investment (1) |  | $ | 5,825,366 |  |  | $ | 11,304,040 |  |  | $ | 17,649,133 |  |  | $ | 34,778,539 |
Distribution of loans to changes in interest rates: |  |  |  |  |  |  |  |
Variable-rate loans |  | $ | 4,924,842 |  |  | $ | 9,996,181 |  |  | $ | 8,815,263 |  |  | $ | 23,736,286 |
Fixed-rate loans |  | 900,524 |  |  | 1,128,812 |  |  | 2,362,846 |  |  | 4,392,182 |
Hybrid adjustable-rate loans |  | — |  |  | 179,047 |  |  | 6,471,024 |  |  | 6,650,071 |
Total loans held-for-investment (1) |  | $ | 5,825,366 |  |  | $ | 11,304,040 |  |  | $ | 17,649,133 |  |  | $ | 34,778,539 |

(1) | Loans net of ASC 310-30 discount.

Purchased Credit-Impaired Loans
Loans acquired with evidence of credit deterioration since their origination and where it is probable that the Company will not collect all contractually required principal and interest payments are PCI loans. PCI loans are recorded at fair value at the date of acquisition. The carrying value of PCI loans totaled $222.9 million and $308.0 million as of December 31, 2019 and 2018, respectively. PCI loans are considered to be accruing due to the existence of the accretable yield, which represents the cash expected to be collected in excess of their carrying value, and which is not based on consideration given to contractual interest payments. The accretable yield was $50.5 million and $74.9 million as of December 31, 2019 and 2018, respectively. A nonaccretable difference is established for PCI loans to absorb losses expected on the contractual amounts of those loans, in excess of the fair value recorded as of the date of acquisition. Loan amounts absorbed by the nonaccretable difference do not affect the Consolidated Statement of Income or the allowance for credit losses. For additional details regarding PCI loans, see Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.
52

Loans Held-for-Sale
As of December 31, 2019 and 2018, loans held-for-sale of $434 thousand and $275 thousand, respectively, consisted of single-family residential loans. At the time of commitment to originate or purchase a loan, a loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future”, subject to periodic reviews under the Company’s evaluation processes, including asset/liability and credit risk management. If the Company subsequently changes its intent to hold certain loans, those loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value.
Loan Purchases, Transfers and Sales
All loans originated by the Company are underwritten pursuant to the Company’s policies and procedures. Although the Company’s primary focus is on directly originated loans, in certain circumstances the Company also invests in broadly syndicated and participation loans. The broadly syndicated C&I loans are marketed and sold primarily to institutional investors and generally more liquid than the Company’s directly originated loans. The Company may participate in these loans in the primary syndication market, or may purchase an interest in the post-syndication secondary market. As the Company typically receives more attractive financing terms on these loans, the Company is able to leverage the broadly syndicated portion of the loan portfolio in such a way that maximizes the levered return potential of the loan portfolio. The Company participates out interests in commercial loans to other financial institutions and also purchases participation loans from lead banks.
The following tables provide information about loan purchases, transfers and sales during the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31, 2019
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans purchased |  | $ | 397,615 |  |  | $ | — |  |  | $ | 8,988 |  |  | $ | — |  |  | $ | 117,227 |  |  | $ | — |  |  | $ | — |  |  | $ | 523,830 |
Loans transferred from held-for-investment to held-for-sale |  | $ | 245,002 |  |  | $ | 39,062 |  |  | $ | — |  |  | $ | 1,573 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 285,637 |
Write-downs to allowance for loan losses |  | $ | (789 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (789 | )
Loans sold: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 179,280 |  |  | $ | 39,062 |  |  | $ | — |  |  | $ | 1,573 |  |  | $ | 10,410 |  |  | $ | — |  |  | $ | — |  |  | $ | 230,325 |
Net gains |  | $ | 875 |  |  | $ | 3,045 |  |  | $ | — |  |  | $ | — |  |  | $ | 115 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,035 |
Purchased loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 66,511 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 66,510 |

53

($ in thousands) |  | Year Ended December 31, 2018
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans purchased |  | $ | 525,767 |  |  | $ | — |  |  | $ | 7,389 |  |  | $ | — |  |  | $ | 63,781 |  |  | $ | — |  |  | $ | — |  |  | $ | 596,937 |
Loans transferred from held-for-investment to held-for-sale |  | $ | 404,321 |  |  | $ | 62,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,981 |  |  | $ | — |  |  | $ | — |  |  | $ | 481,593 |
Loans transferred from held-for-sale to held-for-investment |  | $ | 2,306 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,306 |
Write-downs to allowance for loan losses |  | $ | (14,620 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (14,620 | )
Loans sold: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 212,485 |  |  | $ | 62,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 34,966 |  |  | $ | — |  |  | $ | — |  |  | $ | 309,742 |
Net gains |  | $ | 1,129 |  |  | $ | 4,876 |  |  | $ | — |  |  | $ | — |  |  | $ | 552 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,557 |
Purchased loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 201,359 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 201,359 |
Net gains |  | $ | 33 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 33 |

($ in thousands) |  | Year Ended December 31, 2017
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans purchased |  | $ | 503,359 |  |  | $ | — |  |  | $ | 2,311 |  |  | $ | — |  |  | $ | 29,060 |  |  | $ | — |  |  | $ | — |  |  | $ | 534,730 |
Loans transferred from held-for-investment to held-for-sale |  | $ | 476,644 |  |  | $ | 52,217 |  |  | $ | 531 |  |  | $ | 1,609 |  |  | $ | 249 |  |  | $ | — |  |  | $ | 3,706 |  |  | $ | 534,956 |
Write-downs to allowance for loan losses |  | $ | (473 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (473 | )
Loans sold: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 99,064 |  |  | $ | 52,217 |  |  | $ | 531 |  |  | $ | 1,609 |  |  | $ | 21,058 |  |  | $ | — |  |  | $ | 3,726 |  |  | $ | 178,205 |
Net gains |  | $ | 1,740 |  |  | $ | 6,207 |  |  | $ | 19 |  |  | $ | 94 |  |  | $ | 283 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,343 |
Purchased loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount |  | $ | 377,580 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 22,179 |  |  | $ | 399,759 |
Net gains (losses) |  | $ | 1,644 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,056 | ) |  | $ | 588 |
Valuation adjustments (2) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (61 | ) |  | $ | (61 | )

(1) | Net gains on sales of purchased loans in 2019 were insignificant.

(2) | The Company records valuation adjustments in Net gains on sales of loans on the Consolidated Statement of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value.

54

Deposits and Other Sources of Funds
Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short and long-term borrowings, and long-term debt. See Item 7. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-K for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funds as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, |  | Change
| 2019 |  | 2018 |
| Amount |  | % |  | Amount |  | % |  | $ |  | %
Deposits |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing demand |  | $ | 11,080,036 |  |  | 30 | % |  | $ | 11,377,009 |  |  | 32 | % |  | $ | (296,973 | ) |  | (3 | )%
Interest-bearing checking |  | 5,200,755 |  |  | 14 | % |  | 4,584,447 |  |  | 13 | % |  | 616,308 |  |  | 13 | %
Money market |  | 8,711,964 |  |  | 23 | % |  | 8,262,677 |  |  | 23 | % |  | 449,287 |  |  | 5 | %
Savings |  | 2,117,196 |  |  | 6 | % |  | 2,146,429 |  |  | 6 | % |  | (29,233 | ) |  | (1 | )%
Time deposits |  | 10,214,308 |  |  | 27 | % |  | 9,069,066 |  |  | 26 | % |  | 1,145,242 |  |  | 13 | %
Total deposits |  | $ | 37,324,259 |  |  | 100 | % |  | $ | 35,439,628 |  |  | 100 | % |  | $ | 1,884,631 |  |  | 5 | %
Other Funds |  |  |  |  |  |  |  |  |  |  |  |
Short-term borrowings |  | $ | 28,669 |  |  |  |  | $ | 57,638 |  |  |  |  | $ | (28,969 | ) |  | (50 | )%
FHLB advances |  | 745,915 |  |  |  |  | 326,172 |  |  |  |  | 419,743 |  |  | 129 | %
Repurchase agreements |  | 200,000 |  |  |  |  | 50,000 |  |  |  |  | 150,000 |  |  | 300 | %
Long-term debt |  | 147,101 |  |  |  |  | 146,835 |  |  |  |  | 266 |  |  | 0 | %
Total other funds |  | $ | 1,121,685 |  |  |  |  | $ | 580,645 |  |  |  |  | $ | 541,040 |  |  | 93 | %
Total sources of funds |  | $ | 38,445,944 |  |  |  |  | $ | 36,020,273 |  |  |  |  | $ | 2,425,671 |  |  | 7 | %

Deposits
The Company offers a wide variety of deposit products to both consumer and commercial customers. The Company’s deposit strategy is to grow and retain relationship-based deposits, which provides a stable and low-cost source of funding and liquidity to the Company.
Total deposits were $37.32 billion as of December 31, 2019, an increase of $1.88 billion or 5% from $35.44 billion as of December 31, 2018. This increase was primarily due to growth of $1.15 billion or 13% in time deposits. Noninterest-bearing demand deposits comprised 30% and 32% of total deposits as of December 31, 2019 and 2018, respectively. Additional information regarding the impact of deposits on net interest income and a comparison of average deposit balances and rates are provided in Item 7 — MD&A — Results of Operations — Net Interest Income in this Form 10-K.
Domestic time deposits of $100,000 or more totaled $7.01 billion, representing 19% of the total deposit portfolio as of December 31, 2019. The following table presents the maturity distribution of domestic time deposits of $100,000 or more:

($ in thousands) |  | December 31, 2019
3 months or less |  | $ | 2,922,242 |
Over 3 months through 6 months |  | 1,829,332 |
Over 6 months through 12 months |  | 1,849,287 |
Over 12 months |  | 413,421 |
Total |  | $ | 7,014,282 |

Foreign time deposits in the $100,000 or greater category included (i) $611.0 million and $504.0 million of deposits held in the Company’s branch in Hong Kong as of December 31, 2019 and 2018, respectively; and (ii) $595.1 million and $701.6 million of deposits held in the Company’s subsidiary bank in China as of December 31, 2019 and 2018, respectively.
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Other Funds
The Company’s other sources of funding consist of short-term borrowings, FHLB advances, repurchase agreements and long-term debt.
The Company had $28.7 million of short-term borrowings outstanding as of December 31, 2019, compared with $57.6 million as of December 31, 2018. This funding was entered into by the Company’s subsidiary, East West Bank (China) Limited, and will mature in 2020. As of December 31, 2019, short-term borrowings had fixed interest rates ranging from 3.65% to 3.73%.
The following table presents the selected information for short-term borrowings as of the periods indicated:

($ in thousands) |  | 2019 |  | 2018
Year-end balance |  | $ | 28,669 |  |  | $ | 57,638 |
Weighted-average rate on amount outstanding at year-end |  | 3.69 | % |  | 4.21 | %
Maximum month-end balance |  | $ | 59,225 |  |  | $ | 58,523 |
Average amount outstanding |  | $ | 44,511 |  |  | $ | 31,612 |
Weighted-average rate |  | 3.90 | % |  | 4.28 | %

FHLB advances were $745.9 million as of December 31, 2019, an increase of $419.7 million or 129% from $326.2 million as of December 31, 2018. As of December 31, 2019, FHLB advances had fixed and floating interest rates ranging from 1.82% to 2.34% with remaining maturities between one month and 2.9 years.
Gross repurchase agreements totaled $450.0 million as of both December 31, 2019 and 2018. Resale and repurchase agreements are reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. Net repurchase agreements totaled $200.0 million as of December 31, 2019, after netting $250.0 million of gross repurchase agreements against gross resale agreements. This compares with net repurchase agreements which totaled $50.0 million as of December 31, 2018, after netting $400.0 million of gross repurchase agreements against gross resale agreements. As of December 31, 2019, gross repurchase agreements had interest rates ranging from 4.12% to 4.21%, original terms between 4.0 years and 9.0 years and remaining maturities between 2.8 years and 3.7 years.
Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the securities are sold. As of December 31, 2019, the collateral for the repurchase agreements was comprised of U.S. Treasury securities and U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities. To ensure the market value of the underlying collateral remains sufficient, the Company monitors the fair value of collateral pledged relative to the principal amounts borrowed under repurchase agreements. The Company manages liquidity risks related to the repurchase agreements by sourcing funds from a diverse group of counterparties and entering into repurchase agreements with longer durations, when appropriate. For additional details, see Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-K.
The Company uses long-term debt to provide funding to acquire interest-earning assets, as well as to enhance liquidity and regulatory capital. Long-term debt totaled $147.1 million and $146.8 million as of December 31, 2019 and 2018, respectively. Long-term debt is comprised of junior subordinated debt, which qualifies as Tier 2 capital for regulatory purposes. The junior subordinated debt was issued in connection with the Company’s various pooled trust preferred securities offerings and includes the value of the common stock issued by six wholly-owned subsidiaries of the Company in conjunction with these offerings. The junior subordinated debt had a weighted-average interest rate of 3.98% and 3.77% during 2019 and 2018, respectively, with remaining maturities ranging between 14.9 years to 17.7 years as of December 31, 2019.
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Foreign Outstandings
The Company’s overseas offices, which include the branch in Hong Kong and the subsidiary bank in China, are subject to the general risks inherent in conducting business in foreign countries, such as regulations, or economic and political uncertainties. In addition, the Company’s financial assets held in the Hong Kong branch and the subsidiary bank in China may be affected by fluctuations in currency exchange rates or other factors. The Company’s country risk exposure is largely concentrated in China and Hong Kong. The following table presents the major financial assets held in the Company’s overseas offices as of December 31, 2019, 2018 and 2017:

($ in thousands) |  | December 31,
| 2019 |  | 2018 |  | 2017
| Amount |  | % of Total Consolidated Assets |  | Amount |  | % of Total Consolidated Assets |  | Amount |  | % of Total Consolidated Assets
Hong Kong Branch: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 511,639 |  |  | 1 | % |  | $ | 360,786 |  |  | 1 | % |  | $ | 151,631 |  |  | 0 | %
AFS investment securities (1) |  | $ | 204,948 |  |  | 0 | % |  | $ | 221,932 |  |  | 1 | % |  | $ | 242,107 |  |  | 1 | %
Loans held-for-investment (2)(3) |  | $ | 573,305 |  |  | 1 | % |  | $ | 653,860 |  |  | 2 | % |  | $ | 713,728 |  |  | 2 | %
Total assets |  | $ | 1,361,652 |  |  | 3 | % |  | $ | 1,247,207 |  |  | 3 | % |  | $ | 1,104,497 |  |  | 3 | %
Subsidiary Bank in China: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 548,930 |  |  | 1 | % |  | $ | 695,527 |  |  | 2 | % |  | $ | 626,658 |  |  | 2 | %
Interest-bearing deposits with banks |  | $ | 142,587 |  |  | 0 | % |  | $ | 221,000 |  |  | 1 | % |  | $ | 188,422 |  |  | 1 | %
Loans held-for-investment (3) |  | $ | 819,110 |  |  | 2 | % |  | $ | 777,412 |  |  | 2 | % |  | $ | 484,214 |  |  | 1 | %
Total assets |  | $ | 1,520,627 |  |  | 3 | % |  | $ | 1,700,357 |  |  | 4 | % |  | $ | 1,303,199 |  |  | 4 | %

(1) | Comprises of foreign bonds and U.S. Treasury securities as of both December 31, 2019 and 2018. Comprised of U.S. Treasury securities, U.S. government agency and U.S. government sponsored enterprise debt securities, and foreign bonds as of December 31, 2017.

(2) | Includes ASC 310-30 discount of $42 thousand, $103 thousand and $353 thousand as of December 31, 2019, 2018 and 2017, respectively.

(3) | Primarily comprises of C&I loans.

The following table presents the total revenue generated by the Company’s overseas offices in 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Amount |  | % of Total Consolidated Revenue |  | Amount |  | % of Total Consolidated Revenue |  | Amount |  | % of Total Consolidated Revenue
Hong Kong Branch: |  |  |  |  |  |  |  |  |  |  |  |
Total revenue |  | $ | 33,791 |  |  | 2 | % |  | $ | 31,122 |  |  | 2 | % |  | $ | 28,096 |  |  | 2 | %
Subsidiary Bank in China: |  |  |  |  |  |  |  |  |  |  |  |
Total revenue |  | $ | 32,071 |  |  | 2 | % |  | $ | 34,143 |  |  | 2 | % |  | $ | 24,235 |  |  | 2 | %

Capital
The Company maintains an adequate 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.
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The Company’s stockholders’ equity was $5.02 billion as of December 31, 2019, an increase of $593.6 million or 13% from $4.42 billion as of December 31, 2018. The Company’s primary source of capital is the retention of its operating earnings. Retained earnings were $3.69 billion as of December 31, 2019, an increase of $529.2 million or 17% from $3.16 billion as of December 31, 2018. The increase primarily reflected $674.0 million in net income, partially offset by $155.3 million of cash dividends declared during 2019. In addition, the beginning balance of retained earnings increased $10.5 million as of January 1, 2019, because the Company recognized a cumulative adjustment related to the deferred gains on the sale and leaseback transactions, which had occurred prior to the date of adoption of ASU 2016-02, Leases (Topic 842). For other factors that contributed to the changes in stockholders’ equity, refer to Item 8. Financial Statements and Supplemental Data — Consolidated Statement of Changes in Stockholders’ Equity in this Form 10-K.
Book value was $34.46 per common share as of December 31, 2019, compared with $30.52 per common share as of December 31, 2018. Our annual cash dividend on common stock was $1.055 per share in 2019, compared with $0.86 per share in 2018, an increase of $0.195 or 23%. In January 2020, the Company’s Board of Directors declared first quarter 2020 cash dividends of $0.275 per common share. The dividend was paid on February 14, 2020 to stockholders of record as of February 3, 2020.
Regulatory Capital and Ratios
The federal banking agencies have risk-based capital adequacy guidelines intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with a banking organization’s operations. See Item 1. Business — Supervision and Regulation — Capital Requirements in this Form 10-K for additional details.
The Company is committed to maintaining capital at a level sufficient to assure the Company’s investors, customers and regulators that the Company and the Bank are financially sound. As of December 31, 2019 and 2018, both the Company and the Bank were considered “well-capitalized,” meeting all capital requirements on a fully phased-in basis under the Basel III Capital Rules.
The following table presents the Company’s and the Bank’s capital ratios as of December 31, 2019 and 2018 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:

|  | Basel III Capital Rules
| December 31, 2019 |  | December 31, 2018 |  | Minimum Regulatory Requirements |  | Well-Capitalized Requirements |  | Fully Phased- in Minimum Regulatory Requirements
| Company |  | East West Bank |  | Company |  | East West Bank |  |  |
Risk-Based Capital Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |
CET 1 capital |  | 12.9 | % |  | 12.9 | % |  | 12.2 | % |  | 12.1 | % |  | 4.5 | % |  | 6.5 | % |  | 7.0 | %
Tier 1 capital |  | 12.9 | % |  | 12.9 | % |  | 12.2 | % |  | 12.1 | % |  | 6.0 | % |  | 8.0 | % |  | 8.5 | %
Total capital |  | 14.4 | % |  | 13.9 | % |  | 13.7 | % |  | 13.1 | % |  | 8.0 | % |  | 10.0 | % |  | 10.5 | %
Tier 1 leverage (1) |  | 10.3 | % |  | 10.3 | % |  | 9.9 | % |  | 9.8 | % |  | 4.0 | % |  | 5.0 | % |  | 4.0 | %

(1) | The Tier 1 leverage well-capitalized requirement applies to the Bank only since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

In 2019, the Company’s CET1 and Tier 1 capital ratios increased by 73 basis points, the total risk-based and Tier 1 leverage capital ratios improved by 75 and 45 basis points, respectively. Tier 1 capital of $4.55 billion as of December 31, 2019 increased $579.8 million or 15% from $3.97 billion as of December 31, 2018. Total risk-based capital of $5.06 billion as of December 31, 2019 increased $625.3 million or 14% from $4.44 billion as of December 31, 2018. Total risk-weighted assets were $35.14 billion as of December 31, 2019, an increase of $2.64 billion or 8% from $32.50 billion as of December 31, 2018.
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Other Matters
LIBOR Transition
On July 27, 2017, the United Kingdom’s FCA, which regulates the LIBOR, announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The Company’s commercial and consumer businesses issue, trade, and hold various products that are currently indexed to LIBOR. A portion of the Company’s loans, derivatives, investment securities, resale agreements, FHLB advances, and deposits, as well as all the junior subordinated debt and repurchase agreements are indexed to LIBOR and mature after 2021. The volume of the Company’s products that are indexed to LIBOR is significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks.
The ARRC has proposed the SOFR as its preferred alternative rate for LIBOR. In early 2019, the ARRC released final recommended fallback contract language for new issuances of LIBOR indexed bilateral business loans, syndicated loans, floating-rate notes and securitizations. The International Swaps and Derivatives Association, Inc. is expected to provide guidance on fallback contract language.
Due to the uncertainty surrounding the future of LIBOR, the transition is anticipated to span several reporting periods through the end of 2021. Certain actions already taken by the Company related to the transition of LIBOR include (1) establishing a cross-functional team to identify, assess and monitor risks associated with the transition of LIBOR and other benchmark rates, (2) developing an inventory of LIBOR indexed products, and (3) implementing more robust fallback contract language for new loans, which identifies LIBOR cessation trigger events, provides for an alternative index and permits an adjustment to the margin as applicable. The Company monitors this activity and continues to evaluate the related risks. The Company’s cross-functional team also manages communication of the Company’s transition plans with both internal and external stakeholders and ensures that the Company appropriately updates its business processes, analytical tools, information systems and contract language to minimize disruption during and after the LIBOR transition. For additional information related to the potential impact surrounding the transition from LIBOR on the Company’s business, see Item 1A. Risk Factors in this Form 10-K.
Off-Balance Sheet Arrangements and Contractual Obligations
In the course of the Company’s business, the Company may enter into or be a party to transactions that are not recorded on the Consolidated Balance Sheet and are considered to be off-balance sheet arrangements. Off-balance sheet arrangements are any contractual arrangements to which a nonconsolidated entity is a party and under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by the Company in a nonconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or research and development services with the Company.
Off-Balance Sheet Arrangements
Commitments to extend credit
As a financial service provider, the Company routinely enters into commitments to extend credit such as loan commitments, commercial letters of credit for foreign and domestic trade, standby letters of credit (“SBLCs”), and financial guarantees to meet the financing needs of our customers. Many of these commitments to extend credit may expire without being drawn upon. The credit policies used in underwriting loans to customers are also used to extend these commitments. Under some of these contractual agreements, the Company may also have liabilities contingent upon the occurrence of certain events. The Company’s liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of its lending activities. Information about the Company’s loan commitments, commercial letters of credit and SBLCs is provided in Note 15 — Commitments, Contingencies and Related Party Transactions to the Consolidated Financial Statements in this Form 10-K.
Guarantees
In the ordinary course of business, the Company enters into various guarantee agreements in which the Company sells or securitizes loans with recourse. Under these guarantee arrangements, the Company is contingently obligated to repurchase the recourse component of the loans when the loans default. Additional information regarding guarantees is provided in Note 15 — Commitments, Contingencies and Related Party Transactions to the Consolidated Financial Statements in this Form 10-K.
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Contractual Obligations
The following table presents the Company’s significant fixed and determinable contractual obligations, along with the categories and payment dates described below as of December 31, 2019:

($ in thousands) |  | Payment Due by Period
| Less than 1 year |  | 1-3 years |  | 3-5 years |  | After 5 years |  | Indeterminate Maturity (1) |  | Total
On-balance sheet obligations: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 9,653,276 |  |  | $ | 488,295 |  |  | $ | 43,657 |  |  | $ | 29,080 |  |  | $ | 27,109,951 |  |  | $ | 37,324,259 |
FHLB advances |  | 100,000 |  |  | 645,915 |  |  | — |  |  | — |  |  | — |  |  | 745,915 |
Gross repurchase agreements |  | — |  |  | 150,000 |  |  | 300,000 |  |  | — |  |  | — |  |  | 450,000 |
Affordable housing partnership and other tax credit investment commitments |  | 121,875 |  |  | 45,498 |  |  | 23,898 |  |  | 2,538 |  |  | — |  |  | 193,809 |
Short-term borrowings |  | 28,669 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 28,669 |
Long-term debt (2) |  | — |  |  | — |  |  | — |  |  | 147,101 |  |  | — |  |  | 147,101 |
Operating lease liabilities |  | 29,747 |  |  | 44,509 |  |  | 19,725 |  |  | 14,102 |  |  | — |  |  | 108,083 |
Finance lease liabilities |  | 930 |  |  | 1,548 |  |  | 397 |  |  | 2,294 |  |  | — |  |  | 5,169 |
Projected cash payments for post-retirement benefit plan |  | 339 |  |  | 708 |  |  | 751 |  |  | 7,103 |  |  | — |  |  | 8,901 |
Total on-balance sheet obligations |  | 9,934,836 |  |  | 1,376,473 |  |  | 388,428 |  |  | 202,218 |  |  | 27,109,951 |  |  | 39,011,906 |
Off-balance sheet obligations: |  |  |  |  |  |  |  |  |  |  |  |
Contractual interest payments (3) |  | 201,752 |  |  | 78,506 |  |  | 22,231 |  |  | 62,684 |  |  | — |  |  | 365,173 |
Total off-balance sheet obligations |  | 201,752 |  |  | 78,506 |  |  | 22,231 |  |  | 62,684 |  |  | — |  |  | 365,173 |
Total contractual obligations |  | $ | 10,136,588 |  |  | $ | 1,454,979 |  |  | $ | 410,659 |  |  | $ | 264,902 |  |  | $ | 27,109,951 |  |  | $ | 39,377,079 |

(1) | Includes deposits with no defined maturity, such as noninterest-bearing demand, interest-bearing checking, money-market and savings accounts.

(2) | Represents junior subordinated debt, which is subject to call options where early redemption requires appropriate notice.

(3) | Represents the future interest obligations related to interest-bearing time deposits, FHLB, gross repurchase agreements, short-term borrowings, long-term debt and financing lease liabilities in the normal course of business. These interest obligations assume no early debt redemption. The Company estimated variable interest rate payments using December 31, 2019 rates, which the company held constant until maturity.

Risk Management
Overview
In the course of conducting the Company’s businesses, the Company is exposed to a variety of risks, some of which are inherent to the financial services industry and others of which are more specific to the Company’s businesses. The Company operates under a Board approved ERM framework, which outlines its 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. Our ERM program identifies EWBC’s major risk categories as capital risk, strategic risk, credit risk, liquidity risk, market risk, operational risk, reputational risk, and legal and compliance risk. ERM is comprised of senior management of the Company and headed by the Chief Risk Officer.
The Board of Directors monitors the ERM program to ensure independent review and oversight of the Company’s risk appetite and control environment. The Risk Oversight Committee provides focused oversight of the Company’s identified enterprise risk categories on behalf of the full Board of Directors. Management applies various strategies to reduce the risks to which the Company’s operations are exposed and the risks are overseen by the various management committees of which the Risk Oversight Committee is the focal point for the monitoring and review of enterprise risk.
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Our ERM program is executed along the three lines of defense model, which provides for a consistent and standardized risk management control environment enterprise-wide. The first line of defense is comprised of production, operational, and support units. The second line of defense is comprised of various risk management and control functions charged with monitoring and managing specific major risk categories and/or risk subcategories. The third line of defense is comprised of the Internal Audit function and Independent Asset Review. Internal Audit provides assurance and evaluates the effectiveness of risk management, control, and governance processes as established by the Company. Internal Audit has organizational independence and objectivity, and reports directly to the Board’s Audit Committee. Further discussion and analyses of each major risk area are included in the following sub-sections of the Risk Management.
Credit Risk Management
Credit risk is the risk that a borrower or counterparty will fail to perform according to terms and conditions of a loan or investment and expose the Company to loss. Credit risk exists with many of our assets and exposures such as loans and certain derivatives. The majority of our credit risk is associated with lending activities.
The Risk Oversight Committee has primary oversight responsibility of identifying enterprise risk categories including credit risk. The Risk Oversight Committee monitors management’s assessment of asset quality and credit risk trends, credit quality administration and underwriting standards, portfolio credit risk management and processes to enable management to control credit risk including diversification and liquidity. At the management level, the Credit Risk Management Committee has primary oversight responsibility for credit risk. The Credit Risk Management Committee keeps senior management and the Board’s Risk Oversight Committee informed about enterprise-wide credit risk issues. The Senior Credit Supervision function manages credit policy and provides the resources to manage the line of business transactional credit risk, assuring that all exposure is risk rated according to the requirements of the credit risk rating policy. The Senior Credit Supervision function reports on the overall credit risk portfolio to senior management and the Risk Oversight Committee. The Independent Asset Review function supports a strong credit risk management culture by providing independent and objective assessments of the quality of underwriting and documentation, reporting directly to the Board’s Risk Oversight Committee.
Non-PCI Nonperforming Assets
Non-PCI nonperforming assets are comprised of nonaccrual loans, OREO, and other nonperforming assets. OREO and other nonperforming assets are repossessed assets and properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. Generally, loans are 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 conditions and the adequacy of collateral, if any. For additional details regarding the Company’s non-PCI nonaccrual loan policy, see Note 1 — Summary of Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements in this Form 10-K.
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The following table presents information regarding non-PCI nonperforming assets as of the periods indicated:

($ in thousands) |  | December 31,
| 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Nonaccrual loans: |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 74,835 |  |  | $ | 43,840 |  |  | $ | 69,213 |  |  | $ | 81,256 |  |  | $ | 64,883 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 16,441 |  |  | 24,218 |  |  | 26,986 |  |  | 26,907 |  |  | 29,345 |
Multifamily residential |  | 819 |  |  | 1,260 |  |  | 1,717 |  |  | 2,984 |  |  | 16,268 |
Construction and land |  | — |  |  | — |  |  | 3,973 |  |  | 5,326 |  |  | 700 |
Total CRE |  | 17,260 |  |  | 25,478 |  |  | 32,676 |  |  | 35,217 |  |  | 46,313 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 14,865 |  |  | 5,259 |  |  | 5,923 |  |  | 4,214 |  |  | 8,759 |
HELOCs |  | 10,742 |  |  | 8,614 |  |  | 4,006 |  |  | 2,130 |  |  | 1,743 |
Total residential mortgage |  | 25,607 |  |  | 13,873 |  |  | 9,929 |  |  | 6,344 |  |  | 10,502 |
Other consumer |  | 2,517 |  |  | 2,502 |  |  | 2,491 |  |  | — |  |  | — |
Total nonaccrual loans |  | 120,219 |  |  | 85,693 |  |  | 114,309 |  |  | 122,817 |  |  | 121,698 |
OREO, net |  | 125 |  |  | 133 |  |  | 830 |  |  | 6,745 |  |  | 7,034 |
Other nonperforming assets |  | 1,167 |  |  | 7,167 |  |  | — |  |  | — |  |  | — |
Total nonperforming assets |  | $ | 121,511 |  |  | $ | 92,993 |  |  | $ | 115,139 |  |  | $ | 129,562 |  |  | $ | 128,732 |
Non-PCI nonperforming assets to total assets (1) |  | 0.27 | % |  | 0.23 | % |  | 0.31 | % |  | 0.37 | % |  | 0.40 | %
Non-PCI nonaccrual loans to loans held-for-investment (1) |  | 0.35 | % |  | 0.26 | % |  | 0.39 | % |  | 0.48 | % |  | 0.51 | %
Troubled debt restructurings (“TDR”) included in nonperforming loans |  | $ | 54,566 |  |  | $ | 30,315 |  |  | $ | 62,909 |  |  | $ | 38,983 |  |  | $ | 53,095 |
Allowance for loan losses to non-PCI nonaccrual loans |  | 298.03 | % |  | 363.30 | % |  | 251.19 | % |  | 212.12 | % |  | 217.72 | %

(1) | Total assets and loans held-for-investment include PCI loans of $222.9 million, $308.0 million, $482.3 million, $642.4 million and $970.8 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

Period-over-period changes to nonaccrual loans represent loans that are placed on nonaccrual status in accordance with the Company’s accounting policy, offset by reductions for loans that are paid down, charged off, sold, foreclosed, or no longer classified as nonaccrual as a result of continued performance and improvement in the borrowers’ financial conditions and loan repayments. Nonaccrual loans were $120.2 million as of December 31, 2019, an increase of $34.5 million or 40% from $85.7 million as of December 31, 2018. This increase in nonaccrual loans was primarily driven by three energy loans totaling $33.0 million from our C&I loan portfolio. These loans were primarily secured by collateral. Nonaccrual loans as a percentage of loans held-for-investment increased to 0.35% as of December 31, 2019 from 0.26% as of December 31, 2018. C&I nonaccrual loans were 62% and 51% of total nonaccrual loans as of December 31, 2019 and 2018, respectively. Credit risks related to the C&I nonaccrual loans were partially mitigated by the collateral in place. As of December 31, 2019, $35.6 million or 30% of the $120.2 million non-PCI nonaccrual loans consisted of nonaccrual loans that were less than 90 days delinquent. In comparison, $23.8 million or 28% of the $85.7 million non-PCI nonaccrual loans consisted of nonaccrual loans that were less than 90 days delinquent as of December 31, 2018.
TDR are loans, where contractual terms have been modified by the Company for economic or legal reasons related to borrower’s financial difficulties, and grants a concession to the borrower that the Company would not otherwise consider. For additional details regarding the Company’s TDR policy, see Note 1 — Summary of Significant Accounting Policies — Troubled Debt Restructurings to the Consolidated Financial Statements in this Form 10-K.
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The following table presents the performing and nonperforming TDRs by loan type as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
| Performing TDRs |  | Nonperforming TDRs |  | Performing TDRs |  | Nonperforming TDRs
Commercial: |  |  |  |  |  |  |  |
C&I |  | $ | 39,208 |  |  | $ | 41,014 |  |  | $ | 13,248 |  |  | $ | 10,715 |
CRE: |  |  |  |  |  |  |  |
CRE |  | 5,177 |  |  | 11,503 |  |  | 6,134 |  |  | 17,272 |
Multifamily residential |  | 3,644 |  |  | 229 |  |  | 4,300 |  |  | 260 |
Construction and land |  | 19,691 |  |  | — |  |  | — |  |  | — |
Total CRE |  | 28,512 |  |  | 11,732 |  |  | 10,434 |  |  | 17,532 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | 7,346 |  |  | 1,098 |  |  | 8,201 |  |  | 325 |
HELOCs |  | 2,832 |  |  | 722 |  |  | 1,342 |  |  | 1,743 |
Total residential mortgage |  | 10,178 |  |  | 1,820 |  |  | 9,543 |  |  | 2,068 |
Total TDRs |  | $ | 77,898 |  |  | $ | 54,566 |  |  | $ | 33,225 |  |  | $ | 30,315 |

As of December 31, 2019, performing TDRs were $77.9 million, an increase of $44.7 million or 134% from $33.2 million as of December 31, 2018. This increase mainly reflected performing C&I, construction and HELOC loans that were newly designated as TDRs and the transfer of C&I, CRE and HELOC loans from nonperforming status, partially offset by paydowns and payoffs. Nonperforming TDRs were $54.6 million as of December 31, 2019, an increase of $24.3 million or 80% from $30.3 million as of December 31, 2018. This increase reflected nonperforming C&I, single-family residential and HELOC loans that were newly designated as TDRs, partially offset by paydowns and payoffs of several nonperforming C&I and CRE loans, and the transfer of C&I, CRE and HELOC loans to performing status.
The Company’s impaired loans are predominantly made up of non-PCI loans held-for-investment on nonaccrual status and any non-PCI loans modified as a TDR, on either accrual or nonaccrual status. For additional details regarding the Company’s impaired loan policy, see Note 1 — Summary of Significant Accounting Policies — Impaired Loans to the Consolidated Financial Statements in this Form 10-K.
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The following table presents the recorded investment balances for non-PCI impaired loans as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
| Amount |  | % |  | Amount |  | %
Commercial: |  |  |  |  |  |  |  |
C&I |  | $ | 114,042 |  |  | 58 | % |  | $ | 57,088 |  |  | 48 | %
CRE: |  |  |  |  |  |  |  |
CRE |  | 21,618 |  |  | 11 | % |  | 30,352 |  |  | 26 | %
Multifamily residential |  | 4,464 |  |  | 2 | % |  | 5,560 |  |  | 5 | %
Construction and land |  | 19,691 |  |  | 10 | % |  | — |  |  | — | %
Total CRE |  | 45,773 |  |  | 23 | % |  | 35,912 |  |  | 31 | %
Total commercial |  | 159,815 |  |  | 81 | % |  | 93,000 |  |  | 79 | %
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | 22,211 |  |  | 11 | % |  | 13,460 |  |  | 11 | %
HELOCs |  | 13,574 |  |  | 7 | % |  | 9,956 |  |  | 8 | %
Total residential mortgage |  | 35,785 |  |  | 18 | % |  | 23,416 |  |  | 19 | %
Other consumer |  | 2,517 |  |  | 1 | % |  | 2,502 |  |  | 2 | %
Total consumer |  | 38,302 |  |  | 19 | % |  | 25,918 |  |  | 21 | %
Total non-PCI impaired loans |  | $ | 198,117 |  |  | 100 | % |  | $ | 118,918 |  |  | 100 | %

As of December 31, 2019, the allowance for loan losses included $5.6 million for impaired loans with a total recorded investment balance of $68.4 million. In comparison, the allowance for loan losses included $4.0 million for impaired loans with a total recorded investment balance of $31.1 million as of December 31, 2018.
Allowance for Credit Losses
Allowance for credit losses consists of allowance for loan losses and allowance for unfunded credit commitments. Allowance for loan losses is comprised of reserves for two components, performing loans with unidentified incurred losses, as well as nonperforming loans and TDRs (collectively, impaired loans), and excludes loans held-for-sale. The allowance for loan losses is calculated after analyzing internal historical loan loss experience, internal loan risk ratings, economic conditions, bank risks, portfolio risks and any other pertinent information. Unfunded credit reserves include reserves provided for unfunded lending commitments, SBLCs, and recourse obligations for loans sold. The allowance for credit losses is increased by the provision for credit losses, which is charged against the current period’s results of operations, and increased or decreased by the net amount of recoveries or charge-offs during the period. The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. Net adjustments to the allowance for unfunded credit commitments are included in Provision for credit losses on the Consolidated Statement of Income.
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 reserves. In addition to regular quarterly reviews of the adequacy of the allowance for credit losses, the Company performs ongoing assessments of the risks inherent in the loan portfolio. While the Company believes that the allowance for loan losses is appropriate as of December 31, 2019, 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. T he Company adopted ASU 2016-13 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument on January 1, 2020. For additional information, see Note 1 — Summary of Significant Accounting Policies — Recent Accounting Pronouncements — Standards Adopted in 2020. The calculation of the allowance for credit losses involves subjective and complex judgments. For additional details about the Company’s allowance for credit losses, including the methodologies used, see Item 7. MD&A — Critical Accounting Policies and Estimates, Note 1 — Summary of Significant Accounting Policies and Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.
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The following table presents a summary of activities in the allowance for credit losses for the periods indicated:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Allowance for loan losses, beginning of period |  | $ | 311,322 |  |  | $ | 287,128 |  |  | $ | 260,520 |  |  | $ | 264,959 |  |  | $ | 261,679 |
Provision for loan losses |  | 100,093 |  |  | 65,007 |  |  | 49,069 |  |  | 31,718 |  |  | 6,569 |
Gross charge-offs: |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | (73,985 | ) |  | (59,244 | ) |  | (38,118 | ) |  | (47,739 | ) |  | (20,423 | )
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | (1,021 | ) |  | — |  |  | — |  |  | (464 | ) |  | (1,052 | )
Multifamily residential |  | — |  |  | — |  |  | (635 | ) |  | (29 | ) |  | (1,650 | )
Construction and land |  | — |  |  | — |  |  | (149 | ) |  | (117 | ) |  | (493 | )
Total CRE |  | (1,021 | ) |  | — |  |  | (784 | ) |  | (610 | ) |  | (3,195 | )
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | (11 | ) |  | (1 | ) |  | (1 | ) |  | (137 | ) |  | (36 | )
HELOCs |  | — |  |  | — |  |  | (55 | ) |  | (9 | ) |  | (98 | )
Total residential mortgage |  | (11 | ) |  | (1 | ) |  | (56 | ) |  | (146 | ) |  | (134 | )
Other consumer |  | (50 | ) |  | (188 | ) |  | (17 | ) |  | (13 | ) |  | (502 | )
Total gross charge-offs |  | (75,067 | ) |  | (59,433 | ) |  | (38,975 | ) |  | (48,508 | ) |  | (24,254 | )
Gross recoveries: |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | 14,501 |  |  | 10,417 |  |  | 11,371 |  |  | 9,003 |  |  | 9,259 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 5,209 |  |  | 5,194 |  |  | 2,111 |  |  | 1,488 |  |  | 2,488 |
Multifamily residential |  | 1,856 |  |  | 1,757 |  |  | 1,357 |  |  | 1,476 |  |  | 4,298 |
Construction and land |  | 536 |  |  | 740 |  |  | 259 |  |  | 203 |  |  | 4,647 |
Total CRE |  | 7,601 |  |  | 7,691 |  |  | 3,727 |  |  | 3,167 |  |  | 11,433 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 136 |  |  | 1,214 |  |  | 546 |  |  | 401 |  |  | 323 |
HELOCs |  | 7 |  |  | 38 |  |  | 24 |  |  | 7 |  |  | 54 |
Total residential mortgage |  | 143 |  |  | 1,252 |  |  | 570 |  |  | 408 |  |  | 377 |
Other consumer |  | 19 |  |  | 3 |  |  | 152 |  |  | 323 |  |  | 373 |
Total gross recoveries |  | 22,264 |  |  | 19,363 |  |  | 15,820 |  |  | 12,901 |  |  | 21,442 |
Net charge-offs |  | (52,803 | ) |  | (40,070 | ) |  | (23,155 | ) |  | (35,607 | ) |  | (2,812 | )
Foreign currency translation adjustments |  | (325 | ) |  | (743 | ) |  | 694 |  |  | (550 | ) |  | (477 | )
Allowance for loan losses, end of period |  | 358,287 |  |  | 311,322 |  |  | 287,128 |  |  | 260,520 |  |  | 264,959 |
Allowance for unfunded credit commitments, beginning of period |  | 12,566 |  |  | 13,318 |  |  | 16,121 |  |  | 20,360 |  |  | 12,712 |
(Reversal of) provision for unfunded credit commitments |  | (1,408 | ) |  | (752 | ) |  | (2,803 | ) |  | (4,239 | ) |  | 7,648 |
Allowance for unfunded credit commitments, end of period |  | 11,158 |  |  | 12,566 |  |  | 13,318 |  |  | 16,121 |  |  | 20,360 |
Allowance for credit losses |  | $ | 369,445 |  |  | $ | 323,888 |  |  | $ | 300,446 |  |  | $ | 276,641 |  |  | $ | 285,319 |
Average loans held-for-investment |  | $ | 33,372,890 |  |  | $ | 30,209,219 |  |  | $ | 27,237,981 |  |  | $ | 24,223,535 |  |  | $ | 22,140,443 |
Loans held-for-investment |  | $ | 34,778,539 |  |  | $ | 32,385,189 |  |  | $ | 28,975,718 |  |  | $ | 25,503,139 |  |  | $ | 23,643,748 |
Allowance for loan losses to loans held-for-investment |  | 1.03 | % |  | 0.96 | % |  | 0.99 | % |  | 1.02 | % |  | 1.12 | %
Net charge-offs to average loans held-for-investment |  | 0.16 | % |  | 0.13 | % |  | 0.08 | % |  | 0.15 | % |  | 0.01 | %

