EAST WEST BANCORP INC
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
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FY2024 · Filed Feb 28, 2025
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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, 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. 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. 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. 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. 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.
(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.
(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.
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. 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. 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.
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. 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.
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. 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. 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.
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.