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What changed in EAST WEST BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of EAST WEST BANCORP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+566 added−445 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-29)

Top changes in EAST WEST BANCORP INC's 2024 10-K

566 paragraphs added · 445 removed · 77 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

2 edited+162 added−146 removed0 unchanged
Biggest changeWe continue to adjust our business and operations, capital, policies, procedures, and controls to comply with these laws and regulations, final rulemaking, supervisory requirements and interpretations from the regulatory authorities. See Item 1. Business — Supervision and Regulation in this Form 10-K for more information about the regulations to which we are subject.
Biggest changeThe Company and the Bank are each subject to these regulatory capital adequacy requirements. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and Regulatory Capital-Related Development in this Form 10-K for additional details.
We have procedures and processes in place to facilitate making these judgments. For a description of these policies, refer to Note 1 — Summary of Significant Accounting Policies to the consolidated financial statements and Item 7. MD&A – Critical Accounting Estimates in this Form 10-K.
For additional information on the PAM, see Note 1 — Summary of Significant Accounting Policies and Note 7 — Affordable Housing Partnership, Tax Credit and Community Reinvestment Act Investments, Net to the Consolidated Financial Statements in this Form 10-K.
Removed
Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds in this Form 10-K. We are subject to liquidity risk, which could negatively affect our funding levels.
Added
Item 1. Business — Supervision and Regulation — FDIC Deposit Insurance Assessments in this Form 10-K. Other operating expense was $148 million in 2024, an increase of $8 million or 6%, compared with 2023. The year-over-year increase was primarily due to write-downs of other real estate owned (“OREO”).
Removed
Market conditions or other events could negatively affect the level of or cost of funding, which in turn could affect our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences.
Added
Amortization of tax credit and CRA investments was $54 million in 2024, a decrease of $66 million or 55%, compared with 2023.
Removed
Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our business, results of operations, and financial condition.
Added
The year-over-year decrease was primarily due to the expanded application of the PAM since the adoption of ASU 2023-02, Investments — Equity Method and Joint Ventures on January 1, 2024, and the timing of tax credit investments that closed in a given period.
Removed
If the cost effectiveness or the availability of supply in the credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means. These alternatives may include generating client deposits, securitizing or selling loans, and further managing loan growth and investment opportunities.
Added
Income Taxes The following table presents the income before income taxes, income tax expense and effective tax rate for the periods indicated: Year Ended December 31, ($ in thousands) 2024 2023 2022 Income before income taxes $ 1,481,861 $ 1,459,770 $ 1,411,654 Income tax expense $ 316,275 $ 298,609 $ 283,571 Effective tax rate 21.3 % 20.5 % 20.1 % 43 Income tax expense for 2024, compared with 2023, increased $18 million or 6%, primarily due to the impacts from the expanded application of PAM on the Company’s tax credit investments following the adoption of ASU 2023-02 on January 1, 2024, partially offset by an increase in tax credits and prior period adjustments in 2023.
Removed
These alternative means of funding may not be available under stressed market conditions or realized in a timely fashion. Any downgrades in our credit ratings could have a material adverse effect on our liquidity, cost of funding, cash flows, results of operations and financial condition.
Added
The differences between the 2024 and 2023 effective tax rates from the federal statutory rate of 21% were primarily due to state taxes and tax credits associated with renewable energy, historic and new market tax credit related projects as described in Note 11 — Income Taxes to the Consolidated Financial Statements in this Form 10-K.
Removed
Credit rating agencies evaluate us regularly, and their ratings are based on several factors, including our financial strength, capital adequacy, liquidity, asset quality and ability to generate earnings. Some of these factors are not entirely within our control, including conditions affecting the financial services industry as a whole.
Added
Operating Segment Results The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Treasury and Other. These segments are defined by the type of customers served, and the related products and services provided.
Removed
Several banks were subject to a credit rating downgrade during 2023 following the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, and in response to economic conditions, and others have been placed on a negative credit outlook by the rating agencies.
Added
For a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K.
Removed
Severe downgrades in our credit ratings could impact our business and reduce our profitability in different ways, including a reduction in our access to capital markets, triggering additional collateral or funding obligations which could negatively affect our liquidity.
Added
Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process.
Removed
In addition, our counterparties, as well as our clients, rely on our financial strength and stability and evaluate the risks of doing business with us on a regular basis. If we experience a decline in our credit ratings, this could result in a decrease in the number of counterparties and clients who may be willing to transact with us.
Added
During 2024, the Company refined its segment allocation methodology and reclassified certain deposits and their related income or expenses from the “Consumer and Business Banking” segment to the “Commercial Banking” or “Treasury and Other” segments, and certain loan balances and their related income or expenses from the “Commercial Banking” segment to the “Treasury and Other” segment.
Removed
Our borrowing costs may also be affected by various external factors, including market volatility and concerns or perceptions about the financial services industry. There can be no assurance that we can maintain our credit ratings nor that they will not be changed in the future.
Added
Prior years’ balances have been reclassified for comparability. Consumer and Business Banking The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network and digital banking platforms. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services.
Removed
The proportion of our deposit account balances that exceed FDIC insurance limits may expose us to enhanced liquidity risk. A significant factor in the bank failures in early 2023 appears to have been the proportion of the deposits held by each institution that exceeded applicable FDIC insurance limits, and the withdrawal of such deposits over a short period of time.
Added
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, private banking, treasury management, interest rate risk hedging and foreign exchange services.
Removed
The ease and speed of the electronic withdrawals may accelerate this process.
Added
The following table presents financial information for the Consumer and Business Banking segment for the periods indicated: Year Ended December 31, Change from 2023 ($ in thousands) 2024 2023 $ % 2022 Total revenue before provision for credit losses $ 1,260,806 $ 1,329,844 $ (69,038) (5) % $ 1,174,960 Provision for credit losses 8,691 21,454 (12,763) (59) % 25,983 Compensation and employee benefits 217,612 203,387 14,225 7 % 195,394 Other noninterest expense 234,494 262,086 (27,592) (11) % 196,581 Total noninterest expense 452,106 465,473 (13,367) (3) % 391,975 Segment income before income taxes 800,009 842,917 (42,908) (5) % 757,002 Income tax expense 236,791 247,952 (11,161) (5) % 219,248 Segment net income $ 563,218 $ 594,965 $ (31,747) (5) % $ 537,754 Average loans $ 18,966,662 $ 17,739,984 $ 1,226,678 7 % $ 15,534,259 Average deposits $ 30,815,912 $ 28,174,781 $ 2,641,131 9 % $ 27,276,151 44 Consumer and Business Banking segment net income decreased $32 million or 5% to $563 million in 2024, primarily due to a decrease in net interest income and higher compensation and employee benefits, partially offset by lower other noninterest expense and provision for credit losses.
Removed
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.
Added
The decrease in net interest income before provision for credit losses was primarily driven by a higher cost of interest-bearing deposits and a continued shift to interest-bearing products in the deposit mix. The decrease in provision for credit losses was primarily driven by the improvement in the macroeconomic outlook in the residential mortgage loan sector.
Removed
Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated interest rates and financial industry instability. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowing generally exceed the interest rates paid on deposits.
Added
The increase in compensation and employee benefits was primarily driven by annual merit increases and staffing growth. The decrease in other noninterest expense was primarily driven by lower deposit insurance premiums and regulatory assessments compared with the higher FDIC special assessment charge recognized in 2023. Commercial Banking The Commercial Banking segment primarily generates domestic commercial loan and deposit products.
Removed
This spread may be exacerbated by higher prevailing interest rates. In addition, because our available-for-sale (“AFS”) debt securities lose value when interest rates rise, our ability to cover liquidity needs from sale or pledging of these securities may be negatively impacted during periods of elevated interest rates.
Added
Commercial loan products include CRE lending, construction finance, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.
Removed
Under these circumstances, we may be required to access additional funding from other sources in order to manage our liquidity risk. 23 Risks Related to Credit Matters Our allowance for credit losses level may not be adequate to cover actual losses. In accordance with the U.S.
Added
The following table presents financial information for the Commercial Banking segment for the periods indicated: Year Ended December 31, Change from 2023 ($ in thousands) 2024 2023 $ % 2022 Total revenue before provision for credit losses $ 1,323,711 $ 1,284,515 $ 39,196 3 % $ 1,162,523 Provision for credit losses 166,953 100,391 66,562 66 % 48,248 Compensation and employee benefits 234,240 217,663 16,577 8 % 211,355 Other noninterest expense 161,969 158,949 3,020 2 % 102,018 Total noninterest expense 396,209 376,612 19,597 5 % 313,373 Segment income before income taxes 760,549 807,512 (46,963) (6) % 800,902 Income tax expense 224,897 237,359 (12,462) (5) % 230,920 Segment net income $ 535,652 $ 570,153 $ (34,501) (6) % $ 569,982 Average loans $ 32,996,221 $ 31,365,547 $ 1,630,674 5 % $ 29,321,701 Average deposits $ 25,820,956 $ 23,304,066 $ 2,516,890 11 % $ 23,252,073 Commercial Banking segment net income decreased $35 million or 6% to $536 million in 2024, primarily driven by increases in provision for credit losses and compensation and employee benefits, partially offset by higher noninterest income.
Removed
Generally Accepted Accounting Principles (“GAAP”), we establish an allowance for credit losses, which includes the allowance for loan losses and the reserve for unfunded credit commitments.
Added
The increase in noninterest income was primarily driven by higher lending and deposit account fees. The increase in provision for credit losses was primarily driven by higher net charge-offs in the C&I portfolio. The increase in compensation and employee benefits was primarily driven by annual merit increases and staffing growth.
Removed
Our allowance for loan losses is based on our evaluation of risks associated with our loans held-for-investment portfolio, including historical loss experience, current borrower characteristics, current economic conditions, reasonable and supportable forecasts of future economic conditions, delinquencies, performing status, the size and composition of the loan portfolio, and concentrations within the portfolio.
Added
Treasury and Other Centralized functions, including the corporate treasury activities of the Company, eliminations of inter-segment amounts, and centrally managed departments, have been aggregated and included in the Treasury and Other segment.
Removed
The allowance estimation process requires subjective and complex judgments, including analysis of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans.
Added
Tax credit investment amortization is recorded in the Treasury and Other segment. 45 The following table presents financial information for the Treasury and Other segment for the periods indicated: Year Ended December 31, Change from 2023 ($ in thousands) 2024 2023 $ % 2022 Total revenue (loss) before (reversal of) provision for credit losses $ 29,417 $ (6,841) $ 36,258 NM $ 7,064 (Reversal of) provision for credit losses (1,644) 3,155 (4,799) NM (731) Compensation and employee benefits 98,882 87,488 11,394 13 % 70,886 Other noninterest expense 10,876 93,175 (82,299) (88) % 83,159 Total noninterest expense 109,758 180,663 (70,905) (39) % 154,045 Segment loss before income taxes (78,697) (190,659) 111,962 59 % (146,250) Income tax benefit (145,413) (186,702) 41,289 22 % (166,597) Segment net income (loss) $ 66,716 $ (3,957) $ 70,673 NM $ 20,347 Average loans $ 405,897 $ 439,605 $ (33,708) (8) % $ 463,498 Average deposits $ 3,036,171 $ 3,483,884 $ (447,713) (13) % $ 3,771,355 NM — Not meaningful.
Removed
Current economic conditions in the U.S. and in the international markets could further deteriorate, which could result in, among other things, greater than expected deterioration in credit quality of our loan portfolio or in the value of collateral securing these loans.
Added
Treasury and Other segment loss before income taxes decreased $112 million in 2024, primarily driven by lower noninterest expense and higher net interest income. The increase in net interest income was primarily driven by higher interest income from AFS debt securities.
Removed
Due to the inherent risk associated with accounting estimates, our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results.