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As of December 31, 2019, the allowance for loan losses amounted to $358.3 million or 1.03% of loans held-for-investment, compared with $311.3 million or 0.96% and $287.1 million or 0.99% of loans held-for-investment as of December 31, 2018 and 2017, respectively. The increase in the allowance for loan losses was largely due to loan portfolio growth, as well as downward migration in the credit risk ratings of C&I loans.
The provision for credit losses includes provision for loan losses and unfunded credit reserves. A provision for credit losses is charged to income to bring the allowance for credit losses to a level deemed appropriate by the Company based on the calculation methodology. The provision for credit losses was $98.7 million for 2019, compared with $64.3 million and $46.3 million for 2018 and 2017, respectively. The increase in the provision for credit losses for 2019, compared to 2018 and 2017, was reflective of the overall loan portfolio growth and increased charge-offs in C&I loans and a downward migration in the credit risk ratings of C&I loans during 2019.
The Company believes the allowance for credit losses as of December 31, 2019, 2018 and 2017 was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, on each respective date.
The following table presents the Company’s allocation of the allowance for loan losses by loan type and the ratio of each loan type to total loans held-for-investment as of the periods indicated:

($ in thousands) |  | December 31,
| 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
| Allowance Allocation |  | Loans as % of Total Loans |  | Allowance Allocation |  | Loans as % of Total Loans |  | Allowance Allocation |  | Loans as % of Total Loans |  | Allowance Allocation |  | Loans as % of Total Loans |  | Allowance Allocation |  | Loans as % of Total Loans
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 238,376 |  |  | 35 | % |  | $ | 189,117 |  |  | 37 | % |  | $ | 163,058 |  |  | 37 | % |  | $ | 142,167 |  |  | 38 | % |  | $ | 134,606 |  |  | 38 | %
CRE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 40,509 |  |  | 30 | % |  | 40,666 |  |  | 28 | % |  | 40,809 |  |  | 31 | % |  | 47,559 |  |  | 31 | % |  | 58,623 |  |  | 32 | %
Multifamily residential |  | 22,826 |  |  | 8 | % |  | 19,885 |  |  | 8 | % |  | 19,537 |  |  | 7 | % |  | 17,911 |  |  | 6 | % |  | 19,630 |  |  | 6 | %
Construction and land |  | 19,404 |  |  | 2 | % |  | 20,290 |  |  | 2 | % |  | 26,881 |  |  | 2 | % |  | 24,989 |  |  | 3 | % |  | 22,915 |  |  | 3 | %
Total CRE |  | 82,739 |  |  | 40 | % |  | 80,841 |  |  | 38 | % |  | 87,227 |  |  | 40 | % |  | 90,459 |  |  | 40 | % |  | 101,168 |  |  | 41 | %
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 28,527 |  |  | 20 | % |  | 31,340 |  |  | 19 | % |  | 26,362 |  |  | 16 | % |  | 19,795 |  |  | 14 | % |  | 19,665 |  |  | 13 | %
HELOCs |  | 5,265 |  |  | 4 | % |  | 5,774 |  |  | 5 | % |  | 7,354 |  |  | 6 | % |  | 7,506 |  |  | 7 | % |  | 8,745 |  |  | 7 | %
Total residential mortgage |  | 33,792 |  |  | 24 | % |  | 37,114 |  |  | 24 | % |  | 33,716 |  |  | 22 | % |  | 27,301 |  |  | 21 | % |  | 28,410 |  |  | 20 | %
Other consumer |  | 3,380 |  |  | 1 | % |  | 4,250 |  |  | 1 | % |  | 3,127 |  |  | 1 | % |  | 593 |  |  | 1 | % |  | 775 |  |  | 1 | %
Total |  | $ | 358,287 |  |  | 100 | % |  | $ | 311,322 |  |  | 100 | % |  | $ | 287,128 |  |  | 100 | % |  | $ | 260,520 |  |  | 100 | % |  | $ | 264,959 |  |  | 100 | %

The Company maintains an allowance for loan losses for both non-PCI and PCI loans. An allowance for loan losses for PCI loans is based on the Company’s estimates of cash flows expected to be collected from PCI loans. PCI loan losses are estimated collectively for groups of loans with similar characteristics. As of December 31, 2019, the Company had no allowance for loan losses on $222.9 million of PCI loans. In comparison, the Company established an allowance of $22 thousand and $58 thousand on $308.0 million and $482.3 million of PCI loans as of December 31, 2018 and 2017, respectively. The allowance balances of the PCI loans for these periods were attributed mainly to CRE loans.
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Liquidity Risk Management
Liquidity
Liquidity is a financial institution’s capacity to meet its deposit and other counterparties’ obligations as they come due, or to obtain adequate funding at a reasonable cost to meet those obligations. The objective of liquidity management is to manage the potential mismatch of asset and liability cash flows. Maintaining an adequate level of liquidity depends on the institution’s ability to efficiently meet both expected and unexpected cash flows, and collateral needs without adversely affecting daily operations or the financial condition of the institution. To achieve this objective, the Company analyzes its liquidity risk, maintains readily available liquid assets and utilizes diverse funding sources including its stable core deposit base.
The Board of Directors’ Risk Oversight Committee has primary oversight responsibility. At the management level, the Company’s Asset/Liability Committee (“ALCO”) sets the liquidity guidelines that govern the day-to-day active management of the Company’s liquidity position. The ALCO regularly monitors the Company’s liquidity status and related management processes, and provides regular reports to the Board of Directors.
Liquidity Risk — Liquidity Sources. The Company’s primary source of funding is from its deposits generated by its banking business, which is relatively stable and low-cost. Total deposits amounted to $37.32 billion as of December 31, 2019, compared with $35.44 billion as of December 31, 2018. The Company’s loan-to-deposit ratio was 93% and 91% as of December 31, 2019 and 2018, respectively. In addition, the Company has access to various sources of wholesale funding, and has borrowing capacity at the FHLB and FRB to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute its business strategy. Economic conditions and the stability of capital markets impact the Company’s access to and the cost of wholesale financing. The Company’s access to capital markets is also affected by the ratings received from various credit rating agencies. See Item 7 — MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funds in this Form 10-K for further detail related to the Company’s funding sources.
The Company’s liquid asset portfolio includes cash and cash equivalents, interest-bearing deposits with banks, short-term resale agreements and AFS investment securities. The following table presents the Company’s liquid asset portfolio as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019 |  | December 31, 2018
| Encumbered |  | Unencumbered |  | Total |  | Encumbered |  | Unencumbered |  | Total
Cash and cash equivalents |  | $ | — |  |  | $ | 3,261,149 |  |  | $ | 3,261,149 |  |  | $ | — |  |  | $ | 3,001,377 |  |  | $ | 3,001,377 |
Interest-bearing deposits with banks |  | — |  |  | 196,161 |  |  | 196,161 |  |  | — |  |  | 371,000 |  |  | 371,000 |
Short-term resale agreements |  | — |  |  | 400,000 |  |  | 400,000 |  |  | — |  |  | 375,000 |  |  | 375,000 |
AFS investment securities |  | 479,432 |  |  | 2,837,782 |  |  | 3,317,214 |  |  | 435,833 |  |  | 2,306,014 |  |  | 2,741,847 |
Total |  | $ | 479,432 |  |  | $ | 6,695,092 |  |  | $ | 7,174,524 |  |  | $ | 435,833 |  |  | $ | 6,053,391 |  |  | $ | 6,489,224 |

Unencumbered assets totaled $6.70 billion and $6.05 billion as of December 31, 2019 and 2018, respectively. Investment securities included as part of liquidity sources are primarily comprised of mortgage-backed securities and debt securities issued by U.S. government agency and U.S. government sponsored enterprises, foreign bonds and U.S. Treasury securities. The Company believes these AFS investment securities provide quick sources of liquidity to obtain financing, regardless of market conditions, through sale or pledging.
As a means of augmenting the Company’s liquidity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and FRB, unsecured federal funds lines of credit with various correspondent banks and several master repurchase agreements with major brokerage companies. The Company’s available borrowing capacity with the FHLB and FRB was $6.83 billion and $2.97 billion, respectively, as of December 31, 2019. Unencumbered loans and/or securities were pledged to the FHLB and FRB discount window as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRB and is subject to change at their discretion. The Bank’s unsecured federal funds lines of credit, subject to availability, totaled $600.0 million with correspondent banks as of December 31, 2019. The Company believes that its liquidity sources are sufficient to meet all reasonably foreseeable short-term needs over the next 12 months.
Liquidity Risk — Liquidity for East West. East West’s primary source of liquidity is from cash dividends 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 this Form 10-K. The Bank paid total dividends of $190.0 million and $160.0 million to East West in 2019 and 2018, respectively.
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Liquidity Risk — Liquidity Stress Testing. Liquidity stress testing is performed at the Company level, as well as at the foreign subsidiary and foreign branch levels. Stress testing and scenario analysis are intended to quantify the potential impact of a liquidity event on the financial and liquidity position of the entity. These scenarios include assumptions about significant changes in key funding sources, market triggers and 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 a series of contingency funding plans on a consolidated basis and for individual entities. As of December 31, 2019, the Company was not aware of any trends, events or uncertainties that would or were reasonably likely to, have a material effect on its liquidity position. Furthermore, the Company is not aware of any material commitments for capital expenditures in the foreseeable future.
Consolidated Cash Flows Analysis
The following table presents a summary of the Company’s Consolidated Statement of Cash Flows for the periods indicated, which may be helpful to highlight business strategies and macro trends. In addition to this cash flow analysis, the discussion related to liquidity in Item 7. MD&A — Risk Management — Liquidity Risk Management — Liquidity may provide a more useful context in evaluating the Company’s liquidity position and related activity.

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Net cash provided by operating activities |  | $ | 735,829 |  |  | $ | 883,172 |  |  | $ | 703,275 |
Net cash used in investing activities |  | (2,571,176 | ) |  | (3,832,412 | ) |  | (2,506,824 | )
Net cash provided by financing activities |  | 2,124,962 |  |  | 3,800,808 |  |  | 2,068,460 |
Effect of exchange rate changes on cash and cash equivalents |  | (29,843 | ) |  | (24,783 | ) |  | 31,178 |
Net increase in cash and cash equivalents |  | 259,772 |  |  | 826,785 |  |  | 296,089 |
Cash and cash equivalents, beginning of year |  | 3,001,377 |  |  | 2,174,592 |  |  | 1,878,503 |
Cash and cash equivalents, end of year |  | $ | 3,261,149 |  |  | $ | 3,001,377 |  |  | $ | 2,174,592 |

Operating Activities — Net cash provided by operating activities was $735.8 million, $883.2 million and $703.3 million in 2019, 2018 and 2017, respectively. During 2019, 2018 and 2017, net cash provided by operating activities mainly reflected inflows of $674.0 million, $703.7 million and $505.6 million from net income, respectively. During 2019, net operating cash inflows also benefited from $221.6 million in non-cash adjustments to reconcile net income to net operating cash, partially offset by $170.8 million of net changes in accrued interest receivable and other assets. In comparison, net operating cash inflows for 2018 benefited from $150.4 million in non-cash adjustments to reconcile net income to net operating cash, as well as $88.1 million of net changes in accrued expenses and other liabilities, partially offset by $60.8 million of net changes in accrued interest receivable and other assets. Net operating cash inflows for 2017 benefited from $149.2 million in non-cash adjustments to reconcile net income to net operating cash, as well as $45.4 million of net changes in accrued interest receivable and other assets.
Investing Activities — Net cash used in investing activities was $2.57 billion, $3.83 billion and $2.51 billion in 2019, 2018 and 2017, respectively. During 2019, net cash used in investing activities primarily reflected cash outflows of $2.42 billion, $521.2 million, and $146.9 million from loans held-for-investment, AFS investment securities, and investments in qualified affordable housing partnerships, tax credit and other investments, respectively. These investing cash outflows were partially offset by cash inflows of $325.0 million and $193.5 million from resale agreements and interest-bearing deposits with banks, respectively. In comparison, during 2018, net cash used in investing activities primarily reflected $3.43 billion increase in net loans held-for-investment, a $503.7 million payment for the sale of the Bank’s eight DCB branches to Flagstar Bank and $132.6 million in net fundings of investments in qualified affordable housing partnerships, tax credit and other investments, partially offset by $217.7 million of net cash inflows from AFS investment securities. During 2017, net cash used in investing activities primarily reflected cash outflows of $3.48 billion and $173.6 million from net fundings of loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, respectively, partially offset by net cash inflows of $650.0 million and $417.8 million from resale agreements and AFS investment securities, respectively, and $116.0 million in cash received from the sale of a commercial property.
Financing Activities — Net cash provided by financing activities was $2.12 billion, $3.80 billion and $2.07 billion in 2019, 2018 and 2017, respectively. Net cash inflows in 2019 primarily reflected net increases of $1.90 billion in deposits and $418.0 million in FHLB advances, partially offset by $155.1 million in cash dividends paid. In comparison, net cash inflows in 2018 and 2017 primarily reflected $3.90 billion and $2.27 billion net increases in deposits, respectively, partially offset by $126.0 million and $116.8 million, respectively, in cash dividends paid.
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Market Risk Management
Market risk is the risk that the Company’s financial condition may change resulting from adverse movements in market rates or prices including: interest rates, foreign exchange rates, interest rate contracts, investment securities prices, and related risk resulting from mismatches in rate sensitive assets and liabilities.
The Board’s Risk Oversight Committee has primary oversight responsibility. At the management level, the ALCO establishes and monitors compliance with the policies and risk limits pertaining to market risk management activities. Corporate Treasury supports the ALCO in measuring, monitoring and managing interest rate risk as well as all other market risks.
Interest Rate Risk Management
Interest rate risk results primarily from the Company’s traditional banking activities of gathering deposits and extending loans, and is the primary market risk for the Company. Economic and financial conditions, movements in interest rates and consumer preferences impact the level of noninterest-bearing funding sources at the Company, and affect the difference between the interest the Company earns on interest-earning assets and pays on interest-bearing liabilities. In addition, changes in interest rates can influence the rate of principal prepayments on loans and the speed of deposit withdrawals. Due to the pricing term mismatches and the embedded options inherent in certain products, changes in market interest rates not only affect expected near-term earnings, but also the economic value of these interest-earning assets and interest-bearing liabilities. Other market risks include foreign currency exchange risk and equity price risk. These risks are not considered significant to the Company and no separate quantitative information concerning these risks is presented herein.
With oversight by the Company’s Board of Directors, the ALCO coordinates the overall management of the Company’s interest rate risk. The ALCO meets regularly and is responsible for reviewing the Company’s open market positions and establishing policies to monitor and limit exposure to market risk. Management of interest rate risk is carried out primarily through strategies involving the Company’s investment 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. Refer to Item 7. MD&A — Risk Management — Market Risk Management — Derivatives in this Form 10-K for additional information.
The interest rate risk exposure is measured and monitored through various risk management tools, which include a simulation model that performs interest rate sensitivity analyses under multiple interest rate scenarios. The model incorporates the Company’s cash instruments, loans, investment securities, resale agreements, deposits, borrowings and repurchase agreements, as well as financial instruments from the Company’s foreign operations. The Company incorporates both a static balance sheet and a forward growth balance sheet in order to perform these analyses. The simulated interest rate scenarios include a non-parallel shift in the yield curve (“rate shock”) and a gradual non-parallel shift in the yield curve (“rate ramp”). In addition, the Company also performs simulations using alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting. Results of these various simulations are used to formulate and gauge strategies to achieve a desired risk profile within the Company’s capital and liquidity guidelines.
The net interest income simulation model is based on the actual maturity and re-pricing characteristics of the Company’s interest-rate sensitive assets, liabilities and related derivative contracts. It also incorporates various assumptions, which management believes to be reasonable but may have a significant impact on results. These assumptions include, but are not limited to, the timing and magnitude of changes in interest rates, the yield curve evolution and shape, the correlation between various interest rate indices, financial instrument future repricing characteristics and spread relative to benchmark rates, and the effect of interest rate floors and caps. The modeled results are highly sensitive to deposit decay and deposit beta assumptions, derived from a regression analysis of the Company’s historical deposit data. Deposit beta commonly refers to the correlation of the change in interest rates paid on deposits to changes in benchmark market interest rates. The model is also sensitive to the loan and investment prepayment assumptions, based on an independent model and the Company’s historical prepayment data, which consider anticipated prepayments under different interest rate environments.
Simulation results are highly dependent on input assumptions. To the extent actual behavior is different from the assumptions in the models, there could be a material change in interest rate sensitivity. The assumptions applied in the model are documented and supported for reasonableness, and periodically back-tested to assess their effectiveness. The Company makes appropriate calibrations to the model as needed, continually refining the model, methodology and results. Changes to key model assumptions are reviewed by the ALCO. Scenario results do not reflect strategies that management could employ to limit the impact of changing interest rate expectations.
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Twelve-Month Net Interest Income Simulation. Net Interest Income simulation is a modeling technique that looks at interest rate risk through earnings. It projects the changes in interest rate sensitive asset and liability cash flows, expressed in terms of Net Interest Income, over a specified time horizon for defined interest rates scenarios. Net Interest Income simulations generate insight into the impact of changes in market rates on earnings and guide risk management decisions. The Company assesses interest rate risk by comparing net interest income using different interest rate scenarios.
The following table presents the Company’s net interest income sensitivity as of December 31, 2019 and 2018 related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in both directions:

Change in Interest Rates (Basis Points) |  | Net Interest Income Volatility (1)
| December 31,
| 2019 |  | 2018
+200 |  | 13.2 | % |  | 16.6 | %
+100 |  | 6.7 | % |  | 8.4 | %
-100 |  | (5.5 | )% |  | (8.3 | )%
-200 |  | (8.7 | )% |  | (16.7 | )%

(1) | The percentage change represents net interest income over 12 months in a stable interest rate environment versus net interest income in the various rate scenarios.

The Company’s estimated twelve-month net interest income sensitivity as of December 31, 2019 was lower compared with December 31, 2018 for both the upward 100 and 200 basis point rate scenarios. This reflects a greater rate of upward repricing in the Company’s deposit portfolio, offsetting simulated increases in interest income from higher interest rates on assets. In both simulated downward interest rate scenarios, sensitivity decreased mainly due to the impact of the changes in the yield curve between December 31, 2019 and December 31, 2018.
The Company’s net interest income profile as of December 31, 2019 reflects an asset sensitive position. Net interest income would be expected to increase if interest rates rise and to decrease if interest rates decline. The Company is naturally asset sensitive due to the large share of variable rate loans in its loan portfolio, which are primarily linked to Prime and LIBOR indices. The Company’s interest income is vulnerable to changes in short-term interest rates. The Company’s deposit portfolio is primarily comprised of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates.
The federal funds target rate was between 1.50% and 1.75% as of December 31, 2019 and between 2.25% and 2.50% as of December 31, 2018. In its statement released on December 11, 2019, the Federal Open Market Committee decided to maintain the target range for the federal funds rate to a range of between 1.50% to 1.75% and signaled it would stay on hold through 2020 amid muted inflation.
While an instantaneous and sustained non-parallel shift in market interest rates was used in the simulation model described in the preceding paragraphs, the Company believes that any shift in interest rates would likely be more gradual and would therefore have a more modest impact. The rate ramp table below shows the net income volatility under a gradual non-parallel shift upward and downward of the yield curve in even quarterly increments over the first twelve months, followed by rates held constant thereafter:

Change in Interest Rates (Basis Points) |  | Net Interest Income Volatility (1)
| December 31,
| 2019 |  | 2018
+200 Rate Ramp |  | 6.0 | % |  | 6.3 | %
+100 Rate Ramp |  | 3.0 | % |  | 3.0 | %
-100 Rate Ramp |  | (2.6 | )% |  | (3.0 | )%
-200 Rate Ramp |  | (5.1 | )% |  | (6.3 | )%

(1) | The percentage change represents net interest income under a gradual non-parallel shift in even quarterly increments over 12 months.

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The Company believes that the rate ramp table, shown above, when evaluated together with the results of the rate shock simulation, presents a better indication of the potential impact to the Company’s twelve-month net interest income in a rising and falling rate scenario. Between December 31, 2019 and 2018, the Company’s modeled sensitivity slightly decreased under a ramp simulation. This reflects model refinements to better incorporate the current yield curve in the analysis, as well as the gradual spreading of interest rate changes over 12 months, rather than at the end of each quarter.
Economic Value of Equity at Risk. Economic value of equity (“EVE”) is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the economic value of the bank. The fair market values of a bank's assets and liabilities are directly linked to interest rates. In some ways, the economic value approach provides a broader scope than the net income volatility approach since it captures all anticipated cash flows.
EVE simulation reflects the effect of interest rate shifts on the value of the Company and is used to assess the degree of interest rate risk exposure. In contrast to the earnings perspective, the economic perspective identifies risk arising from repricing or maturity gaps for the life of the balance sheet. Changes in economic value indicate anticipated changes in the value of the bank’s future cash flows. Thus, the economic perspective can provide a leading indicator of the bank’s future earnings and capital values. The economic valuation method also reflects those sensitivities across the full maturity spectrum of the bank’s assets and liabilities.
The following table presents the Company’s EVE sensitivity as of December 31, 2019 and 2018 related to an instantaneous and sustained non-parallel shift in market interest rates of 100 and 200 basis points in both directions:

Change in Interest Rates (Basis Points) |  | EVE Volatility (1)
| December 31,
| 2019 |  | 2018
+200 |  | 7.0 | % |  | 6.3 | %
+100 |  | 3.6 | % |  | 1.2 | %
-100 |  | (1.4 | )% |  | (3.1 | )%
-200 |  | (3.5 | )% |  | (11.9 | )%

(1) | The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

The Company’s EVE sensitivity for the upward interest rate scenarios as of December 31, 2019 increased while the sensitivity for the downward interest rate scenarios as of December 31, 2019 decreased, as compared with the results as of December 31, 2018. The changes in EVE sensitivity during this period were primarily due to the shape and level of the yield curve.
The Company’s EVE profile as of December 31, 2019 reflects an asset sensitive EVE position. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, and the shape of the yield curve, actual results may vary from those predicted by the Company’s model.
Derivatives
It is the Company’s policy not to speculate on the future direction of interest rates, foreign currency exchange rates and commodity prices. However, the Company will, from time to time, enter into derivative transactions in order to reduce its exposure to market risks, primarily interest rate risk and foreign currency risk. The Company believes that these derivative transactions, when properly structured and managed, may provide a hedge against inherent risk in certain assets and liabilities and against risk in specific transactions. Hedging transactions may be implemented using a variety of derivative instruments such as swaps, forwards and options. Prior to entering into any hedging activities, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies. In addition, the Company enters into derivative transactions in order to assist customers with their risk management objectives, primarily to manage exposures to fluctuations in interest rates, foreign currencies and commodity prices. To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into mirrored derivative contracts with third-party financial institutions. The exposures from derivative transactions are collateralized by cash and/or eligible securities based on limits as set forth in the respective agreements entered between the Company and the financial institutions.
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The Company is subject to credit risk associated with the counterparties to the derivative contracts. This counterparty credit risk is a multidimensional form of risk, affected by both the exposure and credit quality of the counterparty, both of which are sensitive to market-induced changes. The Company’s Credit Risk Management Committee provides oversight of credit risks and the Company has guidelines in place to manage counterparty concentration, tenor limits and collateral. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, entering into legally enforceable master netting arrangements and 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 (“RPAs”). Certain derivative contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk. The Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives.
Fair Value Hedges — As of December 31, 2019, the Company had two cancellable interest rate swap contracts with original terms of 20 years. These swap contracts involve the exchange of variable rate payments over the life of the agreements without the exchange of the underlying notional amounts. The changes in fair value of the hedged brokered certificates of deposit are expected to be effectively offset by the changes in fair value of the swaps throughout the terms of these contracts.
Net Investment Hedges — ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions and ASC 815, Derivatives and Hedging, allow hedging of the foreign currency risk of a net investment in a foreign operation. The Company 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 East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate of the RMB. As of December 31, 2019, the outstanding foreign currency forwards effectively hedged approximately 50% of the RMB exposure in East West Bank (China) Limited. The fluctuation in foreign currency translation of the hedged exposure is expected to be offset by changes in the fair value of the forwards.
Interest Rate Contracts — The Company offers various interest rate derivative contracts to its customers. When derivative transactions are executed with its customers, the derivative contracts are offset by paired trades with third-party financial institutions including with central clearing organizations. Certain derivative contracts entered with central clearing organizations are settled-to-market daily to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. Derivative contracts allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are not linked to specific Company assets or liabilities on the Consolidated Balance Sheet or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements.
Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forward, spot, swap and option contracts to accommodate the business needs of its customers. For a portion of the foreign exchange contracts entered into with its customers, the Company either enters into offsetting foreign exchange contracts with third-party financial institutions or acquires collateral primarily in the form of cash on a portfolio basis to manage its exposure. The changes in the fair values entered with third-party financial institutions are expected to be largely comparable to the changes in fair values of the foreign exchange transactions executed with the customers throughout the terms of these contracts. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits offered to its customers. The Company’s policies permit taking proprietary currency positions within approved limits, in compliance with the proprietary trading exemption provided under Section 619 of the Dodd-Frank Act. The Company does not speculate in the foreign exchange markets, and actively manages its foreign exchange exposures within prescribed risk limits and defined controls.
Credit Contracts — The Company may periodically enter into RPAs to manage the credit exposure on interest rate contracts associated with its syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPA, the Company will receive or make a payment if a borrower defaults on the related interest rate contract. The Company manages its credit risk on the RPAs by monitoring the credit worthiness of the borrowers, which is based on the Company’s normal credit review process.
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Equity Contracts — As part of the loan origination process, from time to time, the Company obtained equity warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. The warrants included in the Consolidated Financial Statements were from public and private companies.
Commodity Contracts — The Company entered into energy commodity contracts with its customers to allow them to hedge against the risk of fluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions including with central clearing organizations. Certain derivative contracts entered with central clearing organizations are settled to market daily to the extent the central clearing organizations’ rulebooks legally characterize the variation margin as settlement. The changes in fair values of the energy commodity contracts traded with third-party financial institutions are expected to be largely comparable to the changes in fair values of the energy commodity transactions executed with customers throughout the terms of these contracts.
Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies, Note 3 — Fair Value Measurement and Fair Value of Financial Instruments and Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K.
Impact of Inflation
The consolidated financial statements and related financial data presented in this report have been prepared according to GAAP, which require the measurement of financial and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs and the effect that general inflation may have on both short-term and long-term interest rates. Since almost all the assets and liabilities of a financial institution are monetary in nature, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Although inflation expectations do affect interest rates, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Critical Accounting Policies and Estimates
Significant accounting policies, which are described in Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements, are fundamental to understanding the Company’s results of operations and financial condition. Some accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In addition, some accounting policies require significant judgment in applying complex accounting principles to individual transactions to determine the most appropriate treatment. The Company has procedures and processes in place to facilitate making these judgments.
Certain accounting policies are considered to have a critical effect on the Company’s Consolidated Financial Statements in the Company’s judgment. Critical accounting policies are defined as those that require the most complex or subjective judgments and are reflective of significant uncertainties, and whose actual results could differ from the Company’s estimates. Future changes in the key variables could change future valuations and impact the results of operations. The following is a discussion of the critical accounting policies including significant estimates. In each area, the Company has identified the most important variables in the estimation process. The Company has used the best information available to make the estimations necessary for the related assets and liabilities.
Fair Value of Financial Instruments
In determining the fair value of financial instruments, the Company uses market prices of the same or similar instruments whenever such prices are available. The Company does not use prices involving distressed sellers in determining fair value. Changes in the market conditions such as reduced liquidity in the capital markets or changes in secondary market activities, may increase variability or reduce the availability of market price used to determine fair value. If observable market prices are unavailable or impracticable to obtain, then fair value is estimated using modeling techniques such as discounted cash flows analysis. These modeling techniques incorporate management’s assessments regarding assumptions that market participants would use in pricing the asset or the liability, including assumptions about the risks inherent in a particular valuation technique and the risk of nonperformance. The use of methodologies or assumptions different than those used by the Company could result in different estimates of fair value of financial instruments.
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Significant judgment is also required to determine the fair value hierarchy for certain financial instruments. When fair values are based on valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement, the financial assets and liabilities are classified as Level 3 under the fair value hierarchy. Total recurring Level 3 assets were $421 thousand and $673 thousand as of December 31, 2019 and 2018, respectively, and there were no recurring Level 3 liabilities as of December 31, 2019 and 2018. For a complete discussion on the Company’s fair value hierarchy of financial instruments, fair value measurement techniques and assumptions, and the impact on the Consolidated Financial Statements, see Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded credit commitments. Allowance for credit losses is calculated with the objective of maintaining a reserve sufficient to absorb losses inherent in our credit portfolio. Management’s determination of the appropriateness of the allowance is based on periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors. This evaluation is inherently subjective as it requires numerous estimates as further discussed below. The allowance for loan losses consists of general and specific reserves. Non-impaired loans are evaluated as part of the general reserve while impaired loans are subject to a specific reserve. In determining the allowance for credit losses, the Company individually evaluates impaired loans, applies loss rates to non-impaired loans and unfunded lending commitments, SBLCs and recourse obligations for loans sold. General reserves are calculated by utilizing both qualitative and quantitative factors.
The Company’s methodology to determine the overall appropriateness of the allowance for credit losses is based on a classified asset migration model (the “Model”) with quantitative factors and qualitative considerations. The Model examines pools of loans having similar characteristics and analyzes their loss rates over a historical period. The Company assigns loss rates to each loan grade within each pool of loans. Loss rates derived by the migration model are based predominantly on historical loss trends that may not be entirely indicative of the actual or inherent loss potential within its current loan portfolio. Additionally, the Company utilizes qualitative and environmental factors as adjusting mechanisms to supplement the historical results of the Model. Qualitative and environmental factors are reflected as percentage adjustments and are added to the historical loss rates derived from the Model to determine the appropriate allowance for each loan pool. The evaluation is inherently subjective, as it requires numerous estimates and judgments that are susceptible to revision as more information becomes available. To the extent actual results differ from estimates or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs.
Quantitative factors include the Company’s historical loss experience, delinquency and net charge-off trends, collateral values, changes in nonperforming loans, probability of commitment usage, and other factors. Qualitative considerations include, but are not limited to, prevailing economic or market conditions, relative risk profiles of various loan segments, volume concentrations, growth trends, delinquency and nonaccrual status, problem loan trends, geographic concentrations, credit risk factors for loans outstanding and the terms and expiration dates of the unfunded credit facilities.
The specific reserve is measured by the difference between the recorded value of impaired loans and their impaired value. Impaired loans are measured based on the present value of expected future cash flows discounted at a designated discount rate or, as appropriate, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent, less cost to sell.
On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, 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’s lifetime expected credit losses are determined using macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the loan portfolios, and are net of expected recoveries on loans that were previously charged off. Management believes the newly adopted methodologies are appropriate given the Company’s size and level of complexity. As the Company adds new products, increases the complexity of the loan portfolio and expands the geographic coverage, the Company expects to continue to enhance its methodologies to keep pace with the changing credit environment and the size and complexity of the loan portfolio and unfunded credit commitments. Changes in any of the factors cited above could have a significant impact on the allowance for credit loss calculation. For additional information on allowance for credit losses, see Note 1 - Summary of Significant Accounting Policies and Note 7 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.
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Goodwill Impairment
Under ASC 350, Intangibles — Goodwill and Other, goodwill is required to be allocated to reporting units and tested for impairment at least annually. The Company tests goodwill for impairment annually or more frequently if events or circumstances, such as adverse changes in the business, indicate that there may be justification for conducting an interim test. Impairment testing is performed at the reporting unit level (which is the same level as the Company’s major operating segments identified in Note 21 — Business Segments to the Consolidated Financial Statements in this Form 10-K). The Company conducts a two-step goodwill impairment test. The first step is to identify potential impairment by determining the fair value of each reporting unit and comparing such fair value to its corresponding carrying value. In order to determine the fair value of the reporting units, a combined income approach and market approach is used (additional information on process and methodology used to conduct goodwill impairment testing is described in Note 9 — Goodwill and Other Intangible Assets to the Consolidated Financial Statements in this Form 10-K). If the fair value is less than the carrying value, then the second step of the test is needed to measure the amount of goodwill impairment, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying value of that goodwill. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill, then the Company would recognize an impairment loss in an amount equal to that excess, which would be recorded as a charge to noninterest expense. The loss recognized cannot exceed the carrying amount of goodwill.
Significant judgment is applied and assumptions are made when estimating the fair value of the reporting units. Estimates of fair value are dependent upon various factors including estimates of the profitability of the Company’s reporting units, long term growth rates and the estimated market cost of equity. Imprecision in estimating these factors can affect the estimated fair value of the reporting units. Certain events or circumstances could have a negative effect on the estimated fair value of the reporting units, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions and adverse regulatory or legislative changes, which could result in a material impairment charge to earnings in a future period.
In the fourth quarter of 2019, the Company performed its annual goodwill impairment test on all reporting units, and no goodwill impairment was recognized as a result of the test. For additional information on goodwill, see Note 9 — Goodwill and Other Intangible Assets to the Consolidated Financial Statements in this Form 10-K.
Income Taxes
The Company is subject to income tax laws of the various tax jurisdictions in which it conducts business, including the U.S., its states and the municipalities, and the tax jurisdictions in Hong Kong and China. The Company estimates income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense or benefit is reported on the Consolidated Statement of Income.
Accrued taxes represent the net estimated amount due to or to be received from various tax jurisdictions and are reported in Accrued expenses and other liabilities or Other assets on the Consolidated Balance Sheets. In estimating accrued taxes, the Company assesses the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent, and other pertinent information. The income tax laws are complex and subject to different interpretations by the Company and the relevant government taxing authorities. Significant judgment is required in determining the tax accruals and in evaluating the tax positions, including evaluating uncertain tax positions. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the tax authorities, and newly enacted statutory, judicial, and regulatory guidance that could impact the relative merits and risks of tax positions. These changes, when they occur, impact tax expense and can materially affect the operating results. The Company reviews its tax positions on a quarterly basis and makes adjustments to accrued taxes as new information becomes available.
Deferred tax assets represent amounts available to reduce income taxes payable in future years. Such assets arise due to temporary differences between the financial accounting basis and the income tax basis of assets and liabilities, as well as from NOL and tax credit carryforwards. The Company regularly evaluates the realizability of deferred tax assets. The available evidence used in connection with the evaluations includes taxable income, potential tax-planning strategies, and projected future reversals of deferred tax items.
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A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. It reduces the deferred tax assets to the amount that is more-likely-than-not to be realized. The Company has concluded that it is more-likely-than-not that all of the benefit of the deferred tax assets will be realized, with the exception of the deferred tax assets related to certain state NOLs. Accordingly, a valuation allowance has been recorded for these amounts.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. The Company establishes a liability for potential taxes, interest and penalties related to uncertain tax positions based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance, and the status of tax audits. The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2019. See Note 14 — Income Taxes to the Consolidated Financial Statements in this Form 10-K for additional information on income taxes.
Recently Issued Accounting Standards
For detailed discussion and disclosure on new accounting pronouncements adopted and recent accounting standards, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K.
Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures
To supplement the Company’s Consolidated Financial Statements presented in accordance with GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement. The Company believes these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.
During 2019, the Company recorded a $7.0 million pre-tax impairment charge, reversed $30.1 million of certain previously claimed tax credits and subsequently recorded a $1.6 million pre-tax impairment recovery related to DC Solar. During 2018, the Company sold its eight DCB branches and recognized a pre-tax gain on sale of $31.5 million. During 2017, the Company consummated a sale and leaseback transaction on a commercial property and recognized a pre-tax gain on sale of $71.7 million, sold its EWIS insurance brokerage business and recognized a pre-tax gain on sale of $3.8 million, and recorded additional income tax expense of $41.7 million related to the passing of the Tax Act.
76

The following tables present the reconciliation of GAAP to non-GAAP financial measures in 2019, 2018 and 2017:

($ and shares in thousands, except per share data) |  |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Net income | (a) |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Add: Impairment charge related to DC Solar (1) |  |  | 6,978 |  |  | — |  |  | — |
Less: Gain on sale of the commercial property |  |  | — |  |  | — |  |  | (71,654 | )
Gain on sale of business |  |  | — |  |  | (31,470 | ) |  | (3,807 | )
Impairment recovery related to DC Solar (1) |  |  | (1,583 | ) |  | — |  |  | — |
Tax effect of adjustments (2) |  |  | (1,595 | ) |  | 9,303 |  |  | 31,729 |
Add: Reversal of certain previously claimed tax credits related to DC Solar |  |  | 30,104 |  |  | — |  |  | — |
Impact of the Tax Act |  |  | — |  |  | — |  |  | 41,689 |
Non-GAAP net income | (b) |  | $ | 707,939 |  |  | $ | 681,534 |  |  | $ | 503,581 |
Diluted weighted-average number of shares outstanding |  |  | 146,179 |  |  | 146,169 |  |  | 145,913 |
Diluted EPS |  |  | $ | 4.61 |  |  | $ | 4.81 |  |  | $ | 3.47 |
Diluted EPS impact of impairment charge related to DC Solar, net of tax |  |  | 0.03 |  |  | — |  |  | — |
Diluted EPS impact of gain on sale of the commercial property, net of tax |  |  | — |  |  | — |  |  | (0.28 | )
Diluted EPS impact of gain on sale of business, net of tax |  |  | — |  |  | (0.15 | ) |  | (0.02 | )
Diluted EPS impact of impairment recovery related to DC Solar, net of tax |  |  | (0.01 | ) |  | — |  |  | — |
Diluted EPS impact of reversal of certain previously claimed tax credits related to DC Solar |  |  | 0.21 |  |  | — |  |  | — |
Diluted EPS impact of the Tax Act |  |  | — |  |  | — |  |  | 0.29 |
Non-GAAP diluted EPS |  |  | $ | 4.84 |  |  | $ | 4.66 |  |  | $ | 3.46 |
Average total assets | (c) |  | $ | 42,484,885 |  |  | $ | 38,542,569 |  |  | $ | 35,787,613 |
Average stockholders’ equity | (d) |  | $ | 4,760,845 |  |  | $ | 4,130,822 |  |  | $ | 3,687,213 |
ROA | (a)/(c) |  | 1.59 | % |  | 1.83 | % |  | 1.41 | %
Non-GAAP ROA | (b)/(c) |  | 1.67 | % |  | 1.77 | % |  | 1.41 | %
ROE | (a)/(d) |  | 14.16 | % |  | 17.04 | % |  | 13.71 | %
Non-GAAP ROE | (b)/(d) |  | 14.87 | % |  | 16.50 | % |  | 13.66 | %

(1) | Included in Amortization of tax credit and other investments on the Consolidated Statement of Income.

(2) | Applied statutory rate of 29.56%.

