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Derivatives | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives The Company uses derivative instruments to manage exposure to market risk, primarily interest rate and foreign currency risks, 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 2023 Form 10-K. The following table presents the notional amounts and fair values of the Company’s derivatives as of September 30, 2024 and December 31, 2023. Certain derivative contracts are cleared through central clearing organizations where variation margin is applied daily as settlement to the fair values of the contracts. 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. 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 $31 million and $17 million, respectively, as of September 30, 2024. In comparison, applying variation margin payments as settlement to LCH- and CME-cleared derivative transactions resulted in reductions in both the derivative asset and liability fair values of $43 million as of December 31, 2023. Total derivative asset and liability fair values are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.
|  | September 30, 2024 |  | December 31, 2023 |  |
|  |  |  | Fair Value |  |  |  | Fair Value |  |
($ in thousands) |  | Notional Amount |  | Assets |  | Liabilities |  | Notional Amount |  | Assets |  | Liabilities |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 5,250,000 |  |  | $ | 63,465 |  |  | $ | 252 |  |  | $ | 5,250,000 |  |  | $ | 50,421 |  |  | $ | 13,124 |  |  |
Net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | — |  |  | 81,480 |  |  | 3,394 |  |  | — |  |  |
Total derivatives designated as hedging instruments |  | $ | 5,250,000 |  |  | $ | 63,465 |  |  | $ | 252 |  |  | $ | 5,331,480 |  |  | $ | 53,815 |  |  | $ | 13,124 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 16,999,592 |  |  | $ | 327,945 |  |  | $ | 326,786 |  |  | $ | 17,387,909 |  |  | $ | 423,486 |  |  | $ | 420,812 |  |  |
Commodity contracts (1) |  | — |  |  | 64,980 |  |  | 90,002 |  |  | — |  |  | 79,604 |  |  | 121,670 |  |  |
Foreign exchange contracts |  | 4,327,999 |  |  | 33,966 |  |  | 33,651 |  |  | 5,827,149 |  |  | 53,678 |  |  | 42,564 |  |  |
Credit contracts (2) |  | 158,736 |  |  | — |  |  | 32 |  |  | 118,391 |  |  | 1 |  |  | 25 |  |  |
Equity contracts |  | — |  |  | 232 |  | (3) | 15,119 |  | (4) | — |  |  | 336 |  | (3) | 15,119 |  | (4) |
Total derivatives not designated as hedging instruments |  | $ | 21,486,327 |  |  | $ | 427,123 |  |  | $ | 465,590 |  |  | $ | 23,333,449 |  |  | $ | 557,105 |  |  | $ | 600,190 |  |  |
Gross derivative assets/liabilities |  |  |  | $ | 490,588 |  |  | $ | 465,842 |  |  |  |  | $ | 610,920 |  |  | $ | 613,314 |  |  |
Less: Master netting agreements |  |  |  | (84,214) |  |  | (84,214) |  |  |  |  | (75,534) |  |  | (75,534) |  |  |
Less: Cash collateral received |  |  |  | (261,394) |  |  | (11,133) |  |  |  |  | (237,258) |  |  | (636) |  |  |
Net derivative assets/liabilities |  |  |  | $ | 144,980 |  |  | $ | 370,495 |  |  |  |  | $ | 298,128 |  |  | $ | 537,144 |  |  |
(1)The notional amount of the Company’s commodity contracts totaled 17,186 thousand barrels of crude oil and 447,674 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of September 30, 2024. In comparison, the notional amount of the Company’s commodity contracts totaled 18,631 thousand barrels of crude oil and 328,844 thousand MMBTUs of natural gas as of December 31, 2023. (2)The notional amount of the credit contracts reflects the Company’s pro-rata share of the underlying derivative instruments’ notional amount in RPAs. (3)The Company held warrant equity contracts in nine private companies and one public company as of September 30, 2024, and 11 private companies and one public company as of December 31, 