Added
The decrease in noninterest expense was primarily due to lower amortization of tax credit and CRA investments resulting from the expanded application of PAM since the adoption of ASU 2023-02 on January 1, 2024, where the amortization of tax credit and CRA investments were recorded as a component of income tax benefit in this segment.
Removed
The amount of future losses is influenced by changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and such losses may exceed current estimates. In addition, we establish a reserve for losses associated with our unfunded credit commitments.
Added
Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the respective segment income before income taxes.
Removed
The level of the allowance for unfunded credit commitments is determined by following a methodology similar to that used to establish our allowance for loan losses in our loans held-for-investment portfolio. There can be no assurance that our allowance for unfunded credit commitments will be adequate to provide for the actual losses associated with our unfunded credit commitments.
Added
The income tax expense or benefit in the Treasury and Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments, and the impact of tax credit investment activity.
Removed
An increase in the allowance for unfunded credit commitments in any period may result in a charge to earnings and could have a material adverse effect on our business, results of operations, and financial condition.
Added
Balance Sheet Analysis Debt Securities The Company maintains a portfolio of high quality and liquid debt securities with a moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks.
Removed
We may be subject to increased credit risk and higher credit losses to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral.
Added
The Company’s debt securities provide: • interest income for earnings and yield enhancement; • funding availability for needs arising during the normal course of business; • the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and • collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.
Removed
Our credit risk and credit losses can increase if our loans are concentrated in borrowers engaged in the same or similar activities, industries, or geographies or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions, which could result in materially higher credit losses.
Added
While the Company does not intend to sell its debt securities, it may sell AFS debt securities in response to changes in the balance sheet and related interest rate risk to meet liquidity, regulatory and strategic requirements. 46 The following table presents the distribution of the Company’s AFS and HTM debt securities portfolio as of December 31, 2024 and 2023, and by credit ratings as of December 31, 2024: December 31, 2024 December 31, 2023 Rating as of December 31, 2024 (1) ($ in thousands) Amortized Cost Fair Value % of Fair Value Amortized Cost Fair Value % of Fair Value AAA/AA A BBB BB and Lower No Rating (2) AFS debt securities: U.S.
Removed
For example, the Bank has a concentration of real estate loans in California. Potential deterioration in the California commercial or residential real estate markets or economic conditions could result in additional loan charge-offs and provision for loan losses, which could have a material adverse effect on our business, results of operations, and financial condition.
Added
Treasury securities $ 676,300 $ 638,265 6 % $ 1,112,587 $ 1,060,375 17 % 100 % — % — % — % — % U.S. government agency and U.S. government-sponsored enterprise debt securities 308,220 262,587 3 % 412,086 364,446 6 % 100 % — % — % — % — % U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities (3) 8,447,303 8,164,474 75 % 2,488,304 2,195,853 35 % 100 % — % — % — % — % Municipal securities 287,301 250,153 2 % 297,283 261,016 4 % 99 % — % — % — % 1 % Non-agency mortgage-backed securities 808,762 692,078 6 % 1,052,913 921,187 15 % 91 % 1 % 1 % — % 7 % Corporate debt securities 653,500 526,166 5 % 653,501 502,425 8 % — % 31 % 65 % 4 % — % Foreign government bonds 244,803 233,880 2 % 239,333 227,874 4 % 45 % 55 % — % — % — % Asset-backed securities 35,086 34,715 0 % 43,234 42,300 1 % 29 % 71 % — % — % — % Collateralized loan obligations 44,500 44,493 1 % 617,250 612,861 10 % 100 % — % — % — % — % Total AFS debt securities $ 11,505,775 $ 10,846,811 100 % $ 6,916,491 $ 6,188,337 100 % 93 % 3 % 3 % 0 % 1 % HTM debt securities: U.S.
Removed
If any industry or market sector were to experience economic difficulties, loan collectability from customers operating in those industries or sectors may deteriorate, which could have a material adverse impact on our business, results of operations, and financial condition.
Added
Treasury securities $ 535,080 $ 499,858 21 % $ 529,548 $ 488,551 20 % 100 % — % — % — % — % U.S. government agency and U.S. government-sponsored enterprise debt securities 1,004,479 804,220 34 % 1,001,836 814,932 33 % 100 % — % — % — % — % U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities (4) 1,190,221 943,134 39 % 1,235,784 1,004,697 41 % 100 % — % — % — % — % Municipal securities 187,633 140,542 6 % 188,872 145,791 6 % 100 % — % — % — % — % Total HTM debt securities $ 2,917,413 $ 2,387,754 100 % $ 2,956,040 $ 2,453,971 100 % 100 % — % — % — % — % Total debt securities $ 14,423,188 $ 13,234,565 $ 9,872,531 $ 8,642,308 (1) Credit ratings express opinions about the credit quality of a debt security.
Removed
Risks Related to Our Operations A failure in or breach of our operational or security systems or infrastructure, or those of third-party vendors, could disrupt our business, and adversely impact our results of operations, financial condition, cash flows, and liquidity, as well as damage our reputation.
Added
The Company determines the credit rating of a security according to the lowest credit rating made available by nationally recognized statistical rating organizations (“NRSROs”). Investment grade debt securities are those with ratings similar to BBB- or above (as defined by NRSROs), and are generally considered by the rating agencies and market participants to be low credit risk.
Removed
We face risks of loss resulting from, but not limited to, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirement, the risk of fraud by employees or third parties, the execution of unauthorized transactions by employees, cybersecurity incidents, business continuation and disaster recovery.
Added
Ratings percentages are allocated based on fair values. (2) For debt securities not rated by NRSROs, the Company uses other factors which include but are not limited to the priority in collections within the securitization structure, and whether the contractual payments have historically been on time.
Removed
In the event of such operational failures, we could suffer financial loss, face regulatory action, and suffer damage to our reputation. The potential for operational loss exposure exists throughout our organization and among our interactions with third parties. Our operational, security systems, and infrastructure, as well as those of third-party vendors, are integral to our performance.
Added
(3) Includes Government National Mortgage Association (“GNMA”) AFS debt securities totaling $7.3 billion of amortized cost and $7.2 billion of fair value as of December 31, 2024, and $1.3 billion of amortized cost and $1.2 billion of fair value as of December 31, 2023.
Removed
We have taken measures to implement backup systems and safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or our vendors.
Added
(4) Includes GNMA HTM debt securities totaling $86 million of amortized cost and $68 million of fair value as of December 31, 2024, and $92 million of amortized cost and $75 million of fair value of as of December 31, 2023.
Removed
Such disruptions could be caused by a number of factors including events that are wholly or partially beyond our control which could adversely affect our ability to process transactions or provide certain services.
Added
As of December 31, 2024, the Company’s AFS and HTM debt securities portfolios had an effective duration (defined as the sensitivity of the value of the portfolio to interest rate changes) of 2.4 and 7.0, respectively, compared with 3.6 and 7.5, respectively, as of December 31, 2023.
Removed
These factors include, and are not limited to, electrical, telecommunications, or other major physical infrastructure outages, cybersecurity incidents, disease pandemics, natural disasters such as wildfires, earthquakes, tornadoes, hurricanes and floods, and events arising from local or larger scale political or social matters, including terrorist acts.
Added
The decrease in the AFS effective duration was primarily due to the purchases of floating rate GNMA securities during 2024. The decrease in the HTM effective duration was due to the portfolio seasoning.
Removed
Furthermore, we frequently update these systems to support our operations and growth, requiring significant costs and creating risks associated with implementing new systems and integrating them with existing ones. 24 Third parties that facilitate our business activities could also be sources of operational and security risks to us.
Added
The Company estimated that the effective duration of its AFS debt securities was 3.1 for an instantaneous 100 bp parallel increase and 2.1 for an instantaneous 100 bp parallel decrease as of December 31, 2024. 47 Available-for-Sale Debt Securities The fair value of AFS debt securities increased $4.7 billion or 75% to $10.8 billion in 2024 from December 31, 2023, primarily due to the purchases of GNMA securities.
Removed
Our ability to implement backup systems or other safeguards with respect to third-party systems is limited. Furthermore, an attack on or failure of a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.
Added
The Company’s AFS debt securities are carried at fair value with non-credit related unrealized gains and losses, net of tax, reported in Other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income. Pre-tax net unrealized losses on AFS debt securities were $659 million as of December 31, 2024, compared with $728 million as of December 31, 2023.
Removed
Some of these third parties may engage vendors of their own, which introduces the risk that these “fourth parties” could be the source of operational and security failures.
Added
As of December 31, 2024 and 2023, 99% and 97%, respectively, of the carrying value of the AFS debt securities portfolio was rated investment grade by NRSROs. Of the AFS debt securities with gross unrealized losses, substantially all were rated investment grade as of both December 31, 2024 and 2023.
Removed
In addition, if a third party or fourth party obtains access to the customer account data on our systems, and that party experiences a breach or misappropriates such data, we and our customers could suffer material harm, including heightened risk of fraudulent transactions, losses from fraudulent transactions, increased operational costs to remediate any security breach, and reputational harm.
Added
There was no allowance for credit losses provided against the AFS debt securities as of both December 31, 2024 and 2023. Additionally, there were no credit losses recognized in earnings for both 2024 and 2023. Held-to-Maturity Debt Securities All HTM debt securities were issued, guaranteed, or supported by the U.S. government or government-sponsored enterprises.
Removed
Our business and many of our customers may have experienced, and may experience again in the future, losses incurred due to fraud or theft related to customers, employees, or third parties. These losses may negatively affect our business, results of operations, financial condition, reputation or prospects.
Added
Accordingly, the Company applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of both December 31, 2024 and 2023.

… 230 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

55 edited+15 added−29 removed37 unchanged
Biggest change(5) In 2023, the Company prepaid $300 million of repurchase agreements and incurred a debt extinguishment cost of $4 million. 76 December 31, ($ and shares in thousands, except per share data) 2023 2022 2021 Stockholders’ equity (a) $ 6,950,834 $ 5,984,612 $ 5,837,218 Less: Goodwill (465,697) (465,697) (465,697) Other intangible assets (1) (6,602) (7,998) (9,334) Tangible book value (non-GAAP) (b) $ 6,478,535 $ 5,510,917 $ 5,362,187 Number of common shares at period-end (c) 140,027 140,948 141,908 Book value per share (a)/(c) $ 49.64 $ 42.46 $ 41.13 Tangible book value per share (non-GAAP) (b)/(c) $ 46.27 $ 39.10 $ 37.79 (1) Includes core deposit intangibles and mortgage servicing assets.
Biggest changeGAAP to non-GAAP financial measures for 2024 and 2023 : Year Ended December 31, ($ in thousands) 2024 2023 Net income (a) $ 1,165,586 $ 1,161,161 Add: Amortization of core deposit intangibles — 1,763 Amortization of mortgage servicing assets 1,322 1,328 Tax effect of amortization adjustments (1) (393) (914) Tangible net income (non-GAAP) (b) $ 1,166,515 $ 1,163,338 Average stockholders’ equity (c) $ 7,315,174 $ 6,482,985 Less: Average goodwill (465,697) (465,697) Average other intangible assets (2) (5,953) (6,542) Average tangible book value (non-GAAP) (d) $ 6,843,524 $ 6,010,746 ROE (a)/(c) 15.93 % 17.91 % Return on average TCE (non-GAAP) (b)/(d) 17.05 % 19.35 % December 31, ($ and shares in thousands, except per share data) 2024 2023 Stockholders’ equity (a) $ 7,723,054 $ 6,950,834 Less: Goodwill (465,697) (465,697) Other intangible assets (2) (5,234) (6,602) Tangible book value (non-GAAP) (b) $ 7,252,123 $ 6,478,535 Number of common shares at period-end (c) 138,437 140,027 Book value per share (a)/(c) $ 55.79 $ 49.64 Tangible book value per share (non-GAAP) (b)/(c) $ 52.39 $ 46.27 (1) Applied statutory rate of 29.73% for 2024 and 29.56% for 2023.
