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Fair Value Measurement and Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2021

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 described 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 prices derived from 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 — The fair value of 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 significant 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 available, the Company uses quoted market prices to determine the fair value of AFS debt securities that are classified as Level 1. Level 1 AFS debt securities are comprised of U.S. Treasury 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. In addition, the Company obtains market quotes from other official published sources. As these valuations are based on observable inputs in the current marketplace, they 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 periodically.

Equity Securities — Equity securities consisted of mutual funds as of both June 30, 2021 and December 31, 2020. The Company invested in these mutual funds for Community Reinvestment Act (“CRA”) purposes. 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 that are not designated as hedging instruments 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 certain variable interest rate borrowings. These interest rate swap contracts with institutional counterparties were designated as cash flow hedges. 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. 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. The Company entered into offsetting foreign exchange contracts with third-party financial institutions to manage its exposure with respect to a majority of these foreign exchange contracts. The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. The fair value of foreign exchange contracts 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 June 30, 2021 and December 31, 2020, the Bank 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 non-deliverable forward 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, the Company periodically obtains warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. As of June 30, 2021, the warrants included on the Consolidated Financial Statements were from private companies. As of December 31, 2020, 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. 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. 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. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement of 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 oil and gas 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 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. 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. 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 June 30, 2021 and December 31, 2020:



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 2021
	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	$	836,940	$	—	$	—	$	836,940
U.S. government agency and U.S. government-sponsored enterprise debt securities	—		1,224,511		—		1,224,511
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		1,188,640		—		1,188,640
Residential mortgage-backed securities	—		2,368,552		—		2,368,552
Municipal securities	—		454,923		—		454,923
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—		364,172		—		364,172
Residential mortgage-backed securities	—		772,474		—		772,474
Corporate debt securities	—		552,715		—		552,715
Foreign government bonds	—		283,175		—		283,175
Asset-backed securities	—		61,829		—		61,829
Collateralized loan obligations (“CLOs”)	—		291,529		—		291,529
Total AFS debt securities	$	836,940	$	7,562,520	$	—	$	8,399,460

Investments in tax credit and other investments:
Equity securities (1)	$	22,345	$	4,474	$	—	$	26,819
Total investments in tax credit and other investments	$	22,345	$	4,474	$	—	$	26,819

Derivative assets:
Interest rate contracts	$	—	$	329,953	$	—	$	329,953
Foreign exchange contracts	—		29,867		—		29,867
Credit contracts	—		3		—		3
Equity contracts	—		—		223		223
Commodity contracts	—		228,536		—		228,536
Gross derivative assets	$	—	$	588,359	$	223	$	588,582
Netting adjustments (2)	$	—	$	(93,091)	$	—	$	(93,091)
Net derivative assets	$	—	$	495,268	$	223	$	495,491

Derivative liabilities:
Interest rate contracts	$	—	$	228,952	$	—	$	228,952
Foreign exchange contracts	—		20,555		—		20,555
Credit contracts	—		87		—		87
Commodity contracts	—		199,327		—		199,327
Gross derivative liabilities	$	—	$	448,921	$	—	$	448,921
Netting adjustments (2)	$	—	$	(253,309)	$	—	$	(253,309)
Net derivative liabilities	$	—	$	195,612	$	—	$	195,612



($ in thousands)	Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2020
	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	$	50,761	$	—	$	—	$	50,761
U.S. government agency and U.S. government-sponsored enterprise debt securities	—		814,319		—		814,319
U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		1,153,770		—		1,153,770
Residential mortgage-backed securities	—		1,660,894		—		1,660,894
Municipal securities	—		396,073		—		396,073
Non-agency mortgage-backed securities:
Commercial mortgage-backed securities	—		239,842		—		239,842
Residential mortgage-backed securities	—		289,775		—		289,775
Corporate debt securities	—		405,968		—		405,968
Foreign government bonds	—		182,531		—		182,531
Asset-backed securities	—		63,231		—		63,231
CLOs	—		287,494		—		287,494
Total AFS debt securities	$	50,761	$	5,493,897	$	—	$	5,544,658

