Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017
 
Commission file number 000-24939

 EAST WEST BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
95-4703316
(I.R.S. Employer Identification No.)
 
 
 
135 North Los Robles Ave., 7th Floor, Pasadena, California
 (Address of principal executive offices)
 
91101
(Zip Code)

Registrant’s telephone number, including area code:
(626) 768-6000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 144,486,706 shares as of July 31, 2017.

 




TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q (“Form 10-Q”) contain or incorporate statements that East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) believes are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. 
There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such differences, some of which are beyond the Company’s control, include, but are not limited to:

the Company’s ability to compete effectively against other financial institutions in its banking markets;
changes in the commercial and consumer real estate markets;
changes in the Company’s costs of operation, compliance and expansion;
changes in the United States (“U.S.”) economy, including inflation, employment levels, rate of growth and general business conditions;
changes in government interest rate policies;
changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and the California Department of Business Oversight — Division of Financial Institutions;
heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with retail customers;
changes in the economy of and monetary policy in the People’s Republic of China;
changes in income tax laws and regulations;
changes in accounting standards as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies and their impact on critical accounting policies and assumptions;
changes in the equity and debt securities markets;
future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;
fluctuations in the Company’s stock price;
fluctuations in foreign currency exchange rates;
success and timing of the Company’s business strategies;
ability of the Company to adopt and successfully integrate new technologies into its business in a strategic manner;
impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions;
impact of potential federal tax increases and spending cuts;
impact of adverse judgments or settlements in litigation;
impact of regulatory enforcement actions;
changes in the Company’s ability to receive dividends from its subsidiaries;
impact of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;
impact of natural or man-made disasters or calamities or conflicts;
continuing consolidation in the financial services industry;
the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;
impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Company’s business, business practices and cost of operations;
impact of adverse changes to the Company’s credit ratings from the major credit rating agencies;

3



impact of failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused;
adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
the effect of the current low interest rate environment or changes in interest rates on the Company’s net interest income and net interest margin;
the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin; and
a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increased funding costs, reduced investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment (“OTTI”) on securities held in the Company’s available-for-sale investment securities portfolio.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on February 27, 2017 (the “Company’s 2016 Form 10-K”), under the heading “ITEM 1A. RISK FACTORS” and the information set forth under “ITEM 1A. RISK FACTORS” in this Form 10-Q. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.


4



PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except shares)

 
 
 
June 30,
2017
 
December 31,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Cash and due from banks
 
$
429,121

 
$
460,559

Interest-bearing cash with banks
 
2,323,355

 
1,417,944

Cash and cash equivalents
 
2,752,476

 
1,878,503

Interest-bearing deposits with banks
 
296,679

 
323,148

Securities purchased under resale agreements (“resale agreements”)
 
1,300,000

 
2,000,000

Securities :
 
 
 
 
Available-for-sale investment securities, at fair value (includes assets pledged as collateral of $577,503 in 2017 and $767,437 in 2016)
 
2,822,725

 
3,335,795

Held-to-maturity investment security, at cost (fair value of $121,803 in 2017 and $144,593 in 2016)
 
121,131

 
143,971

Restricted equity securities, at cost
 
73,173

 
72,775

Loans held-for-sale
 
11,649

 
23,076

Loans held-for-investment (net of allowance for loan losses of $276,316 in 2017 and $260,520 in 2016; includes assets pledged as collateral of $17,587,542 in 2017 and $16,441,068 in 2016)
 
26,934,350

 
25,242,619

Investments in qualified affordable housing partnerships, net
 
169,103

 
183,917

Investments in tax credit and other investments, net
 
189,405

 
173,280

Premises and equipment (net of accumulated depreciation of $105,918 in 2017 and $114,890 in 2016)
 
128,282

 
159,923

Goodwill
 
469,433

 
469,433

Other assets
 
649,211

 
782,400

TOTAL
 
$
35,917,617

 
$
34,788,840

LIABILITIES
 
 

 
 

Customer deposits:
 
 

 
 

Noninterest-bearing
 
$
10,460,230

 
$
10,183,946

Interest-bearing
 
20,694,057

 
19,707,037

Total deposits
 
31,154,287

 
29,890,983

Short-term borrowings
 
24,426

 
60,050

Federal Home Loan Bank (“FHLB”) advances
 
322,756

 
321,643

Securities sold under repurchase agreements (“repurchase agreements”)
 
50,000

 
350,000

Long-term debt
 
176,450

 
186,327

Accrued expenses and other liabilities
 
519,437

 
552,096

Total liabilities
 
32,247,356

 
31,361,099

COMMITMENTS AND CONTINGENCIES (Note 11)
 


 


STOCKHOLDERS’ EQUITY
 
 
 