2023. (4)Equity contracts classified as derivative liabilities consist of 349,138 performance-based RSUs granted as part of EWBC’s consideration in its investment in Rayliant. Derivatives Designated as Hedging Instruments Cash Flow Hedges — The Company uses interest rate swaps to hedge the variability in the interest amount received on certain floating-rate commercial loans, or paid on certain floating-rate borrowings due to changes in contractually specified interest rates. As of September 30, 2024, interest rate contracts in notional amounts of $5.3 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 September 30, 2024, the Company expects to reclassify an estimated $10 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months. The following table presents the pre-tax changes in AOCI from cash flow hedges for the three and nine months ended September 30, 2024 and 2023. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive (Loss) Income to the Consolidated Financial Statements in this Form 10-Q.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
($ in thousands) |  | 2024 |  | 2023 |  | 2024 |  | 2023 |
Gains (losses) recognized in AOCI: |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 93,842 |  |  | $ | (62,715) |  |  | $ | (21,629) |  |  | $ | (129,329) |  |
Gains (losses) reclassified from AOCI into earnings: |  |  |  |  |  |  |  |  |
Interest expense (for cash flow hedges on borrowings) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 696 |  |
Interest and dividend income (for cash flow hedges on loans) |  | (24,272) |  |  | (24,059) |  |  | (73,471) |  |  | (57,265) |  |
Noninterest income |  | — |  |  | — |  |  | — |  |  | 1,614 |  | (1)
Total |  | $ | (24,272) |  |  | $ | (24,059) |  |  | $ | (73,471) |  |  | $ | (54,955) |  |
(1)Represents the amounts in AOCI reclassified into earnings where the forecasted cash flows were no longer probable to occur. 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 net investment hedge in place as of December 31, 2023 expired during the three months ended March 31, 2024. No new net investment hedge was entered since March 31, 2024. The following table presents the pre-tax gains recognized in AOCI on net investment hedges for the three and nine months ended September 30, 2024 and 2023:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | 2024 |  | 2023 |  | 2024 |  | 2023
Gains recognized in AOCI |  | $ | — |  |  | $ | 63 |  |  | $ | 586 |  |  | $ | 2,886 |
Derivatives Not Designated as Hedging Instruments Customer-Related Positions and 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. 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, primarily foreign currency denominated deposits that it offers to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both September 30, 2024 and December 31, 2023. The following table presents the notional amounts and the gross fair values of the interest rate and foreign exchange derivatives entered into with customers and with third-party financial institutions as economic hedges to customers’ positions as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024 |  | December 31, 2023 |  |  |  |
|  |  |  | Fair Value |  |  |  | Fair Value |  |  |  |
($ in thousands) |  | Notional Amount |  | Assets |  | Liabilities |  | Notional Amount |  | Assets |  | Liabilities |  |  |  |
Customer-related positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | $ | 6,867,025 |  |  | $ | 49,900 |  |  | $ | 270,699 |  |  | $ | 6,835,822 |  |  | $ | 25,649 |  |  | $ | 377,388 |  |  |  |  |
Written options |  | 1,451,899 |  |  | — |  |  | 5,016 |  |  | 1,522,531 |  |  | — |  |  | 12,756 |  |  |  |  |
Collars and corridors |  | 171,955 |  |  | 462 |  |  | 463 |  |  | 322,732 |  |  | 440 |  |  | 4,481 |  |  |  |  |