Investments in tax credit and other investments:
Equity securities (1)	$	22,548	$	8,724	$	—	$	31,272
Total investments in tax credit and other investments	$	22,548	$	8,724	$	—	$	31,272

Derivative assets:
Interest rate contracts	$	—	$	489,132	$	—	$	489,132
Foreign exchange contracts	—		30,300		—		30,300
Credit contracts	—		13		—		13
Equity contracts	—		585		273		858
Commodity contracts	—		82,451		—		82,451
Gross derivative assets	$	—	$	602,481	$	273	$	602,754
Netting adjustments (2)	$	—	$	(101,512)	$	—	$	(101,512)
Net derivative assets	$	—	$	500,969	$	273	$	501,242

Derivative liabilities:
Interest rate contracts	$	—	$	317,698	$	—	$	317,698
Foreign exchange contracts	—		22,759		—		22,759
Credit contracts	—		206		—		206
Commodity contracts	—		84,165		—		84,165
Gross derivative liabilities	$	—	$	424,828	$	—	$	424,828
Netting adjustments (2)	$	—	$	(184,697)	$	—	$	(184,697)
Net derivative liabilities	$	—	$	240,131	$	—	$	240,131

(1)Equity securities consist of mutual funds with readily determinable fair values. The Company invested in these mutual funds for CRA purposes.

(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 and six months ended June 30, 2021 and 2020, Level 3 fair value measurements that were measured on a recurring basis consisted of warrants issued by private companies. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the three and six months ended June 30, 2021 and 2020:



($ in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Equity Contracts
Beginning balance	$	272	$	713	$	273	$	421

Total gains included in earnings (1)	47		7,976		46		8,268







Settlements	(96)		—		(96)		—
Transfers out of Level 3 (2)	—		(8,373)		—		(8,373)
Ending balance	$	223	$	316	$	223	$	316

(1)Includes unrealized (losses) gains of $(27) thousand and $8.0 million for the three months ended June 30, 2021 and 2020, respectively, and $(29) thousand and $8.3 million for the six months ended June 30, 2021 and 2020, respectively. The realized/unrealized gains (losses) of equity contracts are included in Lending fees on the Consolidated Statement of Income.

(2)During the three and six months ended June 30, 2020, the Company transferred $8.4 million of equity contracts measured on a recurring basis out of Level 3 into Level 2 after the corresponding issuer of the equity contracts, which was previously a private company, completed its initial public offering and became a public company.

The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of June 30, 2021 and December 31, 2020, 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 of Inputs (1)
June 30, 2021
Derivative assets:
Equity contracts	$	223	Black-Scholes option pricing model	Equity volatility	41% — 53%	47%
				Liquidity discount	47%	47%
December 31, 2020
Derivative assets:
Equity contracts	$	273	Black-Scholes option pricing model	Equity volatility	46% — 61%	53%
				Liquidity discount	47%	47%

(1)Weighted-average of inputs is calculated based on the fair value of equity contracts as of June 30, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis include certain individually evaluated loans held-for-investment, investments in qualified affordable housing partnerships, tax credit and other investments, OREO, loans held-for-sale, and other nonperforming assets. Nonrecurring fair value adjustments result from impairment on certain individually evaluated loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, write-downs of OREO and other nonperforming assets, or from the application of lower of cost or fair value on loans held-for-sale.

Individually Evaluated Loans Held-For-Investment — Individually evaluated loans held-for-investment are classified as Level 3 assets. The following two methods are used to derive the fair value of individually evaluated loans held-for-investment:

•Discounted cash flow valuation techniques that consist of developing an expected stream of cash flows over the life of the loans, and then calculating the present value of the loans by discounting the expected cash flows at a designated discount rate.

