EAST WEST BANCORP INC

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company,” “we” “our” or “EWBC”) and its subsidiaries, including its subsidiary bank, East West Bank and its subsidiaries (referred to herein as “East West Bank” or the “Bank”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes presented elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 29, 2024 (the “Company’s 2023 Form 10-K”).

Organization and Strategy

East West is a bank holding company incorporated in Delaware on August 26, 1998, and is registered under the Bank Holding Company Act of 1956, as amended. The Company commenced business on December 30, 1998 when, pursuant to a reorganization, it acquired all of the voting stock of the Bank, which became its principal asset. The Bank is an independent commercial bank headquartered in California that focuses on the financial service needs of individuals and businesses that operate in both the U.S. and Asia. Through over 110 locations in the U.S. and Asia, the Company provides a full range of consumer and commercial products and services through the following three business segments: (1) Consumer and Business Banking and (2) Commercial Banking, with the remaining operations recorded in (3) Other. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. We are committed to enhancing long-term shareholder value by growing loans, deposits and revenue, improving profitability, and investing for the future while managing risks, expenses and capital. Our business model is built on customer loyalty and engagement, understanding our customers’ financial goals, and meeting our customers’ financial needs through our diverse products and services. We expect our relationship-focused business model to continue generating organic growth from existing customers and to expand our targeted customer bases. As of June 30, 2024, the Company had $72.5 billion in total assets and approximately 3,200 full-time equivalent employees. For additional information on our strategy, and the products and services provided by the Bank, see Item 1. Business — Strategyand Banking Servicesin the Company’s 2023 Form 10-K.

Current Developments

Economic Developments

Recent external data indicate that inflation is heading closer to the Board of Governors of the Federal Reserve System’s (“Federal Reserve”) 2% target. The inflation readings have shown consistent improvement in recent months, which has led to expectations of rate cuts in September 2024. However, the higher-for-longer interest rate environment continues to negatively impact the market value of banking organizations’ investment securities, while the commercial real estate (“CRE”) market remains under pressure from tighter credit conditions and decreased demand for office space. Factors such as the economic impacts of unrest, wars, and acts of terrorism could lead to higher energy and food prices, contributing to increased inflationary pressures, which may result in the likelihood that the Federal Reserve will cut interest rates slower than anticipated. The Company monitors changes in economic and industry conditions and their impacts on the Company’s business, customers, employees, communities and markets.

Further discussion of the potential impacts on the Company’s business due to the higher interest rate environment has been provided in Item 1A. — Risk Factors — Risks Related to Financial Mattersin the Company’s 2023 Form 10-K.

Federal Deposit Insurance Corporation Special Assessment

In November 2023, the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule to implement a special deposit insurance assessment to recover losses to the Deposit Insurance Fund (“DIF”) arising from the protection of uninsured depositors following the receiverships of failed institutions in the spring of 2023. Under the final rule, the assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits, reported for the quarter ended December 31, 2022, minus the first $5 billion in estimated uninsured deposits. The FDIC will collect the special assessment over eight quarterly assessment periods starting with the first quarter of 2024, at a quarterly rate of 3.36 basis points (“bps”). The Company recognized the entire assessment expense of approximately $70 million in the fourth quarter of 2023. In addition, the FDIC retained the ability to make further adjustments to the special assessment depending on subsequent adjustments to the DIF’s estimated loss.

As of the date of the publication of the final rule, the FDIC estimated that losses to the DIF totaled $16.3 billion. The FDIC has subsequently updated its estimate of the DIF’s losses that are recoverable through the special assessment, which as of June 2024 totaled $19.2 billion. The FDIC also projected that the special assessment would be collected for an additional two quarters beyond the initial eight-quarter collection period, at an estimated quarterly rate of 2.34 bps. As a result, in addition to the $10 million of FDIC special assessment charge (“FDIC charge”) recorded in the first quarter of 2024, an additional $2 million of FDIC charge was recorded in the second quarter of 2024.