 
Common stock, $0.001 par value, 200,000,000 shares authorized; 165,146,350 and 164,604,072 shares issued in 2017 and 2016, respectively
 
165

 
164

Additional paid-in capital
 
1,738,556

 
1,727,434

Retained earnings
 
2,417,367

 
2,187,676

Treasury stock at cost — 20,660,024 shares in 2017 and 20,436,621 shares in 2016
 
(451,646
)
 
(439,387
)
Accumulated other comprehensive loss (“AOCI”), net of tax
 
(34,181
)
 
(48,146
)
Total stockholders’ equity
 
3,670,261

 
3,427,741

TOTAL
 
$
35,917,617

 
$
34,788,840

 



See accompanying Notes to Consolidated Financial Statements.

5



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ and shares in thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 

 
 

Loans receivable, including fees
 
$
293,039

 
$
254,331

 
$
565,100

 
$
507,873

Investment securities
 
13,861

 
12,852

 
29,108

 
24,045

Resale agreements
 
7,853

 
7,968

 
17,321

 
14,645

Restricted equity securities
 
470

 
602

 
1,247

 
1,397

Interest-bearing cash and deposits with banks
 
7,552

 
3,112

 
12,668

 
7,077

Total interest and dividend income
 
322,775

 
278,865

 
625,444

 
555,037

INTEREST EXPENSE
 
 
 
 
 
 

 
 

Customer deposits
 
27,045

 
20,362

 
50,717

 
39,659

Federal funds purchased and other short-term borrowings
 
252

 
169

 
665

 
178

FHLB advances
 
1,761

 
1,292

 
3,791

 
2,792

Repurchase agreements
 
2,273

 
2,196

 
5,416

 
4,122

Long-term debt
 
1,353

 
1,262

 
2,642

 
2,498

Total interest expense
 
32,684

 
25,281

 
63,231

 
49,249

Net interest income before provision for credit losses

290,091

 
253,584

 
562,213

 
505,788

Provision for credit losses
 
10,685

 
6,053

 
17,753

 
7,493

Net interest income after provision for credit losses
 
279,406

 
247,531

 
544,460

 
498,295

NONINTEREST INCOME
 
 
 
 
 
 

 
 

Branch fees
 
10,700

 
10,353

 
20,996

 
20,575

Letters of credit fees and foreign exchange income
 
11,986

 
10,943

 
23,055

 
20,496

Ancillary loan fees and other income
 
5,907

 
4,285

 
10,889

 
7,862

Wealth management fees
 
3,537

 
2,778

 
8,067

 
5,829

Derivative fees and other income
 
3,765

 
1,444

 
6,271

 
3,987

Net gains on sales of loans
 
1,546

 
2,882

 
4,300

 
4,809

Net gains on sales of available-for-sale investment securities
 
2,720

 
2,836

 
5,194

 
6,678

Net gains on sales of fixed assets
 
1,042

 
2,241

 
73,049

 
2,430

Other fees and operating income
 
6,197

 
6,502

 
11,602

 
12,111

Total noninterest income
 
47,400

 
44,264

 
163,423

 
84,777

NONINTEREST EXPENSE
 
 
 
 
 
 

 
 

Compensation and employee benefits
 
80,744

 
73,287

 
165,347

 
145,124

Occupancy and equipment expense
 
15,554

 
15,748

 
31,194

 
30,163

Deposit insurance premiums and regulatory assessments
 
5,779

 
5,473

 
11,708

 
10,891

Legal expense
 
2,552

 
4,346

 
5,614

 
7,353

Data processing
 
3,058

 
3,295

 
6,005

 
5,983

Consulting expense
 
4,769

 
5,981

 
6,688

 
14,433

Deposit related expense
 
2,505

 
2,273

 
4,870

 
4,593

Computer software expense
 
5,462

 
3,194

 
9,430

 
5,936

Other operating expense
 
19,064

 
19,226

 
35,527

 
38,694

Amortization of tax credit and other investments
 
27,872

 
14,006

 
42,232

 
28,161

Amortization of core deposit intangibles
 
1,762

 
2,050

 
3,579

 
4,154

Total noninterest expense
 
169,121

 
148,879

 
322,194

 
295,485

INCOME BEFORE INCOME TAXES
 
157,685

 
142,916

 
385,689

 
287,587

INCOME TAX EXPENSE
 
39,355

 
39,632

 
97,623

 
76,787

NET INCOME
 
$
118,330

 
$
103,284

 
$
288,066

 
$
210,800

EARNINGS PER SHARE (“EPS”)
 
 
 
 
 
 
 
 
BASIC
 
$
0.82

 
$
0.72

 
$
2.00

 
$
1.46

DILUTED
 
$
0.81

 
$
0.71

 
$
1.98

 
$
1.45

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
 
 
 
 
 
 
 
 
BASIC
 
144,485

 
144,101

 
144,368

 
144,029

DILUTED
 
145,740

 
145,078

 
145,774

 
144,973

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.20

 
$
0.20

 
$
0.40

 
$
0.40

 



See accompanying Notes to Consolidated Financial Statements.

