EAST WEST BANCORP INC

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

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

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

Credit Quality

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

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

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

(2)Excludes loans held-for-sale.

Nonperforming Assets

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

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

NM — Not meaningful.

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

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

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

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

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

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

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

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