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Derivatives | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | DerivativesThe Company uses derivative instruments to manage exposure to market risk, primarily interest rate and foreign currency risk, as well as to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility to mitigate the effect of interest rate changes on earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Bank’s investment in East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives serve as economic hedges. For additional information on the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements of the Company’s 2022 Form 10-K. The following table presents the notional amounts and fair values of the Company’s derivatives as of March 31, 2023 and December 31, 2022. The fair values are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the application of variation margin payments as settlement to fair values of contracts cleared through central clearing organizations. Total derivative asset and liability fair values are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
|  | March 31, 2023 |  | December 31, 2022
|  |  |  | Fair Value |  |  |  | Fair Value
($ in thousands) |  | Notional Amount |  | Derivative Assets |  | Derivative Liabilities |  | Notional Amount |  | Derivative Assets |  | Derivative Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 3,250,000 |  |  | $ | 27,535 |  |  | $ | 3,861 |  |  | $ | 3,450,000 |  |  | $ | 13,455 |  |  | $ | 19,687 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 81,480 |  |  | — |  |  | 253 |  |  | 84,832 |  |  | 5,590 |  |  | — |
Total derivatives designated as hedging instruments |  | $ | 3,331,480 |  |  | $ | 27,535 |  |  | $ | 4,114 |  |  | $ | 3,534,832 |  |  | $ | 19,045 |  |  | $ | 19,687 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 17,568,116 |  |  | $ | 387,465 |  |  | $ | 458,550 |  |  | $ | 16,932,414 |  |  | $ | 426,828 |  |  | $ | 564,829 |
Commodity contracts |  | — |  | (1) | 178,075 |  |  | 186,599 |  |  | — |  | (1) | 261,613 |  |  | 258,608 |
Foreign exchange contracts |  | 3,887,403 |  |  | 34,050 |  |  | 32,538 |  |  | 2,982,891 |  |  | 47,519 |  |  | 44,117 |
Credit contracts |  | 109,566 |  | (2) | — |  |  | 29 |  |  | 140,950 |  | (2) | — |  |  | 23 |
Equity contracts |  | — |  | (3) | 277 |  |  | — |  |  | — |  | (3) | 323 |  |  | — |
Total derivatives not designated as hedging instruments |  | $ | 21,565,085 |  |  | $ | 599,867 |  |  | $ | 677,716 |  |  | $ | 20,056,255 |  |  | $ | 736,283 |  |  | $ | 867,577 |
Gross derivative assets/liabilities |  |  |  | $ | 627,402 |  |  | $ | 681,830 |  |  |  |  | $ | 755,328 |  |  | $ | 887,264 |
Less: Master netting agreements |  |  |  | (169,849) |  |  | (169,849) |  |  |  |  | (242,745) |  |  | (242,745) |
Less: Cash collateral received |  |  |  | (195,278) |  |  | — |  |  |  |  | (372,038) |  |  | — |
Net derivative assets/liabilities |  |  |  | $ | 262,275 |  |  | $ | 511,981 |  |  |  |  | $ | 140,545 |  |  | $ | 644,519 |
(1)The notional amount of the Company’s commodity contracts totaled 24,954 thousand barrels of crude oil and 266,047 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of March 31, 2023. In comparison, the notional amount of the Company’s commodity contracts totaled 12,005 thousand barrels of crude oil and 247,704 thousand MMBTUs of natural gas as of December 31, 2022. (2)Notional amount for credit contracts reflects the Company’s pro-rata share of the derivative instruments in RPAs. (3)The Company held equity contracts in one public company and 11 private companies as of March 31, 2023. In comparison, the Company held equity contracts in one public company and 13 private companies as of December 31, 2022. Derivatives Designated as Hedging Instruments Cash Flow Hedges — The Company uses interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans, or paid on certain floating-rate borrowings due to changes in contractually specified interest rates. As of March 31, 2023, interest rate contracts in notional amounts of $3.25 billion were designated as cash flow hedges to convert certain variable-rate loans from floating-rate payments to fixed-rate payments. Gains and losses on the hedging derivative instruments are recognized in AOCI and reclassified to earnings in the same period the hedged cash flows impact earnings and within the same income statement line item as the hedged cash flows. Considering the interest rates, yield curve and notional amount as of March 31, 2023, the Company expects to reclassify an estimated $56.1 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months. In the first quarter of 2023, the Company prepaid the variable-rate borrowing where an interest rate swap contract in notional amount of $200.0 million was designated as a cash flow hedge. The interest rate swap was terminated at the same date the borrowing was prepaid. Pre-tax gains in the amount of $696 thousand were reclassified from AOCI to Interest expense before the termination of the hedge and the remaining gains in the amount of $1.6 million in AOCI were immediately recognized into Noninterest income upon the termination of the hedge as the forecasted interest payments on the borrowing were no longer probable to occur. The following table presents the pre-tax changes in AOCI from cash flow hedges for the three months ended March 31, 2023 and 2022. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form-10-Q.
