EAST WEST BANCORP INC

Note 5 —Derivatives

The Company uses derivative instruments to manage exposure to market risk, primarily interest rate and foreign currency risks, as well as to assist customers in managing their risk exposures. The Company uses interest rate derivatives to manage interest rate sensitivity and reduce the potential effects of changes in interest rates on earnings or capital. The Company may also use foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, the funding needs of, and the Bank’s investment in, East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. Certain derivatives are designated as hedging instruments in qualifying hedge accounting relationships, while others are used as economic hedges. For additional information regarding the Company’s derivatives and hedging activities, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivatives to the Consolidated Financial Statements in the Company’s 2025 Form 10-K.

The following table presents the notional amounts and fair values of the Company’s derivative instruments as of September 30, 2026 and December 31, 2025. Certain derivative contracts are cleared through central clearing organizations, for which variation margin payments are treated as settlements of the related derivative fair values. Accordingly, the fair values in the table are presented on a gross basis before the effects of bilateral collateral and master netting agreements, but after the application of variation margin payments on centrally cleared derivative contracts. As of September 30, 2026, variation margin payments on derivative contracts cleared through the London Clearing House and the Chicago Mercantile Exchange reduced derivative asset and liability fair values by $23 million and $25 million, respectively, compared with reductions in the derivative asset and liability fair values of $16 million and $3 million, respectively, as of December 31, 2025. Gross derivative asset and liability fair values are subsequently adjusted for the effects of legally enforceable master netting agreements and cash collateral received or paid. The resulting net derivative asset and liability fair values are included in Other assets and Accrued expenses and other liabilities, respectively, on the Consolidated Balance Sheet.

(1)The notional amounts of the Company’s commodity contracts totaled 13 million barrels of crude oil and 252 million units of natural gas, measured in million British thermal units (“MMBTUs”), as of September 30, 2026, compared with 16 million barrels of crude oil and 364 million MMBTUs of natural gas as of December 31, 2025.

(2)The notional amount of credit contracts represents the Company’s pro-rata share of the notional amounts of the underlying derivative instruments subject to credit risk participation agreements (“RPAs”).

(3)The Company held warrant equity contracts innine private companies as of both September 30, 2026 and December 31, 2025.

(4)Equity contracts classified as derivative liabilities consisted of 349 thousand performance-based RSUs granted as part of the Company’s consideration for an investment.

Derivatives Designated as Hedging Instruments

Cash Flow Hedges — The Company uses interest rate swaps and collars to hedge variability in interest cash flows on certain floating-rate commercial loans attributable to changes in contractually specified interest rates. As of September 30, 2026, the Company had $4.0 billion in notional amount of interest rate contracts designated as cash flow hedges to effectively convert certain floating-rate loans to fixed-rate instruments through interest rate swaps and to limit interest rate exposure through collars.

Gains and losses on qualifying cash flow hedges are recognized in AOCI and reclassified to earnings in the periods in which the hedged cash flows affect earnings in the same income statement line item as the earnings effect of the hedged item. Based on interest rates, the yield curve and notional amounts as of September 30, 2026, the Company expects to reclassify approximately $18 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following table presents the pre-tax changes in AOCI related to cash flow hedges for the three and nine months ended September 30, 2026 and 2025. The related after-tax effects on AOCI are presented in Note 12 — Accumulated Other Comprehensive Income (Loss)to the Consolidated Financial Statements in this Form 10-Q.

Derivatives Not Designated as Hedging Instruments

Customer-Related Positions and Economic Hedge Derivatives— The Company enters into interest rate, commodity, and foreign exchange derivatives to meet the risk management needs of its customers and generally enters into offsetting derivative contracts with third-party financial institutions to mitigate the resulting market risk. The Company also utilizes foreign exchange contracts to mitigate the effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily foreign currency-denominated deposits that it offers to its customers, as well as to meet its funding needs in certain foreign currencies. A majority of the foreign exchange contracts had original maturities ofone year or less as of both September 30, 2026 and December 31, 2025.

The following table presents the notional amounts and the gross fair values of customer-related interest rate and foreign exchange derivatives and related economic hedges entered into with third-party financial institutions as of September 30, 2026 and December 31, 2025:

The Company enters into energy commodity contracts with customers in the oil and gas sector to assist them in managing exposure to fluctuations in energy commodity prices. The Company generally enters into offsetting derivative contracts with third-party financial institutions as economic hedges to manage the market risk associated with these customer-related positions. The following table presents the notional amounts and gross fair values of the Company’s customer-related commodity derivative contracts issued and related economic hedges as of September 30, 2026 and December 31, 2025:

Credit Contracts — The Company periodically enters into RPAs with institutional counterparties to manage credit exposure arising from interest rate contracts associated with syndicated loans. Under an RPA, a portion of the credit exposure associated with the underlying interest rate contract is transferred from the purchaser of credit protection to the seller of credit protection. If the underlying borrower defaults on the related interest rate contract, the seller of credit protection is required to make payments to the purchaser of credit protection. The Company may enter into RPAs as either a purchaser or seller of credit protection. The Company manages credit risk associated with RPAs through its normal credit review and monitoring process, including monitoring the creditworthiness of the underlying borrowers and the institutional counterparties. Assuming default by the underlying borrowers, the Company would have been required to make payments totaling $7 thousand and $590 thousand as of September 30, 2026 and December 31, 2025, respectively, to settle RPAs for which it sold credit protection.

The following table presents the notional amounts and gross fair values of outstanding RPAs for credit protection sold and purchased as of September 30, 2026 and December 31, 2025:

(1)All reference entities underlying credit protection sold were investment grade as of both dates. The weighted-average remaining maturities were 2.5 years and 2.7 years as of September 30, 2026 and December 31, 2025, respectively.

Equity Contracts — As part of the loan origination process, the Company may obtain warrants to purchase preferred or common stock of its borrowers, primarily companies in the technology and life sciences sectors. These warrants provide the Company with the right to purchase a specific class of the underlying company’s equity at a specified price before expiration. In connection with an investment made during the third quarter of 2023, the Company granted performance-based RSUs as part of the consideration for the investment. Vesting of these RSUs is contingent upon the investee achieving specified financial performance targets during the applicable performance period. For additional information on these equity contracts, see Note 2 — Fair Value Measurement and Fair Value of Financial Instrumentsto the Consolidated Financial Statements in this Form 10-Q.

The following table presents the net gains (losses) from changes in the fair value of derivatives not designated as hedging instruments recognized on the Company’s Consolidated Statement of Income for the three and nine months ended September 30, 2026 and 2025:

Credit Risk-Related Contingent Features — Certain of the Company’s over-the-counter derivative contracts contain provisions that require settlement of outstanding balances upon the occurrence of specified credit risk-related events, primarily a downgrade of East West Bank’s credit rating to below investment grade. As of September 30, 2026 and December 31, 2025, the aggregate fair value amount of derivative instruments with credit risk-related contingent features that were in a net liability position was$1 million and $3 million, respectively. The Company had posted collateral related to these positions of $1 million and $3 million, respectively, as of those dates. If East West Bank’s credit rating had been downgraded to below investment grade as of either date, the Company would have been required to post minimal additional collateral.

Offsetting of Derivatives

The following tables present the gross fair values of derivative assets and liabilities, amounts offset on the Consolidated Balance Sheet under master netting arrangements and related cash collateral, and the resulting net amounts. The tables also present security collateral that is not offset on the Consolidated Balance Sheet. Where applicable, gross derivative fair values reflect variation margin payments accounted for as settlements of centrally cleared contracts. Collateral amounts presented are limited to the outstanding balances of the related derivative asset or liability; accordingly, instances of over-collateralization are excluded.

(1)Includes gross derivative assets of $4 million and $9 million with counterparties not subject to enforceable master netting arrangements or similar agreements as of September 30, 2026 and December 31, 2025, respectively.

(2)Includes gross derivative liabilities of $26 million and $16 million with counterparties not subject to enforceable master netting arrangements or similar agreements as of September 30, 2026 and December 31, 2025, respectively.

(3)Gross cash collateral received under master netting arrangements or similar agreements was $269 million and $184 million as of September 30, 2026 and December 31, 2025, respectively. Of the gross cash collateral received as of those dates, $267 million and $183 million, respectively, was offset against derivative assets on the Consolidated Balance Sheet.

(4)Gross cash collateral pledged under master netting arrangements or similar agreements was $13 million and $29 million as of September 30, 2026 and December 31, 2025, respectively. Of the gross cash collateral pledged as of those dates, $8 million and $28 million, respectively, was offset against derivative liabilities on the Consolidated Balance Sheet.

(5)Represents the fair value of security collateral received or pledged related to derivative assets or liabilities subject to enforceable master netting arrangements or similar agreements. Such collateral is not offset on the Consolidated Balance Sheet under U.S. GAAP. Amounts presented are limited to the outstanding balance of the related derivative asset or liability.

In addition to the derivative amounts presented above, the Company may offset certain amounts related to resale or repurchase agreements. See Note 3 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements in this Form 10-Q for additional information and Note 2 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-Q for fair value measurement disclosures related to derivatives.