6



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
118,330

 
$
103,284

 
$
288,066

 
$
210,800

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net change in unrealized gains on available-for-sale investment securities
 
6,201

 
4,984

 
9,822

 
17,900

Foreign currency translation adjustments
 
3,136

 
(4,638
)
 
4,143

 
(4,671
)
Other comprehensive income
 
9,337

 
346

 
13,965

 
13,229

COMPREHENSIVE INCOME
 
$
127,667

 
$
103,630

 
$
302,031

 
$
224,029

 



See accompanying Notes to Consolidated Financial Statements.

7



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except share data)
(Unaudited)
 
 
 
Common Stock and Additional Paid-in Capital
 
Retained
Earnings
 
Treasury
Stock
 
AOCI,
Net of Tax
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
 
 
BALANCE, JANUARY 1, 2016
 
143,909,233

 
$
1,701,459

 
$
1,872,594

 
$
(436,162
)
 
$
(14,941
)
 
$
3,122,950

Net income
 

 

 
210,800

 

 

 
210,800

Other comprehensive income
 

 

 

 

 
13,229

 
13,229

Stock compensation costs
 

 
9,210

 

 

 

 
9,210

Net activity of common stock pursuant to various stock compensation plans and agreements, and related tax benefits
 
192,912

 
2,067

 

 
(3,094
)
 

 
(1,027
)
Common stock dividends
 

 

 
(58,252
)
 

 

 
(58,252
)
BALANCE, JUNE 30, 2016
 
144,102,145

 
$
1,712,736

 
$
2,025,142

 
$
(439,256
)
 
$
(1,712
)
 
$
3,296,910

BALANCE, JANUARY 1, 2017
 
144,167,451

 
$
1,727,598

 
$
2,187,676

 
$
(439,387
)
 
$
(48,146
)
 
$
3,427,741

Net income
 

 

 
288,066

 

 

 
288,066

Other comprehensive income
 

 

 

 

 
13,965

 
13,965

Stock compensation costs
 

 
10,115

 

 

 

 
10,115

Net activity of common stock pursuant to various stock compensation plans and agreements
 
318,875

 
1,008

 

 
(12,259
)
 

 
(11,251
)
Common stock dividends
 

 

 
(58,375
)
 

 

 
(58,375
)
BALANCE, JUNE 30, 2017
 
144,486,326

 
$
1,738,721

 
$
2,417,367

 
$
(451,646
)
 
$
(34,181
)
 
$
3,670,261

 



See accompanying Notes to Consolidated Financial Statements.

8



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
288,066

 
$
210,800

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
79,166

 
55,192

Accretion of discount and amortization of premiums, net
 
(13,348
)
 
(29,960
)
Stock-based compensation
 
10,115

 
9,210

Deferred tax expenses
 
3,699

 
4,357

Provision for credit losses
 
17,753

 
7,493

Net gains on sales of loans
 
(4,300
)
 
(4,809
)
Net gains on sales of available-for-sale investment securities
 
(5,194
)
 
(6,678
)
Net gains on sales of premises and equipment
 
(73,049
)
 
(2,430
)
Originations and purchases of loans held-for-sale
 
(9,806
)
 
(3,364
)
Proceeds from sales and paydowns/payoffs in loans held-for-sale
 
9,984

 
4,794

Net change in accrued interest receivable and other assets
 
94,552

 
(5,587
)
Net change in accrued expenses and other liabilities
 
(14,986
)
 
32,317

Other net operating activities
 
(2,399
)
 
(32
)
Total adjustments
 
92,187

 
60,503

Net cash provided by operating activities
 
380,253

 
271,303

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Net (increase) decrease in:
 
 

 
 

Loans held-for-investment
 
(1,660,828
)
 
(265,422
)
Interest-bearing deposits with banks
 
31,060

 
65,113

Investments in qualified affordable housing partnerships, tax credit and other investments, net
 
(69,467
)
 
(44,672
)
Purchases of:
 
 

 
 

Resale agreements
 
(550,000
)
 
(1,100,000
)
Available-for-sale investment securities
 
(272,698
)
 
(693,406
)
Loans held-for-investment
 
(368,698
)
 
(781,524
)
Premises and equipment
 
(4,990
)
 
(6,485
)
Proceeds from sale of:
 
 

 
 

Available-for-sale investment securities
 
551,889

 
864,743

Loans held-for-investment
 
361,380

 
398,010

Other real estate owned (“OREO”)
 