In determining the fair value of financial instruments, the Company uses market prices of the same or similar instruments whenever such prices are available. Changes in the market conditions such as reduced liquidity in the capital markets or changes in secondary market activities, may increase variability or reduce the availability of market prices used to determine fair value.
In determining the fair value of financial instruments, the Company uses market prices of the same or similar instruments whenever such prices are available. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may increase variability or reduce the availability of market prices used to determine fair value.
If observable market prices are unavailable or impracticable to obtain, then fair value is estimated using modeling techniques such as discounted cash flows analysis. These modeling techniques incorporate management’s assessments regarding assumptions that market participants would use in pricing the asset or the liability, including the risks inherent in a particular valuation technique and the risk of nonperformance.
If observable market prices are unavailable or impracticable to obtain, then fair value is estimated using modeling techniques such as discounted cash flows analysis. These modeling techniques incorporate management’s assessments regarding the assumptions that market participants would use in pricing the asset or the liability, including the risks inherent in a particular valuation technique and the risk of nonperformance.
Item 1A. Risk Factors in this Form 10-K. Market Risk Management Market risk refers to the risk of potential loss due to adverse movements in market risk factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company is primarily exposed to interest rate risk through its core business activities of extending loans and acquiring deposits.
Item 1A. Risk Factors in this Form 10-K. 66 Market Risk Management Market risk refers to the risk of potential loss due to adverse movements in market risk factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company is primarily exposed to interest rate risk through its core business activities of extending loans and acquiring deposits.
The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into legally enforceable master netting agreements and by requiring collateral arrangements, where possible. The Company may also transfer counterparty credit risk related to interest rate swaps to third-party financial institutions through the use of credit risk participation agreements.
The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into legally enforceable master netting agreements, and by requiring collateral arrangements, where possible. The Company may also transfer counterparty credit risk related to interest rate swaps to third-party financial institutions through the use of credit risk participation agreements (“RPAs”).
The following is a brief description of the Company’s critical accounting estimates involving significant judgments. 72 Allowance for Credit Losses The Company’s allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of the Company’s financial assets measured at amortized cost, including loans and certain lending-related commitments.
The following is a brief description of the Company’s critical accounting estimates involving significant judgments. Allowance for Credit Losses The Company’s allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of the Company’s financial assets measured at amortized cost, including loans and certain lending-related commitments.
As loan and security prepayment assumptions are key components of the Company’s model, the Company incorporates third-party vendor models to forecast prepayment behavior on mortgage loans and securities which have mortgage loans as underlying collateral.
As loan and debt security prepayment assumptions are key components of the Company’s model, the Company incorporates third-party vendor models to forecast prepayment behavior on mortgage loans and securities, which have mortgage loans as underlying collateral.
The use of methodologies or assumptions different than those used by the Company could result in different estimates of fair value of financial instruments. 73 Significant judgment is also required to determine the fair value hierarchy for certain financial instruments.
The use of methodologies or assumptions different than those used by the Company could result in different estimates of fair value of financial instruments. Significant judgment is also required to determine the fair value hierarchy for certain financial instruments.
This analysis demonstrates the sensitivity to the allowance for credit losses to key quantitative assumptions and is not intended to estimate changes in the overall allowance for credit losses as it does not capture all the potential unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions.
This analysis demonstrates the sensitivity to the allowance for credit losses to key quantitative assumptions and is not intended to estimate changes in the overall allowance for credit losses as it does not capture all the potentially unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions.
The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits offered to its customers. 71 The Company is subject to credit risk associated with the counterparties to the derivative contracts.
The Company also utilizes foreign exchange contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in certain foreign currency on-balance sheet assets and liabilities, primarily foreign currency denominated deposits offered to its customers. 70 The Company is subject to credit risk associated with the counterparties to derivative contracts.
However, to provide additional context regarding the sensitivity of the allowance for credit losses to changes in key variables, the Company compared the quantitative modeled estimate when applying a 100% probability weighting to the downside scenario rather than the weighting of multiple scenarios used to estimate the allowance for credit losses at December 31, 2023.
However, to provide additional context regarding the sensitivity of the allowance for credit losses to changes in key variables, the Company compared the quantitative modeled estimate when applying a 100% probability weighting to the downside scenario rather than the weighting of multiple scenarios used to estimate the allowance for credit losses at December 31, 2024.
The Company also regularly monitors the sensitivity of the other important modeling assumptions, such as loan and security prepayments and early withdrawal on fixed-rate customer liabilities. The Company makes appropriate calibrations to the model as needed and continually validates the model, methodology and results. Changes to key model assumptions are reviewed by the ALCO.
The Company also regularly monitors the sensitivity of the other important modeling assumptions, such as loan and security prepayments and early withdrawal on fixed-rate customer liabilities. The Company makes appropriate calibrations to the model as needed and continually validates the model, methodology and results. Changes to key model assumptions are reviewed by the Technical ALCO, a subcommittee of ALCO.
In addition, the Company incorporates credit value adjustments and other market standard methodologies to appropriately reflect the counterparty’s and the Company’s own nonperformance risk in the fair value measurement of its derivatives. As of December 31, 2023, the Company anticipates performance by all its counterparties and has not incurred any related credit losses.
In addition, the Company incorporates credit valuation adjustments and other market standard methodologies to appropriately reflect the counterparty’s and the Company’s own nonperformance risk in the fair value measurement of its derivatives. As of December 31, 2024, the Company anticipates performance by all its counterparties and has not incurred any related credit losses.
Management believes that the estimate for the allowance for credit losses was reasonable and appropriate as of December 31, 2023. Fair Value Estimates Certain financial instruments are carried at fair value on the Consolidated Balance Sheet on a recurring basis, including AFS debt securities, certain equity securities and derivatives.
Management believes that the estimate for the allowance for credit losses was reasonable and appropriate as of December 31, 2024. 72 Fair Value Estimates Certain financial instruments are carried at fair value on the Consolidated Balance Sheet on a recurring basis, including AFS debt securities, certain equity securities and derivatives.
Without considering model overlays and qualitative adjustments which could result in a materially different estimate, this sensitivity analysis would have been approximately $343 million higher.
Without considering model overlays and qualitative adjustments which could result in a materially different estimate, this sensitivity analysis would have been approximately $483 million higher.
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 .
The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2024 .
These changes, when they occur, impact tax expense and can materially affect our operating results and financial condition. The Company reviews its tax positions on a quarterly basis and makes adjustments to accrued taxes as new information becomes available.
These changes, when they occur, impact tax expense and can materially affect our operating results and financial condition. The Company reviews its tax positions on a quarterly basis and adjusts to accrued taxes as new information becomes available.
The simulated interest rate scenarios include an instantaneous non-parallel shift in the yield curve and a gradual non-parallel shift in the yield curve (“rate ramp”). In addition, the Company also performs simulations using other alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting.
The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve and a gradual parallel shift in the yield curve (“linear rate ramp”). In addition, the Company also performs simulations using other alternative interest rate scenarios, including various permutations of the yield curve flattening, steepening or inverting.
The Company’s deposit portfolio is primarily composed of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates. The modeled results are highly sensitive to modeled behavior and assumptions.
A majority of the Company’s deposit portfolio is composed of non-maturity deposits, which are not directly tied to short-term interest rate indices, but are, nevertheless, sensitive to changes in short-term interest rates. The modeled results are highly sensitive to modeled behavior and assumptions.
Other financial instruments, such as certain individually evaluated loans held-for-investment, loans held-for-sale, investments in qualified affordable housing partnerships, tax credit and other investments, OREO and other nonperforming assets, are not carried at fair value each period but may require nonrecurring fair value adjustments primarily due to application of lower of cost or fair value accounting or write-downs of individual assets.
Other financial instruments, such as certain individually evaluated loans held-for-investment, loans held-for-sale, affordable housing partnership, tax credit and CRA investments, OREO and other nonperforming assets, are not carried at fair value each period but may require nonrecurring fair value adjustments primarily due to application of lower of cost or fair value accounting or write-downs of individual assets.
To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into offsetting derivative contracts with third-party financial institutions, some of which are cleared through central clearing organizations.
To economically hedge against the derivative contracts entered into with the Company’s customers, the Company enters into offsetting derivative contracts with third-party financial institutions, some of which are cleared through central counterparty clearing houses.
Certain derivative contracts are required to be cleared through central clearinghouses, to further mitigate counterparty credit risk, where variation margin is applied daily as settlement to the fair value of the derivative contracts.
Certain derivative contracts are required to be cleared through central counterparty clearing houses, to further mitigate counterparty credit risk, where variation margin is applied daily as settlement to the fair value of the derivative contracts.
These third-party vendor models have access to more comprehensive industry-level data which can capture specific borrower and collateral characteristics over a variety of interest rate cycles. The Company will periodically assess and adjust the vendor models when appropriate to include its own available observations and expectations.
These third-party vendor models have access to more comprehensive industry-level data that captures specific borrower and collateral characteristics over a variety of interest rate cycles. The Company will periodically assess and adjust the vendor models when appropriate to include its own available observations and expectations.
The repricing models provide sufficient granularity to reflect key behavioral differences across product and customer types. The deposit beta is a key parameter of the deposit rate forecast. The deposit beta defines the sensitivity of deposit rates to changes in the Effective Fed Funds Rate (“EFFR”).
The repricing models provide sufficient granularity to reflect key behavioral differences across product and customer types. The deposit beta, which defines the sensitivity of deposit rates to changes in the effective federal funds rate, is a key parameter of the deposit rate forecast.
As of December 31, 2023 , the Company designated interest rate contracts with a notional amount of $5.3 billion as cash flow hedges, which reduced net interest income volatility by approximately 1.6% of the base net interest income for every 100 bps change in interest rate .
As of December 31, 2024 , the Company designated interest rate contracts with a notional amount of $5.3 billion as cash flow hedges, which reduced net interest income volatility by approximately 1.30% of the base net interest income for every 100 bp change in interest rate .
Net interest income is expected to increase when interest rates rise as the Company has a large population of variable rate loans, primarily tied to Prime and Term SOFR indices. The Company’s interest income is sensitive to changes in short-term interest rates.
Net interest income is expected to increase when interest rates rise as the Company has a large population of variable rate loans, primarily tied to Prime and Term Secured Overnight Financing Rate (“ SOFR”) indices. The Company’s interest income is sensitive to changes in short-term interest rates.
Net Interest Income Volatility December 31, 2023 2022 Change in Interest Rates (in bps) % % +200 Rate ramp 0.8 % 6.3 % +100 Rate ramp 0.5 % 3.4 % -100 Rate ramp (0.6) % (2.4) % -200 Rate ramp (1.3) % (4.9) % As of December 31, 2023, the Company’s net interest income profile reflects a modestly asset sensitive position, where assets reprice faster or more significantly than liabilities.
Net Interest Income Volatility December 31, 2024 2023 Change in Interest Rates (in bps) % % +200 Rate ramp 4.3 % 4.0 % +100 Rate ramp 2.3 % 2.0 % -100 Rate ramp (2.4) % (1.7) % -200 Rate ramp (4.6) % (3.8) % As of December 31, 2024, the Company’s net interest income profile reflects an asset sensitive position, where assets reprice faster or more significantly than liabilities.
The modeled results are highly sensitive to deposit decay and deposit beta assumptions, which we derive from a regression analysis of the Company’s historical deposit data. Simulation results are highly dependent on modeled behaviors and input assumptions.
The modeled results are highly sensitive to deposit mix and deposit beta assumptions, which are derived from a regression analysis of the Company’s historical deposit data. 67 Simulation results are highly dependent on modeled behaviors and input assumptions.