Climate Accountability

On March 6, 2024, the SEC adopted final rules requiring registrants to disclose certain climate-related information in registration statements and Annual Reports on Form 10-K. The final rules include disclosures related to climate-related risks and risk management as well as the board and management’s governance of such risks. The rules also incorporate requirements to disclose the financial effects of certain severe weather events and other natural conditions in the audited financial statements. Larger registrants would be required to disclose information about greenhouse gas (“GHG”) emissions, to the extent material, which would be subject to a phased-in third-party assurance requirement. The compliance date for the majority of the disclosures would be required starting with the 2025 Form 10-K. The compliance date for disclosures over material expenditures and their impact on a company’s financial statements, and Scope 1 and Scope 2 GHG emissions would be required starting with the 2026 Form 10-K. The attestation requirements would be phased in as limited assurance for the 2029 Form 10-K and reasonable assurance for the 2033 Form 10-K.

On April 4, 2024, the SEC voluntarily stayed implementation of the rules pending the completion of judicial review of consolidated legal challenges to the rules by the United States Court of Appeals for the Eighth Circuit. As such, the compliance dates listed in the final rule are tentative. The Company is evaluating the impact of the climate disclosure rules and monitoring the outcome of the litigation regarding their adoption.

In October 2023, California Governor Gavin Newsom signed into law Senate Bill 253, the Climate Corporate Data Accountability Act (“CCDAA”) and Senate Bill 261, the Climate-Related Financial Risk Act (“CRFRA”). On June 28, 2024, the Newsom administration released proposed amendments to the CCDAA and CRFRA, which could delay the implementation deadlines under each of these laws by two years from their respective initial compliance dates. If so amended, the reporting requirements under the CCDAA related to Scope 1 and 2 emissions will begin in 2028, the reporting requirements of Scope 3 emissions will begin in 2029, and the initial round of the climate risk disclosure reports under the CRFRA will be due by January 1, 2028. The Company is monitoring the status of these proposed amendments and their effect on any reporting requirements. For additional information on the California climate bills, see Item 1. — Business — Supervision and Regulation — Climate-Related Risk Managementin the Company’s 2023 Form 10-K.

Regulatory Update

On October 24, 2023, the Agencies issued a final rule revising their framework for evaluating banks’ records of community reinvestment under the Community Reinvestment Act (“CRA”). The updates to the final rule strengthened and modernized the regulations implementing the CRA to better achieve the purposes of the law. On March 21, 2024, the agencies issued an interim final rule that extended the applicability date of certain provisions in the CRA final rule and requested comment on the extension. The Agencies extended the applicability date of the facility-based assessment areas and public file provisions from April 1, 2024 to January 1, 2026. Therefore, banks will not have to make changes to their assessment areas or their public files as a result of the 2023 CRA final rule until January 1, 2026. In addition, the Agencies also issued technical, non-substantive amendments to the CRA final rule and related agency regulations that reference it. For example, one of these technical amendments clarified that banks do not need to make changes to their public notices until January 1, 2026. The Company is evaluating impact of the interim final rule. For additional information on the CRA final rule, refer to Item 1. — Business — Supervision and Regulation — Community Reinvestment Act in the Company’s 2023 Form 10-K.

On June 20, 2024, the FDIC released a final rule that requires covered insured depository institutions (“IDIs”) to develop and submit detailed plans demonstrating how they could be resolved in an orderly and timely manner in the event of receivership. IDIs with total assets of $100 billion or more are required to submit full resolution plans, and IDIs with total assets between $50 billion and $100 billion, including the Bank, are required to submit more limited informational filings. The first informational filings required under the final rule will be due no earlier than October 1, 2025. Under the final rule, if the FDIC deemed a resolution plan or informational filing not credible and the IDI failed to resubmit a credible plan, the IDI could become subject to an enforcement action. The Company has established a working group with senior executive management to prepare and complete a credible resolution plan for timely submission as part of the initial informational filing required by the final rule.