5,298

 
1,351

Premises and equipment
 
116,021

 
7,276

Paydowns and maturities of resale agreements
 
950,000

 
1,050,000

Repayments, maturities and redemptions of available-for-sale investment securities
 
244,770

 
443,641

Other net investing activities
 
22,557

 
11,694

Net cash used in investing activities
 
(643,706
)
 
(49,681
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Net increase (decrease) in:
 
 

 
 

Customer deposits
 
1,245,282

 
752,849

Short-term borrowings
 
(36,521
)
 
30,064

Proceeds from:
 
 
 
 
Issuance of common stock pursuant to various stock compensation plans and agreements
 
1,008

 
1,062

Payments for:
 
 

 
 

Repayment of FHLB advances
 

 
(700,000
)
Repayment of long-term debt
 
(10,000
)
 
(10,000
)
Repurchase of vested shares due to employee tax liability
 
(12,259
)
 
(3,094
)
Cash dividends on common stock
 
(58,949
)
 
(58,152
)
Other net financing activities
 

 
1,005

Net cash provided by financing activities
 
1,128,561

 
13,734

Effect of exchange rate changes on cash and cash equivalents
 
8,865

 
(3,447
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
873,973

 
231,909

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
1,878,503

 
1,360,887

CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
2,752,476

 
$
1,592,796

 

See accompanying Notes to Consolidated Financial Statements.

9



EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2017
 
2016
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for:
 
 

 
 

Interest
 
$
63,416

 
$
50,044

Income tax payments, net
 
$
14,799

 
$
6,359

Noncash investing and financing activities:
 
 

 
 

Loans held-for-investment transferred to loans held-for-sale, net
 
$
343,977

 
$
575,804

Held-to-maturity investment security retained from securitization of loans
 
$

 
$
160,135

Unsettled purchases of available-for-sale investment securities
 
$

 
$
57,711

Unsettled purchases of loans receivable
 
$

 
$
106,114

 



See accompanying Notes to Consolidated Financial Statements.

10



EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1 Basis of Presentation
 
East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The unaudited interim Consolidated Financial Statements in this Form 10-Q include the accounts of East West, East West Bank, East West Insurance Services, Inc., and various subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. As of June 30, 2017, East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with FASB Accounting Standards Codification (“ASC”) Topic 810, the Trusts are not included on the Consolidated Financial Statements.

The unaudited interim Consolidated Financial Statements presented in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”), applicable guidelines prescribed by regulatory authorities, and general practices in the banking industry, reflect all adjustments that, in the opinion of management, are necessary for fair statement of the interim period financial statements. Certain items on the Consolidated Financial Statements and notes for the prior periods have been reclassified to conform to the current period presentation.

The current period’s results of operations are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Events subsequent to the Consolidated Balance Sheet date have been evaluated through the date the financial statements are issued for inclusion in the accompanying financial statements. The unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto, included in the Company’s 2016 Form 10-K.


Note 2Current Accounting Developments
    
New Accounting Pronouncements Adopted

In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship provided that all other hedge accounting criteria in ASC 815 continue to be met. This clarification applies to both cash flow and fair value hedging relationships. The Company adopted this guidance prospectively in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which requires an entity to use a four-step decision model when assessing contingent call (put) options that can accelerate the payment of principal on debt instruments to determine whether they are clearly and closely related to their debt hosts. The Company adopted this guidance on a modified retrospective basis in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-07, Investments — Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, to eliminate the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The amendments in ASU 2016-07 also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in AOCI at the date the investment becomes qualified for use of the equity method. The Company adopted this guidance prospectively in the first quarter of 2017. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.


11



In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification in the statements of cash flows. The Company adopted this guidance in the first quarter of 2017. The changes that impacted the Company included a requirement that excess tax benefits and deficiencies be recognized as a component of Income tax expense on the Consolidated Statements of Income rather than Additional paid-in capital on the Consolidated Statements of Changes in Stockholders’ Equity as required in the previous guidance. The adoption of this guidance results in increased volatility to the Company’s income tax expense but does not have a material impact on the Consolidated Balance Sheets or the Consolidated Statements of Changes in Stockholders’ Equity. The income tax expense volatility is dependent on the Company’s stock price on the dates the restricted stock units (“RSUs”) vest, which occur primarily in the first quarter of each year. Net excess tax benefits for RSUs of approximately $4.5 million have been recognized by the Company as a component of Income tax expense on the Consolidated Statements of Income during the six months ended June 30, 2017. The guidance also removes the impact of the excess tax benefits and deficiencies from the calculation of diluted EPS. In addition, ASU 2016-09 no longer requires a presentation of excess tax benefits and deficiencies as both an operating outflow and financing inflow on the Consolidated Statements of Cash Flows. Instead, excess tax benefits and deficiencies are recorded along with other income tax cash flows as an operating activity on the Consolidated Statements of Cash Flows as required previously. These changes were applied on a prospective basis. The Company has also elected to retain its existing accounting policy election to estimate award forfeitures.

Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue for contracts to provide goods or services to customers and replaces nearly all existing revenue recognition guidance in U.S. GAAP. Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required.  ASU 2014-09, as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, is effective on January 1, 2018, with early adoption permitted on January 1, 2017. The guidance should be applied on either a modified retrospective or full retrospective basis. The Company’s revenue is mainly comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income, as well as other revenues from financial instruments such as loans, leases, securities and derivatives. The Company has conducted a comprehensive scoping exercise to determine the revenue streams that are in the scope of the guidance. The Company’s current implementation efforts include reviewing the contracts related to certain noninterest income revenue items that are within the scope of the new guidance to determine if any accounting or internal control changes will be required under the provisions of the new guidance. Overall, the Company does not expect the new guidance to have a material impact on its Consolidated Financial Statements. The next phase of the Company’s implementation work will be to evaluate any changes that may be required to its applicable disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments, except those accounted for under the equity method of accounting or consolidated, to be measured at fair value with changes recognized in net income, thus eliminating eligibility for the current available-for-sale category. If there is no readily determinable fair value, the guidance allows entities to measure equity investments at cost less impairment, whereby impairment is based on a qualitative assessment. Furthermore, investments in Federal Reserve Bank and FHLB stock are not subject to this guidance and will continue to be presented at cost. The guidance eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost and changes the presentation of financial assets and financial liabilities on the Consolidated Balance Sheets or in the footnotes. If an entity has elected the fair value option to measure liabilities, the guidance requires the portion of the change in the fair value of a liability resulting from credit risk to be presented in Other Comprehensive Income. ASU 2016-01 is effective on January 1, 2018. Early adoption is not permitted except for certain specific changes under the fair value option guidance. To adopt the amendments, the Company is required to make a cumulative-effect adjustment to the Consolidated Balance Sheets as of the beginning of the reporting period of adoption. However, the amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the adoption date. The Company does not have a significant amount of equity securities classified as available-for-sale. Additionally, the Company does not have any financial liabilities accounted for under the fair value option. The Company is evaluating the effects that the other provisions have on its Consolidated Financial Statements and related disclosures.


12



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability in the accounting for lease transactions. The guidance requires lessees to recognize right-of-use assets and related lease liabilities for all leases with lease terms of more than 12 months on the Consolidated Balance Sheets and provide quantitative and qualitative disclosures regarding key information about the leasing arrangements. For short-term leases with a term of 12 months or less, lessees can make a policy election not to recognize lease assets and lease liabilities. Lessor accounting is largely unchanged. ASU 2016-02 is effective on January 1, 2019, with early adoption permitted. The guidance should be applied using a modified retrospective transition method through a cumulative-effect adjustment. The Company is currently evaluating the potential impact on its Consolidated Financial Statements by reviewing its existing lease contracts and service contracts that may include embedded leases. The Company expects the adoption of ASU 2016-02 to result in additional assets and liabilities, as the Company will be required to recognize operating leases on its Consolidated Balance Sheets. The population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. The Company does not expect a material impact to its recognition of operating lease expense on its Consolidated Statements of Income. Upon completion of the contract review and consideration of system requirements, the Company will evaluate the impacts of adopting the new accounting guidance on its disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to introduce a new approach based on expected losses to estimate credit losses on certain types of financial instruments, which modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new “expected credit loss” impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loan receivables, available-for-sale and held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. For available-for-sale debt securities with unrealized losses, ASU 2016-13 does not change the measurement method of credit losses, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loans and lease losses and requires disclosure of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). ASU 2016-13 is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The guidance should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. While the Company is still evaluating the impact on its Consolidated Financial Statements, the Company expects that ASU 2016-13 may result in an increase in the allowance for credit losses due to the following factors: 1) the allowance for credit losses provides for expected credit losses over the remaining expected life of the loan portfolio, and will consider expected future changes in macroeconomic conditions; 2) the nonaccretable difference on the purchased credit impaired (“PCI”) loans will be recognized as an allowance, offset by an increase in the carrying value of the PCI loans; and 3) an allowance may be established for estimated credit losses on available-for-sale and held-to-maturity debt securities. The amount of the increase will be impacted by the portfolio composition and quality, as well as the economic conditions and forecasts as of the adoption date. The Company has begun its implementation efforts by identifying key interpretive issues, assessing its processes and identifying the system requirements against the new guidance to determine what modifications may be required.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to provide guidance on eight specific issues related to classification on the Consolidated Statements of Cash Flows in order to reduce diversity in practice. The specific issues cover cash payments for debt prepayment or debt extinguishment costs; cash outflows for settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments that are not made soon after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests received in securitization transactions; and clarification regarding when no specific U.S. GAAP guidance exists and the sources of the cash flows are not separately identifiable, the classification should be based on the activity that is likely to be the predominant source or use of the cash flows. ASU 2016-15 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied using a retrospective transition method. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires the Company to include those amounts that are deemed to be restricted cash and restricted cash equivalents in its cash and cash equivalents balances on the Consolidated Statements of Cash Flows. In addition, the Company is required to explain the changes in the combined total of restricted and unrestricted balances on the Consolidated Statements of Cash Flows. ASU 2016-18 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.


