EAST WEST BANCORP INC
For the period ended Dec 31, 2023. Filed Feb 29, 2024.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2023 · Filed Feb 29, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
See the whole filing, with its images and exhibitsContents
Debt Securities
The Company maintains a portfolio of high quality and liquid debt securities with a moderate duration profile. It closely manages the overall portfolio credit, interest rate and liquidity risks. The Company’s debt securities provide:
interest income for earnings and yield enhancement;
funding availability for needs arising during the normal course of business;
the ability to execute interest rate risk management strategies in response to changes in economic or market conditions; and
collateral to support pledging agreements as required and/or to enhance the Company’s borrowing capacity.
While the Company does not intend to sell its debt securities, it may sell AFS debt securities in response to changes in the balance sheet and related interest rate risk to meet liquidity, regulatory and strategic requirements.
The following table presents the distribution of the Company’s AFS and HTM debt securities portfolio as of December 31, 2023 and 2022, and by credit ratings as of December 31, 2023:
| December 31, 2023 · December 31, 2022 · Rating as of December 31, 2023 (1) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | Amortized Cost | Fair Value | % of Fair Value | Amortized Cost | Fair Value | % of Fair Value | AAA/AA | A | BBB | BB and Lower | No Rating (2) |
| AFS debt securities: | |||||||||||
| U.S. Treasury securities | $1,112,587 | $1,060,375 | 17% | $676,306 | $606,203 | 10% | 100% | —% | —% | —% | —% |
| U.S. government agency and U.S. government-sponsored enterprise debt securities | 412,086 | 364,446 | 6% | 517,806 | 461,607 | 8% | 100% | —% | —% | —% | —% |
| U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities | 2,488,304 | 2,195,853 | 35% | 2,588,446 | 2,262,464 | 37% | 100% | —% | —% | —% | —% |
| Municipal securities | 297,283 | 261,016 | 4% | 303,884 | 257,099 | 4% | 98% | —% | —% | —% | 2% |
| Non-agency mortgage-backed securities | 1,052,913 | 921,187 | 15% | 1,209,714 | 1,047,553 | 17% | 82% | —% | —% | —% | 18% |
| Corporate debt securities | 653,501 | 502,425 | 8% | 673,502 | 526,274 | 9% | —% | 32% | 66% | 2% | —% |
| Foreign government bonds | 239,333 | 227,874 | 4% | 241,165 | 227,053 | 4% | 47% | 53% | —% | —% | —% |
| Asset-backed securities | 43,234 | 42,300 | 1% | 51,152 | 49,076 | 1% | 100% | —% | —% | —% | —% |
| Collateralized loan obligations | 617,250 | 612,861 | 10% | 617,250 | 597,664 | 10% | 96% | 4% | —% | —% | —% |
| Total AFS debt securities | $6,916,491 | $6,188,337 | 100% | $6,879,225 | $6,034,993 | 100% | 87% | 5% | 5% | 0% | 3% |
| HTM debt securities: | |||||||||||
| U.S. Treasury securities | $529,548 | $488,551 | 20% | $524,081 | $471,469 | 19% | 100% | —% | —% | —% | —% |
| U.S. government agency and U.S. government-sponsored enterprise debt securities | 1,001,836 | 814,932 | 33% | 998,972 | 789,412 | 32% | 100% | —% | —% | —% | —% |
| U.S. government agency and U.S. government-sponsored enterprise mortgage-backed securities | 1,235,784 | 1,004,697 | 41% | 1,289,106 | 1,042,310 | 43% | 100% | —% | —% | —% | —% |
| Municipal securities | 188,872 | 145,791 | 6% | 189,709 | 151,980 | 6% | 100% | —% | —% | —% | —% |
| Total HTM debt securities | $2,956,040 | $2,453,971 | 100% | $3,001,868 | $2,455,171 | 100% | 100% | —% | —% | —% | —% |
| Total debt securities | $9,872,531 | $8,642,308 | $9,881,093 | $8,490,164 | |||||||
(1)Credit ratings express opinions about the credit quality of a debt security. The Company determines the credit rating of a security according to the lowest credit rating made available by nationally recognized statistical rating organizations (“NRSROs”). Debt securities rated investment grade, which are those with ratings similar to BBB- or above (as defined by NRSROs), are generally considered by the rating agencies and market participants to be low credit risk. Ratings percentages are allocated based on fair value.
(2)For debt securities not rated by NRSROs, the Company uses other factors which include but are not limited to the priority in collections within the securitization structure, and whether the contractual payments have historically been on time.
As of December 31, 2023, the Company’s AFS and HTM debt securities portfolios had an effective duration (defined as the sensitivity of the value of the portfolio to interest rate changes) of 3.6 and 7.5, respectively, compared with 4.1 and 8.0, respectively, as of December 31, 2022. The modest decreases in both the AFS and HTM effective durations were due to the portfolio seasoning.
Available-for-Sale Debt Securities
The fair value of AFS debt securities totaled $6.2 billion as of December 31, 2023, an increase of $153 million or 3% from $6.0 billion as of December 31, 2022. The increase was primarily due to yield curve movement. The Company’s AFS debt securities are carried at fair value with non-credit related unrealized gains and losses, net of tax, reported in Other comprehensive income (loss)on the Consolidated Statement of Comprehensive Income. Pre-tax net unrealized losses on AFS debt securities were $728 million as of December 31, 2023, compared with $844 million as of December 31, 2022.
As of both December 31, 2023 and 2022, 97% of the carrying value of the AFS debt securities portfolio was rated investment grade by NRSROs. Of the AFS debt securities with gross unrealized losses, substantially all were rated investment grade as of both December 31, 2023 and 2022. There was no allowance for credit losses provided against the AFS debt securities as of both December 31, 2023 and 2022. During 2023, the Company recognized $7 million in net losses on AFS debt securities, consisting of a $10 million impairment write-off on a subordinated debt security, partially offset by a $3 million gain on the sale of the same security. There were no credit losses recognized in earnings for 2022.
Held-to-Maturity Debt Securities
All HTM debt securities were issued, guaranteed, or supported by the U.S. government or government-sponsored enterprises. Accordingly, the Company applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of both December 31, 2023 and 2022.
For additional information on AFS and HTM securities, see Note 1 — Summary of Significant Accounting Policies, Note 2 — Fair Value Measurement and Fair Value of Financial Instruments and Note 4 — Securities to the Consolidated Financial Statements in this Form 10-K.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.