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Fair Value Measurement and Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

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.

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.

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.

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
($ in thousands)	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.




($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2018
($ in thousands)	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.

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.

•

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
($ in thousands)	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.




($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2018
($ in thousands)	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,
($ in thousands)	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	)	$	—		$	—

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
($ in thousands)	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




($ in thousands)	December 31, 2018
($ in thousands)	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.

- Definition

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

+ References + Details