13



In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the accounting for goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. ASU 2017-04 is effective on January 1, 2020 and should be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently evaluating the impact on its Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The guidance does not require any accounting change for debt securities held at a discount; the discount continues to be amortized as an adjustment of yield over the contractual life (to maturity) of the instrument. ASU 2017-08 is effective on January 1, 2019, with early adoption permitted. The guidance should be applied using a modified retrospective transition method, with the cumulative-effect adjustment recognized to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective on January 1, 2018, with early adoption permitted. The guidance should be applied prospectively to awards modified on or after the adoption date. The Company plans to adopt this guidance in the first quarter of 2018 prospectively.


Note 3Disposition of Commercial Property

In the first quarter of 2017, the Company completed the sale and leaseback of a commercial property in San Francisco, California for cash consideration of $120.6 million and entered into a leaseback with the buyer for part of the property, consisting of a retail branch and office facilities. The property had a net book value of approximately $31.6 million at the time of sale, resulting in a pre-tax profit of $85.4 million after considering approximately $3.6 million in selling costs. As the leaseback is an operating lease, $71.7 million of the gain was recognized on the closing date, and $13.7 million was deferred and will be recognized over the term of the lease agreement. The first quarter 2017 diluted EPS impact from the sale of the commercial property was $0.28 per share, net of tax.


Note 4 Fair Value Measurement and Fair Value of Financial Instruments
 
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 the asset or 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 in active markets; quoted prices for identical or similar instruments 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.


14



In determining the appropriate hierarchy levels, the Company performs an analysis of the assets and liabilities that are subject to fair value disclosure. 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.

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
as of June 30, 2017
($ in thousands)
 
Fair Value
Measurements
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale investment securities:
 
 

 
 

 
 

 
 

U.S. Treasury securities
 
$
546,857

 
$
546,857

 
$

 
$

U.S. government agency and U.S. government sponsored enterprise debt securities
 
173,585

 

 
173,585

 

U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:
 
 

 
 

 
 

 
 

Commercial mortgage-backed securities
 
325,144

 

 
325,144

 

Residential mortgage-backed securities
 
1,128,531

 

 
1,128,531

 

Municipal securities
 
105,502

 

 
105,502

 

Non-agency residential mortgage-backed securities:
 
 

 
 

 
 

 
 

Investment grade
 
10,210

 

 
10,210

 

Corporate debt securities:
 
 

 
 

 
 

 
 

Investment grade
 
2,296

 

 
2,296

 

Non-investment grade
 
9,492

 

 
9,492

 

Foreign bonds:
 
 
 
 
 
 
 
 
Investment grade
 
479,687

 

 
479,687

 

Other securities
 
41,421

 
31,351

 
10,070

 

Total available-for-sale investment securities
 
$
2,822,725

 
$
578,208

 
$
2,244,517

 
$

 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate swaps and options
 
$
64,254

 
$

 
$
64,254

 
$

Foreign exchange contracts
 
14,722

 

 
14,722

 

Credit risk participation agreements (“RPAs”)
 
2

 

 
2

 

Warrants
 
786

 

 
786

 

Total derivative assets
 
$
79,764

 
$

 
$
79,764

 
$

 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps on certificates of deposit
 
$
(6,686
)
 
$

 
$
(6,686
)
 
$

Interest rate swaps and options
 
(63,551
)
 

 
(63,551
)
 

Foreign exchange contracts
 
(13,161
)
 

 
(13,161
)
 

RPAs
 
(2
)
 

 
(2
)
 

Total derivative liabilities
 
$
(83,400
)
 
$

 
$
(83,400
)
 
$

 
 
 
 
 
 
 
 
 
 

15



 
 
 
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
as of December 31, 2016
($ in thousands)
 
Fair Value
Measurements
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale investment securities:
 
 

 
 

 
 

 
 

U.S. Treasury securities
 
$
720,479

 
$
720,479

 
$

 
$

U.S. government agency and U.S. government sponsored enterprise debt securities
 
274,866

 