($ in thousands) |  |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Income tax expense |  | (a) |  | $ | 169,882 |  |  | $ | 114,995 |  |  | $ | 229,476 |
Less: Reversal of certain previously claimed tax credits related to DC Solar |  | (b) |  | (30,104 | ) |  | — |  |  | — |
Impact of the Tax Act |  | (c) |  | — |  |  | — |  |  | (41,689 | )
Non-GAAP income tax expense |  | (d) |  | $ | 139,778 |  |  | $ | 114,995 |  |  | $ | 187,787 |
Income before income taxes |  | (e) |  | $ | 843,917 |  |  | $ | 818,696 |  |  | $ | 735,100 |
Effective tax rate |  | (a)/(e) |  | 20.1 | % |  | 14.0 | % |  | 31.2 | %
Less: Reversal of certain previously claimed tax credits related to DC Solar |  | (b)/(e) |  | (3.5 | )% |  | — | % |  | — | %
Impact of the Tax Act |  | (c)/(e) |  | — | % |  | — | % |  | (5.7 | )%
Non-GAAP effective tax rate |  | (d)/(e) |  | 16.6 | % |  | 14.0 | % |  | 25.5 | %

77

($ in thousands) |  |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Net interest income before provision for credit losses |  | (a) |  | $ | 1,467,813 |  |  | $ | 1,386,508 |  |  | $ | 1,185,069 |
Total noninterest income |  |  |  | 209,377 |  |  | 210,909 |  |  | 257,748 |
Total revenue |  | (b) |  | $ | 1,677,190 |  |  | $ | 1,597,417 |  |  | $ | 1,442,817 |
Total noninterest income |  |  |  | $ | 209,377 |  |  | $ | 210,909 |  |  | $ | 257,748 |
Less: Gain on sale of the commercial property |  |  |  | — |  |  | — |  |  | (71,654 | )
Gain on sale of business |  |  |  | — |  |  | (31,470 | ) |  | (3,807 | )
Non-GAAP noninterest income |  | (c) |  | $ | 209,377 |  |  | $ | 179,439 |  |  | $ | 182,287 |
Non-GAAP revenue |  | (a)+(c)=(d) |  | $ | 1,677,190 |  |  | $ | 1,565,947 |  |  | $ | 1,367,356 |
Total noninterest expense |  | (e) |  | $ | 734,588 |  |  | $ | 714,466 |  |  | $ | 661,451 |
Less: Amortization of tax credit and other investments |  |  |  | (85,515 | ) |  | (89,628 | ) |  | (87,950 | )
Amortization of core deposit intangibles |  |  |  | (4,518 | ) |  | (5,492 | ) |  | (6,935 | )
Non-GAAP noninterest expense |  | (f) |  | $ | 644,555 |  |  | $ | 619,346 |  |  | $ | 566,566 |
Efficiency ratio |  | (e)/(b) |  | 43.80 | % |  | 44.73 | % |  | 45.84 | %
Non-GAAP efficiency ratio |  | (f)/(d) |  | 38.43 | % |  | 39.55 | % |  | 41.44 | %

($ and shares in thousands, except per share data) |  |  | December 31,
| 2019 |  | 2018 |  | 2017
Stockholders’ equity |  | (a) |  | $ | 5,017,617 |  |  | $ | 4,423,974 |  |  | $ | 3,841,951 |
Less: Goodwill |  |  |  | (465,697 | ) |  | (465,547 | ) |  | (469,433 | )
Other intangible assets (1) |  |  |  | (16,079 | ) |  | (22,365 | ) |  | (28,825 | )
Non-GAAP tangible common equity |  | (b) |  | $ | 4,535,841 |  |  | $ | 3,936,062 |  |  | $ | 3,343,693 |
Number of common shares, at period-end |  | (c) |  | 145,625 |  |  | 144,961 |  |  | 144,543 |
Non-GAAP tangible common equity per share |  | (b)/(c) |  | $ | 31.15 |  |  | $ | 27.15 |  |  | $ | 23.13 |

(1) | Includes core deposit intangibles and mortgage servicing assets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 7. MD&A — Risk Management — Market Risk Management and Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K.
78

EAST WEST BANCORP, INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS

|  |  | Page
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 80
| CONSOLIDATED FINANCIAL STATEMENTS |
|  | Consolidated Balance Sheet | 82
|  | Consolidated Statement of Income | 83
|  | Consolidated Statement of Comprehensive Income | 84
|  | Consolidated Statement of Changes in Stockholders’ Equity | 85
|  | Consolidated Statement of Cash Flows | 86
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|  | 1 — Summary of Significant Accounting Policies | 88
|  | 2 — Dispositions | 97
|  | 3 — Fair Value Measurement and Fair Value of Financial Instruments | 97
|  | 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements | 106
|  | 5 — Securities | 108
|  | 6 — Derivatives | 111
|  | 7 — Loans Receivable and Allowance for Credit Losses | 117
|  | 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities | 132
|  | 9 — Goodwill and Other Intangible Assets | 134
|  | 10 — Leases | 136
|  | 11 — Deposits | 139
|  | 12 — Federal Home Loan Bank Advances and Long-Term Debt | 139
|  | 13 — Revenue from Contracts with Customers | 141
|  | 14 — Income Taxes | 143
|  | 15 — Commitments, Contingencies and Related Party Transactions | 146
|  | 16 — Stock Compensation Plans | 148
|  | 17 — Employee Benefit Plans | 149
|  | 18 — Stockholders’ Equity and Earnings Per Share | 150
|  | 19 — Accumulated Other Comprehensive Income (Loss) | 151
|  | 20 — Regulatory Requirements and Matters | 152
|  | 21 — Business Segments | 153
|  | 22 — Parent Company Condensed Financial Statements | 155
|  | 23 — Quarterly Financial Information (Unaudited) | 158
|  | 24 — Subsequent Events | 158

79

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
East West Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of East West Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan losses related to non-impaired loans collectively evaluated for impairment.
As discussed in Notes 1 and 7 to the consolidated financial statements, the Company’s allowance for loan losses related to non-impaired loans collectively evaluated for impairment (general reserve) was $353 million of a total allowance for loan losses of $358 million as of December 31, 2019. The methodology to determine the general reserve is based on a classified asset migration model (the model) that uses both quantitative factors and qualitative considerations. The model examines pools of loans having similar characteristics, including loan grades for heterogeneous loans, and estimates their probable losses. Quantitative factors include historical loss experience, delinquency and net charge-off trends, and other factors. Additionally, the methodology utilizes qualitative and environmental factors as adjusting mechanisms to supplement the historical results of the model.
We identified the assessment of the general reserve as a critical audit matter as it involved significant measurement uncertainty, required complex auditor judgment, and industry knowledge and experience. Specifically, the assessment involved an evaluation of the methodology and model, and the key inputs and assumptions, which included (1) how loans with similar characteristics are pooled, (2) loan grades for heterogeneous loans, (3) loss rates based on historical loss experience, and (4) qualitative and environmental factors.
80

The primary procedures we performed to address the critical audit matter included the following. We tested the design, implementation, and operating effectiveness of internal controls over the development and approval of the general reserve methodology, including the determination of the key inputs and assumptions. We tested the process for estimating the general reserve, including the key inputs and assumptions. We involved credit risk professionals with specialized industry knowledge and experience, who assisted in the evaluation of (1) the general reserve methodology for compliance with U.S. generally accepted accounting principles, (2) how loans with similar characteristics are pooled, (3) loan grades for a selection of heterogeneous loans, (4) the development of the loss rates, which are based on the historical loss experience, and (5) the framework used to develop the resulting qualitative factors.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Los Angeles, California
February 27, 2020
81

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands, except shares)

|  | December 31,
|  | 2019 |  | 2018
ASSETS |  |  |  |
Cash and due from banks |  | $ | 536,221 |  |  | $ | 516,291 |
Interest-bearing cash with banks |  | 2,724,928 |  |  | 2,485,086 |
Cash and cash equivalents |  | 3,261,149 |  |  | 3,001,377 |
Interest-bearing deposits with banks |  | 196,161 |  |  | 371,000 |
Securities purchased under resale agreements (“resale agreements”) |  | 860,000 |  |  | 1,035,000 |
Securities: |  |  |  |
Available-for-sale (''AFS'') investment securities, at fair value (includes assets pledged as collateral of $479,432 in 2019 and $435,833 in 2018) |  | 3,317,214 |  |  | 2,741,847 |
Restricted equity securities, at cost |  | 78,580 |  |  | 74,069 |
Loans held-for-sale |  | 434 |  |  | 275 |
Loans held-for-investment (net of allowance for loan losses of $358,287 in 2019 and $311,322 in 2018; includes assets pledged as collateral of $22,431,092 in 2019 and $20,590,035 in 2018) |  | 34,420,252 |  |  | 32,073,867 |
Investments in qualified affordable housing partnerships, net |  | 207,037 |  |  | 184,873 |
Investments in tax credit and other investments, net |  | 254,140 |  |  | 231,635 |
Premises and equipment (net of accumulated depreciation of $116,790 in 2019 and $118,547 in 2018) |  | 118,364 |  |  | 119,180 |
Goodwill |  | 465,697 |  |  | 465,547 |
Operating lease right-of-use assets |  | 99,973 |  |  | — |
Other assets |  | 917,095 |  |  | 743,686 |
TOTAL |  | $ | 44,196,096 |  |  | $ | 41,042,356 |
LIABILITIES |  |  |  |
Deposits: |  |  |  |
Noninterest-bearing |  | $ | 11,080,036 |  |  | $ | 11,377,009 |
Interest-bearing |  | 26,244,223 |  |  | 24,062,619 |
Total deposits |  | 37,324,259 |  |  | 35,439,628 |
Short-term borrowings |  | 28,669 |  |  | 57,638 |
Federal Home Loan Bank (“FHLB”) advances |  | 745,915 |  |  | 326,172 |
Securities sold under repurchase agreements (“repurchase agreements”) |  | 200,000 |  |  | 50,000 |
Long-term debt and finance lease liabilities |  | 152,270 |  |  | 146,835 |
Operating lease liabilities |  | 108,083 |  |  | — |
Accrued expenses and other liabilities |  | 619,283 |  |  | 598,109 |
Total liabilities |  | 39,178,479 |  |  | 36,618,382 |
COMMITMENTS AND CONTINGENCIES (Note 15) |  |  |  |  |  |
STOCKHOLDERS’ EQUITY |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized; 166,621,959 and 165,867,587 shares issued in 2019 and 2018, respectively |  | 167 |  |  | 166 |
Additional paid-in capital |  | 1,826,345 |  |  | 1,789,811 |
Retained earnings |  | 3,689,377 |  |  | 3,160,132 |
Treasury stock, at cost — 20,996,574 shares in 2019 and 20,906,224 shares in 2018 |  | (479,864 | ) |  | (467,961 | )
Accumulated other comprehensive loss (“AOCI”), net of tax |  | (18,408 | ) |  | (58,174 | )
Total stockholders’ equity |  | 5,017,617 |  |  | 4,423,974 |
TOTAL |  | $ | 44,196,096 |  |  | $ | 41,042,356 |

See accompanying Notes to Consolidated Financial Statements.
82

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)

|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
INTEREST AND DIVIDEND INCOME |  |  |  |  |  |
Loans receivable, including fees |  | $ | 1,717,415 |  |  | $ | 1,503,514 |  |  | $ | 1,198,440 |
Investment securities |  | 67,838 |  |  | 60,911 |  |  | 58,670 |
Resale agreements |  | 27,819 |  |  | 29,328 |  |  | 32,095 |
Restricted equity securities |  | 2,468 |  |  | 3,146 |  |  | 2,524 |
Interest-bearing cash and deposits with banks |  | 66,760 |  |  | 54,804 |  |  | 33,390 |
Total interest and dividend income |  | 1,882,300 |  |  | 1,651,703 |  |  | 1,325,119 |
INTEREST EXPENSE |  |  |  |  |  |  |  |
Deposits |  | 375,802 |  |  | 234,752 |  |  | 116,391 |
Federal funds purchased and other short-term borrowings |  | 1,763 |  |  | 1,398 |  |  | 1,003 |
FHLB advances |  | 16,697 |  |  | 10,447 |  |  | 7,751 |
Repurchase agreements |  | 13,582 |  |  | 12,110 |  |  | 9,476 |
Long-term debt and finance lease liabilities |  | 6,643 |  |  | 6,488 |  |  | 5,429 |
Total interest expense |  | 414,487 |  |  | 265,195 |  |  | 140,050 |
Net interest income before provision for credit losses |  | 1,467,813 |  |  | 1,386,508 |  |  | 1,185,069 |
Provision for credit losses |  | 98,685 |  |  | 64,255 |  |  | 46,266 |
Net interest income after provision for credit losses |  | 1,369,128 |  |  | 1,322,253 |  |  | 1,138,803 |
NONINTEREST INCOME |  |  |  |  |  |  |  |
Lending fees |  | 63,670 |  |  | 59,758 |  |  | 58,395 |
Deposit account fees |  | 38,648 |  |  | 39,176 |  |  | 40,299 |
Foreign exchange income |  | 26,398 |  |  | 21,259 |  |  | 9,908 |
Wealth management fees |  | 16,668 |  |  | 13,785 |  |  | 13,974 |
Interest rate contracts and other derivative income |  | 39,865 |  |  | 18,980 |  |  | 17,671 |
Net gains on sales of loans |  | 4,035 |  |  | 6,590 |  |  | 8,870 |
Net gains on sales of AFS investment securities |  | 3,930 |  |  | 2,535 |  |  | 8,037 |
Net gains on sales of fixed assets |  | 114 |  |  | 6,683 |  |  | 77,388 |
Net gain on sale of business |  | — |  |  | 31,470 |  |  | 3,807 |
Other investment income |  | 5,249 |  |  | 1,207 |  |  | 3,903 |
Other income |  | 10,800 |  |  | 9,466 |  |  | 15,496 |
Total noninterest income |  | 209,377 |  |  | 210,909 |  |  | 257,748 |
NONINTEREST EXPENSE |  |  |  |  |  |  |  |
Compensation and employee benefits |  | 401,700 |  |  | 379,622 |  |  | 335,291 |
Occupancy and equipment expense |  | 69,730 |  |  | 68,896 |  |  | 64,921 |
Deposit insurance premiums and regulatory assessments |  | 12,928 |  |  | 21,211 |  |  | 23,735 |
Legal expense |  | 8,441 |  |  | 8,781 |  |  | 11,444 |
Data processing |  | 13,533 |  |  | 13,177 |  |  | 12,093 |
Consulting expense |  | 9,846 |  |  | 11,579 |  |  | 14,922 |
Deposit related expense |  | 14,175 |  |  | 11,244 |  |  | 9,938 |
Computer software expense |  | 26,471 |  |  | 22,286 |  |  | 18,183 |
Other operating expense |  | 92,249 |  |  | 88,042 |  |  | 82,974 |
Amortization of tax credit and other investments |  | 85,515 |  |  | 89,628 |  |  | 87,950 |
Total noninterest expense |  | 734,588 |  |  | 714,466 |  |  | 661,451 |
INCOME BEFORE INCOME TAXES |  | 843,917 |  |  | 818,696 |  |  | 735,100 |
INCOME TAX EXPENSE |  | 169,882 |  |  | 114,995 |  |  | 229,476 |
NET INCOME |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
EARNINGS PER SHARE (“EPS”) |  |  |  |  |  |
BASIC |  | $ | 4.63 |  |  | $ | 4.86 |  |  | $ | 3.50 |
DILUTED |  | $ | 4.61 |  |  | $ | 4.81 |  |  | $ | 3.47 |
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING |  |  |  |  |  |
BASIC |  | 145,497 |  |  | 144,862 |  |  | 144,444 |
DILUTED |  | 146,179 |  |  | 146,169 |  |  | 145,913 |

See accompanying Notes to Consolidated Financial Statements.
83

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)

|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |
Net changes in unrealized gains (losses) on AFS investment securities |  | 43,402 |  |  | (8,652 | ) |  | (2,126 | )
Foreign currency translation adjustments |  | (3,636 | ) |  | (5,732 | ) |  | 12,753 |
Other comprehensive income (loss) |  | 39,766 |  |  | (14,384 | ) |  | 10,627 |
COMPREHENSIVE INCOME |  | $ | 713,801 |  |  | $ | 689,317 |  |  | $ | 516,251 |

See accompanying Notes to Consolidated Financial Statements.
84

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

|  | Common Stock and Additional Paid-in Capital |  | Retained Earnings |  | Treasury Stock |  | AOCI, Net of Tax |  | Total Stockholders’ Equity
| Shares |  | Amount |  |  |  |
BALANCE, DECEMBER 31, 2016 |  | 144,167,451 |  |  | $ | 1,727,598 |  |  | $ | 2,187,676 |  |  | $ | (439,387 | ) |  | $ | (48,146 | ) |  | $ | 3,427,741 |
Net income |  | — |  |  | — |  |  | 505,624 |  |  | — |  |  | — |  |  | 505,624 |
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | 10,627 |  |  | 10,627 |
Net activity of common stock pursuant to various stock compensation plans and agreements |  | 375,609 |  |  | 27,897 |  |  | — |  |  | (12,940 | ) |  | — |  |  | 14,957 |
Cash dividends on common stock ($0.80 per share) |  | — |  |  | — |  |  | (116,998 | ) |  | — |  |  | — |  |  | (116,998 | )
BALANCE, DECEMBER 31, 2017 |  | 144,543,060 |  |  | $ | 1,755,495 |  |  | $ | 2,576,302 |  |  | $ | (452,327 | ) |  | $ | (37,519 | ) |  | $ | 3,841,951 |
Cumulative effect of change in accounting principle related to marketable equity securities (1) |  | — |  |  | — |  |  | (545 | ) |  | — |  |  | 385 |  |  | (160 | )
Reclassification of tax effects in AOCI resulting from the new federal corporate income tax rate (2) |  | — |  |  | — |  |  | 6,656 |  |  | — |  |  | (6,656 | ) |  | — |
Net income |  | — |  |  | — |  |  | 703,701 |  |  | — |  |  | — |  |  | 703,701 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | — |  |  | (14,384 | ) |  | (14,384 | )
Net activity of common stock pursuant to various stock compensation plans and agreements |  | 418,303 |  |  | 34,482 |  |  | — |  |  | (15,634 | ) |  | — |  |  | 18,848 |
Cash dividends on common stock ($0.86 per share) |  | — |  |  | — |  |  | (125,982 | ) |  | — |  |  | — |  |  | (125,982 | )
BALANCE, DECEMBER 31, 2018 |  | 144,961,363 |  |  | $ | 1,789,977 |  |  | $ | 3,160,132 |  |  | $ | (467,961 | ) |  | $ | (58,174 | ) |  | $ | 4,423,974 |
Cumulative effect of change in accounting principle related to leases (3) |  | — |  |  | — |  |  | 10,510 |  |  | — |  |  | — |  |  | 10,510 |
Net income |  | — |  |  | — |  |  | 674,035 |  |  | — |  |  | — |  |  | 674,035 |
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | 39,766 |  |  | 39,766 |
Warrants exercised |  | 180,226 |  |  | 1,711 |  |  | — |  |  | 2,732 |  |  | — |  |  | 4,443 |
Net activity of common stock pursuant to various stock compensation plans and agreements |  | 483,796 |  |  | 34,824 |  |  | — |  |  | (14,635 | ) |  | — |  |  | 20,189 |
Cash dividends on common stock ($1.055 per share) |  | — |  |  | — |  |  | (155,300 | ) |  | — |  |  | — |  |  | (155,300 | )
BALANCE, DECEMBER 31, 2019 |  | 145,625,385 |  |  | $ | 1,826,512 |  |  | $ | 3,689,377 |  |  | $ | (479,864 | ) |  | $ | (18,408 | ) |  | $ | 5,017,617 |

(1) | Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in the first quarter of 2018. Refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Annual Report on Form 10-K (“this Form 10-K”) for additional information.

(2) | Represents amounts reclassified from AOCI to retained earnings due to the early adoption of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2018. Refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements for additional information.

(3) | Represents the impact of the adoption of ASU 2016-02, Leases (Topic 842) and subsequent related ASUs in the first quarter of 2019. Refer to Note 1 — Summary of Significant Accounting Policies and Note 10 — Leases to the Consolidated Financial Statements in this Form 10-K for additional information.

See accompanying Notes to Consolidated Financial Statements.
85

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

|  | Year Ended December 31,
($ in thousands) |  | 2019 |  | 2018 |  | 2017
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |  |  |  |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 144,178 |  |  | 139,499 |  |  | 149,822 |
Accretion of discount and amortization of premiums, net |  | (22,379 | ) |  | (20,572 | ) |  | (7,260 | )
Stock compensation costs |  | 30,761 |  |  | 30,937 |  |  | 24,657 |
Deferred income tax (benefit) expense |  | (21,604 | ) |  | (16,470 | ) |  | 33,856 |
Provision for credit losses |  | 98,685 |  |  | 64,255 |  |  | 46,266 |
Net gains on sales of loans |  | (4,035 | ) |  | (6,590 | ) |  | (8,870 | )
Net gains on sales of AFS investment securities |  | (3,930 | ) |  | (2,535 | ) |  | (8,037 | )
Net gains on sales of fixed assets |  | (114 | ) |  | (6,683 | ) |  | (77,388 | )
Net gain on sale of business |  | — |  |  | (31,470 | ) |  | (3,807 | )
Loans held-for-sale: |  |  |  |  |  |
Originations and purchases |  | (10,569 | ) |  | (20,176 | ) |  | (20,521 | )
Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale |  | 10,436 |  |  | 20,068 |  |  | 21,363 |
Proceeds from distributions received from equity method investees |  | 3,470 |  |  | 3,761 |  |  | 3,582 |
Net change in accrued interest receivable and other assets |  | (170,819 | ) |  | (60,791 | ) |  | 45,354 |
Net change in accrued expenses and other liabilities |  | 7,012 |  |  | 88,070 |  |  | (1,965 | )
Other net operating activities |  | 702 |  |  | (1,832 | ) |  | 599 |
Total adjustments |  | 61,794 |  |  | 179,471 |  |  | 197,651 |
Net cash provided by operating activities |  | 735,829 |  |  | 883,172 |  |  | 703,275 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |  |  |  |
Net (increase) decrease in: |  |  |  |  |  |  |  |  |
Investments in qualified affordable housing partnerships, tax credit and other investments |  | (146,902 | ) |  | (132,605 | ) |  | (173,630 | )
Interest-bearing deposits with banks |  | 193,455 |  |  | 4,212 |  |  | (63,096 | )
Resale agreements: |  |  |  |  |  |
Proceeds from paydowns and maturities |  | 650,000 |  |  | 175,000 |  |  | 1,250,000 |
Purchases |  | (325,000 | ) |  | (160,000 | ) |  | (600,000 | )
AFS investment securities: |  |  |  |  |  |
Proceeds from sales |  | 627,110 |  |  | 364,270 |  |  | 832,844 |
Proceeds from repayments, maturities and redemptions |  | 1,155,002 |  |  | 742,132 |  |  | 413,593 |
Purchases |  | (2,303,317 | ) |  | (888,673 | ) |  | (828,604 | )
Loans held-for-investment: |  |  |  |  |  |
Proceeds from sales of loans originally classified as held-for-investment |  | 288,823 |  |  | 483,948 |  |  | 566,688 |
Purchases |  | (524,142 | ) |  | (597,112 | ) |  | (534,816 | )
Other changes in loans held-for-investment, net |  | (2,184,915 | ) |  | (3,313,382 | ) |  | (3,514,786 | )
Premises and equipment: |  |  |  |  |  |  |  |  |
Proceeds from sales |  | 403 |  |  | 1,638 |  |  | 119,749 |
Purchases |  | (9,859 | ) |  | (13,787 | ) |  | (13,754 | )
Sales of businesses, net of cash transferred: |  |  |  |  |  |
Proceeds |  | — |  |  | — |  |  | 3,633 |
Payments |  | — |  |  | (503,687 | ) |  | — |
Proceeds from sales of other real estate owned (“OREO”) |  | 1,224 |  |  | 4,484 |  |  | 6,999 |
Proceeds from distributions received from equity method investees |  | 9,502 |  |  | 5,185 |  |  | 8,387 |
Other net investing activities |  | (2,560 | ) |  | (4,035 | ) |  | 19,969 |
Net cash used in investing activities |  | (2,571,176 | ) |  | (3,832,412 | ) |  | (2,506,824 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |  |  |  |
Net increase in deposits |  | 1,902,741 |  |  | 3,903,192 |  |  | 2,272,500 |
Net (decrease) increase in short-term borrowings |  | (28,535 | ) |  | 61,392 |  |  | (61,560 | )
FHLB advances |  |  |  |  |  |
Proceeds |  | 1,500,000 |  |  | — |  |  | — |
Repayment |  | (1,082,001 | ) |  | — |  |  | — |
Repayment of long-term debt and lease liabilities |  | (884 | ) |  | (25,000 | ) |  | (15,000 | )
Common stock: |  |  |  |  |  |
Proceeds from issuance pursuant to various stock compensation plans and agreements |  | 3,383 |  |  | 2,846 |  |  | 2,280 |
Stocks tendered for payment of withholding taxes |  | (14,635 | ) |  | (15,634 | ) |  | (12,940 | )
Cash dividends paid |  | (155,107 | ) |  | (125,988 | ) |  | (116,820 | )
Net cash provided by financing activities |  | 2,124,962 |  |  | 3,800,808 |  |  | 2,068,460 |
Effect of exchange rate changes on cash and cash equivalents |  | (29,843 | ) |  | (24,783 | ) |  | 31,178 |
NET INCREASE IN CASH AND CASH EQUIVALENTS |  | 259,772 |  |  | 826,785 |  |  | 296,089 |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |  | 3,001,377 |  |  | 2,174,592 |  |  | 1,878,503 |
CASH AND CASH EQUIVALENTS, END OF YEAR |  | $ | 3,261,149 |  |  | $ | 3,001,377 |  |  | $ | 2,174,592 |

See accompanying Notes to Consolidated Financial Statements.
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EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)

|  | Year Ended December 31,
($ in thosands) |  | 2019 |  | 2018 |  | 2017
SUPPLEMENTAL CASH FLOW INFORMATION: |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |
Interest |  | $ | 418,840 |  |  | $ | 253,026 |  |  | $ | 138,766 |
Income taxes, net |  | $ | 158,296 |  |  | $ | 85,872 |  |  | $ | 98,126 |
Noncash investing and financing activities: |  |  |  |  |  |
Loans transferred from held-for-investment to held-for-sale (1) |  | $ | 285,637 |  |  | $ | 481,593 |  |  | $ | 613,088 |
Loans transferred from held-for-sale to held-for-investment |  | $ | — |  |  | $ | 2,306 |  |  | $ | — |
Deposits transferred to branch liability held-for-sale |  | $ | — |  |  | $ | — |  |  | $ | 605,111 |
Investment security transferred from held-to-maturity to AFS |  | $ | — |  |  | $ | — |  |  | $ | 115,615 |
Premises and equipment transferred to branch assets held-for-sale |  | $ | — |  |  | $ | — |  |  | $ | 8,043 |
Loans transferred to OREO |  | $ | 2,013 |  |  | $ | 1,206 |  |  | $ | 777 |

(1) | December 31, 2017 amount includes loans transferred from held-for-investment to branch assets held-for-sale.

See accompanying Notes to Consolidated Financial Statements.
87

EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
General
East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The Bank is the Company’s principal asset. As of December 31, 2019, the Company operates in more than 125 locations in the United States (“U.S.”) and Greater China. In the U.S., the Bank’s corporate headquarters and main administrative offices are located in California, and its branches are located in California, Texas, New York, Washington, Georgia, Massachusetts and Nevada. In Greater China, East West’s presence includes full service branches in Hong Kong, Shanghai, Shantou and Shenzhen, and representative offices in Beijing, Chongqing, Guangzhou and Xiamen. In 2017, the Company sold the insurance brokerage business of East West Insurance Services, Inc. (“EWIS”), which remains a subsidiary of East West and continues to maintain its insurance broker license. In 2019, East West acquired Enstream Capital Markets, LLC, a private broker dealer and also established East West Investment Management LLC, a registered investment adviser. Both Enstream Capital Markets, LLC (subsequently renamed as East West Markets, LLC) and East West Investment Management LLC are wholly-owned subsidiaries of East West.
Significant Accounting Policies
Basis of Presentation — The accounting and reporting policies of the Company conform with the U.S. Generally Accepted Accounting Principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and general practices in the banking industry. The preparation of the Consolidated Financial Statements in conformity with 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 period, and the related disclosures. Actual results could differ materially from those estimates. Certain items on the Consolidated Financial Statements and notes for the prior years have been reclassified to conform to the 2019 presentation.
Principles of Consolidation — The Consolidated Financial Statements in this Form 10-K include the accounts of East West and its subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, the Trusts are not included on the Consolidated Financial Statements.
Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, cash items in transit, cash due from the Federal Reserve Bank of San Francisco (“FRB”) and other financial institutions, and federal funds sold with original maturities up to three months.
Interest-bearing Deposits with Banks — Interest-bearing deposits with banks include cash placed with other banks with original maturities greater than three months and less than one year.
Resale Agreements and Repurchase Agreements — Resale agreements are recorded as receivables based on the values at which the securities are acquired. The market values of the underlying securities collateralizing the resale agreements, including accrued interest, are monitored. Additional collateral may be requested from the counterparties or excess collateral may be returned to the counterparties by the Company under the contractual terms of the arrangements, when deemed appropriate. Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the securities are sold. The Company may have to provide additional collateral to the counterparties, or the counterparties may return excess collateral to the Company, for the repurchase agreements when deemed appropriate. The Company has elected to offset resale and repurchase transactions with the same counterparty on the Consolidated Balance Sheet when it has a legally enforceable master netting agreement and when the transactions are eligible for netting under ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements.
Securities — The Company’s securities include various debt securities, marketable equity securities and restricted equity securities. Debt securities are recorded on the Consolidated Balance Sheet as of their trade dates. The Company classifies its debt securities as trading securities, AFS or held-to-maturity investment securities based on management’s intention on the date of the purchase.
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Debt securities are purchased for liquidity and investment purpose, as part of asset-liability management and other strategic activities. Debt securities for which the Company does not have the positive intention and ability to hold to maturity are classified as AFS and reported at fair value with unrealized gains and losses net of applicable income taxes, included in AOCI. We recognize realized gains and losses on the sale of AFS debt securities using the specific identification method. For each reporting period, debt securities classified as either AFS or held-to-maturity investment securities that are in an unrealized loss position are analyzed as part of the Company’s ongoing other-than-temporary impairment (“OTTI”) assessment. The initial indicator of OTTI is a decline in fair value below the amortized cost of the debt security. In determining whether OTTI has occurred, the Company considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, changes in the debt securities’ ratings and other qualitative factors, as well as whether the Company either plans to sell the debt security or it is more-likely-than-not that it will be required to sell the debt security before recovery of the amortized cost. When the Company does not intend to sell the impaired debt security and it is more-likely-than-not that the Company will not be required to sell the impaired debt security prior to recovery of its amortized cost basis, the credit component of an OTTI of the impaired debt security is recognized as OTTI loss on the Consolidated Statement of Income and the non-credit component is recognized in other comprehensive income. This applies for both AFS and held-to-maturity investment securities. If the Company intends to sell the impaired debt security or it is more-likely-than-not that the Company will be required to sell the impaired debt security prior to recovery of its amortized cost basis, the full amount of the impairment loss (equal to the difference between the debt security’s amortized cost basis and its fair value at the balance sheet date) is recognized as OTTI loss on the Consolidated Statement of Income. Following the recognition of OTTI, the debt security’s new amortized cost basis is the previous basis minus the OTTI amount recognized in earnings.
Marketable equity securities that have readily determinable fair values are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in earnings. Marketable equity securities include mutual fund investments are included in Investments in tax credit and other investments, net on the Consolidated Balance Sheet. Nonmarketable equity securities that do not have readily determinable fair values, exclude investments for which we hold a controlling interest in the investee. Nonmarketable equity securities include tax credit investments that are included in Investments in tax credit and other investments, net, and Other assets on the Consolidated Balance Sheet. These securities are accounted for under one of the following accounting methods:

• | Equity Method — When we have the ability to exert significant influence over the investee.

• | Cost Method — The cost method is applied to investments such as FRB and FHLB stock. These investments are held at their cost minus impairment. If impaired, the carrying value is written down to the fair value of the security.

• | Measurement Alternative — This method is applied to all remaining nonmarketable equity securities. These securities are carried at cost less impairment, and adjusted for changes in fair value upon the occurrence of orderly observable transactions of the same or similar security of the same issuer.

Our review for impairment for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, the expectations of cash flows, capital needs and the viability of its business model. For equity method and cost method investments, we reduce the asset’s carrying value when we consider declines in value to be OTTI. For securities accounted for under the measurement alternative, we reduce the asset value when the fair value is less than the carrying value, without the consideration of recovery. For additional information on the Company’s OTTI evaluation, see Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements.
Restricted equity securities include FRB and FHLB stock. The FRB stock is required by law to be held as a condition of membership in the Federal Reserve System. The FHLB stock is required to obtain advances from the FHLB. They are carried at cost as they do not have a readily determinable fair value.
Loans Held-for-Sale — Loans are initially classified as loans held-for-sale when they are individually identified as being available for immediate sale and management has committed to a formal plan to sell them. Loans held-for-sale are carried at lower of cost or fair value. Subject to periodic review under the Company’s evaluation process, including asset/liability and credit risk management, the Company may transfer certain loans from held-for-investment to held-for-sale measured at lower of cost or fair value. Any write-downs in the carrying amount of the loan at the date of transfer is recorded as a charge-off to allowance for loan losses. Loan origination fees on loans held-for-sale, net of certain costs in processing and closing the loans, are deferred until the time of sale and are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale. A valuation allowance is established if the fair value of such loans is lower than their cost, with a corresponding charge to noninterest income. If the loan or a portion of the loan cannot be sold, it is subsequently transferred back to the loans held-for-investment portfolio from the loans held-for-sale portfolio at the lower of cost or fair value on the transfer date.
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Loans Held-for-Investment — At the time of commitment to originate or purchase a loan, the loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future”. Loans held-for-investment are stated at their outstanding principal, reduced by an allowance for loan losses and net of deferred loan fees or costs, or unearned fees on originated loans, net of unamortized premiums or unaccreted discounts on purchased loans. Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method or straight-line method. Discounts/premiums on purchased loans are accreted/amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity. Interest on loans is calculated using the simple-interest method on daily balances of the principal amounts outstanding. Generally, loans are placed on nonaccrual status when they become 90 days past due or more. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes uncertain, regardless of the length of past due status. Once a loan is placed on nonaccrual status, interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Interest payments received on nonaccrual loans are reflected as a reduction of principal and not as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan.
Troubled Debt Restructurings — A loan is classified as a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date with a stated interest rate lower than the current market rate or note splits referred to as A/B note restructurings. Loans with contractual terms that have been modified as a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, these loans are placed on nonaccrual status and are reported as nonperforming, until the borrower demonstrates a sustained period of performance, generally six months, and the ability to repay the loan according to the contractual terms. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs. TDRs are included in the impaired loan quarterly valuation allowance process. Refer to Impaired Loans below for a complete discussion.
Impaired Loans — Impaired loans are identified and evaluated for impairment on an individual basis. The Company’s impaired loans include predominantly loans held-for-investment on nonaccrual status or modified as a TDR designated either as performing or nonperforming, excluding purchased credit-impaired (“PCI”) loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all scheduled payments of principal or interest due in accordance with the original contractual terms of the loan agreement. Factors considered by management in determining and measuring loan impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of and the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Impaired loans are measured based on the present value of expected future cash flows discounted at a designated discount rate or, as appropriate, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent, less cost to sell. When the value of an impaired loan is less than the recorded investment and the loan is classified as nonperforming and uncollectible, the deficiency is charged off against the allowance for loan losses. If the loan is a performing TDR, the deficiency is included in the specific reserves of the allowance for loan losses, as appropriate. Payments received on impaired loans classified as nonperforming are not recognized in interest income, but are applied as a reduction to the principal outstanding.
Allowance for Credit Losses — The allowance for credit losses (“ACL”) consists of the allowance for loan losses and unfunded credit commitments. The allowance for unfunded credit commitments include reserves provided for unfunded lending commitments, standby letters of credit (“SBLCs”) and recourse obligations for loans sold. The allowance for loan losses is established as management’s estimate of probable losses inherent in the Company’s lending activities. The allowance for loan losses is increased by the provision for loan losses and decreased by net charge-offs when management believes that the uncollectability of a loan is probable. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated quarterly by management based on periodic review of the collectability of the loans.
90

The allowance for loan losses on non-PCI loans consists of specific and general reserves. The Company’s non-PCI loans fall into heterogeneous and homogeneous categories. Impaired loans are subject to specific reserves. Non-impaired loans are evaluated as part of the general reserve. General reserves are calculated by utilizing both quantitative and qualitative factors. There are different qualitative risks for the loans in each portfolio segment. Predominant risk characteristics of the commercial real estate (“CRE”), multifamily, single-family residential loans and home equity lines of credit (“HELOC”) loans consider the collateral and geographic locations of the properties collateralizing the loans. Predominant risk characteristics of the commercial and industrial (“C&I”) loans include cash flows, debt service and collateral of the borrowers and guarantors, as well as the economic and market conditions.
The Company also maintains an allowance for loan losses on PCI loans when there is deterioration in credit quality subsequent to acquisition. Based on the Company’s estimates of cash flows expected to be collected, the Company establishes an allowance for the PCI loans, with a charge to Provision for credit losses on the Consolidated Statement of Income.
When a loan is determined uncollectible, it is the Company’s policy to promptly charge off the difference between the recorded investment balance of the loan and either the fair value of the collateral or the discounted value of expected cash flows. Recoveries are recorded when payment is received on loans that were previously charged off through the allowance for loan losses. Allocation of a portion of the allowance to one segment of the loan portfolio does not preclude its availability to absorb losses in other segments.
The allowance for unfunded credit commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities, including an assessment of the probability of commitment usage, credit risk factors for loans outstanding, and the terms and expiration dates of the unfunded credit facilities.
The allowance for loan losses is reported separately on the Consolidated Balance Sheet, whereas the allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. The Provision for credit losses is reported on the Consolidated Statement of Income.
Purchased Credit-Impaired Loans — Acquired loans are recorded at fair value as of acquisition date in accordance with ASC 805, Business Combinations. A purchased loan is deemed to be credit impaired when there is evidence of credit deterioration since its origination and it is probable at the acquisition date that the Company would be unable to collect all contractually required payments and is accounted for under ASC 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under ASC 310-30, loans are recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date.
The excess of cash flows expected to be collected over the initial investment in the loan represents the “accretable yield,” which is recognized as interest income on a level yield basis over the life of the loan. The excess of total contractual cash flows over the cash flows expected to be received at origination is deemed the “nonaccretable difference.” In estimating the nonaccretable difference, the Company (a) calculates the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (b) estimates the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The cash flows expected over the life of the pools are estimated by an internal cash flows model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions such as cumulative loss rates, loss curves and prepayment speeds are utilized to calculate the expected cash flows. Subsequent to the acquisition date, based on the quarterly evaluations of remaining cash flows from principal and interest payments expected to be collected, any increases in expected cash flows over the expected cash flows at purchase date in excess of fair value that are significant and probable are adjusted through the accretable yield on a prospective basis. Any subsequent decreases in expected cash flows over the expected cash flows at purchase date that are probable are recognized by a charge to the provision for loan losses. Any disposals of loans, including sales of loans, payments in full or foreclosures, result in the removal of the loan from the ASC 310-30 portfolio at the carrying amount.
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Variable Interest and Voting Interest Entities — The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”). We first determine whether or not we have variable interests in the entity, which are investments or other interests that absorb portions of an entity’s expected losses or receive portions of the entity’s expected returns. If it is determined that we do not have a variable interest in the entity, no further analysis is required and the entity is not consolidated. A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The Company consolidates a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. For entities that do not meet the definition of a VIE, the entity is considered a voting interest entity. We consolidate these entities if we can exert control over the financial and operating policies of an investee, which can occur if we have a 50% or more voting interest in the entity.
Investments in Qualified Affordable Housing Partnerships, Net, Tax Credit and Other Investments, Net — The Company records the investments in qualified affordable housing partnerships, net, using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the amortization in Income tax expense on the Consolidated Statement of Income.
The Company records investments in tax credit and other investments, net, using either the equity method or cost method of accounting. The tax credits are recognized on the Consolidated Financial Statements to the extent they are utilized on the Company’s income tax returns in the year the credit arises under the flow-through method of accounting. The investments are reviewed for impairment on an annual basis or on an interim basis, if an event occurs that would trigger potential impairment.
Premises and Equipment, Net — The Company’s premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of estimated useful lives for the principal classes of assets are as follows:

Premises and Equipment |  | Useful Lives
Buildings |  | 25 years
Furniture, fixtures and equipment, building improvements |  | 3 to 7 years
Leasehold improvements |  | Term of lease or useful life, whichever is shorter