|  | Three Months Ended March 31, |  |
($ in thousands) |  | 2023 |  | 2022 |  |  |  |
Gains (losses) recognized in AOCI: |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 29,843 |  |  | $ | (32,609) |  |  |  |  |
Gains (losses) reclassified from AOCI into earnings: |  |  |  |  |  |  |  |
Interest expense (for cash flow hedges on borrowings) |  | 696 |  |  | (173) |  |  |  |  |
Interest and dividend income (for cash flow hedges on loans) |  | (12,954) |  |  | 2,273 |  |  |  |  |
Noninterest income |  | 1,614 |  | (1) | — |  |  |  |  |
Total |  | $ | (10,644) |  |  | $ | 2,100 |  |  |  |  |
(1)Represents the reclassification of the remaining AOCI into earnings for the terminated cash flow hedge where the forecasted cash flows were no longer probable of occurring. Net Investment Hedges — The Company enters into foreign currency forward contracts to hedge a portion of the Bank’s investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The hedging instruments designated as net investment hedges were used to hedge against the risk of adverse changes in the foreign currency exchange rate of the Chinese Renminbi (“RMB”). The following table presents the pre-tax losses recognized in AOCI on net investment hedges for the three months ended March 31, 2023 and 2022:
|  | Three Months Ended March 31, |  |
($ in thousands) |  | 2023 |  | 2022 |  |  |  |
Losses recognized in AOCI |  | $ | (1,076) |  |  | $ | (1,571) |  |  |  |  |
Derivatives Not Designated as Hedging Instruments Customer-Related Positions and other Economic Hedge Derivatives — The Company enters into interest rate, commodity, and foreign exchange derivatives at the request of its customers and generally enters into offsetting derivative contracts with third-party financial institutions to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position. Certain offsetting derivative contracts entered into by the Company are cleared though central clearing organizations where variation margin is applied daily as settlement to the fair values of the contracts. Applying variation margin payments as settlement to the fair values of derivative contracts cleared through the London Clearing House (“LCH”) and the Chicago Mercantile Exchange (“CME”) resulted in reductions in the derivative asset and liability fair values of $94.0 million and $3.8 million, respectively, as of March 31, 2023. In comparison, applying variation margin payments as settlement to LCH and CME-cleared derivative transactions resulted in reductions in the derivative asset and liability fair values of $163.4 million and $12.1 million, respectively, as of December 31, 2022. The Company also utilizes foreign exchange contracts to mitigate the effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities. A majority of the foreign exchange contracts had original maturities of one year or less as of both March 31, 2023 and December 31, 2022. The following table presents the notional amounts and the gross fair values of the interest rate and foreign exchange derivatives issued for customer-related positions and other economic hedges as of March 31, 2023 and December 31, 2022:
|  | March 31, 2023 |  | December 31, 2022 |  |  |  |
|  |  |  | Fair Value |  |  |  | Fair Value |  |  |  |
($ in thousands) |  | Notional Amount |  | Assets |  | Liabilities |  | Notional Amount |  | Assets |  | Liabilities |  |  |  |
Customer-related positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | $ | 6,776,171 |  |  | $ | 8,537 |  |  | $ | 416,483 |  |  | $ | 6,656,491 |  |  | $ | 1,438 |  |  | $ | 521,719 |  |  |  |  |
Written options |  | 1,693,002 |  |  | — |  |  | 24,329 |  |  | 1,548,158 |  |  | — |  |  | 30,904 |  |  |  |  |
Collars and corridors |  | 269,340 |  |  | 252 |  |  | 7,341 |  |  | 215,773 |  |  | — |  |  | 8,924 |  |  |  |  |
Subtotal |  | 8,738,513 |  |  | 8,789 |  |  | 448,153 |  |  | 8,420,422 |  |  | 1,438 |  |  | 561,547 |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forwards and spot |  | 1,439,521 |  |  | 9,866 |  |  | 18,300 |  |  | 993,588 |  |  | 17,009 |  |  | 18,090 |  |  |  |  |