Subtotal |  | 8,490,879 |  |  | 50,362 |  |  | 276,178 |  |  | 8,681,085 |  |  | 26,089 |  |  | 394,625 |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forwards and spot |  | 844,984 |  |  | 14,642 |  |  | 2,936 |  |  | 956,618 |  |  | 9,466 |  |  | 6,756 |  |  |  |  |
Swaps |  | 1,213,126 |  |  | 9,345 |  |  | 5,514 |  |  | 1,588,491 |  |  | 5,801 |  |  | 18,118 |  |  |  |  |
Purchased options |  | 20,000 |  |  | 31 |  |  | — |  |  | 136,000 |  |  | 1,839 |  |  | — |  |  |  |  |
Subtotal |  | 2,078,110 |  |  | 24,018 |  |  | 8,450 |  |  | 2,681,109 |  |  | 17,106 |  |  | 24,874 |  |  |  |  |
Total |  | $ | 10,568,989 |  |  | $ | 74,380 |  |  | $ | 284,628 |  |  | $ | 11,362,194 |  |  | $ | 43,195 |  |  | $ | 419,499 |  |  |  |  |
Economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | $ | 6,884,859 |  |  | $ | 272,079 |  |  | $ | 50,132 |  |  | $ | 6,861,561 |  |  | $ | 380,123 |  |  | $ | 25,731 |  |  |  |  |
Purchased options |  | 1,451,899 |  |  | 5,039 |  |  | — |  |  | 1,522,531 |  |  | 12,783 |  |  | — |  |  |  |  |
Collars and corridors |  | 171,955 |  |  | 465 |  |  | 476 |  |  | 322,732 |  |  | 4,491 |  |  | 456 |  |  |  |  |
Subtotal |  | 8,508,713 |  |  | 277,583 |  |  | 50,608 |  |  | 8,706,824 |  |  | 397,397 |  |  | 26,187 |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forwards and spot |  | 21,023 |  |  | 128 |  |  | 60 |  |  | 148,003 |  |  | 292 |  |  | 94 |  |  |  |  |
Swaps |  | 2,208,866 |  |  | 9,820 |  |  | 25,110 |  |  | 2,862,037 |  |  | 36,280 |  |  | 15,757 |  |  |  |  |
Written options |  | 20,000 |  |  | — |  |  | 31 |  |  | 136,000 |  |  | — |  |  | 1,839 |  |  |  |  |
Subtotal |  | 2,249,889 |  |  | 9,948 |  |  | 25,201 |  |  | 3,146,040 |  |  | 36,572 |  |  | 17,690 |  |  |  |  |
Total |  | $ | 10,758,602 |  |  | $ | 287,531 |  |  | $ | 75,809 |  |  | $ | 11,852,864 |  |  | $ | 433,969 |  |  | $ | 43,877 |  |  |  |  |
The Company enters into energy commodity contracts with its customers in the oil and gas sector, which allow them to hedge against the risk of fluctuation in energy commodity prices. Offsetting contracts entered with third-party financial institutions are used as economic hedges to manage the Company’s exposure on its customer-related positions. The following table presents the notional amounts in units and the gross fair values of the commodity derivatives issued for customer-related positions and economic hedges as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024 |  | December 31, 2023 |  |  |  |
|  |  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |
($ and unit in thousands) |  | Notional Units |  | Assets |  | Liabilities |  | Notional Units |  | Assets |  | Liabilities |  |  |  |
Customer-related positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 3,407 |  |  | Barrels |  | $ | 1,680 |  |  | $ | 15,382 |  |  | 3,277 |  |  | Barrels |  | $ | 3,735 |  |  | $ | 15,445 |  |  |  |  |
Collars |  | 5,186 |  |  | Barrels |  | 46 |  |  | 9,593 |  |  | 5,966 |  |  | Barrels |  | 1,820 |  |  | 5,103 |  |  |  |  |
Subtotal |  | 8,593 |  |  | Barrels |  | 1,726 |  |  | 24,975 |  |  | 9,243 |  |  | Barrels |  | 5,555 |  |  | 20,548 |  |  |  |  |
Natural gas: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 155,871 |  |  | MMBTUs |  | 3,559 |  |  | 45,602 |  |  | 118,325 |  |  | MMBTUs |  | 438 |  |  | 73,793 |  |  |  |  |
Collars |  | 68,630 |  |  | MMBTUs |  | 755 |  |  | 14,565 |  |  | 45,854 |  |  | MMBTUs |  | 21 |  |  | 20,400 |  |  |  |  |
Written options |  | 1,456 |  |  | MMBTUs |  | 142 |  |  | — |  |  | 1,874 |  |  | MMBTUs |  | — |  |  | 233 |  |  |  |  |
Subtotal |  | 225,957 |  |  | MMBTUs |  | 4,456 |  |  | 60,167 |  |  | 166,053 |  |  | MMBTUs |  | 459 |  |  | 94,426 |  |  |  |  |
Total |  |  |  |  |  | $ | 6,182 |  |  | $ | 85,142 |  |  |  |  |  |  | $ | 6,014 |  |  | $ | 114,974 |  |  |  |  |
Economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 3,407 |  |  | Barrels |  | $ | 10,630 |  |  | $ | 1,670 |  |  | 3,422 |  |  | Barrels |  | $ | 9,166 |  |  | $ | 4,924 |  |  |  |  |
Collars |  | 5,186 |  |  | Barrels |  | 4,417 |  |  | — |  |  | 5,966 |  |  | Barrels |  | 1,685 |  |  | 1,467 |  |  |  |  |
Subtotal |  | 8,593 |  |  | Barrels |  | 15,047 |  |  | 1,670 |  |  | 9,388 |  |  | Barrels |  | 10,851 |  |  | 6,391 |  |  |  |  |
Natural gas: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 153,199 |  |  | MMBTUs |  | 35,173 |  |  | 2,343 |  |  | 116,463 |  |  | MMBTUs |  | 49,941 |  |  | 305 |  |  |  |  |
Collars |  | 67,060 |  |  | MMBTUs |  | 8,578 |  |  | 722 |  |  | 44,454 |  |  | MMBTUs |  | 12,565 |  |  | — |  |  |  |  |
Purchased options |  | 1,456 |  |  | MMBTUs |  | — |  |  | 125 |  |  | 1,874 |  |  | MMBTUs |  | 233 |  |  | — |  |  |  |  |
Subtotal |  | 221,715 |  |  | MMBTUs |  | 43,751 |  |  | 3,190 |  |  | 162,791 |  |  | MMBTUs |  | 62,739 |  |  | 305 |  |  |  |  |
Total |  |  |  |  |  | $ | 58,798 |  |  | $ | 4,860 |  |  |  |  |  |  | $ | 73,590 |  |  | $ | 6,696 |  |  |  |  |
Credit Contracts — The Company periodically enters into credit RPAs with institutional counterparties to manage the credit exposure of the interest rate contracts associated with syndicated 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. All referenced entities of the protection sold RPAs were investment grade and the weighted-average remaining maturity was 1.9 years and 2.8 years as of September 30, 2024 and December 31, 2023, respectively. Assuming the underlying borrowers referenced in the interest rate contracts defaulted, the maximum exposure in the protection sold RPAs would be $494 thousand and $177 thousand as of September 30, 2024 and December 31, 2023, respectively. As of both September 30, 2024 and December 31, 2023, the Company had one outstanding protection purchased RPA with a notional amount of $25 million and minimal fair value. Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase the preferred and/or common stock of the borrowers’ companies, which are mainly in the technology and life sciences sectors. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. In connection with the Company’s investment in Rayliant during the third quarter of 2023, the Company granted performance-based RSUs as part of its consideration. The vesting of these equity contracts is contingent on Rayliant meeting certain financial performance targets during the future performance period. For additional information on these equity contracts, refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q. The following table presents the net gains (losses) recognized on the Company’s Consolidated Statement of Income related to derivatives not designated as hedging instruments for the three and nine months ended September 30, 2024 and 2023:
|  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | Classification on Consolidated Statement of Income |  | 2024 |  | 2023 |  | 2024 |  | 2023
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | Customer derivative (losses) income |  | $ | (4,577) |  |  | $ | 5,283 |  |  | $ | (2,994) |  |  | $ | 4,022 |
Foreign exchange contracts |  | Foreign exchange income |  | 6,075 |  |  | 7,267 |  |  | 33,204 |  |  | 37,607 |
Credit contracts |  | Customer derivative (losses) income |  | (17) |  |  | 4 |  |  | (20) |  |  | 11 |
Equity contracts - warrants |  | Lending fees |  | (8) |  |  | 89 |  |  | (104) |  |  | 29 |
Commodity contracts |  | Customer derivative income |  | 114 |  |  | 27 |  |  | 681 |  |  | 193 |
Net gains |  |  |  | $ | 1,587 |  |  | $ | 12,670 |  |  | $ | 30,767 |  |  | $ | 41,862 |