The Company believes these non-GAAP financial measures, when taken together with the corresponding U.S. GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. 75 The following tables present the reconciliation of U.S.
GAAP financial measures, provide meaningful supplemental information regarding its performance, and allow comparability to prior periods. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. 74 The following tables present the reconciliations of U.S.
The ALCO establishes guidelines, risk measures and limits, and monitors compliance with the policies and risk limits pertaining to market risk management activities. 67 Interest Rate Risk Management Interest rate risk is the risk that market fluctuations in interest rates can have a negative impact on the Company’s earnings and capital stemming from mismatches in the Company’s asset and liability cash flows primarily arising from customer-related activities such as lending and deposit-taking.
Interest Rate Risk Management Interest rate risk is the risk that market fluctuations in interest rates can have a negative impact on the Company’s earnings and capital stemming from mismatches in the Company’s asset and liability cash flows primarily arising from customer-related activities such as lending and deposit-taking.
MD&A — Risk Management — Credit Risk Management — Allowance for Credit Losses. The allowance for credit losses is sensitive to changes in macroeconomic forecast assumptions. Given the dynamic relationship between macroeconomic variables within the Company’s models, it is difficult to estimate the impact of a change in any one factor or input on the allowance.
Given the dynamic relationship between macroeconomic variables within the Company’s models, it is difficult to estimate the impact of a change in any one factor or input on the allowance.
The simulation model incorporates the market’s forward rate expectations and the Company’s earning assets and liabilities. The Company uses both a static balance sheet and a forward growth balance sheet to perform the interest rate sensitivity analyses.
The simulation model incorporates the market’s forward rate expectations and the Company’s earning assets and liabilities. The Company uses a dynamic balance sheet, incorporating expected forward growth and/or deposit product mix shift to perform the interest rate sensitivity analyses.
The Company assesses interest rate risk by comparing the changes of net interest income in different interest rate scenarios. 69 The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained non-parallel shift in market interest rates by 100 and 200 bps as of December 31, 2023 and 2022, on a balance sheet assuming flat forward rates and flat loan and deposit growth on the date of analysis.
The following table presents the Company’s net interest income sensitivity related to an instantaneous and sustained parallel shift in market interest rates by 100 and 200 bps as of December 31, 2024 and 2023, on a balance sheet assuming market implied forward rates and a dynamic balance sheet with forecasted loan and deposit growth on the date of analysis.
Economic Value of Equity Volatility (1) December 31, 2023 2022 Change in Interest Rates (in bps) % % +200 (10.3) % (6.0) % +100 (5.4) % (2.9) % -100 3.0 % 1.1 % -200 6.0 % 2.3 % (1) The percentage change represents net portfolio value change of the Company in a stable interest rate environment versus in the various interest rate scenarios.
Economic Value of Equity Volatility (1) December 31, 2024 2023 Change in Interest Rates (in bps) % % +200 (12.5) % (10.3) % +100 (5.2) % (5.4) % -100 4.6 % 3.0 % -200 9.5 % 6.0 % (1) The percentage change represents net present value change of the balance sheet as of the analysis date versus the various interest rate scenarios.
The non-GAAP financial measures discussed in this Form 10-K are return on average TCE, adjusted efficiency ratio, adjusted diluted EPS, and tangible book value per share. Certain additional non-GAAP financial measures that are components of the foregoing non-GAAP financial measures are also set forth and reconciled in the table below.
The non-GAAP financial measures discussed in this Form 10-K are return on average TCE and tangible book value per share. Certain additional non-GAAP financial measures that are components of the foregoing non-GAAP financial measures are also set forth and reconciled in the table below. The Company believes these non-GAAP financial measures, when taken together with the corresponding U.S.
Changes in the Company’s assumptions and economic forecasts could significantly affect its estimate of expected credit losses, which could potentially lead to significant changes in the estimate from one reporting period to the next. For further discussion on the economic forecast incorporated into the 2023 model, see Item 7.
Changes in the Company’s assumptions and economic forecasts could significantly affect its estimate of expected credit losses, which could potentially lead to significant changes in the estimate from one reporting period to the next.
Goodwill Impairment The valuation and testing methodologies used in the Company’s analysis of goodwill impairment are discussed in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Goodwill, Note 8 — Goodwill, and Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K .
Goodwill Impairment The valuation and testing methodologies used in the Company’s analysis of goodwill impairment are discussed in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Goodwill, Note 8 — Goodwill, and Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K . 73 The Company performed its annual goodwill impairment test on all three reporting units using a qualitative assessment.
The Company’s interpretations of the tax laws, including the U.S., its states and the municipalities, and the tax jurisdictions in Hong Kong and China, are complex and subject to audit by taxing authorities that disputes may occur regarding its view on a tax position taken by the Company. 74 In estimating accrued taxes, the Company assesses the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent, and other pertinent information.
The Company’s interpretations of the tax laws, including the U.S., its states and the municipalities, and the tax jurisdictions in Hong Kong and China, are complex and subject to audit by taxing authorities that disputes may occur regarding its view on a tax position taken by the Company.
Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K.
(4) Represents the weighted average market foreign exchange rate between CNY and USD as of December 31, 2023. 71 Additional information on the Company’s derivatives is presented in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K.
December 31, 2023 2022 ($ in thousands) Total Balance (1) Level 3 Total Balance (1) Level 3 Total assets measured at fair value on a recurring basis $ 6,823,916 $ 336 $ 6,814,275 $ 323 Total assets measured at fair value on a nonrecurring basis 46,760 46,760 72,614 72,614 Total assets measured at fair value (a) $ 6,870,676 (b) $ 47,096 (d) $ 6,886,889 (f) $ 72,937 Total assets (c) $ 69,612,884 (e) $ 64,112,150 Level 3 assets at fair value as a percentage of total assets (b)/(c) 0.1 % (f)/(e) 0.1 % Level 3 assets at fair value as a percentage of total assets at fair value (b)/(a) 0.7 % (f)/(d) 1.1 % (1) Before derivative netting adjustments.
December 31, 2024 2023 ($ in thousands) Total Balance (1) Level 3 Total Balance (1) Level 3 Total assets measured at fair value on a recurring basis $ 11,395,533 $ 239 $ 6,823,916 $ 336 Total assets measured at fair value on a nonrecurring basis 85,872 85,872 46,760 46,760 Total assets measured at fair value (a) $ 11,481,405 (b) $ 86,111 (d) $ 6,870,676 (f) $ 47,096 Total assets (c) $ 75,976,475 (e) $ 69,612,884 Level 3 assets at fair value as a percentage of total assets (b)/(c) 0.11 % (f)/(e) 0.07 % Level 3 assets at fair value as a percentage of total assets at fair value (b)/(a) 0.75 % (f)/(d) 0.69 % (1) Before derivative netting adjustments.
Economic Value of Equity at Risk EVE is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows.
Economic Value of Equity at Risk EVE is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the present value of the bank’s assets and liabilities due to changes in interest rates.
The simulation projects the cash flow changes in interest rate sensitive assets and liabilities, expressed in terms of net interest income, over a specified time horizon for defined interest rate scenarios. Net interest income simulations provide insight into the impact of market rate changes on earnings, which help guide risk management decisions.
Twelve-Month Net Interest Income Simulation Net interest income simulation modeling measures interest rate risk through earnings volatility. The simulation projects the cash flow changes in interest rate sensitive assets and liabilities, expressed in terms of net interest income, over a specified time horizon for defined interest rate scenarios.
Foreign exchange derivatives are used in net investment hedging strategies to mitigate the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited. Prior to entering into any accounting hedge activities, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies.
Foreign exchange derivatives are used in net investment hedging strategies to mitigate the risk of changes in the U.S. dollar (“USD”) equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited.
This calculation is used for asset/liability management and measures changes in the economic value of the bank’s assets and liabilities due to changes in interest rates. 70 The economic value approach provides a comparatively broader scope than the net interest income volatility approach since it represents the discounted present value of cash flows over the expected life of the instruments.
The economic value approach provides a comparatively broader scope than the net interest income volatility approach since it represents the discounted present value of cash flows over the expected life of the instruments.
The Risk Oversight Committee of the Company’s Board of Directors has primary oversight responsibility and has given the ALCO the task of market risk management.
The ROC of the Company’s Board of Directors has primary oversight responsibility and has given the ALCO the task of market risk management. The ALCO establishes guidelines, risk measures and limits, and monitors compliance with the policies and risk limits pertaining to market risk management activities.
The rate ramp table below shows the net interest income volatility under a gradual non-parallel shift of the yield curve, in even monthly increments over the first 12 months, followed by rates held constant thereafter based on a flat balance sheet as of the date of the analysis.
The rate ramp table below shows the net interest income volatility under a gradual parallel shift of the market implied forward rates, in even monthly increments over the first 12 months, with the full shift passed through to the forward rates thereafter.
The simulation does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the risk of the impact of changing market interest rates across a range of interest rate environments. 68 The Company employs a variety of quantitative and qualitative approaches to capture historical deposit repricing and balance behaviors.
Scenario results do not reflect strategies that the management could employ to limit the impact of changing interest rate expectations. The simulation does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the risk of the impact of changing market interest rates across a range of interest rate environments.
This model also incorporates various assumptions, which management believes to be reasonable but that may have a significant impact on the results.
The net interest income simulation model is based on the maturity and repricing characteristics of the Company’s interest rate sensitive assets, liabilities, and related derivative contracts. This model also incorporates various assumptions, which management believes to be reasonable but may have a significant impact on the results.
These interest rate scenarios provide additional information to estimate the Company’s underlying interest rate risk.
The Company also models scenarios based on gradual shifts in interest rates and assesses the corresponding impacts. These interest rate scenarios provide additional information to estimate the Company’s underlying interest rate risk.
The income tax laws are complex and subject to different interpretations by the Company and the relevant government taxing authorities. Significant judgment is required in determining the tax accruals and in evaluating the tax positions, including evaluating uncertain tax positions.
Significant judgment is required in determining the tax accruals and in evaluating the tax positions, including evaluating uncertain tax positions.
However, the difference in time horizons can cause the EVE analysis to diverge from the shorter-term net interest income analysis presented above. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, the shape of the yield curve, and potential changes to the balance sheet, actual results may vary from those predicted by the Company’s model.
Given the uncertainty of the magnitude, timing and direction of future interest rate movements, the shape of the yield curve, and potential changes to the balance sheet, actual results may vary from those predicted by the Company’s model. 69 The following table presents the Company’s EVE sensitivity related to an instantaneous parallel shift in market interest rates by 100 and 200 bps as of December 31, 2024 and 2023.
Net Interest Income Volatility (1) December 31, 2023 2022 Change in Interest Rates (in bps) % % +200 1.3 % 11.6 % +100 1.2 % 5.9 % -100 (1.8) % (5.3) % -200 (4.1) % (8.6) % (1) The percentage change represents net interest income change over a 12-month period in a stable interest rate environment versus in the various interest rate scenarios.
Net Interest Income Volatility (1) December 31, 2024 2023 Change in Interest Rates (in bps) % % +200 4.7 % 4.6 % +100 3.5 % 2.7 % -100 (4.0) % (3.3) % -200 (7.4) % (6.7) % (1) The percentage change represents net interest income change over a 12-month period under market forward rates and expected balance sheet growth as of the analysis date versus various interest rate scenarios. 68 The composition of the Company’s loan portfolio creates sensitivity to interest rate movements due to a mismatch of repricing behavior between the floating-rate loan portfolio and deposit products.
The Company uses the results of these simulations to formulate and gauge strategies to achieve a desired risk profile within its capital and liquidity guidelines. The net interest income simulation model is based on the maturity and repricing characteristics of the Company’s interest rate sensitive assets, liabilities, and related derivative contracts.