 
274,866

 

U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities:
 
 

 
 

 
 

 
 

Commercial mortgage-backed securities
 
266,799

 

 
266,799

 

Residential mortgage-backed securities
 
1,258,747

 

 
1,258,747

 

Municipal securities
 
147,654

 

 
147,654

 

Non-agency residential mortgage-backed securities:
 
 

 
 

 
 

 
 

Investment grade
 
11,477

 

 
11,477

 

Corporate debt securities:
 
 

 
 

 
 

 
 

Investment grade
 
222,377

 

 
222,377

 

Non-investment grade
 
9,173

 

 
9,173

 

Foreign bonds:
 
 
 
 
 
 
 
 
Investment grade
 
383,894

 

 
383,894

 

Other securities
 
40,329

 
30,991

 
9,338

 

Total available-for-sale investment securities
 
$
3,335,795

 
$
751,470

 
$
2,584,325

 
$

 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
$
4,325

 
$

 
$
4,325

 
$

Interest rate swaps and options
 
67,578

 

 
67,578

 

Foreign exchange contracts
 
11,874

 

 
11,874

 

RPAs
 
3

 

 
3

 

Total derivative assets
 
$
83,780

 
$

 
$
83,780

 
$

 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps on certificates of deposit
 
$
(5,976
)
 
$

 
$
(5,976
)
 
$

Interest rate swaps and options
 
(65,131
)
 

 
(65,131
)
 

Foreign exchange contracts
 
(11,213
)
 

 
(11,213
)
 

RPAs
 
(3
)
 

 
(3
)
 

Total derivative liabilities
 
$
(82,323
)
 
$

 
$
(82,323
)
 
$

 
 
 
 
 
 
 
 
 

At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. There were no assets or liabilities measured using significant unobservable inputs (Level 3) on a recurring basis as of June 30, 2017 and December 31, 2016, and during the three and six months ended June 30, 2017 and 2016.

Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities become unobservable or observable in the current marketplace. The Company’s policy, with respect to transfers between levels of the fair value hierarchy, is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers of assets and liabilities measured on a recurring basis into and out of Level 1, Level 2 and Level 3 during the three and six months ended June 30, 2017 and 2016.

Assets measured at fair value on a nonrecurring basis include certain non-purchased credit impaired (“non-PCI”) loans that were impaired, OREO and loans held-for-sale.  These fair value adjustments result from impairments recognized during the period on certain non-PCI impaired loans, application of fair value less cost to sell on OREO and application of the lower of cost or fair value on loans held-for-sale.


16



The following tables present the carrying amounts of assets included on the Consolidated Balance Sheets that had fair value changes measured on a nonrecurring basis as of June 30, 2017 and December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
as of June 30, 2017
($ in thousands)
 
Fair Value
Measurements
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Non-PCI impaired loans:
 
 

 
 

 
 

 
 

Commercial real estate (“CRE”)
 
$
9,909

 
$

 
$

 
$
9,909

Commercial and industrial (“C&I”)
 
43,341

 

 

 
43,341

Residential
 
6,117

 

 

 
6,117

Consumer
 
633

 

 

 
633

Total non-PCI impaired loans
 
$
60,000

 
$

 
$

 
$
60,000

OREO
 
$
70

 
$

 
$

 
$
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
as of December 31, 2016
($ in thousands)
 
Fair Value
Measurements
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Non-PCI impaired loans:
 
 

 
 

 
 

 
 

CRE
 
$
14,908

 
$

 
$

 
$
14,908

C&I
 
52,172

 

 

 
52,172

Residential
 
2,464

 

 

 
2,464

Consumer
 
610

 

 

 
610

Total non-PCI impaired loans
 
$
70,154

 
$

 
$

 
$
70,154

OREO
 
$
345

 
$

 
$

 
$
345

Loans held-for-sale
 
$
22,703

 
$

 
$
22,703

 
$

 
 
 
 
 
 
 
 
 

The following table presents the fair value adjustments of assets measured on a nonrecurring basis recognized during the three and six months ended and which were included on the Consolidated Balance Sheets as of June 30, 2017 and 2016:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in thousands)
 
2017
 
2016
 
2017
 
2016
Non-PCI impaired loans:
 
 
 
 
 
 

 
 

CRE
 
$
193

 
$
(261
)
 
$
(29
)
 
$
1,908

C&I
 
(14,060
)
 
(4,693
)
 
(11,418
)
 
(9,149
)
Residential
 
(30
)
 
(4
)
 
51

 
27

Consumer
 
24

 
(2
)
 
25

 
14

Total non-PCI impaired loans
 
$
(13,873
)
 
$
(4,960
)
 
$
(11,371
)
 
