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Fair Value Measurement and Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

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 Debt Securities — When available, the Company uses quoted market prices to determine the fair value of AFS debt securities, which are classified as Level 1. Level 1 AFS debt securities are comprised of U.S. Treasury securities. The fair value of other AFS debt 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 providers 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 providers 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 providers for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. 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 consisted of mutual funds as of both March 31, 2020 and December 31, 2019. 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 March 31, 2020 and December 31, 2019, 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 were 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. As of March 31, 2020 and December 31, 2019, the Company held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited, a non-U.S. dollar (“USD”) functional currency subsidiary in China. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency contracts is determined 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 warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. As of March 31, 2020 and December 31, 2019, 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 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’ warrants. Given that the Company holds long positions in all warrants, an increase in volatility assumption would generally result in an increase in fair value. A higher liquidity discount would result in a decrease in fair value. 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-Scholes 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 March 31, 2020 and December 31, 2019:




($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2020
($ 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 debt securities:
U.S. Treasury securities	$	51,428	$	—		$	—	$	51,428
U.S. government agency and U.S. government- sponsored enterprise debt securities	—		518,408			—		518,408
U.S. government agency and U.S. government- sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		697,948			—		697,948
Residential mortgage-backed securities	—		1,352,367			—		1,352,367
Municipal securities	—		309,626			—		309,626
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—		87,114			—		87,114
Residential mortgage-backed securities	—		62,134			—		62,134
Corporate debt securities	—		10,963			—		10,963
Foreign bonds	—		284,521			—		284,521
Asset-backed securities	—		61,556			—		61,556
Collateralized loan obligations (“CLOs”)	—		259,878			—		259,878
Total AFS debt securities	$	51,428	$	3,644,515		$	—	$	3,695,943

Investments in tax credit and other investments:
Equity securities ⁽¹⁾	$	22,195	$	8,135		$	—	$	30,330
Total investments in tax credit and other investments	$	22,195	$	8,135		$	—	$	30,330

Derivative assets:
Interest rate contracts	$	—	$	605,122		$	—	$	605,122
Foreign exchange contracts	—		64,383			—		64,383
Credit contracts	—		8			—		8
Equity contracts	—		415			713		1,128
Commodity contracts	—		163,563			—		163,563
Gross derivative assets	$	—	$	833,491		$	713	$	834,204
Netting adjustments ⁽²⁾	$	—	$	(178,774	)	$	—	$	(178,774	)
Net derivative assets	$	—	$	654,717		$	713	$	655,430

Derivative liabilities:
Interest rate contracts	$	—	$	403,351		$	—	$	403,351
Foreign exchange contracts	—		55,658			—		55,658
Credit contracts	—		218			—		218
Commodity contracts	—		199,288			—		199,288
Gross derivative liabilities	$	—	$	658,515		$	—	$	658,515
Netting adjustments ⁽²⁾	$	—	$	(243,101	)	$	—	$	(243,101	)
Net derivative liabilities	$	—	$	415,414		$	—	$	415,414


(1)	Equity securities consist 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-Q for additional information.




($ 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 debt 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
CLOs	—		284,706			—		284,706
Total AFS debt 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 consist 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-Q for additional information.

For the three months ended March 31, 2020 and 2019, Level 3 fair value measurements that were measured on a recurring basis consist of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity warrants for the three months ended March 31, 2020 and 2019:




($ in thousands)	Three Months Ended March 31,
($ in thousands)	2020		2019
Equity Contracts
Beginning balance	$	421	$	673
Total gains (losses) included in earnings ⁽¹⁾	292		(231		)
Ending balance	$	713	$	442


(1)	Includes unrealized gains (losses) of $292 thousand and $(43) thousand for the three months ended March 31, 2020 and 2019, respectively. 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 March 31, 2020 and December 31, 2019, respectively. 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⁾
March 31, 2020
Derivative assets:
Equity contracts	$	713	Black-Scholes option pricing model	Equity volatility	72% — 86%	82%
				Liquidity discount	47%	47%
December 31, 2019
Derivative assets:
Equity contracts	$	421	Black-Scholes option pricing model	Equity volatility	39% — 44%	42%
				Liquidity discount	47%	47%


(1)	Weighted-average is calculated based on fair value of equity warrants as of March 31, 2020 and December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis include certain 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 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.

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.