The Company uses the results of these simulations to formulate and gauge strategies to achieve a desired risk profile within its capital and liquidity guidelines. In the third quarter of 2024, the Company transitioned its net interest income volatility simulations from a static to a dynamic balance sheet approach and adopted market forward rates instead of flat forward rates.
The Company performed its annual goodwill impairment test on all three reporting units using a combination of income and market approaches to estimate the fair value of each reporting unit. The Company concluded that the goodwill allocated to its reporting units was not impaired as of December 31, 2023.
The qualitative test indicated that it was more likely than not that the fair values of all the Company’s reporting units exceeded their carrying values. The Company concluded that the goodwill allocated to its reporting units was not impaired as of December 31, 2024.
The following table summarizes certain information on derivative instruments designated as accounting hedges and utilized by the Company in its management of interest rate and foreign currency risks as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 ($ in thousands) Interest Rate Contracts Hedging Loans (1) Interest Rate Contracts Hedging Borrowings (2) Interest Rate Contracts Hedging Loans (1) Interest Rate Contracts Hedging Borrowings (2) Cash flow hedges Notional amount $ 4,000,000 (3)(4) $ — $ 3,000,000 (3) $ 200,000 Weighted average: Receive rate 4.95 % NA 4.91 % 3.83 % Pay rate 7.32 % NA 6.23 % 0.48 % Remaining term (in months) 35.8 NA 46.6 3.2 ($ in thousands) Foreign Exchange Contracts Foreign Exchange Contracts Net investment hedges Notional amount $ 81,480 $ 84,832 Hedged percentage (5) 44 % 44 % Remaining term (in months) 2.7 2.6 NA — Not applicable.
The following table summarizes certain information on derivative instruments designated as accounting hedges and utilized by the Company in its management of interest rate and foreign currency risks as of December 31, 2024 and 2023.
Removed
Scenario results do not reflect strategies that the management could employ to limit the impact of changing interest rate expectations.
Added
This change better reflects the interest rate risk on the Company’s financial statements. Furthermore, the Company standardized its simulation scenarios by shifting from non-parallel to parallel shocks for both instantaneous and gradual net interest income simulations, as well as for economic value of equity (“EVE”) simulations. This alignment with industry-standard scenario definitions is intended to enhance interpretability and comparability.
Removed
The Company recalibrated its deposit repricing models and betas in December 2022, and qualitatively increased the long run (through the cycle) betas during 2023 to better reflect increased competition and higher terminal fed funds rates than previously observed in the historical data.
Added
The Company employs a variety of quantitative and qualitative approaches to capture historical deposit repricing and balance behaviors.
Removed
Overall, the Company observed a weighted-average increase of approximately 17% during the year to total deposit beta of 51% as of December 31, 2023. These increases reflected the Company’s forward-looking views of deposit rates given the expected EFFR at the time.
Added
For the year ended December 31, 2024, the Company assumed a weighted-average beta of 55% for total deposits, an increase of approximately 4% from December 31, 2023. This increase was primarily due to deposit beta assumption updates and deposit product mix changes.
Removed
The Company also modified deposit balance runoff models in December 2022, to better capture behavioral differences across product and customer types and carved out stable and non-stable balances to reflect the volatility and interest rate sensitivity of such deposit balances.
Added
Net interest income simulations provide insight into the impact of market rate changes on earnings, which help guide risk management decisions. The Company assesses interest rate risk by comparing the changes of net interest income in different interest rate scenarios.
Removed
The assumptions used for the identification of stable balances were updated in June and September 2023 to reflect a larger portion of potential non-stable balances. The assumptions for the identification of stable balances had no significant updates in December 2023.
Added
In the table above, the net interest income volatility expressed in relation to base-case net interest income increased in both rising and decreasing rate scenarios as of December 31, 2024. This change reflects deposit product mix assumptions, which assume noninterest-bearing deposits decrease in higher interest rate environments and are replaced with term deposit products.
Removed
Additionally, to reflect changes in interest expense due to the shift from noninterest-bearing to interest-bearing accounts in the deposit mix, the Company utilized a qualitative assumption in March 2023. This assumption considered the amount of surplus noninterest-bearing deposits assumed to be rate sensitive and migrated them to interest-bearing deposits.
Added
The results are based on a dynamic balance sheet with expected loan and deposit growth as of the date of the analysis.
Removed
This assumption was included in the net interest income volatility simulations to reflect more realistic net interest income volatility in rising rate scenarios. The qualitative assumption was enhanced in June 2023 with a more robust quantitative approach.
Added
However, the difference in time horizons can cause the EVE analysis to diverge from the shorter-term net interest income analysis presented above.
Removed
This updated approach incorporated internally observed historical data reflecting the evolution of noninterest-bearing deposits as a percent of total deposits, based on the historical behavior observed during the prior rising interest rate cycle.
Added
As of December 31, 2024, the Company’s EVE is expected to decrease when interest rates rise. The EVE sensitivity represents a duration mismatch between fixed-rate assets versus fixed-rate liabilities where more fixed- rate assets are expected to produce more stable net interest income in the short term but may lead to decreases in net present value of future cash flows.
Removed
The assumption forecasts that a portion of noninterest-bearing deposits would migrate to interest-bearing certificates of deposits as the 12-month moving average of the overnight indexed swap rate increases. No further enhancements to the deposit mix assumption were made in December 2023.
Added
Prior to entering any accounting hedge activity, the Company analyzes the costs and benefits of the hedge in comparison to alternative strategies.
Removed
In the net interest income simulations, the Company also makes assumptions on the yield related to the re-investment of investment securities and the yields on new loan originations. These assumptions are updated quarterly to reflect recent market conditions as well as forward-looking expectations but generally do not have significant impact to NII sensitivity.
Added
The Company does not have active net investment hedges as of December 31, 2024: December 31, 2024 Weighted Average ($ in thousands) Notional Amount Fair Value Assets (Liabilities) Fixed Rate Floating Rate (1) Remaining Term (In months) Cash flow hedges Derivative Contracts Hedging Loans: Interest rate swaps - Receive fixed pay floating $ 4,000,000 $ (27,294) 4.95 % 6.47 % 23.8 Interest rate swaps - Receive fixed pay floating - Forward Starting 1,000,000 (2,054) 3.90 % N/A (2) 67.8 Interest rate collars - Buy floor sell cap 250,000 (216) Cap: 4.58% Floor: 1.50% 4.55 % 17.0 Total cash flow hedges $ 5,250,000 $ (29,564) December 31, 2023 Weighted Average ($ in thousands) Notional Amount Fair Value Assets (Liabilities) Fixed Rate Floating Rate (1) Remaining Term (In months) Cash flow hedges Derivative Contracts Hedging Loans: Interest rate swaps - Receive fixed pay floating $ 4,000,000 $ 6,489 4.95 % 7.32 % 35.8 Interest rate swaps - Receive fixed pay floating - Forward Starting 1,000,000 32,101 3.90 % N/A (2) 79.8 Interest rate collars - Buy floor sell cap 250,000 (1,293) Cap: 4.58% Floor: 1.50% 5.34 % 29.0 Total cash flow hedges $ 5,250,000 $ 37,297 Net investment hedges Derivative Contracts Hedging Net Investment in East West Bank (China) Limited Foreign exchange forwards $ 81,480 $ 3,394 6.75 (3) 7.05 (4) 2.7 (1) Floating rates are indexed to SOFR or Prime.
Removed
During 2023, loans and deposits with cash flows indexed to China related benchmark interest rates were removed from the interest rate scenario shocks. The associated change to the net interest income sensitivity was insignificant.
Added
(2) The swaps are forward starting and not effective as of both December 31, 2024 and 2023. (3) Represents the weighted average strike foreign exchange rate between Chinese Yuan (“CNY”) and USD.
Removed
During 2023, the Company updated its version of the asset liability management simulation tool and vendor prepayment model. This change updated the calibration of the vendor model to better fit recent data and better supported the transition from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) indexed loans. Overall, the update had minimal impact on forecasted prepayments.
Added
For further discussion on the economic forecast incorporated into the 2024 model, see Note 6 — Loans Receivable and Allowance for Credit Losses to the Consolidated Financial Statements in this Form 10-K. The allowance for credit losses is sensitive to changes in macroeconomic forecast assumptions.
Removed
During 2023, the Company updated the vendor prepayment model tuning factors to slow down prepayment speeds on single-family residential mortgages so that it better aligned with actual and expected prepayments. During the third quarter of 2023, the Company replaced the U.S. dollar (“USD”) LIBOR Swap curve and rates with the respective SOFR Swap and SOFR reference rates.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

13 edited+5 added−1 removed2 unchanged
Biggest changeThe ERM Team reports the status of the annual assessment of the effectiveness of the Information Security Program to the Chief Privacy Officer, who reports to the Board’s Risk Oversight Committee. When applicable, the Company obtains Statement on Standards for Attestation Engagement 18 reports or equivalent reports for vendor products and services hosted by third parties.
Biggest changeWhen applicable, the Company obtains Statement on Standards for Attestation Engagement 18 reports or equivalent reports for vendor products and services hosted by third parties. Internal Audit serves as the third line of defense and provides additional independent assurance and evaluates the effectiveness of cybersecurity risk management.
ITEM 1C. CYBERSECURITY The Company maintains an Information Security Program to support the management of cybersecurity risk as an integral component of the Company’s ERM framework. The Information Security Program encompasses the Company’s cybersecurity policies and practices, which focus on prevention, detection, mitigation and recovery from cybersecurity incidents.
ITEM 1C. CYBERSECURITY Risk Management and Strategy The Company maintains an Information Security Program to support the management of cybersecurity risk as an integral component of the Company’s ERM framework. The Information Security Program encompasses the Company’s cybersecurity policies and practices, which focus on prevention, detection, mitigation and recovery from cybersecurity incidents.
The Information Security Team is the first line of defense under the Chief Information Security Officer and provides the day-to-day cybersecurity operations including identification and reporting of internal and external threats, access control, data security, protective controls, detection of malicious or unauthorized activity, incident response, recovery planning, performing vulnerability and third party information security assessments, and employee awareness and training programs.
The Information Security Team is the first line of defense under the Chief Information Security Officer and provides day-to-day cybersecurity operations including identification and reporting of internal and external threats, access control, data security, protective controls, detection of malicious or unauthorized activity, incident response, recovery planning, performance of vulnerability and third party information security assessments, and employee awareness and training programs.
As the second line of defense, the ERM Team under the Chief Privacy Officer independently monitors cybersecurity risk across the Company, as well as the effectiveness of the Information Security Program, third party vendors’ vulnerability and penetration tests against the Company’s network.
As the second line of defense, the ERM Team under the Chief Risk Officer independently monitors the cybersecurity risk framework across the Company, as well as the effectiveness of the Information Security Program, and third party vendors’ vulnerability and penetration tests against the Company’s network.
The Chief Privacy Officer also provides periodic reports to the Board’s Risk Oversight Committee, outlining the overall status of the Company’s Information Security Program and its compliance with regulatory guidelines, and coordinating and reporting on incident response. The Chief Information Security Officer is responsible for the day-to-day management of the Information Security Program and Security Incident Response Policy and Plan.
The Chief Risk Officer also provides periodic reports to the Board’s ROC, outlining the overall status of the Company’s Information Security Program and its compliance with regulatory guidelines, and coordinating and reporting on incident response. The Chief Information Security Officer is responsible for the day-to-day management of the Information Security Program and Security Incident Response Policy and Plan.
These updates include information regarding management’s ongoing efforts to manage cybersecurity risk and the steps management has taken to address and mitigate the evolving cybersecurity threat environment. The Risk Oversight Committee members are independent directors and have expertise in areas relevant to their responsibilities over cybersecurity, including senior leadership experience in financial services and information technology.
