EAST WEST BANCORP INC

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. For a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 15 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

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.

During the third quarter of 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. Balances for the prior year periods have been reclassified for comparability.

The following tables present the results by operating segment for the periods indicated:

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. 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, private banking, treasury management, interest rate risk hedging and foreign exchange services.

The following tables present additional financial information for the Consumer and Business Banking segment for the periods indicated:

Consumer and Business Banking segment net income decreased $22 million or 13% year-over-year to $142 million for the third quarter of 2024, primarily driven by a decrease in net interest income. Net interest income before provision for credit losses decreased $24 million or 8% year-over-year to $291 million for the third quarter of 2024, primarily driven by a higher cost of interest-bearing deposits and a continued shift to interest-bearing products in the deposit mix.

Consumer and Business Banking segment net income decreased $26 million or 6% year-over-year to $435 million for the first nine months of 2024, mainly driven by lower net interest income and higher noninterest expense, partially offset by lower provision for credit losses. Net interest income before provision for credit losses decreased $43 million or 5% year-over-year to $880 million for the first nine months of 2024, primarily driven by a higher cost of interest-bearing deposits and a continued shift to interest-bearing products in the deposit mix. Provision for credit losses decreased $24 million or 82% year-over-year to $5 million for the first nine months of 2024. The decrease was primarily driven by the improvement in the macroeconomic outlook in the residential mortgage loan sector. Noninterest expense increased $19 million or 6% year-over-year to $338 million. The increase was primarily due to higher compensation and employee benefits, and deposit insurance premiums and regulatory assessments due to the FDIC special assessment in the first half of 2024.

Commercial Banking

The Commercial Banking segment primarily generates commercial loan and deposit products. 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.

The following tables present additional financial information for the Commercial Banking segment for the periods indicated:

For the third quarter of 2024, Commercial Banking segment net income of $143 million remained relatively unchanged from the prior year quarter. For the first nine months of 2024, Commercial Banking segment net income decreased $30 million or 7% year-over-year to $423 million. This decrease was primarily due to higher provision for credit losses and noninterest expense, partially offset by higher net interest income. Net interest income before provision for credit losses increased $30 million or 4% year-over-year to $856 million for the first nine months of 2024. This increase was primarily driven by higher loan interest income from commercial loan growth. Provision for credit losses increased $44 million or 78% year-over-year to $100 million for the first nine months of 2024, primarily driven by higher net charge-offs in the C&I portfolio. Noninterest expense increased $41 million or 16% year-over-year to $296 million for the first nine months of 2024, primarily due to higher compensation and employee benefits, deposit account expense, and deposit insurance premiums and regulatory assessments.

Treasury and Other

Centralized functions, including the corporate treasury activities of the Company and eliminations of inter-segment amounts, have been aggregated and included in the Treasury and Other segment, which provides broad administrative support to the two core segments, namely the Consumer and Business Banking and the Commercial Banking segments.

The following tables present additional financial information for the Treasury and Other segment for the periods indicated:

The Treasury and Other segment reported segment loss before income taxes of $15 million and segment net income of $14 million, reflecting an income tax benefit of $30 million for the third quarter of 2024. The increase in segment net income was primarily driven by lower noninterest expense and net interest loss, partially offset by lower income tax benefit. The $22 million decrease in net interest loss before provision for credit losses was mainly driven by higher interest income from debt securities. Noninterest expense decreased $39 million, primarily due to lower amortization of tax credit and CRA investments from the expanded use of PAM since the adoption of ASU 2023-02 on January 1, 2024. For additional information on the PAM, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policiesand Note 8 — Affordable Housing Partnership, Tax Credit and Community Reinvestment Act Investments, Net.

The Treasury and Other segment reported segment loss before income taxes of $92 million and segment net income of $14 million, reflecting an income tax benefit of $107 million for the first nine months of 2024. The increase in segment net income was primarily driven by the lower noninterest expense and higher noninterest income, partially offset by lower income tax benefit and net interest income. The $34 million decrease in net interest income before provision for credit losses was primarily driven by lower FTP spread income absorbed by the Treasury and Other segment and higher costs of borrowings, partially offset by higher interest income from debt securities. Noninterest income increased $17 million for the first nine months of 2024, mainly due to a $10 million write-off of an impaired AFS debt security recorded during the first quarter of 2023. Noninterest expense decreased $82 million, primarily due to lower amortization of tax credit and CRA investments from the aforementioned adoption of ASU 2023-02 on January 1, 2024.

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 reflects the impact of tax credit investment activity. 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 Treasury and Other segment.