Other nonperforming assets — Other nonperforming assets are recorded at fair value upon transfers from loans to foreclosed assets. Subsequently, foreclosed assets are recorded at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised values of the collateral or management’s estimates of the foreclosed asset. The Company records an impairment when the foreclosed asset’s fair value declines below its carrying value. Other nonperforming assets 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 March 31, 2020 and December 31, 2019:




($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of March 31, 2020
($ 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
Impaired loans ⁽¹⁾:
Commercial:
C&I	$	—	$	—	$	28,877	$	28,877
CRE:
CRE	—		—		735		735
Total commercial	—		—		29,612		29,612
Consumer:
Residential mortgage:
HELOCs	—		—		1,798		1,798
Other consumer	—		—		2,491		2,491
Total consumer	—		—		4,289		4,289
Total impaired loans	$	—	$	—	$	33,901	$	33,901
Investments in tax credit and other investments, net	$	—	$	—	$	3,076	$	3,076
Other nonperforming assets	$	—	$	—	$	867	$	867




($ 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 ⁽²⁾	$	—	$	—	$	125	$	125
Investments in tax credit and other investments, net	$	—	$	—	$	3,076	$	3,076


(1)	The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans that were previously accounted for as PCI loans. Total impaired loans as of March 31, 2020 considers PCD loans, if impaired, whereas the impaired loans as of December 31, 2019 includes only non-PCI loans.


(2)	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.

The following table presents the increase (decrease) in fair value of assets for which a fair value adjustment has been recognized for the three months ended March 31, 2020 and 2019, related to assets that were still held as of those dates:




($ in thousands)	Three Months Ended March 31,
($ in thousands)	2020			2019
Impaired loans:	Total Impaired Loans ⁽¹⁾			Non-PCI Impaired Loans
Commercial:
C&I	$	(21,501	)	$	(2,734	)
CRE:
CRE	(5		)	2
Total commercial	(21,506		)	(2,732		)
Consumer:
Residential mortgage:
HELOCs	(193		)	(78		)
Other consumer	2,491			—
Total consumer	2,298			(78		)
Total impaired loans	$	(19,208	)	$	(2,810	)
Investments in tax credit and other investments, net	$	150		$	(6,978	)
Other nonperforming assets	$	(300	)	$	—


(1)	The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans that were previously accounted for as PCI loans. Total impaired loans during the three months ended March 31, 2020 considers PCD loans, if impaired, whereas impaired loans during the three months ended March 31, 2019 includes only non-PCI loans.

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 March 31, 2020 and December 31, 2019:




($ in thousands)	Fair Value Measurements (Level 3)		Valuation Technique(s)	Unobservable Input(s)	Range of Input(s)	Weighted- Average ⁽¹⁾
March 31, 2020
Impaired loans ⁽¹⁾	$	25,140	Discounted cash flows	Discount	4% — 15%	12%
	$	5,712	Fair value of collateral	Discount	8% — 9%	9%
	$	2,491	Fair value of collateral	Contract value	NM	NM
	$	558	Fair value of property	Selling cost	8%	8%
Other nonperforming assets	$	867	Fair value of collateral	Contract value	NM	NM
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, 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

NM — Not meaningful.


(1)	Presented on a total impaired loan basis due to the adoption of ASU 2016-13 PCD loans (formerly, PCI loans) are assessed for impairment in the same manner as non-PCD loans.


(2)	Weighted-average is based on the relative fair value of the respective assets as of March 31, 2020 and December 31, 2019.

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of March 31, 2020 and December 31, 2019, 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)	March 31, 2020
($ in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	3,080,042	$	3,080,042	$	—	$	—	$	3,080,042
Interest-bearing deposits with banks	$	293,509	$	—	$	293,509	$	—	$	293,509
Resale agreements ⁽¹⁾	$	860,000	$	—	$	867,872	$	—	$	867,872
Restricted equity securities, at cost	$	78,745	$	—	$	78,745	$	—	$	78,745
Loans held-for-sale	$	1,594	$	—	$	1,594	$	—	$	1,594
Loans held-for-investment, net	$	35,336,390	$	—	$	—	$	35,736,331	$	35,736,331
Mortgage servicing rights	$	5,711	$	—	$	—	$	7,926	$	7,926
Accrued interest receivable	$	148,294	$	—	$	148,294	$	—	$	148,294
Financial liabilities:
Demand, checking, savings and money market deposits	$	28,720,425	$	—	$	28,720,425	$	—	$	28,720,425
Time deposits	$	9,966,533	$	—	$	9,992,060	$	—	$	9,992,060
Short-term borrowings	$	66,924	$	—	$	66,924	$	—	$	66,924
FHLB advances	$	646,336	$	—	$	657,859	$	—	$	657,859
Repurchase agreements ⁽¹⁾	$	450,000	$	—	$	470,230	$	—	$	470,230
Long-term debt	$	147,169	$	—	$	152,942	$	—	$	152,942
Accrued interest payable	$	25,209	$	—	$	25,209	$	—	$	25,209




($ 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

(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, $0.0 million and $250.0 million as of March 31, 2020 and December 31, 2019, 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.

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