These updates include information regarding management’s ongoing efforts to manage cybersecurity risk and the steps management has taken to address and mitigate the evolving cybersecurity threat environment. The ROC members include independent directors from the Board who have expertise in areas relevant to their responsibilities over cybersecurity, including senior leadership experience in financial services and information technology.
The Chief Privacy Officer has held various leadership roles at the bank, including over 13 years previously serving as the Company’s Chief Financial Officer. The Chief Information Security Officer has over 20 years of work experience in cybersecurity at financial institutions. The Information Security Program is supported by three lines of defense.
The Chief Risk Officer has held various leadership roles at the bank, including over 13 years previously serving as the Company’s Chief Financial Officer. The Chief Information Security Officer has over 20 years of work experience in cybersecurity at financial institutions.
The internal Information Risk Management team conducts periodic assessments in collaboration with consulting services with expertise in the cybersecurity domains. Furthermore, the Third Party Risk Management Team, in conjunction with the Information Security Team, oversees, identifies, monitors, investigates and addresses material risks from cybersecurity threats associated with the Company’s use of third-party service providers.
Furthermore, the Third-Party Risk Management Team, in conjunction with the ERM Team and the Information Security Team, oversees, identifies, monitors, investigates and addresses material risks from cybersecurity threats associated with the Company’s use of third-party service providers.
Internal Audit serves as the third line of defense and provides additional independent assurance and evaluates the effectiveness of cybersecurity risk management. In addition, the Company uses several internal training methods, through annual mandatory courses on security and privacy for all employees, as well as multiple simulated phishing attacks and regularly providing information security awareness materials throughout the year.
In addition, the Company regularly engages independent external assessors to perform assessments of its cybersecurity control environment and operating effectiveness. In addition, the Company uses several internal training methods, through annual mandatory courses on security and privacy for all employees, as well as multiple simulated phishing attacks and regularly providing information security awareness materials throughout the year.
The Risk Oversight Committee receives quarterly cybersecurity reports, including any reportable incidents, and reviews and approves the Information Security Program at least annually or whenever significant changes to the program are made. The full Board of Directors also receives quarterly cybersecurity reports.
The Company also maintains cybersecurity insurance. Board Oversight The Board’s ROC has primary oversight responsibility for management’s efforts to mitigate cybersecurity risk and respond to cybersecurity incidents. The ROC receives quarterly cybersecurity reports, including any reportable incidents, and reviews and approves the Information Security Program at least annually or whenever significant changes are made to the program.
At the management level, the Company has designated the Chief Risk Officer as the Chief Privacy Officer, who has oversight for managing cybersecurity risk. The Chief Privacy Officer coordinates with the Chief Information Security Officer to ensure the Company’s cybersecurity risk profile is managed in a manner consistent with its risk appetite.
The Chief Risk Officer is responsible for managing cybersecurity risk and coordinating with the Chief Information Security Officer to ensure the Company’s cybersecurity risk profile is managed in a manner consistent with its risk appetite.
For additional information regarding cybersecurity threats, please refer to Item 1, Business – Supervision and Regulation – Privacy and Cybersecurity and Item 1A, Risk Factors – Risks Related to Our Operations . 32
However, we can provide no assurance that all of our security measures will be effective. For additional information regarding cybersecurity threats, please refer to Item 1, Business – Supervision and Regulation – Privacy and Cybersecurity and Item 1A, Risk Factors – Risks Related to Our Operations .
The Company also maintains cybersecurity insurance. To date, the Company has not experienced cybersecurity incidents that have materially affected its business strategy, results of operations or financial condition.
The majority of Information Security Team members have over 10 years of cybersecurity experience and cumulatively hold over 50 active professional certifications in related fields. 31 Material Cybersecurity Threat Risk To date, the Company has not experienced any known cybersecurity incidents that have materially affected its business strategy, results of operations or financial condition.
Removed
The Information Security Program follows established industry frameworks, including the National Institute of Standards and Technology Cybersecurity Framework, and standards set by the relevant legal and regulatory authorities. The Board’s Risk Oversight Committee has primary oversight responsibility for management’s efforts to mitigate cybersecurity risk and respond to cybersecurity incidents.
Added
The Information Security Program follows a National Institute of Standards and Technology based Cybersecurity Framework and other applicable industry standards. 30 The Information Security Program is supported by our three lines of defense model of risk management.
Added
The Information Risk Management team conducts periodic assessments in collaboration with consulting services with expertise in the cybersecurity domains.
Added
The Third-Party Risk Management Team is also part of the independent risk management function of the Bank and included in the second line of defense. The ERM Team reports the status of the annual assessment of the effectiveness of the Information Security Program to the Chief Risk Officer, who reports to the Board’s ROC.
Added
Role of Management At the management level, the Information Technology Steering Committee has overall responsibility for identifying, assessing, and managing information security risks, including cybersecurity risk.
Added
The Information Technology Steering Committee provides cybersecurity reports periodically to the ROC and is comprised of the Company’s senior information technology, information security and third party risk management leaders, including the Chief Risk Officer and Chief Information Security Officer.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed3 unchanged
Biggest changeITEM 2. PROPERTIES East West’s corporate headquarters is located at 135 North Los Robles Avenue, Pasadena, California, an eight-story office building, of which it owns 50%. The Company operates in 21 owned and 90 leased locations in the U.S., as well as 11 leased locations in Asia.
Biggest changeITEM 2. PROPERTIES East West’s corporate headquarters is located at 135 North Los Robles Avenue, Pasadena, California, an eight-story office building, of which it owns 50%. The Company operates in 21 owned and 86 leased locations in the U.S., as well as 11 leased locations in Asia.
LEGAL PROCEEDINGS See Note 12 — Commitments and Contingencies — Litigation to the Consolidated Financial Statements in this Form 10-K, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 PART II
LEGAL PROCEEDINGS See Note 12 — Commitments and Contingencies — Litigation to the Consolidated Financial Statements in this Form 10-K, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 32 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+2 added−2 removed1 unchanged
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information, Holders of Common Stock and Dividends The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol “EWBC”.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information, Holders of Common Stock and Dividends The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol “EWBC”. As of January 31, 2025, the Company had 675 stockholders of record of the Company’s common stock.
Removed
As of January 31, 2024, the Company had 702 stockholders of record of the Company’s common stock, not including beneficial owners whose shares are held in record names of brokers or other nominees. Holders of the Company’s common stock are entitled to receive cash dividends when declared by the Company’s Board of Directors out of legally available funds.
Added
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by banks, brokers and other nominees. A discussion of dividend restrictions is set forth in Item 1.
Removed
The Board of Directors presently intends to continue the policy of paying quarterly cash dividends, however, there can be no assurance as to future dividends because they are dependent on the Company’s future earnings, capital requirements and financial condition.
Added
Business — Supervision and Regulation — Dividends and Other Transfers of Funds and Note 16 — Regulatory Requirements and Matters to the Consolidated Financial Statements in this Form 10-K. For information regarding dividends, see Item 7. MD&A — Balance Sheet Analysis — Capital in this Form 10-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

3 edited+305 added−190 removed0 unchanged
Biggest changeChanges in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses. For additional information related to the higher degree of risk from a downturn in the California real estate markets, see Item 1A.
Biggest changeRisks Related to Financial Matters A significant portion of our loan portfolio is secured by real estate and at a higher degree of risk from a downturn in real estate markets. Since many of our loans are secured by real estate, a decline in the real estate markets could impact our business and financial condition.
The Company and the Bank are each subject to these regulatory capital adequacy requirements. See Item 1. Business — Supervision and Regulation — Regulatory Capital Requirements and Regulatory Capital-Related Development in this Form 10-K for additional details.
See Item 1. Business — Supervision and Regulation — Dividends and Other Transfers of Funds in this Form 10-K for a discussion of regulatory requirements applicable to dividends by us and the Bank.
For additional information on AFS and HTM securities, see Note 1 — Summary of Significant Accounting Policies, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments and Note 4 — Securities to the Consolidated Financial Statements in this Form 10-K.
We have procedures and processes in place to facilitate making these judgments. For a description of these policies, refer to Note 1 — Summary of Significant Accounting Policies to the consolidated financial statements and Item 7. MD&A – Critical Accounting Estimates in this Form 10-K.
Removed
MD&A — Risk Management — Market Risk Management for details. 40 The following table presents the interest spread, net interest margin, average balances, interest income and expense, and the average yield/rate by asset and liability component in 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 ($ in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Interest-earning assets: Interest-bearing cash and deposits with banks $ 4,638,630 $ 220,643 4.76 % $ 3,127,234 $ 41,113 1.31 % $ 6,071,896 $ 15,531 0.26 % Resale agreements 691,223 20,164 2.92 % 1,398,080 29,767 2.13 % 2,107,157 32,239 1.53 % AFS debt securities (1)(2) 6,105,999 225,592 3.69 % 6,629,945 152,514 2.30 % 8,281,234 143,983 1.74 % Held-to-maturity (“HTM”) debt securities (1) 2,976,237 50,598 1.70 % 2,756,382 46,392 1.68 % — — — % Loans: C&I 15,499,899 1,190,940 7.68 % 15,013,560 715,778 4.77 % 13,656,720 472,260 3.46 % CRE 19,824,272 1,227,795 6.19 % 17,896,853 791,839 4.42 % 15,322,059 514,921 3.36 % Residential mortgage 14,155,784 750,813 5.30 % 12,315,334 538,255 4.37 % 10,601,638 435,264 4.11 % Other consumer 65,181 3,198 4.91 % 93,711 2,429 2.59 % 136,280 2,455 1.80 % Total loans (3)(4) 49,545,136 3,172,746 6.40 % 45,319,458 2,048,301 4.52 % 39,716,697 1,424,900 3.59 % Restricted equity securities 82,177 4,062 4.94 % 77,963 3,144 4.03 % 79,404 2,081 2.62 % Total interest-earning assets $ 64,039,402 $ 3,693,805 5.77 % $ 59,309,062 $ 2,321,231 3.91 % $ 56,256,388 $ 1,618,734 2.88 % Noninterest-earning assets: Cash and due from banks 555,689 652,673 615,255 Allowance for loan losses (625,785) (559,746) (592,211) Other assets 3,788,199 3,436,293 2,971,659 Total assets $ 67,757,505 $ 62,838,282 $ 59,251,091 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities: Checking deposits $ 7,658,414 $ 179,200 2.34 % $ 6,696,200 $ 29,808 0.45 % $ 6,543,817 $ 13,023 0.20 % Money market deposits 11,680,540 399,482 3.42 % 12,443,437 107,442 0.86 % 12,428,025 15,041 0.12 % Saving deposits 2,128,943 15,573 0.73 % 2,901,940 8,550 0.29 % 2,746,933 7,496 0.27 % Time deposits 16,301,856 611,295 3.75 % 9,473,744 106,038 1.12 % 8,493,511 33,599 0.40 % Federal funds purchased and other short-term borrowings 3,591,114 157,002 4.37 % 81,719 1,801 2.20 % 1,584 42 2.65 % FHLB advances 123,288 6,430 5.22 % 105,966 1,754 1.66 % 404,789 6,881 1.70 % Repurchase agreements 34,443 1,497 4.35 % 467,413 14,362 3.07 % 306,845 7,999 2.61 % Long-term debt and finance lease liabilities 152,790 11,072 7.25 % 152,325 5,595 3.67 % 151,955 3,082 2.03 % Total interest-bearing liabilities $ 41,671,388 $ 1,381,551 3.32 % $ 32,322,744 $ 275,350 0.85 % $ 31,077,459 $ 87,163 0.28 % Noninterest-bearing liabilities and stockholders’ equity: Demand deposits 17,192,978 22,784,258 21,271,410 Accrued expenses and other liabilities 2,410,154 1,948,255 1,343,010 Stockholders’ equity 6,482,985 5,783,025 5,559,212 Total liabilities and stockholders’ equity $ 67,757,505 $ 62,838,282 $ 59,251,091 Interest rate spread 2.45 % 3.06 % 2.60 % Net interest income and net interest margin $ 2,312,254 3.61 % $ 2,045,881 3.45 % $ 1,531,571 2.72 % (1) Yields on tax-exempt debt securities are not presented on a tax-equivalent basis.
