EAST WEST BANCORP INC

Market risk refers to the risk of loss from adverse changes in market factors, including interest rates, foreign exchange rates, commodity prices, and credit spreads. The Company’s primary market risk exposure is interest rate risk, which arises from differences in the repricing and maturity characteristics of assets, liabilities, and off-balance sheet instruments, as well as changes in the behavior and composition of deposits, generated through its lending, deposit-gathering, and investment activities. The Company manages interest rate risk through its asset-liability management framework, which is designed to evaluate and balance the potential impact of changing interest rates on earnings, capital, and liquidity. There have been no significant changes in our market risk management practices since December 31, 2025. Additional information regarding the Company’s market risk management framework is provided in Item 7. MD&A — Risk Management — Market Risk Managementin the Company’s 2025 Form 10-K.

Interest Rate Risk Management

Interest rate risk is the risk that changes in market interest rates could adversely affect the Company’s earnings and capital. It arises from differences in the timing and amount of repricing and cash flows of the Company’s on- and off-balance sheet positions. These exposures stem primarily from the Company’s lending and deposit-gathering activities, as well as its investments, funding, and hedging activities. The Company is subject to interest rate risk because:

•Assets and liabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;

•Assets and liabilities may reprice at the same time but by different amounts;

•Short- and long-term market interest rates may change by different amounts. For example, the shape of the yield curve may affect the yield of new loans and funding costs differently;

•The remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change. For example, if long-term mortgage interest rates increase sharply, mortgage-related products may pay down at a slower rate than anticipated, which could impact portfolio income and valuation; or

•Interest rates may have a direct or indirect effect on loan demand, collateral values, mortgage origination volume, and the fair value of other financial instruments.

The ALCO coordinates the overall management of the Company’s interest rate risk, meets regularly to review the Company’s open market positions and establishes policies to monitor and limit exposure to market risk. Interest rate risk management is carried out primarily through strategies involving the Company’s loan portfolio, debt securities portfolio, derivative instruments, available funding channels and capital market activities.

The Company measures and monitors interest rate risk through a range of risk management tools, including a simulation model that performs monthly interest rate sensitivity analyses under multiple interest rate scenarios against a baseline. The model incorporates market forward rate expectations and the Company’s interest-earning assets and interest-bearing liabilities. Analyses are performed using a dynamic balance sheet that reflects anticipated growth or changes in deposit composition. The modeled scenarios include an instantaneous and gradual parallel shift in the yield curve (“linear rate ramp”), as well as alternative yield curve assumptions, including flattening, steepening or inversion scenarios. The Company uses the results of these analyses to evaluate and guide balance sheet management strategies to achieve a desired risk profile within its capital and liquidity guidelines.

The Company’s net interest income simulation utilizes a dynamic balance sheet methodology which incorporates market forward rates, while the economic value of equity (“EVE”) simulation assumes balance sheet run-off and utilizes the par spot curve. The modeled scenarios include parallel shocks for both instantaneous and gradual net interest income simulations. These simulations conform with industry-standard scenario definitions and enhance interpretability and comparability.

The net interest income simulation model is based on the maturity and repricing characteristics of the Company’s interest rate-sensitive assets, liabilities, and related derivative contracts. This model incorporates a range of assumptions that management believes are reasonable but that may have a significant impact on the results, including the timing and magnitude of interest rate changes, yield curve evolution and shape, the correlation between various interest rate indices, future repricing characteristics and spreads relative to benchmark rates, and the effect of interest rate floors and caps. The modeled results are highly sensitive to deposit mix and deposit beta assumptions, which are derived from a regression analysis of the Company’s historical deposit data.

Simulation results are highly dependent on modeled behaviors and input assumptions. To the extent that actual behaviors are different from the assumptions used in the models, there could be material changes to the interest rate sensitivity results. The key behavioral models impacting interest rate sensitivity simulations include deposit repricing, deposit balance forecasts, and mortgage prepayments. These models and assumptions are documented, supported, and back-tested quarterly to assess their reasonableness and effectiveness. The Company also regularly monitors the sensitivity of the other important modeling assumptions, such as loan and security prepayments and early withdrawal on fixed-rate customer liabilities. The Company makes appropriate calibrations to the model as needed and continually validates the model, methodology and results. Changes to key model assumptions are reviewed by the Technical ALCO, a subcommittee of ALCO. Scenario results do not reflect strategies that management could employ to limit the impact of changing interest rate expectations. The simulation does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the risk of the impact of changing market interest rates across a range of interest rate environments.

The Company employs a variety of quantitative and qualitative approaches to capture historical deposit repricing and balance behaviors. These historical observations are performed at a granular level based on key product characteristics, including distinctions for brokered, public, and large commercial deposits, which are then combined with forward-looking market expectations and the competitive landscape to generate the deposit repricing and balance forecasting models. The Company uses these deposit repricing models to forecast deposit interest expense. The repricing models provide sufficient granularity to reflect key behavioral differences across product and customer types. Deposit beta, which reflects the extent to which changes in the effective federal funds rate are passed through to deposit rates, is a key assumption underlying the deposit rate forecast. As of September 30, 2026, the Company assumed a weighted-average beta of approximately 54%.

As loan and debt security prepayment assumptions are key components of the Company’s model, the Company incorporates third-party vendor models to forecast prepayment behavior on mortgage loans and securities, which have mortgage loans as underlying collateral. These third-party vendor models have access to more comprehensive industry-level data that captures specific borrower and collateral characteristics over a variety of interest rate cycles. The Company will periodically assess and adjust the vendor models when appropriate to include its own available observations and expectations.