The Company reviews its long-lived assets for impairment annually, or when events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. An asset is considered impaired when the fair value, which is the expected undiscounted cash flows over the remaining useful life, is less than the net book value. The excess of the net book value over its fair value is charged as impairment loss to noninterest expense.
Goodwill and Other Intangible Assets — Goodwill represents the excess of the purchase price over the fair value of net assets acquired in an acquisition. Goodwill is not amortized, but is tested for impairment on an annual basis 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. Other intangible assets are primarily comprised of core deposit intangibles. Core deposit intangibles, which represent the intangible value of depositor relationships resulting from deposit liabilities assumed in various acquisitions, are amortized over the projected useful lives of the deposits, which is typically 8 to 15 years. Core deposit intangibles are tested for impairment on an annual basis, or more frequently as events occur or current circumstances and conditions warrant. Impairment on goodwill and core deposit intangibles is recognized by writing down the asset as a charge to noninterest expense to the extent that the carrying value exceeds the estimated fair value.
Derivatives — As part of its asset and liability management strategy, the Company uses derivative financial instruments to mitigate exposure to interest rate and foreign currency risks, and to assist customers with their risk management objectives. Derivatives utilized by the Company include primarily swaps, forwards and option contracts. Derivative instruments are included in Other assets or Accrued expenses and other liabilities on the Consolidated Balance Sheet at fair value. The related cash flows are recognized on the Cash flows from operating activities section on the Consolidated Statement of Cash Flows. The Company uses its accounting hedges based on the exposure being hedged as either fair value hedges or hedges of the net investments in certain foreign operations. For fair value hedges of interest rate risk, changes in fair value of derivatives are reported in Interest expense on the Consolidated Statement of Income. Changes in fair value of derivatives designated as hedges of the net investments in foreign operations are recorded as a component of AOCI.
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All derivatives designated as fair value hedges and hedges of the net investments in certain foreign operations are linked to specific hedged items or to groups of specific assets and liabilities on the Consolidated Balance Sheet. To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not sought), a derivative must be highly effective in offsetting the risk designated as being hedged. The Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. Subsequent to inception, on a quarterly basis, the Company assesses whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value of the hedged items. Retrospective effectiveness is also assessed, as well as the continued expectation that the hedge will remain effective prospectively.
The Company discontinues hedge accounting prospectively when (i) a derivative is no longer highly effective in offsetting changes in fair value; (ii) a derivative expires, or is sold, terminated or exercised, or (iii) the Company determines that designation of a derivative as a hedge is no longer appropriate. If a fair value hedge is discontinued, the derivative will continue to be recorded on the Consolidated Balance Sheet at fair value with changes in fair value recognized on the Consolidated Statement of Income. When the hedged net investment is either sold or substantially liquidated, changes in the fair value of the derivatives are reclassified out of AOCI into Foreign exchange income on the Consolidated Statement of Income.
The Company also offers various interest rate, foreign currency, and energy commodity derivative products to customers. These transactions are not linked to specific assets or liabilities on the Consolidated Balance Sheet or to forecasted transactions in a hedging relationship and, therefore, do not qualify for hedge accounting. These contracts are recorded at fair value with changes in fair value recorded on the Consolidated Statement of Income.
As part of the Company’s loan origination process, from time to time, the Company obtains equity warrants to purchase preferred and/or common stock of public or private companies it provides loans to. These equity warrants are accounted for as derivatives and recorded at fair value included in Other assets on the Consolidated Balance Sheet with changes in fair value recorded on the Consolidated Statement of Income.
The Company is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected. Valuation of derivative assets and liabilities reflect the value of the instrument inclusive of the non-performance risk. The Company uses master netting arrangements to mitigate counterparty credit risk in derivative transactions. To the extent the derivatives are subject to master netting arrangements, the Company takes into account the impact of master netting arrangements that allow the Company to settle all derivative contracts executed with the same counterparty on a net basis, and to offset the net derivative position with the related cash collateral and securities. The Company elected to offset derivative transactions with the same counterparty on the Consolidated Balance Sheet when a derivative transaction has a legally enforceable master netting arrangement and when it is eligible for netting under ASC 210-20-45-1, Balance Sheet Offsetting: Netting Derivative Positions on Balance Sheet. Derivative balances and related cash collateral are presented net on the Consolidated Balance Sheet. In addition, the Company applied the Settlement to Market treatment for the cash collateralizing our interest rate and commodity contracts with certain centrally cleared counterparties. As a result, derivative balances with these counterparties are considered settled by the collateral.
Fair Value — Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date and, in many cases, requires management to make a number of significant judgments. Fair value measurements are based on the exit price notion and are determined by maximizing the use of observable inputs. However, for certain instruments, we must utilize unobservable inputs in determining fair value due to the lack of observable inputs in the market, which requires greater judgment in the measurement of fair value. Based on the inputs used in the valuation techniques, the Company classifies its assets and liabilities measured and disclosed at fair value in accordance with a three-level hierarchy (i.e., Level 1, Level 2 and Level 3) established under ASC 820, Fair Value Measurements. The Company records certain financial instruments, such as AFS investment securities, and derivative assets and liabilities, at fair value on a recurring basis. Certain financial instruments, such as impaired loans and loans held-for-sale, are not carried at fair value each period but may require nonrecurring fair value adjustments due to lower-of-cost-or-market accounting or write-downs of individual assets. For additional information on fair value, see Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K.
Stock-Based Compensation — The Company issues stock-based awards to eligible employees, officers and directors, and accounts for the related costs in accordance with the provisions of ASC 505, Equity and ASC 718, Compensation — Stock Compensation. Stock-based compensation cost is measured at the grant date based on the fair value of the awards and expensed over the employee’s requisite service period.
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The Company grants restricted stock units (“RSUs”), which include service conditions for vesting. Additionally, some of the Company’s RSUs contain performance goals and market conditions that are required to be met in order for the awards to vest. RSUs vest ratably over three years or cliff vest after three or five years of continued employment from the date of the grant. RSUs are authorized to settle predominantly in shares of the Company’s common stock. Compensation cost for those awards is based on quoted market price of the Company’s common stock at the grant date. Certain RSUs will be settled in cash, which subjects these RSUs to variable accounting whereby the compensation cost is adjusted to fair value based on changes in the Company’s stock price up to the settlement date. Compensation cost is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. Effective January 1, 2017, the Company prospectively adopted ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. As a result of its adoption, all excess tax benefits and deficiencies on share-based payment awards are recognized within Income tax expense on the Consolidated Statement of Income. Before 2017, the tax benefits were recorded as increases to Additional paid-in capital on the Consolidated Balance Sheet.
For time-based RSUs, the grant-date fair value is measured at the fair value of the Company’s common stock as if the RSUs are vested and issued on the date of grant. For performance-based RSUs, the grant-date fair value considers both performance and market conditions. As stock-based compensation expense is estimated based on awards ultimately expected to vest, it is reduced by the expense related to awards expected to be forfeited. Forfeitures are estimated at the time of grant and are updated quarterly. If the estimated forfeitures are revised, a cumulative effect of changes in estimated forfeitures for the current and prior periods is recognized in compensation expense in the period of change. For performance-based RSUs, the compensation expense fluctuates based on the estimated outcome of meeting the performance conditions. The Company evaluates the probable outcome of the performance conditions quarterly and makes cumulative adjustments for current and prior periods in compensation expense in the period of change. Market conditions subsequent to the grant date have no impact on the amount of compensation expense the Company will recognize over the life of the award. Refer to Note 16 — Stock Compensation Plans to the Consolidated Financial Statements in this Form 10-K for additional information.
Income Taxes — The Company files consolidated federal income tax returns, foreign tax returns, and various combined and separate company state tax returns. The calculation of the Company's income tax provision and related tax accruals requires the use of estimates and judgments. Accrued income tax liabilities (assets) represent the estimated amounts due to (received from) the various taxing jurisdictions where the Company has established a business presence. Under the balance sheet method, deferred tax assets and liabilities are recognized for the expected future tax consequences of existing temporary differences between the financial reporting and tax reporting basis of assets and liabilities using enacted tax laws and rates and tax carryforwards. To the extent a deferred tax asset is no longer expected more-likely-than-not to be realized, a valuation allowance is established. See Note 14 — Income Taxes to the Consolidated Financial Statements for a discussion of management’s assessment of evidence considered by the Company in establishing a valuation allowance.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. The Company establishes a liability for potential taxes, interest and penalties related to uncertain tax positions based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance, and the status of tax audits.
Earnings Per Share — Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period, plus any incremental dilutive common share equivalents calculated for warrants and RSUs outstanding using the treasury stock method.
Foreign Currency Translation — The Company’s foreign subsidiary in China, East West Bank (China) Limited’s functional currency is in Chinese Renminbi (“RMB”). As a result, assets and liabilities of East West Bank (China) Limited are translated, for consolidation purpose, from its functional currency into U.S. Dollar (“USD”) using period-end spot foreign exchange rates. Revenues and expenses of East West Bank (China) Limited are translated, for the purpose of consolidation, from its functional currency into USD at the transaction date foreign exchange rates. The effects of those translation adjustments are reported in the Foreign currency translation adjustments account within Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income, net of any related hedged effects. For transactions that are denominated in a currency other than the functional currency, including transactions denominated in the local currencies of foreign operations that use the USD as their functional currency, the effects of changes in exchange rates are primarily reported on the Consolidated Statement of Income.
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New Accounting Pronouncements Adopted in 2019

Standard | Required Date of Adoption | Description | Effects on Financial Statements
Standards Adopted in 2019
ASU 2016-02, Leases (Topic 842) and subsequent related ASUs | January 1, 2019 for leases standards other than ASU 2019-01 January 1, 2020 for ASU 2019-01 where early adoption is permitted. | ASC Topic 842, Leases, supersedes ASC Topic 840, Leases. This ASU requires lessees to recognize right-of-use assets and related lease liabilities for all leases with lease terms of more than 12 months on the Consolidated Balance Sheet, and provide quantitative and qualitative disclosures regarding key information about the leasing arrangements. For short-term leases with a term of 12 months or less, lessees can make a policy election not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Lessee accounting for finance leases, as well as lessor accounting is largely unchanged. The standard may be adopted using a modified retrospective approach through a cumulative-effect adjustment. In addition, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides companies the option to continue to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year they adopt ASU 2016-02. Companies that elect this transition option can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. | The Company adopted all the new lease standards on January 1, 2019 using the alternative transition method, which allows the adoption of the accounting standard prospectively without revising comparable prior periods’ financial information. On January 1, 2019, the Company recognized $109.1 million and $117.7 million increase in right-of-use assets and associated lease liabilities, respectively, based on the present value of the expected remaining operating lease payments. In addition, the Company also recognized a cumulative-effect adjustment, net of tax of $10.5 million to increase beginning balance of retained earnings as of January 1, 2019 related to the deferred gains on our prior sale and leaseback transactions that occurred prior to the date of adoption. The adoption of the new leases standards did not have a material impact on the Company’s Consolidated Statement of Income. Disclosures related to leases are included in Note 10 — Leases to the Consolidated Financial Statements in this Form 10-K.
ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | January 1, 2019 Early adoption (including adoption in an interim period) is permitted for entities that already adopted ASU 2017-12. | This ASU amends ASC Topic 815, Derivatives and Hedging, by adding the OIS rate based on SOFR to the list of U.S. benchmark interest rates that are eligible to be hedged to facilitate the London Interbank Offered Rate (“LIBOR”) to SOFR transition. The guidance should be applied prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. | The Company adopted ASU 2018-16 prospectively on January 1, 2019. The adoption of this guidance did not impact existing hedges but may impact new hedge relationships that are benchmarked against the SOFR OIS rate.

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Recent Accounting Pronouncements

Standard | Required Date of Adoption | Description | Effects on Financial Statements
Standards Adopted in 2020
ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent related ASUs | January 1, 2020 Early adoption is permitted on January 1, 2019. | The ASU introduces a new current expected credit loss (“CECL”) impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loan receivables, AFS and held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted in each period for changes in expected lifetime credit losses. This ASU also expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses, and requires disclosure of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). The guidance should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The new guidance also allows optional relief for certain instruments measured at amortized cost with an option to irrevocably elect the fair value option under ASC Topic 825, Financial Instruments. | The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2020 without electing the fair value option on eligible financial instruments under ASU 2019-05. The Company has completed its implementation of the new processes and controls over the new credit and loss aggregation models, completed two parallel runs, analyzed model results, revised the qualitative framework and updated policies and disclosures. Upon adoption of the ASU, the Company‘s ACL, which includes the reserve for unfunded credit commitments, increased approximately 34% from $369.4 million as of December 31, 2019. This impact was recorded as a cumulative-effect adjustment that reduced retained earnings on January 1, 2020. This increase in ACL was mainly driven by the Company’s C&I and CRE loan portfolios due to the capture of lifetime expected credit losses under the new guidance. There was no ACL recorded on the AFS securities portfolio upon the adoption of this guidance. The regulatory rules provide the banks with the option to elect a three-year phase-in of the “day one” impact of CECL. The Company has elected not to apply the three-year phased-in approach in its first quarter 2020’s regulatory capital calculations. Upon adoption of CECL, the Company and the Bank are well-capitalized.
ASU2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | January 1, 2020 Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017. | The ASU simplifies the accounting for goodwill impairment. Under this guidance, an entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, an impairment loss will be recognized when the carrying amount of a reporting unit exceeds its fair value. The guidance also eliminates the requirement to perform a qualitative assessment for any reporting units with a zero or negative carrying amount. This guidance should be applied prospectively. | The Company adopted this guidance on January 1, 2020. The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.
ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract | January 1, 2020 Early adoption is permitted. | The ASU amends ASC Topic 350-40 to align the accounting for costs incurred in a cloud computing arrangement with the guidance on developing internal use software. Specifically, if a cloud computing arrangement is deemed to be a service contract, certain implementation costs are eligible for capitalization. The new guidance prescribes the balance sheet and income statement presentation and cash flow classification for the capitalized costs and related amortization expense. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. | The Company adopted this guidance on a prospective basis on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

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Note 2 — Dispositions
In the first quarter of 2017, the Company completed the sale and leaseback of a commercial property in San Francisco, California for cash consideration of $120.6 million and entered into a leaseback with the buyer for part of the property, consisting of a retail branch and office facilities. The net book value of the property was $31.6 million at the time of the sale, resulting in a pre-tax gain of $85.4 million after considering $3.6 million in selling costs. As the leaseback is an operating lease, $71.7 million of the gain was recognized on the closing date, and $13.7 million was deferred. Upon the adoption of ASU 2016-02, Leases, (Topic 842) on January 1, 2019, any remaining deferred gains related to sale and leaseback transactions were recognized as a cumulative-effect adjustment to increase beginning retained earnings as of January 1, 2019.
In the third quarter of 2017, the Company sold the insurance brokerage business of its subsidiary, EWIS, for $4.3 million, and recorded a pre-tax gain of $3.8 million. EWIS remains a subsidiary of East West and continues to maintain its insurance broker license.
On March 17, 2018, the Bank completed the sale of its eight Desert Community Bank (“DCB”) branches located in the High Desert area of Southern California to Flagstar Bank, a wholly-owned subsidiary of Flagstar Bancorp, Inc. The assets and liability of the DCB branches that were sold in this transaction primarily consisted of $613.7 million of deposits, $59.1 million of loans, $9.0 million of cash and cash equivalents, and $7.9 million of premises and equipment. The transaction resulted in a net cash payment of $499.9 million by the Company to Flagstar Bank. After transaction costs, the sale resulted in a pre-tax gain of $31.5 million for the year ended December 31, 2018, which was reported as Net gain on sale of business on the Consolidated Statement of Income.
Note 3 — Fair Value Measurement and Fair Value of Financial Instruments
Fair Value Determination
Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value of financial instruments, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing an asset or a liability. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy noted below is based on the quality and reliability of the information used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories:

• | Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets.

• | Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

• | Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities on a recurring basis, as well as the general classification of these instruments pursuant to the fair value hierarchy.
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Available-for-Sale Investment Securities — When available, the Company uses quoted market prices to determine the fair value of AFS investment securities, which are classified as Level 1. Level 1 AFS investment securities are comprised of U.S. Treasury securities. The fair value of other AFS investment securities is generally determined by independent external pricing service providers who have experience in valuing these securities or by taking the average quoted market prices obtained from independent external brokers. The valuations provided by the third-party pricing service providers are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, prepayment expectation and reference data obtained from market research publications. Inputs used by the third-party pricing service 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 to prices from other available independent sources for the same securities. When variances in prices are identified, the Company further compares inputs used by different sources to ascertain the reliability of these sources. On a quarterly basis, the Company reviews the documentation received from the third-party pricing service providers regarding the valuation inputs and methodology used for each category of securities.
When pricing is unavailable from third-party pricing service for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. Since these valuations are based on observable inputs in the current marketplace and are classified as Level 2. The Company periodically communicates with the independent external brokers to validate their pricing methodology. Information such as pricing sources, pricing assumptions, data inputs and valuation technique are reviewed.
Equity Securities — Equity securities were comprised of mutual funds as of both December 31, 2019 and 2018. 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 with its borrowers to lock in attractive intermediate and long-term interest rates, resulting in the customer obtaining a synthetic fixed-rate loan. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions. The Company also enters into interest rate swap contracts with institutional counterparties to hedge against certificates of deposit issued. The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The fair value of the interest rate options, which consist of floors and caps, is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (rise above) the strike rate of the floors (caps). In addition, to comply with the provisions of ASC 820, Fair Value Measurement, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with the Company’s derivatives utilize model-derived credit spreads, which are Level 3 inputs. As of December 31, 2019 and 2018, 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 due to the observable nature of the significant inputs utilized.
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Foreign Exchange Contracts — The Company enters into foreign exchange contracts to accommodate the business needs of its customers. For a majority of the foreign exchange contracts entered with its customers, the Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. The fair value is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts are classified as Level 2. The Company held foreign currency non-deliverable forward contracts as of December 31, 2019 and held foreign swap contracts as of December 31, 2018 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 and swap contracts were designated as net investment hedges. The fair value of foreign currency contracts is valued by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include spot rates and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2.
Credit Contracts — The Company may periodically enter into credit risk participation agreements (“RPAs”) to manage the credit exposure on interest rate contracts associated with the syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. The majority of the inputs used to value the RPAs are observable. Accordingly, RPAs fall within Level 2.
Equity Contracts — As part of the loan origination process, from time to time, the Company obtains equity warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. As of December 31, 2019 and 2018, 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 equity 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. 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. Since both option volatility and liquidity discount assumptions are subject to management’s judgment, measurement uncertainty is inherent in the valuation of private companies’ equity warrants. Given that the Company holds long positions in all equity warrants, an increase in volatility assumption would generally result in an increase in fair value measurement. A higher liquidity discount would result in a decrease in fair value measurement. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement uncertainty analysis on the option volatility and liquidity discount assumptions is performed.
Commodity Contracts — The Company enters into energy commodity contracts in the form of swaps and options with its commercial loan customers to allow them to hedge against the risk of fluctuation in energy commodity prices. The fair value of the commodity option contracts is determined using the Black’s model and assumptions that include expectations of future commodity price and volatility. The future commodity contract price is derived from observable inputs such as the market price of the commodity. Commodity swaps are structured as an exchange of fixed cash flows for floating cash flows. The fixed cash flows are predetermined based on the known volumes and fixed price as specified in the swap agreement. The floating cash flows are correlated with the change of forward commodity prices, which is derived from market corroborated futures settlement prices. The fair value of the commodity swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) based on the market prices of the commodity. As a result, the Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized.
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The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and 2018:

($ in thousands) |  | Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2019
| 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 investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 176,422 |  |  | $ | — |  |  | $ | — |  |  | $ | 176,422 |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | — |  |  | 581,245 |  |  | — |  |  | 581,245 |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | — |  |  | 603,471 |  |  | — |  |  | 603,471 |
Residential mortgage-backed securities |  | — |  |  | 1,003,897 |  |  | — |  |  | 1,003,897 |
Municipal securities |  | — |  |  | 102,302 |  |  | — |  |  | 102,302 |
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | — |  |  | 88,550 |  |  | — |  |  | 88,550 |
Residential mortgage-backed securities |  | — |  |  | 46,548 |  |  | — |  |  | 46,548 |
Corporate debt securities |  | — |  |  | 11,149 |  |  | — |  |  | 11,149 |
Foreign bonds |  | — |  |  | 354,172 |  |  | — |  |  | 354,172 |
Asset-backed securities |  | — |  |  | 64,752 |  |  | — |  |  | 64,752 |
Collateralized loan obligations (“CLOs”) |  | — |  |  | 284,706 |  |  | — |  |  | 284,706 |
Total AFS investment securities |  | $ | 176,422 |  |  | $ | 3,140,792 |  |  | $ | — |  |  | $ | 3,317,214 |
Investments in tax credit and other investments: |  |  |  |  |  |  |  |
Equity securities (1) |  | $ | 21,746 |  |  | $ | 9,927 |  |  | $ | — |  |  | $ | 31,673 |
Total investments in tax credit and other investments |  | $ | 21,746 |  |  | $ | 9,927 |  |  | $ | — |  |  | $ | 31,673 |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | — |  |  | $ | 192,883 |  |  | $ | — |  |  | $ | 192,883 |
Foreign exchange contracts |  | — |  |  | 54,637 |  |  | — |  |  | 54,637 |
Credit contracts |  | — |  |  | 2 |  |  | — |  |  | 2 |
Equity contracts |  | — |  |  | 993 |  |  | 421 |  |  | 1,414 |
Commodity contracts |  | — |  |  | 81,380 |  |  | — |  |  | 81,380 |
Gross derivative assets |  | $ | — |  |  | $ | 329,895 |  |  | $ | 421 |  |  | $ | 330,316 |
Netting adjustments (2) |  | $ | — |  |  | $ | (125,319 | ) |  | $ | — |  |  | $ | (125,319 | )
Net derivative assets |  | $ | — |  |  | $ | 204,576 |  |  | $ | 421 |  |  | $ | 204,997 |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | — |  |  | $ | 127,317 |  |  | $ | — |  |  | $ | 127,317 |
Foreign exchange contracts |  | — |  |  | 48,610 |  |  | — |  |  | 48,610 |
Credit contracts |  | — |  |  | 84 |  |  | — |  |  | 84 |
Commodity contracts |  | — |  |  | 80,517 |  |  | — |  |  | 80,517 |
Gross derivative liabilities |  | $ | — |  |  | $ | 256,528 |  |  | $ | — |  |  | $ | 256,528 |
Netting adjustments (2) |  | $ | — |  |  | $ | (159,799 | ) |  | $ | — |  |  | $ | (159,799 | )
Net derivative liabilities |  | $ | — |  |  | $ | 96,729 |  |  | $ | — |  |  | $ | 96,729 |

(1) | Equity securities are comprised of mutual funds with readily determinable fair values.

(2) | Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information.

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($ in thousands) |  | Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2018
| 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 investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 564,815 |  |  | $ | — |  |  | $ | — |  |  | $ | 564,815 |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | — |  |  | 217,173 |  |  | — |  |  | 217,173 |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | — |  |  | 408,603 |  |  | — |  |  | 408,603 |
Residential mortgage-backed securities |  | — |  |  | 946,693 |  |  | — |  |  | 946,693 |
Municipal securities |  | — |  |  | 82,020 |  |  | — |  |  | 82,020 |
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | — |  |  | 26,052 |  |  | — |  |  | 26,052 |
Residential mortgage-backed securities |  | — |  |  | 9,931 |  |  | — |  |  | 9,931 |
Corporate debt securities |  | — |  |  | 10,869 |  |  | — |  |  | 10,869 |
Foreign bonds |  | — |  |  | 463,048 |  |  | — |  |  | 463,048 |
Asset-backed securities |  | — |  |  | 12,643 |  |  | — |  |  | 12,643 |
Total AFS investment securities |  | $ | 564,815 |  |  | $ | 2,177,032 |  |  | $ | — |  |  | $ | 2,741,847 |
Investments in tax credit and other investments: |  |  |  |  |  |  |  |
Equity securities (1) |  | $ | 20,678 |  |  | $ | 10,531 |  |  | $ | — |  |  | $ | 31,209 |
Total investments in tax credit and other investments |  | $ | 20,678 |  |  | $ | 10,531 |  |  | $ | — |  |  | $ | 31,209 |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | — |  |  | $ | 69,818 |  |  | $ | — |  |  | $ | 69,818 |
Foreign exchange contracts |  | — |  |  | 21,624 |  |  | — |  |  | 21,624 |
Credit contracts |  | — |  |  | 1 |  |  | — |  |  | 1 |
Equity contracts |  | — |  |  | 1,278 |  |  | 673 |  |  | 1,951 |
Commodity contracts |  | — |  |  | 14,422 |  |  | — |  |  | 14,422 |
Gross derivative assets |  | $ | — |  |  | $ | 107,143 |  |  | $ | 673 |  |  | $ | 107,816 |
Netting adjustments (2) |  | $ | — |  |  | $ | (45,146 | ) |  | $ | — |  |  | $ | (45,146 | )
Net derivative assets |  | $ | — |  |  | $ | 61,997 |  |  | $ | 673 |  |  | $ | 62,670 |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | — |  |  | $ | 75,133 |  |  | $ | — |  |  | $ | 75,133 |
Foreign exchange contracts |  | — |  |  | 19,940 |  |  | — |  |  | 19,940 |
Credit contracts |  | — |  |  | 164 |  |  | — |  |  | 164 |
Commodity contracts |  | — |  |  | 23,068 |  |  | — |  |  | 23,068 |
Gross derivative liabilities |  | $ | — |  |  | $ | 118,305 |  |  | $ | — |  |  | $ | 118,305 |
Netting adjustments (2) |  | $ | — |  |  | $ | (38,402 | ) |  | $ | — |  |  | $ | (38,402 | )
Net derivative liabilities |  | $ | — |  |  | $ | 79,903 |  |  | $ | — |  |  | $ | 79,903 |

(1) | Equity securities were comprised of mutual funds with readily determinable fair values.

(2) | Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information.

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Level 3 fair value measurements that were measured on a recurring basis consist of equity warrants issued by private companies as of and for the years ended December 31, 2019, 2018 and 2017. The following table provides a reconciliation of the beginning and ending balances of these equity warrants for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Equity Warrants |  | Equity Warrants |  | Other Securities |  | Equity Warrants
Beginning balance |  | $ | 673 |  |  | $ | 679 |  |  | $ | — |  |  | $ | — |
Transfer of investment security from held-to-maturity to AFS |  | — |  |  | — |  |  | 115,615 |  |  | — |
Total gains included in earnings (1) |  | 563 |  |  | 162 |  |  | 1,156 |  |  | — |
Issuances |  | 114 |  |  | 65 |  |  | — |  |  | 679 |
Sales |  | — |  |  | — |  |  | (116,771 | ) |  | — |
Settlements |  | (929 | ) |  | (233 | ) |  | — |  |  | — |
Ending balance |  | $ | 421 |  |  | $ | 673 |  |  | $ | — |  |  | $ | 679 |

(1) | Includes unrealized (losses) gains of $(292) thousand and $225 thousand for the years ended December 31, 2019 and 2018, respectively. There were no unrealized gains (losses) for the year ended December 31, 2017. The realized/unrealized gains (losses) of equity warrants are included in Lending fees on the Consolidated Statement of Income.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of December 31, 2019 and 2018. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change.

($ in thousands) |  | Fair Value Measurements (Level 3) |  | Valuation Technique |  | Unobservable Inputs |  | Range of Inputs |  | Weighted- Average (1)
December 31, 2019 |  |  |  |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |  |  |  |
Equity warrants |  | $ | 421 |  |  | Black-Scholes option pricing model |  | Equity volatility |  | 39% — 44% |  | 42%
|  |  |  |  |  | Liquidity discount |  | 47% |  | 47%
December 31, 2018 |  |  |  |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |  |  |  |
Equity warrants |  | $ | 673 |  |  | Black-Scholes option pricing model |  | Equity volatility |  | 49% — 52% |  | 51%
|  |  |  |  |  | Liquidity discount |  | 47% |  | 47%

(1) | Weighted-average is calculated based on fair value of equity warrants as of December 31, 2019 and 2018, respectively.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis include certain non-PCI loans, investments in qualified affordable housing partnerships, tax credit and other investments, OREO, and loans held-for-sale. Nonrecurring fair value adjustments result from impairment on certain non-PCI loans and investments in qualified affordable housing partnerships, tax credit and other investments, write-downs of OREO, or from the application of lower of cost or fair value on loans held-for-sale.
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 that consist of developing an expected stream of cash flows over the life of the loans and then valuing the loans at the present value by discounting the expected cash flows at a designated discount rate.

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• | A specific reserve is established for an impaired loan 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, which utilize one or more valuation techniques such as income, market and/or cost approaches.

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — As part of the Company’s monitoring process, the Company conducts ongoing due diligence on the Company’s investments in its qualified affordable housing partnerships, tax credit and other investments after the initial investment date and prior to the being placed in service date. After these investments are either acquired or placed into service, periodic monitoring is performed, which includes the quarterly review of the financial statements of the tax credit investment entity and the annual review of the financial statements of the guarantor (if any), as well as the review of the annual tax returns of the tax credit investment entity; and comparison of the actual cash distributions received against the financial projections prepared at the time when the investment was made. The Company assesses its tax credit investments for possible OTTI on an annual basis or when events or circumstances suggest that the carrying amount of the tax credit investments may not be realizable. These circumstances can include, but are not limited to the following factors:

• | The current fair value of the tax credit investment based upon the expected future cash flows is less than the carrying amount;

• | Change in the economic, market or technological environment that could adversely affect the investee’s operations; and

• | Other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

All available evidence is considered in assessing whether a decline in value is other-than-temporary. Generally, none of the aforementioned factors are individually conclusive and the relative importance placed on individual facts may vary depending on the situation. In accordance with ASC 323-10-35-32, an impairment charge would only be recognized in earnings for a decline in value that is determined to be other-than-temporary.
Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. These OREO properties are recorded at estimated fair value less the costs to sell at the time of foreclosure or 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.
The following tables present the carrying amounts of assets that were still held and had fair value changes measured on a nonrecurring basis as of December 31, 2019 and 2018:

($ in thousands) |  | Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2019
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair Value Measurements
Non-PCI impaired loans: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
C&I |  | $ | — |  |  | $ | — |  |  | $ | 47,554 |  |  | $ | 47,554 |
CRE: |  |  |  |  |  |  |  |
CRE |  | — |  |  | — |  |  | 753 |  |  | 753 |
Total commercial |  | — |  |  | — |  |  | 48,307 |  |  | 48,307 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
HELOCs |  | — |  |  | — |  |  | 1,372 |  |  | 1,372 |
Total consumer |  | — |  |  | — |  |  | 1,372 |  |  | 1,372 |
Total non-PCI impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 49,679 |  |  | $ | 49,679 |
OREO (1) |  | $ | — |  |  | $ | — |  |  | $ | 125 |  |  | $ | 125 |
Investments in tax credit and other investments, net |  | $ | — |  |  | $ | — |  |  | $ | 3,076 |  |  | $ | 3,076 |

(1) | Amounts are included in Other assets on the Consolidated Balance Sheet and represent the carrying value of OREO properties that were written down subsequent to their initial classification as OREO.

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($ in thousands) |  | Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2018
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair Value Measurements
Non-PCI impaired loans: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
C&I |  | $ | — |  |  | $ | — |  |  | $ | 26,873 |  |  | $ | 26,873 |
CRE: |  |  |  |  |  |  |  |
CRE |  | — |  |  | — |  |  | 3,434 |  |  | 3,434 |
Total commercial |  | — |  |  | — |  |  | 30,307 |  |  | 30,307 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | — |  |  | — |  |  | 2,551 |  |  | 2,551 |
Total consumer |  | — |  |  | — |  |  | 2,551 |  |  | 2,551 |
Total non-PCI impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 32,858 |  |  | $ | 32,858 |

The following table presents the increase (decrease) in fair value of assets for which a fair value adjustment has been recognized for the years ended December 31, 2019, 2018 and 2017, related to assets that were still held as of those dates:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Non-PCI impaired loans: |  |  |  |  |  |
Commercial: |  |  |  |  |  |
C&I |  | $ | (35,365 | ) |  | $ | (9,341 | ) |  | $ | (19,703 | )
CRE: |  |  |  |  |  |
CRE |  | 9 |  |  | 270 |  |  | (272 | )
Construction and land |  | — |  |  | — |  |  | (147 | )
Total CRE |  | 9 |  |  | 270 |  |  | (419 | )
Total commercial |  | (35,356 | ) |  | (9,071 | ) |  | (20,122 | )
Consumer: |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |
Single-family residential |  | — |  |  | 15 |  |  | (11 | )
HELOCs |  | (2 | ) |  | — |  |  | — |
Total residential mortgage |  | (2 | ) |  | 15 |  |  | (11 | )
Other consumer |  | — |  |  | — |  |  | (2,491 | )
Total consumer |  | $ | (2 | ) |  | $ | 15 |  |  | $ | (2,502 | )
Total non-PCI impaired loans |  | $ | (35,358 | ) |  | $ | (9,056 | ) |  | $ | (22,624 | )
OREO |  | $ | (8 | ) |  | $ | — |  |  | $ | (1 | )
Investments in tax credit and other investments, net |  | $ | (13,023 | ) |  | $ | — |  |  | $ | — |

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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 December 31, 2019 and 2018:

($ in thousands) |  | Fair Value Measurements (Level 3) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range of Input(s) |  | Weighted- Average (1)
December 31, 2019 |  |  |  |  |  |  |  |  |  |
Non-PCI impaired loans |  | $ | 27,841 |  |  | Discounted cash flows |  | Discount |  | 4% — 15% |  | 14%
|  | $ | 1,014 |  |  | Fair value of collateral |  | Discount |  | 8% — 20% |  | 19%
|  | $ | 20,824 |  |  | Fair value of collateral |  | Contract value |  | NM |  | NM
OREO |  | $ | 125 |  |  | Fair value of property |  | Selling cost |  | 8% |  | 8%
Investments in tax credit and other investments, net |  | $ | 3,076 |  |  | Individual analysis of each investment |  | Expected future tax benefits and distributions |  | NM |  | NM
December 31, 2018 |  |  |  |  |  |  |  |  |  |
Non-PCI impaired loans |  | $ | 16,921 |  |  | Discounted cash flows |  | Discount |  | 4% — 7% |  | 6%
|  | $ | 2,751 |  |  | Fair value of collateral |  | Discount |  | 15% — 50% |  | 21%
|  | $ | 11,499 |  |  | Fair value of collateral |  | Contract value |  | NM |  | NM
|  | $ | 1,687 |  |  | Fair value of property |  | Selling cost |  | 8% |  | 8%

NM — Not meaningful.

(1) | Weighted-average is based on the relative fair value of the respective assets as of December 31, 2019 and 2018.

Disclosures about Fair Value of Financial Instruments
The following tables present the fair value estimates for financial instruments as of December 31, 2019 and 2018, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable and mortgage servicing rights that are included in Other assets, and accrued interest payable that is included in Accrued expenses and other liabilities. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheet.

($ in thousands) |  | December 31, 2019
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,261,149 |  |  | $ | 3,261,149 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,261,149 |
Interest-bearing deposits with banks |  | $ | 196,161 |  |  | $ | — |  |  | $ | 196,161 |  |  | $ | — |  |  | $ | 196,161 |
Resale agreements (1) |  | $ | 860,000 |  |  | $ | — |  |  | $ | 856,025 |  |  | $ | — |  |  | $ | 856,025 |
Restricted equity securities, at cost |  | $ | 78,580 |  |  | $ | — |  |  | $ | 78,580 |  |  | $ | — |  |  | $ | 78,580 |
Loans held-for-sale |  | $ | 434 |  |  | $ | — |  |  | $ | 434 |  |  | $ | — |  |  | $ | 434 |
Loans held-for-investment, net |  | $ | 34,420,252 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,021,300 |  |  | $ | 35,021,300 |
Mortgage servicing rights |  | $ | 6,068 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,199 |  |  | $ | 8,199 |
Accrued interest receivable |  | $ | 144,599 |  |  | $ | — |  |  | $ | 144,599 |  |  | $ | — |  |  | $ | 144,599 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits |  | $ | 27,109,951 |  |  | $ | — |  |  | $ | 27,109,951 |  |  | $ | — |  |  | $ | 27,109,951 |
Time deposits |  | $ | 10,214,308 |  |  | $ | — |  |  | $ | 10,208,895 |  |  | $ | — |  |  | $ | 10,208,895 |
Short-term borrowings |  | $ | 28,669 |  |  | $ | — |  |  | $ | 28,669 |  |  | $ | — |  |  | $ | 28,669 |
FHLB advances |  | $ | 745,915 |  |  | $ | — |  |  | $ | 755,371 |  |  | $ | — |  |  | $ | 755,371 |
Repurchase agreements (1) |  | $ | 200,000 |  |  | $ | — |  |  | $ | 232,597 |  |  | $ | — |  |  | $ | 232,597 |
Long-term debt |  | $ | 147,101 |  |  | $ | — |  |  | $ | 152,641 |  |  | $ | — |  |  | $ | 152,641 |
Accrued interest payable |  | $ | 27,246 |  |  | $ | — |  |  | $ | 27,246 |  |  | $ | — |  |  | $ | 27,246 |

105

($ in thousands) |  | December 31, 2018
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,001,377 |  |  | $ | 3,001,377 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,001,377 |
Interest-bearing deposits with banks |  | $ | 371,000 |  |  | $ | — |  |  | $ | 371,000 |  |  | $ | — |  |  | $ | 371,000 |
Resale agreements (1) |  | $ | 1,035,000 |  |  | $ | — |  |  | $ | 1,016,724 |  |  | $ | — |  |  | $ | 1,016,724 |
Restricted equity securities, at cost |  | $ | 74,069 |  |  | $ | — |  |  | $ | 74,069 |  |  | $ | — |  |  | $ | 74,069 |
Loans held-for-sale |  | $ | 275 |  |  | $ | — |  |  | $ | 275 |  |  | $ | — |  |  | $ | 275 |
Loans held-for-investment, net |  | $ | 32,073,867 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,273,157 |  |  | $ | 32,273,157 |
Mortgage servicing rights |  | $ | 7,836 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,427 |  |  | $ | 11,427 |
Accrued interest receivable |  | $ | 146,262 |  |  | $ | — |  |  | $ | 146,262 |  |  | $ | — |  |  | $ | 146,262 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits |  | $ | 26,370,562 |  |  | $ | — |  |  | $ | 26,370,562 |  |  | $ | — |  |  | $ | 26,370,562 |
Time deposits |  | $ | 9,069,066 |  |  | $ | — |  |  | $ | 9,084,597 |  |  | $ | — |  |  | $ | 9,084,597 |
Short-term borrowings |  | $ | 57,638 |  |  | $ | — |  |  | $ | 57,638 |  |  | $ | — |  |  | $ | 57,638 |
FHLB advances |  | $ | 326,172 |  |  | $ | — |  |  | $ | 334,793 |  |  | $ | — |  |  | $ | 334,793 |
Repurchase agreements (1) |  | $ | 50,000 |  |  | $ | — |  |  | $ | 87,668 |  |  | $ | — |  |  | $ | 87,668 |
Long-term debt |  | $ | 146,835 |  |  | $ | — |  |  | $ | 152,556 |  |  | $ | — |  |  | $ | 152,556 |
Accrued interest payable |  | $ | 22,893 |  |  | $ | — |  |  | $ | 22,893 |  |  | $ | — |  |  | $ | 22,893 |

(1) | Resale and repurchase agreements are reported net pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. Out of gross repurchase agreements of $450.0 million, $250.0 million and $400.0 million as of December 31, 2019 and 2018, respectively, were eligible for netting against gross resale agreements.

Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements
Gross resale agreements were $1.11 billion and $1.44 billion as of December 31, 2019 and 2018, respectively. The weighted-average yields were 2.65%, 2.63% and 2.19% for the years ended December 31, 2019, 2018 and 2017, respectively.
As of December 31, 2019, the collateral for the repurchase agreements was comprised of U.S. Treasury securities, and U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities. Gross repurchase agreements were $450.0 million as of both December 31, 2019 and 2018. The weighted-average interest rates were 4.74%, 4.46% and 3.48% for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, $150.0 million will mature in 2022 and $300.0 million will mature in 2023.
Balance Sheet Offsetting
The Company’s resale and repurchase agreements are transacted under legally enforceable master repurchase agreements that provide the Company, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Company nets resale and repurchase transactions with the same counterparty on the Consolidated Balance Sheet when it has a legally enforceable master netting agreement and the transactions are eligible for netting under ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. Collateral received includes securities that are not recognized on the Consolidated Balance Sheet. Collateral pledged consists of securities that are not netted on the Consolidated Balance Sheet against the related collateralized liability. Collateral received or pledged in resale and repurchase agreements with other financial institutions may also be sold or re-pledged by the secured party, but is usually delivered to and held by the third-party trustees. The collateral amounts received/pledged are limited for presentation purposes to the related recognized asset/liability balance for each counterparty, and accordingly, do not include excess collateral received/pledged.
106

The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
Assets |  | 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
|  |  |  | Collateral Received |
Resale agreements |  | $ | 1,110,000 |  |  | $ | (250,000 | ) |  | $ | 860,000 |  |  | $ | (856,058 | ) | (1) | $ | 3,942 |
Liabilities |  | 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
|  |  |  | Collateral Pledged |
Repurchase agreements |  | $ | 450,000 |  |  | $ | (250,000 | ) |  | $ | 200,000 |  |  | $ | (200,000 | ) | (2) | $ | — |

($ in thousands) |  | December 31, 2018
Assets |  | 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
|  |  |  | Collateral Received |
Resale agreements |  | $ | 1,435,000 |  |  | $ | (400,000 | ) |  | $ | 1,035,000 |  |  | $ | (1,025,066 | ) | (1) | $ | 9,934 |
Liabilities |  | 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
|  |  |  | Collateral Pledged |
Repurchase agreements |  | $ | 450,000 |  |  | $ | (400,000 | ) |  | $ | 50,000 |  |  | $ | (50,000 | ) | (2) | $ | — |

(1) | Represents the fair value of securities 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 securities 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-K for additional information.
107

Note 5 — Securities
The following tables present the amortized cost, gross unrealized gains and losses, and fair value by major categories of AFS investment securities as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
AFS investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 177,215 |  |  | $ | — |  |  | $ | (793 | ) |  | $ | 176,422 |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 584,275 |  |  | 1,377 |  |  | (4,407 | ) |  | 581,245 |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 599,814 |  |  | 8,551 |  |  | (4,894 | ) |  | 603,471 |
Residential mortgage-backed securities |  | 998,447 |  |  | 6,927 |  |  | (1,477 | ) |  | 1,003,897 |
Municipal securities |  | 101,621 |  |  | 790 |  |  | (109 | ) |  | 102,302 |
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 86,609 |  |  | 1,947 |  |  | (6 | ) |  | 88,550 |
Residential mortgage-backed securities |  | 46,830 |  |  | 3 |  |  | (285 | ) |  | 46,548 |
Corporate debt securities |  | 11,250 |  |  | 12 |  |  | (113 | ) |  | 11,149 |
Foreign bonds |  | 354,481 |  |  | 198 |  |  | (507 | ) |  | 354,172 |
Asset-backed securities |  | 66,106 |  |  | — |  |  | (1,354 | ) |  | 64,752 |
CLOs |  | 294,000 |  |  | — |  |  | (9,294 | ) |  | 284,706 |
Total AFS investment securities |  | $ | 3,320,648 |  |  | $ | 19,805 |  |  | $ | (23,239 | ) |  | $ | 3,317,214 |

($ in thousands) |  | December 31, 2018
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
AFS investment securities: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 577,561 |  |  | $ | 153 |  |  | $ | (12,899 | ) |  | $ | 564,815 |
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 219,485 |  |  | 382 |  |  | (2,694 | ) |  | 217,173 |
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 420,486 |  |  | 811 |  |  | (12,694 | ) |  | 408,603 |
Residential mortgage-backed securities |  | 957,219 |  |  | 4,026 |  |  | (14,552 | ) |  | 946,693 |
Municipal securities |  | 82,965 |  |  | 87 |  |  | (1,032 | ) |  | 82,020 |
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 25,826 |  |  | 226 |  |  | — |  |  | 26,052 |
Residential mortgage-backed securities |  | 10,109 |  |  | 7 |  |  | (185 | ) |  | 9,931 |
Corporate debt securities |  | 11,250 |  |  | — |  |  | (381 | ) |  | 10,869 |
Foreign bonds |  | 489,378 |  |  | — |  |  | (26,330 | ) |  | 463,048 |
Asset-backed securities |  | 12,621 |  |  | 22 |  |  | — |  |  | 12,643 |
Total AFS investment securities |  | $ | 2,806,900 |  |  | $ | 5,714 |  |  | $ | (70,767 | ) |  | $ | 2,741,847 |

108

Unrealized Losses
The following tables present the fair value and the associated gross unrealized losses of the Company’s AFS investment securities, aggregated by investment category and the length of time that the securities have been in a continuous unrealized loss position, as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Less Than 12 Months |  | 12 Months or More |  | Total
| Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
AFS investment securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | — |  |  | $ | — |  |  | $ | 176,422 |  |  | $ | (793 | ) |  | $ | 176,422 |  |  | $ | (793 | )
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 310,349 |  |  | (4,407 | ) |  | — |  |  | — |  |  | 310,349 |  |  | (4,407 | )
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 204,675 |  |  | (2,346 | ) |  | 108,314 |  |  | (2,548 | ) |  | 312,989 |  |  | (4,894 | )
Residential mortgage-backed securities |  | 325,354 |  |  | (1,234 | ) |  | 34,337 |  |  | (243 | ) |  | 359,691 |  |  | (1,477 | )
Municipal securities |  | 31,130 |  |  | (109 | ) |  | — |  |  | — |  |  | 31,130 |  |  | (109 | )
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 7,914 |  |  | (6 | ) |  | — |  |  | — |  |  | 7,914 |  |  | (6 | )
Residential mortgage-backed securities |  | 42,894 |  |  | (285 | ) |  | — |  |  | — |  |  | 42,894 |  |  | (285 | )
Corporate debt securities |  | — |  |  | — |  |  | 9,888 |  |  | (113 | ) |  | 9,888 |  |  | (113 | )
Foreign bonds |  | 129,074 |  |  | (407 | ) |  | 9,900 |  |  | (100 | ) |  | 138,974 |  |  | (507 | )
Asset-backed securities |  | 52,565 |  |  | (902 | ) |  | 12,187 |  |  | (452 | ) |  | 64,752 |  |  | (1,354 | )
CLOs |  | 284,706 |  |  | (9,294 | ) |  | — |  |  | — |  |  | 284,706 |  |  | (9,294 | )
Total AFS investment securities |  | $ | 1,388,661 |  |  | $ | (18,990 | ) |  | $ | 351,048 |  |  | $ | (4,249 | ) |  | $ | 1,739,709 |  |  | $ | (23,239 | )

($ in thousands) |  | December 31, 2018
| Less Than 12 Months |  | 12 Months or More |  | Total
| Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
AFS investment securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | — |  |  | $ | — |  |  | $ | 516,520 |  |  | $ | (12,899 | ) |  | $ | 516,520 |  |  | $ | (12,899 | )
U.S. government agency and U.S. government sponsored enterprise debt securities |  | 22,755 |  |  | (238 | ) |  | 159,814 |  |  | (2,456 | ) |  | 182,569 |  |  | (2,694 | )
U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 26,886 |  |  | (245 | ) |  | 274,666 |  |  | (12,449 | ) |  | 301,552 |  |  | (12,694 | )
Residential mortgage-backed securities |  | 75,675 |  |  | (491 | ) |  | 653,660 |  |  | (14,061 | ) |  | 729,335 |  |  | (14,552 | )
Municipal securities |  | 9,458 |  |  | (104 | ) |  | 30,295 |  |  | (928 | ) |  | 39,753 |  |  | (1,032 | )
Non-agency mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed securities |  | 3,067 |  |  | (19 | ) |  | 3,949 |  |  | (166 | ) |  | 7,016 |  |  | (185 | )
Corporate debt securities |  | 10,869 |  |  | (381 | ) |  | — |  |  | — |  |  | 10,869 |  |  | (381 | )
Foreign bonds |  | 14,418 |  |  | (40 | ) |  | 448,630 |  |  | (26,290 | ) |  | 463,048 |  |  | (26,330 | )
Total AFS investment securities |  | $ | 163,128 |  |  | $ | (1,518 | ) |  | $ | 2,087,534 |  |  | $ | (69,249 | ) |  | $ | 2,250,662 |  |  | $ | (70,767 | )

Other-Than-Temporary Impairment
For each reporting period, the Company assesses individual securities that are in an unrealized loss position for OTTI. For a discussion of the factors and criteria the Company uses in analyzing securities for OTTI, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Securities to the Consolidated Financial Statements in this Form 10-K.
109

The unrealized losses were primarily attributable to the movement in the yield curve, in addition to widened liquidity and credit spreads. The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities. These securities have fluctuated in value since their purchase dates because of changes in market interest rates. The Company believes that the gross unrealized losses presented in the previous tables are temporary and no credit losses are expected. As a result, the Company expects to recover the entire amortized cost basis of these securities. The Company has the intent to hold these securities through the anticipated recovery period and it is not more-likely-than-not that the Company will have to sell these securities before recovery of their amortized cost. As of December 31, 2019, the Company had 101 AFS investment securities in a gross unrealized loss position with no credit impairment, primarily consisting of three CLOs, 57 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities and 14 U.S. government agency and U.S. government sponsored enterprise debt securities. In comparison, as of December 31, 2018, the Company had 184 AFS investment securities in a gross unrealized loss position with no credit impairment, primarily consisting of 108 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities, 16 foreign bonds and 19 U.S. Treasury securities. There were no OTTI credit losses recognized for the years ended December 31, 2019, 2018 and 2017.
Realized Gains and Losses
The following table presents the proceeds, gross realized gains and losses, and tax expense related to the sales of AFS investment securities for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Proceeds from sales |  | $ | 627,110 |  |  | $ | 364,270 |  |  | $ | 832,844 |
Gross realized gains |  | $ | 3,930 |  |  | $ | 2,535 |  |  | $ | 8,037 |
Related tax expense |  | $ | 1,162 |  |  | $ | 749 |  |  | $ | 3,380 |

Contractual Maturities of Investment Securities
The following table presents the contractual maturities of AFS investment securities as of December 31, 2019:

($ in thousands) |  | Amortized Cost |  | Fair Value
Due within one year |  | $ | 721,607 |  |  | $ | 719,179 |
Due after one year through five years |  | 395,468 |  |  | 392,891 |
Due after five years through ten years |  | 143,029 |  |  | 145,901 |
Due after ten years |  | 2,060,544 |  |  | 2,059,243 |
Total AFS investment securities |  | $ | 3,320,648 |  |  | $ | 3,317,214 |

Actual maturities of mortgage-backed securities can differ from contractual maturities as the borrowers have the right to prepay obligations. In addition, factors such as prepayments and interest rates may affect the yields on the carrying values of mortgage-backed securities.
As of December 31, 2019 and 2018, AFS investment securities with fair value of $479.4 million and $435.8 million, respectively, were primarily pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.
Restricted Equity Securities
The following table presents the restricted equity securities included in Other Assets on the Consolidated Balance Sheet as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
FRB stock |  | $ | 58,330 |  |  | $ | 56,819 |
FHLB stock |  | 20,250 |  |  | 17,250 |
Total restricted equity securities |  | $ | 78,580 |  |  | $ | 74,069 |

110

Note 6 — Derivatives
The Company uses derivatives to manage exposure to market risk, primarily 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 rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Company’s investment in its China subsidiary, East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives consist of economic hedges. For additional information on the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements in this Form 10-K.
The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments on an aggregate basis as of December 31, 2019 and 2018. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of December 31, 2019 and 2018. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.

($ in thousands) |  | December 31, 2019 |  | December 31, 2018
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
|  | Derivative Assets |  | Derivative Liabilities |  |  | Derivative Assets |  | Derivative Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 31,026 |  |  | $ | — |  |  | $ | 3,198 |  |  | $ | 35,811 |  |  | $ | — |  |  | $ | 5,866 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 86,167 |  |  | — |  |  | 1,586 |  |  | 90,245 |  |  | — |  |  | 611 |
Total derivatives designated as hedging instruments |  | $ | 117,193 |  |  | $ | — |  |  | $ | 4,784 |  |  | $ | 126,056 |  |  | $ | — |  |  | $ | 6,477 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 15,489,692 |  |  | $ | 192,883 |  |  | $ | 124,119 |  |  | $ | 11,695,499 |  |  | $ | 69,818 |  |  | $ | 69,267 |
Foreign exchange contracts |  | 4,839,661 |  |  | 54,637 |  |  | 47,024 |  |  | 3,407,522 |  |  | 21,624 |  |  | 19,329 |
Credit contracts |  | 210,678 |  |  | 2 |  |  | 84 |  |  | 119,320 |  |  | 1 |  |  | 164 |
Equity contracts |  | — |  | (1) | 1,414 |  |  | — |  |  | — |  | (1) | 1,951 |  |  | — |
Commodity contracts |  | — |  | (2) | 81,380 |  |  | 80,517 |  |  | — |  | (2) | 14,422 |  |  | 23,068 |
Total derivatives not designated as hedging instruments |  | $ | 20,540,031 |  |  | $ | 330,316 |  |  | $ | 251,744 |  |  | $ | 15,222,341 |  |  | $ | 107,816 |  |  | $ | 111,828 |
Gross derivative assets/liabilities |  |  |  | $ | 330,316 |  |  | $ | 256,528 |  |  |  |  |  | $ | 107,816 |  |  | $ | 118,305 |
Less: Master netting agreements |  |  |  | (121,561 | ) |  | (121,561 | ) |  |  |  | (31,569 | ) |  | (31,569 | )
Less: Cash collateral received/paid |  |  |  | (3,758 | ) |  | (38,238 | ) |  |  |  | (13,577 | ) |  | (6,833 | )
Net derivative assets/liabilities |  |  |  | $ | 204,997 |  |  | $ | 96,729 |  |  |  |  | $ | 62,670 |  |  | $ | 79,903 |

(1) | The Company held equity contracts in three public companies and 18 private companies as of December 31, 2019. In comparison, the Company held equity contracts in four public companies and 18 private companies as of December 31, 2018.

(2) | The notional amount of the Company’s commodity contracts entered with its customers totaled 7,811 thousand barrels of crude oil and 63,773 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of December 31, 2019. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 2,507 thousand of crude oil and 14,722 thousand MMBTUs of natural gas as of December 31, 2018. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

Derivatives Designated as Hedging Instruments
Fair Value Hedges — The Company is exposed to changes in the fair value of certain certificates of deposit due to changes in the benchmark interest rates. The Company entered into interest rate swaps, which were designated as fair value hedges. The interest rate swaps involve the exchange of variable rate payments over the life of the agreements without the exchange of the underlying notional amounts.
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The following table presents the net gains (losses) recognized on the Consolidated Statement of Income related to the derivatives designated as fair value hedges for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Gains (losses) recorded in interest expense: |  |  |  |  |  |
Recognized on interest rate swaps |  | $ | 2,655 |  |  | $ | (93 | ) |  | $ | (2,734 | )
Recognized on certificates of deposit |  | $ | (2,536 | ) |  | $ | 278 |  |  | $ | 2,271 |

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of the hedged certificates of deposit as of December 31, 2019 and 2018:

($ in thousands) |  | Carrying Value (1) |  | Cumulative Fair Value Adjustment (2)
| December 31, |  | December 31,
| 2019 |  | 2018 |  | 2019 |  | 2018
Certificates of deposit |  | $ | (29,080 | ) |  | $ | (26,877 | ) |  | $ | 1,604 |  |  | $ | 4,141 |

(1) | Represents the full carrying amount of the hedged certificates of deposit.

(2) | For liabilities, (increase) decrease to carrying value.

Net Investment Hedges — ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions and ASC 815, Derivatives and Hedging, allow hedging of the foreign currency risk of a net investment in a foreign operation. The Company enters into foreign currency contracts to hedge a portion of 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 East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate of the RMB. The Company may de-designate the net investment hedges when the Company expects the hedge will cease to be highly effective. The notional and fair value amounts of the net investment hedges, made up of foreign exchange forwards, were $86.2 million and $1.6 million liability as of December 31, 2019. In comparison, the notional and fair value amounts of the net investment hedges, made up of foreign exchange swaps, were $90.2 million and a $611 thousand liability, respectively, as of December 31, 2018.
The following table presents the (losses) gains recorded on net investment hedges for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
(Losses) gains recognized in AOCI |  | $ | (471 | ) |  | $ | 6,072 |  |  | $ | (648 | )
(Losses) recognized in Foreign exchange incom e(1) |  | $ | — |  |  | $ | — |  |  | $ | (1,953 | )

(1) | Represents the losses recorded in the Consolidated Statement of Income related to the ineffective portion of the net investment hedges prior to the adoption of ASU 2017-12, effective January 1, 2018. After the adoption, the fair value gains (losses) are recorded in Foreign Currency Translation Adjustments within AOCI.

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Derivatives Not Designated as Hedging Instruments
Interest Rate Contracts — The Company enters into interest rate contracts, which include interest rate swaps and options with its customers to allow customers to hedge against the risk of rising interest rates on their variable rate loans. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions, including central clearing organizations. Beginning in January 2018, the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments made to and received from LCH as settlements of derivatives, and not as collateral against derivatives. Included in the total notional amount of $7.75 billion of interest rates contracts entered into with financial counterparties as of December 31, 2019, was a notional amount of $2.53 billion of interest rates swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $2.9 million and liability fair values of $75.1 million, as of December 31, 2019. In comparison, included in the total notional amount of $5.85 billion of interest rates contracts entered into with financial counterparties as of December 31, 2018, was a notional amount of $1.66 billion of interest rate swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $16.4 million and liability fair values of $16.0 million, as of December 31, 2018.
The following tables present the notional amounts and the gross fair values of interest rate derivative contracts outstanding as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Customer Counterparty |  | ($ in thousands) |  | Financial Counterparty
| Notional Amount |  | Fair Value |  |  | Notional Amount |  | Fair Value
|  | Assets |  | Liabilities |  |  |  | Assets |  | Liabilities
Written options |  | $ | 1,003,558 |  |  | $ | — |  |  | $ | 66 |  |  | Purchased options |  | $ | 1,003,558 |  |  | $ | 67 |  |  | $ | — |
Sold collars and corridors |  | 490,852 |  |  | 1,971 |  |  | 16 |  |  | Collars and corridors |  | 490,852 |  |  | 17 |  |  | 1,996 |
Swaps |  | 6,247,667 |  |  | 187,294 |  |  | 6,237 |  |  | Swaps |  | 6,253,205 |  |  | 3,534 |  |  | 115,804 |
Total |  | $ | 7,742,077 |  |  | $ | 189,265 |  |  | $ | 6,319 |  |  | Total |  | $ | 7,747,615 |  |  | $ | 3,618 |  |  | $ | 117,800 |

($ in thousands) |  | December 31, 2018
| Customer Counterparty |  | ($ in thousands) |  | Financial Counterparty
| Notional Amount |  | Fair Value |  |  | Notional Amount |  | Fair Value
|  | Assets |  | Liabilities |  |  |  | Assets |  | Liabilities
Written options |  | $ | 931,601 |  |  | $ | — |  |  | $ | 492 |  |  | Purchased options |  | $ | 931,601 |  |  | $ | 503 |  |  | $ | — |
Sold collars and corridors |  | 429,879 |  |  | 1,121 |  |  | 305 |  |  | Collars and corridors |  | 429,879 |  |  | 308 |  |  | 1,140 |
Swaps |  | 4,482,881 |  |  | 41,457 |  |  | 41,545 |  |  | Swaps |  | 4,489,658 |  |  | 26,429 |  |  | 25,785 |
Total |  | $ | 5,844,361 |  |  | $ | 42,578 |  |  | $ | 42,342 |  |  | Total |  | $ | 5,851,138 |  |  | $ | 27,240 |  |  | $ | 26,925 |

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forwards, spot, swap and option contracts to accommodate the business needs of its customers. For a portion of the foreign exchange contracts entered into with its customers, the Company either entered into offsetting foreign exchange contracts with third-party financial institutions or acquires collateral on a portfolio basis primarily in the form of cash to manage its exposure. The Company also utilizes foreign exchange contracts, which are not designated as hedging instruments to mitigate the economic effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily for foreign currency-denominated deposits offered to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both December 31, 2019 and 2018.
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The following tables present the notional amounts and the gross fair values of foreign exchange derivative contracts outstanding as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Customer Counterparty |  | Financial Counterparty
| Notional Amount |  | Fair Value |  |  |  | Notional Amount |  | Fair Value
|  | Assets |  | Liabilities |  | ($ in thousands) |  |  | Assets |  | Liabilities
Forwards and spot |  | $ | 3,581,036 |  |  | $ | 45,911 |  |  | $ | 40,591 |  |  | Forwards and spot |  | $ | 207,492 |  |  | $ | 1,400 |  |  | $ | 507 |
Swaps |  | 6,889 |  |  | 16 |  |  | 84 |  |  | Swaps |  | 702,391 |  |  | 6,156 |  |  | 4,712 |
Written options |  | 87,036 |  |  | 127 |  |  | — |  |  | Purchased options |  | 87,036 |  |  | — |  |  | 127 |
Collars |  | 2,244 |  |  | — |  |  | 14 |  |  | Collars |  | 165,537 |  |  | 1,027 |  |  | 989 |
Total |  | $ | 3,677,205 |  |  | $ | 46,054 |  |  | $ | 40,689 |  |  | Total |  | $ | 1,162,456 |  |  | $ | 8,583 |  |  | $ | 6,335 |

($ in thousands) |  | December 31, 2018
| Customer Counterparty |  | Financial Counterparty
| Notional Amount |  | Fair Value |  |  |  | Notional Amount |  | Fair Value
|  | Assets |  | Liabilities |  | ($ in thousands) |  |  | Assets |  | Liabilities
Forwards and spot |  | $ | 2,023,425 |  |  | $ | 11,719 |  |  | $ | 13,079 |  |  | Forwards and spot |  | $ | 506,342 |  |  | $ | 3,407 |  |  | $ | 2,285 |
Swaps |  | 21,108 |  |  | 348 |  |  | 243 |  |  | Swaps |  | 687,845 |  |  | 5,764 |  |  | 3,336 |
Written options |  | 537 |  |  | 16 |  |  | — |  |  | Purchased options |  | 537 |  |  | — |  |  | 16 |
Collars |  | 83,864 |  |  | — |  |  | 370 |  |  | Collars |  | 83,864 |  |  | 370 |  |  | — |
Total |  | $ | 2,128,934 |  |  | $ | 12,083 |  |  | $ | 13,692 |  |  | Total |  | $ | 1,278,588 |  |  | $ | 9,541 |  |  | $ | 5,637 |

Credit Contracts — The Company may periodically enter into RPA contracts to manage the credit exposure on interest rate contracts associated with syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPA, the Company will receive or make a payment if a borrower defaults on the related interest rate contract. The Company manages its credit risk on RPAs by monitoring the creditworthiness of the borrowers and institutional counterparties, which is based on the normal credit review process. The referenced entities of the RPAs were investment grade as of both December 31, 2019 and 2018. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. The following table presents the notional amounts and the gross fair values of RPAs sold and purchased outstanding as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019 |  | December 31, 2018
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
|  | Assets |  | Liabilities |  |  | Assets |  | Liabilities
RPAs - protection sold |  | $ | 199,964 |  |  | $ | — |  |  | $ | 84 |  |  | $ | 108,606 |  |  | $ | — |  |  | $ | 164 |
RPAs - protection purchased |  | 10,714 |  |  | 2 |  |  | — |  |  | 10,714 |  |  | 1 |  |  | — |
Total RPAs |  | $ | 210,678 |  |  | $ | 2 |  |  | $ | 84 |  |  | $ | 119,320 |  |  | $ | 1 |  |  | $ | 164 |

Assuming all underlying borrowers referenced in the interest rate contracts defaulted as of December 31, 2019 and 2018, the exposure from the RPAs with protections sold would be $125 thousand for both 2019 and 2018. As of December 31, 2019 and 2018, the weighted-average remaining maturities of the outstanding RPAs were 2.2 and 6.6 years, respectively.
Equity Contracts — As part of the Company’s loan origination process, from time to time, the Company obtains equity warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. Equity warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The Company held warrants in three public companies and 18 private companies as of December 31, 2019, and held warrants in four public companies and 18 private companies as of December 31, 2018. The total fair value of the warrants held in both public and private companies was $1.4 million and $2.0 million in assets as of December 31, 2019 and 2018, respectively.
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Commodity Contracts — Beginning in 2018, the Company entered into energy commodity contracts in the form of swaps and options with its commercial loan customers to allow them to hedge against the risk of fluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company entered into offsetting commodity contracts with third-party financial institutions to manage the exposure with its customers. Beginning in January 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook to legally characterize variation margin payments made to and received from CME as settlements of derivatives and not as collateral against derivatives. The notional quantities that cleared through CME totaled 1,752 thousand barrels of crude oil and 6,075 thousand MMBTUs of natural gas as of December 31, 2019. Applying variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair values of $2.9 million and liability fair values of $1.5 million, respectively, as of December 31, 2019, for a net asset fair value of $986 thousand. In comparison, the notional quantities that cleared through CME totaled 778 thousand barrels of crude oil and 6,290 thousand MMBTUs of natural gas as of December 31, 2018. Applying variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair values of $10.4 million and liability fair values of $582 thousand as of December 31, 2018, for a net asset fair value of $622 thousand.
The following table presents the notional amounts and fair values of the commodity derivative positions outstanding as of December 31, 2019 and 2018.

($ and units in thousands) |  | December 31, 2019
| Customer Counterparty |  | ($ and units in thousands) |  | Financial Counterparty
| Notional Unit |  | Fair Value |  |  | Notional Unit |  | Fair Value
|  | Assets |  | Liabilities |  |  |  | Assets |  | Liabilities
Crude oil: |  |  |  |  |  |  |  |  |  | Crude oil: |  |  |  |  |  |  |  |
Written options |  | 36 |  |  | Barrels |  | $ | — |  |  | $ | 30 |  |  | Purchased options |  | 36 |  |  | Barrels |  | $ | 29 |  |  | $ | — |
Collars |  | 3,174 |  |  | Barrels |  | 2,673 |  |  | 538 |  |  | Collars |  | 3,630 |  |  | Barrels |  | 677 |  |  | 2,815 |
Swaps |  | 4,601 |  |  | Barrels |  | 6,949 |  |  | 5,531 |  |  | Swaps |  | 4,721 |  |  | Barrels |  | 4,516 |  |  | 5,215 |
Total |  | 7,811 |  |  |  |  | $ | 9,622 |  |  | $ | 6,099 |  |  | Total |  | 8,387 |  |  |  |  | $ | 5,222 |  |  | $ | 8,030 |
Natural gas: |  |  |  |  |  |  |  |  |  | Natural gas: |  |  |  |  |  |  |  |
Written options |  | 540 |  |  | MMBTUs |  | $ | — |  |  | $ | 22 |  |  | Purchased options |  | 530 |  |  | MMBTUs |  | $ | 21 |  |  | $ | — |
Collars |  | 14,277 |  |  | MMBTUs |  | 186 |  |  | 522 |  |  | Collars |  | 14,517 |  |  | MMBTUs |  | 471 |  |  | 150 |
Swaps |  | 48,956 |  |  | MMBTUs |  | 30,257 |  |  | 35,497 |  |  | Swaps |  | 48,779 |  |  | MMBTUs |  | 35,601 |  |  | 30,197 |
Total |  | 63,773 |  |  |  |  | $ | 30,443 |  |  | $ | 36,041 |  |  | Total |  | 63,826 |  |  |  |  | $ | 36,093 |  |  | $ | 30,347 |
Total |  |  |  |  |  | $ | 40,065 |  |  | $ | 42,140 |  |  | Total |  |  |  |  |  | $ | 41,315 |  |  | $ | 38,377 |

($ and units in thousands) |  | December 31, 2018
| Customer Counterparty |  | ($ and units in thousands) |  | Financial Counterparty
| Notional Unit |  | Fair Value |  |  | Notional Unit |  | Fair Value
|  | Assets |  | Liabilities |  |  |  | Assets |  | Liabilities
Crude oil: |  |  |  |  |  |  |  |  |  | Crude oil: |  |  |  |  |  |  |  |
Written options |  | 524 |  |  | Barrels |  | $ | — |  |  | $ | 2,628 |  |  | Purchased options |  | 524 |  |  | Barrels |  | $ | 2,251 |  |  | $ | — |
Collars |  | 872 |  |  | Barrels |  | — |  |  | 3,772 |  |  | Collars |  | 872 |  |  | Barrels |  | 3,225 |  |  | — |
Swaps |  | 1,111 |  |  | Barrels |  | — |  |  | 14,278 |  |  | Swaps |  | 1,111 |  |  | Barrels |  | 5,799 |  |  | — |
Total |  | 2,507 |  |  |  |  | $ | — |  |  | $ | 20,678 |  |  | Total |  | 2,507 |  |  |  |  | $ | 11,275 |  |  | $ | — |
Natural gas: |  |  |  |  |  |  |  |  |  | Natural gas: |  |  |  |  |  |  |  |
Collars |  | 3,063 |  |  | MMBTUs |  | $ | 78 |  |  | $ | 152 |  |  | Collars |  | 3,063 |  |  | MMBTUs |  | $ | 151 |  |  | $ | 64 |
Swaps |  | 11,659 |  |  | MMBTUs |  | 1,049 |  |  | 1,857 |  |  | Swaps |  | 11,659 |  |  | MMBTUs |  | 1,869 |  |  | 317 |
Total |  | 14,722 |  |  |  |  | $ | 1,127 |  |  | $ | 2,009 |  |  | Total |  | 14,722 |  |  |  |  | $ | 2,020 |  |  | $ | 381 |
Total |  |  |  |  |  | $ | 1,127 |  |  | $ | 22,687 |  |  | Total |  |  |  |  |  | $ | 13,295 |  |  | $ | 381 |

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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 years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Classification in Consolidated Statement of Income |  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate contracts |  | Interest rate contracts and other derivative income |  | $ | (2,126 | ) |  | $ | 280 |  |  | $ | (1,772 | )
Foreign exchange contracts |  | Foreign exchange income |  | 22,264 |  |  | 16,784 |  |  | 22,076 |
Credit contracts |  | Interest rate contracts and other derivative income |  | 59 |  |  | (156 | ) |  | (7 | )
Equity contracts |  | Lending fees |  | 678 |  |  | 512 |  |  | 1,672 |
Commodity contracts |  | Interest rate contracts and other derivative income |  | (67 | ) |  | (11 | ) |  | — |
Net gains |  |  |  | $ | 20,808 |  |  | $ | 17,409 |  |  | $ | 21,969 |

Credit-Risk-Related Contingent Features — Certain over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. These events, which are defined by the existing derivative contracts, primarily relate to a downgrade in the credit rating of East West Bank to below investment grade. As of December 31, 2019, the net fair value of all derivative instruments with such credit-risk-related contingent features was a $56.4 million net liability position, comprising $14.4 million in derivative assets and $70.8 million in derivative liabilities, with associated posted collateral of $56.4 million. As of December 31, 2018, the net fair value of all derivative instruments with such credit-risk-related contingent features was an $11.4 million net liability position, comprising $2.8 million derivative assets and $14.2 million in derivative liabilities, with associated posted collateral of $9.4 million. In the event that the credit rating of East West Bank had been downgraded to below investment grade, additional minimal collateral would have been required to be posted as of December 31, 2019 and 2018.
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 non-cash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements with centrally cleared organizations, where applicable. The collateral amounts in following tables are limited to the outstanding balances of the related asset or liability, after the application of netting; therefore instances of overcollateralization are not shown:

($ in thousands) |  | As of December 31, 2019
|  | 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 |  | $ | 330,316 |  |  | $ | (121,561 | ) |  | $ | (3,758 | ) |  | $ | 204,997 |  |  | $ | — |  |  | $ | 204,997 |
|  | 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 |  | $ | 256,528 |  |  | $ | (121,561 | ) |  | $ | (38,238 | ) |  | $ | 96,729 |  |  | $ | (79,619 | ) |  | $ | 17,110 |

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($ in thousands) |  | As of December 31, 2018
|  | 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 |  | $ | 107,816 |  |  | $ | (31,569 | ) |  | $ | (13,577 | ) |  | $ | 62,670 |  |  | $ | (13,975 | ) |  | $ | 48,695 |
|  | 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 |  | $ | 118,305 |  |  | $ | (31,569 | ) |  | $ | (6,833 | ) |  | $ | 79,903 |  |  | $ | (11,231 | ) |  | $ | 68,672 |

(1) | Gross amounts recognized for derivative assets include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $328.7 million and $105.9 million, respectively, as of December 31, 2019 and 2018, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $1.6 million and $2.0 million, respectively, as of December 31, 2019 and 2018.

(2) | Gross amounts recognized for derivative liabilities include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $256.5 million and $118.2 million, respectively, as of December 31, 2019 and 2018, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $20 thousand and $102 thousand, respectively, as of December 31, 2019 and 2018.

(3) | Gross cash collateral received under master netting arrangements or similar agreements were $3.8 million and $15.8 million, respectively, as of December 31, 2019 and 2018. Of the gross cash collateral received,$3.8 million and $13.6 million were used to offset against derivative assets, respectively, as of December 31, 2019 and 2018.

(4) | Gross cash collateral pledged under master netting arrangements or similar agreements were $43.0 million and $8.4 million, respectively, as of December 31, 2019 and 2018. Of the gross cash collateral pledged, $38.2 million and $6.8 million were used to offset against derivative liabilities, respectively, as of December 31, 2019 and 2018.

(5) | Represents the fair value of security collateral received and pledged limited to derivative assets and liabilities that are subject to enforceable master netting arrangements or similar agreements. GAAP does not permit the netting of non-cash collateral on the consolidated balance sheet but requires disclosure of such amounts.

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to the resale and repurchase agreements. Refer to Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements 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-K for fair value measurement disclosures on derivatives.
Note 7 — Loans Receivable and Allowance for Credit Losses
The Company’s held-for-investment loan portfolio includes originated and purchased loans. Originated and purchased loans with no evidence of credit deterioration at their acquisition date are referred to collectively as non-PCI loans. PCI loans are loans acquired with evidence of credit deterioration since their origination and for which it is probable at the acquisition date that the Company would be unable to collect all contractually required payments. PCI loans are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company has elected to account for PCI loans on a pool level basis under ASC 310-30 at the time of acquisition.
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The following table presents the composition of the Company’s non-PCI and PCI loans as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019 |  | December 31, 2018
| Non-PCI Loans (1) |  | PCI Loans (2) |  | Total (1)(2) |  | Non-PCI Loans (1) |  | PCI Loans (2) |  | Total (1)(2)
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 12,149,121 |  |  | $ | 1,810 |  |  | $ | 12,150,931 |  |  | $ | 12,054,818 |  |  | $ | 2,152 |  |  | $ | 12,056,970 |
CRE: |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 10,165,247 |  |  | 113,201 |  |  | 10,278,448 |  |  | 9,097,165 |  |  | 163,034 |  |  | 9,260,199 |
Multifamily residential |  | 2,834,212 |  |  | 22,162 |  |  | 2,856,374 |  |  | 2,433,924 |  |  | 36,744 |  |  | 2,470,668 |
Construction and land |  | 628,459 |  |  | 40 |  |  | 628,499 |  |  | 538,752 |  |  | 42 |  |  | 538,794 |
Total CRE |  | 13,627,918 |  |  | 135,403 |  |  | 13,763,321 |  |  | 12,069,841 |  |  | 199,820 |  |  | 12,269,661 |
Total commercial |  | 25,777,039 |  |  | 137,213 |  |  | 25,914,252 |  |  | 24,124,659 |  |  | 201,972 |  |  | 24,326,631 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 7,028,979 |  |  | 79,611 |  |  | 7,108,590 |  |  | 5,939,258 |  |  | 97,196 |  |  | 6,036,454 |
HELOCs |  | 1,466,736 |  |  | 6,047 |  |  | 1,472,783 |  |  | 1,681,979 |  |  | 8,855 |  |  | 1,690,834 |
Total residential mortgage |  | 8,495,715 |  |  | 85,658 |  |  | 8,581,373 |  |  | 7,621,237 |  |  | 106,051 |  |  | 7,727,288 |
Other consumer |  | 282,914 |  |  | — |  |  | 282,914 |  |  | 331,270 |  |  | — |  |  | 331,270 |
Total consumer |  | 8,778,629 |  |  | 85,658 |  |  | 8,864,287 |  |  | 7,952,507 |  |  | 106,051 |  |  | 8,058,558 |
Total loans held-for-investment |  | $ | 34,555,668 |  |  | $ | 222,871 |  |  | $ | 34,778,539 |  |  | $ | 32,077,166 |  |  | $ | 308,023 |  |  | $ | 32,385,189 |
Allowance for loan losses |  | (358,287 | ) |  | — |  |  | (358,287 | ) |  | (311,300 | ) |  | (22 | ) |  | (311,322 | )
Loans held-for-investment, net |  | $ | 34,197,381 |  |  | $ | 222,871 |  |  | $ | 34,420,252 |  |  | $ | 31,765,866 |  |  | $ | 308,001 |  |  | $ | 32,073,867 |

(1) | Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(43.2) million and $(48.9) million as of December 31, 2019 and 2018, respectively.

(2) | Includes ASC 310-30 discount of $14.3 million and $22.2 million as of December 31, 2019 and 2018, respectively.

The commercial portfolio includes C&I, CRE, multifamily residential, and construction and land loans. The consumer portfolio includes single-family residential, HELOC and other consumer loans.
The C&I loan portfolio, which is comprised of commercial business and trade finance loans, provides financing to businesses in a wide spectrum of industries. The CRE loan portfolio consists of income producing real estate loans that are either owner occupied, or non-owner occupied where 50% or more of the debt service for the loan is primarily provided by unaffiliated rental income from a third party. The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units in the Bank’s primary lending areas. Construction and land loans mainly provide construction financing for hotels, offices and industrial projects and the purchase of land.
In the consumer portfolio, the Company offers single-family residential loans and HELOCs through a variety of mortgage loan programs. A substantial number of these loans are originated through a reduced documentation loan program, in which a substantial down payment is required, resulting in a low loan-to-value ratio at origination, typically 60% or less. The Company is in a first lien position for many of these reduced documentation single-family residential loans and HELOCs. These loans have historically experienced low delinquency and default rates. Other consumer loans are mainly comprised of insurance premium financing loans.
As of December 31, 2019 and 2018, loans of $22.43 billion and $20.59 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity from the FRB and the FHLB.
Credit Quality Indicators
All loans are subject to the Company’s credit review and monitoring. For the commercial portfolio, loans are risk rated based on an analysis of the current state of the borrower’s payment performance or delinquency, repayment sources, financial and liquidity factors that include industry and geographic considerations. For the majority of the consumer portfolio, payment performance or delinquency is the driving indicator for the risk ratings.
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For the Company’s internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 5 are assigned an internal risk rating of “Pass”, with loans risk-rated 1 being fully secured by cash or U.S. government securities. Pass loans have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Loans risk-rated 6 are loans that have potential weaknesses that warrant closer attention by management and are assigned an internal risk rating of “Special Mention”. Loans risk-rated 7 and 8 are loans that have well-defined weaknesses that may jeopardize the full and timely repayment of the loan and are assigned an internal risk rating of “Substandard”. Loans risk-rated 9 are loans that have insufficient sources of repayment and a high probability of loss and are assigned an internal risk rating of “Doubtful”. Loans risk-rated 10 are loans that are uncollectable and of such little value that they are no longer considered bankable assets and are assigned an internal risk rating of “Loss”. These internal risk ratings are reviewed routinely and adjusted based on changes in the borrowers’ financial status and the loans’ collectability.
The following tables present the credit risk ratings for non-PCI loans by loan type as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total Non- PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 11,423,094 |  |  | $ | 406,543 |  |  | $ | 302,509 |  |  | $ | 16,975 |  |  | $ | 12,149,121 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 10,003,749 |  |  | 83,683 |  |  | 77,815 |  |  | — |  |  | 10,165,247 |
Multifamily residential |  | 2,806,475 |  |  | 20,406 |  |  | 7,331 |  |  | — |  |  | 2,834,212 |
Construction and land |  | 603,447 |  |  | — |  |  | 25,012 |  |  | — |  |  | 628,459 |
Total CRE |  | 13,413,671 |  |  | 104,089 |  |  | 110,158 |  |  | — |  |  | 13,627,918 |
Total commercial |  | 24,836,765 |  |  | 510,632 |  |  | 412,667 |  |  | 16,975 |  |  | 25,777,039 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 7,012,522 |  |  | 2,278 |  |  | 14,179 |  |  | — |  |  | 7,028,979 |
HELOCs |  | 1,453,207 |  |  | 2,787 |  |  | 10,742 |  |  | — |  |  | 1,466,736 |
Total residential mortgage |  | 8,465,729 |  |  | 5,065 |  |  | 24,921 |  |  | — |  |  | 8,495,715 |
Other consumer |  | 280,392 |  |  | 5 |  |  | 2,517 |  |  | — |  |  | 282,914 |
Total consumer |  | 8,746,121 |  |  | 5,070 |  |  | 27,438 |  |  | — |  |  | 8,778,629 |
Total |  | $ | 33,582,886 |  |  | $ | 515,702 |  |  | $ | 440,105 |  |  | $ | 16,975 |  |  | $ | 34,555,668 |

($ in thousands) |  | December 31, 2018
| Pass/Watch |  | Special Mention |  | Substandard |  | Doubtful |  | Total Non- PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 11,644,470 |  |  | $ | 260,089 |  |  | $ | 139,844 |  |  | $ | 10,415 |  |  | $ | 12,054,818 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 8,957,228 |  |  | 49,705 |  |  | 90,232 |  |  | — |  |  | 9,097,165 |
Multifamily residential |  | 2,402,991 |  |  | 20,551 |  |  | 10,382 |  |  | — |  |  | 2,433,924 |
Construction and land |  | 485,217 |  |  | 19,838 |  |  | 33,697 |  |  | — |  |  | 538,752 |
Total CRE |  | 11,845,436 |  |  | 90,094 |  |  | 134,311 |  |  | — |  |  | 12,069,841 |
Total commercial |  | 23,489,906 |  |  | 350,183 |  |  | 274,155 |  |  | 10,415 |  |  | 24,124,659 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 5,925,584 |  |  | 6,376 |  |  | 7,298 |  |  | — |  |  | 5,939,258 |
HELOCs |  | 1,669,300 |  |  | 1,576 |  |  | 11,103 |  |  | — |  |  | 1,681,979 |
Total residential mortgage |  | 7,594,884 |  |  | 7,952 |  |  | 18,401 |  |  | — |  |  | 7,621,237 |
Other consumer |  | 328,767 |  |  | 1 |  |  | 2,502 |  |  | — |  |  | 331,270 |
Total consumer |  | 7,923,651 |  |  | 7,953 |  |  | 20,903 |  |  | — |  |  | 7,952,507 |
Total |  | $ | 31,413,557 |  |  | $ | 358,136 |  |  | $ | 295,058 |  |  | $ | 10,415 |  |  | $ | 32,077,166 |

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The following tables present the credit risk ratings for PCI loans by loan type as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 1,810 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,810 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 102,257 |  |  | — |  |  | 10,944 |  |  | — |  |  | 113,201 |
Multifamily residential |  | 22,162 |  |  | — |  |  | — |  |  | — |  |  | 22,162 |
Construction and land |  | 40 |  |  | — |  |  | — |  |  | — |  |  | 40 |
Total CRE |  | 124,459 |  |  | — |  |  | 10,944 |  |  | — |  |  | 135,403 |
Total commercial |  | 126,269 |  |  | — |  |  | 10,944 |  |  | — |  |  | 137,213 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 79,517 |  |  | — |  |  | 94 |  |  | — |  |  | 79,611 |
HELOCs |  | 5,849 |  |  | — |  |  | 198 |  |  | — |  |  | 6,047 |
Total residential mortgage |  | 85,366 |  |  | — |  |  | 292 |  |  | — |  |  | 85,658 |
Total consumer |  | 85,366 |  |  | — |  |  | 292 |  |  | — |  |  | 85,658 |
Total (1) |  | $ | 211,635 |  |  | $ | — |  |  | $ | 11,236 |  |  | $ | — |  |  | $ | 222,871 |

($ in thousands) |  | December 31, 2018
| Pass/Watch |  | Special Mention |  | Substandard |  | Doubtful |  | Total PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 1,996 |  |  | $ | — |  |  | $ | 156 |  |  | $ | — |  |  | $ | 2,152 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 143,839 |  |  | — |  |  | 19,195 |  |  | — |  |  | 163,034 |
Multifamily residential |  | 35,221 |  |  | — |  |  | 1,523 |  |  | — |  |  | 36,744 |
Construction and land |  | 42 |  |  | — |  |  | — |  |  | — |  |  | 42 |
Total CRE |  | 179,102 |  |  | — |  |  | 20,718 |  |  | — |  |  | 199,820 |
Total commercial |  | 181,098 |  |  | — |  |  | 20,874 |  |  | — |  |  | 201,972 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 95,789 |  |  | 1,021 |  |  | 386 |  |  | — |  |  | 97,196 |
HELOCs |  | 8,314 |  |  | 256 |  |  | 285 |  |  | — |  |  | 8,855 |
Total residential mortgage |  | 104,103 |  |  | 1,277 |  |  | 671 |  |  | — |  |  | 106,051 |
Total consumer |  | 104,103 |  |  | 1,277 |  |  | 671 |  |  | — |  |  | 106,051 |
Total (1) |  | $ | 285,201 |  |  | $ | 1,277 |  |  | $ | 21,545 |  |  | $ | — |  |  | $ | 308,023 |

(1) | Loans net of ASC 310-30 discount.