On July 19, 2024, the federal banking agencies jointly released a statement on a proposed rule to update anti-money laundering and countering the financing of terrorism (“AML/CFT”) program requirements for the institutions they supervise, including the Bank. The proposed rule sets forth the minimum requirements of an AML/CFT program, codifies longstanding supervisory expectations, and conforms to changes made by the Anti-Money Laundering Act of 2020. Under the proposed rule an institution would be required to have an effective, risk-based, and reasonably designed AML/CFT program and to perform AML/CFT risk assessments. The Company is evaluating the impact of this proposed rule.

Financial Review

(1)For additional information regarding the reconciliation of these non-U.S. Generally Accepted Accounting Principles (“GAAP”) financial measures, refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Reconciliation of GAAP to Non-GAAP Financial Measuresin this Form 10-Q.

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

The Company’s second quarter 2024 net income was $288 million, a decrease of $24 million or 8%, from second quarter 2023 net income of $312 million. The decrease was primarily due to lower net interest income, higher provision for credit losses and the impacts related to the expanded application of the proportional amortization method (“PAM”) to its tax credit investments portfolio during the quarter. Net income for the first half of 2024 was $573 million, a decrease of $61 million or 10%, from first half of 2023 net income of $634 million. The decrease was primarily due to lower net interest income, higher income tax expense and provision for credit losses, partially offset by higher noninterest income. Noteworthy items about the Company’s performance for the second quarter and first half of 2024 included:

•Net interest income and net interest margin. Second quarter 2024 net interest income before provision for credit losses was $553 million, a decrease of $14 million or 2%from the second quarter of 2023. Second quarter 2024 net interest margin of 3.27% declined by 28 bps year-over-year. For the first half of 2024, net interest income before provision for credit losses was$1.1 billion, adecrease of$48 million or 4% year-over-year. The net interest margin for the first half of 2024 was 3.30%, down 45 bps year-over-year.

•Profitability ratios. Second quarter 2024 ROA, ROE and the return on average TCE of 1.63%, 16.36% and 17.54%, respectively, were down year-over-year. ROA, ROE and the return on average TCE of 1.61%, 16.38% and 17.57%, respectively, for the first half of 2024, were also down year-over-year. Return on average TCE is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Efficiency ratios. Second quarter 2024 efficiency ratio of 37.06% improved 350 bps from 40.56% for the second quarter of 2023. For the first half of 2024, the efficiency ratio was 37.70%, compared with 36.79% for the first half of 2023. Adjusted efficiency ratios were 34.25% and 34.47% for the second quarter and first half of 2024, respectively, compared with 31.83% and 31.13%, respectively, for the same year-ago periods. Adjusted efficiency ratio is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A — Reconciliation of GAAP to Non-GAAP Financial Measures in this Form 10-Q.

•Asset growth. Total assets reached $72.5 billion as of June 30, 2024, an increase of $2.9 billion or 4%, from December 31, 2023, primarily driven by a $2.7 billion or 44% increase in available-for-sale (“AFS”) debt securities.

•Deposit growth. Total deposits were $60.0 billion as of June 30, 2024, an increase of $3.9 billion or 7%, from $56.1 billion as of December 31, 2023, primarily reflecting growth across the Consumer and Business Banking and Commercial Banking segments.

•Strong capital levels. Stockholders’ equity was $7.2 billion as of June 30, 2024, up 4% from $7.0 billion as of December 31, 2023. Book value and tangible book value per share of $52.06 and $48.65, respectively, as of June 30, 2024, were both up 5% from $49.64 and $46.27, respectively, compared with December 31, 2023. Tangible book value per share is a non-GAAP financial measure. For additional details, see the reconciliation of non-GAAP financial measures presented under Item 2. MD&A - Reconciliation of GAAP to non-GAAP Financial Measures in this Form 10-Q.