East West Bancorp : 4Q23 Basel III Regulatory Capital Disclosures Report

EAST WEST BANCORP, INC.

Basel III Regulatory Capital Disclosures

December 31, 2023

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TABLE OF CONTENTS
	Page
Scope of Application	3
Capital Structure	4
Capital Adequacy	5
Capital Conservation Buffer	6
Risk Management	7
Credit Risk: General Disclosures	7
General Disclosure for Counterparty Credit Risk-Related Exposures	13
Credit Risk Mitigation	15
Securitization	15
Equities Not Subject to the Market Risk Rule	16
Interest Rate Risk for Non-trading Activities	17
Appendix 1 - References to the Company's SEC Filings	19
Appendix 2 - Forward-looking statements	24

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SCOPE OF APPLICATION

Organization

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 Bank is the Company's principal asset and provides a full range of consumer and commercial products and services through the Consumer and Business Banking, and Commercial Banking segments, with the remaining functions included in the Other segment. As of December 31, 2023, the Company operated in the United States ("U.S.") and Asia. In the U.S., the Bank's corporate headquarters and main administrative offices are located in California, and its branches and offices are located in California, Texas, New York, Washington, Georgia, Massachusetts, Illinois, and Nevada. In Asia, the Company's presence includes full- service branches in Hong Kong, Shanghai, Shantou and Shenzhen, representative offices in Beijing, Chongqing, Guangzhou, Xiamen, and Singapore, and administrative support offices in Beijing and Shanghai. The Bank has a banking subsidiary based in China - East West Bank (China) Limited. As of December 31, 2023, the Company and the Bank were classified as "well capitalized" and not subject to any capital distribution restrictions. For additional information on dividend restrictions and transfers of funds, refer to Item 1. Business - Supervision and Regulation - Dividends and Other Transfers of Funds in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC (the "Company's 2023 Form 10-K").

Regulation

As a bank holding company, East West is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System ("Federal Reserve") under the BHC Act. The Company is also subject to the disclosure and regulatory requirements under the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the U.S. Securities and Exchange Commission ("SEC") thereunder.

East West Bank is a California state-chartered bank and a member of the Federal Reserve System, and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank's operations in the U.S. are primarily regulated and supervised by the Federal Reserve and the California Department of Financial Protection and Innovation ("DFPI"), and its activities outside the U.S. are regulated and supervised by its U.S. regulators and the applicable regulatory authority in the host country in which each overseas office is located.

The Bank's foreign subsidiary, East West Bank (China) Limited, is subject to applicable foreign laws and regulations, such as those implemented by the People's Bank of China ("PBOC") and China's National Administration of Financial Regulation ("NAFR"). East West Bank's Hong Kong branch is subject to applicable foreign laws and regulations, such as those implemented by the Hong Kong Monetary Authority ("HKMA") and the Hong Kong Securities and Futures Commission ("HKSFC"). The Bank's Singapore representative office is subject to applicable foreign laws and regulations, such as those implemented by the Monetary Authority of Singapore ("MAS").

In addition to its banking operations, East West has a wholly-owned nonbank subsidiary, East West Markets, LLC ("East West Markets"), which is an SEC-registeredbroker-dealer and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). East West Markets is subject to regulatory requirements from several regulatory bodies, including the SEC, FINRA, and state securities regulators.

Regulatory Capital Standards and Disclosures

The federal banking agencies have imposed capital adequacy requirements, known as the Basel III Capital Rules, intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with their operations. The Basel III Capital Rules define the components of regulatory capital, including Common Equity Tier 1 ("CET1"), Tier 1 and Tier 2 capital, and set forth minimum capital adequacy ratios of capital to risk-weighted assets and total assets. The Basel III Capital Rules also prescribe a standardized approach for risk-weighting assets and include a number of risk-weighting categories that affect the denominator in banking organizations' regulatory capital ratios.