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Nonaccrual and Past Due Loans
Non-PCI loans that are 90 or more days past due are generally placed on nonaccrual status, unless the loan is well-collateralized or guaranteed by government agencies, and in the process of collection. Non-PCI 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 on non-PCI loans as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Accruing Loans 30-59 Days Past Due |  | Accruing Loans 60-89 Days Past Due |  | Total Accruing Past Due Loans |  | Nonaccrual Loans Less Than 90 Days Past Due |  | Nonaccrual Loans 90 or More Days Past Due |  | Total Nonaccrual Loans |  | Current Accruing Loans |  | Total Non- PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 31,121 |  |  | $ | 17,034 |  |  | $ | 48,155 |  |  | $ | 31,084 |  |  | $ | 43,751 |  |  | $ | 74,835 |  |  | $ | 12,026,131 |  |  | $ | 12,149,121 |
CRE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 22,830 |  |  | 1,977 |  |  | 24,807 |  |  | 540 |  |  | 15,901 |  |  | 16,441 |  |  | 10,123,999 |  |  | 10,165,247 |
Multifamily residential |  | 198 |  |  | 531 |  |  | 729 |  |  | 534 |  |  | 285 |  |  | 819 |  |  | 2,832,664 |  |  | 2,834,212 |
Construction and land |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 628,459 |  |  | 628,459 |
Total CRE |  | 23,028 |  |  | 2,508 |  |  | 25,536 |  |  | 1,074 |  |  | 16,186 |  |  | 17,260 |  |  | 13,585,122 |  |  | 13,627,918 |
Total commercial |  | 54,149 |  |  | 19,542 |  |  | 73,691 |  |  | 32,158 |  |  | 59,937 |  |  | 92,095 |  |  | 25,611,253 |  |  | 25,777,039 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 15,443 |  |  | 5,074 |  |  | 20,517 |  |  | 1,964 |  |  | 12,901 |  |  | 14,865 |  |  | 6,993,597 |  |  | 7,028,979 |
HELOCs |  | 4,273 |  |  | 2,791 |  |  | 7,064 |  |  | 1,448 |  |  | 9,294 |  |  | 10,742 |  |  | 1,448,930 |  |  | 1,466,736 |
Total residential mortgage |  | 19,716 |  |  | 7,865 |  |  | 27,581 |  |  | 3,412 |  |  | 22,195 |  |  | 25,607 |  |  | 8,442,527 |  |  | 8,495,715 |
Other consumer |  | 6 |  |  | 5 |  |  | 11 |  |  | — |  |  | 2,517 |  |  | 2,517 |  |  | 280,386 |  |  | 282,914 |
Total consumer |  | 19,722 |  |  | 7,870 |  |  | 27,592 |  |  | 3,412 |  |  | 24,712 |  |  | 28,124 |  |  | 8,722,913 |  |  | 8,778,629 |
Total |  | $ | 73,871 |  |  | $ | 27,412 |  |  | $ | 101,283 |  |  | $ | 35,570 |  |  | $ | 84,649 |  |  | $ | 120,219 |  |  | $ | 34,334,166 |  |  | $ | 34,555,668 |

($ in thousands) |  | December 31, 2018
| Accruing Loans 30-59 Days Past Due |  | Accruing Loans 60-89 Days Past Due |  | Total Accruing Past Due Loans |  | Nonaccrual Loans Less Than 90 Days Past Due |  | Nonaccrual Loans 90 or More Days Past Due |  | Total Nonaccrual Loans |  | Current Accruing Loans |  | Total Non- PCI Loans
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 21,032 |  |  | $ | 19,170 |  |  | $ | 40,202 |  |  | $ | 17,097 |  |  | $ | 26,743 |  |  | $ | 43,840 |  |  | $ | 11,970,776 |  |  | $ | 12,054,818 |
CRE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 7,740 |  |  | — |  |  | 7,740 |  |  | 3,704 |  |  | 20,514 |  |  | 24,218 |  |  | 9,065,207 |  |  | 9,097,165 |
Multifamily residential |  | 4,174 |  |  | — |  |  | 4,174 |  |  | 1,067 |  |  | 193 |  |  | 1,260 |  |  | 2,428,490 |  |  | 2,433,924 |
Construction and land |  | 207 |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | — |  |  | 538,545 |  |  | 538,752 |
Total CRE |  | 12,121 |  |  | — |  |  | 12,121 |  |  | 4,771 |  |  | 20,707 |  |  | 25,478 |  |  | 12,032,242 |  |  | 12,069,841 |
Total commercial |  | 33,153 |  |  | 19,170 |  |  | 52,323 |  |  | 21,868 |  |  | 47,450 |  |  | 69,318 |  |  | 24,003,018 |  |  | 24,124,659 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 14,645 |  |  | 7,850 |  |  | 22,495 |  |  | 509 |  |  | 4,750 |  |  | 5,259 |  |  | 5,911,504 |  |  | 5,939,258 |
HELOCs |  | 2,573 |  |  | 1,816 |  |  | 4,389 |  |  | 1,423 |  |  | 7,191 |  |  | 8,614 |  |  | 1,668,976 |  |  | 1,681,979 |
Total residential mortgage |  | 17,218 |  |  | 9,666 |  |  | 26,884 |  |  | 1,932 |  |  | 11,941 |  |  | 13,873 |  |  | 7,580,480 |  |  | 7,621,237 |
Other consumer |  | 11 |  |  | 12 |  |  | 23 |  |  | — |  |  | 2,502 |  |  | 2,502 |  |  | 328,745 |  |  | 331,270 |
Total consumer |  | 17,229 |  |  | 9,678 |  |  | 26,907 |  |  | 1,932 |  |  | 14,443 |  |  | 16,375 |  |  | 7,909,225 |  |  | 7,952,507 |
Total |  | $ | 50,382 |  |  | $ | 28,848 |  |  | $ | 79,230 |  |  | $ | 23,800 |  |  | $ | 61,893 |  |  | $ | 85,693 |  |  | $ | 31,912,243 |  |  | $ | 32,077,166 |

For information on the policy for recording payments received and resuming accrual of interest on non-PCI loans that are placed on nonaccrual status, see Note 1 — Summary of Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements in this Form 10-K.
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PCI loans are excluded from the above aging analysis tables as the Company has elected to account for these loans on a pool level basis under ASC 310-30 at the time of acquisition. Refer to the discussion on PCI loans within this note for additional details on interest income recognition. As of December 31, 2019 and 2018, PCI loans on nonaccrual status totaled $297 thousand and $4.0 million, respectively.
Loans in Process of Foreclosure
The Company commences the foreclosure process on consumer mortgage loans when a borrower becomes 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines. As of December 31, 2019 and 2018, consumer mortgage loans of $7.2 million and $3.0 million, respectively, were secured by residential real estate properties, for which formal foreclosure proceedings were in process in accordance with local requirements of the applicable jurisdictions. As of both December 31, 2019 and 2018, no foreclosed residential real estate property was included in total net OREO of $125 thousand and $133 thousand, respectively.
Troubled Debt Restructurings
TDRs are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered.
The following tables present the additions to non-PCI TDRs for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Loans Modified as TDRs During the Year Ended December 31, 2019
| Number of Loans |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment (1) |  | Financial Impact (2)
Commercial: |  |  |  |  |  |  |  |
C&I |  | 8 |  |  | $ | 95,742 |  |  | $ | 71,332 |  |  | $ | 8,004 |
CRE: |  |  |  |  |  |  |  |
Construction and land |  | 1 |  |  | 19,696 |  |  | 19,691 |  |  | — |
Total CRE |  | 1 |  |  | 19,696 |  |  | 19,691 |  |  | — |
Total commercial |  | 9 |  |  | $ | 115,438 |  |  | $ | 91,023 |  |  | $ | 8,004 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | 2 |  |  | $ | 1,123 |  |  | $ | 1,098 |  |  | $ | 2 |
HELOCs |  | 2 |  |  | 539 |  |  | 528 |  |  | — |
Total residential mortgage |  | 4 |  |  | 1,662 |  |  | 1,626 |  |  | 2 |
Total consumer |  | 4 |  |  | $ | 1,662 |  |  | $ | 1,626 |  |  | $ | 2 |

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($ in thousands) |  | Loans Modified as TDRs During the Year Ended December 31, 2018
| Number of Loans |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment (1) |  | Financial Impact (2)
Commercial: |  |  |  |  |  |  |  |
C&I |  | 8 |  |  | $ | 11,366 |  |  | $ | 9,520 |  |  | $ | 699 |
CRE: |  |  |  |  |  |  |  |
CRE |  | 1 |  |  | 750 |  |  | 752 |  |  | — |
Total CRE |  | 1 |  |  | 750 |  |  | 752 |  |  | — |
Total commercial |  | 9 |  |  | $ | 12,116 |  |  | $ | 10,272 |  |  | $ | 699 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
Single-family residential |  | 2 |  |  | $ | 405 |  |  | $ | 391 |  |  | $ | (28 | )
HELOCs |  | 2 |  |  | 1,546 |  |  | 1,418 |  |  | — |
Total residential mortgage |  | 4 |  |  | 1,951 |  |  | 1,809 |  |  | (28 | )
Total consumer |  | 4 |  |  | $ | 1,951 |  |  | $ | 1,809 |  |  | $ | (28 | )

($ in thousands) |  | Loans Modified as TDRs During the Year Ended December 31, 2017
| Number of Loans |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment (1) |  | Financial Impact (2)
Commercial: |  |  |  |  |  |  |  |
C&I |  | 16 |  |  | $ | 43,884 |  |  | $ | 37,900 |  |  | $ | 11,520 |
CRE: |  |  |  |  |  |  |  |
CRE |  | 4 |  |  | 2,675 |  |  | 2,627 |  |  | 157 |
Multifamily residential |  | 1 |  |  | 3,655 |  |  | 2,969 |  |  | — |
Total CRE |  | 5 |  |  | 6,330 |  |  | 5,596 |  |  | 157 |
Total commercial |  | 21 |  |  | $ | 50,214 |  |  | $ | 43,496 |  |  | $ | 11,677 |
Consumer: |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |
HELOCs |  | 1 |  |  | $ | 152 |  |  | $ | 155 |  |  | $ | — |
Total residential mortgage |  | 1 |  |  | 152 |  |  | 155 |  |  | — |
Total consumer |  | 1 |  |  | $ | 152 |  |  | $ | 155 |  |  | $ | — |

(1) | Includes subsequent payments after modification and reflects the balance as of December 31, 2019, 2018 and 2017.

(2) | The financial impact includes charge-offs and specific reserves recorded since the modification date.

123

The following tables present the non-PCI TDR modifications for the years ended December 31, 2019, 2018 and 2017 by modification type:

($ in thousands) |  | Modification Type During the Year Ended December 31, 2019
| Principal (1) |  | Principal and Interest (2) |  | Interest Rate Reduction |  | Other (3) |  | Total
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 31,611 |  |  | $ | — |  |  | $ | — |  |  | $ | 39,721 |  |  | $ | 71,332 |
CRE: |  |  |  |  |  |  |  |  |  |
Construction and land |  | — |  |  | — |  |  | 19,691 |  |  | — |  |  | 19,691 |
Total CRE |  | — |  |  | — |  |  | 19,691 |  |  | — |  |  | 19,691 |
Total commercial |  | 31,611 |  |  | — |  |  | 19,691 |  |  | 39,721 |  |  | 91,023 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | — |  |  | 1,098 |  |  | — |  |  | — |  |  | 1,098 |
HELOCs |  | — |  |  | 397 |  |  | — |  |  | 131 |  |  | 528 |
Total residential mortgage |  | — |  |  | 1,495 |  |  | — |  |  | 131 |  |  | 1,626 |
Total consumer |  | — |  |  | 1,495 |  |  | — |  |  | 131 |  |  | 1,626 |
Total |  | $ | 31,611 |  |  | $ | 1,495 |  |  | $ | 19,691 |  |  | $ | 39,852 |  |  | $ | 92,649 |

($ in thousands) |  | Modification Type During the Year Ended December 31, 2018
| Principal (1) |  | Principal and Interest (2) |  | Interest Rate Reduction |  | Other (3) |  | Total
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 5,472 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,048 |  |  | $ | 9,520 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | — |  |  | — |  |  | 752 |  |  | — |  |  | 752 |
Total CRE |  | — |  |  | — |  |  | 752 |  |  | — |  |  | 752 |
Total commercial |  | 5,472 |  |  | — |  |  | 752 |  |  | 4,048 |  |  | 10,272 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 66 |  |  | — |  |  | — |  |  | 325 |  |  | 391 |
HELOCs |  | 1,353 |  |  | — |  |  | — |  |  | 65 |  |  | 1,418 |
Total residential mortgage |  | 1,419 |  |  | — |  |  | — |  |  | 390 |  |  | 1,809 |
Total consumer |  | 1,419 |  |  | — |  |  | — |  |  | 390 |  |  | 1,809 |
Total |  | $ | 6,891 |  |  | $ | — |  |  | $ | 752 |  |  | $ | 4,438 |  |  | $ | 12,081 |

124

($ in thousands) |  | Modification Type During the Year Ended December 31, 2017
| Principal (1) |  | Principal and Interest (2) |  | Interest Rate Reduction |  | Other (3) |  | Total
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 13,568 |  |  | $ | 7,848 |  |  | $ | — |  |  | $ | 16,484 |  |  | $ | 37,900 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 2,627 |  |  | — |  |  | — |  |  | — |  |  | 2,627 |
Multifamily residential |  | 2,969 |  |  | — |  |  | — |  |  | — |  |  | 2,969 |
Total CRE |  | 5,596 |  |  | — |  |  | — |  |  | — |  |  | 5,596 |
Total commercial |  | 19,164 |  |  | 7,848 |  |  | — |  |  | 16,484 |  |  | 43,496 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
HELOCs |  | — |  |  | 155 |  |  | — |  |  | — |  |  | 155 |
Total residential mortgage |  | — |  |  | 155 |  |  | — |  |  | — |  |  | 155 |
Total consumer |  | — |  |  | 155 |  |  | — |  |  | — |  |  | 155 |
Total |  | $ | 19,164 |  |  | $ | 8,003 |  |  | $ | — |  |  | $ | 16,484 |  |  | $ | 43,651 |

(1) | Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.

(2) | Includes principal and interest deferments or reductions.

(3) | Includes primarily funding to secure additional collateral and provides liquidity to collateral-dependent C&I loans.

Subsequent to restructuring, if a TDR that becomes delinquent, generally beyond 90 days past due, it is considered to be in default. TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the allowance for loan losses. The following table presents information on loans for which a subsequent default occurred during the years ended December 31, 2019, 2018 and 2017, that had been modified as TDR within 12 months or less of its default, and were still in default at the respective period end:

($ in thousands) |  | Loans Modified as TDRs that Subsequently Defaulted During the Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Number of Loans |  | Recorded Investment |  | Number of Loans |  | Recorded Investment |  | Number of Loans |  | Recorded Investment
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | 3 |  |  | $ | 13,112 |  |  | 4 |  |  | $ | 1,890 |  |  | 3 |  |  | $ | 8,659 |
CRE: |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | — |  |  | $ | — |  |  | 1 |  |  | $ | 186 |  |  | — |  |  | $ | — |
Total CRE |  | — |  |  | $ | — |  |  | 1 |  |  | $ | 186 |  |  | — |  |  | $ | — |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |
HELOCs |  | — |  |  | $ | — |  |  | 1 |  |  | $ | 150 |  |  | — |  |  | $ | — |
Total residential mortgage |  | — |  |  | $ | — |  |  | 1 |  |  | $ | 150 |  |  | — |  |  | $ | — |

The amount of additional funds committed to lend to borrowers whose terms have been modified as TDRs was $2.2 million and $3.9 million as of December 31, 2019 and 2018, respectively.
125

Impaired Loans
The following tables present information on non-PCI impaired loans as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Unpaid Principal Balance |  | Recorded Investment With No Allowance |  | Recorded Investment With Allowance |  | Total Recorded Investment |  | Related Allowance
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 174,656 |  |  | $ | 73,956 |  |  | $ | 40,086 |  |  | $ | 114,042 |  |  | $ | 2,881 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 27,601 |  |  | 20,098 |  |  | 1,520 |  |  | 21,618 |  |  | 97 |
Multifamily residential |  | 4,965 |  |  | 1,371 |  |  | 3,093 |  |  | 4,464 |  |  | 55 |
Construction and land |  | 19,696 |  |  | 19,691 |  |  | — |  |  | 19,691 |  |  | — |
Total CRE |  | 52,262 |  |  | 41,160 |  |  | 4,613 |  |  | 45,773 |  |  | 152 |
Total commercial |  | 226,918 |  |  | 115,116 |  |  | 44,699 |  |  | 159,815 |  |  | 3,033 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 23,626 |  |  | 8,507 |  |  | 13,704 |  |  | 22,211 |  |  | 35 |
HELOCs |  | 13,711 |  |  | 6,125 |  |  | 7,449 |  |  | 13,574 |  |  | 8 |
Total residential mortgage |  | 37,337 |  |  | 14,632 |  |  | 21,153 |  |  | 35,785 |  |  | 43 |
Other consumer |  | 2,517 |  |  | — |  |  | 2,517 |  |  | 2,517 |  |  | 2,517 |
Total consumer |  | 39,854 |  |  | 14,632 |  |  | 23,670 |  |  | 38,302 |  |  | 2,560 |
Total non-PCI impaired loans |  | $ | 266,772 |  |  | $ | 129,748 |  |  | $ | 68,369 |  |  | $ | 198,117 |  |  | $ | 5,593 |

($ in thousands) |  | December 31, 2018
| Unpaid Principal Balance |  | Recorded Investment With No Allowance |  | Recorded Investment With Allowance |  | Total Recorded Investment |  | Related Allowance
Commercial: |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 82,963 |  |  | $ | 48,479 |  |  | $ | 8,609 |  |  | $ | 57,088 |  |  | $ | 1,219 |
CRE: |  |  |  |  |  |  |  |  |  |
CRE |  | 36,426 |  |  | 28,285 |  |  | 2,067 |  |  | 30,352 |  |  | 208 |
Multifamily residential |  | 6,031 |  |  | 2,949 |  |  | 2,611 |  |  | 5,560 |  |  | 75 |
Total CRE |  | 42,457 |  |  | 31,234 |  |  | 4,678 |  |  | 35,912 |  |  | 283 |
Total commercial |  | 125,420 |  |  | 79,713 |  |  | 13,287 |  |  | 93,000 |  |  | 1,502 |
Consumer: |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 14,670 |  |  | 2,552 |  |  | 10,908 |  |  | 13,460 |  |  | 34 |
HELOCs |  | 10,035 |  |  | 5,547 |  |  | 4,409 |  |  | 9,956 |  |  | 5 |
Total residential mortgage |  | 24,705 |  |  | 8,099 |  |  | 15,317 |  |  | 23,416 |  |  | 39 |
Other consumer |  | 2,502 |  |  | — |  |  | 2,502 |  |  | 2,502 |  |  | 2,491 |
Total consumer |  | 27,207 |  |  | 8,099 |  |  | 17,819 |  |  | 25,918 |  |  | 2,530 |
Total non-PCI impaired loans |  | $ | 152,627 |  |  | $ | 87,812 |  |  | $ | 31,106 |  |  | $ | 118,918 |  |  | $ | 4,032 |

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The following table presents the average recorded investment and interest income recognized on non-PCI impaired loans for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Average Recorded Investment |  | Recognized Interest Income (1) |  | Average Recorded Investment |  | Recognized Interest Income (1) |  | Average Recorded Investment |  | Recognized Interest Income (1)
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 248,619 |  |  | $ | 2,932 |  |  | $ | 143,430 |  |  | $ | 1,046 |  |  | $ | 110,662 |  |  | $ | 1,517 |
CRE: |  |  |  |  |  |  |  |  |  |  |  |
CRE |  | 33,046 |  |  | 464 |  |  | 35,049 |  |  | 491 |  |  | 36,003 |  |  | 578 |
Multifamily residential |  | 6,116 |  |  | 228 |  |  | 11,742 |  |  | 249 |  |  | 11,455 |  |  | 422 |
Construction and land |  | 19,691 |  |  | 68 |  |  | 3,973 |  |  | — |  |  | 4,382 |  |  | — |
Total CRE |  | 58,853 |  |  | 760 |  |  | 50,764 |  |  | 740 |  |  | 51,840 |  |  | 1,000 |
Total commercial |  | 307,472 |  |  | 3,692 |  |  | 194,194 |  |  | 1,786 |  |  | 162,502 |  |  | 2,517 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential |  | 37,315 |  |  | 496 |  |  | 22,350 |  |  | 474 |  |  | 14,994 |  |  | 417 |
HELOCs |  | 22,851 |  |  | 130 |  |  | 14,134 |  |  | 70 |  |  | 5,494 |  |  | 55 |
Total residential mortgage |  | 60,166 |  |  | 626 |  |  | 36,484 |  |  | 544 |  |  | 20,488 |  |  | 472 |
Other consumer |  | 2,552 |  |  | — |  |  | 2,502 |  |  | — |  |  | 2,142 |  |  | — |
Total consumer |  | 62,718 |  |  | 626 |  |  | 38,986 |  |  | 544 |  |  | 22,630 |  |  | 472 |
Total non-PCI impaired loans |  | $ | 370,190 |  |  | $ | 4,318 |  |  | $ | 233,180 |  |  | $ | 2,330 |  |  | $ | 185,132 |  |  | $ | 2,989 |

(1) | Includes interest income recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal, not as interest income.

For information on the policy and factors considered for impaired loans, see Note 1 — Summary of Significant Accounting Policies — Impaired Loans to the Consolidated Financial Statements.
127

Allowance for Credit Losses
The following table presents a summary of activities in the allowance for loan losses by loan type for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Non-PCI Loans |  |  |  |  |  |
Allowance for non-PCI loans, beginning of period |  | $ | 311,300 |  |  | $ | 287,070 |  |  | $ | 260,402 |
Provision for loan losses on non-PCI loans |  | 100,115 |  |  | 65,043 |  |  | 49,129 |
Gross charge-offs: |  |  |  |  |  |
Commercial: |  |  |  |  |  |
C&I |  | (73,985 | ) |  | (59,244 | ) |  | (38,118 | )
CRE: |  |  |  |  |  |
CRE |  | (1,021 | ) |  | — |  |  | — |
Multifamily residential |  | — |  |  | — |  |  | (635 | )
Construction and land |  | — |  |  | — |  |  | (149 | )
Total CRE |  | (1,021 | ) |  | — |  |  | (784 | )
Consumer: |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |
Single-family residential |  | (11 | ) |  | (1 | ) |  | (1 | )
HELOCs |  | — |  |  | — |  |  | (55 | )
Total residential mortgage |  | (11 | ) |  | (1 | ) |  | (56 | )
Other consumer |  | (50 | ) |  | (188 | ) |  | (17 | )
Total gross charge-offs |  | (75,067 | ) |  | (59,433 | ) |  | (38,975 | )
Gross recoveries: |  |  |  |  |  |
Commercial: |  |  |  |  |  |
C&I |  | 14,501 |  |  | 10,417 |  |  | 11,371 |
CRE: |  |  |  |  |  |
CRE |  | 5,209 |  |  | 5,194 |  |  | 2,111 |
Multifamily residential |  | 1,856 |  |  | 1,757 |  |  | 1,357 |
Construction and land |  | 536 |  |  | 740 |  |  | 259 |
Total CRE |  | 7,601 |  |  | 7,691 |  |  | 3,727 |
Consumer: |  |  |  |  |  |
Residential mortgage: |  |  |  |  |  |
Single-family residential |  | 136 |  |  | 1,214 |  |  | 546 |
HELOCs |  | 7 |  |  | 38 |  |  | 24 |
Total residential mortgage |  | 143 |  |  | 1,252 |  |  | 570 |
Other consumer |  | 19 |  |  | 3 |  |  | 152 |
Total gross recoveries |  | 22,264 |  |  | 19,363 |  |  | 15,820 |
Net charge-offs |  | (52,803 | ) |  | (40,070 | ) |  | (23,155 | )
Foreign currency translation adjustments |  | (325 | ) |  | (743 | ) |  | 694 |
Allowance for non-PCI loans, end of period |  | 358,287 |  |  | 311,300 |  |  | 287,070 |
PCI Loans |  |  |  |  |  |
Allowance for PCI loans, beginning of period |  | 22 |  |  | 58 |  |  | 118 |
Reversal of loan losses on PCI loans |  | (22 | ) |  | (36 | ) |  | (60 | )
Allowance for PCI loans, end of period |  | — |  |  | 22 |  |  | 58 |
Allowance for loan losses |  | $ | 358,287 |  |  | $ | 311,322 |  |  | $ | 287,128 |

For further information on accounting policies and the methodologies used to estimate the allowance for credit losses and loan charge-offs, see Note 1 — Summary of Significant Accounting Policies — Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.
128

The following table presents a summary of activities in the allowance for unfunded credit commitments for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Allowance for unfunded credit commitments, beginning of period |  | $ | 12,566 |  |  | $ | 13,318 |  |  | $ | 16,121 |
Reversal of unfunded credit commitments |  | (1,408 | ) |  | (752 | ) |  | (2,803 | )
Allowance for unfunded credit commitments, end of period |  | $ | 11,158 |  |  | $ | 12,566 |  |  | $ | 13,318 |

The allowance for unfunded credit commitments is maintained at a level, which management believes to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. See Note 15 — Commitments, Contingencies and Related Party Transactions to the Consolidated Financial Statements in this Form 10-K for additional information related to unfunded credit reserves.
The following tables present the Company’s allowance for loan losses and recorded investments by loan type and impairment methodology as of December 31, 2019 and 2018:

($ in thousands) |  | December 31, 2019
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 2,881 |  |  | $ | 97 |  |  | $ | 55 |  |  | $ | — |  |  | $ | 35 |  |  | $ | 8 |  |  | $ | 2,517 |  |  | $ | 5,593 |
Collectively evaluated for impairment |  | 235,495 |  |  | 40,412 |  |  | 22,771 |  |  | 19,404 |  |  | 28,492 |  |  | 5,257 |  |  | 863 |  |  | 352,694 |
Acquired with deteriorated credit quality |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 238,376 |  |  | $ | 40,509 |  |  | $ | 22,826 |  |  | $ | 19,404 |  |  | $ | 28,527 |  |  | $ | 5,265 |  |  | $ | 3,380 |  |  | $ | 358,287 |
Recorded investment in loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 114,042 |  |  | $ | 21,618 |  |  | $ | 4,464 |  |  | $ | 19,691 |  |  | $ | 22,211 |  |  | $ | 13,574 |  |  | $ | 2,517 |  |  | $ | 198,117 |
Collectively evaluated for impairment |  | 12,035,079 |  |  | 10,143,629 |  |  | 2,829,748 |  |  | 608,768 |  |  | 7,006,768 |  |  | 1,453,162 |  |  | 280,397 |  |  | 34,357,551 |
Acquired with deteriorated credit quality (1) |  | 1,810 |  |  | 113,201 |  |  | 22,162 |  |  | 40 |  |  | 79,611 |  |  | 6,047 |  |  | — |  |  | 222,871 |
Total (1) |  | $ | 12,150,931 |  |  | $ | 10,278,448 |  |  | $ | 2,856,374 |  |  | $ | 628,499 |  |  | $ | 7,108,590 |  |  | $ | 1,472,783 |  |  | $ | 282,914 |  |  | $ | 34,778,539 |

129

($ in thousands) |  | December 31, 2018
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 1,219 |  |  | $ | 208 |  |  | $ | 75 |  |  | $ | — |  |  | $ | 34 |  |  | $ | 5 |  |  | $ | 2,491 |  |  | $ | 4,032 |
Collectively evaluated for impairment |  | 187,898 |  |  | 40,436 |  |  | 19,810 |  |  | 20,290 |  |  | 31,306 |  |  | 5,769 |  |  | 1,759 |  |  | 307,268 |
Acquired with deteriorated credit quality |  | — |  |  | 22 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 22 |
Total |  | $ | 189,117 |  |  | $ | 40,666 |  |  | $ | 19,885 |  |  | $ | 20,290 |  |  | $ | 31,340 |  |  | $ | 5,774 |  |  | $ | 4,250 |  |  | $ | 311,322 |
Recorded investment in loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 57,088 |  |  | $ | 30,352 |  |  | $ | 5,560 |  |  | $ | — |  |  | $ | 13,460 |  |  | $ | 9,956 |  |  | $ | 2,502 |  |  | $ | 118,918 |
Collectively evaluated for impairment |  | 11,997,730 |  |  | 9,066,813 |  |  | 2,428,364 |  |  | 538,752 |  |  | 5,925,798 |  |  | 1,672,023 |  |  | 328,768 |  |  | 31,958,248 |
Acquired with deteriorated credit quality (1) |  | 2,152 |  |  | 163,034 |  |  | 36,744 |  |  | 42 |  |  | 97,196 |  |  | 8,855 |  |  | — |  |  | 308,023 |
Total (1) |  | $ | 12,056,970 |  |  | $ | 9,260,199 |  |  | $ | 2,470,668 |  |  | $ | 538,794 |  |  | $ | 6,036,454 |  |  | $ | 1,690,834 |  |  | $ | 331,270 |  |  | $ | 32,385,189 |

(1) | Loans net of ASC 310-30 discount.

Purchased Credit-Impaired Loans
At the date of acquisition, PCI loans are pooled and accounted for at fair value, which represents the discounted value of the expected cash flows of the loan portfolio. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flows expectation. The cash flows expected over the life of the pools are estimated by an internal cash flows model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to cumulative loss rates, loss curves and prepayment speeds are utilized to calculate the expected cash flows. The amount of expected cash flows over the initial investment in the loan represents the “accretable yield,” which is recognized as interest income on a level yield basis over the life of the loan. Projected loss rates and prepayment speeds affect the estimated life of PCI loans, which may change the amount of interest income, and possibly principal, expected to be collected. The excess of total contractual cash flows over the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the “nonaccretable difference.”
The following table presents the changes in accretable yield on PCI loans for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Accretable yield for PCI loans, beginning of period |  | $ | 74,870 |  |  | $ | 101,977 |  |  | $ | 136,247 |
Accretion |  | (24,220 | ) |  | (34,662 | ) |  | (42,487 | )
Changes in expected cash flows |  | (140 | ) |  | 7,555 |  |  | 8,217 |
Accretable yield for PCI loans, end of period |  | $ | 50,510 |  |  | $ | 74,870 |  |  | $ | 101,977 |

Loans Held-for-Sale
At the time of commitment to originate or purchase a loan, the loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s evaluation processes, including asset/liability and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value. As of December 31, 2019 and 2018, loans held-for-sale of $434 thousand and $275 thousand, respectively, consisted of single-family residential loans.
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Loan Purchases, Transfers and Sales
The Company purchases and sells loans in the secondary market in the ordinary course of business. From time to time, purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information about the carrying value of loans purchased for the held-for-investment portfolio, loans sold and loans transferred from held-for-investment to held-for-sale at lower of cost or fair value during the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31, 2019
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans transferred from held-for-investment to held-for-sale (1) |  | $ | 245,002 |  |  | $ | 39,062 |  |  | $ | — |  |  | $ | 1,573 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 285,637 |
Sales (2)(3)(4) |  | $ | 245,791 |  |  | $ | 39,062 |  |  | $ | — |  |  | $ | 1,573 |  |  | $ | 10,410 |  |  | $ | — |  |  | $ | — |  |  | $ | 296,836 |
Purchases (5) |  | $ | 397,615 |  |  | $ | — |  |  | $ | 8,988 |  |  | $ | — |  |  | $ | 117,227 |  |  | $ | — |  |  | $ | — |  |  | $ | 523,830 |

($ in thousands) |  | Year Ended December 31, 2018
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential Mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans transferred from held-for-investment to held-for-sale (1) |  | $ | 404,321 |  |  | $ | 62,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,981 |  |  | $ | — |  |  | $ | — |  |  | $ | 481,593 |
Loans transferred from held-for-sale to held-for-investment |  | $ | 2,306 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,306 |
Sales (2)(3)(4) |  | $ | 413,844 |  |  | $ | 62,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 34,966 |  |  | $ | — |  |  | $ | — |  |  | $ | 511,101 |
Purchases (5) |  | $ | 525,767 |  |  | $ | — |  |  | $ | 7,389 |  |  | $ | — |  |  | $ | 63,781 |  |  | $ | — |  |  | $ | — |  |  | $ | 596,937 |

($ in thousands) |  | Year Ended December 31, 2017
| Commercial |  | Consumer |  | Total
|  |  | CRE |  | Residential mortgage |  |  |
| C&I |  | CRE |  | Multifamily Residential |  | Construction and Land |  | Single-Family Residential |  | HELOCs |  | Other Consumer |
Loans transferred from held-for-investment to held-for-sale (1) |  | $ | 476,644 |  |  | $ | 52,217 |  |  | $ | 531 |  |  | $ | 1,609 |  |  | $ | 249 |  |  | $ | — |  |  | $ | 3,706 |  |  | $ | 534,956 |
Loans of DCB branches transferred from held-for-investment to held-for-sale (included in Branch assets held-for-sale) (1) |  | $ | 17,590 |  |  | $ | 36,783 |  |  | $ | 12,448 |  |  | $ | 241 |  |  | $ | 6,416 |  |  | $ | 4,309 |  |  | $ | 345 |  |  | $ | 78,132 |
Sales (2)(3)(4) |  | $ | 476,644 |  |  | $ | 52,217 |  |  | $ | 531 |  |  | $ | 1,609 |  |  | $ | 21,058 |  |  | $ | — |  |  | $ | 25,905 |  |  | $ | 577,964 |
Purchases (5) |  | $ | 503,359 |  |  | $ | — |  |  | $ | 2,311 |  |  | $ | — |  |  | $ | 29,060 |  |  | $ | — |  |  | $ | — |  |  | $ | 534,730 |

(1) | The Company recorded $789 thousand, $14.6 million and $473 thousand in write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the years ended December 31, 2019, 2018 and 2017, respectively.

(2) | Includes originated loans sold of $230.3 million, $309.7 million and $178.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. Originated loans sold were primarily comprised of C&I loans for the years ended December 31, 2019 and 2018; and C&I, CRE and single-family residential loans for the year ended December 31, 2017.

(3) | Includes purchased loans sold in the secondary market of $66.5 million, $201.4 million and $399.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(4) | Net gains on sales of loans were $4.0 million, $6.6 million and $8.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(5) | C&I loan purchases for each of the yeas ended December 31, 2019, 2018 and 2017 were comprised of broadly syndicated C&I term loans.

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Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities
The Community Reinvestment Act (“CRA”) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in low or moderate income 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 and tax credits. These entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. To fully utilize the available tax credits, each of these entities must meet the regulatory affordable housing requirements for a minimum 15-year compliance period. In addition to affordable housing projects, the Company also invests in New Market Tax Credit projects that qualify for CRA credits, as well as eligible projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, and the investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas.
Investments in Qualified Affordable Housing Partnerships, Net
The Company records its investments in qualified affordable housing partnerships, net, using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the amortization in Income tax expense on the Consolidated Statement of Income.
The following table presents the Company’s investments in qualified affordable housing partnerships, net, and related unfunded commitments as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Investments in qualified affordable housing partnerships, net |  | $ | 207,037 |  |  | $ | 184,873 |
Accrued expenses and other liabilities — Unfunded commitments |  | $ | 80,294 |  |  | $ | 80,764 |

The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Tax credits and other tax benefits recognized |  | $ | 46,034 |  |  | $ | 39,262 |  |  | $ | 46,698 |
Amortization expense included in income tax expense |  | $ | 36,561 |  |  | $ | 28,046 |  |  | $ | 38,464 |

Investments in Tax Credit and Other Investments, Net
Depending on the ownership percentage and the influence the Company has on the investments in tax credit and other investments, net, the Company applies the equity or cost method of accounting, or the measurement alternative as elected under ASU 2016-01 for equity investments without readily determinable fair value.
The following table presents the Company’s investments in tax credit and other investments, net, and related unfunded commitments as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Investments in tax credit and other investments, net |  | $ | 254,140 |  |  | $ | 231,635 |
Accrued expenses and other liabilities — Unfunded commitments |  | $ | 113,515 |  |  | $ | 80,228 |

Amortization of tax credit and other investments was $85.5 million, $89.6 million, and $88.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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Included in Investments in tax credit and other investments, net, on the Consolidated Balance Sheet were equity securities with readily determinable fair values of $31.7 million and $31.2 million, as of December 31, 2019 and 2018, respectively. These equity securities are CRA investments and were measured at fair value with changes in fair value recorded in net income. The Company recorded unrealized gains on these equity securities of $789 thousand for the year ended December 31, 2019, and unrealized losses of $547 thousand for the year ended December 31, 2018.
The Company has equity securities without readily determinable fair values at carrying value totaling $19.1 million and $14.2 million as of December 31, 2019 and 2018, respectively, which are measured under the measurement alternative and the related adjustments from observable price changes. For the years ended December 31, 2019 and 2018, there were no adjustments to these securities.
As of December 31, 2019, the Company’s unfunded commitments related to investments in qualified affordable housing partnerships, tax credit and other investments are estimated to be funded as follows:

($ in thousands) |  | Amount
2020 |  | $ | 121,875 |
2021 |  | 32,039 |
2022 |  | 13,459 |
2023 |  | 15,753 |
2024 |  | 8,145 |
Thereafter |  | 2,538 |
Total |  | $ | 193,809 |

The Company invested in four solar energy tax credit funds in the years 2014, 2015, 2017 and 2018 as a limited member. These tax credit funds engaged in the acquisition and leasing of mobile solar generators through DC Solar and affiliates (“DC Solar”) entities. These investments were recorded in Investments in tax credit and other investments, net on the Consolidated Balance Sheet and were accounted for under the equity method of accounting. DC Solar had its assets frozen in December 2018 and filed for bankruptcy protection in February 2019. In February 2019, an affidavit from a Federal Bureau of Investigation (“FBI”) special agent stated that DC Solar was operating a fraudulent “Ponzi-like scheme” and that the majority of the mobile solar generators sold to investors and managed by DC Solar, as well as the majority of the related lease revenues claimed to had been received by DC Solar might not have existed.
Tax credit investments are evaluated for possible OTTI on an annual basis or when events or changes in circumstances suggest that the carrying amount of the tax credit investments may not be realizable. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K for a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments. Investments in tax credit and other investments, net related to DC Solar tax credit investments was $7.0 million out of the $231.6 million as of December 31, 2018. During the first quarter of 2019, the Company fully wrote off its tax credit investments related to DC Solar and recorded a $7.0 million OTTI charge within Amortization of tax credit and other investments on the Consolidated Statement of Income. The Company concluded at that time that there would be no material future cash flows related to these investments, in part because of the fact that DC Solar has ceased operations and its bankruptcy case had been converted from Chapter 11 to Chapter 7 on March 22, 2019. During the fourth quarter of 2019, the Company recorded a $1.6 million pre-tax impairment recovery related to DC Solar. There were no balances recorded in Accrued expenses and other liabilities — Unfunded commitments related to DC Solar as of December 31, 2019 and 2018. Refer to Note 14 — Income Taxes to the Consolidated Financial Statements in this Form 10-K for a further discussion related to the impacts on the Company’s income tax expense related to the DC solar tax credit investments.
For the year ended December 31, 2019, the Company recorded an OTTI charge of $14.6 million related to historic tax credits, DC Solar and a CRA investment within Amortization of tax credit and other investments on the Consolidated Statement of Income. The Company also recorded a $1.6 million impairment recovery related to the previously charged-off DC Solar. In comparison, there was no OTTI charge or recovery recorded for the year ended December 31, 2018.
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Variable Interest Entities
The Company invests in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, historic rehabilitation projects, wind and solar projects, of which the majority of such investments are VIEs. As a limited partner in these partnerships, these investments are designed to generate a return primarily through the realization of federal tax credits and tax benefits. An unrelated third party is typically the general partner or managing member who has control over the significant activities of such investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these structures due to the general partner or managing member’s ability to manage the entity, which is indicative of power over them. The Company’s maximum exposure to loss in connection with these partnerships consist of the unamortized investment balance and any tax credits claimed that may become subject to recapture.
Special purpose entities formed in connection with securitization transactions are generally considered VIEs. The Company is the servicer of the multifamily residential loans it has securitized in 2016. The Company does not consolidate the multifamily securitization entity because it does not have power and does not have a variable interest that could potentially be significant to the VIE. A CLO is a VIE that purchases a pool of assets consisting primarily of non-investment grade corporate loans and issues multiple tranches of notes to investors to fund the asset purchases and pay upfront expenses associated with forming the CLO. The Company serves as the collateral manager of a CLO that closed in the fourth quarter of 2019 and retained a portion of the senior securities issued by the CLO. The Company does not consolidate the CLO as it does not hold interests that could potentially be significant to the CLO. The Company’s maximum exposure to loss from the CLO is equal to the carrying amount of the retained securities of $284.7 million as of December 31, 2019.
Note 9 — Goodwill and Other Intangible Assets
Goodwill
Total goodwill was $465.7 million and $465.5 million as of December 31, 2019 and 2018, respectively. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in an acquisition. The Company assesses goodwill for impairment at the reporting unit level (at the same level as the Company’s business segments) on an annual basis as of December 31 each year, or more frequently if events or circumstances, such as adverse changes in the economic or business environment, indicate there may be impairment. The Company organizes its operation into three reporting segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. For information on how the reporting units are identified and components are aggregated, see Note 21 — Business Segments to the Consolidated Financial Statements in this Form 10-K.
There was no change in the carrying amount of goodwill during the year ended December 31, 2017. The following table presents changes in the carrying amount of goodwill by reporting unit during years ended December 31, 2019 and 2018:

($ in thousands) |  | Consumer and Business Banking |  | Commercial Banking |  | Total
Balance, January 1, 2018 |  | $ | 357,207 |  |  | $ | 112,226 |  |  | $ | 469,433 |
Disposition of the DCB branches |  | (3,886 | ) |  | — |  |  | (3,886 | )
Balance, December 31, 2018 |  | $ | 353,321 |  |  | $ | 112,226 |  |  | $ | 465,547 |
Balance, January 1, 2019 |  | $ | 353,321 |  |  | $ | 112,226 |  |  | $ | 465,547 |
Acquisition of Enstream Capital Markets, LLC |  | — |  |  | 150 |  |  | 150 |
Balance, December 31, 2019 |  | $ | 353,321 |  |  | $ | 112,376 |  |  | $ | 465,697 |

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Impairment Analysis
The Company conducts a two-step goodwill impairment test at the reporting unit level on an annual basis, or more frequently as events occur or circumstances that change the economic or business environment that may reduce the fair value of a reporting unit below carrying amount. For the two-step goodwill impairment test, the first step is to identify potential impairment by determining the fair value of each reporting unit and comparing such fair value to its corresponding carrying amount. If the fair value of a reporting unit is less than its carrying amount, the second step is performed to measure the amount of impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill.
The Company completed the quantitative step one analysis of goodwill impairment test as of December 31, 2019 using a combined income and market approach to determine the fair value of the reporting units. Under the income approach, the Company projected future cash flows based on appropriate growth expectation and used appropriate discount rate assumption to calculate the discounted cash flows and the present value of the reporting units. Under the market approach, the fair value was calculated using price multiples of relevant peer banks with a control premium adjustment, which represents the cost savings that a purchaser of the reporting units could be achieved by eliminating duplicative costs. Under the combined income and market approach, the Company applied weighted average to determine the fair value of each reporting unit. As a result of this analysis, the Company determined that there was no goodwill impairment as of December 31, 2019 as the fair value of all reporting units exceeded the carrying amount of their respective reporting unit.
Core Deposit Intangibles
Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed in various acquisitions and are included in Other assets on the Consolidated Balance Sheet. These intangibles are tested for impairment on an annual basis, or more frequently as events occur or current circumstances and conditions warrant. Core deposit intangibles associated with the sale of the Bank’s DCB branches with a net carrying amount of $1.0 million were written off in the first quarter of 2018. There were no impairment write-downs on the remaining core deposit intangibles for the years ended December 31, 2019, 2018 and 2017.
The following table presents the gross carrying amount of core deposit intangible assets and accumulated amortization as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Gross balance (1) |  | $ | 86,099 |  |  | $ | 86,099 |
Accumulated amortization (1) |  | (76,088 | ) |  | (71,570 | )
Net carrying balance (1) |  | $ | 10,011 |  |  | $ | 14,529 |

(1) | Excludes fully amortized core deposit intangible assets.