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 of the credit rating of East West Bank to below investment grad e. As of September 30, 2024, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $3 million, for which $3 million collateral was posted to cover these positions. In comparison, a s of December 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 $9 thousand, for which no collateral was posted to cover these positions. In the event that the credit rating of East West Bank had been downgraded to below investment grade, the Company would have been required to post minimal additional collateral as of both September 30, 2024 and December 31, 2023. Offsetting of Derivatives The following tables present the gross derivative fair values, the balance sheet netting adjustments, and the resulting net fair values recorded on the Consolidated Balance Sheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross fair values of derivative assets and liabilities are presented after the application of variation margin payments as settlements to the fair values of contracts cleared through central clearing organizations, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of over-collateralization are not shown:
($ in thousands) |  | As of September 30, 2024
|  |  |  | 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 |  |
|  | Gross Amounts Recognized (1) |  | Master Netting Arrangements |  | Cash Collateral Received (3) |  |  | Security Collateral Received (5) |  | Net Amount
Derivative assets |  | $ | 490,588 |  |  | $ | (84,214) |  |  | $ | (261,394) |  |  | $ | 144,980 |  |  | $ | (61,543) |  |  | $ | 83,437 |
|  |  |  | 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 |  |
|  | Gross Amounts Recognized (2) |  | Master Netting Arrangements |  | Cash Collateral Pledged (4) |  |  | Security Collateral Pledged (5) |  | Net Amount
Derivative liabilities |  | $ | 465,842 |  |  | $ | (84,214) |  |  | $ | (11,133) |  |  | $ | 370,495 |  |  | $ | — |  |  | $ | 370,495 |
($ in thousands) |  | As of December 31, 2023
|  |  |  | 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 |  |
|  | Gross Amounts Recognized (1) |  | Master Netting Arrangements |  | Cash Collateral Received (3) |  |  | Security Collateral Received (5) |  | Net Amount
Derivative assets |  | $ | 610,920 |  |  | $ | (75,534) |  |  | $ | (237,258) |  |  | $ | 298,128 |  |  | $ | (246,259) |  |  | $ | 51,869 |
|  |  |  | 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 |  |
|  | Gross Amounts Recognized (2) |  | Master Netting Arrangements |  | Cash Collateral Pledged (4) |  |  | Security Collateral Pledged (5) |  | Net Amount
Derivative liabilities |  | $ | 613,314 |  |  | $ | (75,534) |  |  | $ | (636) |  |  | $ | 537,144 |  |  | $ | — |  |  | $ | 537,144 |
(1)Includes $7 million and $3 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of September 30, 2024 and December 31, 2023, respectively. (2)Includes $16 million of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of both September 30, 2024 and December 31, 2023. (3)Gross cash collateral received under master netting arrangements or similar agreements was $269 million and $244 million as of September 30, 2024 and December 31, 2023, respectively. Of the gross cash collateral received, $261 million and $237 million were used to offset derivative assets as of September 30, 2024 and December 31, 2023, respectively. (4)Gross cash collateral pledged under master netting arrangements or similar agreements was $13 million and $1 million as of September 30, 2024 and December 31, 2023, respectively. Of the gross cash collateral pledged, $11 million and $1 million were used to offset derivative liabilities as of September 30, 2024 and December 31, 2023, respectively. (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 agreements. Refer to Note 4 — Securities Purchased under Resale 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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