Swaps |  | 514,659 |  |  | 5,808 |  |  | 2,683 |  |  | 623,143 |  |  | 6,629 |  |  | 12,178 |  |  |  |  |
Other |  | 127,000 |  |  | 1,876 |  |  | — |  |  | 121,631 |  |  | 2,070 |  |  | 245 |  |  |  |  |
Subtotal |  | 2,081,180 |  |  | 17,550 |  |  | 20,983 |  |  | 1,738,362 |  |  | 25,708 |  |  | 30,513 |  |  |  |  |
Total |  | $ | 10,819,693 |  |  | $ | 26,339 |  |  | $ | 469,136 |  |  | $ | 10,158,784 |  |  | $ | 27,146 |  |  | $ | 592,060 |  |  |  |  |
Other economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | $ | 6,803,027 |  |  | $ | 345,976 |  |  | $ | 9,209 |  |  | $ | 6,683,828 |  |  | $ | 384,201 |  |  | $ | 2,047 |  |  |  |  |
Purchased options |  | 1,725,119 |  |  | 25,321 |  |  | — |  |  | 1,580,275 |  |  | 32,233 |  |  | — |  |  |  |  |
Written options |  | 32,117 |  |  | — |  |  | 925 |  |  | 32,117 |  |  | — |  |  | 1,235 |  |  |  |  |
Collars and corridors |  | 269,340 |  |  | 7,379 |  |  | 263 |  |  | 215,772 |  |  | 8,956 |  |  | — |  |  |  |  |
Subtotal |  | 8,829,603 |  |  | 378,676 |  |  | 10,397 |  |  | 8,511,992 |  |  | 425,390 |  |  | 3,282 |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forwards and spot |  | 67,680 |  |  | 72 |  |  | 120 |  |  | 77,998 |  |  | 3,050 |  |  | 87 |  |  |  |  |
Swaps |  | 1,611,543 |  |  | 16,428 |  |  | 9,559 |  |  | 1,044,900 |  |  | 18,516 |  |  | 11,447 |  |  |  |  |
Other |  | 127,000 |  |  | — |  |  | 1,876 |  |  | 121,631 |  |  | 245 |  |  | 2,070 |  |  |  |  |
Subtotal |  | 1,806,223 |  |  | 16,500 |  |  | 11,555 |  |  | 1,244,529 |  |  | 21,811 |  |  | 13,604 |  |  |  |  |
Total |  | $ | 10,635,826 |  |  | $ | 395,176 |  |  | $ | 21,952 |  |  | $ | 9,756,521 |  |  | $ | 447,201 |  |  | $ | 16,886 |  |  |  |  |
The following table presents the notional amounts in units and the gross fair values of the commodity derivatives issued for customer-related positions and other economic hedges as of March 31, 2023 and December 31, 2022:
|  | March 31, 2023 |  | December 31, 2022 |  |  |  |
|  |  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |
($ and unit in thousands) |  | Notional Units |  | Assets |  | Liabilities |  | Notional Units |  | Assets |  | Liabilities |  |  |  |
Customer-related positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 7,443 |  |  | Barrels |  | $ | 18,072 |  |  | $ | 8,088 |  |  | 2,465 |  |  | Barrels |  | $ | 39,955 |  |  | $ | 6,178 |  |  |  |  |
Collars |  | 4,597 |  |  | Barrels |  | 6,337 |  |  | 4,528 |  |  | 3,011 |  |  | Barrels |  | 16,038 |  |  | 2,630 |  |  |  |  |
Written options |  | — |  |  | Barrels |  | — |  |  | — |  |  | — |  |  | Barrels |  | 558 |  |  | — |  |  |  |  |
Subtotal |  | 12,040 |  |  | Barrels |  | 24,409 |  |  | 12,616 |  |  | 5,476 |  |  | Barrels |  | 56,551 |  |  | 8,808 |  |  |  |  |
Natural gas: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 99,111 |  |  | MMBTUs |  | 50,825 |  |  | 71,736 |  |  | 92,590 |  |  | MMBTUs |  | 112,314 |  |  | 73,208 |  |  |  |  |
Collars |  | 34,015 |  |  | MMBTUs |  | 1,003 |  |  | 29,501 |  |  | 32,072 |  |  | MMBTUs |  | 2,217 |  |  | 18,317 |  |  |  |  |
Written options |  | 367 |  |  | MMBTUs |  | — |  |  | 49 |  |  | — |  |  | MMBTUs |  | — |  |  | — |  |  |  |  |
Subtotal |  | 133,493 |  |  | MMBTUs |  | 51,828 |  |  | 101,286 |  |  | 124,662 |  |  | MMBTUs |  | 114,531 |  |  | 91,525 |  |  |  |  |
Total |  |  |  |  |  | $ | 76,237 |  |  | $ | 113,902 |  |  |  |  |  |  | $ | 171,082 |  |  | $ | 100,333 |  |  |  |  |
Other economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 7,539 |  |  | Barrels |  | $ | 8,900 |  |  | $ | 16,016 |  |  | 2,587 |  |  | Barrels |  | $ | 6,935 |  |  | $ | 36,060 |  |  |  |  |
Collars |  | 5,375 |  |  | Barrels |  | 2,900 |  |  | 5,531 |  |  | 3,942 |  |  | Barrels |  | 1,378 |  |  | 12,856 |  |  |  |  |
Purchased options |  | — |  |  | Barrels |  | — |  |  | — |  |  | — |  |  | Barrels |  | — |  |  | 516 |  |  |  |  |
Subtotal |  | 12,914 |  |  | Barrels |  | 11,800 |  |  | 21,547 |  |  | 6,529 |  |  | Barrels |  | 8,313 |  |  | 49,432 |  |  |  |  |
Natural gas: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 98,891 |  |  | MMBTUs |  | 66,395 |  |  | 50,147 |  |  | 91,900 |  |  | MMBTUs |  | 69,767 |  |  | 106,883 |  |  |  |  |
Collars |  | 33,296 |  |  | MMBTUs |  | 23,594 |  |  | 1,003 |  |  | 31,142 |  |  | MMBTUs |  | 12,451 |  |  | 1,960 |  |  |  |  |
Purchased options |  | 367 |  |  | MMBTUs |  | 49 |  |  | — |  |  | — |  |  | MMBTUs |  | — |  |  | — |  |  |  |  |
Subtotal |  | 132,554 |  |  | MMBTUs |  | 90,038 |  |  | 51,150 |  |  | 123,042 |  |  | MMBTUs |  | 82,218 |  |  | 108,843 |  |  |  |  |
Total |  |  |  |  |  | $ | 101,838 |  |  | $ | 72,697 |  |  |  |  |  |  | $ | 90,531 |  |  | $ | 158,275 |  |  |  |  |
Credit Contracts — The Company periodically enters into credit RPAs with institutional counterparties to manage the credit exposure of the interest rate contracts associated with syndication loans. Under the RPAs, a portion of the credit exposure is transferred from one party (the purchaser of credit protection) to another party (the seller of credit protection). The seller of credit protection is required to make payments to the purchaser of credit protection if the underlying borrower defaults on the related interest rate contract. The Company may enter into protection sold or protection purchased RPAs. Credit risk on RPAs is managed by monitoring the credit worthiness of the borrowers and the institutional counterparties, which is a part of the Company’s normal credit review and monitoring process. The majority of the referenced entities of the protection sold RPAs were investment grade and the weighted-average remaining maturity was 2.7 years and 2.4 years, respectively, as of March 31, 2023 and December 31, 2022. Assuming that the underlying borrowers referenced in the interest rate contracts defaulted, the Company would not have any current exposure in the protection sold RPAs as of both March 31, 2023 and December 31, 2022. The Company did not have any outstanding protection purchased RPAs as of both March 31, 2023 and December 31, 2022. Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase preferred and/or common stock of their borrowers’ companies, which are mainly in the technology and life sciences sectors. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The following table presents the net gains (losses) recognized on the Company’s Consolidated Statement of Income related to derivatives not designated as hedging instruments for the three months ended March 31, 2023 and 2022:
|  | Classification on Consolidated Statement of Income |  | Three Months Ended March 31, |  |
($ in thousands) |  |  | 2023 |  | 2022 |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | Interest rate contracts and other derivative income |  | $ | (2,484) |  |  | $ | 7,585 |  |  |  |  |
Foreign exchange contracts |  | Foreign exchange income |  | 10,442 |  |  | 7,322 |  |  |  |  |
Credit contracts |  | Interest rate contracts and other derivative income |  | (5) |  |  | 74 |  |  |  |  |
Equity contracts |  | Lending fees |  | (45) |  |  | 94 |  |  |  |  |
Commodity contracts |  | Interest rate contracts and other derivative income |  | 6 |  |  | (49) |  |  |  |  |
Net gains |  |  |  | $ | 7,914 |  |  | $ | 15,026 |  |  |  |  |
Credit-Risk-Related Contingent Features — Certain of the Company’s over-the-counter derivative contracts contain early termination provisions that require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. Such an event primarily relates to a downgrade in the credit rating of East West Bank to below investment grad e. As of March 31, 2023, the aggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled zero, and no collateral was posted to cover these positions. In comparison, a s of December 31, 2022, the aggregate fair value amounts of all derivative instruments with credit-risk-related contingent features that were in a net liability position totaled $2.6 million, of which $1.1 million of collateral was posted to cover these positions. If the credit rating of East West Bank had been downgraded to below investment grade, the Company would have been required to post minimal additional collateral as of both March 31, 2023 and December 31, 2022. Offsetting of Derivatives The following tables present the gross derivative fair values, the balance sheet netting adjustments and the resulting net fair values recorded on the Consolidated Balance Sheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements to the fair values of contracts cleared through central clearing organizations, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of overcollateralization are not shown:
($ in thousands) |  | As of March 31, 2023
|  | Gross Amounts Recognized (1) |  | Gross Amounts Offset on the Consolidated Balance Sheet |  | Net Amounts Presented on the Consolidated Balance Sheet |  | Gross Amounts Not Offset on the Consolidated Balance Sheet |  | Net Amount
|  |  | Master Netting Arrangements |  | Cash Collateral Received (3) |  |  | Security Collateral Received (5) |
Derivative assets |  | $ | 627,402 |  |  | $ | (169,849) |  |  | $ | (195,278) |  |  | $ | 262,275 |  |  | $ | (233,746) |  |  | $ | 28,529 |
|  | Gross Amounts Recognized (2) |  | Gross Amounts Offset on the Consolidated Balance Sheet |  | Net Amounts Presented on the Consolidated Balance Sheet |  | Gross Amounts Not Offset on the Consolidated Balance Sheet |  | Net Amount
|  |  | Master Netting Arrangements |  | Cash Collateral Pledged (4) |  |  | Security Collateral Pledged (5) |
Derivative liabilities |  | $ | 681,830 |  |  | $ | (169,849) |  |  | $ | — |  |  | $ | 511,981 |  |  | $ | — |  |  | $ | 511,981 |
($ in thousands) |  | As of December 31, 2022
|  | Gross Amounts Recognized (1) |  | Gross Amounts Offset on the Consolidated Balance Sheet |  | Net Amounts Presented on the Consolidated Balance Sheet |  | Gross Amounts Not Offset on the Consolidated Balance Sheet |  | Net Amount
|  |  | Master Netting Arrangements |  | Cash Collateral Received (3) |  |  | Security Collateral Received (5) |
Derivative assets |  | $ | 755,328 |  |  | $ | (242,745) |  |  | $ | (372,038) |  |  | $ | 140,545 |  |  | $ | (60,567) |  |  | $ | 79,978 |
|  | Gross Amounts Recognized (2) |  | Gross Amounts Offset on the Consolidated Balance 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 |  | $ | 887,264 |  |  | $ | (242,745) |  |  | $ | — |  |  | $ | 644,519 |  |  | $ | (38,438) |  |  | $ | 606,081 |
(1)Includes $287 thousand and $2.1 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2023 and December 31, 2022, respectively. (2)Includes $15 thousand and $566 thousand of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of March 31, 2023 and December 31, 2022, respectively. (3)Gross cash collateral received under master netting arrangements or similar agreements was $205.7 million and $384.9 million as of March 31, 2023 and December 31, 2022, respectively. Of the gross cash collateral received, $195.3 million and $372.0 million were used to offset against derivative assets as of March 31, 2023 and December 31, 2022, respectively. (4)Gross cash collateral pledged under master netting arrangements or similar agreements was $200 thousand and $490 thousand as of March 31, 2023 and December 31, 2022, respectively. None of the collateral was used to offset against derivative liabilities as of both March 31, 2023 and December 31, 2022. (5)Represents the fair value of security collateral received or pledged limited to derivative assets or liabilities that are subject to enforceable master netting arrangements or similar agreements. U.S. GAAP does not permit the netting of noncash collateral on the Consolidated Balance Sheet but requires the disclosure of such amounts. In addition to the amounts included in the tables above, the Company has balance sheet netting related to resale and repurchase agreements. Refer to Note 4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q for additional information. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures on derivatives.

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