Amortization Expense
The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $4.5 million, $5.5 million and $6.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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The following table presents the estimated future amortization expense of core deposit intangibles as of December 31, 2019:

($ in thousands) |  | Amount
2020 |  | $ | 3,634 |
2021 |  | 2,749 |
2022 |  | 1,865 |
2023 |  | 1,199 |
2024 |  | 553 |
Thereafter |  | 11 |
Total |  | $ | 10,011 |

Note 10 — Leases
On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), as amended. As both a lessee and lessor, the Company elected the package of practical expedients available for leases that commenced before the adoption date. As such, the Company need not reassess: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) the initial direct costs for any expired or existing leases, such as costs that would qualify for capitalization. The Company also elected the hindsight practical expedient to determine the lease term and to assess impairment on the Company’s right-of-use assets, and the practical expedient to not separate lease and non-lease components, consistently across all leases.
Lessee Arrangements
The Company determines if an arrangement is a lease or contains a lease at inception. As of December 31, 2019, the Company was obligated under a number of non-cancellable leases, predominantly operating leases for certain retail banking branches and office spaces in the U.S. and Greater China. These operating leases expire in the years ranging from 2020 to 2030, exclusive of renewal and termination options. Some of these leases include options to extend the leases for up to 15 years, while certain leases include lessee termination options. The Company's measurement of the operating lease liability and right-of-use asset does not include payments associated with the options to extend or terminate the lease since it is not reasonably certain that the Company will exercise the options. A portion of the operating leases includes variable lease payments, primarily based on the usage of the asset or the consumer price index as specified in the lease agreements. The Company does not remeasure lease liabilities as a result of changes to variable lease payments. The Company also has equipment and air rights finance leases which expire in the years ranging from 2021 to 2047.
The right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company’s incremental borrowing rate based on the information available at the later of the adoption date or the lease commencement date is used to determine the present value of future payments. This approximates a collateralized borrowing rate over a similar term for an amount equal to the lease payments in a similar economic environment.
The following table presents the lease related assets and liabilities recorded on the Consolidated Balance Sheet as of December 31, 2019:

($ in thousands) |  | Classification on the Consolidated Balance Sheet |  | December 31, 2019
Assets: |  |  |  |
Operating lease assets |  | Operating lease right-of use assets |  | $ | 99,973 |
Finance lease assets |  | Premises and equipment |  | 7,897 |
Total lease assets |  |  |  | $ | 107,870 |
Liabilities: |  |  |  |
Operating lease liabilities |  | Operating lease liabilities |  | $ | 108,083 |
Finance lease liabilities |  | Long-term debt and finance lease liabilities |  | 5,169 |
Total lease liabilities |  |  |  | $ | 113,252 |

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The following table presents the components of lease expense for operating and finance leases for the year ended December 31, 2019:

($ in thousands) |  | Year Ended December 31, 2019
Operating lease cost |  | $ | 34,850 |
Finance lease cost: |  |
Amortization of right-of-use assets |  | 807 |
Interest on lease liabilities |  | 161 |
Variable lease cost |  | 120 |
Sublease income |  | (81 | )
Net lease cost |  | $ | 35,857 |

The following table presents the supplemental cash flow information related to leases for the year ended December 31, 2019:

($ in thousands) |  | Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities: |  |
Operating cash flows from operating leases |  | $ | 35,496 |
Operating cash flows from finance leases |  | $ | 161 |
Financing cash flows from finance leases |  | $ | 883 |
Right-of-use assets obtained in exchange for new lease liabilities: |  |
Operating leases |  | $ | 21,716 |
Financing leases |  | $ | 304 |

The following table presents the weighted-average remaining lease terms and discount rates related to leases as of December 31, 2019:

|  | December 31, 2019
Weighted-average remaining lease term (in years): |  |
Operating leases |  | 4.6 |
Finance leases |  | 16.2 |
Weighted-average discount rate: |  |
Operating leases |  | 3.19 | %
Finance leases |  | 2.84 | %

The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of December 31, 2019:

($ in thousands) |  | Operating Leases |  | Finance Leases
2020 |  | $ | 32,590 |  |  | $ | 1,059 |
2021 |  | 28,761 |  |  | 1,053 |
2022 |  | 19,073 |  |  | 698 |
2023 |  | 12,069 |  |  | 403 |
2024 |  | 9,150 |  |  | 157 |
Thereafter |  | 14,636 |  |  | 3,305 |
Total minimum lease payments |  | $ | 116,279 |  |  | $ | 6,675 |
Less: imputed interest |  | (8,196 | ) |  | (1,506 | )
Present value of lease liabilities |  | $ | 108,083 |  |  | $ | 5,169 |

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Upon adopting the new lease guidance, the Company elected the modified retrospective approach without revising comparative prior periods. Rental expense related to non-cancellable operating lease agreements was $31.9 million and $29.7 million for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, the minimum rental payments under non-cancellable operating leases were $42.0 million, $36.2 million, $30.7 million, $21.4 million and $15.0 million for 2019 through 2023, respectively, and $40.4 million in the aggregate for all years thereafter.
Lessor Arrangements
The Company finances equipment under direct financing and sales-type leases to its commercial customers. As of December 31, 2019, the total net investment in direct financing and sales-type leases was $141.3 million with expiration in the years ranging from 2020 to 2027, exclusive of renewal options. Some of the leases include options to extend the leases, while others include early buyout options. As the Company is not reasonably certain at lease commencement that the purchase options will be exercised by the lessees, the lease terms exclude the purchase option.
The unguaranteed residual value is recorded at the present value of the amount the Company expects to derive from the underlying asset following the end of the lease term, which is not guaranteed by the lessee or any third party, discounted using the rate implicit in the lease. In certain cases, the Company obtains residual value insurance from third parties and/or guarantees from the lessee to manage the risk associated with the residual value of the leased assets. The carrying amount of guaranteed residual value, which was included in Loans held-for-investment on the Consolidated Balance Sheet, was $31.6 million as of December 31, 2019.
The following table presents the components of the net investment in direct financing and sales-type leases as of December 31, 2019:

($ in thousands) |  | December 31, 2019
Lease receivables |  | $ | 126,517 |
Unguaranteed residual assets |  | 14,793 |
Net investment in direct financing and sales-type leases |  | $ | 141,310 |

The lease income for direct financing and sales-type leases was $5.9 million for the year ended December 31, 2019.
The following table presents future minimum lease payments that are expected to be received under the direct financing and sales-type leases as of December 31, 2019:

($ in thousands) |  | Direct Financing and Sales-Type Leases
2020 |  | $ | 27,580 |
2021 |  | 25,548 |
2022 |  | 18,154 |
2023 |  | 11,960 |
2024 |  | 8,512 |
Thereafter |  | 11,708 |
Total minimum lease payments |  | $ | 103,462 |
Less: imputed interest |  | (9,783 | )
Present value of lease receivables |  | $ | 93,679 |

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Note 11 — Deposits
The following table presents the composition of the Company’s deposits as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Deposits: |  |  |  |
Noninterest-bearing demand |  | $ | 11,080,036 |  |  | $ | 11,377,009 |
Interest-bearing checking |  | 5,200,755 |  |  | 4,584,447 |
Money market |  | 8,711,964 |  |  | 8,262,677 |
Savings |  | 2,117,196 |  |  | 2,146,429 |
Time deposits: |  |  |  |
Less than $100,000 |  | 1,993,950 |  |  | 1,957,121 |
$100,000 or greater |  | 8,220,358 |  |  | 7,111,945 |
Total deposits |  | $ | 37,324,259 |  |  | $ | 35,439,628 |

The aggregate amount of domestic time deposits that meet or exceed the current Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000 was $5.44 billion and $4.45 billion as of December 31, 2019 and 2018, respectively. As of both December 31, 2019 and 2018, the aggregate amount of foreign office time deposits, including both Hong Kong and China that meet or exceed the current FDIC insurance limit of $250,000 was $1.19 billion.
As of December 31, 2019, $493.4 million of interest-bearing demand deposits and $1.21 billion of time deposits were held by the Company’s branch in Hong Kong and subsidiary bank in China. As of December 31, 2018, $621.3 million of interest-bearing demand deposits and $1.21 billion of time deposits were held by the Company’s branch in Hong Kong and subsidiary bank in China.
The following table presents the scheduled maturities of time deposits for the five years succeeding December 31, 2019 and thereafter:

($ in thousands) |  | Amount
2020 |  | $ | 9,653,276 |
2021 |  | 428,971 |
2022 |  | 59,324 |
2023 |  | 36,633 |
2024 |  | 7,024 |
Thereafter |  | 29,080 |
Total |  | $ | 10,214,308 |

Note 12 — Federal Home Loan Bank Advances and Long-Term Debt
FHLB Advances
FHLB advances to the Bank totaled $745.9 million and $326.2 million as of December 31, 2019 and 2018, respectively. The FHLB advances have both fixed and floating interest rates that reset monthly or quarterly based on LIBOR. The weighted-average interest rate was 2.19% and 2.87% as of December 31, 2019 and 2018, respectively. The interest rates ranged from 1.82% to 3.13% and 1.79% to 2.98% for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, FHLB advances that will mature in the next five years include $100.0 million in 2020, $400.0 million in 2021 and $245.9 million in 2022.
The Bank’s available borrowing capacity from FHLB advances totaled $6.83 billion and $6.11 billion as of December 31, 2019 and 2018, respectively. The Bank’s available borrowing capacity from the FHLB is derived from its portfolio of loans that are pledged to the FHLB reduced by its outstanding FHLB advances. As of December 31, 2019 and 2018, all advances were secured by real estate loans.
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Long-Term Debt — Junior Subordinated Debt
As of December 31, 2019, East West has six statutory business trusts for the purpose of issuing junior subordinated debt to third party investors. The junior subordinated debt was issued in connection with the East West’s various pooled trust preferred securities offerings. The Trusts issued both fixed and variable rate capital securities, representing undivided preferred beneficial interests in the assets of the Trusts, to third party investors. East West is the owner of all the beneficial interests represented by the common securities of the Trusts. The junior subordinated debt is recorded as a component of long-term debt and includes the value of the common stock issued by six of East West’s wholly-owned subsidiaries in conjunction with these transactions. The common stock is recorded in Other assets on the Consolidated Balance Sheet for the amount issued in connection with these junior subordinated debt issuances.
The following table presents the outstanding junior subordinated debt issued by each trust as of December 31, 2019 and 2018:

Issuer |  | Stated Maturity (1) |  | Stated Interest Rate |  | Current Rate |  | December 31, 2019 |  | December 31, 2018
|  |  |  | Aggregate Principal Amount of Trust Securities |  | Aggregate Principal Amount of the Junior Subordinated Debts |  | Aggregate Principal Amount of Trust Securities |  | Aggregate Principal Amount of the Junior Subordinated Debts
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
East West Capital Trust V |  | November 2034 |  | 3-month LIBOR + 1.80% |  | 3.71% |  | $ | 464 |  |  | $ | 15,000 |  |  | $ | 464 |  |  | $ | 15,000 |
East West Capital Trust VI |  | September 2035 |  | 3-month LIBOR + 1.50% |  | 3.39% |  | 619 |  |  | 20,000 |  |  | 619 |  |  | 20,000 |
East West Capital Trust VII |  | June 2036 |  | 3-month LIBOR + 1.35% |  | 3.24% |  | 928 |  |  | 30,000 |  |  | 928 |  |  | 30,000 |
East West Capital Trust VIII |  | June 2037 |  | 3-month LIBOR + 1.40% |  | 3.29% |  | 619 |  |  | 18,000 |  |  | 619 |  |  | 18,000 |
East West Capital Trust IX |  | September 2037 |  | 3-month LIBOR + 1.90% |  | 3.79% |  | 928 |  |  | 30,000 |  |  | 928 |  |  | 30,000 |
MCBI Statutory Trust I |  | December 2035 |  | 3-month LIBOR + 1.55% |  | 3.44% |  | 1,083 |  |  | 35,000 |  |  | 1,083 |  |  | 35,000 |
Total |  |  |  |  |  |  |  | $ | 4,641 |  |  | $ | 148,000 |  |  | $ | 4,641 |  |  | $ | 148,000 |

(1) | All the above debt instruments mature more than five years after December 31, 2019 and are subject to call options where early redemption requires appropriate notice.

The proceeds from these issuances represent liabilities of East West to the Trusts and are reported on the Consolidated Balance Sheet as a component of Long-term debt. As of December 31, 2019 and 2018, the Company had outstanding junior subordinated debt of $147.1 million and $146.8 million, respectively. Interest payments on these securities are made quarterly and are deductible for tax purposes.
Term Loan
In 2013, East West entered into a $100.0 million three-year term loan agreement. The terms of the agreement were modified in 2015 to extend the term loan maturity from July 1, 2016 to December 31, 2018, where principal repayments of $5.0 million were due quarterly. The term loan bears interest at the rate of the three-month LIBOR plus 150 basis points and the weighted-average interest rate was 3.60% for the year ended December 31, 2018. As of both December 31, 2019 and 2018, the term loan had no outstanding balances as East West had made all scheduled principal repayments on the term loan in the fourth quarter of 2018.
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Note 13 — Revenue from Contracts with Customers
The following tables present revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers, and other noninterest income, segregated by operating segments for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31, 2019
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Noninterest income: |  |  |  |  |  |  |  |
Revenue from contracts with customers: |  |  |  |  |  |  |  |
Deposit account fees: |  |  |  |  |  |  |  |
Deposit service charges and related fee income |  | $ | 21,327 |  |  | $ | 13,564 |  |  | $ | 49 |  |  | $ | 34,940 |
Card income |  | 3,032 |  |  | 676 |  |  | — |  |  | 3,708 |
Wealth management fees |  | 15,841 |  |  | 827 |  |  | — |  |  | 16,668 |
Total revenue from contracts with customers |  | 40,200 |  |  | 15,067 |  |  | 49 |  |  | 55,316 |
Other sources of noninterest income (1) |  | 17,720 |  |  | 119,555 |  |  | 16,786 |  |  | 154,061 |
Total noninterest income |  | $ | 57,920 |  |  | $ | 134,622 |  |  | $ | 16,835 |  |  | $ | 209,377 |

($ in thousands) |  | Year Ended December 31, 2018
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Noninterest income: |  |  |  |  |  |  |  |
Revenue from contracts with customers: |  |  |  |  |  |  |  |
Deposit account fees: |  |  |  |  |  |  |  |
Deposit service charges and related fee income |  | $ | 22,474 |  |  | $ | 12,326 |  |  | $ | 423 |  |  | $ | 35,223 |
Card income |  | 3,196 |  |  | 757 |  |  | — |  |  | 3,953 |
Wealth management fees |  | 13,357 |  |  | 428 |  |  | — |  |  | 13,785 |
Total revenue from contracts with customers |  | 39,027 |  |  | 13,511 |  |  | 423 |  |  | 52,961 |
Other sources of noninterest income (1) |  | 46,580 |  |  | 96,776 |  |  | 14,592 |  |  | 157,948 |
Total noninterest income |  | $ | 85,607 |  |  | $ | 110,287 |  |  | $ | 15,015 |  |  | $ | 210,909 |

($ in thousands) |  | Year Ended December 31, 2017
| Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Noninterest income: |  |  |  |  |  |  |  |
Revenue from contracts with customers: |  |  |  |  |  |  |  |
Deposit account fees: |  |  |  |  |  |  |  |
Deposit service charges and related fee income |  | $ | 24,109 |  |  | $ | 11,476 |  |  | $ | 464 |  |  | $ | 36,049 |
Card income |  | 3,465 |  |  | 785 |  |  | — |  |  | 4,250 |
Wealth management fees |  | 12,218 |  |  | 1,756 |  |  | — |  |  | 13,974 |
Total revenue from contracts with customers |  | 39,792 |  |  | 14,017 |  |  | 464 |  |  | 54,273 |
Other sources of noninterest income (1) |  | 14,659 |  |  | 96,072 |  |  | 92,744 |  |  | 203,475 |
Total noninterest income |  | $ | 54,451 |  |  | $ | 110,089 |  |  | $ | 93,208 |  |  | $ | 257,748 |

(1) | Primarily represents revenue from contracts with customers that are out of the scope of ASC 606, Revenue from Contracts with Customers.

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Generally, the Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The Company’s performance obligations are typically satisfied as services are rendered. The Company generally records contract liabilities, or deferred revenue, when payments from customers are received or due in advance of providing services. The Company records contract assets when services are provided to customers before payment is received or before payment is due. Since the Company receives payments for its services during the period or at the time services are provided, there were no contract assets or contract liabilities as of both December 31, 2019 and 2018.
The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below:
Deposit Account Fees — Deposit Service Charges and Related Fee Income
The Company offers a range of deposit products to individuals and businesses, which includes savings, money market, checking and time deposit accounts. The deposit account services include ongoing account maintenance, as well as certain optional services such as automated teller machine usage, wire transfer services or check orders. In addition, treasury management and business account analysis services are offered to commercial deposit customers. The monthly account fees may vary with the amount of average monthly deposit balances maintained, or the Company may charge a fixed monthly account maintenance fee if certain average balances are not maintained. In addition, each time a deposit customer selects an optional service, the Company may earn transactional fees, generally recognized by the Company at the point in time when the transaction occurs. For business analysis accounts, commercial deposit customers receive an earnings credit based on their account balance, which can be used to offset the cost of banking and treasury management services. Business analysis accounts that are assessed fees in excess of earnings credits received are typically charged at the end of each month, after all transactions are known and the credits are calculated.
Deposit Account Fees — Card Income
Card income is comprised of merchant referral fees and interchange income. For merchant referral fees, the Company provides marketing and referral services to acquiring banks for merchant card processing services and earns variable referral fees based on transaction activities. The Company satisfies its performance obligation over time as the Company identifies, solicits, and refers business customers who are provided such services. The Company receives monthly fees net of consideration it pays to the acquiring bank performing the merchant card processing services. The Company recognizes revenue on a monthly basis when the uncertainty associated with the variable referral fees is resolved after the Company receives monthly statements from the acquiring bank. For interchange income, the Company, as a card issuer, has a stand ready performance obligation to authorize, clear, and settle card transactions. The Company earns, or pays, interchange fees, which are percentage-based on each transaction, and based on rates published by the corresponding payment network for transactions processed using their network. The Company measures its progress toward the satisfaction of its performance obligation over time, as services are rendered, and the Company provides continuous access to this service and settles transactions as its customer or the payment network requires. Interchange income is presented net of direct costs paid to the customer and entities in their distribution chain, which are transaction-based expenses such as rewards program expenses and certain network costs. Revenue is recognized when the net profit is determined by the payment networks at the end of each day.
Wealth Management Fees
The Company employs financial consultants to provide investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter-end based on actual transaction details received from the broker-dealer the Company engages.
Practical Expedients and Exemptions
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose the value of unsatisfied performance obligations as the Company’s contracts with customers generally have a term that is less than one year, are open-ended with a cancellation period that is less than one year, or allow the Company to recognize revenue in the amount to which the Company has the right to invoice.
In addition, given the short-term nature of the contracts, the Company also applies the practical expedient in ASC 606-10-32-18 and does not adjust the consideration from customers for the effects of a significant financing component, if at contract inception the period between when the entity transfers the goods or services and when the customer pays for that good or service is one year or less.
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Note 14 — Income Taxes
Impact of Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted, resulting in significant changes to the Internal Revenue Code. U.S. GAAP requires companies to recognize the effect of tax law changes on deferred tax assets and liabilities and other recognized assets in the period of enactment. In December 2017, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No.118 (“SAB 118”). SAB 118 allows the recording of a provisional estimate to reflect the income tax impact of the U.S. tax legislation and provides a measurement period up to one year from the enactment date. During the year ended December 31, 2017, the Company recorded $41.7 million in income tax expense related to the impact of the Tax Act, of which this amount was primarily related to the remeasurements of certain deferred tax assets and liabilities of $33.1 million, as well as the remeasurements of tax credits and other tax benefits related to qualified affordable housing partnerships of $7.9 million. During the year ended December 31, 2018, management finalized its assessment of the initial impact of the Tax Act, which resulted in an increase in income tax expense of $985 thousand ensuing from the remeasurement of deferred tax assets and liabilities. The overall impact of the Tax Act was a one-time increase in income tax expense of $42.7 million.
Impact of Investment in DC Solar Tax Credit Funds
Investors in DC Solar funds, including the Company, received tax credits for making renewable energy investments. The Company’s investments in the DC Solar tax credit funds qualified for federal energy tax credit under Section 48 of the Internal Revenue Code of 1986, as amended. The Company also received a “should” level legal opinion from an external law firm supporting the legal structure of the investments for tax credit purposes. Between 2014 and 2018, the Company had invested in four DC Solar energy tax credit funds and claimed tax credits of approximately $53.9 million, partially reduced by a deferred tax liability of $5.7 million related to the 50% tax basis reduction, for a net impact of $48.2 million to the Consolidated Financial Statements.
ASC 740-10-25-6 states in part, that an entity shall initially recognize the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination. The term “more-likely-than-not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” include resolution of the related appeals or litigation processes, if any. The level of evidence that is necessary and appropriate to support the technical merits of a tax position is subject to judgment and depends on available information as of the balance sheet date. A subsequent measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the latest quarterly reporting date. A change in judgment that results in a subsequent derecognition or change in measurement of a tax position is recognized as a discrete item in the period in which the change occurs.
In February 2019, an affidavit from a FBI special agent stated that DC Solar was operating a fraudulent “Ponzi-like scheme” and that the majority of the mobile solar generators sold to investors and managed by DC Solar, as well as the majority of the related lease revenues claimed to have been received by DC Solar might not have existed. The Company, in coordination with other fund investors, engaged an unaffiliated third-party inventory firm to investigate the actual number of mobile solar generators in existence. Based on the inventory report, none of the mobile service generators that had been purchased by the Company’s 2017 and 2018 tax credit funds were found. On the other hand, a vast majority of the mobile solar generators purchased by the Company’s 2014 and 2015 tax credit funds were found. Based on the inventory information, as well as management’s best judgments regarding the future settlement of the related tax positions with the Internal Revenue Service (“IRS”), the Company concluded that a portion of the previously claimed tax credits would be recaptured. During the year ended December 31, 2019, the Company reversed $33.6 million out of the $53.9 million previously claimed tax credits, and $3.5 million out of the $5.7 million deferred tax liability, resulting in $30.1 million of additional income tax expense.
The Company continues to conduct an ongoing investigation related to this matter. For further discussion related to the Company’s investment in DC Solar and the Company’s impairment evaluation and monitoring process in tax credit investments, refer to Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities and Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K.
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The following table presents the components of income tax expense for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Current income tax expense (benefit): |  |  |  |  |  |
Federal |  | $ | 107,393 |  |  | $ | 63,035 |  |  | $ | 120,968 |
State |  | 86,578 |  |  | 64,917 |  |  | 72,837 |
Foreign |  | (2,485 | ) |  | 3,513 |  |  | 1,815 |
Total current income tax expense |  | 191,486 |  |  | 131,465 |  |  | 195,620 |
Deferred income tax (benefit) expense: |  |  |  |  |  |
Federal |  | (8,801 | ) |  | (11,870 | ) |  | 40,057 |
State |  | (16,390 | ) |  | (4,600 | ) |  | (6,201 | )
Foreign |  | 3,587 |  |  | — |  |  | — |
Total deferred income tax (benefit) expense |  | (21,604 | ) |  | (16,470 | ) |  | 33,856 |
Income tax expense |  | $ | 169,882 |  |  | $ | 114,995 |  |  | $ | 229,476 |

The following table presents the reconciliation of the federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2019, 2018 and 2017:

|  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Statutory U.S. federal tax rate |  | 21.0 | % |  | 21.0 | % |  | 35.0 | %
U.S. state income taxes, net of U.S. federal income tax effect |  | 7.1 |  |  | 5.8 |  |  | 5.9 |
The Tax Act |  | — |  |  | 0.1 |  |  | 4.5 |
Tax credits and affordable housing, net of amortization |  | (10.4 | ) |  | (13.3 | ) |  | (15.1 | )
Other, net |  | 2.4 |  |  | 0.4 |  |  | 0.9 |
Effective tax rate |  | 20.1 | % |  | 14.0 | % |  | 31.2 | %

The 6.1% increase in effective tax rate to 20.1% in 2019, from 14.0% in 2018 was primarily due to the $30.1 million of income tax expense recorded to reverse certain previously claimed tax credits related to the Company’s investment in DC Solar, as well as $14.7 million decrease in tax credits recognized from investments in renewable energy and historic rehabilitation tax credit projects. The 2018 effective income tax rate reflected the reduction to the U.S. federal income tax rate from 35% to 21% resulting from the Tax Act.
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The tax effects of temporary differences that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2019 and 2018 are presented below:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |  |
Allowance for loan losses |  | $ | 109,903 |  |  | $ | 96,876 |
Investments in qualified affordable housing partnerships, tax credit and other investments, net |  | 11,190 |  |  | 3,691 |
Deferred compensation |  | 23,816 |  |  | 18,724 |
Interest income on nonaccrual loans |  | 9,527 |  |  | 8,602 |
State taxes |  | 5,848 |  |  | 4,506 |
Unrealized gains/losses on securities |  | 324 |  |  | 20,233 |
Tax credit carryforwards |  | — |  |  | 26,831 |
Premises and equipment |  | 1,578 |  |  | 1,887 |
Deferred gain |  | — |  |  | 4,476 |
Lease liability |  | 35,948 |  |  | 2,604 |
Other |  | 641 |  |  | 6,178 |
Total gross deferred tax assets |  | 198,775 |  |  | 194,608 |
Valuation allowance |  | (21 | ) |  | (128 | )
Total deferred tax assets, net of valuation allowance |  | $ | 198,754 |  |  | $ | 194,480 |
Deferred tax liabilities: |  |  |  |
Equipment lease financing |  | $ | 30,669 |  |  | $ | 30,523 |
Investments in qualified affordable housing partnerships, tax credit and other investments, net |  | 12,301 |  |  | 30,706 |
Core deposit intangibles |  | 3,032 |  |  | 4,427 |
FHLB stock dividends |  | 1,854 |  |  | 1,866 |
Mortgage servicing assets |  | 1,839 |  |  | 2,390 |
Acquired debt |  | 1,679 |  |  | 1,771 |
Prepaid expenses |  | 1,100 |  |  | 1,207 |
Premises and equipment |  | 1,890 |  |  | 1,078 |
Operating lease right-of-use assets |  | 34,313 |  |  | — |
Other |  | 3,590 |  |  | 2,872 |
Total gross deferred tax liabilities |  | $ | 92,267 |  |  | $ | 76,840 |
Net deferred tax assets |  | $ | 106,487 |  |  | $ | 117,640 |

The tax benefits of deductible temporary differences and tax carryforwards are recorded as an asset to the extent that management assesses the utilization of such temporary differences and carryforwards to be more-likely-than-not. A valuation allowance is used, as needed, to reduce the deferred tax assets to the amount that is more-likely-than-not to be realized. Evidence the Company considers includes the Company’s ability to generate future taxable income, implement tax-planning strategies (as defined in ASC 740, Income Taxes), and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversals of existing taxable temporary differences. The Company expects to have sufficient taxable income in future years to fully realize its deferred tax assets. The Company also performed an overall assessment by weighing all positive evidence against all negative evidence and concluded that it is more-likely-than-not that all of the benefits of the deferred tax assets will be realized, with the exception of the deferred tax assets related to certain state net operating losses (“NOL”) carryforwards. For states other than California, Georgia, Massachusetts and New York, because management believes that the state NOL carryforwards may not be fully utilized, a valuation allowance of $21 thousand and $128 thousand was recorded for such carryforwards as of December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the Company recorded net deferred tax assets of $106.5 million and $117.6 million, respectively, in Other assets on the Consolidated Balance Sheet.
In 2018, the Company early adopted ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits companies to reclassify the stranded tax effects resulting from the Tax Act from AOCI to retained earnings on a retrospective basis. The adoption of the guidance resulted in a cumulative-effect adjustment as of January 1, 2018 that increased retained earnings by $6.7 million and reduced AOCI by the same amount. For additional information refer to Note 19 — Accumulated Other Comprehensive Income (Loss).
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The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Beginning balance |  | $ | 4,378 |  |  | $ | 10,419 |  |  | $ | 10,419 |
Additions for tax positions related to prior years |  | 30,103 |  |  | — |  |  | — |
Deductions for tax positions related to prior years |  | (34,481 | ) |  | (3,969 | ) |  | — |
Settlements with taxing authorities |  | — |  |  | (2,072 | ) |  | — |
Ending balance |  | $ | — |  |  | $ | 4,378 |  |  | $ | 10,419 |

The Company believes that adequate provisions have been made for all income tax uncertainties consistent with the standards of ASC 740-10. The Company recognizes interest and penalties, as applicable, related to the underpayment of income taxes as a component of Income tax expense on the Consolidated Statement of Income. The Company recorded a (reversal) charge of $(6.3) million, $(2.0) million and $450 thousand of interest and penalties for the years ended December 31, 2019, 2018 and 2017, respectively. Total accrued interest and penalties included in Accrued expenses and other liabilities on the Consolidated Balance Sheet was $6.3 million as of December 31, 2018. There was no liability for accrued interest and penalties as of December 31, 2019.
Beginning with its 2012 tax year, the Company has executed a Memorandum of Understanding (“MOU”) with the IRS to voluntarily participate in the IRS Compliance Assurance Process (“CAP”). Under the CAP, the IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year. The objective of the CAP is to resolve issues in a timely and contemporaneous manner and eliminate the need for a lengthy post-filing examination. The Company has executed a MOU with the IRS for the 2019 tax year. For federal tax purposes, the IRS had completed the 2017 and earlier tax years’ corporate income tax return examination. The state of Oregon is also conducting an audit of the Company’s corporate income tax return for the 2017 tax year and the City of New York is auditing the Company’s corporate income tax return for the 2015 and 2016 tax years. In addition, the state of New York has initiated an audit of the Company’s 2016 to 2018 corporate income tax returns. The Company does not believe that the outcome of unresolved issues or claims in any tax jurisdiction is likely to be material to the Company’s financial position, cash flows or results of operations. The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2019.
Note 15 — Commitments, Contingencies and Related Party Transactions
Commitments to Extend Credit — In the normal course of business, the Company provides customers loan commitments on predetermined terms. These outstanding commitments to extend credit are not reflected in the accompanying Consolidated Financial Statements. While the Company does not anticipate losses as a result of these transactions, commitments to extend credit are included in determining the appropriate level of the allowance for unfunded commitments, and outstanding commercial and SBLCs.
The following table presents the Company’s credit-related commitments as of December 31, 2019 and 2018:

($ in thousands) |  | December 31,
| 2019 |  | 2018
Loan commitments |  | $ | 5,330,211 |  |  | $ | 5,147,821 |
Commercial letters of credit and SBLCs |  | $ | 1,860,414 |  |  | $ | 1,796,647 |

Loan commitments are agreements to lend to customers provided that 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.
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Commercial letters of credit are issued to facilitate domestic and foreign trade transactions, while SBLCs are generally contingent upon the failure of the customers to perform according to the terms of the underlying contract with the third party. As a result, the total contractual amounts do not necessarily represent future funding requirements. The Company’s historical experience is that SBLCs typically expire without being funded. Additionally, in many cases, the Company holds collateral in various forms against these SBLCs. As part of its risk management activities, the Company monitors the creditworthiness of customers in conjunction with its SBLC exposure. Customers are obligated to reimburse the Company for any payment made on the customers’ behalf. If the customers fail to pay, the Company would, as applicable, liquidate the collateral and/or offset accounts. As of December 31, 2019, total letters of credit of $1.86 billion were comprised of SBLCs of $1.81 billion and commercial letters of credit of $48.5 million.
The Company applies the same credit underwriting criteria to extend loans, commitments and conditional obligations to customers. Each customer’s creditworthiness is evaluated on a case-by-case basis. Collateral and financial guarantees may be obtained based on management’s assessment of a customer’s credit. Collateral may include cash, accounts receivable, inventory, property, plant and equipment, and income-producing commercial property.
Estimated exposure to loss from these commitments is included in the allowance for unfunded credit commitments, and amounted to $11.1 million as of December 31, 2019 and $12.4 million as of December 31, 2018. These amounts are included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.
Guarantees — The Company sells or securitizes single-family and multifamily residential loans with recourse in the ordinary course of business. The recourse component of the loans sold or securitized with recourse is considered a guarantee. As the guarantor, the Company is obligated to repurchase up to the recourse component of the loans if the loans default. The following table presents the types of guarantees the Company had outstanding as of December 31, 2019 and 2018:

($ in thousands) |  | Maximum Potential Future Payments |  | Carrying Value
| December 31, |  | December 31,
| 2019 |  | 2018 |  | 2019 |  | 2018
Single-family residential loans sold or securitized with recourse |  | $ | 12,578 |  |  | $ | 16,700 |  |  | $ | 12,578 |  |  | $ | 16,700 |
Multifamily residential loans sold or securitized with recourse |  | 15,892 |  |  | 17,058 |  |  | 40,708 |  |  | 69,974 |
Total |  | $ | 28,470 |  |  | $ | 33,758 |  |  | $ | 53,286 |  |  | $ | 86,674 |

The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit commitments and totaled $76 thousand and $123 thousand as of December 31, 2019 and 2018, 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 course of its business. In accordance with ASC 450, Contingencies, the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses may be higher, and possibly significantly more than the amounts accrued.
Other Commitments — The Company has commitments to invest in qualified affordable housing partnerships, tax credit and other investments as discussed in Note 8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities to the Consolidated Financial Statements in this Form 10-K. As of December 31, 2019 and 2018, these commitments were $193.8 million and $161.0 million, respectively. These commitments are included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.
Related Party Transactions — In the ordinary course of business, the Company may extend credit to related parties, including executive officers, directors and principal shareholders. These related party loans were not material for the years ended December 31, 2019 and 2018.
147

Note 16 — Stock Compensation Plans
Pursuant to the Company’s 2016 Stock Incentive Plan, as amended, the Company may issue stocks, stock options, restricted stock, 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. There were no outstanding stock awards other than RSUs as of December 31, 2019, 2018 and 2017. An aggregate of 14.0 million shares of common stock were authorized under the 2016 Stock Incentive Plan, and the total number of shares available for grant was approximately 3.5 million as of December 31, 2019.
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 years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Stock compensation costs |  | $ | 30,761 |  |  | $ | 30,937 |  |  | $ | 24,657 |
Related net tax benefits for stock compensation plans |  | $ | 4,792 |  |  | $ | 5,089 |  |  | $ | 4,775 |

Restricted Stock Units — RSUs are granted under the Company’s long-term incentive plan at no cost to the recipient. RSUs vest ratably over three years or cliff vest after three or five years of continued employment from the date of the grant. RSUs are authorized to settle predominantly in shares of the Company’s common stock. Certain RSUs will be settled in cash. RSUs entitle the recipient to receive cash dividend equivalents to any dividends paid on the underlying common stock during the period the RSUs are outstanding. RSU dividends are accrued during the vesting period and are paid at the time of vesting. While a portion of RSUs are time-vesting awards, others vest subject to the attainment of specified performance goals referred to as “performance-based RSUs.” Substantially all RSUs are subject to forfeiture until vested unless otherwise specified in the employment terms.
Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of zero and to a maximum of 200% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together as the total number of performance shares to vest. Performance-based RSUs cliff vest three years from the date of each grant.
Compensation costs for the time-based awards that will be settled in shares of the Company’s common stock are based on the quoted market price of the Company’s common stock at the grant date. Compensation costs for certain time-based awards that will be settled in cash are adjusted to fair value based on changes in the share price of the Company’s common stock up to the settlement date. Compensation costs associated with performance-based RSUs are based on grant date fair value which considers both market and performance conditions, and is subject to subsequent adjustments based on the changes in the Company’s projected outcome of the performance criteria. Compensation costs of both time-based and performance-based awards are estimated based on awards ultimately expected to vest and recognized on a straight-line basis from the grant date until the vesting date of each grant.
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 year ended December 31, 2019. The number of outstanding performance-based RSUs stated below assumes the associated performance targets will be met at the target level.

|  | Time-Based RSUs |  | Performance-Based RSUs
| Shares |  | Weighted- Average Grant Date Fair Value |  | Shares |  | Weighted- Average Grant Date Fair Value
Outstanding, January 1, 2019 |  | 1,121,391 |  |  | $ | 51.22 |  |  | 411,290 |  |  | $ | 49.93 |
Granted |  | 500,145 |  |  | 52.46 |  |  | 134,600 |  |  | 54.64 |
Vested |  | (387,273 | ) |  | 31.98 |  |  | (159,407 | ) |  | 29.18 |
Forfeited |  | (94,395 | ) |  | 57.48 |  |  | — |  |  | — |
Outstanding, December 31, 2019 |  | 1,139,868 |  |  | $ | 57.78 |  |  | 386,483 |  |  | $ | 60.13 |

148

The following table presents a summary of the activities for the Company’s time-based RSUs that will be settled in cash for the year ended December 31, 2019:

|  | Shares
Outstanding, January 1, 2019 |  | — |
Granted |  | 12,145 |
Vested |  | — |
Forfeited |  | (507 | )
Outstanding, December 31, 2019 |  | 11,638 |

The weighted-average grant date fair value of the time-based awards granted during the years ended December 31, 2019, 2018 and 2017 was $52.46, $66.86 and $55.28, respectively. The weighted-average grant date fair value of the performance-based awards granted during the years ended December 31, 2019, 2018 and 2017 was $54.64, $70.13 and $56.59, respectively. The total fair value of time-based awards that vested during the years ended December 31, 2019, 2018 and 2017 was $20.7 million, $23.1 million and $17.2 million, respectively. The total fair value of performance-based awards that vested during the years ended December 31, 2019, 2018 and 2017 was $14.5 million, $16.2 million and $13.0 million, respectively.
As of December 31, 2019, there were $23.3 million and $13.9 million of total unrecognized compensation costs related to unvested time-based and performance-based RSUs, respectively. These costs are expected to be recognized over a weighted-average period of 1.72 years and 1.81 years, respectively.
Stock Purchase Plan — The 1998 Employee Stock Purchase Plan (the “Purchase Plan”) provides eligible employees of the Company the right to purchase shares of its common stock at a discount. Employees could purchase shares at 90% of the fair market price subject to an annual purchase limitation of $22,500 per employee. As of December 31, 2019, the Purchase Plan qualifies as a non-compensatory plan under Section 423 of the Internal Revenue Code and, accordingly, no compensation expense has been recognized. 2,000,000 shares of the Company’s common stock have been made AFS under the Purchase Plan. During the years ended December 31, 2019 and 2018, 81,221 shares totaling $3.4 million and 51,541 shares totaling $2.8 million, respectively, have been sold to employees under the Purchase Plan. As of December 31, 2019, there were 393,925 shares available under the Purchase Plan.
Note 17 — Employee Benefit Plans
The Company sponsors a defined contribution plan, the East West Bank Employees 401(k) Savings Plan (the “401(k) Plan”), designed to provide retirement benefits financed by participants’ tax deferred contributions for the benefits of its employees. A Roth 401(k) investment option is also available to the participants, with contributions to be made on an after-tax basis. Under the 401(k) Plan, after three months of service, eligible employees may elect to defer up to 80% of their compensation before taxes, up to the dollar limit imposed by the IRS for tax purposes. Participants can also designate a part or all of their contributions as Roth 401(k) contributions. Effective as of April 1, 2019, the Company matches 100% of the first 6% of the Plan participant’s deferred compensation. The Company’s contributions to the Plan are determined annually by the Board of Directors in accordance with the Plan requirements and are invested based on employee investment elections. Plan participants become vested in matching contributions received from the Company at the rate of 20% per year for each full year of service, such that the Plan participants become 100% vested after five years of credited service. For the Plan years ended December 31, 2019, 2018 and 2017, the Company expensed $14.0 million, $9.9 million and $8.9 million, respectively.
149

During 2002, the Company adopted a Supplemental Executive Retirement Plan (“SERP”) pursuant to which the Company will pay supplemental pension benefits to certain executive officers designated by the Board of Directors upon retirement based upon the officers’ years of service and compensation. The SERP meets the definition of a pension plan per ASC 715-30, Compensation — Retirement Benefits — Defined Benefit Plans — Pension. The SERP is an unfunded, non-qualified plan under which the participants have no rights beyond those of a general creditor of the Company, and there are no specific assets set aside by the Company in connection with the plan. As of December 31, 2019, there were no additional benefits to be accrued for under the SERP. As of each of December 31, 2019 and 2018, there was one executive officer remaining under the SERP. Benefits expensed and accrued for the years ended December 31, 2019, 2018 and 2017 were $333 thousand, $332 thousand and $331 thousand, respectively. The benefit obligation was $4.2 million as of both December 31, 2019 and 2018. The following table presents a summary of expected SERP payments to be paid for the next five years and thereafter as of December 31, 2019:

Years Ending December 31, |  | Amount ($ in thousands)
2020 |  | $ | 339 |
2021 |  | 349 |
2022 |  | 359 |
2023 |  | 370 |
2024 |  | 381 |
Thereafter |  | 7,103 |
Total |  | $ | 8,901 |

Note 18 — Stockholders’ Equity and Earnings Per Share
The following table presents the basic and diluted EPS calculations for the years ended December 31, 2019, 2018 and 2017. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies — Earnings per Share to the Consolidated Financial Statements.

($ and shares in thousands, except per share data) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Basic: |  |  |  |  |  |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Basic weighted-average number of shares outstanding |  | 145,497 |  |  | 144,862 |  |  | 144,444 |
Basic EPS |  | $ | 4.63 |  |  | $ | 4.86 |  |  | $ | 3.50 |
Diluted: |  |  |  |  |  |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Basic weighted-average number of shares outstanding |  | 145,497 |  |  | 144,862 |  |  | 144,444 |
Diluted potential common shares (1)(2) |  | 682 |  |  | 1,307 |  |  | 1,469 |
Diluted weighted-average number of shares outstanding (1)(2) |  | 146,179 |  |  | 146,169 |  |  | 145,913 |
Diluted EPS |  | $ | 4.61 |  |  | $ | 4.81 |  |  | $ | 3.47 |

(1) | Includes dilutive shares from RSUs for the year ended December 31, 2019, and from RSUs and warrants for the years ended December 31, 2018 and 2017.