•When the repayment of an individually evaluated loan is dependent on the sale of the collateral, the fair value of the loan is determined 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, or unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches.

Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company conducts due diligence on its investments in qualified affordable housing partnerships, tax credit and other investments prior to the initial investment date and through the placed-in-service date. After these investments are either acquired or placed into service, the Company continues its periodic monitoring process to ensure realizable book values and that there is no significant tax credit recapture risk. This monitoring process includes the quarterly review of the financial statements, the annual review of tax returns of the investment entity, the annual review of the financial statements of the guarantor (if any) and a comparison of the actual performance of the investment against the financial projections prepared at the time when the investment was made. The Company assesses its tax credit and other investments for possible other-than-temporary impairment (“OTTI”) on an annual basis or when events or circumstances suggest that the carrying amount of the investments may not be realizable. These circumstances can include, but are not limited to the following factors:

•expected future cash flows that are less than the carrying amount of the investment;

•changes 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 and 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 June 30, 2021 and December 31, 2020:



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of June 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurements
Loans held-for-investment:
Commercial:
Commercial and industrial (“C&I”)	$	—	$	—	$	110,211	$	110,211
Commercial real estate (“CRE”):
CRE	—		—		53,509		53,509
Multifamily residential	—		—		2,428		2,428
Construction and land	—		—		4,191		4,191

Total commercial	—		—		170,339		170,339
Consumer:
Residential mortgage:
Single-family residential	—		—		1,125		1,125
Home equity lines of credit (“HELOCs”)	—		—		3,605		3,605


Total consumer	—		—		4,730		4,730
Total loans held-for-investment	$	—	$	—	$	175,069	$	175,069

OREO (1)	$	—	$	—	$	14,914	$	14,914



($ in thousands)	Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurements
Loans held-for-investment:
Commercial:
C&I	$	—	$	—	$	143,331	$	143,331
CRE:
CRE	—		—		42,894		42,894



Total commercial	—		—		186,225		186,225
Consumer:
Residential mortgage:

HELOCs	—		—		1,146		1,146

Other consumer	—		—		2,491		2,491
Total consumer	—		—		3,637		3,637
Total loans held-for-investment	$	—	$	—	$	189,862	$	189,862
Investments in tax credit and other investments, net	$	—	$	—	$	3,140	$	3,140
OREO (1)	$	—	$	—	$	15,824	$	15,824

(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.

The following table presents the (decrease) increase in fair value of assets for which a nonrecurring fair value adjustment has been recognized for the three and six months ended June 30, 2021 and 2020:



($ in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Loans held-for-investment:
Commercial:
C&I	$	(6,462)	$	(8,846)	$	(15,530)	$	(30,372)
CRE:
CRE	(275)		(271)		(7,336)		(276)
Multifamily residential	2		—		(6)		—
Construction and land	(209)		—		(280)		—

Total commercial	(6,944)		(9,117)		(23,152)		(30,648)
Consumer:
Residential mortgage:
Single-family residential	—		—		(8)		—
HELOCs	3		(64)		(23)		(257)

Other consumer	(2,491)		—		(2,491)		2,491
Total consumer	(2,488)		(64)		(2,522)		2,234
Total loans held-for-investment	$	(9,432)	$	(9,181)	$	(25,674)	$	(28,414)
Investments in tax credit and other investments, net	$	877	$	(733)	$	877	$	(583)
OREO	$	(910)	$	—	$	(910)	$	—
Other nonperforming assets	$	—	$	—	$	(3,890)	$	—

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 June 30, 2021 and December 31, 2020:



($ in thousands)	Fair Value Measurements (Level 3)		Valuation Techniques	Unobservable Inputs	Range of Inputs	Weighted- Average of Inputs (1)
June 30, 2021
Loans held-for-investment	$	96,038	Discounted cash flows	Discount	4% — 20%	9%
	$	13,638	Fair value of collateral	Discount	20% — 40%	34%

	$	65,393	Fair value of property	Selling cost	7% — 8%	8%
OREO	$	14,914	Fair value of property	Selling cost	8%	8%



December 31, 2020
Loans held-for-investment	$	104,783	Discounted cash flows	Discount	3% — 15%	11%

	$	22,207	Fair value of collateral	Discount	10% — 26%	15%
	$	15,879	Fair value of collateral	Contract value	NM	NM
	$	46,993	Fair value of property	Selling cost	7% — 26%	10%
Investments in tax credit and other investments, net	$	3,140	Individual analysis of each investment	Expected future tax benefits and distributions	NM	NM
OREO	$	15,824	Fair value of property	Selling cost	8%	8%

NM — Not meaningful.

(1)Weighted-average of inputs is based on the relative fair value of the respective assets as of June 30, 2021 and December 31, 2020.

Disclosures about Fair Value of Financial Instruments

The following tables present the fair value estimates for financial instruments as of June 30, 2021 and December 31, 2020, 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)	June 30, 2021
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	5,997,805	$	5,997,805	$	—	$	—	$	5,997,805
Interest-bearing deposits with banks	$	830,279	$	—	$	830,279	$	—	$	830,279
Resale agreements	$	2,299,184	$	—	$	2,290,097	$	—	$	2,290,097

Restricted equity securities, at cost	$	76,931	$	—	$	76,931	$	—	$	76,931
Loans held-for-sale	$	1,819	$	—	$	1,819	$	—	$	1,819
Loans held-for-investment, net	$	39,485,775	$	—	$	—	$	39,414,107	$	39,414,107
Mortgage servicing rights	$	5,373	$	—	$	—	$	8,788	$	8,788
Accrued interest receivable	$	154,810	$	—	$	154,810	$	—	$	154,810
Financial liabilities:
Demand, checking, savings and money market deposits	$	44,151,817	$	—	$	44,151,817	$	—	$	44,151,817
Time deposits	$	8,430,758	$	—	$	8,442,834	$	—	$	8,442,834


FHLB advances	$	248,464	$	—	$	250,871	$	—	$	250,871
Repurchase agreements	$	300,000	$	—	$	314,315	$	—	$	314,315
Long-term debt	$	147,515	$	—	$	150,232	$	—	$	150,232
Accrued interest payable	$	10,279	$	—	$	10,279	$	—	$	10,279



($ in thousands)	December 31, 2020
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	4,017,971	$	4,017,971	$	—	$	—	$	4,017,971
Interest-bearing deposits with banks	$	809,728	$	—	$	809,728	$	—	$	809,728
Resale agreements	$	1,460,000	$	—	$	1,464,635	$	—	$	1,464,635

Restricted equity securities, at cost	$	83,046	$	—	$	83,046	$	—	$	83,046
Loans held-for-sale	$	1,788	$	—	$	1,788	$	—	$	1,788
Loans held-for-investment, net	$	37,770,972	$	—	$	—	$	37,803,940	$	37,803,940

Mortgage servicing rights	$	5,522	$	—	$	—	$	8,435	$	8,435
Accrued interest receivable	$	150,140	$	—	$	150,140	$	—	$	150,140
Financial liabilities:

Demand, checking, savings and money market deposits	$	35,862,403	$	—	$	35,862,403	$	—	$	35,862,403
Time deposits	$	9,000,349	$	—	$	9,016,884	$	—	$	9,016,884
Short-term borrowings	$	21,009	$	—	$	21,009	$	—	$	21,009
FHLB advances	$	652,612	$	—	$	659,631	$	—	$	659,631
Repurchase agreements	$	300,000	$	—	$	317,850	$	—	$	317,850
Long-term debt	$	147,376	$	—	$	150,131	$	—	$	150,131
Accrued interest payable	$	11,956	$	—	$	11,956	$	—	$	11,956

- 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