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The Company applies the Basel III Capital Rules as a standardized approach banking organization and is not currently subject to the market risk rules, which apply only to banking organizations with significant trading activities. To be considered adequately capitalized, standardized approach banking organizations are required to maintain minimum capital ratios of at least 4.5% CET1 capital to risk-weighted assets, 6.0% Tier 1 capital to risk-weighted assets, 8.0% total risk-based capital (i.e., Tier 1 plus Tier 2 capital) to risk-weighted assets and a 4.0% Tier 1 leverage ratio of Tier 1 capital to average total consolidated assets. The Company produces the Pillar 3 Regulatory Disclosures quarterly to update market participants regarding the Company's risk management practices and regulatory capital ratios as required under the U.S. Basel III rules. This report provides information on the Company's capital structure, risk exposures, risk assessment processes, risk-weighted assets ("RWA") and overall capital adequacy, including information on the methodologies used to calculate RWA.

The Company's 2023 Form 10-K contains management's discussion and analysis of the overall risk profile of the Company and related management strategies. The information presented herein should be read in conjunction with the Company's 2023 Form 10-K, as well as the Consolidated Financial Statements for Holding Companies - FR Y-9C ("FR Y-9C") and Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices - FFIEC 031 ("Call Report") dated December 31, 2023. A disclosure index is provided in Appendix 1 of this report, which specifies all disclosures required by the Basel III Capital Rules. These Basel III regulatory capital disclosures have not been audited by our external auditors. This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement, as discussed further in Appendix 2 of this report.

Consolidation

The principles of consolidation used for the Company's 2023 Form 10-K and for regulatory reporting conform with U.S. Generally Accepted Accounting Principles ("GAAP") and include the accounts of East West and its subsidiaries. The Basel III Regulatory Capital Disclosures and East West's regulatory capital ratio calculations are prepared on a fully consolidated basis. All intercompany transactions and balances have been eliminated in consolidation.

CAPITAL STRUCTURE

The Company's qualifying regulatory capital instruments primarily consist of common shareholders' equity and qualifying junior subordinated debt. For additional information on the Company's shareholders' equity, see the Company's "Consolidated Balance Sheets" in the Company's 2023 Form 10-K. The junior subordinated debt issued in connection with East West's trust preferred securities qualifies as Tier 2 capital under the Basel III Capital Rules. For additional information regarding the terms of East West's outstanding junior subordinated debt, see Note 10 - Short-TermBorrowings and Long- Term Debt - Long-TermDebt - Junior Subordinated Debt and Item 7. Management's Discussion & Analysis ("MD&A") - Balance Sheet Analysis - Deposits and Other Sources of Funding in the Company's 2023 Form 10-K.

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The following table presents the Company's capital composition as of December 31, 2023.

($ in thousands)		December 31, 2023
CET1 capital
Common stock and related surplus	$	1,106,200
Effect of current expected credit losses ("CECL") transition on retained earnings (1)			56,988
Retained earnings			6,465,230
Accumulated other comprehensive loss			(620,596)
CET1 capital before adjustments and deductions			7,007,822
Adjustments and deductions from CET1 capital
Less: Goodwill, net of related deferred taxes			465,697
Intangible assets, net of related deferred taxes			394
Deferred tax assets			210
Net unrealized losses on available-for-sale and held-to-maturity securities, net of deferred taxes			(601,882)
Accumulated gains on cash flow hedges, net of deferred taxes			2,625
Total CET1 capital			7,140,778
Tier 1 capital
Total Tier 1 capital			7,140,778
Tier 2 capital
Tier 2 capital instruments and related surplus			148,000
Adjusted allowance for credit losses			630,629
Total Tier 2 capital			778,629
Total risk-based capital		$	7,919,407

1. For additional discussion regarding the CECL transition provision, see Item 7. MD&A - Balance Sheet Analysis - Regulatory Capital and Ratios in the Company's 2023 Form 10-K.

CAPITAL ADEQUACY

The Company's Board of Directors provides the ultimate oversight responsibility and accountability over capital planning. The Board and a Board-level committee, the Risk Oversight Committee ("ROC"), meet at least quarterly to review the Company's material risks and exposures and to ensure the adequacy of capital under both normal and stressed operating environments.

The Company's senior management and the Board are committed to achieving its capital targets in order to reach its capital goals, which include meeting or exceeding regulatory requirements. To achieve these capital goals, the Company has established policies and procedures to continuously monitor its capital levels and to maintain contingency plans. Monitoring activities include the evaluation of the Company's on-going capital needs, stress testing, and the assessment of the impact of stressed conditions under multiple scenarios; those activities also include the maintenance of capital buffers in consideration of other factors, such as the current credit and interest rate environment. The combination of these policies and procedures, and monitoring activities enables the Company to maintain adequate capital composition and levels to absorb losses, promote public confidence, provide protection to depositors, and meet regulatory requirements. The Company is committed to remaining above the "Well Capitalized" thresholds under Prompt Corrective Action regulations.

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The following table presents the Company's standardized approach risk-weighted assets as of December 31, 2023. For more information on the Company's risk-weighted assets, see Schedule HC-R, "Regulatory Capital" in the Company's FR Y-9C dated December 31, 2023:

($ in thousands)			December 31, 2023
Risk-Weighted Assets
On-balance sheet
Exposures to depository institutions, foreign banks, and credit unions	$	665,191
Exposures to sovereign entities			1,109,592
Exposures to public-sector entities			124,077
Corporate exposures			33,571,613
Residential mortgage exposures			8,820,713
Statutory multifamily mortgages			570,926
Cleared transactions			548
High volatility commercial real estate			68,131
Past due loans			84,428
Other assets			1,276,022
Securitization exposures			375,205
Equity exposures			1,032,155
Total on-balance sheet exposures			47,698,601
Off-balance sheet
Unused commitments with an original maturity of one year or less			39,664
Unused commitments with an original maturity of more than one year			4,350,667
Derivatives			310,029
Letters of credit			1,231,256
All other off-balance sheet liabilities			33,175
Total off-balance sheet			5,964,791
Total risk-weighted assets		$	53,663,392

CAPITAL CONSERVATION BUFFER

The Basel III Capital Rules require the Company to maintain a minimum 2.5% "capital conservation buffer" on top of each of the minimum risk-based capital ratios for the purpose of absorbing losses during periods of economic stress. This effectively results in minimum ratios of (1) CET1 to risk-weighted assets of at least 7.0%, (2) Tier 1 capital to risk-weighted assets of at least 8.5%, and (3) Total capital to risk-weighted assets of at least 10.5%. Banking organizations with risk-based capital ratios that meet or exceed the minimum requirements but do not exceed the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. The severity of the constraint depends on the amount of the shortfall and the institution's "eligible retained income," which is defined as the greater of (1) the reporting institution's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income or (2) the average of the reporting institution's net income over the four preceding calendar quarters. As of December 31, 2023, the Company's eligible retained income was $890 million. The Company and Bank have capital ratios exceeding the 2.5% minimum capital conservation buffer and are not subject to any such limitations as of December 31, 2023. For additional discussion and disclosure, see the Company's December 31, 2023 FR Y-9C Schedule HC-R and Call Report Schedule RC-R,Item 7. MD&A - Balance Sheet Analysis - Regulatory Capital and Ratios and Note 16 - Regulatory Requirements and Matters in the Company's 2023 Form 10-K.

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The following table summarizes capital conservation buffer-related information for both the Company and the Bank as of December 31, 2023:

					Capital		Capital in Excess of
						Minimum Capital
			Minimum Capital		Conservation		Requirement Plus
	Capital Ratio			Buffer		Capital Conservation
		Requirement		Requirement		Buffer Requirement
East West Bancorp
CET1 capital ratio	13.3 %	4.5 %	2.5 %	6.3 %
Tier 1 risk-based capital ratio	13.3 %	6.0 %	2.5 %	4.8 %
Total risk-based capital ratio	14.8 %	8.0 %	2.5 %	4.3 %
East West Bank
CET1 capital ratio	12.6 %	4.5 %	2.5 %	5.6 %
Tier 1 risk-based capital ratio	12.6 %	6.0 %	2.5 %	4.1 %
Total risk-based capital ratio	13.8 %	8.0 %	2.5 %	3.3 %

RISK MANAGEMENT

The Company encounters risk as part of the normal course of its business activities. The enterprise risk management ("ERM") framework focuses on material risks including: credit, liquidity, capital, market, operational, compliance, legal, strategic, technology and reputational. The Company's ERM program is an ongoing process designed to identify, assess and manage such risks in light of its risk appetite to maintain safety and soundness, and to optimize shareholder value.

The Company operates under a Board-approved ERM framework, which outlines the company-wide approach to risk management and oversight, and describes the structures and practices employed to manage the current and emerging risks inherent to the Company. The Company's ERM program is executed along the three lines of defense model, which provides for a consistent and standardized risk management control environment across the enterprise. The first line of defense is comprised of production, operational and support units. The second line of defense is comprised of various risk management and control functions charged with monitoring and managing specific major risk categories and/or risk subcategories. The third line of defense is comprised of the Internal Audit and Independent Asset Review ("IAR") functions. Internal Audit reports to the Chief Audit Executive ("CAE") who reports to the Board's Audit Committee. Internal Audit provides assurance and evaluates the effectiveness of risk management, control and governance processes as established by the Company. IAR serves as an internal loan review and independent credit risk monitoring function within the Bank that works under the direction of the CAE and reports to the ROC. IAR provides management and the ROC with an objective and independent assessment of the Bank's credit profile and credit risk management process.

The Board of Directors' ROC monitors the ERM program through the identified risk categories and provides oversight of the Company's risk appetite and control environment. The ROC provides focused oversight of the Company's identified enterprise risk categories on behalf of the full Board of Directors. Under the direction of the ROC, management committees apply targeted strategies to manage the risks to which the Company's operations are exposed.

CREDIT RISK: GENERAL DISCLOSURES

Credit risk is the risk that a borrower or a counterparty will fail to perform according to the terms and conditions of a loan or investment and expose the Company to loss. Credit risk exists with many of the Company's assets and exposures such as loans, debt securities and certain derivatives. The majority of the Company's credit risk is associated with lending activities.

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The ROC has primary oversight responsibility for identified enterprise risk categories including credit risk. The ROC monitors management's assessment of asset quality, credit risk trends, credit quality administration, underwriting standards, and portfolio credit risk management strategies and processes, such as diversification and liquidity, all of which enable management to control credit risk. At the management level, the Credit Risk Management Committee has primary oversight responsibility for credit risk. The Senior Credit Supervision function manages credit policy for the line of business transactional credit risk, assuring that all exposure is risk-rated according to the requirements of the credit risk rating policy. The Senior Credit Supervision function evaluates and reports the overall credit risk exposure to senior management and the ROC. Reporting directly to the Board's ROC, the IAR function provides additional support to the Company's strong credit risk management culture by performing an independent and objective assessment of underwriting and documentation quality. A key focus of our credit risk management is adherence to a well-controlled underwriting and loan monitoring process.

For information on the Company's credit risk policies for nonaccrual loans and the allowance for loan losses, refer to "Loans Held-for-Investment" and "Allowance for Loan Losses" in Note 1 - Summary of Significant Accounting Policies and Note 6 - Loans Receivable and Allowance for Credit Losses in the Company's 2023 Form 10-K.

The Company's debt securities portfolio includes U.S. Treasury, U.S. government agency, U.S. government-sponsored agency, and U.S. government-sponsored enterprise debt and mortgage-backed securities that are issued, guaranteed, or otherwise supported by the U.S. government, for which a zero credit loss assumption is applied when determining any allowance for credit losses. For additional information on the Company's allowance for credit losses on debt securities, refer to "Allowance for Credit Losses on Available-for-SaleDebt Securities" and "Allowance for Credit Losses on Held-to-MaturityDebt Securities" in Note 1 - Summary of Significant Accounting Policies in the Company's 2023 Form 10-K. For additional information on debt securities, refer to Note 4 - Securities and Item 7. MD&A - Balance Sheet Analysis - Debt Securities in the Company's 2023 Form 10-K.

For the Company's credit risk policies on derivatives, refer to the "General Disclosure for Counterparty Credit Risk- Related Exposures" section of this report. For additional information on the derivatives portfolio, refer to Note 5 - Derivatives and Item 7. MD&A - Market Risk Management - Derivatives in the Company's 2023 Form 10-K.

The following table presents the Company's total exposure on loans held-for-investment by loan type, and an aging analysis of accruing and nonperforming loans as of December 31, 2023.

						Accruing		Nonperforming		Nonperforming
									Loans			Total
			Total			Loans			Loans			90 Days and
($ in thousands)					30-89 Days			30-89 Days			Greater		Nonperforming
		Loans			Past Due			Past Due			Past Due			Loans
Commercial:
Commercial and industrial ("C&I")	$	16,581,079	$	35,649	$	16,063	$	20,973	$	37,036
Commercial real estate ("CRE"):
CRE			14,777,081			3,517			23,249			-			23,249
Multifamily residential			5,023,163			597			434			4,235			4,669
Construction and land			663,868			13,251			-			-			-
Total CRE			20,464,112			17,365			23,683			4,235			27,918
Total commercial			37,045,191			53,014			39,746			25,208			64,954
Consumer:
Residential mortgage:
Single-family residential			13,383,060			45,228			375			24,002			24,377
HELOCs			1,722,204			21,492			192			13,219			13,411
Total residential mortgage			15,105,264			66,720			567			37,221			37,788
Other consumer			60,327			3,265			-			132			132
Total consumer			15,165,591			69,985			567			37,353			37,920
Total loans (1)		$	52,210,782		$	122,999		$	40,313		$	62,561		$	102,874

1. There were no accruing loans 90 days and greater past due in any of the Company's loan categories.

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The following table presents the Company's nonperforming loans with no related allowance and nonperforming loans with a related allowance as of December 31, 2023. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well secured by the collateral value and there is no loss expectation.

		Nonperforming		Nonperforming			Total
		Loans with No			Loans with
($ in thousands)			Related			Related		Nonperforming
		Allowance			Allowance			Loans
Commercial:
C&I	$	33,089	$	3,947	$	37,036
CRE:
CRE			22,653			596			23,249
Multifamily residential			4,235			434			4,669
Total CRE			26,888			1,030			27,918
Total commercial			59,977			4,977			64,954
Consumer:
Residential mortgage:
Single-family residential			4,852			19,525			24,377
HELOCs			7,256			6,155			13,411
Total residential mortgage			12,108			25,680			37,788
Other consumer			-			132			132
Total consumer			12,108			25,812			37,920
Total loans		$	72,085		$	30,789		$	102,874

The changes in the allowance for credit losses for the nine months ended December 31, 2023, are as follows:

($ in thousands)			Year Ended December 31, 2023
Allowance for loan losses, beginning of period			595,645
Impact of ASU 2022-02 adoption (1)			6,028
Allowance for loan losses, January 1, 2023			601,673
Provision for credit losses on loans			113,571
Gross charge-offs			(54,372)
Gross recoveries			8,118
Total net charge-offs			(46,254)
Foreign currency translation adjustment			(247)
Allowance for loan losses, end of period		$	668,743
Allowance for unfunded credit commitments, beginning of period			26,264
Provision for credit losses on unfunded credit commitments			11,429
Foreign currency translation adjustment			6
Allowance for unfunded credit commitments, end of period		$	37,699
Allowance for credit losses, end of period		$	706,442

1. Represents the change in the Company's allowance for loan losses as a result of the adoption of Accounting Standards Update ("ASU") 2022-02,Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and the Vintage Disclosures on January 1, 2023. Refer to Note 1 - Summary of Significant Accounting Policies in the Company's 2023 Form 10-K for additional information.

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The following table presents the geographic distribution of the Company's C&I loan portfolio as of December 31,

2023:

($ in thousands)			C&I
Geographic markets:
Southern California	$	3,551,273
Northern California			846,865
California			4,398,138
New York			2,956,908
Texas			1,354,789
China			1,328,383
Hong Kong			894,277
Georgia			687,808
Florida			489,892
Illinois			468,444
North Carolina			354,823
Other markets			3,647,617
Total exposure		$	16,581,079

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