(2) | The Company acquired MetroCorp Bancshares, Inc. (“MetroCorp”) on January 17, 2014. Prior to the acquisition, MetroCorp had outstanding warrants to purchase 771,429 shares of its common stock. Upon the acquisition, the rights of the warrant holders were converted into the rights to acquire 230,282 shares of East West’s common stock until January 16, 2019. All warrants were exercised on January 7, 2019.

For the years ended December 31, 2019, 2018 and 2017, 15 thousand, 10 thousand and 14 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation.
150

Note 19 — Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the components of AOCI balances for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | AFS Investment Securities |  | Foreign Currency Translation Adjustments (1) |  | Total
Balance, December 31, 2016 |  | $ | (28,772 | ) |  | $ | (19,374 | ) |  | $ | (48,146 | )
Net unrealized gains arising during the period |  | 2,531 |  |  | 12,753 |  |  | 15,284 |
Amounts reclassified from AOCI |  | (4,657 | ) |  | — |  |  | (4,657 | )
Changes, net of tax |  | (2,126 | ) |  | 12,753 |  |  | 10,627 |
Balance, December 31, 2017 |  | $ | (30,898 | ) |  | $ | (6,621 | ) |  | $ | (37,519 | )
Cumulative effect of change in accounting principle related to marketable equity securities (2) |  | 385 |  |  | — |  |  | 385 |
Reclassification of tax effects in AOCI resulting from the new federal corporate income tax rate (3) |  | (6,656 | ) |  | — |  |  | (6,656 | )
Balance, January 1, 2018, adjusted |  | (37,169 | ) |  | (6,621 | ) |  | (43,790 | )
Net unrealized losses arising during the period |  | (6,866 | ) |  | (5,732 | ) |  | (12,598 | )
Amounts reclassified from AOCI |  | (1,786 | ) |  | — |  |  | (1,786 | )
Changes, net of tax |  | (8,652 | ) |  | (5,732 | ) |  | (14,384 | )
Balance, December 31, 2018 |  | $ | (45,821 | ) |  | $ | (12,353 | ) |  | $ | (58,174 | )
Net unrealized gains (losses) arising during the period |  | 46,170 |  |  | (3,636 | ) |  | 42,534 |
Amounts reclassified from AOCI |  | (2,768 | ) |  | — |  |  | (2,768 | )
Changes, net of tax |  | 43,402 |  |  | (3,636 | ) |  | 39,766 |
Balance, December 31, 2019 |  | $ | (2,419 | ) |  | $ | (15,989 | ) |  | $ | (18,408 | )

(1) | Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was RMB and USD, respectively.

(2) | Represents the impact of the adoption of ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in the first quarter of 2018.

(3) | Represents amounts reclassified from AOCI to retained earnings due to the early adoption of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2018.

The following table presents the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
| Before - Tax |  | Tax Effect |  | Net-of- Tax |  | Before - Tax |  | Tax Effect |  | Net-of- Tax |  | Before - Tax |  | Tax Effect |  | Net-of- Tax
AFS investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) arising during the period |  | $ | 65,549 |  |  | $ | (19,379 | ) |  | $ | 46,170 |  |  | $ | (9,748 | ) |  | $ | 2,882 |  |  | $ | (6,866 | ) |  | $ | 4,368 |  |  | $ | (1,837 | ) |  | $ | 2,531 |
Net realized gains reclassified into net income (1) |  | (3,930 | ) |  | 1,162 |  |  | (2,768 | ) |  | (2,535 | ) |  | 749 |  |  | (1,786 | ) |  | (8,037 | ) |  | 3,380 |  |  | (4,657 | )
Net change |  | 61,619 |  |  | (18,217 | ) |  | 43,402 |  |  | (12,283 | ) |  | 3,631 |  |  | (8,652 | ) |  | (3,669 | ) |  | 1,543 |  |  | (2,126 | )
Foreign currency translation adjustments, net of hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) arising during the period (2) |  | 290 |  |  | (3,926 | ) |  | (3,636 | ) |  | (5,732 | ) |  | — |  |  | (5,732 | ) |  | 12,753 |  |  | — |  |  | 12,753 |
Net change |  | 290 |  |  | (3,926 | ) |  | (3,636 | ) |  | (5,732 | ) |  | — |  |  | (5,732 | ) |  | 12,753 |  |  | — |  |  | 12,753 |
Other comprehensive income (loss) |  | $ | 61,909 |  |  | $ | (22,143 | ) |  | $ | 39,766 |  |  | $ | (18,015 | ) |  | $ | 3,631 |  |  | $ | (14,384 | ) |  | $ | 9,084 |  |  | $ | 1,543 |  |  | $ | 10,627 |

(1) | For the years ended December 31, 2019, 2018 and 2017, pre-tax amounts were reported in Net gains on sales of AFS investment securities on the Consolidated Statement of Income.

(2) | The tax effects on foreign currency translation adjustments represent the cumulative net deferred tax liabilities since inception on net investment hedges that were recorded during the year ended December 31, 2019.

151

Note 20 — Regulatory Requirements and Matters
Capital Adequacy — The Company and the Bank are subject to regulatory capital adequacy requirements administered by the federal banking agencies. The Bank is a member bank of the Federal Reserve System and is primarily regulated by the Federal Reserve. The Company and the Bank are required to comply with the Basel III Capital Rules adopted by the federal banking agencies. Both the Company and the Bank are standardized approaches institutions under Basel III Capital Rules. The Basel III Capital Rule requires that banking organizations maintain a minimum Common Equity Tier 1 (“CET1”) capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0% to be considered adequately capitalized. Failure to meet minimum capital requirements can result in certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. The Basel III Capital Rules also requires the Company and the Bank to maintain a capital conservation buffer of 2.5% above the minimum capital ratios in order to absorb losses during periods of economic stress, effective January 1, 2019. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
The FDIC Improvement Act of 1991 requires that the federal regulatory agencies adopt regulations defining capital categories for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Consistent with the Basel III Capital Rules, the capital categories were augmented by including the CET1 capital measure, and revised risk-based capital measures to reflect the rule changes to the minimum risk-based capital ratios.
As of December 31, 2019 and 2018, the Company and the Bank were both categorized as well capitalized based on applicable U.S. regulatory capital ratio requirements in accordance with Basel III standardized approaches, as set forth in the table below. The Company believes that no changes in conditions or events have occurred since December 31, 2019, which would result in changes that would cause the Company or the Bank to fall below the well capitalized level. The following table presents the regulatory capital information of the Company and the Bank as of December 31, 2019 and 2018:

($ in thousands) |  | Basel III
| December 31, 2019 |  | December 31, 2018
| Actual |  | Minimum Capital Ratios (3) |  | Well Capitalized Requirement |  | Actual |  | Minimum Capital Ratios (3) |  | Well Capitalized Requirement
| Amount |  | Ratio |  | Ratio |  | Ratio |  | Amount |  | Ratio |  | Ratio |  | Ratio
Total capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company |  | $ | 5,064,037 |  |  | 14.4 | % |  | 10.50 | % |  | 10.0 | % |  | $ | 4,438,730 |  |  | 13.7 | % |  | 9.88 | % |  | 10.0 | %
East West Bank |  | $ | 4,886,237 |  |  | 13.9 | % |  | 10.50 | % |  | 10.0 | % |  | $ | 4,268,616 |  |  | 13.1 | % |  | 9.88 | % |  | 10.0 | %
Tier 1 capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company |  | $ | 4,546,592 |  |  | 12.9 | % |  | 8.50 | % |  | 8.0 | % |  | $ | 3,966,842 |  |  | 12.2 | % |  | 7.88 | % |  | 8.0 | %
East West Bank |  | $ | 4,516,792 |  |  | 12.9 | % |  | 8.50 | % |  | 8.0 | % |  | $ | 3,944,728 |  |  | 12.1 | % |  | 7.88 | % |  | 8.0 | %
CET1 capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company |  | $ | 4,546,592 |  |  | 12.9 | % |  | 7.00 | % |  | 6.5 | % |  | $ | 3,966,842 |  |  | 12.2 | % |  | 6.38 | % |  | 6.5 | %
East West Bank |  | $ | 4,516,792 |  |  | 12.9 | % |  | 7.00 | % |  | 6.5 | % |  | $ | 3,944,728 |  |  | 12.1 | % |  | 6.38 | % |  | 6.5 | %
Tier 1 leverage capital (to adjusted average assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company (1) |  | $ | 4,546,592 |  |  | 10.3 | % |  | 4.0 | % |  | N/A |  |  | $ | 3,966,842 |  |  | 9.9 | % |  | 4.0 | % |  | N/A |
East West Bank |  | $ | 4,516,792 |  |  | 10.3 | % |  | 4.0 | % |  | 5.0 | % |  | $ | 3,944,728 |  |  | 9.8 | % |  | 4.0 | % |  | 5.0 | %
Risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company |  | $ | 35,136,427 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | $ | 32,497,296 |  |  | N/A |  |  | N/A |  |  | N/A |
East West Bank |  | $ | 35,127,920 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | $ | 32,477,002 |  |  | N/A |  |  | N/A |  |  | N/A |
Adjusted quarterly average total assets (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company |  | $ | 44,449,802 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | $ | 40,636,402 |  |  | N/A |  |  | N/A |  |  | N/A |
East West Bank |  | $ | 44,419,308 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | $ | 40,611,215 |  |  | N/A |  |  | N/A |  |  | N/A |

(1) | The Tier 1 leverage capital well-capitalized requirement applies to the Bank only since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

(2) | Reflects adjusted average total assets for the years ended December 31, 2019 and 2018.

(3) | The CET1, Tier 1, and total capital minimum ratios include a fully phased-in capital conservation buffer of 2.5% and a transition capital conservation buffer of 1.875% for the years ended December 31, 2019 and 2018, respectively.

N/A — Not applicable.
152

Reserve Requirement — The Bank is required to maintain a percentage of its deposits as reserves at the FRB. The daily average reserve requirement was approximately $829.0 million and $707.3 million as of December 31, 2019 and 2018, respectively.
Note 21 — 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 and the related products and services provided, and reflect how financial information is currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain balance sheet and income statement items. The information presented is not indicative of how the segments would perform if they operated as independent entities due to the interrelationships among the segments.
The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, cash management and foreign exchange services.
The Commercial Banking segment primarily generates commercial loans and deposits. Commercial loan products include commercial business loans and lines of credit, trade finance loans and letters of credit, CRE loans, construction lending, affordable housing loans and letters of credit, asset-based lending, and equipment financings. Commercial deposit products and other financial services include cash 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; the Consumer and Business Banking and the Commercial Banking segments.
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 revenue 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 allocated to the segment directly associated with the loans charged off, and the remaining provision for credit losses is allocated to each segment based on loan volume. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate expenses 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 liquidity and interest rate management of the Company. The Company’s internal FTP process is also managed by the corporate treasury function within the Other segment. The process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as to provide a reasonable and consistent basis for the measurement of its business segments’ net interest margins and profitability. The FTP process charges a cost to fund loans (“FTP charges for loans”) and allocates credits for funds provided from deposits (“FTP credits for deposits”) using internal FTP rates. FTP charges for loans are determined based on matched cost of funds that are tied to the pricing and term characteristic of the loans. FTP credits for deposits are based on matched funding credit rates that are tied to the implied or stated maturity of the deposits. These FTP credits reflect the long-term value to be 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.
153

The Company’s internal FTP assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. During the first quarter of 2019, the Company enhanced its segment cost allocation methodology related to stock compensation expense and bonus accrual. Effective the first quarter of 2019, stock compensation expense is allocated to all three segments, whereas it was previously recorded in the Other segment as a corporate expense. In addition, bonus expense is now allocated at a more granular level at the segment level at the time of accrual. For comparability, segment information for the fiscal years ended December 31, 2018 and 2017 have been restated to conform to the current presentation. During the third quarter of 2019, the Company enhanced its FTP methodology related to deposits by setting a minimum floor rate for the FTP credits paid for deposits in consideration of the flattened and inverted yield curve. This methodology has been retrospectively applied to segment financial results throughout the year of 2019. This change in FTP methodology related to deposits had no impact on 2018 and 2017 segment results.
The following tables present the operating results and other key financial measures for the individual operating segments as of and for the years ended December 31, 2019, 2018 and 2017:

($ in thousands) |  | Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Year Ended December 31, 2019 |  |  |  |  |  |  |  |
Net interest income before provision for credit losses |  | $ | 696,551 |  |  | $ | 651,413 |  |  | $ | 119,849 |  |  | $ | 1,467,813 |
Provision for credit losses |  | 14,178 |  |  | 84,507 |  |  | — |  |  | 98,685 |
Noninterest income |  | 57,920 |  |  | 134,622 |  |  | 16,835 |  |  | 209,377 |
Noninterest expense |  | 343,001 |  |  | 263,064 |  |  | 128,523 |  |  | 734,588 |
Segment income before income taxes |  | 397,292 |  |  | 438,464 |  |  | 8,161 |  |  | 843,917 |
Segment net income |  | $ | 284,161 |  |  | $ | 313,833 |  |  | $ | 76,041 |  |  | $ | 674,035 |
As of December 31, 2019 |  |  |  |  |  |  |  |
Segment assets |  | $ | 11,520,586 |  |  | $ | 25,501,534 |  |  | $ | 7,173,976 |  |  | $ | 44,196,096 |

($ in thousands) |  | Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Year Ended December 31, 2018 |  |  |  |  |  |  |  |
Net interest income before provision for credit losses |  | $ | 727,215 |  |  | $ | 605,650 |  |  | $ | 53,643 |  |  | $ | 1,386,508 |
Provision for credit losses |  | 9,364 |  |  | 54,891 |  |  | — |  |  | 64,255 |
Noninterest income |  | 85,607 |  |  | 110,287 |  |  | 15,015 |  |  | 210,909 |
Noninterest expense |  | 341,396 |  |  | 237,520 |  |  | 135,550 |  |  | 714,466 |
Segment income (loss) before income taxes |  | 462,062 |  |  | 423,526 |  |  | (66,892 | ) |  | 818,696 |
Segment net income |  | $ | 330,683 |  |  | $ | 303,553 |  |  | $ | 69,465 |  |  | $ | 703,701 |
As of December 31, 2018 |  |  |  |  |  |  |  |
Segment assets |  | $ | 10,587,621 |  |  | $ | 23,761,469 |  |  | $ | 6,693,266 |  |  | $ | 41,042,356 |

($ in thousands) |  | Consumer and Business Banking |  | Commercial Banking |  | Other |  | Total
Year Ended December 31, 2017 |  |  |  |  |  |  |  |
Net interest income before provision for credit losses |  | $ | 590,821 |  |  | $ | 553,817 |  |  | $ | 40,431 |  |  | $ | 1,185,069 |
Provision for credit losses |  | 1,812 |  |  | 44,454 |  |  | — |  |  | 46,266 |
Noninterest income |  | 54,451 |  |  | 110,089 |  |  | 93,208 |  |  | 257,748 |
Noninterest expense |  | 323,318 |  |  | 200,153 |  |  | 137,980 |  |  | 661,451 |
Segment income (loss) before income taxes |  | 320,142 |  |  | 419,299 |  |  | (4,341 | ) |  | 735,100 |
Segment net income |  | $ | 187,571 |  |  | $ | 246,404 |  |  | $ | 71,649 |  |  | $ | 505,624 |
As of December 31, 2017 |  |  |  |  |  |  |  |
Segment assets |  | $ | 9,316,587 |  |  | $ | 21,431,472 |  |  | $ | 6,373,504 |  |  | $ | 37,121,563 |

154

Note 22 — Parent Company Condensed Financial Statements
The principal sources of East West’s income (on a Parent Company-only basis) are dividends from the Bank. In addition to dividend restrictions set forth in statutes and regulations, the banking agencies have the authority to prohibit or to limit the Bank from paying dividends, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the Bank. The Bank declared $190.0 million, $160.0 million and $255.0 million of dividends to East West during the years ended December 31, 2019, 2018 and 2017, respectively.
The following tables present the Parent Company-only condensed financial statements:
CONDENSED BALANCE SHEET

($ in thousands, except shares) |  | December 31,
| 2019 |  | 2018
ASSETS |  |  |  |
Cash and cash equivalents due from subsidiary bank |  | $ | 166,131 |  |  | $ | 149,411 |
Investments in subsidiaries: |  |  |  |
Bank |  | 4,987,666 |  |  | 4,401,860 |
Nonbank |  | 5,630 |  |  | 3,662 |
Investments in tax credit investments, net |  | 11,637 |  |  | 23,259 |
Goodwill |  | 150 |  |  | — |
Other assets |  | 3,941 |  |  | 6,487 |
TOTAL |  | $ | 5,175,155 |  |  | $ | 4,584,679 |
LIABILITIES |  |  |  |  |  |
Long-term debt |  | $ | 147,101 |  |  | $ | 146,835 |
Other liabilities |  | 10,437 |  |  | 13,870 |
Total liabilities |  | 157,538 |  |  | 160,705 |
STOCKHOLDERS’ EQUITY |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized; 166,621,959 and 165,867,587 shares issued in 2019 and 2018, respectively |  | 167 |  |  | 166 |
Additional paid-in capital |  | 1,826,345 |  |  | 1,789,811 |
Retained earnings |  | 3,689,377 |  |  | 3,160,132 |
Treasury stock, at cost — 20,996,574 shares in 2019 and 20,906,224 shares in 2018 |  | (479,864 | ) |  | (467,961 | )
AOCI, net of tax |  | (18,408 | ) |  | (58,174 | )
Total stockholders’ equity |  | 5,017,617 |  |  | 4,423,974 |
TOTAL |  | $ | 5,175,155 |  |  | $ | 4,584,679 |

155

CONDENSED STATEMENT OF INCOME

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Dividends from subsidiaries: |  |  |  |  |  |
Bank |  | $ | 190,000 |  |  | $ | 160,000 |  |  | $ | 255,000 |
Nonbank |  | 189 |  |  | 175 |  |  | 4,118 |
Net gains on sales of AFS investment securities |  | — |  |  | — |  |  | 326 |
Other income |  | 425 |  |  | 2 |  |  | 395 |
Total income |  | 190,614 |  |  | 160,177 |  |  | 259,839 |
Interest expense on long-term debt |  | 6,482 |  |  | 6,488 |  |  | 5,429 |
Compensation and employee benefits |  | 5,479 |  |  | 5,559 |  |  | 5,065 |
Amortization of tax credit and other investments |  | 8,437 |  |  | 413 |  |  | 5,908 |
Other expense |  | 1,487 |  |  | 1,490 |  |  | 1,257 |
Total expense |  | 21,885 |  |  | 13,950 |  |  | 17,659 |
Income before income tax benefit and equity in undistributed income of subsidiaries |  | 168,729 |  |  | 146,227 |  |  | 242,180 |
Income tax benefit |  | 6,737 |  |  | 3,404 |  |  | 18,182 |
Undistributed earnings of subsidiaries, primarily bank |  | 498,569 |  |  | 554,070 |  |  | 245,262 |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |

156

CONDENSED STATEMENT OF CASH FLOWS

($ in thousands) |  | Year Ended December 31,
| 2019 |  | 2018 |  | 2017
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |
Net income |  | $ | 674,035 |  |  | $ | 703,701 |  |  | $ | 505,624 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Undistributed earnings of subsidiaries, principally bank |  | (498,569 | ) |  | (554,070 | ) |  | (245,262 | )
Amortization expenses |  | 8,703 |  |  | 671 |  |  | 6,158 |
Deferred income tax (benefit) expense |  | (10,132 | ) |  | 3,517 |  |  | 940 |
Gains on sales of AFS investment securities |  | — |  |  | — |  |  | (326 | )
Net change in other assets |  | 10,246 |  |  | (595 | ) |  | (3,341 | )
Net change in other liabilities |  | (18 | ) |  | (45 | ) |  | (560 | )
Net cash provided by operating activities |  | 184,265 |  |  | 153,179 |  |  | 263,233 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |
Net increase in investments in tax credit investments |  | (292 | ) |  | (1,049 | ) |  | (11,591 | )
Proceeds from distributions received from equity method investees |  | 2,577 |  |  | 1,491 |  |  | 1,814 |
Investments in and advances to nonbank subsidiaries |  | (3,314 | ) |  | — |  |  | — |
Other investing activities |  | (157 | ) |  | — |  |  | — |
AFS investment securities: |  |  |  |  |  |
Proceeds from sales |  | — |  |  | — |  |  | 18,326 |
Purchases |  | — |  |  | — |  |  | (9,000 | )
Net cash (used in) provided by investing activities |  | (1,186 | ) |  | 442 |  |  | (451 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |
Repayment of long-term debt |  | — |  |  | (25,000 | ) |  | (15,000 | )
Common stock: |  |  |  |  |  |
Proceeds from issuance pursuant to various stock compensation plans and agreements |  | 3,383 |  |  | 2,846 |  |  | 2,280 |
Stocks tendered for payment of withholding taxes |  | (14,635 | ) |  | (15,634 | ) |  | (12,940 | )
Cash dividends paid |  | (155,107 | ) |  | (125,988 | ) |  | (116,820 | )
Net cash used in financing activities |  | (166,359 | ) |  | (163,776 | ) |  | (142,480 | )
Net increase (decrease) in cash and cash equivalents |  | 16,720 |  |  | (10,155 | ) |  | 120,302 |
Cash and cash equivalents, beginning of year |  | 149,411 |  |  | 159,566 |  |  | 39,264 |
Cash and cash equivalents, end of year |  | $ | 166,131 |  |  | $ | 149,411 |  |  | $ | 159,566 |

157

Note 23 — Quarterly Financial Information (Unaudited)

($ and shares in thousands, except per share data) |  | 2019 Quarters
| Fourth |  | Third |  | Second |  | First
Interest and dividend income |  | $ | 467,233 |  |  | $ | 476,912 |  |  | $ | 474,844 |  |  | $ | 463,311 |
Interest expense |  | 99,014 |  |  | 107,105 |  |  | 107,518 |  |  | 100,850 |
Net interest income before provision for credit losses |  | 368,219 |  |  | 369,807 |  |  | 367,326 |  |  | 362,461 |
Provision for credit losses |  | 18,577 |  |  | 38,284 |  |  | 19,245 |  |  | 22,579 |
Net interest income after provision for credit losses |  | 349,642 |  |  | 331,523 |  |  | 348,081 |  |  | 339,882 |
Noninterest income |  | 63,013 |  |  | 51,474 |  |  | 52,759 |  |  | 42,131 |
Noninterest expense |  | 193,373 |  |  | 176,630 |  |  | 177,663 |  |  | 186,922 |
Income before income taxes |  | 219,282 |  |  | 206,367 |  |  | 223,177 |  |  | 195,091 |
Income tax expense |  | 31,067 |  |  | 34,951 |  |  | 72,797 |  |  | 31,067 |
Net income |  | $ | 188,215 |  |  | $ | 171,416 |  |  | $ | 150,380 |  |  | $ | 164,024 |
EPS |  |  |  |  |  |  |  |
- Basic |  | $ | 1.29 |  |  | $ | 1.18 |  |  | $ | 1.03 |  |  | $ | 1.13 |
- Diluted |  | $ | 1.29 |  |  | $ | 1.17 |  |  | $ | 1.03 |  |  | $ | 1.12 |
Weighted-average number of shares outstanding |  |  |  |  |  |  |  |
- Basic |  | 145,624 |  |  | 145,559 |  |  | 145,546 |  |  | 145,256 |
- Diluted |  | 146,318 |  |  | 146,120 |  |  | 146,052 |  |  | 145,921 |

($ and shares in thousands, except per share data) |  | 2018 Quarters
| Fourth |  | Third |  | Second |  | First
Interest and dividend income |  | $ | 457,334 |  |  | $ | 422,185 |  |  | $ | 400,311 |  |  | $ | 371,873 |
Interest expense |  | 87,918 |  |  | 73,465 |  |  | 58,632 |  |  | 45,180 |
Net interest income before provision for credit losses |  | 369,416 |  |  | 348,720 |  |  | 341,679 |  |  | 326,693 |
Provision for credit losses |  | 17,959 |  |  | 10,542 |  |  | 15,536 |  |  | 20,218 |
Net interest income after provision for credit losses |  | 351,457 |  |  | 338,178 |  |  | 326,143 |  |  | 306,475 |
Noninterest income |  | 41,695 |  |  | 46,502 |  |  | 48,268 |  |  | 74,444 |
Noninterest expense |  | 188,097 |  |  | 179,815 |  |  | 177,419 |  |  | 169,135 |
Income before income taxes |  | 205,055 |  |  | 204,865 |  |  | 196,992 |  |  | 211,784 |
Income tax expense |  | 32,037 |  |  | 33,563 |  |  | 24,643 |  |  | 24,752 |
Net income |  | $ | 173,018 |  |  | $ | 171,302 |  |  | $ | 172,349 |  |  | $ | 187,032 |
EPS |  |  |  |  |  |  |  |
- Basic |  | $ | 1.19 |  |  | $ | 1.18 |  |  | $ | 1.19 |  |  | $ | 1.29 |
- Diluted |  | $ | 1.18 |  |  | $ | 1.17 |  |  | $ | 1.18 |  |  | $ | 1.28 |
Weighted-average number of shares outstanding |  |  |  |  |  |  |  |
- Basic |  | 144,960 |  |  | 144,921 |  |  | 144,899 |  |  | 144,664 |
- Diluted |  | 146,133 |  |  | 146,173 |  |  | 146,091 |  |  | 145,939 |

Note 24 — Subsequent Events
On January 23, 2020, the Company’s Board of Directors declared first quarter 2020 cash dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share was paid on February 14, 2020 to stockholders of record as of February 3, 2020.
158

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2019, pursuant to Rule 13a-15(b) of 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 December 31, 2019.
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.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 using the criteria set forth in Internal Control — Integrated Framework 2013 issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the year ended December 31, 2019, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
KPMG LLP, the independent registered public accounting firm that audited the Company’s Consolidated Financial Statements, issued an audit report on the effectiveness of internal control over financial reporting as of December 31, 2019. The audit report is presented on the following page.
159

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
East West Bancorp, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited East West Bancorp, Inc. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 27, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/KPMG LLP
Los Angeles, California
February 27, 2020
160

ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Registrant
The following table presents the Company’s executive officers’ names, ages, positions and offices, and business experience during the last five years as of February 27, 2020. There is no family relationship between any of the Company’s executive officers or directors. Each officer is appointed by the Board of Directors of the Company or the Bank and serves at their pleasure.

Name |  | Age (1) |  | Positions and Offices, and Business Experience
Dominic Ng |  | 61 |  | Chairman and Chief Executive Officer of the Company and the Bank since 1992.
Douglas P. Krause |  | 63 |  | Executive Vice President, General Counsel and Secretary of the Company and the Bank since 1996.
Irene H. Oh |  | 42 |  | Executive Vice President and Chief Financial Officer of the Company and the Bank since 2010.
Andy Yen |  | 62 |  | Executive Vice President and Head of International and Commercial Banking since 2013.
Catherine Zhou |  | 46 |  | Executive Vice President and Head of Consumer and Digital Banking since 2017.

(1) | As of February 27, 2020.

Each executive officer has held executive positions with East West Bank for at least five years, except that Ms. Zhou joined East West Bank in 2017 and assumed her current position in October 2017. Previously, she had served as a partner at PricewaterhouseCoopers LLP (“PwC”) since 2013, and led the digital platform for PwC’s financial services industry.
Code of Conduct
The Company has adopted a code of conduct that applies to its principal executive officer, principal financial and accounting officer, controller, and persons performing similar functions. The code of conduct is posted on the Company’s website at www.eastwestbank.com/govdocs. Any amendments to, or waivers from, the Company’s Code of Conduct will be disclosed on the Company’s website at http://investor.eastwestbank.com.
Additional Information
The other information required by this item will be set forth in the following sections of the Company’s definitive proxy statement for its 2020 Annual Meeting of Shareholders (the “2020 Proxy Statement”), which will be filed with the SEC pursuant to Regulation 14A within 120 days of the Company’s fiscal year ended December 31, 2019 and this information is incorporated herein by reference:

• | Summary Information About Director Nominees

• | Board of Directors and Nominees

• | Director Nominee Qualifications and Experience

• | Director Independence, Financial Experts and Risk Management Experience

• | Board Leadership Structure

• | Board Meetings and Committees

ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company’s executive compensation is included in the 2020 Proxy Statement in the following sections and these sections are incorporated herein by reference:

• | Director Compensation

• | Compensation Discussion and Analysis

161

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and management not otherwise included herein is incorporated by reference to the 2020 Proxy Statement under the heading “Stock Ownership of Principal Stockholders, Directors and Management.”
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth the total number of shares available for issuance under the Company’s employee equity compensation plans as of December 31, 2019:

Plan Category |  | Number of Securities to be Issued upon Exercise of Outstanding Options |  | Weighted-Average Exercise Price of Outstanding Options |  | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans |
Equity compensation plans approved by security holders |  | — |  |  | $ | — |  |  | 3,482,580 |  | (1)
Equity compensation plans not approved by security holders |  | — |  |  | — |  |  | — |  |
Total |  | — |  |  | $ | — |  |  | 3,482,580 |  |

(1) | Represents future shares available under the shareholder-approved 2016 Stock Incentive Plan effective May 24, 2016.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions is included in the 2020 Proxy Statement in the following sections, which are incorporated herein by reference:

• | Director Independence, Financial Experts and Risk Management Experience

• | Certain Relationships and Related Transactions

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is included in the “Ratification of Auditors” section of the 2020 Proxy Statement, which is incorporated herein by reference.
162

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1) | Financial Statements

The following financial statements of East West Bancorp, Inc. and its subsidiaries, and the auditor’s report thereon are filed as part of this report under Item 8. Financial Statements and Supplementary Data:

| Page
Report of Independent Registered Public Accounting Firm | 80
Consolidated Balance Sheet as of December 31, 2019 and 2018 | 82
Consolidated Statement of Income for the Years Ended December 31, 2019, 2018 and 2017 | 83
Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 | 84
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017 | 85
Consolidated Statement of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 | 86
Notes to Consolidated Financial Statements | 88

(2) | Financial Statement Schedules

All financial statement schedules for East West Bancorp, Inc. and its subsidiaries have been included on the Consolidated Financial Statements or the related footnotes, or are either inapplicable or not required.

(3) | Exhibits

A list of exhibits to this Form 10-K is set forth below.

Exhibit No. |  | Exhibit Description
3.1 |  | Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i) from Registrant’s Registration Statement on Form S-4/A filed with the Commission on November 13, 1998 (File No. 333-63605).]
3.1.1 |  | Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit 3(i).1 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Commission on March 28, 2003 (File No. 000-24939).]
3.1.2 |  | Amendment to Certificate of Incorporation to Increase Authorized Shares of the Registrant [Incorporated by reference from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 15, 2005 (File No. 000-24939).]
3.1.3 |  | Certificate of Amendment to Certificate of Incorporation of the Registrant [Incorporated by reference to Exhibit A from the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 23, 2008 (File No. 000-24939).]
3.2 |  | Amended and Restated Bylaws of the Registrant dated January 29, 2013 [Incorporated by reference to Exhibit 3.10 from Registrant’s Current Report on Form 8-K, filed with the Commission on January 30, 2013 (File No. 000-24939).]
3.3 |  | 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).]
4.1 |  | Specimen Common Stock Certificate of Registrant [Incorporated by reference to Exhibit 4.1 from Registrant’s Registration Statement on Form S-4/A filed with the Commission on November 5, 1998 (File No. 333-63605).]
4.2 |  | Form of Certificate of the Registrant’s 8.00% Non-Cumulative Perpetual Convertible Preferred Stock, Series A [Incorporated by reference to Exhibit 4.1 from Registrant’s Current Report on Form 8-K, filed with the Commission on April 30, 2008 (File No. 000-24939).]
4.3 |  | Description of Securities. Filed herewith.
10.1.1 |  | Employment Agreement – Dominic Ng* [Incorporated by reference to Exhibit 10.1 from Registrant’s Registration Statement on Form S-4 filed with the Commission on September 17, 1998 (File No. 333-63605).]
10.1.2 |  | Amendment to Employment Agreement – Dominic Ng* [Incorporated by reference to Exhibit 10.1.2 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Commission on February 27, 2017 (File No. 000-24939).]

163

10.1.3 |  | Amendment to Employment Agreement – Dominic Ng* [Incorporated by reference to Exhibit 10.1 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 filed with the Commission on May 8, 2018 (File No. 000-24939).]
10.1.4 |  | Amendment to Employment Agreement – Dominic Ng* [Incorporated by reference to Exhibit 10.1 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the Commission on May 8, 2019 (File No. 000-24939).]
10.2.1 |  | Employment Agreement – Douglas P. Krause* [Incorporated by reference to Exhibit 10.5 from Registrant’s Registration Statement on Form S-4 filed with the Commission on September 17, 1998 (File No. 333-63605).]
10.2.2 |  | Amendment to Employment Agreement – Douglas P. Krause* [Incorporated by reference to Exhibit 10.2.2 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Commission on February 27, 2017 (File No. 000-24939).]
10.2.3 |  | Amendment to Employment Agreement – Douglas P. Krause* [Incorporated by reference to Exhibit 10.2 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 filed with the Commission on May 8, 2018 (File No. 000-24939).]
10.2.4 |  | Amendment to Employment Agreement – Douglas P. Krause* [Incorporated by reference to Exhibit 10.2 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the Commission on May 8, 2019 (File No. 000-24939).]
10.3 |  | Employment Agreement – Andy Yen* [Incorporated by reference to Exhibit 10.3 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Commission on February 26, 2016 (File No. 000-24939).]
10.4.1 |  | Employment Agreement – Irene H. Oh* [Incorporated by reference to Exhibit 10.1 from Registrant’s Current Report on Form 8-K filed with the Commission on December 22, 2016 (File No. 000-24939).]
10.4.2 |  | Amendment to Employment Agreement – Irene H. Oh* [Incorporated by reference to Exhibit 10.5.2 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Commission on February 27, 2019 (File No. 000-24939).]
10.5.1 |  | Employment Agreement – Catherine Zhou* [Incorporated by reference to Exhibit 10.3 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the Commission on May 8, 2019 (File No. 000-24939).]
10.5.2 |  | Amendment to Employment Agreement – Catherine Zhou* [Incorporated by reference to Exhibit 10.1 from Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 filed with the Commission on November 8, 2019 (File No. 000-24939).]
10.6.1 |  | Agreement Regarding Grants of Incentive Shares and Clawbacks – Dominic Ng* [Incorporated by reference to Exhibit 10.3 from Registrant’s Current Report on Form 8-K filed with the Commission on April 10, 2012 (File No. 000-24939).]
10.6.2 |  | Agreement Regarding Grants of Incentive Shares and Clawbacks – Douglas P. Krause* [Incorporated by reference to Exhibit 10.3.2 from Registrant’s Current Report on Form 8-K filed with the Commission on April 10, 2012 (File No. 000-24939).]
10.6.3 |  | Agreement Regarding Grants of Incentive Shares and Clawbacks – Irene H. Oh* [Incorporated by reference to Exhibit 10.3.3 from Registrant’s Current Report on Form 8-K filed with the Commission on April 10, 2012 (File No. 000-24939).]
10.7.1 |  | East West Bancorp, Inc. 1998 Stock Incentive Plan and Forms of Agreements* [Incorporated by reference to Exhibit 10.6 from Registrant’s Registration Statement on Form S-4/A filed with the Commission on November 5, 1998 (File No. 333-63605).]
10.7.2 |  | East West Bancorp, Inc. 1998 Stock Incentive Plan, as amended* [Incorporated by reference to Exhibit A from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 14, 2011 (File No. 000-24939).]
10.7.3 |  | East West Bancorp, Inc. 2016 Stock Incentive Plan, as amended* [Incorporated by reference to Exhibit A from the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 21, 2016 (File No. 000-24939).]
10.7.4 |  | East West Bancorp, Inc. 1998 Non-Qualified Stock Option Program for Employees and Independent Contractors* [Incorporated by reference to Exhibit 10.2 from Registrant’s Current Report on Form 8-K filed with the Commission on March 9, 2005 (File No. 000-24939).]
10.7.5 |  | East West Bancorp, Inc. 2017 Performance-Based Bonus Plan, as amended* [Incorporated by reference to Exhibit A from Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 19, 2017 (File No.000-24939).]
10.7.6 |  | East West Bancorp, Inc. 1999 Spirit of Ownership Restricted Stock Program* [Incorporated by reference to Exhibit 10.4 from Registrant’s Current Report on Form 8-K filed with the Commission on March 9, 2005 (File No. 000-24939).]
10.7.7 |  | East West Bancorp, Inc. 2003 Directors’ Restricted Stock Program* [Incorporated by reference to Exhibit 10.5 from Registrant’s Current Report on Form 8-K filed with the Commission on March 9, 2005 (File No. 000-24939).]

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10.8 |  | East West Bancorp, Inc. 1998 Employee Stock Purchase Plan* [Incorporated by reference to Exhibit 10.7 from Registrant’s Registration Statement on Form S-4 filed with the Commission on September 17, 1998 (File No. 333-63605).]
10.9 |  | Form of Executive Bonus Agreement* [Incorporated by reference to Exhibit 10.11 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 11, 2005 (File No. 000-24939).]
18 |  | Preferability letter from KPMG LLP regarding a change in accounting method dated February 27, 2019 [Incorporated by reference to Exhibit 18 from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Commission on February 27, 2019 (File No. 000-24939).]
21.1 |  | Subsidiaries of the Registrant. Filed herewith.
23.1 |  | Consent of Independent Registered Public Accounting Firm KPMG LLP. Filed herewith.
31.1 |  | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2 |  | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1 |  | Chief Executive Officer Certification 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 |  | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101.INS |  | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH |  | XBRL Taxonomy Extension Schema Document. Filed herewith.
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document. Filed herewith.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.
104 |  | Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). Filed herewith.
* Denotes management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY
Not applicable.
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GLOSSARY OF ACRONYMS

ACL | Allowance for credit losses | FRB | Federal Reserve Bank of San Francisco
ADC | Acquisition, development and construction | FTP | Funds transfer pricing
AFS | Available-for-sale | GAAP | United States Generally Accepted Accounting Principles
ALCO | Asset/Liability Committee | GLBA | Gramm-Leach-Bliley Act of 1999
AML | Anti-money laundering | HELOC | Home equity line of credit
AOCI | Accumulated Other Comprehensive Income (Loss) | IRS | Internal Revenue Service
ARRC | Alternative Reference Rates Committee | KBW | Keefe, Bruyette and Woods
ASC | Accounting Standards Codification | KRX | Keefe, Bruyette and Woods NASDAQ Regional Banking Index
ASU | Accounting Standards Update | LCH | London Clearing House
BHC Act | Bank Holding Company Act of 1956, as amended | LIBOR | London Interbank Offered Rate
BSA | Bank Secrecy Act | MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations
C&I | Commercial and industrial | MMBTU | Million British Thermal Unit
CAP | Compliance Assurance Process | Moody's | Moody's Investors Service
CECL | Current expected credit loss | MOU | Memorandum of understanding
CET1 | Common Equity Tier 1 | NAV | Net asset value
CFPB | Consumer Financial Protection Bureau | NOL | Net operating losses
CLO | Collateralized loan obligation | OFAC | Office of Foreign Assets Control
CME | Chicago Mercantile Exchange | OIS | Overnight Index Swap
CRA | Community Reinvestment Act | OREO | Other real estate owned
CRE | Commercial real estate | OTTI | Other-than-temporary impairment
DBO | California Department of Business Oversight | PCA | Prompt Corrective Action
DCB | Desert Community Bank | PCI | Purchased credit-impaired
DIF | Deposit Insurance Fund | PwC | PricewaterhouseCoopers LLP
DRR | Designated reserve ratio | RMB | Chinese Renminbi
EGRRCPA | Economic Growth, Regulatory Relief, and Consumer Protection Act | ROA | Return on average assets
EPS | Earnings per share | ROE | Return on average equity
ERM | Enterprise risk management | RPA | Credit Risk Participation Agreement
EVE | Economic value of equity | RSU | Restricted stock unit
EWIS | East West Insurance Services, Inc. | S&P | Standard and Poor's
FASB | Financial Accounting Standards Board | SBLC | Standby letters of credit
FBI | Federal Bureau of Investigation | SEC | U.S. Securities and Exchange Commission
FCA | Financial Conduct Authority | SERP | Supplemental Executive Retirement Plan
FDIA | Federal Deposit Insurance Act | SOFR | Secured Overnight Financing Rate
FDIC | Federal Deposit Insurance Corporation | TDR | Troubled debt restructuring
FHLB | Federal Home Loan Bank | U.S. | United States
FinCEN | Financial Crimes Enforcement Network | USD | U.S. Dollar
FITCH | Fitch Ratings | VIE | Variable interest entities

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: | February 27, 2020 |
|  | EAST WEST BANCORP, INC. (Registrant)
|  | By | /s/ DOMINIC NG |
|  |  | Dominic Ng
|  |  | Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature |  | Title |  | Date
/s/ DOMINIC NG |  | Chairman, Chief Executive Officer and Director (Principal Executive Officer) |  | February 27, 2020
Dominic Ng |  |  |
/s/ IRENE H. OH |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 27, 2020
Irene H. Oh |  |  |
/s/ MOLLY CAMPBELL |  | Director |  | February 27, 2020
Molly Campbell |  |  |  |
/s/ IRIS S. CHAN |  | Director |  | February 27, 2020
Iris S. Chan |  |  |  |
/s/ ARCHANA DESKUS |  | Director |  | February 27, 2020
Archana Deskus |  |  |  |
/s/ RUDOLPH I. ESTRADA |  | Lead Director |  | February 27, 2020
Rudolph I. Estrada |  |  |  |
/s/ PAUL H. IRVING |  | Director |  | February 27, 2020
Paul H. Irving |  |  |  |
/s/ HERMAN Y. LI |  | Director |  | February 27, 2020
Herman Y. Li |  |  |  |
/s/ JACK C. LIU |  | Director |  | February 27, 2020
Jack C. Liu |  |  |  |
/s/ LESTER M. SUSSMAN |  | Director |  | February 27, 2020
Lester M. Sussman |  |  |  |

167