# EAST WEST BANCORP INC (EWBC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EAST WEST BANCORP INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1069157/000106915724000020/ewbc-20231231.htm
Accession: 0001069157-24-000020
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EWBC/
All MD&A years: /company/EWBC/mda/
Previous year: /company/EWBC/mda/fy2022/ (FY 2022)
Next year: /company/EWBC/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

[[GREPCENT_TABLE]]
[["","","","Page"],["","Overview","36"],["","Financial Review","36"],["","Results of Operations","38"],["","","Net Interest Income","38"],["","","Noninterest Income","43"],["","","Noninterest Expense","44"],["","","Income Taxes","44"],["","","Operating Segment Results","45"],["","Balance Sheet Analysis","47"],["","","Debt Securities","47"],["","","Loan Portfolio","49"],["","","Foreign Outstandings","56"],["","","Capital","56"],["","","Deposits and Other Sources of Funding","57"],["","","Regulatory Capital and Ratios","60"],["","Risk Management","60"],["","","Credit Risk Management","61"],["","","Liquidity Risk Management","65"],["","","Market Risk Management","67"],["","Critical Accounting Estimates","72"],["","Reconciliation of GAAP to Non-GAAP Financial Measures","75"]]
[[/GREPCENT_TABLE]]

35

Overview

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of the Company, including its subsidiary bank, East West Bank. This information is intended to facilitate the understanding and assessment of significant changes and trends related to the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes presented elsewhere in this Form 10-K. For information on our business, see Item 1. Business in this Form 10-K.

Current Developments

Economic Developments

Although recent external data indicates that inflation remains above the Federal Reserve’s 2% target, the steadily slowing pace of inflation could point to receding fears of a recession in 2024. The likelihood of a “soft landing” scenario appears more likely given the Federal Reserve’s commitment to this outcome. The Federal Reserve has held interest rates steady over the latter half of 2023 and recently indicated the potential for rate cuts in 2024 and beyond. However, the higher interest rate environment continues to negatively impact the market value of bank-held securities, and the CRE industry has slowed due to tighter credit conditions and decreased demand. Other factors such as the economic impacts of unrest, wars, and acts of terrorism could lead to higher oil prices and increased inflationary pressures, along with the possibility that the Federal Reserve could maintain high interest rates longer than anticipated. While a U.S. government shutdown was averted in 2023, a future shutdown is possible and could negatively impact the economy. The Company monitors changes in economic and industry conditions and their impacts on the Company’s business, customers, employees, communities, and markets.

For additional discussion of the potential impacts on the Company’s business due to interest rate hikes, see Item 1A. — Risk Factors — Risks Related to Financial Matters in this Form 10-K.

Financial Review

Our MD&A analyzes the financial condition and results of operations of the Company for 2023 and 2022. Some tables include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. The page locations of specific sections that we refer to are presented in the table of contents. To review our financial condition and results of operations for 2022 and a comparison between 2022 and 2021 results, see Item 7. MD&A of our 2022 Form 10-K, which was filed with the SEC on February 27, 2023.

36

[[GREPCENT_TABLE]]
[["($ and shares in thousands, except per share, and ratio data)","","2023","","2022"],["Summary of operations:"],["Net interest income before provision for credit losses","","$","2,312,254","","","$","2,045,881"],["Noninterest income","","295,264","","","298,666"],["Total revenue","","2,607,518","","","2,344,547"],["Provision for credit losses","","125,000","","","73,500"],["Noninterest expense","","1,022,748","","","859,393"],["Income before income taxes","","1,459,770","","","1,411,654"],["Income tax expense","","298,609","","","283,571"],["Net income","","$","1,161,161","","","$","1,128,083"],["Per share:"],["Basic earnings","","$","8.23","","","$","7.98"],["Diluted earnings","","$","8.18","","","$","7.92"],["Adjusted diluted earnings (1)","","$","8.56","","","$","7.92"],["Dividends declared","","$","1.92","","","$","1.60"],["Weighted-average number of shares outstanding:"],["Basic","","141,164","","","141,326"],["Diluted","","141,902","","","142,492"],["Performance metrics:"],["Return on average assets (\u201cROA\u201d)","","1.71","%","","1.80","%"],["Return on average common equity (\u201cROE\u201d)","","17.91","%","","19.51","%"],["Return on average tangible common equity (\u201cTCE\u201d) (1)","","19.35","%","","21.29","%"],["Common dividend payout ratio","","23.62","%","","20.32","%"],["Net interest margin","","3.61","%","","3.45","%"],["Efficiency ratio (2)","","39.22","%","","36.65","%"],["Adjusted efficiency ratio (1)","","31.63","%","","31.74","%"],["At year end:"],["Total assets","","$","69,612,884","","","$","64,112,150"],["Total loans","","$","52,210,898","","","$","48,228,074"],["Total deposits","","$","56,092,438","","","$","55,967,849"],["Common shares outstanding at period-end","","140,027","","","140,948"],["Book value per share","","$","49.64","","","$","42.46"],["Tangible book value per share (1)","","$","46.27","","","$","39.10"]]
[[/GREPCENT_TABLE]]

(1)For additional information regarding the reconciliation of these non-U.S. GAAP financial measures, refer to Item 7. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-K.

(2)Efficiency ratio is calculated as noninterest expense divided by total revenue.

The Company’s 2023 net income was $1.2 billion, an increase of $33 million, or 3%, from 2022 net income of $1.1 billion. The increase was primarily due to higher net interest income before provision for credit losses, partially offset by increases in the noninterest expense, provision for credit losses and income tax expense. Noteworthy items about the Company’s performance for 2023 included:

•Net interest income growth and net interest margin expansion. Year-over-year net interest income before provision for credit losses grew by $266 million or 13% to $2.3 billion in 2023, from $2.0 billion in 2022. Full year 2023 net interest margin was 3.61%, up 16 bps year-over-year.

37

•Earnings Per Share growth. Basic, diluted and adjusted diluted EPS for 2023 increased to $8.23, $8.18 and $8.56, respectively, compared with $7.98, $7.92 and $7.92, respectively, in 2022. The adjusted diluted EPS for 2023 excluded the $70 million pre-tax FDIC special assessment-related charge (the “FDIC charge”) incurred as a result of the final rule implemented by the FDIC to recover losses in the DIF, and a net loss of $7 million pre-tax on an AFS debt security. Adjusted diluted EPS is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 7. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-K.

•Efficiency ratios. The efficiency ratio was 39.22% in 2023, or 257 bps higher compared with 2022, while the adjusted efficiency ratio was 31.63% in 2023, an improvement of 11 bps from 2022. The higher efficiency ratio in 2023 was due to the FDIC charge discussed above. Adjusted efficiency ratio is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 7. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-K.

•Asset growth. Total assets reached $69.6 billion, an increase of $5.5 billion or 9% year-over-year, primarily driven by loan growth of $4.0 billion or 8%, and an increase in cash and cash equivalents of $1.1 billion or 33%. The increase in cash and cash equivalents was primarily funded with borrowings from the Bank Term Funding Program (“BTFP”).

•Loan growth. Total loans were $52.2 billion as of December 31, 2023, a year-over-year increase of $4.0 billion or 8% from $48.2 billion. This was primarily driven by growth in the residential mortgage, CRE, and commercial and industrial (“C&I”) loan segments.

•Strong capital levels. Stockholders’ equity was $7.0 billion or $49.64 per share as of December 31, 2023, up from $6.0 billion or $42.46 per share as of December 31, 2022. Tangible book value per share of $46.27 as of December 31, 2023, increased $7.17 or 18% from $39.10 as of December 31, 2022. Tangible book value per share is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 7. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-K.

Results of Operations

Net Interest Income

The Company’s primary source of revenue is net interest income, which is the interest income earned on interest-earning assets less interest expense paid on interest-bearing liabilities. Net interest margin is the ratio of net interest income to average interest-earning assets. Net interest income and net interest margin are impacted by several factors, including changes in average balances and the composition of interest-earning assets and funding sources, market interest rate fluctuations and the slope of the yield curve, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities, the volume of noninterest-bearing sources of funds, and asset quality.

38

Net interest income and net interest margin for 2023 increased year-over-year, which primarily reflected higher loan yields, increased loan volume, and higher yields on interest-bearing cash and deposits with banks, and AFS debt securities, partially offset by a higher cost of interest-bearing deposits and higher short-term borrowings. The changes in yields and rates reflected higher benchmark interest rates.

Average interest-earning assets were $64.0 billion in 2023, an increase of $4.7 billion or 8% from $59.3 billion in 2022. The increase in average interest-earning assets primarily reflected loan growth, and higher interest-bearing cash and deposits with banks, partially offset by decreases in assets purchased under resale agreements (“resale agreements”) and AFS debt securities.

The yield on average interest-earning assets was 5.77% in 2023, an increase of 186 bps from 3.91% in 2022. The year-over-year increase in the yield on average interest-earning assets primarily resulted from higher benchmark interest rates.

The average loan yield was 6.40% in 2023, an increase of 188 bps from 4.52% in 2022. The year-over-year change in the average loan yield reflected the loan portfolio’s sensitivity to higher benchmark interest rates. Approximately 58% and 62% of loans held-for-investment were variable-rate as of December 31, 2023 and 2022, respectively.

39

Deposits are an important source of funds and impact both net interest income and net interest margin. Average deposits were $55.0 billion in 2023, an increase of $663 million or 1% from $54.3 billion in 2022. Average noninterest-bearing deposits were $17.2 billion in 2023, a decrease of $5.6 billion or 25% from $22.8 billion in 2022. Average noninterest-bearing deposits made up 31% and 42% of average deposits for 2023 and 2022, respectively.

The average cost of deposits was 2.19% in 2023, an increase of 173 bps from 0.46% in 2022. The average cost of interest-bearing deposits was 3.19% in 2023, an increase of 239 bps from 0.80% in 2022. The year-over-year increases reflected higher rates paid on time deposits, money market and checking deposits, and the customer migration to higher yielding deposit products in response to the higher interest rate environment.

The average cost of funds calculation includes deposits, short-term borrowings, FHLB advances, assets sold under repurchase agreements (“repurchase agreements”) and long-term debt. In 2023, the average cost of funds was 2.35%, an increase of 185 bps from 0.50% in 2022. The year-over-year increase was mainly driven by the change in the average cost of deposits discussed above.

The Company utilizes various tools to manage interest rate risk. Refer to the Interest Rate Risk Management section of Item 7. MD&A — Risk Management — Market Risk Management for details.

40

The following table presents the interest spread, net interest margin, average balances, interest income and expense, and the average yield/rate by asset and liability component in 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022","","2021"],["($ in thousands)","","Average Balance","","Interest","","Average Yield/Rate","","Average Balance","","Interest","","Average Yield/Rate","","Average Balance","","Interest","","Average Yield/Rate"],["ASSETS"],["Interest-earning assets:"],["Interest-bearing cash and deposits with banks","","$","4,638,630","","","$","220,643","","","4.76","%","","$","3,127,234","","","$","41,113","","","1.31","%","","$","6,071,896","","","$","15,531","","","0.26","%"],["Resale agreements","","691,223","","","20,164","","","2.92","%","","1,398,080","","","29,767","","","2.13","%","","2,107,157","","","32,239","","","1.53","%"],["AFS debt securities (1)(2)","","6,105,999","","","225,592","","","3.69","%","","6,629,945","","","152,514","","","2.30","%","","8,281,234","","","143,983","","","1.74","%"],["Held-to-maturity (\u201cHTM\u201d) debt securities (1)","","2,976,237","","","50,598","","","1.70","%","","2,756,382","","","46,392","","","1.68","%","","\u2014","","","\u2014","","","\u2014","%"],["Loans:"],["C&I","","15,499,899","","","1,190,940","","","7.68","%","","15,013,560","","","715,778","","","4.77","%","","13,656,720","","","472,260","","","3.46","%"],["CRE","","19,824,272","","","1,227,795","","","6.19","%","","17,896,853","","","791,839","","","4.42","%","","15,322,059","","","514,921","","","3.36","%"],["Residential mortgage","","14,155,784","","","750,813","","","5.30","%","","12,315,334","","","538,255","","","4.37","%","","10,601,638","","","435,264","","","4.11","%"],["Other consumer","","65,181","","","3,198","","","4.91","%","","93,711","","","2,429","","","2.59","%","","136,280","","","2,455","","","1.80","%"],["Total loans (3)(4)","","49,545,136","","","3,172,746","","","6.40","%","","45,319,458","","","2,048,301","","","4.52","%","","39,716,697","","","1,424,900","","","3.59","%"],["Restricted equity securities","","82,177","","","4,062","","","4.94","%","","77,963","","","3,144","","","4.03","%","","79,404","","","2,081","","","2.62","%"],["Total interest-earning assets","","$","64,039,402","","","$","3,693,805","","","5.77","%","","$","59,309,062","","","$","2,321,231","","","3.91","%","","$","56,256,388","","","$","1,618,734","","","2.88","%"],["Noninterest-earning assets:"],["Cash and due from banks","","555,689","","","","","","","652,673","","","","","","","615,255"],["Allowance for loan losses","","(625,785)","","","","","","","(559,746)","","","","","","","(592,211)"],["Other assets","","3,788,199","","","","","","","3,436,293","","","","","","","2,971,659"],["Total assets","","$","67,757,505","","","","","","","$","62,838,282","","","","","","","$","59,251,091"],["LIABILITIES AND STOCKHOLDERS\u2019 EQUITY"],["Interest-bearing liabilities:"],["Checking deposits","","$","7,658,414","","","$","179,200","","","2.34","%","","$","6,696,200","","","$","29,808","","","0.45","%","","$","6,543,817","","","$","13,023","","","0.20","%"],["Money market deposits","","11,680,540","","","399,482","","","3.42","%","","12,443,437","","","107,442","","","0.86","%","","12,428,025","","","15,041","","","0.12","%"],["Saving deposits","","2,128,943","","","15,573","","","0.73","%","","2,901,940","","","8,550","","","0.29","%","","2,746,933","","","7,496","","","0.27","%"],["Time deposits","","16,301,856","","","611,295","","","3.75","%","","9,473,744","","","106,038","","","1.12","%","","8,493,511","","","33,599","","","0.40","%"],["Federal funds purchased and other short-term borrowings","","3,591,114","","","157,002","","","4.37","%","","81,719","","","1,801","","","2.20","%","","1,584","","","42","","","2.65","%"],["FHLB advances","","123,288","","","6,430","","","5.22","%","","105,966","","","1,754","","","1.66","%","","404,789","","","6,881","","","1.70","%"],["Repurchase agreements","","34,443","","","1,497","","","4.35","%","","467,413","","","14,362","","","3.07","%","","306,845","","","7,999","","","2.61","%"],["Long-term debt and finance lease liabilities","","152,790","","","11,072","","","7.25","%","","152,325","","","5,595","","","3.67","%","","151,955","","","3,082","","","2.03","%"],["Total interest-bearing liabilities","","$","41,671,388","","","$","1,381,551","","","3.32","%","","$","32,322,744","","","$","275,350","","","0.85","%","","$","31,077,459","","","$","87,163","","","0.28","%"],["Noninterest-bearing liabilities and stockholders\u2019 equity:"],["Demand deposits","","17,192,978","","","","","","","22,784,258","","","","","","","21,271,410"],["Accrued expenses and other liabilities","","2,410,154","","","","","","","1,948,255","","","","","","","1,343,010"],["Stockholders\u2019 equity","","6,482,985","","","","","","","5,783,025","","","","","","","5,559,212"],["Total liabilities and stockholders\u2019 equity","","$","67,757,505","","","","","","","$","62,838,282","","","","","","","$","59,251,091"],["Interest rate spread","","","","","","2.45","%","","","","","","3.06","%","","","","","","2.60","%"],["Net interest income and net interest margin","","","","$","2,312,254","","","3.61","%","","","","$","2,045,881","","","3.45","%","","","","$","1,531,571","","","2.72","%"]]
[[/GREPCENT_TABLE]]

(1)Yields on tax-exempt debt securities are not presented on a tax-equivalent basis.

(2)Includes the amortization of net premiums on AFS debt securities of $31 million, $72 million and $93 million for 2023, 2022 and 2021, respectively.

(3)Average balances include nonperforming loans and loans held-for-sale.

(4)Loans include the accretion of net deferred loan fees and amortization of net premiums, which totaled $53 million, $50 million and $62 million for 2023, 2022 and 2021, respectively.

41

The following table summarizes the extent to which changes in (1) interest rates, and (2) volume of average interest-earning assets and average interest-bearing liabilities affected the Company’s net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023 vs. 2022","","2022 vs. 2021"],["","","Total Change","","Changes Due to","","Total Change","","Changes Due to"],["($ in thousands)","","","Volume","","Yield/Rate","","","Volume","","Yield/Rate"],["Interest-earning assets:"],["Interest-bearing cash and deposits with banks","","$","179,530","","","$","27,977","","","$","151,553","","","$","25,582","","","$","(10,802)","","","$","36,384"],["Resale agreements","","(9,603)","","","(18,266)","","","8,663","","","(2,472)","","","(12,812)","","","10,340"],["AFS debt securities","","73,078","","","(12,895)","","","85,973","","","8,531","","","(32,250)","","","40,781"],["HTM debt securities","","4,206","","","3,733","","","473","","","46,392","","","46,392","","","\u2014"],["Loans:"],["C&I","","475,162","","","23,900","","","451,262","","","243,518","","","50,613","","","192,905"],["CRE","","435,956","","","95,037","","","340,919","","","276,918","","","96,028","","","180,890"],["Residential mortgage","","212,558","","","87,511","","","125,047","","","102,991","","","73,603","","","29,388"],["Other consumer","","769","","","(907)","","","1,676","","","(26)","","","(859)","","","833"],["Total loans","","1,124,445","","","205,541","","","918,904","","","623,401","","","219,385","","","404,016"],["Restricted equity securities","","918","","","177","","","741","","","1,063","","","(38)","","","1,101"],["Total interest and dividend income","","$","1,372,574","","","$","206,267","","","$","1,166,307","","","$","702,497","","","$","209,875","","","$","492,622"],["Interest-bearing liabilities:"],["Checking deposits","","$","149,392","","","$","4,879","","","$","144,513","","","$","16,785","","","$","310","","","$","16,475"],["Money market deposits","","292,040","","","(6,983)","","","299,023","","","92,401","","","19","","","92,382"],["Saving deposits","","7,023","","","(2,792)","","","9,815","","","1,054","","","437","","","617"],["Time deposits","","505,257","","","118,581","","","386,676","","","72,439","","","4,299","","","68,140"],["Federal funds purchased and short-term borrowings","","155,201","","","151,725","","","3,476","","","1,759","","","1,767","","","(8)"],["FHLB advances","","4,676","","","330","","","4,346","","","(5,127)","","","(4,951)","","","(176)"],["Repurchase agreements","","(12,865)","","","(17,113)","","","4,248","","","6,363","","","4,743","","","1,620"],["Long-term debt and finance lease liabilities","","5,477","","","17","","","5,460","","","2,513","","","8","","","2,505"],["Total interest expense","","$","1,106,201","","","$","248,644","","","$","857,557","","","$","188,187","","","$","6,632","","","$","181,555"],["Change in net interest income","","$","266,373","","","$","(42,377)","","","$","308,750","","","$","514,310","","","$","203,243","","","$","311,067"]]
[[/GREPCENT_TABLE]]

42

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in thousands)","","2023","","2022","","","","% Change from 2022","","2021"],["Lending fees","","$","83,876","","","$","79,208","","","","","6","%","","$","77,704"],["Deposit account fees","","89,606","","","88,435","","","","","1","%","","71,261"],["Customer derivative income","","20,200","","","29,057","","","","","(30)","%","","22,913"],["Foreign exchange income","","52,481","","","48,158","","","","","9","%","","48,977"],["Wealth management fees","","26,805","","","27,565","","","","","(3)","%","","25,751"],["Net gains on sales of loans","","3,634","","","6,411","","","","","(43)","%","","8,909"],["Net (losses) gains on AFS debt securities","","(6,862)","","","1,306","","","","","NM","","1,568"],["Other investment income","","9,348","","","7,037","","","","","33","%","","16,852"],["Other income","","16,176","","","11,489","","","","","41","%","","11,960"],["Total noninterest income","","$","295,264","","","$","298,666","","","","","(1)","%","","$","285,895"]]
[[/GREPCENT_TABLE]]

NM - Not meaningful

Noninterest income comprised 11% and 13% of total revenue in 2023 and 2022, respectively. Noninterest income for 2023 was $295 million, compared with $299 million in 2022. The decrease was primarily due to lower customer derivative income and net losses on AFS debt securities, partially offset by increases in other income, lending fees, and foreign exchange income.

Lending fees were $84 million in 2023, an increase of $5 million or 6%, compared with $79 million in 2022. The year-over-year increase was driven by higher unused commitment and letter of credit facility fees.

Customer derivative income was $20 million in 2023, a decrease of $9 million or 30%, compared with $29 million in 2022. The year-over-year decrease was primarily due to unfavorable credit valuation adjustments, partially offset by higher transaction volume, interest received on derivative collateral posted and energy contract income.

Foreign exchange income was $52 million, an increase of $4 million or 9%, compared with $48 million in 2022. The year-over-year increase was primarily due to higher gains on foreign exchange trades, partially offset by the unfavorable valuation of certain foreign currency denominated balance sheet items.

Net losses on AFS debt securities of $7 million in 2023 were due to a $10 million write-off of an impaired subordinated AFS debt security during the first quarter of 2023, partially offset by a $3 million gain when the security was sold in the fourth quarter of 2023. In comparison, net gains on AFS debt securities were $1 million in 2022.

Other income was $16 million in 2023, an increase of $5 million or 41%, compared with $11 million in 2022. The year-over-year increase was primarily due to higher income from bank-owned life insurance policies.

43

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in thousands)","","2023","","2022","","","","% Change from 2022","","2021"],["Compensation and employee benefits","","$","508,538","","","$","477,635","","","","","6","%","","$","433,728"],["Occupancy and equipment expense","","62,763","","","62,501","","","","","0","%","","62,996"],["Deposit insurance premiums and regulatory assessments","","103,308","","","19,449","","","","","431","%","","17,563"],["Deposit account expense","","43,143","","","25,508","","","","","69","%","","16,152"],["Computer software and data processing expenses","","44,475","","","42,776","","","","","4","%","","46,863"],["Other operating expense","","140,222","","","118,166","","","","","19","%","","96,330"],["Amortization of tax credit and other investments","","120,299","","","113,358","","","","","6","%","","122,457"],["Total noninterest expense","","$","1,022,748","","","$","859,393","","","","","19","%","","$","796,089"]]
[[/GREPCENT_TABLE]]

Noninterest expense was $1.0 billion in 2023, an increase of $163 million or 19%, compared with $859 million in 2022. The increase was primarily due to higher deposit insurance premiums and regulatory assessments, compensation and employee benefits, other operating expense, and deposit account expense.

Compensation and employee benefits were $509 million in 2023, an increase of $31 million or 6%, compared with $478 million in 2022. The year-over-year increase was primarily due to wage increases and staffing growth.

Deposit insurance premiums and regulatory assessments were $103 million in 2023, an increase of $84 million or 431%, compared with $19 million in 2022. The year-over-year increase was primarily due to a $70 million FDIC charge incurred as a result of the final rule implemented to recover losses in the DIF following the failures of financial institutions in the first quarter of 2023, and a two bps increase in the base deposit insurance assessment rate under the FDIC’s Amended Restoration Plan.

Deposit account expense was $43 million in 2023, an increase of $18 million or 69%, compared with $26 million in 2022. The year-over-year increase primarily reflected an increase in deposit referral fees which were driven by higher interest rates and an increase in insured cash sweep product fees due to higher deposit balances. Such deposit referral fees are variable fees, sensitive to market rates and paid in lieu of interest on a small portion of the Bank’s deposit balances.

Other operating expense was $140 million in 2023, an increase of $22 million or 19%, compared with $118 million in 2022. The year-over-year increase was primarily due to higher corporate expenses and an increase in interest expense paid on cash collateral, partially offset by a reduction in foreclosure expenses.

Income Taxes

The following table presents the income before income taxes, income tax expense and effective tax rate for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["($ in thousands)","","2023","","2022","","2021"],["Income before income taxes","","$","1,459,770","","","$","1,411,654","","","$","1,056,377"],["Income tax expense","","$","298,609","","","$","283,571","","","$","183,396"],["Effective tax rate","","20.5","%","","20.1","%","","17.4","%"]]
[[/GREPCENT_TABLE]]

Income tax expense was $299 million in 2023, compared with $284 million in 2022, resulting in an effective tax rate of 20.5% and 20.1%, respectively. The increase in the income tax expense was primarily related to an increase in pre-tax net income, which was partially offset by an increase in tax credits. The differences between the 2023 and 2022 effective tax rates from the federal statutory rate of 21% were primarily due to tax credits associated with renewable energy, historic and new market tax credit related projects and state taxes as described in Note 11 — Income Taxes to the Consolidated Financial Statements in this Form 10-K.

44

Operating Segment Results

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers served, and the related products and services provided. For a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K.

Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process.

The following table presents the results by operating segment for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","Consumer and Business Banking","","Commercial Banking","","Other"],["($ in thousands)","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Total revenue (loss)","","$","1,340,938","","","$","1,280,989","","","$","791,226","","","$","1,166,984","","","$","1,071,634","","","$","929,970","","","$","99,596","","","$","(8,076)","","","$","96,270"],["Provision for (reversal of) credit losses","","18,422","","","27,197","","","(4,998)","","","106,578","","","46,303","","","(30,002)","","","\u2014","","","\u2014","","","\u2014"],["Noninterest expense","","477,622","","","397,882","","","364,635","","","382,865","","","314,185","","","275,649","","","162,261","","","147,326","","","155,805"],["Segment income (loss) before income taxes","","844,894","","","855,910","","","431,589","","","677,541","","","711,146","","","684,323","","","(62,665)","","","(155,402)","","","(59,535)"],["Segment net income","","$","596,366","","","$","608,120","","","$","308,630","","","$","478,418","","","$","507,467","","","$","489,233","","","$","86,377","","","$","12,496","","","$","75,118"]]
[[/GREPCENT_TABLE]]

Consumer and Business Banking

The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network and digital banking platform. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small- and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management, interest rate risk hedging and foreign exchange services.

The following table presents additional financial information for the Consumer and Business Banking segment for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","Change from 2022"],["($ in thousands)","","2023","","2022","","$","","%","","2021"],["Net interest income before provision for (reversal of) credit losses","","$","1,238,829","","","$","1,170,850","","","$","67,979","","","6","%","","$","697,101"],["Noninterest income","","102,109","","","110,139","","","(8,030)","","","(7)","%","","94,125"],["Total revenue","","1,340,938","","","1,280,989","","","59,949","","","5","%","","791,226"],["Provision for (reversal of) credit losses","","18,422","","","27,197","","","(8,775)","","","(32)","%","","(4,998)"],["Noninterest expense","","477,622","","","397,882","","","79,740","","","20","%","","364,635"],["Segment income before income taxes","","844,894","","","855,910","","","(11,016)","","","(1)","%","","431,589"],["Income tax expense","","248,528","","","247,790","","","738","","","0","%","","122,959"],["Segment net income","","$","596,366","","","$","608,120","","","$","(11,754)","","","(2)","%","","$","308,630"],["Average loans","","$","17,931,327","","","$","15,769,072","","","$","2,162,255","","","14","%","","$","13,922,693"],["Average deposits","","$","33,668,913","","","$","33,278,330","","","$","390,583","","","1","%","","$","31,679,856"]]
[[/GREPCENT_TABLE]]

45

Consumer and Business Banking segment net income decreased by $12 million or 2% year-over-year to $596 million in 2023, due to an increase in noninterest expense, partially offset by an increase in net interest income. Net interest income before provision for credit losses increased $68 million or 6% year-over-year to $1.2 billion. This increase was primarily driven by higher deposit FTP credits due to the year-over-year increase in market rates. Noninterest expense increased by $80 million or 20%, to $478 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023 and allocated corporate overhead expenses.

Commercial Banking

The Commercial Banking segment primarily generates commercial loan and deposit products. Commercial loan products include CRE lending, construction finance, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

The following table presents additional financial information for the Commercial Banking segment for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","Change from 2022"],["($ in thousands)","","2023","","2022","","$","","%","","2021"],["Net interest income before provision for (reversal of) credit losses","","$","992,519","","","$","892,386","","","$","100,133","","","11","%","","$","766,202"],["Noninterest income","","174,465","","","179,248","","","(4,783)","","","(3)","%","","163,768"],["Total revenue","","1,166,984","","","1,071,634","","","95,350","","","9","%","","929,970"],["Provision for (reversal of) credit losses","","106,578","","","46,303","","","60,275","","","130","%","","(30,002)"],["Noninterest expense","","382,865","","","314,185","","","68,680","","","22","%","","275,649"],["Segment income before income taxes","","677,541","","","711,146","","","(33,605)","","","(5)","%","","684,323"],["Income tax expense","","199,123","","","203,679","","","(4,556)","","","(2)","%","","195,090"],["Segment net income","","$","478,418","","","$","507,467","","","$","(29,049)","","","(6)","%","","$","489,233"],["Average loans","","$","31,613,809","","","$","29,550,386","","","$","2,063,423","","","7","%","","$","25,794,004"],["Average deposits","","$","17,825,312","","","$","17,276,427","","","$","548,885","","","3","%","","$","17,122,743"]]
[[/GREPCENT_TABLE]]

Commercial Banking segment net income decreased by $29 million or 6% year-over-year to $478 million in 2023. This decrease was primarily driven by higher noninterest expense and provision for credit losses, partially offset by higher net interest income. Net interest income before provision for credit losses increased by $100 million or 11% to $993 million, driven by higher loan interest income from commercial loan growth. Provision for credit losses increased by $60 million or 130% year-over-year to $107 million, primarily driven by loan growth and changes to the macroeconomic outlook. Noninterest expense increased by $69 million or 22% to $383 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023, deposit account expense, and allocated corporate overhead expenses.

Other

Centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Other segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments.

46

The following table presents additional financial information for the Other segment for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","Change from 2022"],["($ in thousands)","","2023","","2022","","$","","%","","2021"],["Net interest income (loss)","","$","80,906","","","$","(17,355)","","","$","98,261","","","NM","","$","68,268"],["Noninterest income","","18,690","","","9,279","","","9,411","","","101","%","","28,002"],["Total revenue (loss)","","99,596","","","(8,076)","","","107,672","","","NM","","96,270"],["Noninterest expense","","162,261","","","147,326","","","14,935","","","10","%","","155,805"],["Segment loss before income taxes","","(62,665)","","","(155,402)","","","92,737","","","60","%","","(59,535)"],["Income tax benefit","","(149,042)","","","(167,898)","","","18,856","","","11","%","","(134,653)"],["Segment net income","","$","86,377","","","$","12,496","","","$","73,881","","","NM","","$","75,118"],["Average deposits","","$","3,468,506","","","$","3,744,822","","","$","(276,316)","","","(7)","%","","$","2,681,097"]]
[[/GREPCENT_TABLE]]

NM - Not meaningful

The Other segment reported segment loss before income taxes of $63 million and segment net income of $86 million, reflecting an income tax benefit of $149 million in 2023. The decrease in segment loss before income taxes was primarily driven by higher net interest income. The $98 million year-over-year increase in net interest income was primarily driven by a higher yield on interest-bearing cash and deposits with banks and debt securities in 2023, partially offset by higher costs of borrowings.

The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments, and reflects the impact of tax credit investment activity. Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes. Tax credit investment amortization is allocated to the Other segment.

Balance Sheet Analysis

Debt Securities

The Company maintains a portfolio of high quality and liquid debt securities with a moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks. The Company’s debt securities provide:

•interest income for earnings and yield enhancement;

•funding availability for needs arising during the normal course of business;

•the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and

•collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.

While the Company does not intend to sell its debt securities, it may sell AFS debt securities in response to changes in the balance sheet and related interest rate risk to meet liquidity, regulatory and strategic requirements.

47

The following table presents the distribution of the Company’s AFS and HTM debt securities portfolio as of December 31, 2023 and 2022, and by credit ratings as of December 31, 2023:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","December 31, 2022","","","","","","Rating as of December 31, 2023 (1)"],["($ in thousands)","","Amortized Cost","","Fair Value","","","% of Fair Value","","Amortized Cost","","Fair Value","","","% of Fair Value","","","","","","AAA/AA","","A","","BBB","","","","BB and Lower","","No Rating (2)"],["AFS debt securities:"],["U.S. Treasury securities","","$","1,112,587","","","$","1,060,375","","","","17","%","","$","676,306","","","$","606,203","","","","10","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["U.S. government agency and U.S. government-sponsored enterprise debt securities","","412,086","","","364,446","","","","6","%","","517,806","","","461,607","","","","8","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities","","2,488,304","","","2,195,853","","","","35","%","","2,588,446","","","2,262,464","","","","37","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Municipal securities","","297,283","","","261,016","","","","4","%","","303,884","","","257,099","","","","4","%","","","","","","98","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","2","%"],["Non-agency mortgage-backed securities","","1,052,913","","","921,187","","","","15","%","","1,209,714","","","1,047,553","","","","17","%","","","","","","82","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","18","%"],["Corporate debt securities","","653,501","","","502,425","","","","8","%","","673,502","","","526,274","","","","9","%","","","","","","\u2014","%","","32","%","","66","%","","","","2","%","","\u2014","%"],["Foreign government bonds","","239,333","","","227,874","","","","4","%","","241,165","","","227,053","","","","4","%","","","","","","47","%","","53","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Asset-backed securities","","43,234","","","42,300","","","","1","%","","51,152","","","49,076","","","","1","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Collateralized loan obligations","","617,250","","","612,861","","","","10","%","","617,250","","","597,664","","","","10","%","","","","","","96","%","","4","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Total AFS debt securities","","$","6,916,491","","","$","6,188,337","","","","100","%","","$","6,879,225","","","$","6,034,993","","","","100","%","","","","","","87","%","","5","%","","5","%","","","","0","%","","3","%"],["HTM debt securities:"],["U.S. Treasury securities","","$","529,548","","","$","488,551","","","","20","%","","$","524,081","","","$","471,469","","","","19","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["U.S. government agency and U.S. government-sponsored enterprise debt securities","","1,001,836","","","814,932","","","","33","%","","998,972","","","789,412","","","","32","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities","","1,235,784","","","1,004,697","","","","41","%","","1,289,106","","","1,042,310","","","","43","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Municipal securities","","188,872","","","145,791","","","","6","%","","189,709","","","151,980","","","","6","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Total HTM debt securities","","$","2,956,040","","","$","2,453,971","","","","100","%","","$","3,001,868","","","$","2,455,171","","","","100","%","","","","","","100","%","","\u2014","%","","\u2014","%","","","","\u2014","%","","\u2014","%"],["Total debt securities","","$","9,872,531","","","$","8,642,308","","","","","","$","9,881,093","","","$","8,490,164"]]
[[/GREPCENT_TABLE]]

(1)Credit ratings express opinions about the credit quality of a debt security. The Company determines the credit rating of a security according to the lowest credit rating made available by nationally recognized statistical rating organizations (“NRSROs”). Debt securities rated investment grade, which are those with ratings similar to BBB- or above (as defined by NRSROs), are generally considered by the rating agencies and market participants to be low credit risk. Ratings percentages are allocated based on fair value.

(2)For debt securities not rated by NRSROs, the Company uses other factors which include but are not limited to the priority in collections within the securitization structure, and whether the contractual payments have historically been on time.

As of December 31, 2023, the Company’s AFS and HTM debt securities portfolios had an effective duration (defined as the sensitivity of the value of the portfolio to interest rate changes) of 3.6 and 7.5, respectively, compared with 4.1 and 8.0, respectively, as of December 31, 2022. The modest decreases in both the AFS and HTM effective durations were due to the portfolio seasoning.

Available-for-Sale Debt Securities

The fair value of AFS debt securities totaled $6.2 billion as of December 31, 2023, an increase of $153 million or 3% from $6.0 billion as of December 31, 2022. The increase was primarily due to yield curve movement. The Company’s AFS debt securities are carried at fair value with non-credit related unrealized gains and losses, net of tax, reported in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income. Pre-tax net unrealized losses on AFS debt securities were $728 million as of December 31, 2023, compared with $844 million as of December 31, 2022.

48

As of both December 31, 2023 and 2022, 97% of the carrying value of the AFS debt securities portfolio was rated investment grade by NRSROs. Of the AFS debt securities with gross unrealized losses, substantially all were rated investment grade as of both December 31, 2023 and 2022. There was no allowance for credit losses provided against the AFS debt securities as of both December 31, 2023 and 2022. During 2023, the Company recognized $7 million in net losses on AFS debt securities, consisting of a $10 million impairment write-off on a subordinated debt security, partially offset by a $3 million gain on the sale of the same security. There were no credit losses recognized in earnings for 2022.

Held-to-Maturity Debt Securities

All HTM debt securities were issued, guaranteed, or supported by the U.S. government or government-sponsored enterprises. Accordingly, the Company applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of both December 31, 2023 and 2022.

For additional information on AFS and HTM securities, see Note 1 — Summary of Significant Accounting Policies, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments and Note 4 — Securities to the Consolidated Financial Statements in this Form 10-K.

Loan Portfolio

The Company offers a broad range of financial products designed to meet the credit needs of its borrowers. The Company’s loan portfolio segments include commercial loans, which consist of C&I, CRE, multifamily residential, and construction and land loans, as well as consumer loans, which consist of single-family residential, home equity lines of credit (“HELOCs”) and other consumer loans. Loans held-for-investment totaled $52.2 billion as of December 31, 2023, an increase of $4.0 billion, or 8%, from $48.2 billion as of December 31, 2022. This increase was primarily driven by increases of $1.8 billion or 13% in total residential mortgage loans, $1.4 billion or 7% in total CRE loans, and $870 million or 6% in C&I loans. The composition of the loan portfolio as of December 31, 2023 was similar to the composition as of December 31, 2022.

The following table presents the composition of the Company’s total loan portfolio by loan type as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","2022"],["($ in thousands)","","Amount","","%","","Amount","","%"],["Commercial:"],["C&I","","$","16,581,079","","","32","%","","$","15,711,095","","","33","%"],["CRE:"],["CRE","","14,777,081","","","28","%","","13,857,870","","","29","%"],["Multifamily residential","","5,023,163","","","10","%","","4,573,068","","","9","%"],["Construction and land","","663,868","","","1","%","","638,420","","","1","%"],["Total CRE","","20,464,112","","","39","%","","19,069,358","","","39","%"],["Total commercial","","37,045,191","","","71","%","","34,780,453","","","72","%"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","13,383,060","","","26","%","","11,223,027","","","23","%"],["HELOCs","","1,722,204","","","3","%","","2,122,655","","","5","%"],["Total residential mortgage","","15,105,264","","","29","%","","13,345,682","","","28","%"],["Other consumer","","60,327","","","0","%","","76,295","","","0","%"],["Total consumer","","15,165,591","","","29","%","","13,421,977","","","28","%"],["Total loans held-for-investment (1)","","52,210,782","","","100","%","","48,202,430","","","100","%"],["Allowance for loan losses","","(668,743)","","","","","(595,645)"],["Loans held-for-sale (2)","","116","","","","","25,644"],["Total loans, net","","$","51,542,155","","","","","$","47,632,429"]]
[[/GREPCENT_TABLE]]

(1)Includes $71 million and $70 million of net deferred loan fees and net unamortized premiums as of December 31, 2023, and 2022, respectively.

(2)Consists of a single-family residential loan as of December 31, 2023 and C&I loans as of December 31, 2022.

49

Commercial

The commercial loan portfolio comprised 71% and 72% of total loans as of December 31, 2023 and 2022, respectively. The Company actively monitors the commercial lending portfolio for credit risk and reviews credit exposures for sensitivity to changing economic conditions.

Commercial — Commercial and Industrial Loans. Total C&I loan commitments were $24.6 billion as of December 31, 2023, an increase of $1.8 billion or 8% from $22.8 billion as of December 31, 2022, with a utilization rate of 67% as of December 31, 2023, compared with 69% as of December 31, 2022. Total C&I loans were $16.6 billion as of December 31, 2023, an increase of $870 million or 6% from $15.7 billion as of December 31, 2022. Total C&I loans made up 32% and 33% of total loans held-for-investment as of December 31, 2023 and 2022, respectively. The C&I loan portfolio includes loans and financing for businesses across a wide spectrum of industries. The Company offers a variety of C&I products, including commercial business lending, working capital lines of credit, trade finance, letters of credit, asset-based lending, asset-backed finance, project finance and equipment financing. Additionally, the Company has a portfolio of broadly syndicated C&I loans, which represent revolving or term loan facilities that are marketed and sold primarily to institutional investors. This portfolio totaled $645 million and $856 million as of December 31, 2023 and 2022, respectively. The majority of the C&I loans had variable interest rates as of both December 31, 2023, and 2022.

The C&I portfolio is well-diversified by industry. The Company monitors concentrations within the C&I loan portfolio by industry and customer exposure, and has exposure limits by industry and loan product. The following table presents the industry mix within the Company’s C&I loan portfolio as of December 31, 2023, and 2022:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","","December 31, 2022"],["($ in thousands)","","Amount","","%","","($ in thousands)","","Amount","","%"],["Industry:","","","","","","Industry:"],["Private equity","","$","2,553,718","","","16","%","","Private equity","","$","2,238,723","","","14","%"],["Media & entertainment","","1,891,199","","","12","%","","Media & entertainment","","1,841,719","","","12","%"],["Real estate investment & management","","1,540,516","","","9","%","","Real estate investment & management","","1,272,169","","","8","%"],["Infrastructure & clean energy","","890,307","","","5","%","","Manufacturing & wholesale","","1,091,933","","","7","%"],["Manufacturing & wholesale","","803,606","","","5","%","","Infrastructure & clean energy","","820,095","","","5","%"],["Tech & telecom","","729,922","","","4","%","","Food production & distribution","","738,636","","","5","%"],["Food production & distribution","","655,340","","","4","%","","Tech & telecom","","618,719","","","4","%"],["Hospitality & leisure","","576,328","","","4","%","","Hospitality & leisure","","562,234","","","4","%"],["Oil & gas","","563,350","","","3","%","","Oil & gas","","519,784","","","3","%"],["Consumer nondurable goods","","378,583","","","2","%","","Consumer nondurable goods","","425,214","","","3","%"],["All other C&I","","5,998,210","","","36","%","","All other C&I","","5,581,869","","","35","%"],["Total C&I","","$","16,581,079","","","100","%","","Total C&I","","$","15,711,095","","","100","%"]]
[[/GREPCENT_TABLE]]

Commercial — Total Commercial Real Estate Loans. Total CRE loans totaled $20.5 billion as of December 31, 2023, which grew by $1.4 billion, or 7%, from $19.1 billion as of December 31, 2022, and accounted for 39% of total loans held-for-investment as of both December 31, 2023 and 2022. The total CRE portfolio consists of CRE, multifamily residential, and construction and land loans, and affordable housing lending. The increase in total CRE loans was driven by well-diversified growth across our major property types, partially offset by a decrease in office CRE loans. The Company’s underwriting parameters for CRE loans are established in compliance with supervisory guidance, including: property type, geography and loan-to-value (“LTV”). The consistency of the Company’s low LTV underwriting standards has historically resulted in lower credit losses.

50

The Company’s total CRE loan portfolio is well-diversified by property type with an average CRE loan size of $3 million as of both December 31, 2023 and 2022. The following table summarizes the Company’s total CRE loans by property type as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","December 31, 2022"],["($ in thousands)","","Amount","","%","","Amount","","%"],["Property type:"],["Multifamily","","$","5,023,164","","","25","%","","$","4,573,068","","","24","%"],["Retail (1)","","4,297,569","","","21","%","","4,075,768","","","22","%"],["Industrial (1)","","3,997,764","","","20","%","","3,617,086","","","19","%"],["Hotel (1)","","2,446,504","","","12","%","","2,085,910","","","11","%"],["Office (1)","","2,271,508","","","11","%","","2,522,554","","","13","%"],["Healthcare (1)","","852,362","","","4","%","","796,577","","","4","%"],["Construction and land","","663,868","","","3","%","","638,420","","","3","%"],["Other (1)","","911,373","","","4","%","","759,975","","","4","%"],["Total CRE loans","","$","20,464,112","","","100","%","","$","19,069,358","","","100","%"]]
[[/GREPCENT_TABLE]]

(1)Included in CRE loans, which are a subset of Total CRE loans.

The weighted-average LTV ratio of the total CRE loan portfolio was 50% as of December 31, 2023, compared with 51% as of December 31, 2022. Weighted average LTV is based on the most recent LTV, which is based on the latest available appraisal and current loan commitment. Approximately 91% and 90% of total CRE loans had an LTV ratio of 65% or lower as of December 31, 2023 and 2022, respectively.

The following tables provide a summary of the Company’s CRE, multifamily residential, and construction and land loans by geography as of December 31, 2023 and 2022. The distribution of the total CRE loan portfolio largely reflects the Company’s geographical branch footprint, which is primarily concentrated in California:

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["($ in thousands)","","CRE","","%","","Multifamily Residential","","%","","Construction and Land","","%","","Total","","%"],["Geographic markets:"],["Southern California","","$","7,604,053","","","51","%","","$","2,295,592","","","46","%","","$","294,879","","","44","%","","$","10,194,524","","","50","%"],["Northern California","","2,737,635","","","19","%","","1,055,852","","","21","%","","147,031","","","22","%","","3,940,518","","","19","%"],["California","","10,341,688","","","70","%","","3,351,444","","","67","%","","441,910","","","66","%","","14,135,042","","","69","%"],["Texas","","1,122,428","","","8","%","","445,391","","","9","%","","41,768","","","6","%","","1,609,587","","","8","%"],["New York","","696,950","","","5","%","","287,961","","","6","%","","43,227","","","7","%","","1,028,138","","","5","%"],["Washington","","495,577","","","3","%","","173,367","","","3","%","","10,375","","","2","%","","679,319","","","3","%"],["Arizona","","355,047","","","2","%","","148,970","","","3","%","","38,897","","","6","%","","542,914","","","3","%"],["Nevada","","257,105","","","2","%","","142,133","","","3","%","","6,325","","","1","%","","405,563","","","2","%"],["Other markets","","1,508,286","","","10","%","","473,897","","","9","%","","81,366","","","12","%","","2,063,549","","","10","%"],["Total loans","","$","14,777,081","","","100","%","","$","5,023,163","","","100","%","","$","663,868","","","100","%","","$","20,464,112","","","100","%"]]
[[/GREPCENT_TABLE]]

51

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["($ in thousands)","","CRE","","%","","Multifamily Residential","","%","","Construction and Land","","%","","Total","","%"],["Geographic markets:"],["Southern California","","$","7,233,902","","","52","%","","$","2,215,632","","","48","%","","$","222,425","","","35","%","","$","9,671,959","","","51","%"],["Northern California","","2,798,840","","","20","%","","890,002","","","20","%","","235,732","","","37","%","","3,924,574","","","20","%"],["California","","10,032,742","","","72","%","","3,105,634","","","68","%","","458,157","","","72","%","","13,596,533","","","71","%"],["Texas","","1,150,401","","","8","%","","410,872","","","9","%","","2,153","","","0","%","","1,563,426","","","8","%"],["New York","","682,096","","","5","%","","221,253","","","5","%","","99,595","","","16","%","","1,002,944","","","5","%"],["Washington","","449,423","","","3","%","","173,611","","","4","%","","15,557","","","2","%","","638,591","","","3","%"],["Arizona","","291,114","","","2","%","","95,460","","","2","%","","297","","","0","%","","386,871","","","2","%"],["Nevada","","159,092","","","1","%","","108,060","","","2","%","","30,673","","","5","%","","297,825","","","2","%"],["Other markets","","1,093,002","","","9","%","","458,178","","","10","%","","31,988","","","5","%","","1,583,168","","","9","%"],["Total loans","","$","13,857,870","","","100","%","","$","4,573,068","","","100","%","","$","638,420","","","100","%","","$","19,069,358","","","100","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023 and 2022, 69% and 71%, respectively, of total CRE loans were concentrated in California. Changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses. For additional information related to the higher degree of risk from a downturn in the California real estate markets, see Item 1A. Risk Factors — Risks Related to Geopolitical Uncertainties in this Form 10-K.

Commercial — Commercial Real Estate Loans. The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $14.8 billion as of December 31, 2023, compared with $13.9 billion as of December 31, 2022, and accounted for 28% and 29% of total loans held-for-investment as of December 31, 2023 and 2022, respectively. Interest rates on CRE loans may be fixed, variable or hybrid. As of December 31, 2023, 58% of our CRE portfolio was variable rate, of which 50% had customer-level interest rate derivative contracts in place. These were hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank’s own exposure remained variable rate. In comparison, as of December 31, 2022, 65% of our CRE portfolio was variable rate, of which 47% had customer-level interest rate derivative contracts in place. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Owner-occupied properties comprised 20% of the CRE loans as of both December 31, 2023 and 2022. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by rental income from an unaffiliated third party.

Commercial — Multifamily Residential Loans. The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $5.0 billion as of December 31, 2023, compared with $4.6 billion as of December 31, 2022, and accounted for 10% and 9% of total loans held-for-investment as of December 31, 2023 and 2022, respectively. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust annually after an initial fixed rate period of three to ten years. As of December 31, 2023, 48% of our multifamily residential portfolio was variable rate, of which 40% had customer-level interest rate derivative contracts in place. These were hedging contracts offered by the Company to help our customers manage their interest rate risk while the Bank’s own exposure remained variable rate. In comparison, as of December 31, 2022, 57% of our multifamily residential loan portfolio was variable rate, of which 34% had customer-level interest rate derivative contracts in place.

Commercial — Construction and Land Loans. Construction and land loans provide financing for a portfolio of projects diversified by real estate property type. Construction and land loans totaled $664 million as of December 31, 2023, compared with $638 million as of December 31, 2022, and accounted for 1% of total loans held-for-investment as of both dates. Construction loan exposure was made up of $526 million in loans outstanding and $672 million in unfunded commitments, as of December 31, 2023, compared with $537 million in loans outstanding and $611 million in unfunded commitments as of December 31, 2022. Land loans totaled $138 million as of December 31, 2023, compared with $102 million as of December 31, 2022.

52

Consumer

Residential mortgage loans are primarily originated through the Bank’s branch network. The average total residential loan size was $436 thousand and $434 thousand as of December 31, 2023 and 2022, respectively. The following tables summarize the Company’s single-family residential and HELOC loan portfolios by geography as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["($ in thousands)","","Single-Family Residential","","%","","HELOCs","","%","","Total Residential Mortgage","","%"],["Geographic markets:"],["Southern California","","$","4,990,848","","","37","%","","$","799,571","","","46","%","","$","5,790,419","","","38","%"],["Northern California","","1,650,905","","","13","%","","370,989","","","22","%","","2,021,894","","","13","%"],["California","","6,641,753","","","50","%","","1,170,560","","","68","%","","7,812,313","","","51","%"],["New York","","4,376,416","","","33","%","","247,202","","","14","%","","4,623,618","","","31","%"],["Washington","","696,028","","","5","%","","184,843","","","11","%","","880,871","","","6","%"],["Massachusetts","","391,666","","","3","%","","67,016","","","4","%","","458,682","","","3","%"],["Georgia","","432,258","","","3","%","","17,123","","","1","%","","449,381","","","3","%"],["Nevada","","404,837","","","3","%","","33,959","","","2","%","","438,796","","","3","%"],["Texas","","423,972","","","3","%","","\u2014","","","\u2014","%","","423,972","","","3","%"],["Other markets","","16,130","","","0","%","","1,501","","","0","%","","17,631","","","0","%"],["Total","","$","13,383,060","","","100","%","","$","1,722,204","","","100","%","","$","15,105,264","","","100","%"],["Lien priority:"],["First mortgage","","$","13,383,060","","","100","%","","$","1,331,509","","","77","%","","$","14,714,569","","","97","%"],["Junior lien mortgage","","\u2014","","","\u2014","%","","390,695","","","23","%","","390,695","","","3","%"],["Total","","$","13,383,060","","","100","%","","$","1,722,204","","","100","%","","$","15,105,264","","","100","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["($ in thousands)","","Single-Family Residential","","%","","HELOCs","","%","","Total Residential Mortgage","","%"],["Geographic markets:"],["Southern California","","$","4,142,623","","","37","%","","$","959,632","","","45","%","","$","5,102,255","","","38","%"],["Northern California","","1,294,721","","","11","%","","492,921","","","23","%","","1,787,642","","","14","%"],["California","","5,437,344","","","48","%","","1,452,553","","","68","%","","6,889,897","","","52","%"],["New York","","3,964,779","","","35","%","","286,285","","","14","%","","4,251,064","","","32","%"],["Washington","","632,892","","","6","%","","236,434","","","11","%","","869,326","","","7","%"],["Massachusetts","","299,051","","","3","%","","85,590","","","4","%","","384,641","","","3","%"],["Georgia","","303,615","","","3","%","","21,493","","","1","%","","325,108","","","2","%"],["Texas","","316,771","","","3","%","","\u2014","","","\u2014","%","","316,771","","","2","%"],["Nevada","","253,702","","","2","%","","40,300","","","2","%","","294,002","","","2","%"],["Other markets","","14,873","","","0","%","","\u2014","","","\u2014","%","","14,873","","","0","%"],["Total","","$","11,223,027","","","100","%","","$","2,122,655","","","100","%","","$","13,345,682","","","100","%"],["Lien priority:"],["First mortgage","","$","11,223,027","","","100","%","","$","1,770,741","","","83","%","","$","12,993,768","","","97","%"],["Junior lien mortgage","","\u2014","","","\u2014","%","","351,914","","","17","%","","351,914","","","3","%"],["Total","","$","11,223,027","","","100","%","","$","2,122,655","","","100","%","","$","13,345,682","","","100","%"]]
[[/GREPCENT_TABLE]]

53

Consumer — Single-Family Residential Loans. Single-family residential loans totaled $13.4 billion or 26% of total loans held-for-investment as of December 31, 2023, compared with $11.2 billion or 23% of total loans held-for-investment as of December 31, 2022. Year-over-year, single-family residential loans increased $2.2 billion or 19%, primarily driven by organic growth in mortgages and residential properties in California and New York. The Company was in a first lien position for all of its single-family residential loans as of both December 31, 2023 and 2022. Many of these loans are reduced documentation loans, for which a substantial down payment is required, resulting in a low LTV ratio at origination, typically 65% or less. The weighted-average LTV ratio was 53% as of both December 31, 2023 and 2022. These loans have historically experienced low delinquency and loss rates. The Company offers a variety of single-family residential first lien mortgage loan programs, including fixed- and variable-rate loans, as well as hybrid loans with interest rates that adjust on a regular basis, typically annually, after an initial fixed-rate period.

Consumer — Home Equity Lines of Credit. Total HELOC commitments were $5.2 billion as of December 31, 2023, which decreased by $274 million or 5% from $5.5 billion as of December 31, 2022, with a utilization rate of 33% as of December 31, 2023, compared with 39% as of December 31, 2022. Substantially all of the Company’s unfunded HELOC commitments are unconditionally cancellable. HELOCs outstanding totaled $1.7 billion as of December 31, 2023, compared with $2.1 billion as of December 31, 2022, and accounted for 3% and 5% of total loans held-for-investment as of December 31, 2023 and 2022, respectively. Year-over-year, HELOCs outstanding decreased $400 million, or 19%. The Company was in a first lien position for 77% and 83% of total outstanding HELOCs as of December 31, 2023 and 2022, respectively. The weighted-average LTV ratio was 48% on HELOC commitments as of December 31, 2023, compared with 49% as of December 31, 2022. Weighted-average LTV ratio represents the loan’s balance divided by the estimated current property value. Combined LTV ratios are used for junior lien home equity loans. Many of these loans are reduced documentation loans, for which a substantial down payment is required, resulting in a low LTV ratio at origination, typically 65% or less. As a result, these loans have historically experienced low delinquency and loss rates. Substantially all of the Company’s HELOCs were variable-rate loans as of both December 31, 2023 and 2022.

All originated commercial and consumer loans are subject to the Company’s conservative underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of quality control procedures and periodic audits, including the review of lending and legal requirements, to ensure that the Company is in compliance with these requirements.

54

The following table presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 2023:

[[GREPCENT_TABLE]]
[["($ in thousands)","","Due within one year","","Due after one year through five years","","Due after five years through fifteen years","","Due after fifteen years","","Total"],["Commercial:"],["C&I","","$","6,377,460","","","$","9,423,384","","","$","615,317","","","$","164,918","","","$","16,581,079"],["CRE:"],["CRE","","1,335,154","","","6,980,010","","","6,324,116","","","137,801","","","14,777,081"],["Multifamily residential","","215,519","","","1,352,396","","","1,604,163","","","1,851,085","","","5,023,163"],["Construction and land","","298,450","","","334,460","","","30,734","","","224","","","663,868"],["Total CRE","","1,849,123","","","8,666,866","","","7,959,013","","","1,989,110","","","20,464,112"],["Total commercial","","8,226,583","","","18,090,250","","","8,574,330","","","2,154,028","","","37,045,191"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","638","","","6,423","","","1,453,334","","","11,922,665","","","13,383,060"],["HELOCs","","\u2014","","","1,557","","","126,301","","","1,594,346","","","1,722,204"],["Total residential mortgage","","638","","","7,980","","","1,579,635","","","13,517,011","","","15,105,264"],["Other consumer","","33,234","","","24,744","","","2,349","","","\u2014","","","60,327"],["Total consumer","","33,872","","","32,724","","","1,581,984","","","13,517,011","","","15,165,591"],["Total loans held-for-investment","","$","8,260,455","","","$","18,122,974","","","$","10,156,314","","","$","15,671,039","","","$","52,210,782"],["Distribution of loans to changes in interest rates:"],["Variable-rate loans","","$","6,769,986","","","$","14,464,347","","","$","4,439,201","","","$","4,513,263","","","$","30,186,797"],["Fixed-rate loans","","1,445,872","","","3,050,536","","","2,677,252","","","4,166,473","","","11,340,133"],["Hybrid adjustable-rate loans","","44,597","","","608,091","","","3,039,861","","","6,991,303","","","10,683,852"],["Total loans held-for-investment","","$","8,260,455","","","$","18,122,974","","","$","10,156,314","","","$","15,671,039","","","$","52,210,782"]]
[[/GREPCENT_TABLE]]

55

Foreign Outstandings

The Company’s overseas offices, which include the branch in Hong Kong and the subsidiary bank in China, are subject to the general risks inherent in conducting business in foreign countries, such as regulatory, economic and political uncertainties. As such, the Company’s international operation risk exposure is largely concentrated in China and Hong Kong. In addition, the Company’s financial assets held in the Hong Kong branch and the subsidiary bank in China may be affected by fluctuations in currency exchange rates or other factors. The following table presents the major financial assets held in the Company’s overseas offices as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","2022"],["($ in thousands)","","Amount","","% of Total Consolidated Assets","","Amount","","% of Total Consolidated Assets"],["Hong Kong branch:"],["Cash and cash equivalents","","$","631,487","","","1","%","","$","911,784","","","1","%"],["Interest-bearing deposits with banks","","$","\u2014","","","\u2014","%","","$","28,772","","","0","%"],["AFS debt securities (1)","","$","546,495","","","1","%","","$","281,804","","","0","%"],["Loans held-for-investment (2)","","$","934,734","","","1","%","","$","968,450","","","2","%"],["Total assets","","$","2,115,857","","","3","%","","$","2,212,606","","","3","%"],["Subsidiary bank in China:"],["Cash and cash equivalents","","$","719,058","","","1","%","","$","556,656","","","1","%"],["AFS debt securities (3)","","$","120,167","","","0","%","","$","122,053","","","0","%"],["Loans held-for-investment (2)","","$","1,328,383","","","2","%","","$","1,170,437","","","2","%"],["Total assets","","$","2,156,548","","","3","%","","$","1,836,811","","","3","%"]]
[[/GREPCENT_TABLE]]

(1)Comprised of U.S. Treasury securities and foreign government bonds as of both December 31, 2023 and 2022.

(2)Primarily comprised of C&I loans as of both December 31, 2023 and 2022.

(3)Comprised of foreign government bonds as of both December 31, 2023 and 2022.

The following table presents the total revenue generated by the Company’s overseas offices in 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022","","2021"],["($ in thousands)","","Amount","","% of Total Consolidated Revenue","","Amount","","% of Total Consolidated Revenue","","Amount","","% of Total Consolidated Revenue"],["Hong Kong Branch:"],["Total revenue","","$","55,747","","","2","%","","$","47,644","","","2","%","","$","25,221","","","1","%"],["Subsidiary Bank in China:"],["Total revenue","","$","32,569","","","1","%","","$","38,022","","","2","%","","$","27,252","","","1","%"]]
[[/GREPCENT_TABLE]]

Capital

The Company maintains a strong capital base to support its anticipated asset growth, operating needs, and credit risks, and to ensure that the Company and the Bank are in compliance with all regulatory capital guidelines. The Company engages in regular capital planning processes on at least an annual basis to optimize the use of available capital and to appropriately plan for future capital needs, allocating capital to existing and future business activities. Furthermore, the Company conducts capital stress tests as part of its capital planning process. The stress tests enable the Company to assess the impact of adverse changes in the economy and interest rates on its capital base.

On March 3, 2020, the Company’s Board of Directors authorized the repurchase of $500 million of the Company’s common stock. During the fourth quarter of 2023, the Company repurchased $82 million of common stock or 1,506,091 shares, at an average price of $54.56 per share. In comparison, the Company repurchased $100 million of common stock or 1,385,517 shares, at an average price of $72.17 per share in 2022. The total remaining available capital authorized for repurchase as of December 31, 2023 was $172 million.

56

The Company’s stockholders’ equity was $7.0 billion as of December 31, 2023, an increase of $966 million or 16% from $6.0 billion as of December 31, 2022. The increase in the Company’s stockholders’ equity was primarily due to 2023 net income of $1.2 billion, partially offset by cash dividends declared of $274 million. For other factors that contributed to the changes in stockholders’ equity, refer to Item 8. Financial Statements — Consolidated Statement of Changes in Stockholders’ Equity in this Form 10-K.

Book value was $49.64 per common share as of December 31, 2023, an increase of 17% from $42.46 per common share as of December 31, 2022, primarily due to the factors described above. Tangible book value per share was $46.27 as of December 31, 2023, compared with $39.10 as of December 31, 2022. For additional details, see the reconciliation of non-GAAP measures presented under Item 7. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-K.

The Company paid a cash dividend of $1.92 per share in 2023, compared with $1.60 per share in 2022, an increase of 20%. In January 2024, the Company’s Board of Directors declared a first quarter 2024 cash dividend of $0.55 per share, which represents a 15% increase or seven cents per share, from the previous quarterly cash dividend of $0.48 per share. The dividend was paid on February 15, 2024, to stockholders of record as of February 2, 2024.

Deposits and Other Sources of Funding

Deposits are the Company’s primary source of funding, the cost of which has a significant impact on the Company’s net interest income and net interest margin. Additional funding is provided by short- and long-term borrowings, and long-term debt. See Item 7. MD&A — Risk Management — Liquidity Risk Management — Liquidity in this Form 10-K for a discussion of the Company’s liquidity management. The following table summarizes the Company’s sources of funds as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","December 31, 2022","","Change"],["($ in thousands)","","Amount","","%","","Amount","","%","","$","","%"],["Deposits:"],["Noninterest-bearing demand","","$","15,539,872","","","28","%","","$","21,051,090","","","38","%","","$","(5,511,218)","","","(26)","%"],["Interest-bearing checking","","7,558,908","","","14","%","","6,672,165","","","12","%","","886,743","","","13","%"],["Money market","","13,108,727","","","23","%","","12,265,024","","","22","%","","843,703","","","7","%"],["Savings","","1,841,467","","","3","%","","2,649,037","","","4","%","","(807,570)","","","(30)","%"],["Time deposits","","18,043,464","","","32","%","","13,330,533","","","24","%","","4,712,931","","","35","%"],["Total deposits","","$","56,092,438","","","100","%","","$","55,967,849","","","100","%","","$","124,589","","","0","%"],["Other Funds:"],["Short-term borrowings","","$","4,500,000","","","97","%","","$","\u2014","","","\u2014","%","","$","4,500,000","","","100","%"],["Repurchase agreements","","\u2014","","","\u2014","%","","300,000","","","67","%","","(300,000)","","","(100)","%"],["Long-term debt","","148,249","","","3","%","","147,950","","","33","%","","299","","","0","%"],["Total other funds","","$","4,648,249","","","100","%","","$","447,950","","","100","%","","$","4,200,299","","","NM"],["Total sources of funds","","$","60,740,687","","","","","$","56,415,799","","","","","$","4,324,888","","","8","%"]]
[[/GREPCENT_TABLE]]

NM — Not meaningful.

Deposits

The Company’s strategy is to grow and retain relationship-based deposits to provide a stable and low-cost source of funding and liquidity. Accordingly, the Company offers a wide variety of deposit products to meet the needs of its consumer and commercial customers. As a result, we believe our deposit base is seasoned, stable and well-diversified. The following chart presents the Company’s deposits by customer segment as of December 31, 2023 and 2022.

57

Total deposits were $56.1 billion as of December 31, 2023, a slight increase of $125 million from $56.0 billion as of December 31, 2022. The increase in deposits was primarily driven by an increase in customer deposits, partially offset by a decrease in brokered deposits. The Company paid down a portion of its brokered deposits, which decreased the percentage of brokered deposits to 3% of total deposits as of December 31, 2023, compared with 6% as of December 31, 2022. Noninterest-bearing demand deposits decreased $5.5 billion year-over-year and comprised 28% and 38% of total deposits as of December 31, 2023 and 2022, respectively. Time deposits increased $4.7 billion year-over-year and comprised 32% and 24% of total deposits as of December 31, 2023 and 2022, respectively. The shift in deposit mix is primarily due to customer migration to higher yielding deposit products in response to the higher interest rate environment.

As of December 31, 2023, customer deposits of $52.9 billion were held in the Company’s domestic offices and $1.6 billion were held in each of the subsidiary bank in China and the branch in Hong Kong. Customer deposit accounts in the U.S. offices are insured by the FDIC for up to $250,000. The deposits in the Company’s subsidiary bank in China and the branch in Hong Kong are insured by each jurisdiction’s deposit insurance authority for up to 500,000 RMB and 500,000 HKD, respectively. Uninsured deposits represent the portion of deposit accounts that exceed the insurance limits of the FDIC and each foreign jurisdiction. The Company calculates its uninsured deposits based on the methodologies and assumptions used for regulatory reporting.

The following table presents total uninsured deposits by location as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["($ in thousands)","","Domestic","","China","","Hong Kong","","Total"],["Uninsured deposits as of 12/31/2023","","$","27,592,714","","","$","1,572,592","","","$","1,487,833","","","$","30,653,139"],["Uninsured deposits as of 12/31/2022","","$","31,036,308","","","$","1,569,671","","","$","1,520,686","","","$","34,126,665"]]
[[/GREPCENT_TABLE]]

58

Uninsured time deposits totaled $10.4 billion as of December 31, 2023. The following table presents the maturity distribution for uninsured customer time deposits by location as of December 31, 2023:

[[GREPCENT_TABLE]]
[["($ in thousands)","","Domestic","","China","","Hong Kong","","Total"],["Three months or less","","$","3,821,200","","","$","73,432","","","$","888,336","","","$","4,782,968"],["Over three months through six months","","2,335,839","","","185,106","","","88,831","","","2,609,776"],["Over six months through 12 months","","2,202,842","","","328,482","","","32,509","","","2,563,833"],["Over 12 months","","15,660","","","388,752","","","6","","","404,418"],["Total","","$","8,375,541","","","$","975,772","","","$","1,009,682","","","$","10,360,995"]]
[[/GREPCENT_TABLE]]

Management believes that presenting uninsured domestic deposits as reported on Schedule RC-OM item 2 of the Bank’s Call Report, with an adjustment to exclude collateralized and affiliate deposits provides a more accurate view of the deposits at risk, given that collateralized deposits are secured, and affiliate deposits are not customer-facing and are eliminated in consolidation. The Company’s domestic uninsured deposits, excluding collateralized and affiliate deposits, ratio improved to 42% as of December 31, 2023, compared with 51% as of December 31, 2022. The Company is a participant in the IntraFi Network, a network that offers deposit placement services such as CDARS and ICS, that qualify large deposits for FDIC insurance. These reciprocal deposit structures provide protection to depositors by fully insuring deposits with other network banks and give the Company additional funding stability. The increasing use of these products during 2023 contributed to the improvement in the uninsured deposits, excluding collateralized and affiliate deposits ratio.

The following table summarizes the Company’s uninsured domestic deposit balances reported on Schedule RC-OM item 2 of the Bank’s Call Report as of December 31, 2023 and 2022, after certain adjustments:

[[GREPCENT_TABLE]]
[["($ in thousands)","","","December 31, 2023","","December 31, 2022"],["Uninsured deposits, per regulatory reporting requirements","","","$","27,592,714","","","$","31,036,308"],["Less: Collateralized deposits","","","(4,631,047)","","","(3,780,329)"],["Affiliate deposits","","","(491,992)","","","(352,977)"],["Uninsured deposits, excluding collateralized and affiliate deposits","(a)","","$","22,469,675","","","$","26,903,002"],["Total domestic deposits per the Call Report","(b)","","$","53,486,990","","","$","53,225,764"],["Uninsured deposits, excluding collateralized and affiliate deposits, ratio","(a) / (b)","","42","%","","51","%"]]
[[/GREPCENT_TABLE]]

Additional information regarding the impact of deposits on net interest income, with a comparison of average deposit balances and rates, is provided in Item 7 — MD&A — Results of Operations — Net Interest Income in this Form 10-K.

Other Sources of Funding

The Company had $4.5 billion of short-term borrowings outstanding as of December 31, 2023, consisting of funds borrowed from the BTFP in March 2023. These borrowings were more cost effective than other borrowing sources and have a positive carry as cash placed at the Federal Reserve Bank. There were no short-term borrowings outstanding as of December 31, 2022. Refer to Note 10 — Short-Term Borrowings and Long-Term Debt to the Consolidated Financial Statements in this Form 10-K for additional information on the BTFP and the Company’s related borrowings.

Repurchase agreements were $300 million as of December 31, 2022. The Company extinguished $300 million of repurchase agreements during the first quarter of 2023, and recorded $4 million of charges related to the extinguishment of repurchase agreements. For additional details, see Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-K.

The Company uses long-term debt to provide funding to acquire interest-earning assets, and to enhance liquidity and regulatory capital adequacy. Long-term debt consists of junior subordinated debt, which qualifies as Tier 2 capital for regulatory capital purposes. Refer to Note 10 — Short-Term Borrowings and Long-Term Debt and Note 19 — Subsequent Events to the Consolidated Financial Statements in this Form 10-K for additional information on the junior subordinated debt.

59

Regulatory Capital and Ratios

The federal banking agencies have risk-based capital adequacy requirements intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with their operations. The Company and the Bank are each subject to these regulatory capital adequacy requirements. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and Regulatory Capital-Related Development in this Form 10-K for additional details.

The Company adopted Accounting Standards Update 2016-13 on January 1, 2020, which requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in the Company’s relevant financial assets. The Company has elected the phase-in option provided by a rule that permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL, plus 25% of the cumulative changes in the allowance for credit losses under CECL for each period until December 31, 2021, followed by a three-year phase-out period in which the aggregate benefit is reduced by 25% in 2022, 50% in 2023 and 75% in 2024. Accordingly, our capital ratios as of December 31, 2023 reflect a delay of 50% of the estimated impact of CECL on regulatory capital.

The following table presents the Company’s and the Bank’s capital ratios as of December 31, 2023 and 2022 under the Basel III Capital Rules, and those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:

[[GREPCENT_TABLE]]
[["","","Basel III Capital Rules"],["","","December 31, 2023","","December 31, 2022"],["","","Company","","East West Bank","","Company","","East West Bank","","Minimum Regulatory Requirements","","Minimum Regulatory Requirements including Capital Conservation Buffer","","Well-Capitalized Requirements"],["Risk-based capital ratios:"],["CET 1 capital (1)","","13.3","%","","12.6","%","","12.7","%","","12.5","%","","4.5","%","","7.0","%","","6.5","%"],["Tier 1 capital (1)","","13.3","%","","12.6","%","","12.7","%","","12.5","%","","6.0","%","","8.5","%","","8.0","%"],["Total capital","","14.8","%","","13.8","%","","14.0","%","","13.5","%","","8.0","%","","10.5","%","","10.0","%"],["Tier 1 leverage (1)","","10.2","%","","9.6","%","","9.8","%","","9.7","%","","4.0","%","","4.0","%","","5.0","%"]]
[[/GREPCENT_TABLE]]

(1)The CET1 capital and Tier 1 leverage well-capitalized requirements apply only to the Bank since there is no CET1 capital component or Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The well-capitalized Tier 1 capital ratio requirements for the Company and the Bank are 6.0% and 8.0%, respectively.

The Company is committed to maintaining strong capital levels to assure its investors, customers and regulators that the Company and the Bank are financially sound. As of both December 31, 2023 and 2022, the Company and the Bank continued to exceed all “well-capitalized” capital requirements and the required minimum capital requirements under the Basel III Capital Rules. Total risk-weighted assets were $53.7 billion as of December 31, 2023, compared with $50.0 billion as of December 31, 2022. The increase in risk-weighted assets was primarily due to growth across all major loan portfolios.

Risk Management

Overview

In the normal course of business, the Company is exposed to a variety of risks, some of which are inherent to the financial services industry and others of which are more specific to the Company’s business. 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 incorporates risk management throughout the organization in identifying, managing, monitoring and reporting risks. It identifies the Company’s major risk categories as: credit, liquidity, capital, market, operational, compliance, legal, strategic, technology and reputational.

60

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

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 Board’s Risk Oversight Committee (“ROC”). IAR provides management and the ROC with an objective and independent assessment of the Bank’s credit profile and credit risk management process. Further discussion and analysis of selected primary risk areas are discussed in the following subsections of Risk Management.

Credit Risk Management

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.

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.

The Company assesses the overall credit quality performance of the loans held-for-investment portfolio through an integrated analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: Credit Quality, Nonperforming Assets, and Allowance for Credit Losses.

Credit Quality

The Company utilizes a credit risk rating system to assist in monitoring credit quality. Loans are evaluated using the Company’s internal credit risk rating of 1 through 10. For more information on the Company’s credit quality indicators and internal credit risk ratings, refer to Note 6 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.

61

The following table presents the Company’s criticized loans as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","","","Change"],["($ in thousands)","","December 31, 2023","","December 31, 2022","","$","","%"],["Criticized loans:"],["Special mention loans","","$","404,241","","","$","468,471","","","$","(64,230)","","","(14)","%"],["Classified loans (1)","","573,969","","","427,509","","","146,460","","","34","%"],["Total criticized loans (2)","","$","978,210","","","$","895,980","","","$","82,230","","","9","%"],["Special mention loans to loans held-for-investment","","0.77","%","","0.97","%"],["Classified loans to loans held-for-investment","","1.10","%","","0.89","%"],["Criticized loans to loans held-for-investment","","1.87","%","","1.86","%"]]
[[/GREPCENT_TABLE]]

(1)Consists of substandard, doubtful and loss categories.

(2)Excludes loans held-for-sale.

Nonperforming Assets

Nonperforming assets are comprised of nonaccrual loans, other real estate owned (“OREO”) and other nonperforming assets. Other nonperforming assets and OREO are repossessed assets and properties, respectively, acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. Nonperforming assets were $114 million or 0.16% of total assets as of December 31, 2023, an increase of $14 million or 14%, compared with $100 million or 0.16% of total assets as of December 31, 2022.

The following table presents nonperforming assets information as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","","","Change"],["($ in thousands)","","December 31, 2023","","December 31, 2022","","$","","%"],["Commercial:"],["C&I","","$","37,036","","","$","50,428","","","$","(13,392)","","","(27)","%"],["CRE:"],["CRE","","23,249","","","23,244","","","5","","","0","%"],["Multifamily residential","","4,669","","","169","","","4,500","","","NM"],["Total CRE","","27,918","","","23,413","","","4,505","","","19","%"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","24,377","","","14,240","","","10,137","","","71","%"],["HELOCs","","13,411","","","11,346","","","2,065","","","18","%"],["Total residential mortgage","","37,788","","","25,586","","","12,202","","","48","%"],["Other consumer","","132","","","99","","","33","","","33","%"],["Total nonaccrual loans","","102,874","","","99,526","","","3,348","","","3","%"],["OREO, net","","11,141","","","270","","","10,871","","","NM"],["Total nonperforming assets","","$","114,015","","","$","99,796","","","$","14,219","","","14","%"],["Nonperforming assets to total assets","","0.16","%","","0.16","%"],["Nonaccrual loans to loans held-for-investment","","0.20","%","","0.21","%"],["Allowance for loan losses to nonaccrual loans","","650.06","%","","598.48","%"]]
[[/GREPCENT_TABLE]]

NM — Not meaningful.

Loans are generally placed on nonaccrual status when they become 90 days past due or when the full collection of principal or interest becomes uncertain regardless of the length of past due status. Collectability is generally assessed based on economic and business conditions, the borrower’s financial condition and the adequacy of collateral, if any. For additional details regarding the Company’s nonaccrual loan policy, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements in this Form 10-K.

62

Nonaccrual loans were $103 million and $100 million as of December 31, 2023 and 2022, respectively. Increases in single-family, multifamily residential and HELOC nonaccrual loans were predominantly offset by higher charge-offs of C&I loans. As of December 31, 2023, $40 million or 39% of nonaccrual loans were less than 90 days delinquent. In comparison, $68 million or 69% of nonaccrual loans were less than 90 days delinquent as of December 31, 2022.

The following table presents the accruing loans past due by portfolio segment as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","","","Total Accruing Past Due Loans (1)","","Change","","Percentage of Total Loans Outstanding"],["($ in thousands)","","","","December 31, 2023","","December 31, 2022","","$","","%","","December 31, 2023","","December 31, 2022"],["Commercial:"],["C&I","","","","$","35,649","","","$","9,355","","","$","26,294","","","281","%","","0.21","%","","0.06","%"],["CRE:"],["CRE","","","","3,517","","","14,185","","","(10,668)","","","(75)","%","","0.02","%","","0.10","%"],["Multifamily residential","","","","597","","","1,000","","","(403)","","","(40)","%","","0.01","%","","0.02","%"],["Construction and land","","","","13,251","","","\u2014","","","13,251","","","100","%","","2.00","%","","\u2014","%"],["Total CRE","","","","17,365","","","15,185","","","2,180","","","14","%","","0.08","%","","0.08","%"],["Total commercial","","","","53,014","","","24,540","","","28,474","","","116","%","","0.14","%","","0.07","%"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","","","45,228","","","25,653","","","19,575","","","76","%","","0.34","%","","0.23","%"],["HELOCs","","","","21,492","","","8,786","","","12,706","","","145","%","","1.25","%","","0.41","%"],["Total residential mortgage","","","","66,720","","","34,439","","","32,281","","","94","%","","0.44","%","","0.26","%"],["Other consumer","","","","3,265","","","3,192","","","73","","","2","%","","5.41","%","","4.18","%"],["Total consumer","","","","69,985","","","37,631","","","32,354","","","86","%","","0.46","%","","0.28","%"],["Total","","","","$","122,999","","","$","62,171","","","$","60,828","","","98","%","","0.24","%","","0.13","%"]]
[[/GREPCENT_TABLE]]

(1)There were no accruing loans past due 90 days or more as of both December 31, 2023 and 2022.

Allowance for Credit Losses

The Company maintains its allowance for credit losses at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information on the policies, methodologies and judgements used to determine the allowance for credit losses, see Item 7. MD&A — Critical Accounting Estimates, Note 1 — Summary of Significant Accounting Policies and Note 6 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.

63

The following table presents an allocation of the allowance for loan losses by loan portfolio segments as of the periods indicated:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","2022"],["($ in thousands)","","Allowance Allocation","","","","% of Loan Type to Total Loans","","Allowance Allocation","","% of Loan Type to Total Loans"],["Allowance for loan losses"],["Commercial:"],["C&I","","$","392,685","","","","","32","%","","$","371,700","","","33","%"],["CRE:"],["CRE","","170,592","","","","","28","%","","149,864","","","29","%"],["Multifamily residential","","34,375","","","","","10","%","","23,373","","","10","%"],["Construction and land","","10,469","","","","","1","%","","9,109","","","1","%"],["Total CRE","","215,436","","","","","39","%","","182,346","","","40","%"],["Total commercial","","608,121","","","","","71","%","","554,046","","","73","%"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","55,018","","","","","26","%","","35,564","","","23","%"],["HELOCs","","3,947","","","","","3","%","","4,475","","","4","%"],["Total residential mortgage","","58,965","","","","","29","%","","40,039","","","27","%"],["Other consumer","","1,657","","","","","0","%","","1,560","","","0","%"],["Total consumer","","60,622","","","","","29","%","","41,599","","","27","%"],["Total allowance for loan losses","","$","668,743","","","","","100","%","","$","595,645","","","100","%"],["Allowance for unfunded credit commitments","","$","37,699","","","","","","","$","26,264"],["Total allowance for credit losses","","$","706,442","","","","","","","$","621,909"],["Loans held-for-investment","","$","52,210,782","","","","","","","$","48,202,430"],["Allowance for loan losses to loans held-for-investment","","1.28","%","","","","","","1.24","%"]]
[[/GREPCENT_TABLE]]

64

The following table presents net charge-offs and the net charge-offs to average loans ratios based on the loan categories as of the periods indicated:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","2022"],["($ in thousands)","","Net Charge-Offs (Recoveries)","","Average Loans Held-for-Investment","","% of Net Charge-Offs (Recoveries) to Average Loans Held-for-Investment","","Net Charge-Offs (Recoveries)","","Average Loans Held-for-Investment","","% of Net Charge-Offs (Recoveries) to Average Loans Held-for-Investment"],["Commercial:"],["C&I","","$","29,770","","","$","15,497,693","","","0.19","%","","$","1,914","","","$","15,010,984","","","0.01","%"],["CRE:"],["CRE","","6,616","","","14,312,459","","","0.05","%","","9,288","","","13,145,204","","","0.07","%"],["Multifamily residential","","(542)","","","4,756,885","","","(0.01)","%","","6,678","","","4,249,600","","","0.16","%"],["Construction and land","","10,177","","","754,928","","","1.35","%","","(74)","","","499,044","","","(0.01)","%"],["Total CRE","","16,251","","","19,824,272","","","0.08","%","","15,892","","","17,893,848","","","0.09","%"],["Total commercial","","46,021","","","35,321,965","","","0.13","%","","17,806","","","32,904,832","","","0.05","%"],["Consumer:"],["Residential mortgage:"],["Single-family residential","","(69)","","","12,274,773","","","0.00","%","","463","","","10,106,349","","","0.00","%"],["HELOCs","","105","","","1,881,008","","","0.01","%","","84","","","2,208,725","","","0.00","%"],["Total residential mortgage","","36","","","14,155,781","","","0.00","%","","547","","","12,315,074","","","0.00","%"],["Other consumer","","197","","","65,181","","","0.30","%","","106","","","93,711","","","0.11","%"],["Total consumer","","233","","","14,220,962","","","0.00","%","","653","","","12,408,785","","","0.01","%"],["Total","","$","46,254","","","$","49,542,927","","","0.09","%","","$","18,459","","","$","45,313,617","","","0.04","%"]]
[[/GREPCENT_TABLE]]

2023 net charge-offs were $46 million, or 0.09% of average loans held-for-investment, compared with $18 million, or 0.04% of average loans held-for-investment in 2022. The increase was primarily due to higher losses in the C&I and construction and land portfolios, as well as lower recoveries in the C&I portfolio. These increases were partially offset by lower charge-offs in the multifamily residential and CRE portfolios.

Liquidity Risk Management

Liquidity

Liquidity risk arises from the Company’s inability to meet its customer deposit withdrawals and obligations to other counterparties as they come due, or to obtain adequate funding at a reasonable cost to meet those obligations. Liquidity risk also considers the stability of deposits. The objective of liquidity management is to manage the potential mismatch of asset and liability cash flows. Maintaining an adequate level of liquidity depends on the institution’s ability to efficiently meet both expected and unexpected cash flow and collateral needs without adversely affecting daily operations or the financial condition of the institution. To achieve this objective, the Company analyzes its liquidity risk, maintains readily available liquid assets and utilizes diverse funding sources including its stable core deposit base.

The ROC has primary oversight responsibility over liquidity risk management. At the management level, the Company’s Asset/Liability Committee (“ALCO”) establishes the liquidity guidelines that govern the day-to-day active management of the Company’s liquidity position by requiring sufficient asset-based liquidity to cover potential funding requirements and avoid over-dependence on volatile, less reliable funding markets. These guidelines are established and monitored for both the Bank and East West, on a stand-alone basis to ensure that the Company can serve as a source of strength for its subsidiaries. The ALCO regularly monitors the Company’s liquidity status and related management processes, and provides regular reports on the Company’s liquidity position relative to policy limits and guidelines to the Board of Directors. The liquidity management practices have been effective under normal operating and stressed market conditions.

65

The Company also maintains a Liquidity Contingency Plan that provides an early-warning methodology to detect liquidity problems and provide a timely response. The Liquidity Contingency Plan describes the procedures, roles and responsibilities, and communication protocols for managing any identified liquidity problem. Management monitors the early-warning indicators defined in the Liquidity Contingency Plan, which include metrics for measuring the Company’s internal liquidity status as well as company-specific and market-wide external factors. When early-warning signals are detected, the ALCO is informed, and the problem is evaluated for severity. The ALCO will determine the course of action and appropriate contingency funding sources, if any, that are needed.

Liquidity Risk — Liquidity Sources. The Company’s primary source of funding is from deposits, generated by its banking business, which we believe is a relatively stable and low-cost source of funding. Our loans are funded by deposits, which amounted to $56.1 billion as of December 31, 2023, compared with $56.0 billion as of December 31, 2022. The Company’s loan-to-deposit ratio was 93% as of December 31, 2023, compared with 86% as of December 31, 2022.

In addition to deposits, the Company has access to various sources of wholesale financing, including borrowing capacity with the FHLB and FRBSF, such as under the BTFP, unsecured federal funds lines of credit with various correspondent banks, and several master repurchase agreements with major brokerage companies to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute its business strategy. However, general financial market and economic conditions could impact our access and cost of external funding. Additionally, the Company’s access to capital markets is affected by the ratings received from various credit rating agencies.

Unencumbered loans and/or debt securities were pledged to the FHLB, the FRBSF discount window, and the FRBSF BTFP as collateral. The Company has established operational procedures to enable borrowing against these assets, including regular monitoring of the total pool of loans and debt securities eligible as collateral. Eligibility of collateral is defined in guidelines from the FHLB and FRBSF and is subject to change at their discretion. See Item 7. — MD&A — Balance Sheet Analysis — Deposits and Other Sources of Funding in this Form 10-K for further details related to the Company’s funding sources. The Company believes its cash and cash equivalents and available borrowing capacity described below provide sufficient liquidity above its expected cash needs.

The Company maintains its source of liquidity in the form of cash and cash equivalents and borrowing capacity with its eligible loans and debt securities as collateral. The following table presents the Company’s total cash and cash equivalents and borrowing capacity as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","","","","","Change"],["($ in thousands)","","December 31, 2023","","December 31, 2022","","$","","%"],["Cash and cash equivalents","","$","4,614,984","","","$","3,481,784","","","$","1,133,200","","","33","%"],["Interest-bearing deposits with banks","","10,498","","","139,021","","","(128,523)","","","(92)","%"],["Borrowing capacity:"],["FHLB","","12,373,002","","","12,773,996","","","(400,994)","","","(3)","%"],["FRBSF","","9,830,769","","","2,049,048","","","7,781,721","","","380","%"],["Unpledged available securities","","1,988,526","","","6,939,591","","","(4,951,065)","","","(71)","%"],["Federal funds facility","","946,000","","","1,136,000","","","(190,000)","","","(17)","%"],["Total","","$","29,763,779","","","$","26,519,440","","","$","3,244,339","","","12","%"]]
[[/GREPCENT_TABLE]]

The Company’s cash and cash equivalents and borrowing capacity totaled $29.8 billion as of December 31, 2023, compared with $26.5 billion as of December 31, 2022. The increase was primarily related to an increase in collateral available at the FRBSF and an increase in cash and cash equivalents, which was funded by borrowings from the BTFP in the first quarter of 2023. The BTFP borrowings were secured by pledged securities and reflected the Company’s conservative liquidity management practices in response to the volatility in the banking industry earlier in the year.

Liquidity Risk — Cash Requirements. In the ordinary course of business, the Company enters contractual obligations that require future cash payments, including funding for customer deposit withdrawals, repayments for short- and long-term borrowings and other cash commitments. For additional information on these obligations, see the following Notes to the Consolidated Financial Statements in this Form 10-K:

•Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements

•Note 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities

66

•Note 9 — Deposits

•Note 10 — Short-Term Borrowings and Long-Term Debt

In January 2024, the Company provided notice that it would redeem $113 million of the principal face value of junior subordinated debt and $4 million of the principal face value of trust preferred securities issued by the East West Capital Trusts. Of these amounts, $16 million was redeemed in February 2024 and the remaining $101 million is scheduled to be redeemed in March 2024.

The Company also has off-balance sheet arrangements which represent transactions that are not recorded on the Consolidated Balance Sheet. The Company’s off-balance sheet arrangements include (1) commitments to extend credit, such as loan commitments, commercial letters of credit for foreign and domestic trade, standby letters of credit (“SBLCs”), and financial guarantees, to meet the financing needs of its customers, (2) future interest obligations related to customer deposits and the Company’s borrowings, and (3) transactions with unconsolidated entities that provide financing, liquidity, market risk or credit risk support to the Company, or engage in leasing, hedging or research and development services with the Company. Because many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. The Company does not expect the total commitment amounts as of December 31, 2023 to have a material current or future impact on the Company’s financial conditions or results of operations. Information about the Company’s loan commitments, commercial letters of credit and SBLCs is provided in Note 12 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K.

The Consolidated Statement of Cash Flows summarizes the Company’s sources and uses of cash by type of activity for 2023, 2022 and 2021. Excess cash generated by operating and investing activities may be used to repay outstanding debt or invest in liquid assets.

Liquidity Risk — Liquidity for East West. In addition to bank level liquidity management, the Company manages liquidity at the parent company level for various operating needs including payment of dividends, repurchases of common stock, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries. East West’s primary source of liquidity is from cash dividends distributed by its subsidiary, East West Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends as discussed in Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds in this Form 10-K. East West held $446 million and $229 million in cash and cash equivalents as of December 31, 2023 and 2022, respectively. Management believes that East West has sufficient cash and cash equivalents to meet the projected cash obligations for the coming year.

Liquidity Risk — Liquidity Stress Testing. The Company utilizes liquidity stress analysis to determine the appropriate amounts of liquidity to maintain at the Company, foreign subsidiary and foreign branch to meet contractual and contingent cash outflows under a range of scenarios. Scenario analyses include assumptions about significant changes in key funding sources, market triggers, potential uses of funding and economic conditions in certain countries. In addition, Company specific events are incorporated into the stress testing. For example, based on the Company’s analysis of the banking industry disruption earlier in 2023, deposit runoffs were assumed to be more front-loaded to trigger earlier remediation actions. Liquidity stress tests are conducted to ascertain potential mismatches between liquidity sources and uses over a variety of time horizons, both immediate and longer term, and over a variety of stressed conditions. Given the range of potential stresses, the Company maintains contingency funding plans on a consolidated basis and for individual entities.

As of December 31, 2023, the Company believes it has adequate liquidity resources to conduct operations and meet other needs in the ordinary course of business, and is not aware of any events that are reasonably likely to have a material adverse effect on its liquidity, capital resources or operations. Given the uncertain and rapidly changing market and economic conditions, the Company will continue to actively evaluate the impact on its business and financial position. For more details on how economic conditions may impact our liquidity, see Item 1A. Risk Factors in this Form 10-K.

Market Risk Management

Market risk refers to the risk of potential loss due to adverse movements in market risk factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company is primarily exposed to interest rate risk through its core business activities of extending loans and acquiring deposits. The Risk Oversight Committee of the Company’s Board of Directors has primary oversight responsibility and has given the ALCO the task of market risk management. The ALCO establishes guidelines, risk measures and limits, and monitors compliance with the policies and risk limits pertaining to market risk management activities.

67

Interest Rate Risk Management

Interest rate risk is the risk that market fluctuations in interest rates can have a negative impact on the Company’s earnings and capital stemming from mismatches in the Company’s asset and liability cash flows primarily arising from customer-related activities such as lending and deposit-taking. The Company is subject to interest rate risk because:

•Assets and liabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;

•Assets and liabilities may reprice at the same time but by different amounts;

•Short- and long-term market interest rates may change by different amounts. For example, the shape of the yield curve may affect the yield of new loans and funding costs differently;

•The remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change. For example, if long-term mortgage interest rates increase sharply, mortgage-related products may pay down at a slower rate than anticipated, which could impact portfolio income and valuation; or

•Interest rates may have a direct or indirect effect on loan demand, collateral values, mortgage origination volume, and the fair value of other financial instruments.

The ALCO coordinates the overall management of the Company’s interest rate risk, meets regularly to review the Company’s open market positions and establishes policies to monitor and limit exposure to market risk. Interest rate risk management is carried out primarily through strategies involving the Company’s loan portfolio, debt securities portfolio, available funding channels and capital market activities. In addition, the Company’s policies permit the use of derivative instruments to assist in managing interest rate risk.

We measure and monitor interest rate risk exposure through various risk management tools, which include a simulation model that performs interest rate sensitivity analyses under multiple interest rate scenarios against a baseline. The simulation model incorporates the market’s forward rate expectations and the Company’s earning assets and liabilities. The Company uses both a static balance sheet and a forward growth balance sheet to perform the interest rate sensitivity analyses. The simulated interest rate scenarios include an instantaneous non-parallel shift in the yield curve and a gradual non-parallel shift in the yield curve (“rate ramp”). In addition, the Company also performs simulations using other alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting. The Company uses the results of these simulations to formulate and gauge strategies to achieve a desired risk profile within its capital and liquidity guidelines.

The net interest income simulation model is based on the maturity and repricing characteristics of the Company’s interest rate sensitive assets, liabilities, and related derivative contracts. This model also incorporates various assumptions, which management believes to be reasonable but that may have a significant impact on the results. These key assumptions include the timing and magnitude of changes in interest rates, the yield curve evolution and shape, the correlation between various interest rate indices, financial instruments’ future repricing characteristics and spread relative to benchmark rates, and the effect of interest rate floors and caps. The modeled results are highly sensitive to deposit decay and deposit beta assumptions, which we derive from a regression analysis of the Company’s historical deposit data.

Simulation results are highly dependent on modeled behaviors and input assumptions. To the extent that actual behaviors are different from the assumptions used in the models, there could be material changes to the interest rate sensitivity results. The key behavioral models impacting interest rate sensitivity simulations include deposit repricing, deposit balance forecasts, and mortgage prepayments. These models and assumptions are documented, supported, and periodically back-tested to assess the reasonableness and effectiveness. The Company also regularly monitors the sensitivity of the other important modeling assumptions, such as loan and security prepayments and early withdrawal on fixed-rate customer liabilities. The Company makes appropriate calibrations to the model as needed and continually validates the model, methodology and results. Changes to key model assumptions are reviewed by the ALCO. Scenario results do not reflect strategies that the management could employ to limit the impact of changing interest rate expectations. The simulation does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the risk of the impact of changing market interest rates across a range of interest rate environments.

68

The Company employs a variety of quantitative and qualitative approaches to capture historical deposit repricing and balance behaviors. These historical observations are performed at a granular level based on key product characteristics, including distinctions for brokered, public, and large commercial deposits, which are then combined with forward-looking market expectations and the competitive landscape to generate the deposit repricing and balance forecasting models. The Company uses these deposit repricing models to forecast deposit interest expense. The repricing models provide sufficient granularity to reflect key behavioral differences across product and customer types. The deposit beta is a key parameter of the deposit rate forecast. The deposit beta defines the sensitivity of deposit rates to changes in the Effective Fed Funds Rate (“EFFR”).

The Company recalibrated its deposit repricing models and betas in December 2022, and qualitatively increased the long run (through the cycle) betas during 2023 to better reflect increased competition and higher terminal fed funds rates than previously observed in the historical data. Overall, the Company observed a weighted-average increase of approximately 17% during the year to total deposit beta of 51% as of December 31, 2023. These increases reflected the Company’s forward-looking views of deposit rates given the expected EFFR at the time. The Company also modified deposit balance runoff models in December 2022, to better capture behavioral differences across product and customer types and carved out stable and non-stable balances to reflect the volatility and interest rate sensitivity of such deposit balances. The assumptions used for the identification of stable balances were updated in June and September 2023 to reflect a larger portion of potential non-stable balances. The assumptions for the identification of stable balances had no significant updates in December 2023.

Additionally, to reflect changes in interest expense due to the shift from noninterest-bearing to interest-bearing accounts in the deposit mix, the Company utilized a qualitative assumption in March 2023. This assumption considered the amount of surplus noninterest-bearing deposits assumed to be rate sensitive and migrated them to interest-bearing deposits. This assumption was included in the net interest income volatility simulations to reflect more realistic net interest income volatility in rising rate scenarios. The qualitative assumption was enhanced in June 2023 with a more robust quantitative approach. This updated approach incorporated internally observed historical data reflecting the evolution of noninterest-bearing deposits as a percent of total deposits, based on the historical behavior observed during the prior rising interest rate cycle. The assumption forecasts that a portion of noninterest-bearing deposits would migrate to interest-bearing certificates of deposits as the 12-month moving average of the overnight indexed swap rate increases. No further enhancements to the deposit mix assumption were made in December 2023.

In the net interest income simulations, the Company also makes assumptions on the yield related to the re-investment of investment securities and the yields on new loan originations. These assumptions are updated quarterly to reflect recent market conditions as well as forward-looking expectations but generally do not have significant impact to NII sensitivity. During 2023, loans and deposits with cash flows indexed to China related benchmark interest rates were removed from the interest rate scenario shocks. The associated change to the net interest income sensitivity was insignificant.

As loan and security prepayment assumptions are key components of the Company’s model, the Company incorporates third-party vendor models to forecast prepayment behavior on mortgage loans and securities which have mortgage loans as underlying collateral. These third-party vendor models have access to more comprehensive industry-level data which can capture specific borrower and collateral characteristics over a variety of interest rate cycles. The Company will periodically assess and adjust the vendor models when appropriate to include its own available observations and expectations. During 2023, the Company updated its version of the asset liability management simulation tool and vendor prepayment model. This change updated the calibration of the vendor model to better fit recent data and better supported the transition from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) indexed loans. Overall, the update had minimal impact on forecasted prepayments. During 2023, the Company updated the vendor prepayment model tuning factors to slow down prepayment speeds on single-family residential mortgages so that it better aligned with actual and expected prepayments.

During the third quarter of 2023, the Company replaced the U.S. dollar (“USD”) LIBOR Swap curve and rates with the respective SOFR Swap and SOFR reference rates. This change had a minimal impact on the overall results of net interest income and economic value of equity (“EVE”) simulations as the overall yields and discount rates were not impacted.

Twelve-Month Net Interest Income Simulation

Net interest income simulation modeling measures interest rate risk through earnings volatility. The simulation projects the cash flow changes in interest rate sensitive assets and liabilities, expressed in terms of net interest income, over a specified time horizon for defined interest rate scenarios. Net interest income simulations provide insight into the impact of market rate changes on earnings, which help guide risk management decisions. The Company assesses interest rate risk by comparing the changes of net interest income in different interest rate scenarios.

69

The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates by 100 and 200 bps as of December 31, 2023 and 2022, on a balance sheet assuming flat forward rates and flat loan and deposit growth on the date of analysis. The non-parallel shift scenarios were calibrated internally based on historical analysis.

[[GREPCENT_TABLE]]
[["","","","","Net Interest Income Volatility (1)"],["","","","","December 31,"],["","","","","2023","","","","2022"],["Change in Interest Rates (in bps)","","","","%","","","","%"],["+200","","","","1.3","%","","","","11.6","%"],["+100","","","","1.2","%","","","","5.9","%"],["-100","","","","(1.8)","%","","","","(5.3)","%"],["-200","","","","(4.1)","%","","","","(8.6)","%"]]
[[/GREPCENT_TABLE]]

(1)The percentage change represents net interest income change over a 12-month period in a stable interest rate environment versus in the various interest rate scenarios.

The composition of the Company’s loan portfolio creates sensitivity to interest rate movements due to a mismatch of repricing behavior between the floating-rate loan portfolio and deposit products. In the table above, net interest income volatility expressed in relation to base-case net interest income decreased as of December 31, 2023. This decrease reflected updates to the deposit repricing assumptions and deposit product mix. Noninterest-bearing deposit account balances are assumed to be sensitive to interest rate levels and migrate to interest-bearing deposit accounts.

The Company also models scenarios based on gradual shifts in interest rates and assesses the corresponding impacts. These interest rate scenarios provide additional information to estimate the Company’s underlying interest rate risk. The rate ramp table below shows the net interest income volatility under a gradual non-parallel shift of the yield curve, in even monthly increments over the first 12 months, followed by rates held constant thereafter based on a flat balance sheet as of the date of the analysis.

[[GREPCENT_TABLE]]
[["","","","","Net Interest Income Volatility"],["","","","","December 31,"],["","","","","2023","","","","2022"],["Change in Interest Rates (in bps)","","","","%","","","","%"],["+200 Rate ramp","","","","0.8","%","","","","6.3","%"],["+100 Rate ramp","","","","0.5","%","","","","3.4","%"],["-100 Rate ramp","","","","(0.6)","%","","","","(2.4)","%"],["-200 Rate ramp","","","","(1.3)","%","","","","(4.9)","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, the Company’s net interest income profile reflects a modestly asset sensitive position, where assets reprice faster or more significantly than liabilities. Net interest income is expected to increase when interest rates rise as the Company has a large population of variable rate loans, primarily tied to Prime and Term SOFR indices. The Company’s interest income is sensitive to changes in short-term interest rates. As of December 31, 2023, the Company designated interest rate contracts with a notional amount of $5.3 billion as cash flow hedges, which reduced net interest income volatility by approximately 1.6% of the base net interest income for every 100 bps change in interest rate.

The Company’s deposit portfolio is primarily composed of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates. The modeled results are highly sensitive to modeled behavior and assumptions. Actual net interest income results may deviate from the model’s net interest income due to earning asset growth variation and deposit mix changes based on customer preferences relative to the interest rate environment. During a period of declining interest rates, balance sheet growth could offset headwinds to net interest income from yield compression.

Economic Value of Equity at Risk

EVE is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the economic value of the bank’s assets and liabilities due to changes in interest rates.

70

The economic value approach provides a comparatively broader scope than the net interest income volatility approach since it represents the discounted present value of cash flows over the expected life of the instruments. Due to this longer horizon, EVE is useful to identify risks arising from repricing, prepayment and maturity gaps between assets and liabilities on the balance sheet, as well as from off-balance sheet derivative exposures, over their lifetime. This long-term economic perspective into the Company’s interest rate risk profile allows the Company to identify anticipated negative effects of interest rate fluctuations. However, the difference in time horizons can cause the EVE analysis to diverge from the shorter-term net interest income analysis presented above. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, the shape of the yield curve, and potential changes to the balance sheet, actual results may vary from those predicted by the Company’s model.

The following table presents the Company’s EVE sensitivity related to an instantaneous non-parallel shift in market interest rates by 100 and 200 bps as of December 31, 2023 and 2022. The non-parallel shift scenarios were calibrated internally based on historical analysis.

[[GREPCENT_TABLE]]
[["","","","","Economic Value of Equity Volatility (1)"],["","","","","December 31,"],["","","","","2023","","","","2022"],["Change in Interest Rates (in bps)","","","","%","","","","%"],["+200","","","","(10.3)","%","","","","(6.0)","%"],["+100","","","","(5.4)","%","","","","(2.9)","%"],["-100","","","","3.0","%","","","","1.1","%"],["-200","","","","6.0","%","","","","2.3","%"]]
[[/GREPCENT_TABLE]]

(1)The percentage change represents net portfolio value change of the Company in a stable interest rate environment versus in the various interest rate scenarios.

As of December 31, 2023, the Company’s EVE is expected to decrease when interest rates rise. The change in EVE sensitivity was due to shorter deposit durations as a result of deposit modeling assumptions, slower prepayments on fixed-rate mortgages and mortgage-backed securities, and additional cash flow hedges to reduce net interest income volatility.

Derivatives

It is the Company’s policy not to speculate on the future direction of interest rates, foreign currency exchange rates and commodity prices. However, the Company periodically enters into derivative transactions in order to manage its exposure to market risk, primarily interest rate risk and foreign currency risk. The Company believes these derivative transactions, when properly structured and managed, provide a hedge against inherent risk in certain assets and liabilities or against risk in specific transactions. Hedging transactions may be implemented using a variety of derivative instruments such as swaps, forwards, options and collars. The Company uses interest rate swaps to hedge the variability in interest received on certain floating-rate commercial loans and interest paid on certain floating-rate borrowings. Foreign exchange derivatives are used in net investment hedging strategies to mitigate the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited. Prior to entering into any accounting hedge activities, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies. The Company also repositions its hedging derivatives portfolio based on the current assessment of economic and financial conditions, including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of its cash and derivative positions.

In addition, the Company enters into derivative transactions in order to accommodate its customers with their business needs or to assist customers with their risk management objectives, such as managing exposure to fluctuations in interest rates, foreign currencies, and commodity prices. To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into offsetting derivative contracts with third-party financial institutions, some of which are cleared through central clearing organizations. The exposures from derivative transactions are collateralized by cash and/or eligible securities based on limits as set forth in the respective agreements between the Company and counterparty financial institutions. The fair value changes of the derivative contracts traded with third-party financial institutions are expected to be largely comparable to the fair value changes of the derivative transactions executed with customers throughout the terms of these contracts, except for the credit valuation adjustment component in the contracts and the spread variances between the customer derivatives and the offsetting financial counterparty positions. 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 offered to its customers.

71

The Company is subject to credit risk associated with the counterparties to the derivative contracts. This counterparty credit risk is a multi-dimensional form of risk, affected by both the exposure and credit quality of the counterparty, both of which are sensitive to market-induced changes. The Company’s Credit Risk Management Committee provides oversight of credit risk and the Company has guidelines in place to manage counterparty concentration, tenor limits, and collateral. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into legally enforceable master netting agreements and by requiring collateral arrangements, where possible. The Company may also transfer counterparty credit risk related to interest rate swaps to third-party financial institutions through the use of credit risk participation agreements. Certain derivative contracts are required to be cleared through central clearinghouses, to further mitigate counterparty credit risk, where variation margin is applied daily as settlement to the fair value of the derivative contracts. In addition, the Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect the counterparty’s and the Company’s own nonperformance risk in the fair value measurement of its derivatives. As of December 31, 2023, the Company anticipates performance by all its counterparties and has not incurred any related credit losses.

The following table summarizes certain information on derivative instruments designated as accounting hedges and utilized by the Company in its management of interest rate and foreign currency risks as of December 31, 2023 and 2022: 

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","December 31, 2022"],["($ in thousands)","","Interest Rate Contracts Hedging Loans (1)","","Interest Rate Contracts Hedging Borrowings (2)","","Interest Rate Contracts Hedging Loans (1)","","Interest Rate Contracts Hedging Borrowings (2)"],["Cash flow hedges"],["Notional amount","","$","4,000,000","","(3)(4)","$","\u2014","","","$","3,000,000","","(3)","$","200,000"],["Weighted average:"],["Receive rate","","4.95","%","","NA","","4.91","%","","3.83","%"],["Pay rate","","7.32","%","","NA","","6.23","%","","0.48","%"],["Remaining term (in months)","","35.8","","","NA","","46.6","","","3.2"],["($ in thousands)","","Foreign Exchange Contracts","","Foreign Exchange Contracts"],["Net investment hedges"],["Notional amount","","$","81,480","","","","$","84,832"],["Hedged percentage (5)","","44","%","","","","44","%"],["Remaining term (in months)","","2.7","","","","2.6"]]
[[/GREPCENT_TABLE]]

NA — Not applicable.

(1)Represents receive-fixed/pay-floating interest rate swaps and excludes interest rate collars. Floating rates paid are based on SOFR, or Prime.

(2)Represents receive-floating/pay-fixed interest rate swaps. Floating rate received was based on three-month LIBOR. The hedge was terminated during the first quarter of 2023.

(3)Excludes interest rate collars in total notional amount of $250 million as of both December 31, 2023 and 2022.

(4)Excludes forward-starting swaps in total notional amount of $1.0 billion, which were not effective as of December 31, 2023.

(5)Represents percentage between the notional of outstanding foreign exchange contracts and the net RMB exposure from East West Bank (China) Limited.

Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K.

Critical Accounting Estimates

The Company’s significant accounting policies are described in Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K. Certain of these policies include critical accounting estimates, which are subject to valuation assumptions, subjective or complex judgments about matters that are inherently uncertain, and it is likely that materially different amounts could be reported under different assumptions and conditions. The Company has procedures and processes in place to facilitate making these judgments. The following is a brief description of the Company’s critical accounting estimates involving significant judgments.

72

Allowance for Credit Losses

The Company’s allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of the Company’s financial assets measured at amortized cost, including loans and certain lending-related commitments. The allowance for credit losses involves significant judgment on a number of matters including development and weighting of macroeconomic forecasts, incorporation of historical loss experience, assessment of key credit risk characteristics, assignment of risk ratings, valuation of collateral, and the determination of remaining expected life. For additional information on these judgements and the Company’s policies and methodologies used to determine the allowance for credit losses, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Loan Losses and Unfunded Credit Commitments, and Note 6 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K.

A critical judgement in the process is estimating the Company’s allowance for credit losses related to macroeconomic forecasts that are incorporated into quantitative methods. As any one economic outlook is inherently uncertain, the Company utilizes a baseline and upside or downside scenarios which are applied based on a probability weighting, to better reflect management’s estimate of the expected credit losses given existing market conditions and the changes in the economic environment. Changes in the Company’s assumptions and economic forecasts could significantly affect its estimate of expected credit losses, which could potentially lead to significant changes in the estimate from one reporting period to the next. For further discussion on the economic forecast incorporated into the 2023 model, see Item 7. MD&A — Risk Management — Credit Risk Management — Allowance for Credit Losses.

The allowance for credit losses is sensitive to changes in macroeconomic forecast assumptions. Given the dynamic relationship between macroeconomic variables within the Company’s models, it is difficult to estimate the impact of a change in any one factor or input on the allowance. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and input may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to provide additional context regarding the sensitivity of the allowance for credit losses to changes in key variables, the Company compared the quantitative modeled estimate when applying a 100% probability weighting to the downside scenario rather than the weighting of multiple scenarios used to estimate the allowance for credit losses at December 31, 2023. Without considering model overlays and qualitative adjustments which could result in a materially different estimate, this sensitivity analysis would have been approximately $343 million higher.

This analysis demonstrates the sensitivity to the allowance for credit losses to key quantitative assumptions and is not intended to estimate changes in the overall allowance for credit losses as it does not capture all the potential unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions. Management believes that the estimate for the allowance for credit losses was reasonable and appropriate as of December 31, 2023.

Fair Value Estimates

Certain financial instruments are carried at fair value on the Consolidated Balance Sheet on a recurring basis, including AFS debt securities, certain equity securities and derivatives. Changes in fair value are recorded either through earnings or other comprehensive income (loss). Other financial instruments, such as certain individually evaluated loans held-for-investment, loans held-for-sale, investments in qualified affordable housing partnerships, tax credit and other investments, OREO and other nonperforming assets, are not carried at fair value each period but may require nonrecurring fair value adjustments primarily due to application of lower of cost or fair value accounting or write-downs of individual assets.

In determining the fair value of financial instruments, the Company uses market prices of the same or similar instruments whenever such prices are available. Changes in the market conditions such as reduced liquidity in the capital markets or changes in secondary market activities, may increase variability or reduce the availability of market prices used to determine fair value. If observable market prices are unavailable or impracticable to obtain, then fair value is estimated using modeling techniques such as discounted cash flows analysis. These modeling techniques incorporate management’s assessments regarding assumptions that market participants would use in pricing the asset or the liability, including the risks inherent in a particular valuation technique and the risk of nonperformance. The use of methodologies or assumptions different than those used by the Company could result in different estimates of fair value of financial instruments.

73

Significant judgment is also required to determine the fair value hierarchy for certain financial instruments. When fair values are based on valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement, the financial assets and liabilities are classified as Level 3 of the fair value hierarchy established under Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurement.

The following table presents the Company’s assets recorded at fair value and the portion of such assets that are classified within level 3 of the fair value hierarchy.

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","2022"],["($ in thousands)","","Total Balance (1)","","Level 3","","Total Balance (1)","","Level 3"],["Total assets measured at fair value on a recurring basis","","$","6,823,916","","","$","336","","","$","6,814,275","","","$","323"],["Total assets measured at fair value on a nonrecurring basis","","46,760","","","46,760","","","72,614","","","72,614"],["Total assets measured at fair value","(a)","$","6,870,676","","(b)","$","47,096","","(d)","$","6,886,889","","(f)","$","72,937"],["Total assets","(c)","$","69,612,884","","","","(e)","$","64,112,150"],["Level 3 assets at fair value as a percentage of total assets","","(b)/(c)","0.1","%","","(f)/(e)","0.1","%"],["Level 3 assets at fair value as a percentage of total assets at fair value","","(b)/(a)","0.7","%","","(f)/(d)","1.1","%"]]
[[/GREPCENT_TABLE]]

(1)Before derivative netting adjustments.

For a complete discussion on the Company’s fair value hierarchy of financial instruments, fair value measurement techniques and assumptions, and the impact on the Consolidated Financial Statements, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Fair Value and Note 2 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K.

Goodwill Impairment

The valuation and testing methodologies used in the Company’s analysis of goodwill impairment are discussed in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Goodwill, Note 8 — Goodwill, and Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K.

The Company performed its annual goodwill impairment test on all three reporting units using a combination of income and market approaches to estimate the fair value of each reporting unit. The Company concluded that the goodwill allocated to its reporting units was not impaired as of December 31, 2023. The fair value of each reporting unit exceeded its carrying amount and there was no indication of a significant risk of goodwill impairment based on current projections.

Analyzing goodwill includes consideration of various factors that continue to evolve and for which significant uncertainty remains, including estimates of the profitability of the Company’s reporting units, long term growth rates and the estimated market cost of equity, such as the discount rate and price multiples of comparable companies. Imprecision in estimating these factors can affect the estimated fair value of the reporting units. Certain events or circumstances could have a negative effect on the estimated fair value of the reporting units, including declines in business performance, increases in credit losses, as well as deterioration in economic or market conditions and adverse regulatory or legislative changes, which could result in a material impairment charge to earnings in a future period.

Income Taxes

The Company files income tax returns in the jurisdictions in which it conducts business and evaluates income tax expense in two components: current and deferred income tax expense. Accrued taxes represent the net estimated amount due to or due from various tax jurisdictions in the current year and deferred tax assets represent amounts available to reduce income taxes payable in future years. The Company’s interpretations of the tax laws, including the U.S., its states and the municipalities, and the tax jurisdictions in Hong Kong and China, are complex and subject to audit by taxing authorities that disputes may occur regarding its view on a tax position taken by the Company.

74

In estimating accrued taxes, the Company assesses the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent, and other pertinent information. The income tax laws are complex and subject to different interpretations by the Company and the relevant government taxing authorities. Significant judgment is required in determining the tax accruals and in evaluating the tax positions, including evaluating uncertain tax positions. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, tax credits, interpretations of tax laws, the status of examinations by the tax authorities, and newly enacted statutory, judicial, and regulatory guidance that could impact the relative merits and risks of tax positions. These changes, when they occur, impact tax expense and can materially affect our operating results and financial condition. The Company reviews its tax positions on a quarterly basis and makes adjustments to accrued taxes as new information becomes available. The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2023. For further information on the Company’s accounting for income taxes and significant tax attributes, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Income Taxes and Note 11 — Income Taxes to the Consolidated Financial Statements in this Form 10-K.

Recently Adopted Accounting Standards

For detailed discussion and disclosure on new accounting pronouncements adopted, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Form 10-K.

Reconciliation of GAAP to Non-GAAP Financial Measures

To supplement the Company’s Consolidated Financial Statements presented in accordance with U.S. GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not prepared in accordance with, or as an alternative to U.S. GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts, or is subject to adjustments that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures discussed in this Form 10-K are return on average TCE, adjusted efficiency ratio, adjusted diluted EPS, and tangible book value per share. Certain additional non-GAAP financial measures that are components of the foregoing non-GAAP financial measures are also set forth and reconciled in the table below. The Company believes these non-GAAP financial measures, when taken together with the corresponding U.S. GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

75

The following tables present the reconciliation of U.S. GAAP to non-GAAP financial measures for 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","","Year Ended December 31,"],["($ in thousands)","","","","","","","2023","","2022","","2021"],["Net income","(a)","","","","","","$","1,161,161","","","$","1,128,083","","","$","872,981"],["Add: Amortization of core deposit intangibles","","","","","","","1,763","","","1,865","","","2,749"],["Amortization of mortgage servicing assets","","","","","","","1,328","","","1,425","","","1,679"],["Tax effect of amortization adjustments (1)","","","","","","","(914)","","","(966)","","","(1,274)"],["Tangible net income (non-GAAP)","(b)","","","","","","$","1,163,338","","","$","1,130,407","","","$","876,135"],["Average stockholders\u2019 equity","(c)","","","","","","$","6,482,985","","","$","5,783,025","","","$","5,559,212"],["Less: Average goodwill","","","","","","","(465,697)","","","(465,697)","","","(465,697)"],["Average other intangible assets (2)","","","","","","","(6,542)","","","(8,695)","","","(10,535)"],["Average tangible book value (non-GAAP)","(d)","","","","","","$","6,010,746","","","$","5,308,633","","","$","5,082,980"],["ROE","(a)/(c)","","","","","","17.91","%","","19.51","%","","15.70","%"],["Return on average TCE (non-GAAP)","(b)/(d)","","","","","","19.35","%","","21.29","%","","17.24","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","","","","Year Ended December 31,"],["($ in thousands)","","","","","","","","2023","","2022","","2021"],["Net interest income before provision for (reversal of) credit losses","","(a)","","","","","","$","2,312,254","","","$","2,045,881","","","$","1,531,571"],["Total noninterest income","","","","","","","","295,264","","","298,666","","","285,895"],["Total revenue","","(b)","","","","","","$","2,607,518","","","$","2,344,547","","","$","1,817,466"],["Noninterest income","","","","","","","","$","295,264","","","$","298,666","","","$","285,895"],["Add: Net loss on AFS debt security (3)","","","","","","","","6,862","","","\u2014","","","\u2014"],["Adjusted noninterest income (non-GAAP)","","(c)","","","","","","302,126","","","298,666","","","285,895"],["Adjusted revenue (non-GAAP)","","(a)+(c)=(d)","","","","","","$","2,614,380","","","$","2,344,547","","","$","1,817,466"],["Total noninterest expense","","(e)","","","","","","$","1,022,748","","","$","859,393","","","$","796,089"],["Less: Amortization of tax credit and other investments","","","","","","","","(120,299)","","","(113,358)","","","(122,457)"],["Amortization of core deposit intangibles","","","","","","","","(1,763)","","","(1,865)","","","(2,749)"],["FDIC charge (4)","","","","","","","","(69,986)","","","\u2014","","","\u2014"],["Repurchase agreements\u2019 extinguishment cost (5)","","","","","","","","(3,872)","","","\u2014","","","\u2014"],["Adjusted noninterest expense (non-GAAP)","","(f)","","","","","","$","826,828","","","$","744,170","","","$","670,883"],["Efficiency ratio","","(e)/(b)","","","","","","39.22","%","","36.65","%","","43.80","%"],["Adjusted efficiency ratio (non-GAAP)","","(f)/(d)","","","","","","31.63","%","","31.74","%","","36.91","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","","","Year Ended December 31,"],["($ and shares in thousands, except per share data)","","","","","","","2023","","2022","","2021"],["Net income","(a)","","","","","","$","1,161,161","","","$","1,128,083","","","$","872,981"],["Add: FDIC charge (4)","","","","","","","69,986","","","\u2014","","","\u2014"],["Net loss on AFS debt security (3)","","","","","","","6,862","","","\u2014","","","\u2014"],["Tax effect of adjustment (1)","","","","","","","(22,716)","","","\u2014","","","\u2014"],["Adjusted net income (non-GAAP)","(b)","","","","","","$","1,215,293","","","$","1,128,083","","","$","872,981"],["Diluted weighted-average number of shares outstanding","(c)","","","","","","$","141,902","","","$","142,492","","","$","143,140"],["Diluted EPS","(a)/(c)","","","","","","8.18","","","7.92","","","6.10"],["Add: FDIC charge (4)","","","","","","","0.35","","","\u2014","","","\u2014"],["Net loss on AFS debt security (3)","","","","","","","0.03","","","\u2014","","","\u2014"],["Adjusted diluted EPS (non-GAAP)","(b)/(c)","","","","","","$","8.56","","","$","7.92","","","$","6.10"]]
[[/GREPCENT_TABLE]]

(1)Applied statutory rate of 29.56% for 2023, 29.37% for 2022, and 28.77% for 2021.

(2)Includes core deposit intangibles and mortgage servicing assets.

(3)Represents the net loss related to an AFS debt security that was written-off in the first quarter of 2023 and subsequently sold during the fourth quarter of 2023.

(4)During the fourth quarter of 2023, the Company recorded $70 million pre-tax FDIC charge (included in Deposit insurance premiums and regulatory assessments on the Consolidated Statement of Income).

(5)In 2023, the Company prepaid $300 million of repurchase agreements and incurred a debt extinguishment cost of $4 million.

76

[[GREPCENT_TABLE]]
[["","","","","December 31,"],["($ and shares in thousands, except per share data)","","","","2023","","2022","","2021"],["Stockholders\u2019 equity","","(a)","","$","6,950,834","","","$","5,984,612","","","$","5,837,218"],["Less: Goodwill","","","","(465,697)","","","(465,697)","","","(465,697)"],["Other intangible assets (1)","","","","(6,602)","","","(7,998)","","","(9,334)"],["Tangible book value (non-GAAP)","","(b)","","$","6,478,535","","","$","5,510,917","","","$","5,362,187"],["Number of common shares at period-end","","(c)","","140,027","","","140,948","","","141,908"],["Book value per share","","(a)/(c)","","$","49.64","","","$","42.46","","","$","41.13"],["Tangible book value per share (non-GAAP)","","(b)/(c)","","$","46.27","","","$","39.10","","","$","37.79"]]
[[/GREPCENT_TABLE]]

(1)Includes core deposit intangibles and mortgage servicing assets.