Added
Item 7. MD&A — Regulatory Capital and Ratios and Note 16 — Regulatory Requirements and Matters to the Consolidated Financial Statements in this Form 10-K.
Removed
(2) Includes the amortization of net premiums on AFS debt securities of $31 million, $72 million and $93 million for 2023, 2022 and 2021, respectively. (3) Average balances include nonperforming loans and loans held-for-sale.
Added
The Bank is also subject to additional capital requirements under the Prompt Corrective Action (“PCA”) regulations that implement Section 38 of the Federal Deposit Insurance Act (“FDIA”), as discussed below under the Prompt Corrective Action section.
Removed
(4) Loans include the accretion of net deferred loan fees and amortization of net premiums, which totaled $53 million, $50 million and $62 million for 2023, 2022 and 2021, respectively. 41 The following table summarizes the extent to which changes in (1) interest rates, and (2) volume of average interest-earning assets and average interest-bearing liabilities affected the Company’s net interest income for the periods presented.
Added
Regulatory Capital-Related Developments From time to time, the regulatory agencies propose changes and amendments to, and issue interpretations of, risk-based capital requirements and related reporting instructions.
Removed
The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.
Added
Such proposals and interpretations could, if implemented, affect our regulatory capital requirements and reported capital ratios. 9 On July 27, 2023, the federal banking agencies jointly released a proposed rule, known as the “Basel III Endgame,” to implement the international capital standards issued by the Basel Committee on Banking Supervision.
Removed
Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 Total Change Changes Due to Total Change Changes Due to ($ in thousands) Volume Yield/Rate Volume Yield/Rate Interest-earning assets: Interest-bearing cash and deposits with banks $ 179,530 $ 27,977 $ 151,553 $ 25,582 $ (10,802) $ 36,384 Resale agreements (9,603) (18,266) 8,663 (2,472) (12,812) 10,340 AFS debt securities 73,078 (12,895) 85,973 8,531 (32,250) 40,781 HTM debt securities 4,206 3,733 473 46,392 46,392 — Loans: C&I 475,162 23,900 451,262 243,518 50,613 192,905 CRE 435,956 95,037 340,919 276,918 96,028 180,890 Residential mortgage 212,558 87,511 125,047 102,991 73,603 29,388 Other consumer 769 (907) 1,676 (26) (859) 833 Total loans 1,124,445 205,541 918,904 623,401 219,385 404,016 Restricted equity securities 918 177 741 1,063 (38) 1,101 Total interest and dividend income $ 1,372,574 $ 206,267 $ 1,166,307 $ 702,497 $ 209,875 $ 492,622 Interest-bearing liabilities: Checking deposits $ 149,392 $ 4,879 $ 144,513 $ 16,785 $ 310 $ 16,475 Money market deposits 292,040 (6,983) 299,023 92,401 19 92,382 Saving deposits 7,023 (2,792) 9,815 1,054 437 617 Time deposits 505,257 118,581 386,676 72,439 4,299 68,140 Federal funds purchased and short-term borrowings 155,201 151,725 3,476 1,759 1,767 (8) FHLB advances 4,676 330 4,346 (5,127) (4,951) (176) Repurchase agreements (12,865) (17,113) 4,248 6,363 4,743 1,620 Long-term debt and finance lease liabilities 5,477 17 5,460 2,513 8 2,505 Total interest expense $ 1,106,201 $ 248,644 $ 857,557 $ 188,187 $ 6,632 $ 181,555 Change in net interest income $ 266,373 $ (42,377) $ 308,750 $ 514,310 $ 203,243 $ 311,067 42 Noninterest Income The following table presents the components of noninterest income for the periods indicated: Year Ended December 31, ($ in thousands) 2023 2022 % Change from 2022 2021 Lending fees $ 83,876 $ 79,208 6 % $ 77,704 Deposit account fees 89,606 88,435 1 % 71,261 Customer derivative income 20,200 29,057 (30) % 22,913 Foreign exchange income 52,481 48,158 9 % 48,977 Wealth management fees 26,805 27,565 (3) % 25,751 Net gains on sales of loans 3,634 6,411 (43) % 8,909 Net (losses) gains on AFS debt securities (6,862) 1,306 NM 1,568 Other investment income 9,348 7,037 33 % 16,852 Other income 16,176 11,489 41 % 11,960 Total noninterest income $ 295,264 $ 298,666 (1) % $ 285,895 NM - Not meaningful Noninterest income comprised 11% and 13% of total revenue in 2023 and 2022, respectively.
Added
The Basel III Endgame proposal would revise the capital framework applicable to large banking organizations with $100 billion or more in total consolidated assets or with significant trading activity and, if finalized, would likely result in meaningfully increased capital requirements for those organizations.
Removed
Noninterest income for 2023 was $295 million, compared with $299 million in 2022. The decrease was primarily due to lower customer derivative income and net losses on AFS debt securities, partially offset by increases in other income, lending fees, and foreign exchange income.
Added
On September 10, 2024, the Vice Chair for Supervision of the Board of Governors of the Federal Reserve System announced that he will recommend re-proposing the Basel III Endgame rules.
Removed
Lending fees were $84 million in 2023, an increase of $5 million or 6%, compared with $79 million in 2022. The year-over-year increase was driven by higher unused commitment and letter of credit facility fees. Customer derivative income was $20 million in 2023, a decrease of $9 million or 30%, compared with $29 million in 2022.
Added
Under the expected re-proposal of the rules, banks with assets between $100 billion and $250 billion would no longer be subject to the Basel III Endgame changes, other than the requirement to recognize unrealized gains and losses of their securities in regulatory capital.
Removed
The year-over-year decrease was primarily due to unfavorable credit valuation adjustments, partially offset by higher transaction volume, interest received on derivative collateral posted and energy contract income. Foreign exchange income was $52 million, an increase of $4 million or 9%, compared with $48 million in 2022.
Added
The Company had total consolidated assets of less than $100 billion as of December 31, 2024, and therefore would not be subject to the Basel III Endgame requirements as proposed or as expected to be re-proposed.
Removed
The year-over-year increase was primarily due to higher gains on foreign exchange trades, partially offset by the unfavorable valuation of certain foreign currency denominated balance sheet items.
Added
However, any Basel III Endgame requirements that are adopted and applied to banking organizations with $100 billion or more in total consolidated assets could reduce the benefits of growth beyond that size for a banking organization that has less than $100 billion in total consolidated assets, such as the Company.
Removed
Net losses on AFS debt securities of $7 million in 2023 were due to a $10 million write-off of an impaired subordinated AFS debt security during the first quarter of 2023, partially offset by a $3 million gain when the security was sold in the fourth quarter of 2023.
Added
Prompt Corrective Action The FDIA, as amended, requires federal banking agencies to take PCA with respect to insured depository institutions (“IDIs”) that do not meet minimum capital requirements.
Removed
In comparison, net gains on AFS debt securities were $1 million in 2022. Other income was $16 million in 2023, an increase of $5 million or 41%, compared with $11 million in 2022.
Added
The FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulations.
Removed
The year-over-year increase was primarily due to higher income from bank-owned life insurance policies. 43 Noninterest Expense The following table presents the components of noninterest expense for the periods indicated: Year Ended December 31, ($ in thousands) 2023 2022 % Change from 2022 2021 Compensation and employee benefits $ 508,538 $ 477,635 6 % $ 433,728 Occupancy and equipment expense 62,763 62,501 0 % 62,996 Deposit insurance premiums and regulatory assessments 103,308 19,449 431 % 17,563 Deposit account expense 43,143 25,508 69 % 16,152 Computer software and data processing expenses 44,475 42,776 4 % 46,863 Other operating expense 140,222 118,166 19 % 96,330 Amortization of tax credit and other investments 120,299 113,358 6 % 122,457 Total noninterest expense $ 1,022,748 $ 859,393 19 % $ 796,089 Noninterest expense was $1.0 billion in 2023, an increase of $163 million or 19%, compared with $859 million in 2022.
Added
The capital tiers in the PCA framework do not apply directly to bank holding companies (such as the Company); however, the Federal Reserve is authorized to take action at the bank holding company level based on the undercapitalized status of the bank holding company’s subsidiary banking institution.
Removed
The increase was primarily due to higher deposit insurance premiums and regulatory assessments, compensation and employee benefits, other operating expense, and deposit account expense. Compensation and employee benefits were $509 million in 2023, an increase of $31 million or 6%, compared with $478 million in 2022. The year-over-year increase was primarily due to wage increases and staffing growth.
Added
Under the federal banking agencies’ regulations implementing the PCA provisions of the FDIA, an IDI (such as the Bank) generally is classified in the following categories based on the capital measures indicated: Risk-Based Capital Ratios PCA Category Total Capital Tier 1 Capital CET1 Capital Tier 1 Leverage Well capitalized (1) ≥ 10% ≥ 8% ≥ 6.5% ≥ 5% Adequately capitalized ≥ 8% ≥ 6% ≥ 4.5% ≥ 4% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible equity/Total assets ≤ 2% (1) Additionally, to be classified as “well capitalized”, an IDI may not be subject to any written agreement, order, capital directive, or PCA directive issued by its primary federal regulator to meet and maintain a specific capital level for any capital measure.
Removed
Deposit insurance premiums and regulatory assessments were $103 million in 2023, an increase of $84 million or 431%, compared with $19 million in 2022.
Added
An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Removed
The year-over-year increase was primarily due to a $70 million FDIC charge incurred as a result of the final rule implemented to recover losses in the DIF following the failures of financial institutions in the first quarter of 2023, and a two bps increase in the base deposit insurance assessment rate under the FDIC’s Amended Restoration Plan.
Added
A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
Removed
Deposit account expense was $43 million in 2023, an increase of $18 million or 69%, compared with $26 million in 2022. The year-over-year increase primarily reflected an increase in deposit referral fees which were driven by higher interest rates and an increase in insured cash sweep product fees due to higher deposit balances.
Added
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of any dividend) or paying any management fee to its parent holding company, if the depository institution would thereafter be “undercapitalized.” Undercapitalized institutions are subject to growth limitations and are required to submit capital restoration plans.
Removed
Such deposit referral fees are variable fees, sensitive to market rates and paid in lieu of interest on a small portion of the Bank’s deposit balances. Other operating expense was $140 million in 2023, an increase of $22 million or 19%, compared with $118 million in 2022.
Added
If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized depository institutions may be subject to several requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, cessation of receipt of deposits from correspondent banks and/or restrictions on interest rates paid on deposits.
Removed
The year-over-year increase was primarily due to higher corporate expenses and an increase in interest expense paid on cash collateral, partially offset by a reduction in foreclosure expenses.
Added
“Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
Removed
Income Taxes The following table presents the income before income taxes, income tax expense and effective tax rate for the periods indicated: Year Ended December 31, ($ in thousands) 2023 2022 2021 Income before income taxes $ 1,459,770 $ 1,411,654 $ 1,056,377 Income tax expense $ 298,609 $ 283,571 $ 183,396 Effective tax rate 20.5 % 20.1 % 17.4 % Income tax expense was $299 million in 2023, compared with $284 million in 2022, resulting in an effective tax rate of 20.5% and 20.1%, respectively.
Added
The FDIA also generally permits only “well capitalized” IDIs to accept brokered deposits, although an “adequately capitalized” institution may apply to the FDIC for a waiver of this restriction. 10 Stress Testing Under the enhanced prudential standards adopted by the Federal Reserve, bank holding companies with $100 billion or more in total assets are subject to supervisory capital stress tests and internal liquidity stress testing requirements.
Removed
The increase in the income tax expense was primarily related to an increase in pre-tax net income, which was partially offset by an increase in tax credits.
Added
Although the Company and the Bank are not required to conduct capital or liquidity stress tests, we conduct annual capital and quarterly liquidity stress tests as part of our risk management processes.
Removed
The differences between the 2023 and 2022 effective tax rates from the federal statutory rate of 21% were primarily due to tax credits associated with renewable energy, historic and new market tax credit related projects and state taxes as described in Note 11 — Income Taxes to the Consolidated Financial Statements in this Form 10-K. 44 Operating Segment Results The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other.
Added
Consumer Financial Protection Bureau Supervision The Dodd-Frank Act established the CFPB, which has the authority to implement, examine and enforce compliance with federal consumer financial laws that apply to banking institutions with total consolidated assets exceeding $10 billion (such as the Bank) and their affiliates.
Removed
These segments are defined by the type of customers served, and the related products and services provided. For a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K.
Added
The CFPB focuses its supervisory, examination, and enforcement efforts on, among other things: • risks to consumers and compliance with federal consumer financial laws when evaluating the policies and practices of a financial institution; • unfair, deceptive, or abusive acts or practices; • rulemaking to implement various federal consumer statutes such as the Home Mortgage Disclosure Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Electronic Fund Transfer Act, Equal Credit Opportunity Act, Fair Credit Billing Act, and the Consumer Financial Protection Act; and • the markets in which firms operate and risks to consumers posed by activities in those markets.
Removed
Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process.
Added
The statutes and regulations that the CFPB enforces mandate certain disclosure and other requirements, and regulate the manner in which financial institutions must deal with consumers when taking deposits, making loans, collecting payments on loans, and providing other services.
Removed
The following table presents the results by operating segment for the periods indicated: Year Ended December 31, Consumer and Business Banking Commercial Banking Other ($ in thousands) 2023 2022 2021 2023 2022 2021 2023 2022 2021 Total revenue (loss) $ 1,340,938 $ 1,280,989 $ 791,226 $ 1,166,984 $ 1,071,634 $ 929,970 $ 99,596 $ (8,076) $ 96,270 Provision for (reversal of) credit losses 18,422 27,197 (4,998) 106,578 46,303 (30,002) — — — Noninterest expense 477,622 397,882 364,635 382,865 314,185 275,649 162,261 147,326 155,805 Segment income (loss) before income taxes 844,894 855,910 431,589 677,541 711,146 684,323 (62,665) (155,402) (59,535) Segment net income $ 596,366 $ 608,120 $ 308,630 $ 478,418 $ 507,467 $ 489,233 $ 86,377 $ 12,496 $ 75,118 Consumer and Business Banking The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network and digital banking platform.
Added
The CFPB’s rulemaking, examination and enforcement authority has affected and will continue to impact financial institutions that provide consumer financial products and services, including the Company and the Bank. These regulatory activities may limit the types of financial services and products the Company may offer.
Removed
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.
Added
Failure to comply with federal and state laws prohibiting unfair, abusive, or fraudulent business practices, untrue or misleading advertising and unfair competition, can subject the Bank to various penalties, including, but not limited to, enforcement actions, injunctions, fines or criminal penalties, punitive damages, restitution to consumers, and the loss of certain contractual rights or business opportunities and may also result in significant reputational harm.
Removed
The following table presents additional financial information for the Consumer and Business Banking segment for the periods indicated: Year Ended December 31, Change from 2022 ($ in thousands) 2023 2022 $ % 2021 Net interest income before provision for (reversal of) credit losses $ 1,238,829 $ 1,170,850 $ 67,979 6 % $ 697,101 Noninterest income 102,109 110,139 (8,030) (7) % 94,125 Total revenue 1,340,938 1,280,989 59,949 5 % 791,226 Provision for (reversal of) credit losses 18,422 27,197 (8,775) (32) % (4,998) Noninterest expense 477,622 397,882 79,740 20 % 364,635 Segment income before income taxes 844,894 855,910 (11,016) (1) % 431,589 Income tax expense 248,528 247,790 738 0 % 122,959 Segment net income $ 596,366 $ 608,120 $ (11,754) (2) % $ 308,630 Average loans $ 17,931,327 $ 15,769,072 $ 2,162,255 14 % $ 13,922,693 Average deposits $ 33,668,913 $ 33,278,330 $ 390,583 1 % $ 31,679,856 45 Consumer and Business Banking segment net income decreased by $12 million or 2% year-over-year to $596 million in 2023, due to an increase in noninterest expense, partially offset by an increase in net interest income.
Added
On October 22, 2024, the CFPB released a final rule to implement Section 1033 of the Dodd-Frank Act.
Removed
Net interest income before provision for credit losses increased $68 million or 6% year-over-year to $1.2 billion. This increase was primarily driven by higher deposit FTP credits due to the year-over-year increase in market rates.
Added
Under the final rule, financial institutions are required, upon request, to make available to a consumer or third party authorized by the consumer certain information the Bank has concerning a consumer financial product or service covered by the rule, such as a credit card or a deposit account.
Removed
Noninterest expense increased by $80 million or 20%, to $478 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023 and allocated corporate overhead expenses . Commercial Banking The Commercial Banking segment primarily generates commercial loan and deposit products.
Added
In issuing this rule, the CFPB said that the rule will move the U.S. closer to an “open banking” system that will allow consumers to switch banks or other providers more easily.
Removed
Commercial loan products include CRE lending, construction finance, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.
Added
The final rule also requires, among other things, covered data providers, such as the Bank, to establish a developer interface that satisfies certain performance and data security specifications through which the data provider can receive requests for, and provide, specific types of data covered by the rule in an electronic, usable form to authorized third parties directly or through data aggregators.
Removed
The following table presents additional financial information for the Commercial Banking segment for the periods indicated: Year Ended December 31, Change from 2022 ($ in thousands) 2023 2022 $ % 2021 Net interest income before provision for (reversal of) credit losses $ 992,519 $ 892,386 $ 100,133 11 % $ 766,202 Noninterest income 174,465 179,248 (4,783) (3) % 163,768 Total revenue 1,166,984 1,071,634 95,350 9 % 929,970 Provision for (reversal of) credit losses 106,578 46,303 60,275 130 % (30,002) Noninterest expense 382,865 314,185 68,680 22 % 275,649 Segment income before income taxes 677,541 711,146 (33,605) (5) % 684,323 Income tax expense 199,123 203,679 (4,556) (2) % 195,090 Segment net income $ 478,418 $ 507,467 $ (29,049) (6) % $ 489,233 Average loans $ 31,613,809 $ 29,550,386 $ 2,063,423 7 % $ 25,794,004 Average deposits $ 17,825,312 $ 17,276,427 $ 548,885 3 % $ 17,122,743 Commercial Banking segment net income decreased by $29 million or 6% year-over-year to $478 million in 2023.
Added
Under the final rule, the Bank will be prohibited from charging fees for maintaining the developer interface or providing access to such data. The Bank may also act as an authorized third party to request and access covered data from other financial institutions that are covered data providers.
Removed
This decrease was primarily driven by higher noninterest expense and provision for credit losses, partially offset by higher net interest income. Net interest income before provision for credit losses increased by $100 million or 11% to $993 million, driven by higher loan interest income from commercial loan growth.
Added
The final rule places data security, authorization, and other obligations on those authorized third parties, including limitations on secondary uses of the data received. Industry organizations have challenged the final rule in court and the litigation is ongoing. If the challenge is not successful, as a data provider, the Bank must comply with the rule beginning April 1, 2027.
Removed
Provision for credit losses increased by $60 million or 130% year-over-year to $107 million, primarily driven by loan growth and changes to the macroeconomic outlook.
Added
We are monitoring the status of the litigation and evaluating the impact of this rule. The final outcome of any proposed and final rules issued by the CFPB is uncertain as they may conflict with the rulemaking agenda and vision for the bureau under the Trump administration.
Removed
Noninterest expense increased by $69 million or 22% to $383 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023, deposit account expense, and allocated corporate overhead expenses.
Added
Federal Home Loan Bank and the Federal Reserve’s Reserve Requirements The Bank is a member of the Federal Home Loan Bank (“FHLB”) of San Francisco. As an FHLB member, the Bank is required to own a certain amount of capital stock in the FHLB.
Removed
Other Centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Other segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments. 46 The following table presents additional financial information for the Other segment for the periods indicated: Year Ended December 31, Change from 2022 ($ in thousands) 2023 2022 $ % 2021 Net interest income (loss) $ 80,906 $ (17,355) $ 98,261 NM $ 68,268 Noninterest income 18,690 9,279 9,411 101 % 28,002 Total revenue (loss) 99,596 (8,076) 107,672 NM 96,270 Noninterest expense 162,261 147,326 14,935 10 % 155,805 Segment loss before income taxes (62,665) (155,402) 92,737 60 % (59,535) Income tax benefit (149,042) (167,898) 18,856 11 % (134,653) Segment net income $ 86,377 $ 12,496 $ 73,881 NM $ 75,118 Average deposits $ 3,468,506 $ 3,744,822 $ (276,316) (7) % $ 2,681,097 NM - Not meaningful The Other segment reported segment loss before income taxes of $63 million and segment net income of $86 million, reflecting an income tax benefit of $149 million in 2023.
Added
The Bank may also access both short- and long-term secured credit from the FHLB. 11 The Federal Reserve requires all depository institutions to maintain reserves at specified levels against their transaction accounts either in the form of vault cash or an interest-bearing account at the Federal Reserve Bank (“FRB”), or a pass-through account as defined by the Federal Reserve.
Removed
The decrease in segment loss before income taxes was primarily driven by higher net interest income. The $98 million year-over-year increase in net interest income was primarily driven by a higher yield on interest-bearing cash and deposits with banks and debt securities in 2023, partially offset by higher costs of borrowings.
Added
Effective March 26, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent, eliminating the reserve requirement for all depository institutions. The Bank is a member bank and stockholder of the FRB of San Francisco. Dividends and Other Transfers of Funds The principal source of liquidity of East West is dividends received from the Bank.
Removed
The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments, and reflects the impact of tax credit investment activity.
Added
Federal and California law limit the Bank’s ability to pay dividends to East West. Regulatory approval is required under federal law if the total of all dividends declared by the Bank in any calendar year would exceed the sum of the Bank’s net income for that year and its retained earnings for the preceding two years.
Removed
Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes. Tax credit investment amortization is allocated to the Other segment.
Added
Federal law also prohibits the Bank from paying dividends that would be greater than its undivided profits unless the Bank has received prior approval from the Federal Reserve. California law imposes its own limitations on capital distributions by California-chartered banks that could require the Bank to obtain the approval of the DFPI prior to making a distribution to East West.
Removed
Balance Sheet Analysis Debt Securities The Company maintains a portfolio of high quality and liquid debt securities with a moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks.
Added
Furthermore, under the federal PCA regime, the Federal Reserve or FDIC may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “significantly undercapitalized” or, in some circumstances, “undercapitalized.” It is the Federal Reserve’s policy that a bank holding company should generally pay dividends on common stock only if the company’s net income available to common stockholders over the past four quarters, net of distributions, would be sufficient to fully fund the dividends, and if the prospective rate of earnings retention appears consistent with the company’s capital needs, asset quality and overall financial condition.
Removed
The Company’s debt securities provide: • interest income for earnings and yield enhancement; • funding availability for needs arising during the normal course of business; • the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and • collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 7 . MD&A — Risk Management — Market Risk Management and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K. 77 EAST WEST BANCORP, INC.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, see Item 7 . MD&A — Risk Management — Market Risk Management and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K. 75 EAST WEST BANCORP, INC.

Other EWBC 10-K year-over-year comparisons