$
(7,200
)
OREO
 
$

 
$
(1,073
)
 
$
(285
)
 
$
(1,529
)
Loans held-for-sale
 
$

 
$

 
$

 
$
(2,351
)
 
 
 
 
 
 
 
 
 


17



The following table presents the quantitative information about the significant unobservable inputs used in the valuation of assets measured on a nonrecurring basis classified as Level 3 as of June 30, 2017 and December 31, 2016:
 
($ in thousands)
 
Fair Value
Measurements
(Level 3)
 
Valuation
Technique(s)
 
Unobservable
Input(s)
 
Range of Inputs
 
Weighted 
Average
June 30, 2017
 
 

 
 
 
 
 
 
 
 
Non-PCI impaired loans
 
$
37,105

 
Discounted cash flow
 
Discount
 
0%  64%
 
13%
 
 
$
22,895

 
Market comparables
 
Discount (1)
 
0%  100%
 
31%
OREO
 
$
70

 
Appraisal
 
Selling cost
 
8%
 
8%
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Non-PCI impaired loans
 
$
31,835

 
Discounted cash flow
 
Discount
 
0%  62%
 
7%
 
 
$
38,319

 
Market comparables
 
Discount (1)
 
0%  100%
 
18%
OREO
 
$
345

 
Appraisal
 
Selling cost
 
8%
 
8%
 
 
 
 
 
 
 
 
 
 
 
(1)
Discount is adjusted for factors such as liquidation cost of collateral and selling cost.

The following tables present the carrying and fair values per the fair value hierarchy of certain financial instruments, excluding those measured at fair value on a recurring basis, as of June 30, 2017 and December 31, 2016:
 
($ in thousands)
 
June 30, 2017
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Estimated
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,752,476

 
$
2,752,476

 
$

 
$

 
$
2,752,476

Interest-bearing deposits with banks
 
$
296,679

 
$

 
$
296,679

 
$

 
$
296,679

Resale agreements (1)
 
$
1,300,000

 
$

 
$
1,279,609

 
$

 
$
1,279,609

Held-to-maturity investment security
 
$
121,131

 
$

 
$

 
$
121,803

 
$
121,803

Restricted equity securities
 
$
73,173

 
$

 
$
73,173

 
$

 
$
73,173

Loans held-for-sale
 
$
11,649

 
$

 
$
11,649

 
$

 
$
11,649

Loans held-for-investment, net
 
$
26,934,350

 
$

 
$

 
$
26,460,495

 
$
26,460,495

Accrued interest receivable
 
$
100,036

 
$

 
$
100,036

 
$

 
$
100,036

Financial liabilities:
 
 

 
 

 
 

 
 

 
 

Customer deposits:
 
 

 
 

 
 

 
 

 
 

Demand, checking, savings and money market deposits
 
$
25,080,973

 
$

 
$
25,080,973

 
$

 
$
25,080,973

Time deposits
 
$
6,073,314

 
$

 
$
6,066,948

 
$

 
$
6,066,948

Short-term borrowings
 
$
24,426

 
$

 
$
24,426

 
$

 
$
24,426

FHLB advances
 
$
322,756

 
$

 
$
336,627

 
$

 
$
336,627

Repurchase agreements (1)
 
$
50,000

 
$

 
$
107,564

 
$

 
$
107,564

Long-term debt
 
$
176,450

 
$

 
$
183,589

 
$

 
$
183,589

Accrued interest payable
 
$
9,255

 
$

 
$
9,255

 
$

 
$
9,255

 
(1)
Resale and repurchase agreements are reported net pursuant to ASC 210-20-45, Balance Sheet Offsetting. As of June 30, 2017, $400.0 million out of $450.0 million of repurchase agreements was eligible for netting against resale agreements.


18



 
($ in thousands)
 
December 31, 2016
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Estimated
Fair Value
Financial assets:
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
1,878,503

 
$
1,878,503

 
$

 
$

 
$
1,878,503

Interest-bearing deposits with banks
 
$
323,148

 
$

 
$
323,148

 
$

 
$
323,148

Resale agreements (1)
 
$
2,000,000

 
$

 
$
1,980,457

 
$

 
$
1,980,457

Held-to-maturity investment security
 
$
143,971

 
$

 
$

 
$
144,593

 
$
144,593

Restricted equity securities
 
$
72,775

 
$

 
$
72,775

 
$

 
$
72,775

Loans held-for-sale
 
$
23,076

 
$

 
$
23,076

 
$

 
$
23,076

Loans held-for-investment, net
 
$
25,242,619

 
$

 
$

 
$
24,915,143

 
$
24,915,143

Accrued interest receivable
 
$
100,524

 
$

 
$
100,524

 
$

 
$
100,524

Financial liabilities: