EAST WEST BANCORP INC 10-K

ITEM 8. FINANCIAL STATEMENTS TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 79 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet 82 Consolidated Statement of Income 83 Consolidated Statement of Comprehensive Income 84 Consolidated Statement of Changes in Stockholders’ Equity 85 Consolidated Statement of Cash Flows 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 — Summary of Significant Accounting Policies 88 2 — Fair Value Measurement and Fair Value of Financial Instruments 99 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements 109 4 — Securities 111 5 — Derivatives 117 6 — Loans Receivable and Allowance for Credit Losses 124 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities 137 8 — Goodwill 139 9 — Deposits 139 10 — Short-Term Borrowings and Long-Term Debt 140 11 — Income Taxes 141 12 — Commitments and Contingencies 143 13 — Stock Compensation Plans 144 1 4 — Stockholders’ Equity and Earnings Per Share 146 1 5 — Accumulated Other Comprehensive Income (Loss) 146 1 6 — Regulatory Requirements and Matters 147 1 7 — Business Segments 148 1 8 — Parent Company Condensed Financial Statements 150 19 — Subsequent Events 151 78 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors East West Bancorp, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of East West Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for loan losses for loans evaluated on a collective pool basis As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s allowance for loan losses (ALL) is established as management’s estimate of expected credit losses inherent in the Company’s lending activities. As of December 31, 2023 the ALL was $669 million, which includes the ALL for commercial loans evaluated on a collective pool basis (the commercial collective ALL). The ALL is the portion of the loan’s amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loan’s contractual life, adjusted for estimated prepayments. The Company measured the expected credit losses on a collective pool basis when similar risk characteristics existed. The December 31, 2023 commercial collective ALL included quantitative and qualitative components (together, the collective ALL). The Company developed and documented the collective ALL methodology at the portfolio segment level. The collective ALL methodology used various models and estimation techniques based on the Company’s historical loss experience, current borrower characteristics, which included internal risk ratings, current conditions, and reasonable and supportable macroeconomic forecasts. The commercial loan portfolio is comprised of commercial and industrial (C&I) and commercial real estate (CRE), which also included multifamily residential, and construction and land loans. The Company’s C&I lifetime loss rate model estimated credit losses by estimating a loss rate expected over the life of a loan 79 which is applied to the amortized cost basis, excluding accrued interest receivables, to determine expected credit losses. The Company’s CRE projected probability of defaults (“PDs”) and loss given defaults (“LGDs”) are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss. The Company incorporated forward-looking information using macroeconomic scenarios, which included variables that are considered key drivers of increases and decreases in credit losses. A probability-weighted multiple scenario forecast over a reasonable and supportable forecast period is incorporated into both the quantitative models. The Company’s C&I lifetime loss rate model reverts to the historical average loss rate, expressed through the loan-level lifetime loss rate, after the reasonable and supportable forecast period. The Company’s CRE model considers the contractual life of the loans and the forecast of future economic conditions return to long-run historical economic trends within the reasonable and supportable period. In order to estimate the life of a loan under both quantitative models, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. The Company also considered qualitative factors in determining the commercial collective ALL, if these factors have not already been captured by the quantitative model. We identified the December 31, 2023 commercial collective ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ALL methodology, including an evaluation of the conceptual soundness and performance of the methods and models used to estimate (1) the quantitative component and its significant data elements and assumptions, which included portfolio segments, historic loss experience, reasonable and supportable forecast period, internal risk ratings, probability-weighted macroeconomic forecast scenarios, contractual term of the loan adjusted for estimated prepayments, and (2) the qualitative component. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ALL estimates, including controls over the: • development of the collective ALL methodology • continued use and appropriateness of changes made to the quantitative models • performance monitoring of the quantitative models for the December 31, 2023 commercial collective ALL • identification and determination of the significant data elements and assumptions used in the quantitative models • development of the qualitative component • analysis of the collective ALL results, trends, and ratios. We evaluated the Company’s process to develop the collective ALL estimates by testing the models, significant data elements and assumptions that the Company used, and considered the relevance and reliability of such models, data, factors, and assumptions. We performed ratio and trend analysis over key ratios and peer comparison information relevant to the collective ALL. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ALL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the assessment, conceptual soundness and performance testing of the quantitative models, which are based on historical loss experience by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • evaluating the judgments made by the Company in selecting the macroeconomic forecast scenarios, including the reasonable and supportable period and the related probability-weighted macroeconomic forecast scenarios • determining whether the loan portfolio is pooled based on loans with similar risk characteristics by comparing to the Company’s business environment and relevant industry practices • evaluating risk ratings for a selection of collectively evaluated loans 80 • evaluating the conceptual soundness of the framework used to develop the qualitative factors and the effect of those factors on the collective ALL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models. We also assessed the sufficiency of the audit evidence obtained related to the collective ALL estimates by evaluating the: • cumulative results of audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in accounting estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2009. Los Angeles, California February 28, 2024 81 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ in thousands, except shares) December 31, 2023 2022 ASSETS Cash and due from banks $ 444,793 $ 534,980 Interest-bearing cash with banks 4,170,191 2,946,804 Cash and cash equivalents 4,614,984 3,481,784 Interest-bearing deposits with banks 10,498 139,021 Assets purchased under resale agreements (“resale agreements”) 785,000 792,192 Securities: Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $ 6,916,491 and $ 6,879,225 ) 6,188,337 6,034,993 Held-to-maturity (“HTM”) debt securities, at amortized cost (fair value of $ 2,453,971 and $ 2,455,171 ) 2,956,040 3,001,868 Loans held-for-sale 116 25,644 Loans held-for-investment (net of allowance for loan losses of $ 668,743 and $ 595,645 ) 51,542,039 47,606,785 Investments in qualified affordable housing partnerships, tax credit and other investments, net 905,036 763,256 Premises and equipment (net of accumulated depreciation of $ 157,622 and $ 148,126 ) 86,370 89,191 Goodwill 465,697 465,697 Operating lease right-of-use assets 94,024 103,681 Other assets 1,964,743 1,608,038 TOTAL $ 69,612,884 $ 64,112,150 LIABILITIES Deposits: Noninterest-bearing $ 15,539,872 $ 21,051,090 Interest-bearing 40,552,566 34,916,759 Total deposits 56,092,438 55,967,849 Short-term borrowings 4,500,000 — Assets sold under repurchase agreements (“repurchase agreements”) — 300,000 Long-term debt and finance lease liabilities 153,011 152,400 Operating lease liabilities 102,353 111,931 Accrued expenses and other liabilities 1,814,248 1,595,358 Total liabilities 62,662,050 58,127,538 COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDERS’ EQUITY Common stock, $ 0.001 par value, 200,000,000 shares authorized; 169,372,230 and 168,459,045 shares issued 169 168 Additional paid-in capital 1,980,818 1,936,389 Retained earnings 6,465,230 5,582,546 Treasury stock, at cost 29,344,863 and 27,511,199 shares ( 874,787 ) ( 768,862 ) Accumulated other comprehensive loss (“AOCI”), net of tax ( 620,596 ) ( 765,629 ) Total stockholders’ equity 6,950,834 5,984,612 TOTAL $ 69,612,884 $ 64,112,150 See accompanying Notes to Consolidated Financial Statements. 82 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME ($ and shares in thousands, except per share data) Year Ended December 31, 2023 2022 2021 INTEREST AND DIVIDEND INCOME Loans receivable, including fees $ 3,172,746 $ 2,048,301 $ 1,424,900 Debt securities 276,190 198,906 143,983 Resale agreements 20,164 29,767 32,239 Restricted equity securities 4,062 3,144 2,081 Interest-bearing cash and deposits with banks 220,643 41,113 15,531 Total interest and dividend income 3,693,805 2,321,231 1,618,734 INTEREST EXPENSE Deposits 1,205,550 251,838 69,159 Federal funds purchased and other short-term borrowings 157,002 1,801 42 Federal Home Loan Bank (“FHLB”) advances 6,430 1,754 6,881 Repurchase agreements 1,497 14,362 7,999 Long-term debt and finance lease liabilities 11,072 5,595 3,082 Total interest expense 1,381,551 275,350 87,163 Net interest income before provision for (reversal of) credit losses 2,312,254 2,045,881 1,531,571 Provision for (reversal of) credit losses 125,000 73,500 ( 35,000 ) Net interest income after provision for (reversal of) credit losses 2,187,254 1,972,381 1,566,571 NONINTEREST INCOME Lending fees 83,876 79,208 77,704 Deposit account fees 89,606 88,435 71,261 Customer derivative income 20,200 29,057 22,913 Foreign exchange income 52,481 48,158 48,977 Wealth management fees 26,805 27,565 25,751 Net gains on sales of loans 3,634 6,411 8,909 Net (losses) gains on AFS debt securities ( 6,862 ) 1,306 1,568 Other investment income 9,348 7,037 16,852 Other income 16,176 11,489 11,960 Total noninterest income 295,264 298,666 285,895 NONINTEREST EXPENSE Compensation and employee benefits 508,538 477,635 433,728 Occupancy and equipment expense 62,763 62,501 62,996 Deposit insurance premiums and regulatory assessments 103,308 19,449 17,563 Deposit account expense 43,143 25,508 16,152 Computer software and data processing expenses 44,475 42,776 46,863 Other operating expense 140,222 118,166 96,330 Amortization of tax credit and other investments 120,299 113,358 122,457 Total noninterest expense 1,022,748 859,393 796,089 INCOME BEFORE INCOME TAXES 1,459,770 1,411,654 1,056,377 INCOME TAX EXPENSE 298,609 283,571 183,396 NET INCOME $ 1,161,161 $ 1,128,083 $ 872,981 EARNINGS PER SHARE (“EPS”) BASIC $ 8.23 $ 7.98 $ 6.16 DILUTED $ 8.18 $ 7.92 $ 6.10 WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING BASIC 141,164 141,326 141,826 DILUTED 141,902 142,492 143,140 See accompanying Notes to Consolidated Financial Statements. 83 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ($ in thousands) Year Ended December 31, 2023 2022 2021 Net income $ 1,161,161 $ 1,128,083 $ 872,981 Other comprehensive income (loss), net of tax: Net changes in unrealized gains (losses) on AFS debt securities 81,763 ( 508,799 ) ( 137,950 ) Reclassification of unrealized losses on debt securities transferred from AFS to HTM — ( 112,991 ) — Amortization of unrealized losses on debt securities transferred from ASF to HTM 11,171 12,678 — Net changes in unrealized gains (losses) on cash flow hedges 52,155 ( 49,788 ) 1,487 Foreign currency translation adjustments ( 56 ) ( 16,348 ) 1,757 Other comprehensive income (loss) 145,033 ( 675,248 ) ( 134,706 ) COMPREHENSIVE INCOME $ 1,306,194 $ 452,835 $ 738,275 See accompanying Notes to Consolidated Financial Statements. 84 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY ($ in thousands, except shares and per share data) Common Stock and Additional Paid-in Capital Retained Earnings Treasury Stock AOCI, Net of Tax Total Stockholders’ Equity Shares Amount BALANCE, DECEMBER 31, 2020 141,565,229 $ 1,858,519 $ 4,000,414 $ ( 634,083 ) $ 44,325 $ 5,269,175 Net income — — 872,981 — — 872,981 Other comprehensive loss — — — — ( 134,706 ) ( 134,706 ) Issuance of common stock pursuant to various stock compensation plans and agreements 550,045 35,206 — — — 35,206 Repurchase of common stock pursuant to various stock compensation plans and agreements ( 207,320 ) — — ( 15,702 ) — ( 15,702 ) Cash dividends on common stock ($ 1.32 per share) — — ( 189,736 ) — — ( 189,736 ) BALANCE, DECEMBER 31, 2021 141,907,954 $ 1,893,725 $ 4,683,659 $ ( 649,785 ) $ ( 90,381 ) $ 5,837,218 Net income — — 1,128,083 — — 1,128,083 Other comprehensive loss — — — — ( 675,248 ) ( 675,248 ) Issuance of common stock pursuant to various stock compensation plans and agreements 671,871 42,832 — — — 42,832 Repurchase of common stock pursuant to various stock compensation plans and agreements ( 246,462 ) — — ( 19,087 ) — ( 19,087 ) Repurchase of common stock pursuant to the stock repurchase program ( 1,385,517 ) — — ( 99,990 ) — ( 99,990 ) Cash dividends on common stock ($ 1.60 per share) — — ( 229,196 ) — — ( 229,196 ) BALANCE, DECEMBER 31, 2022 140,947,846 $ 1,936,557 $ 5,582,546 $ ( 768,862 ) $ ( 765,629 ) $ 5,984,612 Cumulative-effect of change in accounting principle (1) — — ( 4,262 ) — — ( 4,262 ) Net income — — 1,161,161 — — 1,161,161 Other comprehensive income — — — — 145,033 145,033 Issuance of common stock pursuant to various stock compensation plans and agreements 913,185 44,430 — — — 44,430 Repurchase of common stock pursuant to various stock compensation plans and agreements ( 327,573 ) — — ( 23,751 ) — ( 23,751 ) Repurchase of common stock pursuant to the stock repurchase program ( 1,506,091 ) — — ( 82,174 ) — ( 82,174 ) Cash dividends on common stock ($ 1.92 per share) — — ( 274,215 ) — — ( 274,215 ) BALANCE, DECEMBER 31, 2023 140,027,367 $ 1,980,987 $ 6,465,230 $ ( 874,787 ) $ ( 620,596 ) $ 6,950,834 (1) Represents the change in the Company’s allowance for loan losses as a result of the adoption of Accounting Standards Update (“ASU”) 2022-02, Financial Instruments — Credit Losses (Topic 326) : Troubled Debt Restructurings and the Vintage Disclosures on January 1, 2023. Refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Annual Report on Form 10-K (“this Form 10-K”) for additional information. See accompanying Notes to Consolidated Financial Statements. 85 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands) Year Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,161,161 $ 1,128,083 $ 872,981 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (reversal of) credit losses 125,000 73,500 ( 35,000 ) Depreciation and amortization 163,460 159,851 156,792 Accretion of discount and (amortization of premiums), net 10,723 56,703 67,415 Stock compensation costs 39,867 37,601 32,567 Deferred income tax (benefit) expense ( 49,139 ) ( 43,988 ) 4,762 Net gains on sales of loans ( 3,634 ) ( 6,411 ) ( 8,909 ) Net losses (gains) on AFS debt securities 6,862 ( 1,306 ) ( 1,568 ) Net gains on sales of other real estate owned ("OREO") and other foreclosed assets ( 3,451 ) ( 3,042 ) ( 1,977 ) Impairment on OREO and other foreclosed assets — 6,861 5,151 Loans held-for-sale: Originations and purchases ( 116 ) ( 447 ) ( 11,155 ) Proceeds from sales and paydowns/payoffs of loans originally classified as held-for-sale — 461 12,552 Proceeds from distributions received from equity method investees 11,282 7,586 13,117 Net change in accrued interest receivable and other assets ( 146,270 ) 187,512 124,496 Net change in accrued expenses and other liabilities 105,304 461,385 ( 63,360 ) Other operating activities, net 3,860 1,673 558 Total adjustments 263,748 937,939 295,441 Net cash provided by operating activities 1,424,909 2,066,022 1,168,422 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in: Investments in qualified affordable housing partnerships, tax credit and other investments ( 228,550 ) ( 167,303 ) ( 189,836 ) Interest-bearing deposits with banks 128,523 596,994 73,263 Resale agreements: Proceeds from paydowns and maturities 219,917 1,951,388 982,694 Purchases ( 212,725 ) ( 390,077 ) ( 1,876,197 ) AFS debt securities: Proceeds from sales 3,138 129,181 308,812 Proceeds from repayments, maturities and redemptions 1,470,819 896,726 1,766,184 Purchases ( 1,549,846 ) ( 1,070,608 ) ( 6,779,655 ) HTM debt securities: Proceeds from repayments, maturities and redemptions 61,744 75,635 — Purchases — ( 50,000 ) — Loans held-for-investment: Proceeds from sales of loans originally classified as held-for-investment 711,862 602,725 606,410 Purchases ( 600,930 ) ( 657,620 ) ( 1,045,456 ) Other changes in loans held-for-investment, net ( 4,166,572 ) ( 6,516,182 ) ( 2,877,438 ) Proceeds from sales of OREO and other foreclosed assets 3,721 6,482 54,338 Purchase of bank-owned life insurance — ( 734 ) ( 150,000 ) Distributions received from equity method investees 23,774 18,221 14,440 Other investing activities, net ( 112,036 ) ( 7,720 ) ( 4,763 ) Net cash used in investing activities ( 4,247,161 ) ( 4,582,892 ) ( 9,117,204 ) See accompanying Notes to Consolidated Financial Statements. 86 EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands) (Continued) Year Ended December 31, 2023 2022 2021 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 144,468 2,709,427 8,464,285 Net increase (decrease) in short-term borrowings 4,500,000 6 ( 21,143 ) FHLB advances: Proceeds 6,000,000 4,950,200 400 Repayments ( 6,000,000 ) ( 5,200,200 ) ( 405,400 ) Repurchase agreements: Repayment ( 300,000 ) — — Extinguishment cost ( 3,872 ) — — Long-term debt and lease liabilities: Repayments of long-term debt and lease liabilities ( 871 ) ( 943 ) ( 1,206 ) Common stock: Proceeds from issuance pursuant to various stock compensation plans and agreements 3,208 3,178 2,573 Stock tendered for payment of withholding taxes ( 23,751 ) ( 19,087 ) ( 15,702 ) Repurchase of common stock pursuant to the stock repurchase program ( 82,174 ) ( 99,990 ) — Cash dividends paid ( 274,554 ) ( 228,381 ) ( 188,762 ) Net cash provided by financing activities 3,962,454 2,114,210 7,835,045 Effect of exchange rate changes on cash and cash equivalents ( 7,002 ) ( 28,491 ) 8,701 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,133,200 ( 431,151 ) ( 105,036 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,481,784 3,912,935 4,017,971 CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,614,984 $ 3,481,784 $ 3,912,935 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,213,319 $ 249,587 $ 87,684 Income taxes, net $ 291,685 $ 281,269 $ 139,460 Noncash investing and financing activities: Loans transferred from held-for-investment to held-for-sale $ 739,379 $ 623,777 $ 599,610 Securities transferred from AFS to HTM debt securities $ — $ 3,010,003 $ — Loans transferred to OREO $ 11,141 $ 270 $ 49,485 See accompanying Notes to Consolidated Financial Statements. 87 EAST WEST BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Summary of Significant Accounting Policies Organization East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries (“East West Bank” or the “Bank”). The Bank is the Company’s principal asset. As of December 31, 2023, the Company operated i n over 120 locations in the United States (“U.S.”) and Asia. In the U.S., the Bank’s corporate headquarters and main administrative offices a located in California, and its branches and offices are located in California, Texas, New York, Washington, Georgia, Massachusetts, Illinois, and Nevada. In Asia, East West’s presence included full-service branches in Hong Kong, Shanghai, Shantou and Shenzhen, representative offices in Beijing, Chongqing, Guangzhou, Xiamen and Singapore, and administrative support offices in Beijing and Shanghai. The Bank has a banking subsidiary based in China — East West Bank (China) Limited. Significant Accounting Policies Basis of Presentation — The accounting and reporting policies of the Company conform with the U.S. Generally Accepted Accounting Principles (“GAAP”), applicable guidelines prescribed by regulatory authorities and common practices in the banking industry. The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Financial Statements, income and expenses during the reporting period, and the related disclosures. Actual results could differ materially from those estimates. Certain items on the Consolidated Financial Statements and notes for the prior years have been reclassified to conform to the 2023 presentation. Principles of Consolidation — The Consolidated Financial Statements in this Form 10-K include the accounts of East West and its subsidiaries that are majority owned and in which the Company has a controlling financial interest. In accordance with the applicable accounting guidance for consolidation, the Company first determines if it has a variable interest in the entity. A variable interest entity (“VIE”) is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. If it is determined that the Company does not have a variable interest in the entity, no further analysis is required and the entity is not consolidated. The Company consolidates a VIE when the Company has a controlling financial interest in the entity and therefore is deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined if the Company has: i) both the power and ability to direct activities of the VIE that most significantly affect the entity’s economic performance; and ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. For an entity that does not meet the definition of a VIE, the entity is determined to be a voting interest entity. The Company consolidates a voting interest entity if it can exert control over the financial and operating policies of an investee, which can occur if the Company has a more than 50% voting interest in the entity. For unconsolidated voting interest entities or VIE, the Company uses the equity, cost or measurement alternative method based on the Company’s voting or economic interest. Intercompany transactions and accounts have been eliminated in consolidation. East West also has six wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 810, Consolidation, the Trusts are not included in the Consolidated Financial Statements. Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, cash items in transit, cash due from the Federal Reserve Bank of San Francisco (“FRBSF”) and other financial institutions, and federal funds sold with original maturities up to three months. Interest-Bearing Deposits with Banks — Interest-bearing deposits with banks include cash placed with other banks with original maturities greater than three months and less than one year. 88 Assets Purchased under Resale Agreements and Assets Sold under Repurchase Agreements — Resale agreements are recorded as receivables based on the values at which the securities or loans are acquired. Repurchase agreements are accounted for as collateralized financing transactions and recorded as liabilities based on the values at which the securities are sold. The Company monitors the values of the underlying assets collateralizing the resale and repurchase agreements, including accrued interest, and obtains or posts additional collateral in order to maintain the appropriate collateral requirements for the transactions. For allowance for credit losses on resale agreements, refer to the Allowance for Collateral-Dependent Financial Assets section of this note for details. Securities — The Company’s securities include various debt securities, marketable and non-marketable equity securities. Debt securities are recorded on the Consolidated Balance Sheet as of their trade dates. The Company initially classifies its debt securities as trading securities, AFS or HTM debt securities based on management’s intention on the date of the purchase. Debt securities are purchased for liquidity and investment purposes, as part of asset/liability management and other strategic activities. Debt securities for which the Company has the positive intention and ability to hold until maturity are classified as HTM and are carried at amortized cost, net of allowance for credit losses. Debt securities not classified as trading securities or HTM securities are classified as AFS. AFS debt securities are reported at fair value, net of the allowance for credit losses, with unrealized gains and losses recorded in AOCI, net of applicable income taxes. For details of the allowance for credit losses on debt securities, refer to the Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Debt Securities sections of this note. Interest income, including any amortization of premium or accretion of discount, is included in net income. The Company recognizes realized gains and losses on the sale of AFS debt securities in earnings, using the specific identification method. Upon transfer of a debt security from the AFS to HTM category, the security’s new amortized cost is reset to fair value, reduced by any previous write-offs but excluding any allowance for credit losses. Unrealized gains or losses at the date of transfer of these securities continue to be reported in AOCI and are amortized into interest income over the remaining life of the securities as effective yield adjustments, in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. For transfers of securities from the AFS to HTM category, any allowance for credit losses that was previously recorded under the AFS model is reversed and an allowance for credit losses is subsequently recorded under the HTM debt security model. The reversal and re-establishment of the allowance for credit losses are recorded in the provision for credit losses. Marketable equity securities with readily determinable fair values are recorded at fair value with unrealized gains and losses due to changes in fair value; and are included in Other investment income on the Consolidated Statement of Income. Marketable equity securities include mutual fund investments, which are included in Investments in qualified affordable housing partnership, tax credit and other investments, net on the Consolidated Balance Sheet. Non-marketable equity securities including tax credit investments, and other equity investments that do not have readily determinable fair values are recorded in Investments in qualified affordable housing partnership, tax credit and other investments, net, and Other assets on the Consolidated Balance Sheet and are accounted for under one of the following accounting methods: • Equity Method — When the Company has the ability to exercise significant influence over the investee. • Cost Method — The cost method is applied to restricted equity securities held for membership and regulatory purposes, such as FRBSF and FHLB stock. These investments are held at their cost minus impairment. If impaired, the carrying value is written down to the fair value of the security. • Measurement Alternative — This method is applied to all remaining non-marketable equity securities. These securities are carried at cost adjusted for impairment, if any, plus or minus observable price changes in orderly transactions of an identical or similar security of the same issuer. The Company’s impairment review for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, the expectations of cash flows, capital needs and the viability of its business model. For equity method and cost method investments, the Company reduces the asset’s carrying value when the Company considers declines in value to be other-than-temporary impairment (“OTTI”). For securities accounted for under the measurement alternative, the Company reduces the asset value when the fair value is less than the carrying value, without the consideration of recovery. 89 Loans Held-for-Sale — Loans are initially classified as loans held-for-sale when they are individually identified as being available for immediate sale and management has committed to a formal plan to sell them. Loans held-for-sale are carried at lower of cost or fair value. Subject to periodic review under the Company’s evaluation process, including asset/liability and credit risk management, the Company may transfer certain loans from held-for-investment to held-for-sale measured at lower of cost or fair value. Any write-downs in the carrying amount of the loan at the date of transfer are recorded as charge-offs to allowance for loan losses. Loan origination fees on loans held-for-sale, net of certain costs in processing and closing the loans, are deferred until the time of sale and are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale. A valuation allowance is established if the fair value of such loans is lower than their cost, with a corresponding charge to noninterest income. If the loan or a portion of the loan cannot be sold, it is subsequently transferred back to the loans held-for-investment portfolio from the loans held-for-sale portfolio at the lower of cost or fair value on the transfer date. Loans Held-for-Investment — At the time of commitment to originate or purchase a loan, the loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the foreseeable future. Loans held-for-investment are stated at their outstanding principal, reduced by an allowance for loan losses and net of deferred loan fees or costs, or unearned fees on originated loans, net of unamortized premiums or unaccreted discounts on purchased loans. Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method. Discounts/premiums on purchased loans are accreted/amortized to interest income using the effective interest method over the remaining contractual maturity. Interest on loans is calculated using the simple-interest method on daily balances of the principal amounts outstanding. Generally, loans are placed on nonaccrual status when they become 90 days past due or more. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes uncertain, regardless of the length of past due status. Once a loan is placed on nonaccrual status, interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Interest payments received on nonaccrual loans are reflected as a reduction of principal and not as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan. Loan Modifications — Certain loans are modified in the normal course of business for competitive reasons or in conjunction with the Company’s loss mitigation activities. Upon the adoption of ASU 2022-02 on January 1, 2023, the Company applies the general loan modification guidance provided in ASC 310-20 to all loan modifications, including modifications made to borrowers experiencing financial difficulty. Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: (1) the terms of the new loan are at least as favorable to the Company as the terms for comparable loans to other customers with similar collection risks; and (2) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as a continuation of the existing loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. A modification made to borrowers experiencing financial difficulty may vary by program and by borrower-specific characteristics, and may include rate reductions, principal forgiveness, term extensions, and payment delays, and is intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company applies the same credit loss methodology it uses for similar loans that were not modified. Troubled Debt Restructurings — Prior to the adoption of ASU 2022-02, a loan was generally classified as a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that the Company would not otherwise consider. The concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, a term extension, a payment forbearance and other actions. Loans with contractual terms that were modified as a TDR and were current at the time of restructuring may remain on accrual status if there was demonstrated performance prior to the restructuring and payment in full under the restructured terms was expected. Otherwise, these loans were placed on nonaccrual status and were reported as nonperforming, until the borrower demonstrated a sustained period of performance, generally six months, and the ability to repay the loan according to the contractual terms. If accruing TDRs ceased to perform in accordance with their modified contractual terms, they were placed on nonaccrual status and reported as nonperforming TDRs. TDRs were included in the quarterly allowance for credit losses valuation process. 90 Allowance for Loan Losses — The allowance for loan losses is established as management’s estimate of expected credit losses inherent in the Company’s lending activities; it is increased by the provision for credit losses and decreased by net charge-offs. The allowance for loan losses is evaluated quarterly by management based on regular reviews of the collectability of the Company’s loans, and more often if deemed necessary. The Company develops and documents the allowance for loan losses methodology at the portfolio segment level. The commercial loan portfolio is comprised of commercial and industrial (“C&I”), commercial real estate (“CRE”), multifamily residential, and construction and land loans; and the consumer loan portfolio is comprised of single-family residential, home equity lines of credit (“HELOCs”), and other consumer loans. The allowance for loan losses represents the portion of a loan’s amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loan’s contractual life, adjusted for prepayments. The Company measures the expected loan losses on a collective pool basis when similar risk characteristics exist. Models consisting of quantitative and qualitative components are designed for each pool to develop the expected credit loss estimates. Reasonable and supportable forecast periods vary by loan portfolio. The Company has adopted lifetime loss rate models for the portfolios, which use historical loss rates and forecast economic variables to calculate the expected credit losses for each loan pool. When loans do not share similar risk characteristics, the Company evaluates the loan for expected credit losses on an individual basis. Individually assessed loans include nonaccrual loans. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. When the loan is deemed uncollectible, it is the Company’s policy to charge off the uncollectible amount against the allowance for loan losses. The amortized cost of loans held-for-investment excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election to not recognize an allowance for loan losses for accrued interest receivables as the Company reverses accrued interest if a loan is on nonaccrual status. The allowance for loan losses is reported separately on the Consolidated Balance Sheet and the Provision for credit losses is reported on the Consolidated Statement of Income. Allowance for Unfunded Credit Commitments — The allowance for unfunded credit commitments includes reserves provided for unfunded loan commitments, letters of credit, standby letters of credit (“SBLCs”) and recourse obligations for loans sold. The Company estimates the allowance for unfunded credit commitments over the contractual period in which the entity is exposed to credit risk via a present contractual obligation to extend credit. Within the period of credit exposure, the Company considers both the likelihood that funding will occur, and the expected credit losses on the commitments that are expected to fund over their estimated lives. The allowance for unfunded credit commitments is maintained at a level believed by management to be sufficient to absorb expected credit losses related to unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities. For all off-balance sheet instruments and commitments, the unfunded credit exposure is calculated using assumptions based on the Company's historical utilization experience in related portfolio segments. Loss rates are applied to the calculated exposure balances to estimate the allowance for unfunded credit commitments. Other elements such as credit risk factors for loans outstanding, terms and expiration dates of the unfunded credit facilities, and other pertinent information are considered to determine the adequacy of the allowance. The allowance for unfunded credit commitments is included in the Accrued expenses and other liabilities on the Consolidated Balance Sheet. Changes to the allowance for unfunded credit commitments are included in Provision for credit losses on the Consolidated Income Statements. Allowance for Credit Losses on Available-for-Sale Debt Securities — For each reporting period, each AFS debt security that is in an unrealized loss position is individually analyzed as part of the Company’s ongoing assessments to determine whether a fair value below the amortized cost basis has resulted from a credit loss or other factors. The initial indicator of impairment is a decline in fair value below the amortized cost of the AFS debt security, excluding accrued interest. The Company first considers whether there is a plan to sell the AFS debt security or it is more-likely-than-not that it will be required to sell the AFS debt security before recovery of the amortized cost. In determining whether an impairment is due to credit related factors, the Company considers the severity of the decline in fair value, nature of the security, the underlying collateral, the financial condition of the issuer, changes in the AFS debt security’s ratings and other qualitative factors. For AFS debt securities that are guaranteed or issued by the U.S. government, or government-sponsored enterprises of high credit quality, the Company applies a zero credit loss assumption. 91 When the Company does not intend to sell the impaired AFS debt security and it is more-likely-than-not that the Company will not be required to sell the impaired debt security prior to recovery of its amortized cost basis, the credit component of the unrealized loss of the impaired AFS debt security is recognized as an allowance for credit losses, with a corresponding Provision for credit losses on the Consolidated Statement of Income and the non-credit component is recognized in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income, net of applicable taxes. At each reporting period, the Company increases or decreases the allowance for credit losses as appropriate, while limiting reversals of the allowance for credit losses to the extent of the amounts previously recorded. If the Company intends to sell the impaired debt security or it is more-likely-than-not that the Company will be required to sell the impaired debt security prior to recovering its amortized cost basis, the entire impairment amount is recognized as an adjustment to the debt security’s amortized cost basis, with a corresponding Provision for credit losses on the Consolidated Statement of Income. The amortized cost of the Company’s AFS debt securities excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election not to recognize an allowance for credit losses for accrued interest receivables on AFS debt securities as the Company reverses any accrued interest if a debt security is impaired. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure. Allowance for Credit Losses on Held-to-Maturity Debt Securities — For each major HTM debt security type, the allowance for credit losses is estimated collectively for groups of securities with similar risk characteristics. For securities that do not share similar risk characteristics, the losses are estimated individually. The Company applies a zero credit loss assumption to certain HTM debt securities, including debt securities that are either guaranteed or issued by the U.S. government or government-sponsored enterprises, are highly rated by nationally recognized statistical rating organizations (“NRSROs”), and have a long history of no credit losses. Any expected credit loss is recorded through the allowance for credit losses and deducted from the amortized cost basis of the security, reflecting the net amount the Company expects to collect. The amortized cost of the Company’s HTM debt securities excludes accrued interest, which is included in Other assets on the Consolidated Balance Sheet. The Company has made an accounting policy election not to recognize an allowance for credit losses for accrued interest receivables on HTM debt securities, as the Company reverses any accrued interest against interest income if a debt security is placed on nonaccrual status. The criteria used to place HTM debt securities on nonaccrual are largely similar to those described for loans. Any cash collected on nonaccrual HTM debt securities is applied to reduce the security’s amortized cost basis and not as interest income. Generally, the Company returns an HTM security to accrual status when all delinquent interest and principal become current under the contractual terms of the security, and the collectability of remaining principal and interest is no longer doubtful. Allowance for Collateral-Dependent Financial Assets — A financial asset is considered collateral-dependent if repayment is expected to be provided substantially through the operation or sale of the collateral. The allowance for credit losses is measured on an individual basis for collateral-dependent financial assets and determined by comparing the fair value of the collateral less the cost to sell, to the amortized cost basis of the related financial asset at the reporting date. Other than loans, collateral-dependent financial assets could also include resale agreements. In arrangements which the borrower must continually adjust the collateral securing the asset to reflect changes in the collateral’s fair value (e.g., resale agreements), the Company estimates the expected credit losses on the basis of the unsecured portion of the amortized cost as of the balance sheet date. If the fair value of the collateral is equal to or greater than the amortized cost of the resale agreement, the expected losses would be zero. If the fair value of the collateral is less than the amortized cost of the asset, the expected losses are limited to the difference between the fair value of the collateral and the amortized cost basis of the resale agreement. Allowance for Purchased Credit Deteriorated Assets — Purchased assets that have experienced a more-than-insignificant deterioration in credit quality since origination are deemed Purchased Credit Deteriorated (“PCD”) assets. For PCD HTM debt securities and PCD loans, the company records the allowance for credit losses by grossing up the initial amortized cost, which includes the purchase price and the allowance for credit losses. The expected credit losses of PCD debt securities are measured at the individual security level. The expected credit losses for PCD loans are measured based on the loan’s unpaid principal balance. Under this approach, there is no income statement impact from the acquisition. Subsequent changes in the allowance for credit losses on PCD assets will be recognized in Provision for credit losses on the Consolidated Statement of Income. The non-credit discount or premium will be accreted to interest income based on the effective interest rate on the PCD assets determined after the gross-up for the allowance for credit losses. 92 Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company records the investments in qualified affordable housing partnerships, net, primarily using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the amortization in Income tax expense on the Consolidated Statement of Income . The Company records investments in tax credit and other investments, net, using either the equity method or the measurement alternative method of accounting. The tax credits are recognized on the Consolidated Financial Statements to the extent they are utilized on the Company’s income tax returns in the year the credit arises under the flow-through method of accounting. The investments are evaluated for possible OTTI on an annual basis or on an interim basis, if an event occurs that would trigger potential impairment. OTTI charges and impairment recoveries are recorded within Amortization of tax credit and other investments on the Consolidated Statement of Income. See Note 2 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K for a discussion on the Company’s impairment evaluation and monitoring process of tax credit investments. Premises and Equipment, Net — The Company’s premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of estimated useful lives for the principal classes of assets are as follows: Premises and Equipment Useful Lives Buildings 25 years Furniture, fixtures and equipment, and building improvements 3 to 7 years Leasehold improvements Term of lease or useful life, whichever is shorter The Company reviews its long-lived assets for impairment annually, or when events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. An asset is considered impaired when the fair value, which is the expected undiscounted cash flows over the remaining useful life, is less than the net book value. The excess of the net book value over its fair value is charged as impairment loss to noninterest expense. Goodwill — Goodwill represents the excess of the purchase price over the fair value of net assets acquired in an acquisition. Goodwill is tested for impairment on an annual basis as of December 31, or more frequently as events occur or circumstances change that indicate a potential impairment at the reporting unit level. The Company assesses goodwill for impairment at each operating segment level. The Company organizes its operations into three reporting segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. For information on how the reporting units are identified and the components are aggregated, see Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K. The Company has the option to perform a qualitative assessment of goodwill or elect to bypass the qualitative test and proceed directly to a quantitative test. If the Company performs a qualitative assessment of goodwill to test for impairment and concludes it is more likely than not that a reporting unit’s fair value is greater than its carrying value, quantitative tests are not required. If the qualitative analysis indicates that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company is required to perform a quantitative assessment to determine if there is goodwill impairment. Factors considered in the qualitative assessments include but are not limited to macroeconomic conditions, industry and market considerations, financial performance of the respective operating segment and other reporting unit specific considerations. The Company uses a combined income and market approach in its quantitative valuation methodologies. A quantitative valuation involves determining the fair value of each reporting unit and comparing the fair value to its corresponding carrying value. Goodwill impairment loss is recorded as a charge to noninterest expense and an adjustment to the carrying value of goodwill. Subsequent reversals of goodwill impairment are not allowed. 93 Derivatives — As part of its asset/liability management strategy, the Company uses derivative financial instruments to mitigate exposure to interest rate and foreign currency risks, and to assist customers with their risk management objectives. Derivatives utilized by the Company include primarily swaps, forwards and option contracts. Derivative instruments are included in Other assets or Accrued expenses and other liabilities on the Consolidated Balance Sheet at fair value. The related cash flows are recognized on the Cash flows from operating activities section on the Consolidated Statement of Cash Flows. The Company uses its accounting hedges based on the exposure being hedged as either fair value hedges, cash flow hedges or hedges of the net investments in certain foreign operations. For fair value hedges of interest rate risk, changes in fair value of derivatives are reported within Interest expense on the Consolidated Statement of Income. Changes in fair value of derivatives designated as hedges of the net investments in foreign operations are recorded as a component of AOCI. For cash flow hedges of floating-rate interest payments or receipts, the change in the fair value of hedges is recognized in AOCI on the Consolidated Balance Sheet and reclassified to earnings in the same period when the hedged cash flows impact earnings. Reclassified gains and losses of cash flow hedges are recorded in the same line item as the hedged interest payment within Interest expense or as interest receipts within Interest and dividend income on the Consolidated Statements of Income. All derivatives designated as fair value hedges and hedges of the net investments in certain foreign operations are linked to specific hedged items or to groups of specific assets and liabilities on the Consolidated Balance Sheet. Cash flow hedges are linked to the forecasted transactions related to a recognized asset or liability. To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not sought), a derivative must be highly effective in offsetting the risk designated as being hedged. The Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. Subsequent to inception, on a quarterly basis, the Company assesses whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value of the hedged items or the cash flows of attributable hedged risks. The quarterly assessment is performed on both a prospective basis (to reconfirm forward-looking expectations that the hedge will be highly effective) and a retrospective basis (to determine whether the hedging relationship was highly effective). The Company discontinues hedge accounting prospectively when (i) a derivative is no longer highly effective in offsetting changes in fair value; (ii) a derivative expires, or is sold, terminated or exercised, or (iii) the Company determines that designation of a derivative as a hedge is no longer appropriate. If a fair value hedge is discontinued, the derivative will continue to be recorded on the Consolidated Balance Sheet at fair value with changes in fair value recognized on the Consolidated Statement of Income. When the hedged net investment is discontinued, any amounts that have not yet been recognized in earnings remain in AOCI until the net investment is either sold or substantially liquidated where the changes in the fair value of the derivatives are reclassified out of AOCI into Foreign exchange income on the Consolidated Statement of Income. If a cash flow hedge is discontinued but the hedged forecasted cash flow is still expected to happen, the derivative net gain or loss will remain in AOCI and be reclassified into earnings in the periods in which the hedged forecasted cash flow affects earnings. If a cash flow hedge is discontinued and when it becomes probable that the forecasted cash flow is not expected to happen, the derivative net gain or loss will be reclassified into earnings immediately. The Company also offers various interest rate, commodity and foreign exchange derivative products to customers. These transactions are not linked to specific assets or liabilities on the Consolidated Balance Sheet or to forecasted transactions in a hedging relationship and, therefore, do not qualify for hedge accounting. These contracts are recorded at fair value with changes in fair value recorded in Customer derivative income or Foreign exchange income on the Consolidated Statement of Income. As part of the Company’s loan origination process, from time to time, the Company obtains equity warrants to purchase preferred and/or common stock of public or private companies it provides loans to. Separately, the Company granted performance-based restricted stock units (“RSUs”) as part of its consideration for its investment in Rayliant Global Advisors Limited (“Rayliant”) during the third quarter of 2023. The vesting of these performance-based RSUs is contingent on Rayliant meeting certain financial performance targets during the future performance period. These equity contracts are accounted for as derivatives and recorded at fair value in Other assets or Accrued expenses and other liabilities on the Consolidated Balance Sheet with changes in fair value recorded in Lending fees or Customer derivative income on the Consolidated Statement of Income. 94 The Company is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected. Valuation of derivative assets and liabilities reflect the value of the instrument inclusive of the nonperformance risk. The Company uses master netting arrangements to mitigate counterparty credit risk in derivative transactions. To the extent the derivatives are subject to master netting arrangements, the Company takes into account the impact of master netting arrangements that allow the Company to settle all derivative contracts executed with the same counterparty on a net basis, and to offset the net derivative position with the related cash and securities collateral. The Company elects to offset derivative transactions with the same counterparty on the Consolidated Balance Sheet when a derivative transaction has a legally enforceable master netting arrangement and when it is eligible for netting under ASC 210-20-45-1, Balance Sheet Offsetting: Netting Derivative Positions on Balance Sheet. Derivative balances and related cash collateral are presented net on the Consolidated Balance Sheet. In addition, the Company applies the Settlement to Market treatment for the cash collateralizing our interest rate and commodity contracts with certain centrally cleared counterparties. As a result, derivative balances with these counterparties are considered settled by the collateral. Fair Value — The Company records or discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value of financial instruments, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing an asset or a liability. These inputs can be readily observable, market corroborated or generally unobservable. Fair value measurements are based on the exit price notion that maximizes the use of observable inputs and minimizes the use of unobservable inputs. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy that assigns the highest priority to quoted prices in active markets and the lowest priority to prices derived from data lacking transparency. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories: • Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets. • Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data. • Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities. For additional information on fair value, see Note 2 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K. Stock-Based Compensation — The Company grants time-based RSUs, which include service conditions for vesting. Compensation cost for these time-based awards is based on the quoted market price of the Company’s common stock at the grant date. Compensation costs for time-based RSUs that will be settled in cash instead of shares are adjusted to fair value based on changes in the Company’s stock price up to the settlement date. In addition, the Company grants performance-based RSUs, which contain additional performance goals and market conditions that are required to be met in order for the awards to vest. Compensation expense for these performance-based RSUs is based on the grant-date fair value considers both performance and market conditions. Subsequently, the Company evaluates the probable outcome of the performance conditions quarterly and makes cumulative adjustments for current and prior periods in compensation expense in the period of change. Market conditions subsequent to the grant date have no impact on the amount of compensation expense the Company will recognize over the life of the award. Compensation cost is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. Excess tax benefits and deficiencies on share-based payment awards are recognized within Income tax expense on the Consolidated Statement of Income. As stock-based compensation expense is estimated based on awards ultimately expected to vest, it is reduced by the expense related to awards expected to be forfeited. Forfeitures are estimated at the time of grant and are updated quarterly. If the estimated forfeitures are revised, a cumulative effect of changes in estimated forfeitures for the current and prior periods is recognized in compensation expense in the period of change. Refer to Note 13 — Stock Compensation Plans on the Consolidated Financial Statements in this Form 10-K for additional information. 95 Revenue from Contracts with Customers — The Company recognizes two primary types of revenue on its Consolidated Statement of Income: Net interest income and Noninterest income . The Company’s revenue from contracts with customers consists of service charges and fees related to deposit accounts, card income and wealth management fees. These revenue streams as described below comprised 40 %, 39 % and 35 % of total noninterest income for the years ended December 31, 2023, 2022 and 2021, respectively. • Deposit Service Charges and Related Fee Income — The Company offers a range of deposit products to individuals and businesses, which includes savings, money market, checking and time deposit accounts. The deposit account services include ongoing account maintenance, as well as certain optional services such as various in-branch services, automated teller machine/debit card usage, wire transfer services or check orders. In addition, treasury management and business account analysis services are offered to commercial deposit customers. The monthly account fees may vary with the amount of average monthly deposit balances maintained, or the Company may charge a fixed monthly account maintenance fee if certain average balances are not maintained. In addition, each time a deposit customer selects an optional service, the Company may earn transaction fees, generally recognized by the Company at the point when the transaction occurs. For business analysis accounts, commercial deposit customers receive an earnings credit based on their account balance, which can be used to offset the cost of banking and treasury management services. Business analysis accounts that are assessed fees in excess of earnings credits received are typically charged at the end of each month, after all transactions are known and the credits are calculated. Deposit service charge and related fee income are recognized in all operating segments. • Card Income — Card income consists of merchant referral fees and interchange income. For merchant referral fees, the Company provides marketing and referral services to acquiring banks for merchant card processing services and earns variable referral fees based on transaction activities. The Company satisfies its performance obligation over time as the Company identifies, solicits, and refers business customers who are provided such services. The Company receives monthly fees net of consideration it pays to the acquiring bank performing the merchant card processing services. The Company recognizes revenue on a monthly basis when the uncertainty associated with the variable referral fees is resolved after the Company receives monthly statements from the acquiring bank. For interchange income, the Company, as a card issuer, has a stand ready performance obligation to authorize, clear, and settle card transactions. The Company earns or pays interchange fees, which are percentage-based on each transaction, and based on rates published by the corresponding payment network for transactions processed using their network. The Company measures its progress toward the satisfaction of its performance obligation over time as services are rendered, and the Company provides continuous access to this service and settles transactions as its customer or the payment network requires. Interchange income is presented net of direct costs paid to the customer and entities in their distribution chain, which are transaction-based expenses such as rewards program expenses and certain network costs. Revenue is recognized when the net profit is determined by the payment networks at the end of each day. Card income is recognized in consumer and business banking, and commercial banking segments. • Wealth Management Fees — The Company provides investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies and risk management strategies. The fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter-end based on actual transaction details received from the broker-dealer with whom the Company engages. Wealth management fees are recognized in both consumer and business banking, and commercial banking segments. 96 Income Taxes — The Company files consolidated federal income tax returns, foreign tax returns, and various combined and separate company state tax returns. The calculation of the Company’s income tax provision and related tax accruals requires the use of estimates and judgments. Income tax expense consists of two components: current and deferred. Current tax expense represents taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions. Income tax liabilities (receivables) represent the estimated amounts due to (due from) the various taxing jurisdictions where the Company has established a tax presence and are reported in Accrued expenses and other liabilities or Other assets on the Consolidated Balance Sheets. Deferred tax expense results from changes in deferred tax assets and liabilities between period, and is determined using the balance sheet method. Under the balance sheet method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Management regularly reviews the Company’s tax positions and deferred tax balances. In concluding whether a valuation allowance is required, the Company considers all available evidence, both positive and negative, based on the more-likely-than-not criteria that such assets will be realized. Factors considered in this analysis include the Company’s ability to generate future taxable income, implement tax-planning strategies (as defined in ASC 740, Income Taxes ) and utilize taxable income from prior carryback years (if such carryback is permitted under the applicable tax law), as well as future reversals of existing taxable temporary differences. To the extent a deferred tax asset is no longer expected more-likely-than-not to be realized, a valuation allowance is established. Deferred tax assets net of deferred tax liabilities are included in Other assets on the Consolidated Balance Sheet. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. The Company establishes a liability for potential taxes, interest and penalties related to uncertain tax positions based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance, and the status of tax audits. Earnings Per Share — Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during each period. Diluted EPS is computed by taking net income, adjusted to remove any fair value changes related to liability-classified contingent equity contracts, divided by the weighted-average number of common shares outstanding during each period, plus any incremental dilutive common share equivalents calculated for outstanding time- and performance-based RSUs and contingently issuable shares using the treasury stock method. Foreign Currency Translation — The Company’s foreign subsidiary in China, East West Bank (China) Limited’s functional currency is in Chinese Renminbi (“RMB”). As a result, assets and liabilities of East West Bank (China) Limited are translated, for the consolidation purpose, from its functional currency into the reporting currency U.S. dollar (“USD”) using period-end spot foreign exchange rates. Revenues and expenses of East West Bank (China) Limited are translated, for the purpose of consolidation, from its functional currency into USD at the transaction date foreign exchange rates. The effects of those translation adjustments are reported in the Foreign currency translation adjustments account within Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income, net of any related hedged effects. For transactions that are denominated in a currency other than the functional currency, including transactions denominated in the local currencies of foreign operations that use the USD as their functional currency, the effects of changes in exchange rates are reported in Foreign exchange income on the Consolidated Statement of Income. 97 Accounting Pronouncements Adopted in 2023 Standard Required Date of Adoption Description Effect on Financial Statements ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and the Vintage Disclosures Effective for fiscal years beginning after December 15, 2022. ASU 2022-02 eliminates the • accounting guidance for TDR, and requires the Company to apply the loan refinancing and restructuring guidance to determine whether a modification made to a loan results in a new loan or a continuation of an existing loan; and • requirement to use a discounted cash flow method to measure receivables. The guidance also requires • enhanced disclosures for certain loan refinancing and restructurings by creditors when the borrower is experiencing financial difficulty; and • vintage disclosures of current period gross charge-offs (on a current year-to-date basis) by year of loan origination for financing receivables and net investments in leases within the scope of ASC 326-20: Financial Instruments — Credit Losses — Measured at Amortized Cost . The Company adopted ASU 2022-02 on January 1, 2023 on a prospective basis, except for the guidance related to the elimination of TDR recognition and measurement, which was adopted on a modified retrospective approach. This adoption increased the allowance for loan losses on TDRs as of December 31, 2022 by $ 6 million and decreased opening retained earnings on January 1, 2023 by $ 4 million after-tax. The following standards were adopted on January 1, 2023, but they did not have a material impact on the Company’s Consolidated Financial Statements: • ASU 2021-08, Business Combinations (Topic 805) : Accounting for Contract Assets and Contract Liabilities from Contracts with Customers • ASU 2022-01, Derivatives and Hedging (Topic 815) : Fair Value Hedging — Portfolio Layer Method • ASU 2022-04, Liabilities — Supplier Finance Program (Subtopic 405-50) : Disclosures of Supplier Finance Program Obligations Accounting Pronouncements Adopted in 2024 Standard Required Date of Adoption Description Effect on Financial Statements ASU 2023-02, Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method January 1, 2024 ASU 2023-02 expands the scope of the proportional amortization method to equity tax credit investment programs if certain conditions are met. Previously, the proportional amortization method could only be used for investments in low-income housing tax credit structures. Under this guidance, companies are able to elect, on a tax credit program-by-tax credit program basis, to apply the proportional amortization method to all equity investments meeting the criteria in ASC 323-740-25-1. The amendments in this guidance must be applied on a modified retrospective or a retrospective basis. The Company adopted ASU 2023-02 on January 1, 2024, for all tax credit investments under a modified retrospective basis. The impact of the adoption decreased opening retained earnings on January 1, 2024 by $ 10 million. The following standards were adopted on January 1, 2024, but they did not have a material impact on the Company’s Consolidated Financial Statements: • ASU 2023-01, Leases (Topic 842): Common Control Arrangements • ASU 2022-03, Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions 98 Recent Accounting Pronouncements Yet to be Adopted Standard Required Date of Adoption Description Effect on Financial Statements ASU No. 2023-07, Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures December 31, 2024. Early adoption is permitted ASU 2023-07 expands the disclosure requirements for reportable segments of public entities by adding the following disclosure requirements: • Requires, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. • Requires , on an annual and interim basis, amount and composition of other segment items. This amount reconciles segment revenues, less the significant segment expenses, to the reported measure of segment profit or loss. • Expands the current interim disclosure requirements to require all existing annual disclosures about a reportable segment’s profit or loss and assets also be made on an interim basis. • Clarifies that if a CODM uses more than one measure of segment profit or loss, then the entity may disclose one or more measures, but at least one measure should be that which is most consistent with GAAP measurement principles. • Requires annual disclosure of the title and position of the CODM as well as explanation of how the CODM uses the reported measures in assessing segment performance and allocating resources. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. ASU No. 2023-09, Income Taxes (Topic 740) : Improvements to Income Tax Disclosures December 31, 2025 Early adoption is permitted. ASU 2023-09 amends the disclosure requirements for income taxes, including the requirement for further disaggregation of the income tax rate reconciliation and income taxes paid disclosures. The amendments in this guidance must be applied prospectively, with the option to apply retrospectively. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. The following standard will be adopted on January 1, 2025 and is not expected to have a material impact on the Company’s Consolidated Financial Statements: • ASU 2023-05, Business Combinations — Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement Note 2 — Fair Value Measurement and Fair Value of Financial Instruments Under applicable accounting standards, the Company measures a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly recorded at fair value on a recurring basis. From time to time, certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments only as required through the application of an accounting method such as lower of cost or fair value or write-down of individual assets. The Company categorizes its assets and liabilities into three levels based on the established fair value hierarchy and conducts a review of fair value hierarchy classifications on a quarterly basis. For more information regarding the fair value hierarchy and how the Company measures fair value, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Fair Value to the Consolidated Financial Statements in this Form 10-K. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities on a recurring basis, as well as the general classification of these instruments within the fair value hierarchy. 99 Available-for-Sale Debt Securities — The fair value of AFS debt securities is generally determined by independent external pricing service providers who have experience in valuing these securities or by taking the average quoted market prices obtained from independent external brokers. The valuations provided by the third-party pricing service providers are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, prepayment expectations and reference data obtained from market research publications. Inputs used by the third-party pricing service providers in valuing collateralized mortgage obligations and other securitization structures also include newly issued data, monthly payment information, whole loan collateral performance, tranche evaluation and “To Be Announced” prices. In valuing securities issued by state and political subdivisions, inputs used by third-party pricing service providers also include material event notices. The valuations provided by the brokers incorporate information from their trading desks, research and other market data. On a monthly basis, the Company validates the valuations provided by third-party pricing service providers to ensure that the fair value determination is consistent with the applicable accounting guidance and the financial instruments are properly classified in the fair value hierarchy. To perform this validation, the Company evaluates the fair values of securities by comparing the fair values provided by the third-party pricing service providers to prices from other available independent sources for the same securities. When significant variances in prices are identified, the Company further compares inputs used by different sources to ascertain the reliability of these sources. On a quarterly basis, the Company reviews the valuation inputs and methodology furnished by third-party pricing service providers for each security category. On an annual basis, the Company assesses the reasonableness of broker pricing by reviewing the related pricing methodologies. This review includes corroborating pricing with market data, performing pricing input reviews under current market-related conditions, and investigating security pricing by instrument as needed. When a quoted price in an active market exists for the identical security, this price is used to determine the fair value and the AFS debt security is classified as Level 1. Level 1 AFS debt securities consist of U.S. Treasury securities. When pricing is unavailable from third-party pricing service providers for certain securities, the Company requests market quotes from various independent external brokers and utilizes the average quoted market prices. In addition, the Company obtains market quotes from other official published sources. As these valuations are based on observable inputs in the current marketplace, they are classified as Level 2. Equity Securities — Equity securities consisted of mutual funds as of both December 31, 2023 and 2022. The Company invested in these mutual funds for Community Reinvestment Act (“CRA”) purposes. The Company uses net asset value (“NAV”) information to determine the fair value of these equity securities. When NAV is available periodically and the equity securities can be put back to the transfer agents at the publicly available NAV, the fair value of the equity securities is classified as Level 1. When NAV is available periodically, but the equity securities may not be readily marketable at its periodic NAV in the secondary market, the fair value of these equity securities is classified as Level 2. Interest Rate Contracts — Interest rate contracts consist of interest rate swaps and options. The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The fair value of the interest rate options, which consist of floors and caps, is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (rise above) the strike rate of the floors (caps). In addition, to comply with the provisions of ASC 820, Fair Value Measurement , the Company incorporates credit valuation adjustments to appropriately reflect both its own and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with the Company’s derivatives utilize model-derived credit spreads, which are Level 3 inputs. Considering the observable nature of all other significant inputs utilized, the Company classifies these derivative instruments as Level 2. 100 Foreign Exchange Contracts — The fair value of foreign exchange contracts is determined at each reporting period based on changes in the foreign exchange rates. These are over-the-counter contracts where quoted market prices are not readily available. Valuation is measured using conventional valuation methodologies with observable market data. Due to the short-term nature of the majority of these contracts, the counterparties’ credit risks are considered nominal and result in no adjustments to the valuation of the foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these contracts, the valuation of foreign exchange contracts is classified as Level 2. As of both December 31, 2023 and 2022, the Bank held foreign currency non-deliverable forward contracts to hedge its net investment in its China subsidiary, East West Bank (China) Limited, a non-USD functional currency subsidiary. These foreign currency non-deliverable forward contracts were designated as net investment hedges. The fair value of foreign currency non-deliverable forward contracts is determined by comparing the contracted foreign exchange rate to the current market foreign exchange rate. Key inputs of the current market exchange rate include the spot and forward rates of the contractual currencies. Foreign exchange forward curves are used to determine which forward rate pertains to a specific maturity. Due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are classified as Level 2. Credit Contracts — Credit contracts utilized by the Company are comprised of credit risk participation agreements (“RPAs”) entered into by the Company with institutional counterparties. The fair value of the RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Due to the observable nature of all other significant inputs used in deriving the estimated fair value, credit contracts are classified as Level 2. Equity Contracts — Equity contracts consist of warrants to purchase common or preferred stock of public and private companies, and any liability-classified contingent issuable shares of the Company. The fair value of the warrants is based on the Black-Scholes option pricing model. For warrants from public companies, the model uses the underlying stock price, stated strike price, warrant expiration date, risk-free interest rate based on a duration-matched U.S. Treasury rate, and market-observable company-specific equity volatility as inputs to value the warrants. Due to the observable nature of the inputs used in deriving the estimated fair value, warrants from public companies are classified as Level 2. For warrants from private companies, the model uses inputs such as the offering price observed in the most recent round of funding, stated strike price, warrant expiration date, risk-free interest rate based on duration-matched U.S. Treasury rate and equity volatility. The Company applies proxy volatilities based on the industry sectors of the private companies. The model values are then adjusted for a general lack of liquidity due to the private nature of the underlying companies. Since both equity volatility and liquidity discount assumptions are subject to management’s judgment, measurement uncertainty is inherent in the valuation of private company warrants. Due to the unobservable nature of the equity volatility and liquidity discount assumptions used in deriving the estimated fair value, warrants from private companies are classified as Level 3. On a quarterly basis, the changes in the fair value of warrants from private companies are reviewed for reasonableness, and a measurement of uncertainty analysis on the equity volatility and liquidity discount assumptions is performed. In connection with the Company’s acquisition of a 49.99 % equity interest in Rayliant during the third quarter of 2023, the Company granted performance-based RSUs as part of its consideration. The vesting of these equity contracts is contingent on Rayliant meeting certain financial performance targets, and they are accounted for as a derivative liability. The fair value of these liability-classified equity contracts varies based on the operating revenue and operating EBITDA of Rayliant to be achieved during the future performance period. Due to the unobservable nature of the input assumptions, these equity contracts are classified as Level 3. For additional information on the equity contracts, refer to Note 5 — Derivatives and Note 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities to the Consolidated Financial Statements in this Form 10-K. Commodity Contracts — Commodity contracts consist of swaps and options referencing commodity products. The fair value of the commodity option contracts is determined using the Black-Scholes model and assumptions that include expectations of future commodity price and volatility. The future commodity contract price is derived from observable inputs such as the market price of the commodity. Commodity swaps are structured as an exchange of fixed cash flows for floating cash flows. The fair value of the commodity swaps is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) based on the market prices of the commodity. The fixed cash flows are predetermined based on the known volumes and fixed price as specified in the swap agreement. The floating cash flows are correlated with the change of forward commodity prices, which is derived from market corroborated futures settlement prices. As a result, the Company classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized. 101 The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2023 and 2022: Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2023 ($ in thousands) Level 1 Level 2 Level 3 Total Fair Value AFS debt securities: U.S. Treasury securities $ 1,060,375 $ — $ — $ 1,060,375 U.S. government agency and U.S. government sponsored enterprise debt securities — 364,446 — 364,446 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities — 468,259 — 468,259 Residential mortgage-backed securities — 1,727,594 — 1,727,594 Municipal securities — 261,016 — 261,016 Non-agency mortgage-backed securities: Commercial mortgage-backed securities — 367,516 — 367,516 Residential mortgage-backed securities — 553,671 — 553,671 Corporate debt securities — 502,425 — 502,425 Foreign government bonds — 227,874 — 227,874 Asset-backed securities — 42,300 — 42,300 Collateralized loan obligations (“CLOs”) — 612,861 — 612,861 Total AFS debt securities $ 1,060,375 $ 5,127,962 $ — $ 6,188,337 Investments in qualified affordable housing partnerships, tax credit and other investments, net: Equity securities $ 20,509 $ 4,150 $ — $ 24,659 Total investments in qualified affordable housing partnerships, tax credit and other investments, net $ 20,509 $ 4,150 $ — $ 24,659 Derivative assets: Interest rate contracts $ — $ 473,907 $ — $ 473,907 Foreign exchange contracts — 57,072 — 57,072 Credit contracts — 1 — 1 Equity contracts — — 336 336 Commodity contracts — 79,604 — 79,604 Gross derivative assets $ — $ 610,584 $ 336 $ 610,920 Netting adjustments (1) $ — $ ( 312,792 ) $ — $ ( 312,792 ) Net derivative assets $ — $ 297,792 $ 336 $ 298,128 Derivative liabilities: Interest rate contracts $ — $ 433,936 $ — $ 433,936 Foreign exchange contracts — 42,564 — 42,564 Equity contracts (2) — — 15,119 15,119 Credit contracts — 25 — 25 Commodity contracts — 121,670 — 121,670 Gross derivative liabilities $ — $ 598,195 $ 15,119 $ 613,314 Netting adjustments (1) $ — $ ( 76,170 ) $ — $ ( 76,170 ) Net derivative liabilities $ — $ 522,025 $ 15,119 $ 537,144 102 Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2022 ($ in thousands) Level 1 Level 2 Level 3 Total Fair Value AFS debt securities: U.S. Treasury securities $ 606,203 $ — $ — $ 606,203 U.S. government agency and U.S. government sponsored enterprise debt securities — 461,607 — 461,607 U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities — 500,269 — 500,269 Residential mortgage-backed securities — 1,762,195 — 1,762,195 Municipal securities — 257,099 — 257,099 Non-agency mortgage-backed securities: Commercial mortgage-backed securities — 398,329 — 398,329 Residential mortgage-backed securities — 649,224 — 649,224 Corporate debt securities — 526,274 — 526,274 Foreign government bonds — 227,053 — 227,053 Asset-backed securities — 49,076 — 49,076 CLOs — 597,664 — 597,664 Total AFS debt securities $ 606,203 $ 5,428,790 $ — $ 6,034,993 Investments in qualified affordable housing partnerships, tax credit and other investments, net: Equity securities $ 19,777 $ 4,177 $ — $ 23,954 Total investments in qualified affordable housing partnerships, tax credit and other investments, net $ 19,777 $ 4,177 $ — $ 23,954 Derivative assets: Interest rate contracts $ — $ 440,283 $ — $ 440,283 Foreign exchange contracts — 53,109 — 53,109 Equity contracts — — 323 323 Commodity contracts — 261,613 — 261,613 Gross derivative assets $ — $ 755,005 $ 323 $ 755,328 Netting adjustments (1) $ — $ ( 614,783 ) $ — $ ( 614,783 ) Net derivative assets $ — $ 140,222 $ 323 $ 140,545 Derivative liabilities: Interest rate contracts $ — $ 584,516 $ — $ 584,516 Foreign exchange contracts — 44,117 — 44,117 Credit contracts — 23 — 23 Commodity contracts — 258,608 — 258,608 Gross derivative liabilities $ — $ 887,264 $ — $ 887,264 Netting adjustments (1) $ — $ ( 242,745 ) $ — $ ( 242,745 ) Net derivative liabilities $ — $ 644,519 $ — $ 644,519 (1) Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information. (2) Equity contracts classified as derivative liabilities consist of performance-based RSUs granted as part of EWBC’s consideration in its investment in Rayliant. 103 For the years ended December 31, 2023, 2022 and 2021, Level 3 fair value measurements that were measured on a recurring basis consisted of warrant equity contracts issued by private companies and liability-classified contingent issuable shares of the Company. The following table provides a reconciliation of the beginning and ending balances of these equity contracts for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Derivative assets: Equity contracts Beginning balance $ 323 $ 215 $ 273 Total (losses) gains included in earnings (1) ( 79 ) 17 32 Issuances 92 91 12 Settlements — — ( 96 ) Transfers out of Level 3 (2) — — ( 6 ) Ending balance $ 336 $ 323 $ 215 Derivative liabilities: Equity contracts (3) Beginning balance $ — $ — $ — Issuances 15,119 — — Ending balance $ 15,119 $ — $ — (1) Includes both realized and unrealized (losses) gains recorded in Lending fees on the Consolidated Statement of Income. The unrealized (losses) gains were $( 79 ) thousand, $ 17 thousand, and $( 44 ) thousand for the years ended December 31, 2023, 2022 and 2021, respectively. (2) During the year ending December 31, 2021, the Company transferred $ 6 thousand of equity contracts measured on a recurring basis out of Level 3 to Level 2 after the corresponding issuer of the equity warrant, which was previously a private company, completed its initial public offering and became a public company. (3) Equity contracts classified as derivative liabilities consist of performance-based RSUs granted as part of EWBC’s consideration in its investment in Rayliant. The following table presents quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements as of December 31, 2023 and 2022. The significant unobservable inputs presented in the table below are those that the Company considers significant to the fair value of the Level 3 assets. The Company considers unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 assets would be impacted by a predetermined percentage change. ($ in thousands) Fair Value Measurements (Level 3) Valuation Technique Unobservable Inputs Range of Inputs Weighted- Average of Inputs December 31, 2023 Derivative assets: Equity contracts $ 336 Black-Scholes option pricing model Equity volatility 37 % — 48 % 45 % (1) Liquidity discount 47 % 47 % Derivative liabilities: Equity contracts (2) $ 15,119 Internal model Payout % designated based on operating revenue and operating EBITDA of investee 84 % 84 % December 31, 2022 Derivative assets: Equity contracts $ 323 Black-Scholes option pricing model Equity volatility 42 % — 60 % 54 % (1) Liquidity discount 47 % 47 % (1) Weighted-average of inputs is calculated based on the fair value of equity contracts as of December 31, 2023 and 2022. (2) Equity contracts classified as derivative liabilities consist of performance-based RSUs granted as part of EWBC’s consideration in its investment in Rayliant. 104 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets measured at fair value on a nonrecurring basis include certain individually evaluated loans held-for-investment, investments in qualified affordable housing partnerships, tax credit and other investments, OREO, loans held-for-sale, and other nonperforming assets. Nonrecurring fair value adjustments result from the impairment on certain individually evaluated loans held-for-investment and investments in qualified affordable housing partnerships, tax credit and other investments, from write-downs of OREO and other nonperforming assets, or from the application of lower of cost or fair value on loans held-for-sale. Individually Evaluated Loans Held-for-Investment — Individually evaluated loans held-for-investment are classified as Level 3 assets. The following two methods are used to derive the fair value of individually evaluated loans held-for-investment: • Discounted cash flow valuation techniques that consist of developing an expected stream of cash flows over the life of the loans, and then calculating the present value of the loans by discounting the expected cash flows at a designated discount rate. • When the repayment of an individually evaluated loan is dependent on the sale of the collateral, the fair value of the loan is determined based on the fair value of the underlying collateral, which may take the form of real estate, inventory, equipment, contracts or guarantees. The fair value of the underlying collateral is generally based on third-party appraisals, or an internal valuation if a third-party appraisal is not required by regulations, or is unavailable. An internal valuation utilizes one or more valuation techniques such as the income, market and/or cost approaches. Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net — The Company conducts due diligence on its investments in qualified affordable housing partnerships, tax credit and other investments prior to the initial investment date and through the placed-in-service date. After these investments are either acquired or placed into service, the Company continues its periodic monitoring process to ensure book values are realizable and that there is no significant tax credit recapture risk. This monitoring process includes reviewing the investment entity’s quarterly financial statements and annual tax returns, the annual financial statements of the guarantor (if any) and a comparison of the actual performance of the investment against the financial projections prepared at the time the investment was made. The Company assesses its tax credit and other investments for possible OTTI on an annual basis or when events or circumstances suggest that the carrying amount of the investments may not be realizable. These circumstances can include, but are not limited to the following factors: • expected future cash flows that are less than the carrying amoun t of the investment; • changes in the economic, market or technological environment that could adversely affect the investee’s operations; • the potential for tax credit recapture; and • other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment. All available information is considered in assessing whether a decline in value is other-than-temporary. Generally, none of the aforementioned factors are individually conclusive and the relative importance placed on individual facts may vary depending on the situation. In accordance with ASC 323-10-35-32, Investments — Equity Method and Joint Ventures, an impairment charge would only be recognized in earnings for a decline in value that is determined to be other-than-temporary. Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure, or through full or partial satisfaction of loans held-for-investment. These OREO properties are recorded at estimated fair value less the costs to sell at the time of foreclosure or at the lower of cost or estimated fair value less the costs to sell subsequent to acquisition. On a monthly basis, the current fair market value of each OREO property is reviewed to ensure that the current carrying value is appropriate. OREO properties are classified as Level 3. Loans Held-for-Sale — Loans held-for-investment subsequently transferred to held-for-sale are recorded at the lower of cost or fair value upon transfer. Loans held-for-sale may be measured at fair value on a nonrecurring basis when fair value is less than cost. Fair value is generally determined based on available market data for similar loans and therefore, loans held-for-sale are classified as Level 2. 105 Other Nonperforming Assets — Other nonperforming assets are recorded at fair value upon transfer from loans to foreclosed assets. Subsequently, foreclosed assets are recorded at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised values of the collateral or management’s estimated recovery of the foreclosed asset. The Company records an impairment when the foreclosed asset’s fair value declines below its carrying value. The fair value measurement of other nonperforming assets is classified within one of the three levels in a valuation hierarchy based upon the observability of inputs to the valuation as of the measurement date. The following tables present the carrying amounts of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of December 31, 2023 and 2022: Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2023 ($ in thousands) Level 1 Level 2 Level 3 Fair Value Measurements Loans held-for-investment: Commercial: C&I $ — $ — $ 22,035 $ 22,035 CRE: CRE — — 22,653 22,653 Total commercial — — 44,688 44,688 Consumer: Residential mortgage: HELOCs — — 1,204 1,204 Total consumer — — 1,204 1,204 Total loans held-for-investment $ — $ — $ 45,892 $ 45,892 Investments in qualified affordable housing partnerships, tax credit and other investments, net $ — $ — $ 868 $ 868 Assets Measured at Fair Value on a Nonrecurring Basis as of December 31, 2022 ($ in thousands) Level 1 Level 2 Level 3 Fair Value Measurements Loans held-for-investment: Commercial: C&I $ — $ — $ 40,011 $ 40,011 CRE: CRE — — 31,380 31,380 Total commercial — — 71,391 71,391 Consumer: Residential mortgage: HELOCs — — 1,223 1,223 Total consumer — — 1,223 1,223 Total loans held-for-investment $ — $ — $ 72,614 $ 72,614 106 The following table presents the increase (decrease) in the fair value of certain assets held at the end of the respective reporting periods, for which a nonrecurring fair value adjustment was recognized for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Loans held-for-investment: Commercial: C&I $ ( 6,152 ) $ ( 25,996 ) $ ( 9,580 ) CRE: CRE ( 1,183 ) ( 7,098 ) ( 10,231 ) Total commercial ( 7,335 ) ( 33,094 ) ( 19,811 ) Consumer: Residential mortgage: HELOCs ( 40 ) 166 ( 4 ) Total consumer $ ( 40 ) $ 166 $ ( 4 ) Total loans held-for-investment $ ( 7,375 ) $ ( 32,928 ) $ ( 19,815 ) Investments in qualified affordable housing partnerships, tax credit and other investments, net $ ( 1,140 ) $ 469 $ 877 Other nonperforming assets $ — $ ( 6,861 ) $ ( 4,241 ) The following table presents the quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements that are measured on a nonrecurring basis as of December 31, 2023 and 2022: ($ in thousands) Fair Value Measurements (Level 3) Valuation Techniques Unobservable Inputs Range of Inputs Weighted-Average of Inputs December 31, 2023 Loans held-for-investment $ 16,328 Fair value of collateral Discount 15 % — 75 % 45 % (1) $ 3,009 Fair value of collateral Contract value NM NM $ 26,555 Fair value of property Selling cost 8 % 8 % Investments in qualified affordable housing partnerships, tax credit and other investments, net $ 868 Individual analysis of each investment Expected future tax benefits and distributions NM NM December 31, 2022 Loans held-for-investment $ 23,322 Discounted cash flows Discount 4 % — 6 % 4 % (1) $ 17,912 Fair value of collateral Discount 15 % — 75 % 37 % (1) $ 31,380 Fair value of property Selling cost 8 % 8 % NM - Not meaningful (1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2023 and 2022. 107 Disclosures about the Fair Value of Financial Instruments The following tables present the fair value estimates for financial instruments as of December 31, 2023 and 2022, excluding financial instruments recorded at fair value on a recurring basis as they are included in the tables presented elsewhere in this Note. The carrying amounts in the following tables are recorded on the Consolidated Balance Sheet under the indicated captions, except for accrued interest receivable, restricted equity securities, at cost, and mortgage servicing rights that are included in Other assets , and accrued interest payable which is included in Accrued expenses and other liabilities . These financial instruments are measured on an amortized cost basis on the Company’s Consolidated Balance Sheet. December 31, 2023 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Estimated Fair Value Financial assets: Cash and cash equivalents $ 4,614,984 $ 4,614,984 $ — $ — $ 4,614,984 Interest-bearing deposits with banks $ 10,498 $ — $ 10,498 $ — $ 10,498 Resale agreements $ 785,000 $ — $ 699,056 $ — $ 699,056 HTM debt securities $ 2,956,040 $ 488,551 $ 1,965,420 $ — $ 2,453,971 Restricted equity securities, at cost $ 79,811 $ — $ 79,811 $ — $ 79,811 Loans held-for-sale $ 116 $ — $ 116 $ — $ 116 Loans held-for-investment, net $ 51,542,039 $ — $ — $ 50,256,565 $ 50,256,565 Mortgage servicing rights $ 6,602 $ — $ — $ 9,470 $ 9,470 Accrued interest receivable $ 331,490 $ — $ 331,490 $ — $ 331,490 Financial liabilities: Demand, checking, savings and money market deposits $ 38,048,974 $ — $ 38,048,974 $ — $ 38,048,974 Time deposits $ 18,043,464 $ — $ 18,004,951 $ — $ 18,004,951 Short-term borrowings $ 4,500,000 $ — $ 4,500,000 $ — $ 4,500,000 Long-term debt $ 148,249 $ — $ 150,896 $ — $ 150,896 Accrued interest payable $ 205,430 $ — $ 205,430 $ — $ 205,430 December 31, 2022 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Estimated Fair Value Financial assets: Cash and cash equivalents $ 3,481,784 $ 3,481,784 $ — $ — $ 3,481,784 Interest-bearing deposits with banks $ 139,021 $ — $ 139,021 $ — $ 139,021 Resale agreements $ 792,192 $ — $ 693,656 $ — $ 693,656 HTM debt securities $ 3,001,868 $ 471,469 $ 1,983,702 $ — $ 2,455,171 Restricted equity securities, at cost $ 78,624 $ — $ 78,624 $ — $ 78,624 Loans held-for-sale $ 25,644 $ — $ 25,644 $ — $ 25,644 Loans held-for-investment, net $ 47,606,785 $ — $ — $ 46,670,690 $ 46,670,690 Mortgage servicing rights $ 6,235 $ — $ — $ 10,917 $ 10,917 Accrued interest receivable $ 263,430 $ — $ 263,430 $ — $ 263,430 Financial liabilities: Demand, checking, savings and money market deposits $ 42,637,316 $ — $ 42,637,316 $ — $ 42,637,316 Time deposits $ 13,330,533 $ — $ 13,228,777 $ — $ 13,228,777 Repurchase agreements $ 300,000 $ — $ 304,097 $ — $ 304,097 Long-term debt $ 147,950 $ — $ 143,483 $ — $ 143,483 Accrued interest payable $ 37,198 $ — $ 37,198 $ — $ 37,198 108 Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements Assets Purchased under Resale Agreements The Company’s resale agreements exposes it to credit risk for both the counterparties and the underlying collateral. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with the counterparties. The relevant agreements allow for an efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. It is also the Company’s policy to take possession, where possible, of the assets underlying resale agreements. As a result of the Company’s credit risk mitigation practices with respect to resale agreements as described above, the Company did not hold any reserves for credit impairment with respect to these agreements as of both December 31, 2023 and 2022. Securities Purchased under Resale Agreements — Total securities purchased under resale agreements were $ 785 million and $ 760 million as of December 31, 2023 and 2022, respectively. The weighted-average yields were 2.87 %, 2.12 % and 1.53 % for the years ended December 31, 2023, 2022 and 2021, respectively. Loans Purchased under Resale Agreements — Loans purchased under resale agreements were $ 32 million a s of December 31, 2022. The Company had no loans purchased under resale agreements as of December 31, 2023 due to the maturity of the underlying loans. The weighted-average yields were 2.16 % and 1.53 % for the years ended December 31, 2022 and 2021, respectively. Assets Sold under Repurchase Agreements — Gross 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 extinguishment charges during 2023. In comparison, no extinguishment charges were recorded for the years ended December 31, 2022 and 2021. The weighted-average interest rates were 3.07 % and 2.61 % for the years ended December 31, 2022 and 2021, respectively These weighted-average interest rates also reflect the impact of short-term repurchase agreements entered and repaid during the years presented. Balance Sheet Offsetting The Company’s resale and repurchase agreements are transacted under legally enforceable master netting agreements that, in the event of default by the counterparty, provide the Company the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Company nets resale and repurchase transactions with the same counterparty on the Consolidated Balance Sheet when it has a legally enforceable master netting agreement and the transactions are eligible for netting under ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements . Collateral received includes securities and loans that are not recognized on the Consolidated Balance Sheet. Collateral pledged consists of securities that are not netted on the Consolidated Balance Sheet against the related collateralized liability. Securities received or pledged as collateral in resale and repurchase agreements with other financial institutions may also be sold or re-pledged by the secured party, and are usually delivered to and held by the third-party trustees. The following tables present the resale and repurchase agreements included on the Consolidated Balance Sheet as of December 31, 2023 and 2022: ($ in thousands) December 31, 2023 Gross Amounts of Recognized Assets Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts of Assets Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Assets Collateral Received Net Amount Resale agreements $ 785,000 $ — $ 785,000 $ ( 715,358 ) (1) $ 69,642 Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts of Liabilities Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Liabilities Collateral Pledged Net Amount Repurchase agreements $ — $ — $ — $ — $ — 109 ($ in thousands) December 31, 2022 Gross Amounts of Recognized Assets Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts of Assets Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Assets Collateral Received Net Amount Resale agreements $ 792,192 $ — $ 792,192 $ ( 701,790 ) (1) $ 90,402 Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts of Liabilities Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Liabilities Collateral Pledged Net Amount Repurchase agreements $ 300,000 $ — $ 300,000 $ ( 300,000 ) (2) $ — (1) Represents the fair value of assets the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above. (2) Represents the fair value of assets the Company has pledged under repurchase agreements, limited for table presentation purposes to the amount of the recognized liability due to each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above. In addition to the amounts included in the tables above, the Company also has balance sheet netting related to derivatives. Refer to Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information. 110 Note 4 — Securities The following tables present the amortized cost, gross unrealized gains and losses, and fair value by major categories of AFS and HTM debt securities as of December 31, 2023 and 2022: December 31, 2023 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value AFS debt securities: U.S. Treasury securities $ 1,112,587 $ 101 $ ( 52,313 ) $ 1,060,375 U.S. government agency and U.S. government-sponsored enterprise debt securities 412,086 — ( 47,640 ) 364,446 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities 531,377 158 ( 63,276 ) 468,259 Residential mortgage-backed securities 1,956,927 380 ( 229,713 ) 1,727,594 Municipal securities: 297,283 75 ( 36,342 ) 261,016 Non-agency mortgage-backed securities: Commercial mortgage-backed securities 409,578 — ( 42,062 ) 367,516 Residential mortgage-backed securities 643,335 — ( 89,664 ) 553,671 Corporate debt securities 653,501 — ( 151,076 ) 502,425 Foreign government bonds 239,333 69 ( 11,528 ) 227,874 Asset-backed securities 43,234 — ( 934 ) 42,300 CLOs 617,250 — ( 4,389 ) 612,861 Total AFS debt securities 6,916,491 783 ( 728,937 ) 6,188,337 HTM debt securities U.S. Treasury securities 529,548 — ( 40,997 ) 488,551 U.S. government agency and U.S. government-sponsored enterprise debt securities 1,001,836 — ( 186,904 ) 814,932 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities 493,348 — ( 88,968 ) 404,380 Residential mortgage-backed securities 742,436 — ( 142,119 ) 600,317 Municipal securities 188,872 — ( 43,081 ) 145,791 Total HTM debt securities 2,956,040 — ( 502,069 ) 2,453,971 Total debt securities $ 9,872,531 $ 783 $ ( 1,231,006 ) $ 8,642,308 111 December 31, 2022 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value AFS debt securities: U.S. Treasury securities $ 676,306 $ — $ ( 70,103 ) $ 606,203 U.S. government agency and U.S. government-sponsored enterprise debt securities 517,806 67 ( 56,266 ) 461,607 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities 577,392 — ( 77,123 ) 500,269 Residential mortgage-backed securities 2,011,054 41 ( 248,900 ) 1,762,195 Municipal securities 303,884 3 ( 46,788 ) 257,099 Non-agency mortgage-backed securities: Commercial mortgage-backed securities 447,512 213 ( 49,396 ) 398,329 Residential mortgage-backed securities 762,202 — ( 112,978 ) 649,224 Corporate debt securities 673,502 — ( 147,228 ) 526,274 Foreign government bonds 241,165 174 ( 14,286 ) 227,053 Asset-backed securities 51,152 — ( 2,076 ) 49,076 CLOs 617,250 — ( 19,586 ) 597,664 Total AFS debt securities 6,879,225 498 ( 844,730 ) 6,034,993 HTM debt securities: U.S. Treasury securities 524,081 — ( 52,612 ) 471,469 U.S. government agency and U.S. government-sponsored enterprise debt securities 998,972 — ( 209,560 ) 789,412 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities 506,965 — ( 98,566 ) 408,399 Residential mortgage-backed securities 782,141 — ( 148,230 ) 633,911 Municipal securities 189,709 — ( 37,729 ) 151,980 Total HTM debt securities 3,001,868 — ( 546,697 ) 2,455,171 Total debt securities $ 9,881,093 $ 498 $ ( 1,391,427 ) $ 8,490,164 As of December 31, 2023 and 2022, the amortized cost of debt securities excluded accrued interest receivables of $ 44 million and $ 42 million, respectively, which are included in Other assets on the Consolidated Balance Sheet. For the Company’s accounting policy related to debt securities’ accrued interest receivable, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities and Allowance for Credit Losses on Held-to-Maturity Debt Securities to the Consolidated Financial Statements in this Form 10-K. 112 Unrealized Losses of Available-for-Sale Debt Securities The following tables present the fair value and the associated gross unrealized losses of the Company’s AFS debt securities, aggregated by investment category and the length of time that the securities have been in a continuous unrealized loss position, as of December 31, 2023 and 2022: December 31, 2023 Less Than 12 Months 12 Months or More Total ($ in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses AFS debt securities: U.S. Treasury securities $ — $ — $ 623,978 $ ( 52,313 ) $ 623,978 $ ( 52,313 ) U.S. government agency and U.S. government-sponsored enterprise debt securities — — 364,446 ( 47,640 ) 364,446 ( 47,640 ) U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities — — 463,572 ( 63,276 ) 463,572 ( 63,276 ) Residential mortgage-backed securities 9,402 ( 558 ) 1,661,112 ( 229,155 ) 1,670,514 ( 229,713 ) Municipal securities 2,825 ( 15 ) 254,773 ( 36,327 ) 257,598 ( 36,342 ) Non-agency mortgage-backed securities: Commercial mortgage-backed securities 2,742 ( 4 ) 364,774 ( 42,058 ) 367,516 ( 42,062 ) Residential mortgage-backed securities — — 553,671 ( 89,664 ) 553,671 ( 89,664 ) Corporate debt securities — — 502,425 ( 151,076 ) 502,425 ( 151,076 ) Foreign government bonds 110,955 ( 144 ) 88,616 ( 11,384 ) 199,571 ( 11,528 ) Asset-backed securities — — 42,300 ( 934 ) 42,300 ( 934 ) CLOs — — 612,861 ( 4,389 ) 612,861 ( 4,389 ) Total AFS debt securities $ 125,924 $ ( 721 ) $ 5,532,528 $ ( 728,216 ) $ 5,658,452 $ ( 728,937 ) December 31, 2022 Less Than 12 Months 12 Months or More Total ($ in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses AFS debt securities: U.S. Treasury securities $ 131,843 $ ( 8,761 ) $ 474,360 $ ( 61,342 ) $ 606,203 $ ( 70,103 ) U.S. government agency and U.S. government-sponsored enterprise debt securities 97,403 ( 6,902 ) 214,136 ( 49,364 ) 311,539 ( 56,266 ) U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities: Commercial mortgage-backed securities 252,144 ( 30,029 ) 248,125 ( 47,094 ) 500,269 ( 77,123 ) Residential mortgage-backed securities 307,536 ( 20,346 ) 1,448,658 ( 228,554 ) 1,756,194 ( 248,900 ) Municipal securities 95,655 ( 10,194 ) 159,439 ( 36,594 ) 255,094 ( 46,788 ) Non-agency mortgage-backed securities: Commercial mortgage-backed securities 106,184 ( 3,309 ) 282,301 ( 46,087 ) 388,485 ( 49,396 ) Residential mortgage-backed securities 22,715 ( 1,546 ) 626,509 ( 111,432 ) 649,224 ( 112,978 ) Corporate debt securities 173,595 ( 17,907 ) 352,679 ( 129,321 ) 526,274 ( 147,228 ) Foreign government bonds 107,576 ( 429 ) 36,143 ( 13,857 ) 143,719 ( 14,286 ) Asset-backed securities 12,450 ( 524 ) 36,626 ( 1,552 ) 49,076 ( 2,076 ) CLOs 144,365 ( 4,735 ) 453,299 ( 14,851 ) 597,664 ( 19,586 ) Total AFS debt securities $ 1,451,466 $ ( 104,682 ) $ 4,332,275 $ ( 740,048 ) $ 5,783,741 $ ( 844,730 ) 113 As of December 31, 2023, the Company had 547 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of 255 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 66 corporate debt securities, and 99 non-agency mortgage-backed securities. In comparison, as of December 31, 2022, the Company had 559 AFS debt securities in a gross unrealized loss position with no credit impairment, primarily consisting of 263 U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities, 100 non-agency mortgage-backed securities, and 68 corporate debt securities. Allowance for Credit Losses on Available-for-Sale Debt Securities The Company evaluates each AFS debt security where the fair value declines below amortized cost. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Available-for-Sale Debt Securities to the Consolidated Financial Statements in this Form 10-K. The gross unrealized losses presented in the preceding tables were primarily attributable to interest rate movement and the widening of liquidity and/or credit spreads. U.S. Treasury, U.S. government agency, U.S. government-sponsored agency, and U.S. government-sponsored enterprise debt and mortgage-backed securities are issued, guaranteed, or otherwise supported by the U.S. government and have a zero credit loss assumption. The remaining securities that were in an unrealized loss position as of December 31, 2023 were mainly comprised of the following: • Corporate debt securities — The market value decline as of December 31, 2023 was primarily due to interest rate movement and spread widening. A portion of the corporate debt securities is comprised of subordinated debt securities issued by U.S. banks. Despite the reduction of the market value of these securities after the banking sector disruption in 2023, these securities are nearly all rated investment grade by NRSROs or issued by well-capitalized financial institutions with strong profitability. The contractual payments from these corporate debt securities have been and are expected to be received on time. The Company will continue to monitor the market developments in the banking sector and the credit performance of these securities. • Non-agency mortgage-backed securities — The market value decline as of December 31, 2023, was primarily due to interest rate movement and spread widening. Since these securities are rated investment grade by NRSROs, or have high priority in the cash flow waterfall within the securitization structure, and the contractual payments have historically been on time, the Company believes the risk of credit losses on these securities is low. As of both December 31, 2023 and 2022, the Company intended to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-likely-than-not that the Company would not have to sell these securities before the recovery of their amortized cost. The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities. As a result, the Company expects to recover the entire amortized cost basis of these securities. Accordingly, there was no allowance for credit losses provided against these securities as of both December 31, 2023 and 2022. In addition, there was no provision for credit losses recognized for the years ended December 31, 2023, 2022, and 2021. Allowance for Credit Losses on Held-to-Maturity Debt Securities The Company separately evaluates its HTM debt securities for any credit losses using an expected loss model, similar to the methodology used for loans. For additional information on the Company’s credit loss methodology, refer to Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Allowance for Credit Losses on Held-to-Maturity Debt Securities to the Consolidated Financial Statements in this Form 10-K. The Company monitors the credit quality of the HTM debt securities using external credit ratings. As of December 31, 2023, all HTM securities were rated investment grade by NRSROs and issued, guaranteed, or supported by U.S. government entities and agencies. Accordingly, the Company applied a zero credit loss assumption and no allowance for credit losses was recorded as of December 31, 2023 and 2022. Overall, the Company believes that the credit support levels of the debt securities are strong and, based on current assessments and macroeconomic forecasts, expects that full contractual cash flows will be received. 114 Realized Gains and Losses The following table presents the gross realized gains from the sales and impairment write-off of AFS debt securities and the related tax (benefit) expense included in earnings for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Gross realized gains from sales (1) $ 3,138 $ 1,306 $ 1,568 Impairment write-off (1) $ ( 10,000 ) $ — $ — Related tax (benefit) expense $ ( 2,029 ) $ 386 $ 464 (1) During 2023, the Company recognized $ 7 million in net losses on AFS securities as a component of noninterest income in the Company’s Consolidated Statement of Income, 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. Interest Income The following table presents the composition of interest income on debt securities for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Taxable interest $ 255,475 $ 179,720 $ 131,985 Nontaxable interest 20,715 19,186 11,998 Total interest income on debt securities $ 276,190 $ 198,906 $ 143,983 115 Contractual Maturities of Available-for-Sale and Held-to-Maturity Debt Securities The following tables present the contractual maturities, amortized cost, fair value and weighted average yields of AFS and HTM debt securities as of December 31, 2023. Expected maturities will differ from contractual maturities on certain securities as the issuers and borrowers of the underlying collateral may have the right to call or prepay obligations with or without prepayment penalties. ($ in thousands) Within One Year After One Year through Five Years After Five Years through Ten Years After Ten Years Total AFS debt securities: U.S. Treasury securities Amortized cost $ 436,296 $ 676,291 $ — $ — $ 1,112,587 Fair value 436,397 623,978 — — 1,060,375 Weighted-average yield (1) 5.40 % 1.20 % — % — % 2.85 % U.S. government agency and U.S. government-sponsored enterprise debt securities Amortized cost 50,000 96,470 128,169 137,447 412,086 Fair value 49,882 93,182 109,134 112,248 364,446 Weighted-average yield (1) 5.00 % 3.08 % 1.38 % 2.33 % 2.53 % U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities Amortized cost — 41,533 142,008 2,304,763 2,488,304 Fair value — 39,930 130,528 2,025,395 2,195,853 Weighted-average yield (1) (2) — % 3.13 % 2.70 % 3.68 % 3.62 % Municipal securities Amortized cost 2,240 35,100 9,624 250,319 297,283 Fair value 2,214 32,877 8,752 217,173 261,016 Weighted-average yield (1) (2) 3.39 % 2.24 % 3.22 % 2.23 % 2.27 % Non-agency mortgage-backed securities Amortized cost 96,990 77,046 — 878,877 1,052,913 Fair value 95,856 74,884 — 750,447 921,187 Weighted-average yield (1) 6.74 % 4.44 % — % 2.59 % 3.11 % Corporate debt securities Amortized cost — — 349,501 304,000 653,501 Fair value — — 290,877 211,548 502,425 Weighted average yield (1) — % — % 3.48 % 1.97 % 2.78 % Foreign government bonds Amortized cost 33,262 106,071 50,000 50,000 239,333 Fair value 33,231 106,026 49,593 39,024 227,874 Weighted-average yield (1) 3.02 % 2.28 % 5.73 % 1.50 % 2.94 % Asset-backed securities Amortized cost — — — 43,234 43,234 Fair value — — — 42,300 42,300 Weighted-average yield (1) — % — % — % 6.07 % 6.07 % CLOs Amortized cost — — 319,000 298,250 617,250 Fair value — — 315,410 297,451 612,861 Weighted average yield (1) — % — % 6.80 % 6.82 % 6.81 % Total AFS debt securities Amortized cost $ 618,788 $ 1,032,511 $ 998,302 $ 4,266,890 $ 6,916,491 Fair value $ 617,580 $ 970,877 $ 904,294 $ 3,695,586 $ 6,188,337 Weighted-average yield (1) 5.44 % 1.84 % 4.27 % 3.42 % 3.49 % 116 ($ in thousands) Within One Year After One Year through Five Years After Five Years through Ten Years After Ten Years Total HTM debt securities: U.S. Treasury securities Amortized cost $ — $ 529,548 $ — $ — $ 529,548 Fair value — 488,551 — — 488,551 Weighted-average yield (1) — % 1.05 % — % — % 1.05 % U.S. government agency and U.S. government-sponsored enterprise debt securities Amortized cost — — 343,319 658,517 1,001,836 Fair value — — 296,124 518,808 814,932 Weighted-average yield (1) — % — % 1.90 % 1.89 % 1.90 % U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities Amortized cost — — 99,473 1,136,311 1,235,784 Fair value — — 84,323 920,374 1,004,697 Weighted-average yield (1) (2) — % — % 1.61 % 1.70 % 1.69 % Municipal securities Amortized cost — — — 188,872 188,872 Fair value — — — 145,791 145,791 Weighted-average yield (1) (2) — % — % — % 1.99 % 1.99 % Total HTM debt securities Amortized cost $ — $ 529,548 $ 442,792 $ 1,983,700 $ 2,956,040 Fair value $ — $ 488,551 $ 380,447 $ 1,584,973 $ 2,453,971 Weighted-average yield (1) — % 1.05 % 1.83 % 1.79 % 1.66 % (1) Weighted-average yields are computed based on amortized cost balances. (2) Yields on tax-exempt securities are not presented on a tax-equivalent basis. As of December 31, 2023 and 2022, AFS and HTM debt securities with carrying values of $ 7.0 billion and $ 794 million, respectively, were pledged to secure borrowings, public deposits, repurchase agreements and for other purposes required or permitted by law. Restricted Equity Securities The following table presents the restricted equity securities included in Other assets on the Consolidated Balance Sheet as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 FRBSF stock $ 62,561 $ 61,374 FHLB stock 17,250 17,250 Total restricted equity securities $ 79,811 $ 78,624 Note 5 — Derivatives The Company uses derivative instruments to manage exposure to market risk, primarily interest rate and foreign currency risks, as well as to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility to mitigate the effect of interest rate changes on earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Bank’s investment in East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives serve as economic hedges. For additional information on the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements in this Form 10-K. 117 The following table presents the notional amounts and fair values of the Company’s derivatives as of December 31, 2023 and 2022. Certain derivative contracts are cleared though central clearing organizations where variation margin is applied daily as settlement to the fair values of the contracts. The fair values are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the application of variation margin payments as settlement to fair values of contracts cleared through central clearing organizations. Applying variation margin payments as settlement to the fair values of derivative contracts cleared through the London Clearing House (“LCH”) and the Chicago Mercantile Exchange (“CME”) resulted in reductions in both the derivative asset and liability fair values of $ 43 million as of December 31, 2023. In comparison, applying variation margin payments as settlement to LCH- and CME-cleared derivative transactions resulted in reductions in the derivative asset and liability fair values of $ 167 million and $ 81 million, respectively, as of December 31, 2022. Total derivative asset and liability fair values are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities , respectively, on the Consolidated Balance Sheet. December 31, 2023 December 31, 2022 Fair Value Fair Value ($ in thousands) Notional Amount Assets Liabilities Notional Amount Assets Liabilities Derivatives designated as hedging instruments: Cash flow hedges: Interest rate contracts $ 5,250,000 $ 50,421 $ 13,124 $ 3,450,000 $ 13,455 $ 19,687 Net investment hedges: Foreign exchange contracts 81,480 3,394 — 84,832 5,590 — Total derivatives designated as hedging instruments $ 5,331,480 $ 53,815 $ 13,124 $ 3,534,832 $ 19,045 $ 19,687 Derivatives not designated as hedging instruments: Interest rate contracts $ 17,387,909 $ 423,486 $ 420,812 $ 16,932,414 $ 426,828 $ 564,829 Commodity contracts (1) — 79,604 121,670 — 261,613 258,608 Foreign exchange contracts 5,827,149 53,678 42,564 2,982,891 47,519 44,117 Credit contracts (2) 118,391 1 25 140,950 — 23 Equity contracts — 336 (3) 15,119 (4) — 323 (3) — Total derivatives not designated as hedging instruments $ 23,333,449 $ 557,105 $ 600,190 $ 20,056,255 $ 736,283 $ 867,577 Gross derivative assets/liabilities $ 610,920 $ 613,314 $ 755,328 $ 887,264 Less: Master netting agreements ( 75,534 ) ( 75,534 ) ( 242,745 ) ( 242,745 ) Less: Cash collateral received/paid ( 237,258 ) ( 636 ) ( 372,038 ) — Net derivative assets/liabilities $ 298,128 $ 537,144 $ 140,545 $ 644,519 (1) The notional amount of the Company’s commodity contracts totaled 18,631 thousand barrels of crude oil and 328,844 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of December 31, 2023. In comparison, the notional amount of the Company’s commodity contracts totaled 12,005 thousand barrels of crude oil and 247,704 thousand MMBTUs of natural gas as of December 31, 2022. (2) Notional amount for credit contracts reflects the Company’s pro-rata share of the derivative instruments in RPAs. (3) The Company held equity contracts in 11 private companies and one public company as of December 31, 2023, and 13 private companies and one public company as of December 31, 2022. (4) Equity contracts classified as derivative liabilities consist of 349,138 performance-based RSUs granted as part of EWBC’s consideration in its investment in Rayliant. Derivatives Designated as Hedging Instruments Cash Flow Hedges — The Company uses interest rate swaps to hedge the variability in interest amount received on certain floating-rate commercial loans, or paid on certain floating-rate borrowings due to changes in contractually specified interest rates. As of December 31, 2023, interest rate contracts with total notional amount of $ 5.3 billion were designated as cash flow hedges to convert certain variable-rate loans from floating-rate payments to fixed-rate payments. Gains and losses on the hedging derivative instruments are recognized in AOCI and reclassified to earnings in the same period the hedged cash flows impact earnings and within the same income statement line item as the hedged cash flows. Considering the interest rates, yield curve and notional amounts as of December 31, 2023, the Company expects to reclassify an estimated $ 47 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months. 118 The following table presents the pre-tax changes in AOCI from cash flow hedges for the years ended December 31, 2023, 2022 and 2021. The after-tax impact of cash flow hedges on AOCI is shown in Note 15 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in this Form 10-K. Year Ended December 31, ($ in thousands) 2023 2022 2021 (Losses) gains recognized in AOCI: Interest rate contracts $ ( 5,767 ) $ ( 74,069 ) $ 1,210 Gains (losses) reclassified from AOCI into earnings: Interest expense (for cash flow hedges on borrowings) $ 696 $ 3,200 $ ( 868 ) Interest and dividend income (for cash flow hedges on loans) ( 82,153 ) ( 7,204 ) — Noninterest income 1,614 (1) — — Total $ ( 79,843 ) $ ( 4,004 ) $ ( 868 ) (1) Represents the amounts in AOCI reclassified into earnings as a result that the forecasted cash flows were no longer probable to occur. Net Investment Hedges — The Company enters into foreign currency forward contracts to hedge a portion of the Bank’s investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The hedging instruments designated as net investment hedges were used to hedge against the risk of adverse changes in the foreign currency exchange rate of the RMB. The following table presents the pre-tax gains (losses) recognized in AOCI on net investment hedges for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Gains (losses) recognized in AOCI $ 2,571 $ 4,509 $ ( 4,558 ) Derivatives Not Designated as Hedging Instruments Customer-Related Positions and Economic Hedge Derivatives — The Company enters into interest rate, commodity, and foreign exchange derivatives at the request of its customers and generally enters into offsetting derivative contracts with third-party financial institutions to mitigate the inherent market risk. The Company also utilizes foreign exchange contracts to mitigate the effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily foreign currency denominated deposits that it offers to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both December 31, 2023 and 2022. 119 The following table presents the notional amounts and the gross fair values of the interest rate and foreign exchange derivatives entered into with customers and with third-party financial institutions as economic hedges to customers’ positions as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Fair Value Fair Value ($ in thousands) Notional Amount Assets Liabilities Notional Amount Assets Liabilities Customer-related positions: Interest rate contracts: Swaps $ 6,835,822 $ 25,649 $ 377,388 $ 6,656,491 $ 1,438 $ 521,719 Written options 1,522,531 — 12,756 1,548,158 — 30,904 Collars and corridors 322,732 440 4,481 215,773 — 8,924 Subtotal 8,681,085 26,089 394,625 8,420,422 1,438 561,547 Foreign exchange contracts: Forwards and spot 956,618 9,466 6,756 993,588 17,009 18,090 Swaps 1,588,491 5,801 18,118 623,143 6,629 12,178 Other 136,000 1,839 — 121,631 2,070 245 Subtotal 2,681,109 17,106 24,874 1,738,362 25,708 30,513 Total $ 11,362,194 $ 43,195 $ 419,499 $ 10,158,784 $ 27,146 $ 592,060 Other economic hedges: Interest rate contracts: Swaps $ 6,861,561 $ 380,123 $ 25,731 $ 6,683,828 $ 384,201 $ 2,047 Purchased options 1,522,531 12,783 — 1,580,275 32,233 — Written options — — — 32,117 — 1,235 Collars and corridors 322,732 4,491 456 215,772 8,956 — Subtotal 8,706,824 397,397 26,187 8,511,992 425,390 3,282 Foreign exchange contracts: Forwards and spot 148,003 292 94 77,998 3,050 87 Swaps 2,862,037 36,280 15,757 1,044,900 18,516 11,447 Other 136,000 — 1,839 121,631 245 2,070 Subtotal 3,146,040 36,572 17,690 1,244,529 21,811 13,604 Total $ 11,852,864 $ 433,969 $ 43,877 $ 9,756,521 $ 447,201 $ 16,886 120 The Company enters into energy commodity contracts with its customers in the oil and gas sector, which allow them to hedge against the risk of fluctuation in energy commodity prices. Offsetting contracts entered with third-party financial institutions are used as economic hedges to manage the Company’s exposure on its customer-related positions. The following table presents the notional amounts in units and the gross fair values of the commodity derivatives issued for customer-related positions and other economic hedges as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Fair Value Fair Value ($ in thousands) Notional Units Assets Liabilities Notional Units Assets Liabilities Customer-related positions: Commodity contracts: Crude oil: Swaps 3,277 Barrels $ 3,735 $ 15,445 2,465 Barrels $ 39,955 $ 6,178 Collars 5,966 Barrels 1,820 5,103 3,011 Barrels 16,038 2,630 Written options — Barrels — — — Barrels 558 — Subtotal 9,243 Barrels 5,555 20,548 5,476 Barrels 56,551 8,808 Natural gas: Swaps 118,325 MMBTUs 438 73,793 92,590 MMBTUs 112,314 73,208 Collars 45,854 MMBTUs 21 20,400 32,072 MMBTUs 2,217 18,317 Written options 1,874 MMBTUs — 233 — MMBTUs — — Subtotal 166,053 MMBTUs 459 94,426 124,662 MMBTUs 114,531 91,525 Total $ 6,014 $ 114,974 $ 171,082 $ 100,333 Other economic hedges: Commodity contracts: Crude oil: Swaps 3,422 Barrels $ 9,166 $ 4,924 2,587 Barrels $ 6,935 $ 36,060 Collars 5,966 Barrels 1,685 1,467 3,942 Barrels 1,378 12,856 Purchased options — Barrels — — — Barrels — 516 Subtotal 9,388 Barrels 10,851 6,391 6,529 Barrels 8,313 49,432 Natural gas: Swaps 116,463 MMBTUs 49,941 305 91,900 MMBTUs 69,767 106,883 Collars 44,454 MMBTUs 12,565 — 31,142 MMBTUs 12,451 1,960 Purchased options 1,874 MMBTUs 233 — — MMBTUs — — Subtotal 162,791 MMBTUs 62,739 305 123,042 MMBTUs 82,218 108,843 Total $ 73,590 $ 6,696 $ 90,531 $ 158,275 Credit Contracts — The Company periodically enters into credit RPAs with institutional counterparties to manage the credit exposure of the interest rate contracts associated with syndication loans. Under the RPAs, a portion of the credit exposure is transferred from one party (the purchaser of credit protection) to another party (the seller of credit protection). The seller of credit protection is required to make payments to the purchaser of credit protection if the underlying borrower defaults on the related interest rate contract. The Company may enter into protection sold or protection purchased RPAs. Credit risk on RPAs is managed by monitoring the credit worthiness of the borrowers and the institutional counterparties, which is a part of the Company’s normal credit review and monitoring process. All reference entities of the protection sold RPAs were investment grade, and the weighted-average remaining maturity was 2.8 years and 2.4 years as of December 31, 2023 and 2022, respectively. Assuming the underlying borrowers referenced in the interest rate contracts defaulted as of December 31, 2023, the maximum exposure of protection sold RPAs would be $ 177 thousand. In comparison, assuming the underlying borrowers referenced in the interest rate contracts defaulted as of December 31, 2022, the Company would not have any current exposure in the protection sold RPAs. As of December 31, 2023, the Company had one outstanding protection purchased RPA with a notional amount of $ 25 million and minimal fair value. In comparison, the Company did not have any outstanding protection purchased RPAs as of December 31, 2022. 121 Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase the preferred and/or common stock of the borrowers’ companies, which are mainly in the technology and life sciences sectors. Warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. In connection with the Company’s investment in Rayliant during the third quarter of 2023, the Company granted performance-based RSUs as part of its consideration. The vesting of these equity contracts is contingent on Rayliant meeting certain financial performance targets during the future performance period. For additional information on these equity contracts, refer to Note 2 — Fair Value Measurement and Fair Value of Financial Instruments and Note 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities to the Consolidated Financial Statements in this Form 10-K. The following table presents the net gains (losses) recognized on the Company’s Consolidated Statement of Income related to derivatives not designated as hedging instruments for the years ended December 31, 2023, 2022 and 2021: Classification on Consolidated Statement of Income Year Ended December 31, ($ in thousands) 2023 2022 2021 Derivatives not designated as hedging instruments: Interest rate contracts Customer derivative income $ ( 2,989 ) $ 13,905 $ 11,493 Foreign exchange contracts Foreign exchange income 52,817 13,799 45,921 Credit contracts Customer derivative income ( 1 ) 118 139 Equity contracts - warrants Lending fees 13 151 382 Commodity contracts Customer derivative income ( 25 ) 48 ( 58 ) Net gains $ 49,815 $ 28,021 $ 57,877 Credit-Risk-Related Contingent Features — Certain of the Company’s over-the-counter derivative contracts contain early termination provisions that require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. Such an event primarily relates to a downgrade in the credit rating of East West Bank to below investment grade. As of December 31, 2023, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $ 9 thousand, for which no collateral was posted to cover these positions. In comparison, as of December 31, 2022, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $ 3 million, for which $ 1 million of collateral was posted to cover these positions. In the event that the credit rating of East West Bank had been downgraded to below investment grade, minimal additional collateral would have been required to be posted as of both December 31, 2023 and 2022. Offsetting of Derivatives The following tables present the gross derivative fair values, the balance sheet netting adjustments, and the resulting net fair values recorded on the Consolidated Balance Sheet, as well as the cash and noncash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements to the fair values of contracts cleared through central clearing organizations, where applicable. The collateral amounts in the following tables are limited to the outstanding balances of the related asset or liability. Therefore, instances of overcollateralization are not shown: ($ in thousands) As of December 31, 2023 Gross Amounts Recognized (1) Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Net Amount Master Netting Arrangements Cash Collateral Received (3) Security Collateral Received (5) Derivative assets $ 610,920 $ ( 75,534 ) $ ( 237,258 ) $ 298,128 $ ( 246,259 ) $ 51,869 Gross Amounts Recognized (2) Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Net Amount Master Netting Arrangements Cash Collateral Pledged (4) Security Collateral Pledged (5) Derivative liabilities $ 613,314 $ ( 75,534 ) $ ( 636 ) $ 537,144 $ — $ 537,144 122 ($ in thousands) As of December 31, 2022 Gross Amounts Recognized (1) Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Net Amount Master Netting Arrangements Cash Collateral Received (3) Security Collateral Received (5) Derivative assets $ 755,328 $ ( 242,745 ) $ ( 372,038 ) $ 140,545 $ ( 60,567 ) $ 79,978 Gross Amounts Recognized (2) Gross Amounts Offset on the Consolidated Balance Sheet Net Amounts Presented on the Consolidated Balance Sheet Gross Amounts Not Offset on the Consolidated Balance Sheet Net Amount Master Netting Arrangements Cash Collateral Pledged (4) Security Collateral Pledged (5) Derivative liabilities $ 887,264 $ ( 242,745 ) $ — $ 644,519 $ ( 38,438 ) $ 606,081 (1) Includes $ 3 million and $ 2 million of gross fair value assets with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of December 31, 2023 and 2022, respectively. (2) Includes $ 16 million and $ 1 million of gross fair value liabilities with counterparties that were not subject to enforceable master netting arrangements or similar agreements as of December 31, 2023 and 2022, respectively. (3) Gross cash collateral received under master netting arrangements or similar agreements were $ 244 million and $ 385 million as of December 31, 2023 and 2022, respectively. Of the gross cash collateral received, $ 237 million and $ 372 million were used to offset against derivative assets as of December 31, 2023 and 2022, respectively. (4) Gross cash collateral pledged under master netting arrangements or similar agreements were $ 1 million and $ 490 thousand as of December 31, 2023 and 2022, respectively. Of the gross cash collateral pledged, $ 1 million was used to offset against derivative liabilities as of December 31, 2023. In comparison, no cash collateral was used to offset against derivative liabilities as of December 31, 2022. (5) Represents the fair value of security collateral received or pledged limited to derivative assets or liabilities that are subject to enforceable master netting arrangements or similar agreements. U.S. GAAP does not permit the netting of noncash collateral on the Consolidated Balance Sheet but requires disclosure of such amounts. In addition to the amounts included in the tables above, the Company has balance sheet netting related to the resale and repurchase agreements. Refer to Note 3 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-K for additional information. Refer to Note 2 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K for fair value measurement disclosures on derivatives. 123 Note 6 — Loans Receivable and Allowance for Credit Losses The following table presents the composition of the Company’s loans held-for-investment outstanding as of December 31, 2023 and 2022: ($ in thousands) December 31, 2023 December 31, 2022 Commercial: C&I $ 16,581,079 $ 15,711,095 CRE: CRE 14,777,081 13,857,870 Multifamily residential 5,023,163 4,573,068 Construction and land 663,868 638,420 Total CRE 20,464,112 19,069,358 Total commercial 37,045,191 34,780,453 Consumer: Residential mortgage: Single-family residential 13,383,060 11,223,027 HELOCs 1,722,204 2,122,655 Total residential mortgage 15,105,264 13,345,682 Other consumer 60,327 76,295 Total consumer 15,165,591 13,421,977 Total loans held-for-investment (1) $ 52,210,782 $ 48,202,430 Allowance for loan losses ( 668,743 ) ( 595,645 ) Loans held-for-investment, net (1) $ 51,542,039 $ 47,606,785 (1) Includes $ 71 million and $ 70 million of net deferred loan fees and net unamortized premiums as of December 31, 2023 and 2022, respectively. Accrued interest receivable on loans held-for-investment was $ 267 million and $ 208 million as of December 31, 2023 and 2022, respectively, and was included in Other assets on the Consolidated Balance Sheet. The interest income reversed was insignificant for the years ended December 31, 2023, 2022 and 2021. For the Company’s accounting policy on accrued interest receivable related to loans held-for-investment, see Note 1 — Summary of Significant Accounting Policies — Loans Held-for-Investment to the Consolidated Financial Statements in this Form 10-K. The Company also has loans held-for-sale. For the Company’s accounting policy on loans held-for-sale, refer to Note 1 — Summary of Significant Accounting Policies — Loans Held-for-Sale to the Consolidated Financial Statements in this Form 10-K. The Company’s FRBSF and FHLB borrowings are primarily secured by loans held-for-investment. Loans held-for-investment totaling $ 37.2 billion and $ 28.3 billion, respectively, were pledged to secure borrowings and provide additional borrowing capacity as of December 31, 2023 and 2022. Credit Quality Indicators All loans are subject to the Company’s credit review and monitoring process. For the commercial loan portfolio, loans are risk rated based on an analysis of the borrower’s current payment performance or delinquency, repayment sources, financial and liquidity factors, including industry and geographic considerations. For the consumer loan portfolio, payment performance or delinquency is typically the driving indicator for risk ratings. The Company utilizes internal credit risk ratings to assign each individual loan a risk rating of 1 through 10: • Pass — loans risk rated 1 through 5 are assigned an internal risk rating category of “Pass.” Loans risk rated 1 are typically loans fully secured by cash. Pass loans have sufficient sources of repayment to repay the loan in full, in accordance with all terms and conditions. • Special mention — loans assigned a risk rating of 6 have potential weaknesses that warrant closer attention by management; these are assigned an internal risk rating category of “Special Mention.” • Substandard — loans assigned a risk rating of 7 or 8 have well-defined weaknesses that may jeopardize the full and timely repayment of the loan; these are assigned an internal risk rating category of “Substandard.” • Doubtful — loans assigned a risk rating of 9 have insufficient sources of repayment and a high probability of loss; these are assigned an internal risk rating category of “Doubtful.” 124 • Loss — loans assigned a risk rating of 10 are uncollectible and of such little value that they are no longer considered bankable assets; these are assigned an internal risk rating category of “Loss.” Loan exposures categorized as criticized consist of special mention, substandard, doubtful and loss categories. The Company reviews the internal risk ratings of its loan portfolio on a regular basis, and adjusts the ratings based on changes in the borrowers’ financial status and the collectability of the loans. The following tables summarize the Company’s loans held-for-investment and current year-to-date gross write-offs by loan portfolio segments, internal risk ratings and vintage year as of December 31, 2023 and 2022. The vintage year is the year of loan origination, renewal or major modification. Revolving loans that are converted to term loans presented in the tables below are excluded from term loans by vintage year columns. December 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Commercial: C&I: Pass $ 2,314,463 $ 1,628,560 $ 1,296,936 $ 331,982 $ 245,173 $ 164,159 $ 10,053,757 $ 20,143 $ 16,055,173 Criticized (accrual) 105,119 67,899 120,574 15,064 40,920 22,098 117,196 — 488,870 Criticized (nonaccrual) 2,104 7,916 131 4,819 2,979 18,137 950 — 37,036 Total C&I 2,421,686 1,704,375 1,417,641 351,865 289,072 204,394 10,171,903 20,143 16,581,079 YTD gross write-offs (2) 350 10,454 424 3,758 9,748 2,648 1,593 — 28,975 CRE: Pass 2,492,915 4,086,385 2,216,257 1,428,724 1,600,844 2,494,382 92,851 62,771 14,475,129 Criticized (accrual) 36,855 34,485 30,336 48,250 24,437 104,340 — — 278,703 Criticized (nonaccrual) — — — — 444 22,805 — — 23,249 Subtotal CRE 2,529,770 4,120,870 2,246,593 1,476,974 1,625,725 2,621,527 92,851 62,771 14,777,081 YTD gross write-offs (2) — — — — — 1,329 — — 1,329 Multifamily residential: Pass 665,780 1,481,161 808,333 612,408 498,491 857,713 8,690 1,281 4,933,857 Criticized (accrual) — 3,356 54,614 — 693 25,974 — — 84,637 Criticized (nonaccrual) — — — — — 4,669 — — 4,669 Subtotal multifamily residential 665,780 1,484,517 862,947 612,408 499,184 888,356 8,690 1,281 5,023,163 YTD gross write-offs — — — — — 3 — — 3 Construction and land: Pass 209,775 280,151 120,724 39,928 808 5,501 6,981 $ — 663,868 Criticized (accrual) — — — — — — — — — Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 209,775 280,151 120,724 39,928 808 5,501 6,981 — 663,868 YTD gross write-offs (2) — — — — — — — — — Total CRE 3,405,325 5,885,538 3,230,264 2,129,310 2,125,717 3,515,384 108,522 64,052 20,464,112 YTD gross write-offs (2) — — — — — 1,332 — — 1,332 Total commercial $ 5,827,011 $ 7,589,913 $ 4,647,905 $ 2,481,175 $ 2,414,789 $ 3,719,778 $ 10,280,425 $ 84,195 $ 37,045,191 YTD total commercial gross write-offs (2) $ 350 $ 10,454 $ 424 $ 3,758 $ 9,748 $ 3,980 $ 1,593 $ — $ 30,307 125 December 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Consumer: Residential mortgage: Single-family residential: Pass (3) $ 3,188,830 $ 3,340,789 $ 2,279,802 $ 1,594,525 $ 980,686 $ 1,959,974 $ — $ — $ 13,344,606 Criticized (accrual) 2,680 4,471 566 1,440 1,503 4,167 — — 14,827 Criticized (nonaccrual) (3) 4,466 837 3,902 2,081 3,626 8,715 — — 23,627 Subtotal single-family residential mortgage 3,195,976 3,346,097 2,284,270 1,598,046 985,815 1,972,856 — — 13,383,060 YTD gross write-offs — — — — — — — — — HELOCs: Pass 3,641 3,882 1,734 3,153 729 9,251 1,551,074 126,280 1,699,744 Criticized (accrual) 565 1,219 1,872 101 185 1,470 2,548 1,089 9,049 Criticized (nonaccrual) 815 856 413 72 584 6,863 279 3,529 13,411 Subtotal HELOCs 5,021 5,957 4,019 3,326 1,498 17,584 1,553,901 130,898 1,722,204 YTD gross write-offs (2) — — — — — 41 — 6 47 Total residential mortgage 3,200,997 3,352,054 2,288,289 1,601,372 987,313 1,990,440 1,553,901 130,898 15,105,264 YTD gross write-offs (2) — — — — — 41 — 6 47 Other consumer: Pass 2,286 18,098 135 — — 13,244 26,432 $ — 60,195 Criticized (accrual) — — — — — — — — — Criticized (nonaccrual) — — — — — — 132 — 132 Total other consumer 2,286 18,098 135 — — 13,244 26,564 — 60,327 YTD gross write-offs (2) — — — — — — — — — Total consumer $ 3,203,283 $ 3,370,152 $ 2,288,424 $ 1,601,372 $ 987,313 $ 2,003,684 $ 1,580,465 $ 130,898 $ 15,165,591 YTD total consumer gross write-offs (2) $ — $ — $ — $ — $ — $ 41 $ — $ 6 $ 47 Total loans held-for-investment: Pass $ 8,877,690 $ 10,839,026 $ 6,723,921 $ 4,010,720 $ 3,326,731 $ 5,504,224 $ 11,739,785 $ 210,475 $ 51,232,572 Criticized (accrual) 145,219 111,430 207,962 64,855 67,738 158,049 119,744 1,089 876,086 Criticized (nonaccrual) 7,385 9,609 4,446 6,972 7,633 61,189 1,361 3,529 102,124 Total $ 9,030,294 $ 10,960,065 $ 6,936,329 $ 4,082,547 $ 3,402,102 $ 5,723,462 $ 11,860,890 $ 215,093 $ 52,210,782 YTD total loans held-for-investment gross write-offs (2) $ 350 $ 10,454 $ 424 $ 3,758 $ 9,748 $ 4,021 $ 1,593 $ 6 $ 30,354 126 December 31, 2022 Term Loans by Origination Year ($ in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving Loans Converted to Term Loans (1) Total Commercial: C&I: Pass $ 2,831,834 $ 2,053,215 $ 623,026 $ 392,013 $ 143,970 $ 97,605 $ 9,177,401 $ 20,548 $ 15,339,612 Criticized (accrual) 72,210 34,296 48,761 34,221 20,646 12,933 97,988 — 321,055 Criticized (nonaccrual) 18,722 4,797 10,733 243 5,618 10,315 — — 50,428 Total C&I 2,922,766 2,092,308 682,520 426,477 170,234 120,853 9,275,389 20,548 15,711,095 CRE: Pass 4,178,780 2,404,634 1,505,150 1,771,679 1,471,710 1,909,925 165,653 22,009 13,429,540 Criticized (accrual) 3,518 60,573 159,424 40,095 91,132 32,173 1,455 16,716 405,086 Criticized (nonaccrual) — 19,044 — — — 4,200 — — 23,244 Subtotal CRE 4,182,298 2,484,251 1,664,574 1,811,774 1,562,842 1,946,298 167,108 38,725 13,857,870 Multifamily residential: Pass 1,500,289 892,598 641,677 519,614 350,044 625,293 11,325 — 4,540,840 Criticized (accrual) — — — 707 4,276 27,076 — — 32,059 Criticized (nonaccrual) — — — — — 169 — — 169 Subtotal multifamily residential 1,500,289 892,598 641,677 520,321 354,320 652,538 11,325 — 4,573,068 Construction and land: Pass 288,394 276,839 31,804 3,104 2,805 231 9,073 — 612,250 Criticized (accrual) 4,504 — — — 21,666 — — — 26,170 Criticized (nonaccrual) — — — — — — — — — Subtotal construction and land 292,898 276,839 31,804 3,104 24,471 231 9,073 — 638,420 Total CRE 5,975,485 3,653,688 2,338,055 2,335,199 1,941,633 2,599,067 187,506 38,725 19,069,358 Total commercial $ 8,898,251 $ 5,745,996 $ 3,020,575 $ 2,761,676 $ 2,111,867 $ 2,719,920 $ 9,462,895 $ 59,273 $ 34,780,453 Consumer: Single-family residential: Pass (3) $ 3,548,894 $ 2,453,717 $ 1,775,696 $ 1,101,965 $ 817,164 $ 1,500,359 $ — $ — $ 11,197,795 Criticized (accrual) — 1,275 785 1,463 4,352 3,935 — — 11,810 Criticized (nonaccrual) (3) 141 — 204 3,202 1,721 8,154 — — 13,422 Subtotal single-family residential mortgage 3,549,035 2,454,992 1,776,685 1,106,630 823,237 1,512,448 — — 11,223,027 HELOCs: Pass 520 3,583 7,336 3,203 525 8,960 1,958,692 127,401 2,110,220 Criticized (accrual) — 6 — — — — 4 1,079 1,089 Criticized (nonaccrual) — — 483 231 1,017 4,844 1,001 3,770 11,346 Subtotal HELOCs 520 3,589 7,819 3,434 1,542 13,804 1,959,697 132,250 2,122,655 Total residential mortgage 3,549,555 2,458,581 1,784,504 1,110,064 824,779 1,526,252 1,959,697 132,250 13,345,682 Other consumer: Pass 17,088 137 5,356 — — 15,808 37,804 — 76,193 Criticized (accrual) 3 — — — — — — — 3 Criticized (nonaccrual) — — — — — — 99 — 99 Total other consumer 17,091 137 5,356 — — 15,808 37,903 — 76,295 Total consumer $ 3,566,646 $ 2,458,718 $ 1,789,860 $ 1,110,064 $ 824,779 $ 1,542,060 $ 1,997,600 $ 132,250 $ 13,421,977 Total by risk rating: Pass $ 12,365,799 $ 8,084,723 $ 4,590,045 $ 3,791,578 $ 2,786,218 $ 4,158,181 $ 11,359,948 $ 169,958 $ 47,306,450 Criticized (accrual) 80,235 96,150 208,970 76,486 142,072 76,117 99,447 17,795 797,272 Criticized (nonaccrual) 18,863 23,841 11,420 3,676 8,356 27,682 1,100 3,770 98,708 Total $ 12,464,897 $ 8,204,714 $ 4,810,435 $ 3,871,740 $ 2,936,646 $ 4,261,980 $ 11,460,495 $ 191,523 $ 48,202,430 (1) $ 29 million, $ 26 million and $ 6 million of total commercial loans, primarily comprised of CRE revolving loans, converted to term loans during the years ended December 31, 2023, 2022 and 2021, respectively. During the years ended December 31, 2023 and 2021, respectively, $ 44 million and $ 54 million of total consumer loans, comprised of HELOCs, converted to term loans. For the year ended December 31, 2022, no consumer loans converted to term loans. (2) Excludes gross write-offs associated with loans the Company sold or settled. (3) As of each of December 31, 2023 and 2022, $ 1 million of nonaccrual loans whose payments were guaranteed by the Federal Housing Administration were classified with a “Pass” rating. 127 Nonaccrual and Past Due Loans Loans that are 90 or more days past due are generally placed on nonaccrual status, unless the loan is well-collateralized and in the process of collection. Loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis of loans held-for-investment as of December 31, 2023 and 2022: December 31, 2023 ($ in thousands) Current Accruing Loans Accruing Loans 30-59 Days Past Due Accruing Loans 60-89 Days Past Due Total Accruing Past Due Loans Total Nonaccrual Loans Total Loans Commercial: C&I $ 16,508,394 $ 28,550 $ 7,099 $ 35,649 $ 37,036 $ 16,581,079 CRE: CRE 14,750,315 1,719 1,798 3,517 23,249 14,777,081 Multifamily residential 5,017,897 597 — 597 4,669 5,023,163 Construction and land 650,617 13,251 — 13,251 — 663,868 Total CRE 20,418,829 15,567 1,798 17,365 27,918 20,464,112 Total commercial 36,927,223 44,117 8,897 53,014 64,954 37,045,191 Consumer: Residential mortgage: Single-family residential 13,313,455 29,285 15,943 45,228 24,377 13,383,060 HELOCs 1,687,301 12,266 9,226 21,492 13,411 1,722,204 Total residential mortgage 15,000,756 41,551 25,169 66,720 37,788 15,105,264 Other consumer 56,930 3,123 142 3,265 132 60,327 Total consumer 15,057,686 44,674 25,311 69,985 37,920 15,165,591 Total $ 51,984,909 $ 88,791 $ 34,208 $ 122,999 $ 102,874 $ 52,210,782 December 31, 2022 ($ in thousands) Current Accruing Loans Accruing Loans 30-59 Days Past Due Accruing Loans 60-89 Days Past Due Total Accruing Past Due Loans Total Nonaccrual Loans Total Loans Commercial: C&I $ 15,651,312 $ 6,482 $ 2,873 $ 9,355 $ 50,428 $ 15,711,095 CRE: CRE 13,820,441 14,185 — 14,185 23,244 13,857,870 Multifamily residential 4,571,899 678 322 1,000 169 4,573,068 Construction and land 638,420 — — — — 638,420 Total CRE 19,030,760 14,863 322 15,185 23,413 19,069,358 Total commercial 34,682,072 21,345 3,195 24,540 73,841 34,780,453 Consumer: Residential mortgage: Single-family residential 11,183,134 13,523 12,130 25,653 14,240 11,223,027 HELOCs 2,102,523 7,700 1,086 8,786 11,346 2,122,655 Total residential mortgage 13,285,657 21,223 13,216 34,439 25,586 13,345,682 Other consumer 73,004 109 3,083 3,192 99 76,295 Total consumer 13,358,661 21,332 16,299 37,631 25,685 13,421,977 Total $ 48,040,733 $ 42,677 $ 19,494 $ 62,171 $ 99,526 $ 48,202,430 128 The following table presents the amortized cost of loans on nonaccrual status for which there was no related allowance for loan losses as of both December 31, 2023 and 2022. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well secured by collateral values and there is no loss expectation. ($ in thousands) December 31, 2023 December 31, 2022 Commercial: C&I $ 33,089 $ 11,398 CRE 22,653 22,944 Multifamily residential 4,235 — Total commercial 59,977 34,342 Consumer: Single-family residential 4,852 2,998 HELOCs 7,256 7,245 Total consumer 12,108 10,243 Total nonaccrual loans with no related allowance for loan losses $ 72,085 $ 44,585 Foreclosed Assets The Company acquires assets from borrowers through loan restructurings, workouts, or foreclosures. Assets acquired may include real properties (e.g., real estate, land, and buildings) and commercial and personal properties. The Company recognizes foreclosed assets upon receiving assets in satisfaction of a loan (e.g., taking legal title or physical possession). Foreclosed assets, consisting of OREO and other nonperforming assets, are included in Other assets on the Consolidated Balance Sheet. The Company had $ 11 million in foreclosed assets as of December 31, 2023, compared with $ 270 thousand as of December 31, 2022. The Company commences the foreclosure process on consumer mortgage loans after a borrower becomes more than 120 days delinquent in accordance with the Consumer Financial Protection Bureau guidelines. The carrying value of the consumer real estate loans that were in an active or suspended foreclosure process was $ 8 million and $ 7 million as of December 31, 2023 and 2022, respectively. Loan Modifications to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, the Company adopted ASU 2022-02, which in part eliminated the accounting for TDR and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty. See Note 1 — Summary of Significant Accounting Policies — Loan Modifications to the Consolidated Financial Statements in this Form 10-K for additional information. As part of the Company’s loss mitigation efforts, the Company may agree to modify the contractual terms of a loan to assist borrowers experiencing financial difficulty. The Company negotiates loan modifications on a case-by-case basis to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. The Company considers various factors to identify borrowers experiencing financial difficulty. The primary factor for consumer borrowers is delinquency status. For commercial loan borrowers, these factors include credit risk ratings, the probability of loan risk rating downgrades, and overall risk profile changes. The modification may include, but is not limited to, payment delays, interest rate reductions, term extensions, principal forgiveness, or a combination of such modifications. Commercial loan borrowers that require immaterial modifications such as insignificant interest rate changes, short-term extensions (90 days or less) from the original maturity date, or temporary waivers or extensions of financial covenants which would not constitute material credit actions, are generally not considered to be experiencing financial difficulty and are not included in the disclosure. Insignificant payment deferrals (three months or less in the last 12 months) are also not included in the disclosure. 129 The following table presents the amortized cost of loans that were modified during the year ended December 31, 2023 by loan class and modification type: Year Ended December 31, 2023 Modification Type ($ in thousands) Term Extension Payment Delay Combination: Term Extension/ Payment Delay Combination: Rate Reduction/ Term Extension Combination: Rate Reduction/ Payment Delay Total Modification as a % of Loan Class Commercial: C&I $ 62,704 $ 6,842 $ — $ — $ — $ 69,546 0.42 % CRE: CRE 13,939 — — 32,470 — 46,409 0.23 % Total CRE 13,939 — — 32,470 — 46,409 Total commercial 76,643 6,842 — 32,470 — 115,955 Consumer: Residential mortgage: Single-family residential: — 10,202 3,967 — — 14,169 0.11 % HELOCs — 3,148 1,170 — 815 5,133 0.30 % Total residential mortgage — 13,350 5,137 — 815 19,302 Total consumer — 13,350 5,137 — 815 19,302 Total $ 76,643 $ 20,192 $ 5,137 $ 32,470 $ 815 $ 135,257 The following table presents the financial effects of the loan modifications for the year ended December 31, 2023 by loan class and modification type: Financial Effects of Loan Modifications Year Ended December 31, 2023 ($ in thousands) Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (in years) Weighted-Average Payment Delay (in years) Commercial: C&I $ 371 (1) — % (1) 1.3 years 0.9 years CRE — 3.00 % 2.1 years — Consumer: Single-family residential — — % 9.3 years 1.8 years HELOCs — 0.11 % 14.2 years 4.6 years Total $ 371 (1) Comprised of C&I loans modified during the year ended December 31, 2023 where the interest rate is waived in addition to principal forgiveness. No recorded investment was outstanding as of December 31, 2023. A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification. During the year ended December 31, 2023 , two residential mortgage loans that were modified as payment delay totaling $ 1 million subsequently defaulted. 130 The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of loans that were modified as of December 31, 2023 since the adoption of ASU 2022-02 on January 1, 2023: Payment Performance as of December 31, 2023 ($ in thousands) Current 30-89 Days Past Due 90+ Days Past Due Total Commercial: C&I $ 52,087 $ 8,153 $ 9,306 $ 69,546 CRE: CRE 46,409 — — 46,409 Total CRE 46,409 — — 46,409 Total commercial 98,496 8,153 9,306 115,955 Consumer: Residential mortgage: Single-family residential 11,197 2,425 547 14,169 HELOCs 4,207 177 749 5,133 Total residential mortgage 15,404 2,602 1,296 19,302 Total consumer 15,404 2,602 1,296 19,302 Total $ 113,900 $ 10,755 $ 10,602 $ 135,257 As of December 31, 2023, commitments to lend additional funds to borrowers whose loans were modified were $ 4 million. Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. ASU 2022-02 eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. The following table presents the additions to TDRs for the years ended December 31, 2022, and 2021: Loans Modified as TDRs During the Year Ended December 31, 2022 December 31, 2021 ($ in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Commercial: C&I 7 $ 69,050 $ 38,415 $ 12,638 5 $ 24,155 $ 20,263 $ 1,108 CRE: Multifamily residential — — — — 1 1,101 1,066 — Total CRE — — — — 1 1,101 1,066 — Total commercial 7 69,050 38,415 12,638 6 25,256 21,329 1,108 Consumer: Residential mortgage: HELOCs 2 662 697 2 — — — — Total residential mortgage 2 662 697 2 — — — — Total consumer 2 662 697 2 — — — — Total 9 $ 69,712 $ 39,112 $ 12,640 6 $ 25,256 $ 21,329 $ 1,108 (1) Includes subsequent payments after modification and reflects the balance as of December 31, 2022 and 2021. (2) Includes charge-offs and specific reserves recorded since the modification date. Loans modified more than once are reported in the period they were first modified. 131 The following table presents the TDR post-modification outstanding balances by the primary modification type for the years ended December 31, 2022 and 2021: Modification Type During the Year Ended December 31, 2022 December 31, 2021 ($ in thousands) Principal (1) Interest Rate Reduction Other (2) Total Principal (1) Interest Rate Reduction Other Total Commercial: C&I $ 24,238 $ — $ 14,177 $ 38,415 $ 4,679 $ 15,584 $ — $ 20,263 CRE: Multifamily residential — — — — 1,066 — — 1,066 Total CRE — — — — 1,066 — — 1,066 Total commercial 24,238 — 14,177 38,415 5,745 15,584 — 21,329 Consumer: Residential mortgage: HELOCs 697 — — 697 — — — — Total residential mortgage 697 — — 697 — — — — Total consumer 697 — — 697 — — — — Total $ 24,935 $ — $ 14,177 $ 39,112 $ 5,745 $ 15,584 $ — $ 21,329 (1) Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only. (2) Includes primarily funding to secure additional collateral and provide liquidity to collateral-dependent and term extension to C&I loans. After a loan is modified as a TDR, the Company continues to monitor its performance under its most recent restructured terms. A TDR may become delinquent and result in payment default (generally 90 days past due) subsequent to restructuring. The following table presents information on loans that entered into default during the years ended December 31, 2022 and 2021 that were modified as TDRs during the 12 months preceding payment default: Loans Modified as TDRs that Subsequently Defaulted During the Year Ended December 31, 2022 2021 ($ in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment Commercial: C&I 2 $ 10,296 1 $ 11,431 Total commercial 2 10,296 1 11,431 Total 2 $ 10,296 1 $ 11,431 As of December 31, 2022, the remaining commitments to lend to borrowers whose terms of their outstanding owed balances were modified as TDRs was $ 16 million. Allowance for Credit Losses The Company has a current expected credit losses (“CECL”) framework for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. The Company’s allowance for credit losses, which includes both the allowance for loan losses and the allowance for unfunded credit commitments, is calculated with the objective of maintaining a reserve sufficient to absorb losses inherent in our credit portfolios. The measurement of the allowance for credit losses is based on management’s best estimate of lifetime expected credit losses, periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors. The allowance for credit losses is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred fees and costs, and escrow advances. Subsequent changes in expected credit losses are recognized in net income as a provision for, or a reversal of, credit loss expense. 132 The allowance for credit losses estimation involves procedures to consider the unique risk characteristics of the portfolio segments. The majority of the Company’s credit exposures that share risk characteristics with other similar exposures are collectively evaluated. The collectively evaluated loans include performing loans and unfunded credit commitments. If an exposure does not share risk characteristics with other exposures, the Company generally estimates expected credit losses on an individual basis. Allowance for Collectively Evaluated Loans The allowance for collectively evaluated loans consists of a quantitative component that assesses the different risk factors considered in our models and a qualitative component that considers risk factors external to the models. Each of these components are described below. Quantitative Component — The Company applies quantitative methods to estimate loan losses by considering a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. The Company incorporates forward-looking information using macroeconomic scenarios which include variables that are considered key drivers of increases and decreases in credit losses. The Company utilizes a probability-weighted, multiple-scenario forecast approach. These scenarios may consist of a base forecast representing management's view of the most likely outcome, combined with downside or upside scenarios reflecting possible worsening or improving economic conditions. The quantitative models incorporate a probability-weighted calculation of these macroeconomic scenarios over a reasonable and supportable forecast period. If the life of the loans extends beyond the reasonable and supportable forecast period, the Company will consider historical experience or long-run macroeconomic trends over the remaining life of the loans to estimate the allowance for loan losses. There were no changes to the reasonable and supportable forecast period, except to the C&I segment, and no changes to the reversion to the historical loss experience method in 2023 and 2022. The reasonable and supportable forecast period for the C&I segment changed from 11 quarters to eight quarters due to model redevelopment during the third quarter of 2023. The following table provides key credit risk characteristics and macroeconomic variables that the Company uses to estimate the expected credit losses by portfolio segment: Portfolio Segment Risk Characteristics Macroeconomic Variables C&I Age percentage, size at origination, delinquency status, sector and risk rating Unemployment rate, Gross Domestic Product (“GDP”), and U.S. Treasury rates (1) CRE, Multifamily residential, and Construction and land Delinquency status, maturity date, collateral value, property type, and geographic location Unemployment rate, GDP, and U.S. Treasury rates Single-family residential and HELOCs FICO score, delinquency status, maturity date, collateral value, and geographic location Unemployment rate, GDP, and Home Price Indices Other consumer Loss rate approach Immaterial (2) (1) Macroeconomic variables were updated due to model redevelopment. (2) Macroeconomic variables are included in the qualitative estimate. Quantitative Component — Allowance for Loan Losses for the Commercial Loan Portfolio The Company’s C&I lifetime loss rate model estimates the loss rate expected over the life of a loan. This loss rate is applied to the amortized cost basis, excluding accrued interest receivable, to determine expected credit losses. The lifetime loss rate model’s reasonable and supportable period spans eight quarters, thereafter immediately reverting to the historical average loss rate, expressed through the loan-level lifetime loss rate. To generate estimates of expected loss at the loan level for CRE, multifamily residential, and construction and land loans, projected PDs and LGDs are applied to the estimated exposure at default, considering the term and payment structure of the loan. The forecast of future economic conditions returns to long-run historical economic trends within the reasonable and supportable period. To estimate the life of a loan under both models, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. 133 Quantitative Component — Allowance for Loan Losses for the Consumer Loan Portfolio For single-family residential and HELOC loans, projected PDs and LGDs are applied to the estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. The forecast of future economic conditions returns to long-run historical economic trends after the reasonable and supportable period. To estimate the life of a loan for the single-family residential and HELOC loan portfolios, the contractual term of the loan is adjusted for estimated prepayments based on historical prepayment experience. For other consumer loans, the Company uses a loss rate approach. Qualitative Component — The Company also considers the following qualitative factors in the determination of the collectively evaluated allowance if these factors have not already been captured by the quantitative model. Such qualitative factors may include, but are not limited to: – loan growth trends; – the volume and severity of past due financial assets, and the volume and severity of criticized or adversely classified financial assets; – the Company’s lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices; – knowledge of a borrower’s operations; – the quality of the Company’s credit review system; – the experience, ability and depth of the Company’s management and associates; – the effect of other external factors such as the regulatory and legal environments, or changes in technology; – actual and expected changes in international, national, regional, and local economic and business conditions in which the Company operates; and – risk factors in certain industry sectors not captured by the quantitative models. The magnitude of the impact of these factors on the Company’s qualitative assessment of the allowance for credit losses changes from period to period according to changes made by management in its assessment of these factors. The extent to which these factors change may be dependent on whether they are already reflected in quantitative loss estimates during the current period and the extent to which changes in these factors diverge from period to period. While the Company’s allowance methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. The Company may hold additional qualitative reserves that are designed to provide coverage for losses attributable to such risk. Allowance for Individually Evaluated Loans When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual loans, the Company estimates the allowance for loan losses on an individual loan basis. The allowance for loan losses for individually evaluated loans is measured as the difference between the recorded value of the loans and their fair value. For loans evaluated individually, the Company uses one of three different asset valuation measurement methods: (1) the fair value of collateral less costs to sell; (2) the present value of expected future cash flows; or (3) the loan's observable market price. If an individually evaluated loan is determined to be collateral dependent, the Company applies the fair value of the collateral less costs to sell method. If an individually evaluated loan is determined not to be collateral dependent, the Company uses the present value of future cash flows or the observable market value of the loan. • Collateral-Dependent Loans — The allowance of a collateral-dependent loan is limited to the difference between the recorded value and fair value of the collateral less cost of disposal or sale. As of December 31, 2023, collateral-dependent commercial and consumer loans totaled $ 30 million and $ 12 million, respectively. In comparison, collateral-dependent commercial and consumer loans totaled $ 47 million and $ 13 million, respectively, as of December 31, 2022. The collateral-dependent loans decreased from December 31, 2022, predominantly driven by the adoption of ASU 2022-02 which eliminated TDR guidance. The Company's collateral-dependent loans were secured by real estate. As of both December 31, 2023 and 2022, the collateral value of the properties securing the collateral-dependent loans, net of selling costs, exceeded the recorded value of the loans. 134 The following tables summarize the activity in the allowance for loan losses by portfolio segments for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential HELOCs Other Consumer Total Allowance for loan losses, December 31, 2022 $ 371,700 $ 149,864 $ 23,373 $ 9,109 $ 35,564 $ 4,475 $ 1,560 $ 595,645 Impact of ASU 2022-02 adoption 5,683 337 6 — 1 1 — 6,028 Allowance for loan losses, beginning of period 377,383 150,201 23,379 9,109 35,565 4,476 1,560 601,673 Provision for (reversal of) credit losses on loans (a) 45,319 27,007 10,454 11,537 19,384 ( 424 ) 294 113,571 Gross charge-offs ( 36,573 ) ( 7,048 ) ( 3 ) ( 10,413 ) — ( 138 ) ( 197 ) ( 54,372 ) Gross recoveries 6,803 432 545 236 69 33 — 8,118 Total net (charge-offs) recoveries ( 29,770 ) ( 6,616 ) 542 ( 10,177 ) 69 ( 105 ) ( 197 ) ( 46,254 ) Foreign currency translation adjustment ( 247 ) — — — — — — ( 247 ) Allowance for loan losses, end of period $ 392,685 $ 170,592 $ 34,375 $ 10,469 $ 55,018 $ 3,947 $ 1,657 $ 668,743 Year Ended December 31, 2022 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential HELOCs Other Consumer Total Allowance for loan losses, beginning of period $ 338,252 $ 150,940 $ 14,400 $ 15,468 $ 17,160 $ 3,435 $ 1,924 $ 541,579 Provision for (reversal of) credit losses on loans (a) 37,604 8,212 15,651 ( 6,433 ) 18,867 1,124 ( 258 ) 74,767 Gross charge-offs ( 18,738 ) ( 10,871 ) ( 7,237 ) — ( 775 ) ( 193 ) ( 106 ) ( 37,920 ) Gross recoveries 16,824 1,583 559 74 312 109 — 19,461 Total net (charge-offs) recoveries ( 1,914 ) ( 9,288 ) ( 6,678 ) 74 ( 463 ) ( 84 ) ( 106 ) ( 18,459 ) Foreign currency translation adjustment ( 2,242 ) — — — — — — ( 2,242 ) Allowance for loan losses, end of period $ 371,700 $ 149,864 $ 23,373 $ 9,109 $ 35,564 $ 4,475 $ 1,560 $ 595,645 Year Ended December 31, 2021 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential HELOCs Other Consumer Total Allowance for loan losses, beginning of period $ 398,040 $ 163,791 $ 27,573 $ 10,239 $ 15,520 $ 2,690 $ 2,130 $ 619,983 (Reversal of) provision for credit losses on loans (a) ( 39,732 ) 14,282 ( 15,076 ) 7,576 1,965 745 1,286 ( 28,954 ) Gross charge-offs ( 32,490 ) ( 28,430 ) ( 130 ) ( 2,954 ) ( 1,046 ) ( 45 ) ( 1,497 ) ( 66,592 ) Gross recoveries 11,906 1,297 2,033 607 721 45 5 16,614 Total net (charge-offs) recoveries ( 20,584 ) ( 27,133 ) 1,903 ( 2,347 ) ( 325 ) — ( 1,492 ) ( 49,978 ) Foreign currency translation adjustment 528 — — — — — — 528 Allowance for loan losses, end of period $ 338,252 $ 150,940 $ 14,400 $ 15,468 $ 17,160 $ 3,435 $ 1,924 $ 541,579 135 In addition to the allowance for loan losses, the Company maintains an allowance for unfunded credit commitments. The Company has three general areas for which it provides the allowance for unfunded credit commitments: (1) recourse obligations for loans sold, (2) letters of credit, and (3) unfunded lending commitments. The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. See Note 12 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K for additional information related to unfunded credit commitments. The following table summarizes the activities in the allowance for unfunded credit commitments for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Unfunded credit facilities Allowance for unfunded credit commitments, beginning of period $ 26,264 $ 27,514 $ 33,577 Provision for (reversal of) credit losses on unfunded credit commitments (b) 11,429 ( 1,267 ) ( 6,046 ) Foreign currency translation adjustments 6 17 ( 17 ) Allowance for unfunded credit commitments, end of period 37,699 26,264 27,514 Provision for (reversal of) credit losses (a) + (b) $ 125,000 $ 73,500 $ ( 35,000 ) The allowance for credit losses was $ 706 million as of December 31, 2023, compared with $ 622 million as of December 31, 2022. The increase in the allowance for credit losses was primarily driven by net loan growth and economic forecasts that reflect continued caution regarding inflation, the high interest rate environment and the CRE market outlook. The Company considers multiple economic scenarios to develop the estimate of the allowance for loan losses. The scenarios may consist of a baseline forecast representing management's view of the most likely outcome, and downside or upside scenarios that reflect possible worsening or improving economic conditions. As of both December 31, 2023 and 2022, the Company assigned the same weightings to its baseline, upside, and downside scenarios. The current baseline economic forecast continues to reflect key risks such as high inflation, high interest rates, concerns over global conflicts and oil prices. Compared with the December 2022 forecast, the 2023 baseline forecast projected lower annual GDP growth for 2023 and beyond, and a similarly higher unemployment rate for 2023 and beyond. The downside scenario assumed the economy falls into recession in the first quarter of 2024 as a result of an extended federal government shutdown, global and domestic political tensions, high inflation, and increased unemployment. The upside scenario assumed a more optimistic economic outlook for 2024, including stronger growth, stable financial market, and full employment starting in the first quarter of 2024. Loan Transfers, Sales and Purchases The Company’s primary business focus is on directly originated loans. The Company also purchases loans and participates in loan financing with other banks. In the normal course of doing business, the Company also provides other financial institutions with the ability to participate in commercial loans that it originates, by selling loans to such institutions. Purchased loans may be transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables provide information on the carrying value of loans transferred, sold and purchased for the held-for-investment portfolio, during the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential Total Loans transferred from held-for-investment to held-for-sale (1) $ 647,943 $ 83,282 $ — $ 8,154 $ — $ 739,379 Sales (2)(3) $ 674,919 $ 86,749 $ — $ 8,154 $ — $ 769,822 Purchases (4) $ 106,493 $ — $ — $ — $ 493,282 $ 599,775 136 Year Ended December 31, 2022 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential Total Loans transferred from held-for-investment to held-for-sale (1) $ 530,524 $ 88,075 $ — $ — $ 5,178 $ 623,777 Loans transferred from held-for-sale to held-for-investment $ — $ — $ — $ — $ 631 $ 631 Sales (2)(3) $ 501,289 $ 88,075 $ — $ — $ 6,403 $ 595,767 Purchases (4) $ 363,549 $ — $ — $ — $ 293,721 $ 657,270 Year Ended December 31, 2021 Commercial Consumer CRE Residential Mortgage ($ in thousands) C&I CRE Multifamily Residential Construction and Land Single-Family Residential Total Loans transferred from held-for-investment to held-for-sale (1) $ 496,655 $ 78,834 $ — $ 18,883 $ 5,238 $ 599,610 Sales (2)(3) $ 502,694 $ 78,834 $ — $ 21,557 $ 18,458 $ 621,543 Purchases (4) $ 476,690 $ — $ 370 $ — $ 564,651 $ 1,041,711 (1) Includes write-downs of $ 5 million, $ 3 million and $ 12 million to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the years ended December 31, 2023, 2022 and 2021, respectively. (2) Includes originated loans sold of $ 513 million, $ 388 million and $ 413 million for the years ended December 31, 2023, 2022 and 2021, respectively. Originated loans sold consisted primarily of C&I and CRE loans for all periods. (3) Includes $ 256 million of purchased loans sold in the secondary market for the year ended December 31, 2023, compared with $ 208 million for each of the years ended December 31, 2022 and 2021. (4) C&I loan purchases were comprised primarily of syndicated C&I term loans. Note 7 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities The CRA encourages banks to meet the credit needs of their communities, particularly low- and moderate-income individuals and neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies that qualify for CRA consideration and tax credits. These entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. To fully utilize the available tax credits, each of these entities must meet the regulatory affordable housing requirements for a 15-year minimum compliance period. In addition to affordable housing projects, the Company invests in small business investment companies and new market tax credit projects that qualify for CRA consideration, as well as eligible projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, and investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas. For the Company’s accounting policies on tax credit investments, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Securities and Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net in this Form 10-K. For discussion on the Company’s impairment evaluation and monitoring process of tax credit investments, refer to Note 2 — Fair Value Measurement and Fair Value of Financial Instruments — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net to the Consolidated Financial Statements in this Form 10-K. 137 The following table presents the investments and unfunded commitments of the Company’s qualified affordable housing partnerships, tax credit, and other investments, net as of December 31, 2023 and 2022: December 31, 2023 2022 ($ in thousands) Assets Liabilities - Unfunded Commitments (1) Assets Liabilities - Unfunded Commitments (1) Investments in qualified affordable housing partnerships, net $ 419,785 $ 251,746 $ 413,253 $ 266,654 Investments in tax credit and other investments, net 485,251 298,990 350,003 185,797 Total $ 905,036 $ 550,736 $ 763,256 $ 452,451 (1) Included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. Investments in tax credit and other investments, net presented in the table above include equity securities that are mutual funds with readily determinable fair values of $ 25 million and $ 24 million, as of December 31, 2023 and 2022, respectively. The Company invests in these mutual funds for CRA purposes. The following table presents additional information related to the investments in qualified affordable housing partnerships, tax credit and other investments for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Investments in qualified housing partnerships, net Tax credits and other tax benefits recognized $ 60,939 $ 52,132 $ 50,643 Amortization expense included in income tax expense $ 43,041 $ 38,759 $ 33,248 Investments in tax credit and other investments, net Amortization of tax credit and other investments (1) $ 120,299 $ 113,358 $ 122,457 Unrealized gains (losses) on equity securities with readily determinable values $ 255 $ ( 2,958 ) $ ( 746 ) (1) Includes net impairment recoveries of $ 1 million, $ 469 thousand and $ 1 million for the years ended December 31, 2023, 2022 and 2021, respectively. The activity was primarily related to historic and/or energy tax credits. As of December 31, 2023, the Company’s unfunded commitments related to investments in qualified affordable housing partnerships, tax credit and other investments, net are estimated to be funded as follows: ($ in thousands) Amount 2024 $ 339,628 2025 178,171 2026 17,882 2027 2,527 2028 2,115 Thereafter 10,413 Total $ 550,736 Variable Interest Entities The majority of both the investments in affordable housing partnerships and tax credit and other investments discussed above are variable interest entities where the Company is a limited partner in these partnerships, and an unrelated third party is typically the general partner or managing member who has control over the significant activities of these investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these investments due to the general partner’s or managing member’s ability to manage the entity, which is indicative of the general partner’s or managing member’s power over the entity. The Company’s maximum exposure to loss in connection with these partnerships consists of the unamortized investment balance and any tax credits claimed that may become subject to recapture. 138 Other Investments The Company acquired a 49.99 % equity interest in Rayliant during the third quarter of 2023. Rayliant is an asset manager specializing in asset allocation and investment in developed and emerging markets. This investment will expand the Bank’s wealth management business and provide its customers with additional access to institutional-quality investment management products and services. The investment in Rayliant is accounted for under the equity method of accounting and is included in Other assets on the Consolidated Balance Sheet. The Company paid $ 95 million in cash and granted performance-based RSUs that are contingently issuable at vesting. The performance-based RSUs will vest on September 1, 2028 into a variable number of the Company’s shares of common stock, ranging from 20 % to 200 % of the 349,138 shares initially underlying such performance-based RSUs, based on Rayliant’s achievement of certain financial performance targets during the future performance period. For additional information related to these equity contracts accounted for as derivative liability, refer to 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. The carrying value of the Company's investment in Rayliant was $ 109 million as of December 31, 2023, of which $ 101 million was comprised of equity method goodwill. The Company also held equity securities without readily determinable fair values totaling $ 146 million and $ 37 million as of December 31, 2023 and 2022, respectively. These equity securities without readily determinable fair values are included in Other Assets on the Consolidated Balance Sheet. Note 8 — Goodwill Total goodwill was $ 466 million as of both December 31, 2023 and 2022. The Company’s goodwill impairment test is performed annually, as of December 31, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. The Company completed its annual goodwill impairment test as of December 31, 2023 by using a quantitative assessment, and concluded goodwill was no t impaired. Additional information pertaining to the Company’s accounting policy for goodwill is summarized in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Goodwill to the Consolidated Financial Statements in this Form 10-K. Note 9 — Deposits The following table presents the composition of the Company’s deposits as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Deposits: Noninterest-bearing demand $ 15,539,872 $ 21,051,090 Interest-bearing checking 7,558,908 6,672,165 Money market 13,108,727 12,265,024 Savings: Domestic office 1,638,916 2,425,784 Foreign office 202,551 223,253 Time deposits (1) : Domestic office 16,037,287 11,878,734 Foreign office 2,006,177 1,451,799 Total deposits $ 56,092,438 $ 55,967,849 (1) The aggregate amount of time deposits that met or exceeded the deposit insurance limit was $ 13.6 billion and $ 10.6 billion as of December 31, 2023 and 2022, respectively. 139 The following table presents the scheduled maturities of time deposits for the five years succeeding December 31, 2023: ($ in thousands) Amount 2024 $ 17,580,178 2025 134,264 2026 186,448 2027 139,279 2028 3,295 Total $ 18,043,464 Note 10 — Short-Term Borrowings and Long-Term Debt The following table presents details of the Company’s junior subordinated debt and short-term borrowings as of December 31, 2023 and 2022, December 31, 2023 2022 ($ in thousands) Interest Rate Maturity Dates Amount Amount Parent company Junior subordinated debt (1 ) — floating (2) 7.00 % — 7.55 % 2034 — 2037 $ 148,249 $ 147,950 Bank Short-term borrowings 4.37 % 3/19/2024 $ 4,500,000 $ — (1) The weighted-average contractual interest rates for junior subordinated debt were 6.87 % and 3.49 % as of December 31, 2023 and 2022, respectively. (2) During the third quarter of 2023, all junior subordinated debt that referenced London Interbank Offered Rate transitioned to a Secured Overnight Financing Rate (“SOFR”)-based replacement rate plus the applicable stated margin. Short-Term Borrowings — Bank Term Funding Program As of December 31, 2023 , the Company’s short-term borrowings consisted of funds from the Bank Term Funding Program (“BTFP”), which was designed by the Federal Reserve to provide additional liquidity to U.S. depository institutions. The advances are limited to the par value of eligible collateral pledged by the borrower, for a term of up to one year. U.S. federally insured depository institutions can request advances under the BTFP until at least March 11, 2024. The Company pledged eligible U.S. government agency and U.S. government-sponsored enterprise debt and mortgage-backed securities, and U.S. Treasury securities as collateral for the borrowings under the BTFP. As of December 31, 2023, the carrying amount of the Company’s pledged securities to the BTFP totaled $ 4.3 billion with a remaining borrowing capacity of $ 121 million. In comparison, there were no short-term borrowings as of December 31, 2022. Long-Term Debt — Junior Subordinated Debt As of December 31, 2023, East West had six statutory business trusts for the purpose of issuing junior subordinated debt to third party investors. The junior subordinated debt was issued in connection with the East West’s various pooled trust preferred securities offerings. The Trusts issued both fixed and variable rate capital securities, representing undivided preferred beneficial interests in the assets of the Trusts, to third party investors. East West is the owner of all the beneficial interests represented by the common securities of the Trusts. The junior subordinated debt is recorded as a component of long-term debt and includes the value of the common stock issued by six of East West’s wholly-owned subsidiaries in conjunction with these transactions. The common stock is recorded in Other assets on the Consolidated Balance Sheet for the amount issued in connection with these junior subordinated debt issuances. The proceeds from these issuances represent liabilities of East West to the Trusts and are reported as a component of L o ng-term debt on the Consolidated Balance Sheet. Interest payments on these securities are disbursed quarterly and are deductible for tax purposes. 140 The following table presents the outstanding junior subordinated debt issued by each trust as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Issuer Stated Maturity (1) Stated Interest Rate Current Rate Aggregate Principal Amount of Trust Securities Aggregate Principal Amount of the Junior Subordinated Debt Aggregate Principal Amount of Trust Securities Aggregate Principal Amount of the Junior Subordinated Debt ($ in thousands) East West Capital Trust V November 2034 3-month CME Term SOFR + 2.06 % 7.44 % $ 464 $ 15,000 $ 464 $ 15,000 East West Capital Trust VI September 2035 3-month CME Term SOFR + 1.76 % 7.15 % 619 20,000 619 20,000 East West Capital Trust VII June 2036 3-month CME Term SOFR + 1.61 % 7.00 % 928 30,000 928 30,000 East West Capital Trust VIII June 2037 3-month CME Term SOFR + 1.66 % 7.02 % 619 18,000 619 18,000 East West Capital Trust IX September 2037 3-month CME Term SOFR + 2.16 % 7.55 % 928 30,000 928 30,000 MCBI Statutory Trust I December 2035 3-month CME Term SOFR + 1.81 % 7.20 % 1,083 35,000 1,083 35,000 Total $ 4,641 $ 148,000 $ 4,641 $ 148,000 (1) The debt instruments above mature in more than five years after December 31, 2023 and are subject to call options where early redemption requires appropriate notice. Note 11 — Income Taxes The following table presents the components of income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Current income tax expense (benefit): Federal $ 172,428 $ 163,797 $ 84,249 State 173,080 160,629 95,939 Foreign 2,240 3,133 ( 1,554 ) Total current income tax expense 347,748 327,559 178,634 Deferred income tax (benefit) expense: Federal ( 24,319 ) ( 23,484 ) 1,528 State ( 23,415 ) ( 21,835 ) 3,259 Foreign ( 1,405 ) 1,331 ( 25 ) Total deferred income tax (benefit) expense ( 49,139 ) ( 43,988 ) 4,762 Income tax expense $ 298,609 $ 283,571 $ 183,396 The following table presents the reconciliation of the federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 % U.S. state income taxes, net of U.S. federal income tax effect 8.1 7.8 7.4 Tax credits and benefits, net of related expenses ( 9.9 ) ( 8.9 ) ( 11.3 ) Other, net 1.3 0.2 0.3 Effective tax rate 20.5 % 20.1 % 17.4 % 141 The following table summarizes the tax effects of temporary differences that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Deferred tax assets: Allowance for credit losses and nonperforming assets valuation allowance $ 217,731 $ 191,187 Investments in qualified affordable housing partnerships, tax credit and other investments, net 28,216 21,011 Stock compensation and other accrued compensation 33,169 25,857 Interest income on nonaccrual loans 7,034 5,185 State taxes 9,885 13,259 Net unrealized losses on debt securities and derivatives 242,303 309,837 Premises and equipment 1,782 3,827 Lease liabilities 32,636 34,859 FDIC special assessment charge 22,212 — Other 9,019 6,169 Total deferred tax assets $ 603,987 $ 611,191 Deferred tax liabilities: Equipment lease financing $ 15,564 $ 27,237 Investments in qualified affordable housing partnerships, tax credit and other investments, net 23,103 7,709 FHLB stock dividends 1,947 1,926 Mortgage servicing assets 2,102 1,963 Acquired debts 1,398 1,477 Prepaid expenses 2,981 2,478 Operating lease right-of-use assets 30,272 32,606 Other 7,871 6,270 Total deferred tax liabilities $ 85,238 $ 81,666 Net deferred tax assets $ 518,749 $ 529,525 As of both December 31, 2023 and 2022, the Company concluded that no valuation allowance was necessary to reduce the deferred tax assets since estimated future taxable income will be sufficient to utilize these assets. For further information on the Company’s valuation policy on deferred taxes, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Income Taxes to the Consolidated Financial Statements in this Form 10-K. The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Beginning balance $ 477 $ 5,045 $ 5,045 Additions for tax positions related to prior years 459 — — Additions for tax positions related to current year 257 — — Settlements with taxing authorities — ( 4,568 ) (1) — Ending balance $ 1,193 $ 477 $ 5,045 (1) In 2022, the Company settled an issue regarding previously claimed tax credits related to DC Solar and affiliates. The Company recognizes interest and penalties, as applicable, related to the underpayment of income taxes as a component of Income tax expense on the Consolidated Statement of Income. The amount of net interest and penalties related to unrecognized tax benefits was immaterial for all periods presented. 142 The Company files federal income tax returns, as well as returns in various state and foreign jurisdictions. We are routinely examined by tax authorities in these various jurisdictions. The Company is subject to federal income tax examination for the tax years 2020 and forward. The Company is also subject to tax examination in various state and local jurisdictions for the tax years 2017 and forward. The Company does not believe that the outcome of unresolved issues or claims in any of the tax jurisdictions is likely to be material on the Company’s Consolidated Financial Statements. 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. Note 12 — Commitments and Contingencies Commitments to Extend Credit — In the normal course of business, the Company provides loan commitments and letters of credit to customers on predetermined terms. These outstanding commitments to extend credit are not reflected in the accompanying Consolidated Financial Statements. While the Company does not anticipate losses from these transactions, commitments to extend credit are included in determining the appropriate level of allowance for unfunded credit commitments. The following table presents the Company’s credit-related commitments as of December 31, 2023 and 2022: December 31, 2023 2022 ($ in thousands) Expire in One Year or Less Expire After One Year Through Three Years Expire After Three Years Through Five Years Expire After Five Years Total Total Loan commitments $ 4,576,927 $ 3,511,660 $ 889,219 $ 163,641 $ 9,141,447 $ 8,211,571 Commercial letters of credit and SBLCs 953,220 387,008 137,758 1,132,775 2,610,761 2,291,966 Total $ 5,530,147 $ 3,898,668 $ 1,026,977 $ 1,296,416 $ 11,752,208 $ 10,503,537 Loan commitments are agreements to lend to customers provided there are no violations of any conditions established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require commitment fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Commercial letters of credit are issued to facilitate domestic and foreign trade transactions, while SBLCs are generally contingent upon the failure of the customers to perform according to the terms of the underlying contract with the third party. As a result, the total contractual amounts do not necessarily represent future funding requirements. The Company’s historical experience is that SBLCs typically expire without being funded. Additionally, in many cases, the Company holds collateral in various forms against these SBLCs. As part of its risk management activities, the Company monitors the creditworthiness of customers in conjunction with its SBLC exposure. Customers are obligated to reimburse the Company for any payment made on the customers’ behalf. If the customers fail to pay, the Company would, as applicable, liquidate the collateral and/or offset existing accounts. As of December 31, 2023, total letters of credit of $ 2.6 billion consisted of SBLCs of $ 2.6 billion and commercial letters of credit of $ 24 million. In comparison, as of December 31, 2022, total letters of credit of $ 2.3 billion consisted of SBLCs of $ 2.3 billion and commercial letters of credit of $ 22 million. As of both December 31, 2023 and 2022, substantially all SBLCs were graded “Pass” using the Bank’s internal credit risk rating system. The Company applies the same credit underwriting criteria to extend loans, commitments and conditional obligations to customers. Each customer’s creditworthiness is evaluated on a case-by-case basis. Collateral and financial guarantees may be obtained based on management’s assessment of a customer’s credit risk. Collateral may include cash, accounts receivable, inventory, personal property, plant and equipment, and real estate property. Estimated exposure to loss from these commitments is included in the allowance for unfunded credit commitments, and amounted to $ 38 million and $ 26 million as of December 31, 2023 and 2022, respectively. 143 Guarantees — From time to time, the Company sells or securitizes single-family and multifamily residential loans with recourse in the ordinary course of business. The Company is obligated to repurchase up to the recourse component of the loans if the loans default. The following table presents the carrying amounts of loans sold or securitized with recourse and the maximum potential future payments as of December 31, 2023 and 2022: Maximum Potential Future Payments Carrying Value December 31, December 31, 2023 2022 2023 2022 ($ in thousands) Expire in One Year or Less Expire After One Year Through Three Years Expire After Three Years Through Five Years Expire After Five Years Total Total Total Total Single-family residential loans sold or securitized with recourse $ 17 $ 19 $ 28 $ 5,824 $ 5,888 $ 6,781 $ 5,888 $ 6,781 Multifamily residential loans sold or securitized with recourse — — 165 14,831 14,996 14,996 19,020 21,320 Total $ 17 $ 19 $ 193 $ 20,655 $ 20,884 $ 21,777 $ 24,908 $ 28,101 The Company’s recourse reserve related to these guarantees is included in the allowance for unfunded credit commitments and totaled $ 40 thousand and $ 37 thousand as of December 31, 2023 and 2022, respectively. The allowance for unfunded credit commitments is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. The Company continues to experience minimal losses from the single-family and multifamily residential loan portfolios sold or securitized with recourse. Litigation — The Company is a party to various legal actions arising in the ordinary course of its business. In accordance with ASC 450, Contingencies , the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses may be higher, and possibly significantly more than the amounts accrued. While it is impossible to ascertain the ultimate resolution or range of financial liability, based on information known to the Company as of December 31, 2023, the Company does not believe there are any pending legal proceedings to which the Company is a party that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company’s financial condition. In light of the inherent uncertainty in legal proceedings, however, there can be no assurance that the ultimate resolution will not exceed established reserves and it is possible that the outcome of a particular matter, or a combination of matters, may be material to the Company’s financial condition for a particular period, depending upon the size of the loss and the Company’s income for that particular period. Note 13 — Stock Compensation Plans Pursuant to the Company’s 2021 Stock Incentive Plan, as amended, the Company may issue stock, stock options, restricted stock, RSUs including performance-based RSUs, stock purchase warrants, stock appreciation rights, phantom stock and dividend equivalents to eligible employees, non-employee directors, consultants, and other service providers of East West and its subsidiaries. The Company has granted RSUs as its primary incentive awards. There were no outstanding awards other than RSUs as of December 31, 2023, 2022 and 2021. An aggregate of 17 million shares of common stock were authorized under the 2021 Stock Incentive Plan, and the total number of shares available for grant was approximately 4 million as of December 31, 2023. 144 The following table presents a summary of the total share-based compensation expense and the related net tax benefits associated with the Company’s various employee share-based compensation plans for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, ($ in thousands) 2023 2022 2021 Stock compensation costs $ 39,867 $ 37,601 $ 32,567 Related net tax benefits for stock compensation plans $ 8,959 $ 5,293 $ 1,760 Restricted Stock Units — RSUs are granted under the Company’s long-term incentive plan at no cost to the recipient. RSUs generally cliff vest after three years of continued employment from the date of the grant, and are authorized to settle in shares of the Company’s common stock. Dividends are accrued during the vesting period and paid at the time of vesting. While a portion of RSUs are time-based vesting awards, others vest subject to attainment of additional specified performance goals, referred to as “performance-based RSUs.” Performance-based RSUs are granted annually upon approval by the Company’s Compensation and Management Development Committee based on the performance in the year prior to the grant date of the award. The number of awards that vest can range from zero percent to a maximum of 200 % of the granted number of awards based on the Company’s achievement of specified performance criteria over a performance period of three years . For information on accounting on stock-based compensation plans, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Stock-Based Compensation to the Consolidated Financial Statements in this Form 10-K. The following table presents a summary of the activities for the Company’s time-based and performance-based RSUs that were settled in shares for the year ended December 31, 2023. The number of performance-based RSUs stated below reflects the number of awards granted on the grant date: Time-Based RSUs Performance-Based RSUs Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Outstanding, January 1, 2023 1,296,866 $ 60.77 332,510 $ 60.40 Granted 515,218 $ 73.13 96,271 $ 79.93 Vested ( 543,032 ) $ 40.93 ( 152,558 ) $ 39.79 Forfeited ( 62,534 ) $ 74.04 — $ — Outstanding, December 31, 2023 1,206,518 $ 74.29 276,223 $ 78.59 The weighted-average grant date fair value of the time-based RSUs granted during the years ended December 31, 2023, 2022, and 2021 was $ 73.13 , $ 78.15 , and $ 71.88 , respectively. The weighted-average grant date fair value of the performance-based RSUs granted during the years ended December 31, 2023, 2022 and 2021 was $ 79.93 , $ 77.91 and $ 77.67 , respectively. The total fair value of time-based RSUs that vested during the years ended December 31, 2023, 2022 and 2021 was $ 39 million, $ 30 million and $ 23 million, respectively. The total fair value of performance-based RSUs that vested during the years ended December 31, 2023, 2022, and 2021 was $ 21 million, $ 18 million and $ 15 million, respectively. As of December 31, 2023, there were $ 28 million of unrecognized compensation costs related to unvested time-based RSUs expected to be recognized over a weighted-average period of 1.76 years, and $ 15 million of unrecognized compensation costs related to unvested performance-based RSUs expected to be recognized over a weighted-average period of 1.77 years. Employee Stock Purchase Plan — The 1998 Employee Stock Purchase Plan (the “Purchase Plan”) provides eligible employees of the Company the right to purchase shares of its common stock at a discount. Employees can purchase shares at 90 % of the fair market price subject to an annual purchase limitation of $ 22,500 per employee. As of December 31, 2023, the Purchase Plan qualifies as a non-compensatory plan under Section 423 of the Internal Revenue Code and, accordingly, no compensation expense has been recognized. 2,000,000 shares of the Company’s common stock were authorized for sale under the Purchase Plan. During the years ended December 31, 2023 and 2022, 65,971 shares totaling $ 3 million and 48,990 shares totaling $ 3 million, respectively, were sold to employees under the Purchase Plan. As of December 31, 2023, there were 151,814 shares available under the Purchase Plan. 145 Note 14 — Stockholders’ Equity and Earnings Per Share The following table presents the basic and diluted EPS calculations for the years ended December 31, 2023, 2022 and 2021. For more information on the calculation of EPS, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Earnings Per Share to the Consolidated Financial Statements in this Form 10-K. Year Ended December 31, ($ and shares in thousands, except per share data) 2023 2022 2021 Basic: Net income $ 1,161,161 $ 1,128,083 $ 872,981 Weighted-average number of shares outstanding 141,164 141,326 141,826 Basic EPS $ 8.23 $ 7.98 $ 6.16 Diluted: Net income $ 1,161,161 $ 1,128,083 $ 872,981 Weighted-average number of shares outstanding 141,164 141,326 141,826 Add: Diluted impact of unvested RSUs 738 1,166 1,314 Diluted weighted-average number of shares outstanding 141,902 142,492 143,140 Diluted EPS $ 8.18 $ 7.92 $ 6.10 For the years ended December 31, 2023, 2022 and 2021, approximately 283 thousand, 3 thousand and 6 thousand weighted-average shares of anti-dilutive RSUs, respectively, were excluded from the diluted EPS computation. Stock Repurchase Program — In 2020, the Company’s Board of Directors authorized a stock repurchase program to buy back up to 500 million of the Company’s common stock. In 2023, the Company repurchased 1,506,091 shares at an average price of $ 54.56 per share at a total cost of $ 82 million. In 2022, the Company repurchased 1,385,517 shares at an average price of $ 72.17 per share at a total cost of $ 100 million. The Company did no t repurchase any shares in 2021. As of December 31, 2023, the Company had approximately $ 172 million available for repurchases under its stock repurchase program. Note 15 — Accumulated Other Comprehensive Income (Loss) The following table presents the changes in the components of AOCI balances for the years ended December 31, 2023, 2022 and 2021: ($ in thousands) Debt Securities (1) Cash Flow Hedges Foreign Currency Translation Adjustments (2) Total Balance, December 31, 2020 $ 52,247 $ ( 1,230 ) $ ( 6,692 ) $ 44,325 Net unrealized (losses) gains arising during the period ( 136,846 ) 866 1,757 ( 134,223 ) Amounts reclassified from AOCI ( 1,104 ) 621 — ( 483 ) Changes, net of tax ( 137,950 ) 1,487 1,757 ( 134,706 ) Balance, December 31, 2021 $ ( 85,703 ) $ 257 $ ( 4,935 ) $ ( 90,381 ) Net unrealized losses arising during the period ( 620,870 ) ( 52,623 ) ( 16,348 ) ( 689,841 ) Amounts reclassified from AOCI 11,758 2,835 — 14,593 Changes, net of tax ( 609,112 ) ( 49,788 ) ( 16,348 ) ( 675,248 ) Balance, December 31, 2022 $ ( 694,815 ) $ ( 49,531 ) $ ( 21,283 ) $ ( 765,629 ) Net unrealized gains (losses) arising during the period 76,930 ( 4,277 ) ( 56 ) 72,597 Amounts reclassified from AOCI 16,004 56,432 — 72,436 Changes, net of tax 92,934 52,155 ( 56 ) 145,033 Balance, December 31, 2023 $ ( 601,881 ) $ 2,624 $ ( 21,339 ) $ ( 620,596 ) (1) Includes after-tax unamortized losses related to AFS debt securities that were transferred to HTM in 2022. (2) Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was RMB and USD, respectively. 146 The following table presents the components of other comprehensive income (loss), reclassifications to net income and the related tax effects for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 ($ in thousands) Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax Debt securities: Net unrealized gains (losses) on AFS debt securities arising during the period $ 109,216 $ ( 32,286 ) $ 76,930 $ ( 721,100 ) $ 213,221 $ ( 507,879 ) $ ( 194,393 ) $ 57,547 $ ( 136,846 ) Unrealized losses on debt securities transferred from AFS to HTM — — — ( 160,416 ) 47,425 ( 112,991 ) — — — Reclassification adjustments: Net realized losses (gains) on AFS debt securities reclassified into net income (1) 6,862 (2) ( 2,029 ) 4,833 ( 1,306 ) 386 ( 920 ) ( 1,568 ) 464 ( 1,104 ) Amortization of unrealized losses on transferred securities (3) 15,860 ( 4,689 ) 11,171 18,000 ( 5,322 ) 12,678 — — — Net change 131,938 ( 39,004 ) 92,934 ( 864,822 ) 255,710 ( 609,112 ) ( 195,961 ) 58,011 ( 137,950 ) Cash flow hedges: Net unrealized (losses) gains arising during the period ( 5,767 ) 1,490 ( 4,277 ) ( 74,069 ) 21,446 ( 52,623 ) 1,210 ( 344 ) 866 Net realized losses reclassified into net income (4) 79,843 ( 23,411 ) 56,432 4,004 ( 1,169 ) 2,835 868 ( 247 ) 621 Net change 74,076 ( 21,921 ) 52,155 ( 70,065 ) 20,277 ( 49,788 ) 2,078 ( 591 ) 1,487 Foreign currency translation adjustments, net of hedges: Net unrealized gains (losses) arising during the period 698 ( 754 ) ( 56 ) ( 15,059 ) ( 1,289 ) ( 16,348 ) 463 1,294 1,757 Net change 698 ( 754 ) ( 56 ) ( 15,059 ) ( 1,289 ) ( 16,348 ) 463 1,294 1,757 Other comprehensive income (loss) $ 206,712 $ ( 61,679 ) $ 145,033 $ ( 949,946 ) $ 274,698 $ ( 675,248 ) $ ( 193,420 ) $ 58,714 $ ( 134,706 ) (1) Pre-tax amounts were reported in Net (losses) gains on AFS debt securities on the Consolidated Statement of Income. (2) 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. (3) Represents unrealized losses amortized over the remaining lives of securities that were transferred from the AFS to HTM portfolio in 2022. (4) Pre-tax amounts related to cash flow hedges on variable rate loans and long-term borrowings, where applicable, were reported in Interest and dividend income and in Interest expense, respectively , on the Consolidated Statement of Income. In 2023, pre-tax amount also includes the terminated cash flow hedge where the forecasted cash flows were no longer probable to occur and was reported in Noninterest income on the Consolidated Statement of Income. Note 16 — Regulatory Requirements and Matters The Company and the Bank are subject to regulatory capital adequacy requirements administered by the respective federal banking agencies. The Bank is a member bank of the Federal Reserve System and is primarily regulated by the Federal Reserve and the California Department of Financial Protection and Innovation. The Company and the Bank are required to comply with the Basel III Capital Rules adopted by the federal banking agencies. As standardized approaches institutions, the Basel III Capital Rules require that banking organizations, such as the Company and the Bank, to maintain a minimum Common Equity Tier 1 (“CET1”) capital ratio of at least 4.5 %, a Tier 1 capital ratio of at least 6.0 %, a total capital ratio of at least 8.0 %, and a Tier 1 leverage ratio of a least 4.0 % to be considered adequately capitalized. Failure to meet the minimum capital requirements can result in certain mandatory actions and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. The Company and the Bank are also subject to maintaining a capital conservation buffer of 2.5 % above the minimum risk-based capital ratios under the Basel III Capital Rules. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but which does not exceed the capital conservation buffer will face constraints on dividends, share repurchases and executive compensation based on the amount of the shortfall. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires that the federal regulatory agencies adopt regulations defining capital categories for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the agencies’ Prompt Corrective Action regulations, failure of a bank to be well capitalized results in an escalating series of adverse regulatory consequences. 147 Effective January 1, 2020, the Company adopted the ASU 2016-13 Financial Instruments — Credit Losses (Topic 326) Measurement of Credit Losses on Financial instrument that introduced the CECL methodology . In March 2020, the federal banking agencies issued the Interim Final Rule that provided banking organizations that adopted the CECL with the phase-in option to delay the estimated impact of CECL on regulatory capital. The Bank and the Company have elected the CECL phase-in option in 2020 and delayed the impact of CECL on regulatory capital through 2021, after which the effects are being phased in over a three-year period from January 1, 2022 through December 31, 2024. As of both December 31, 2023 and 2022, the Company and the Bank were both categorized as well capitalized based on applicable U.S. regulatory capital ratio requirements in accordance with Basel III standardized approaches, as set forth in the table below. The Company believes that no changes in conditions or events have occurred since December 31, 2023, which would result in changes that would cause the Company or the Bank to fall below the well capitalized level. The following table presents the regulatory capital information of the Company and the Bank as of December 31, 2023 and 2022: Basel III December 31, 2023 December 31, 2022 ($ in thousands) Amount Ratio Amount Ratio Minimum Capital Ratios Fully Phased-in Minimum Capital Ratios (2) Well-Capitalized Requirement Total capital (to risk-weighted assets) Company $ 7,919,407 14.8 % $ 7,003,299 14.0 % 8.0 % 10.5 % 10.0 % East West Bank $ 7,363,575 13.8 % $ 6,760,612 13.5 % 8.0 % 10.5 % 10.0 % Tier 1 capital (to risk-weighted assets) Company $ 7,140,778 13.3 % $ 6,347,108 12.7 % 6.0 % 8.5 % 6.0 % East West Bank $ 6,732,946 12.6 % $ 6,252,421 12.5 % 6.0 % 8.5 % 8.0 % CET1 capital (to risk-weighted assets) Company (1) $ 7,140,778 13.3 % $ 6,347,108 12.7 % 4.5 % 7.0 % N/A East West Bank $ 6,732,946 12.6 % $ 6,252,421 12.5 % 4.5 % 7.0 % 6.5 % Tier 1 leverage capital (to adjusted average assets) Company (1) $ 7,140,778 10.2 % $ 6,347,108 9.8 % 4.0 % 4.0 % N/A East West Bank $ 6,732,946 9.6 % $ 6,252,421 9.7 % 4.0 % 4.0 % 5.0 % Risk-weighted assets Company $ 53,663,392 N/A $ 50,036,719 N/A N/A N/A N/A East West Bank $ 53,539,980 N/A $ 50,024,772 N/A N/A N/A N/A Adjusted quarterly average total assets Company $ 70,406,008 N/A $ 65,221,597 N/A N/A N/A N/A East West Bank $ 70,270,449 N/A $ 65,198,267 N/A N/A N/A N/A N/A — Not applicable. (1) The well-capitalized requirements for CET1 capital and Tier 1 leverage capital apply only to the Bank since there is no CET1 capital ratio or Tier 1 leverage capital ratio component in the definition of a well-capitalized bank holding company. (2) Includes a 2.5 % capital conservation buffer requirement above the minimum risk-based capital ratios. Note 17 — Business Segments 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. The segments reflect how financial information is currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain balance sheet and income statement items. The information presented is not indicative of how the segments would perform if they operated as independent entities. 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 platforms. 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. 148 The Commercial Banking segment primarily generates commercial loan and deposit products. Commercial loan products include CRE lending, construction financing, 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 remaining 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. The Company utilizes an internal reporting process to measure the performance of the three operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for revenues and expenses. Net interest income of each segment 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. Noninterest income and noninterest expense directly attributable to a business segment are assigned to that segment. Indirect costs, including technology-related costs and corporate overhead, are allocated based on a segment’s estimated usage using factors including but not limited to, full-time equivalent employees, net interest income, and loan and deposit volume. Charge-offs are recorded to the segment directly associated with the respective loans charged off, and provision for credit losses is recorded to the segments based on the related loans for which allowances are evaluated. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate and indirect expenses incurred by the Other segment are allocated to the Consumer and Business Banking and the Commercial Banking segments, except certain corporate treasury-related expenses and insignificant unallocated expenses. The corporate treasury function within the Other segment is responsible for the Company’s liquidity and interest rate management, and the internal FTP process. The FTP process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as providing a reasonable and consistent basis for the measurement of its business segments’ net interest margins and profitability. The FTP process charges a cost to fund loans (“FTP charges for loans”) and allocates credits for funds provided from deposits (“FTP credits for deposits”) using internal FTP rates. FTP charges for loans are determined based on a matched cost of funds, which is tied to the pricing and term characteristics of the loans. FTP credits for deposits are based on matched funding credit rates, which are tied to the implied or stated maturity of the deposits. FTP credits for deposits reflect the long-term value generated by the deposits. The net spread between the total internal FTP charges and credits is recorded as part of net interest income in the Other segment. The FTP process transfers the corporate interest rate risk exposure to the treasury function within the Other segment, where such exposures are centrally managed. The Company’s internal FTP assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. The following tables present the operating results and other key financial measures for the individual operating segments as of and for the years ended December 31, 2023, 2022 and 2021: ($ in thousands) Consumer and Business Banking Commercial Banking Other Total Year Ended December 31, 2023 Net interest income before provision for credit losses $ 1,238,829 $ 992,519 $ 80,906 $ 2,312,254 Provision for credit losses 18,422 106,578 — 125,000 Noninterest income 102,109 174,465 18,690 295,264 Noninterest expense 477,622 382,865 162,261 1,022,748 Segment income (loss) before income taxes 844,894 677,541 ( 62,665 ) 1,459,770 Segment net income $ 596,366 $ 478,418 $ 86,377 $ 1,161,161 As of December 31, 2023 Segment assets $ 19,510,836 $ 35,095,237 $ 15,006,811 $ 69,612,884 149 ($ in thousands) Consumer and Business Banking Commercial Banking Other Total Year Ended December 31, 2022 Net interest income (loss) before provision for credit losses $ 1,170,850 $ 892,386 $ ( 17,355 ) $ 2,045,881 Provision for credit losses 27,197 46,303 — 73,500 Noninterest income 110,139 179,248 9,279 298,666 Noninterest expense 397,882 314,185 147,326 859,393 Segment income (loss) before income taxes 855,910 711,146 ( 155,402 ) 1,411,654 Segment net income $ 608,120 $ 507,467 $ 12,496 $ 1,128,083 As of December 31, 2022 Segment assets $ 17,385,804 $ 33,042,785 $ 13,683,561 $ 64,112,150 ($ in thousands) Consumer and Business Banking Commercial Banking Other Total Year Ended December 31, 2021 Net interest income before reversal of provision for credit losses $ 697,101 $ 766,202 $ 68,268 $ 1,531,571 Reversal of provision for credit losses ( 4,998 ) ( 30,002 ) — ( 35,000 ) Noninterest income 94,125 163,768 28,002 285,895 Noninterest expense 364,635 275,649 155,805 796,089 Segment income (loss) before income taxes 431,589 684,323 ( 59,535 ) 1,056,377 Segment net income $ 308,630 $ 489,233 $ 75,118 $ 872,981 As of December 31, 2021 Segment assets $ 14,961,809 $ 28,556,706 $ 17,352,186 $ 60,870,701 Note 18 — Parent Company Condensed Financial Statements The following tables present the Parent Company-only condensed financial statements: CONDENSED BALANCE SHEET December 31, ($ in thousands) 2023 2022 ASSETS Cash and cash equivalents due from subsidiary bank $ 445,770 $ 228,531 Investments in subsidiaries: Bank 6,542,852 5,889,775 Nonbank 13,502 13,846 Investments in tax credit investments, net — 1,925 Other assets 120,742 8,516 TOTAL $ 7,122,866 $ 6,142,593 LIABILITIES AND STOCKHOLDERS’ EQUITY Long-term debt $ 148,249 $ 147,950 Other liabilities 23,783 10,031 Stockholders’ equity 6,950,834 5,984,612 TOTAL $ 7,122,866 $ 6,142,593 150 CONDENSED STATEMENT OF INCOME Year Ended December 31, ($ in thousands) 2023 2022 2021 Dividends from subsidiaries: Bank $ 704,000 $ 240,000 $ 200,000 Nonbank 322 157 82 Other investment losses ( 2,738 ) — — Other income — — 11 Total income 701,584 240,157 200,093 Interest expense on long-term debt 10,889 5,450 2,974 Compensation and employee benefits 7,204 6,708 6,370 (Impairment recoveries) amortization of tax credit and other investments ( 2,901 ) ( 786 ) 425 Other expense 1,815 2,040 1,306 Total expense 17,007 13,412 11,075 Income before income tax benefit and equity in undistributed income of subsidiaries 684,577 226,745 189,018 Income tax benefit 5,844 4,269 3,005 Undistributed earnings of subsidiaries, primarily bank 470,740 897,069 680,958 Net income $ 1,161,161 $ 1,128,083 $ 872,981 CONDENSED STATEMENT OF CASH FLOWS Year Ended December 31, ($ in thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,161,161 $ 1,128,083 $ 872,981 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiaries, principally bank ( 470,740 ) ( 897,069 ) ( 680,958 ) Deferred income tax expense (benefit) 948 ( 2,193 ) 2,721 Net change in other assets ( 4,160 ) 4,250 ( 5,685 ) Net change in other liabilities ( 47 ) 779 ( 81,706 ) Other operating activities, net 2,443 1,333 1,877 Net cash provided by operating activities 689,605 235,183 109,230 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in investments in tax credit investments — ( 1,612 ) ( 346 ) Distributions received from equity method investees 1,594 410 436 Other investing activities, net ( 96,689 ) ( 6,188 ) ( 1,476 ) Net cash used in investing activities ( 95,095 ) ( 7,390 ) ( 1,386 ) CASH FLOWS FROM FINANCING ACTIVITIES Common stock: Proceeds from issuance pursuant to various stock compensation plans and agreements 3,208 3,178 2,573 Stock tendered for payment of withholding taxes ( 23,751 ) ( 19,087 ) ( 15,702 ) Repurchase of common stock pursuant to the stock repurchase program ( 82,174 ) ( 99,990 ) — Cash dividends paid ( 274,554 ) ( 228,381 ) ( 188,762 ) Net cash used in financing activities ( 377,271 ) ( 344,280 ) ( 201,891 ) Net increase (decrease) in cash and cash equivalents 217,239 ( 116,487 ) ( 94,047 ) Cash and cash equivalents, beginning of year 228,531 345,018 439,065 Cash and cash equivalents, end of year $ 445,770 $ 228,531 $ 345,018 Note 19 — Subsequent Events Declaration of Dividend — On January 23, 2024, the Company’s Board of Directors declared first quarter 2024 cash dividends for the Company’s common stock. The common stock cash dividend of $ 0.55 per share was paid on February 15, 2024 to stockholders of record as of February 2, 2024. 151 Redemption of Junior Subordinated Debt and Trust Preferred Securities Issued by East West Capital Trusts — 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. Increase in FDIC Special Assessment — In November 2023, the FDIC approved a final rule to implement a special deposit insurance assessment to recover losses to the DIF arising from the protection of uninsured depositors following the receiverships of failed institutions in the spring of 2023 . The Company recorded a pre-tax $ 70 million special assessment charge based on the November 2023 final rule. In February 2024, the FDIC estimated the losses attributable to the protection of uninsured depositors at Silicon Valley Bank and Signature Bank to increase approximately $ 4.1 billion from $ 16.3 billion, as described in the November 2023 final rule, to $ 20.4 billion. As the loss estimates resulting from the failures of Silicon Valley Bank and Signature Bank may be further subject to change pending the projected and actual outcome of loss share agreements, joint ventures, and outstanding litigation, the exact amount of losses incurred will be determined when the FDIC terminates the receiverships. As of the date of this filing, the Bank cannot reasonably estimate whether the FDIC’s increased estimate of losses attributable to the protection of uninsured depositors will result in an increase in or modifications to the Bank’s special assessment charge. The FDIC plans to provide depository institutions that are subject to the special assessment with an updated estimate of each institution’s quarterly and total special assessment expense with its first quarter 2024 special assessment invoice in June 2024. 152 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.