Twelve-Month Net Interest Income Simulation

Net interest income simulation modeling measures interest rate risk through earnings volatility. The simulation projects the effects of changes in interest rates on the cash flows of interest-earning assets and interest-bearing liabilities, over a specified time horizon and under defined interest rate scenarios. These simulations provide insight into the potential impact of market rate changes on earnings and support risk management decisions. The Company assesses interest rate risk by comparing the changes in net interest income across a range of interest rate scenarios.

The Company models various interest rate scenarios, including scenarios based on gradual ramped shifts in interest rates, and assesses the corresponding impacts. These interest rate scenarios provide insight to the Company’s underlying interest rate risk. The gradual rate ramp table below shows the net interest income volatility under a gradual parallel shift of the market implied forward rates, in even monthly increments over the first 12 months, with the full shift passed through to the forward rates thereafter. The results are based on a dynamic balance sheet with expected loan and deposit growth as of the date of the analysis.

As of September 30, 2026, the Company’s net interest income profile remains modestly asset-sensitive under gradual ramped shifts in interest rates, with a higher proportion of interest-earning assets repricing in the near term compared to interest-bearing liabilities. This position is primarily driven by a significant volume of variable-rate loans indexed to Prime and Term Secured Overnight Financing Rate (“SOFR”). A declining rate environment could negatively impact the net interest income. However, this potential impact could be partially mitigated by several structural factors, including balance sheet growth and mix evolution, ongoing reinvestment of cash flows into assets at rates above legacy lower yielding instruments, and prevailing yield-curve conditions. Compared with December 31, 2025, the net interest income volatility for rising rate ramps decreased due to a shift into fixed rate assets while the net interest income volatility increased for decreasing rate ramps as a result of changes in the market implied forward rates.

To reduce net interest income volatility, the Company has designated $4.0 billion in notional value of interest rate contracts as cash flow hedges, which are estimated to mitigate net interest income variability by approximately 1.18% of base net interest income for every 100 bps change in interest rates. A portion of the Company’s interest-bearing deposit portfolio consists of non-maturity deposits that are not directly indexed to short-term rates but remain sensitive to rate changes. The Company actively manages deposit pricing and employs quantitative models to evaluate and forecast deposit behavior under various interest rate scenarios.

Actual results may differ from modeled projections due to variations in earning asset growth and changes in deposit composition driven by customer preferences. Modeled outcomes are highly dependent on behavioral assumptions, including deposit mix shifts and customer rate sensitivity.

Economic Value of Equity at Risk

EVE is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the present value of the Bank’s assets and liabilities due to changes in interest rates.

The economic value approach provides a comparatively broader scope than the net interest income volatility approach since it represents the discounted present value of cash flows over the expected life of the instruments. Due to this longer horizon, EVE is useful to identify risks arising from repricing, prepayment and maturity gaps between assets and liabilities on the balance sheet, as well as from off-balance sheet derivative exposures, over their lifetime. This long-term economic perspective into the Company’s interest rate risk profile allows the Company to identify anticipated negative effects of interest rate fluctuations. However, the difference in time horizons can cause the EVE analysis to diverge from the shorter-term net interest income analysis presented above. Given the uncertainty of the magnitude, timing and direction of future interest rate movements, the shape of the yield curve, and potential changes to the balance sheet, actual results may vary from those predicted by the Company’s model.

The following table presents the Company’s EVE sensitivity related to an instantaneous parallel shift in market interest rates by 100 and 200 bps as of September 30, 2026 and December 31, 2025.

(1)The percentage change represents net present value change of the balance sheet as of the analysis date versus various interest rate scenarios.

As of September 30, 2026, the Company’s EVE is expected to decrease when interest rates rise. The EVE sensitivity represents a duration mismatch between fixed-rate assets and fixed-rate liabilities where more fixed-rate assets are expected to produce more stable net interest income in the short term but may lead to decreases in net present value of future cash flows.

Derivatives

The Company uses derivative instruments as part of its overall market risk management strategy to manage exposures arising from changes in interest rates and foreign currency exchange rates. The Company does not use derivatives for speculative purposes. Hedging transactions may be implemented using a variety of derivative instruments such as swaps, forwards, options, and collars. Interest rate derivatives are primarily used to reduce earnings volatility associated with changes in cash flows from certain variable-rate commercial loans. As part of its asset-liability management strategy, the Company utilizes cash flow hedges, including interest rate swaps and collars, to mitigate the impact of changing interest rates on future net interest income.

The Company also enters into derivative transactions to meet customers’ risk management objectives. These transactions primarily assist commercial customers in managing exposure to fluctuations in interest rates, foreign currencies and commodity prices. To economically hedge these customer-related derivative exposures, the Company enters into offsetting derivative contracts with third-party financial institutions. As a result, changes in the fair value of customer derivatives are generally offset by changes in the fair value of the associated offsetting positions, except for the effects of credit valuation adjustments and differences in contractual pricing spreads. The Company also enters into foreign exchange contracts that are not designated as accounting hedges to economically offset the impact of foreign currency fluctuations on certain foreign currency on-balance sheet assets and liabilities and to support certain foreign currency funding needs.

Derivative transactions expose the Company to counterparty credit risk arising from the potential failure of a counterparty to perform under contractual terms. This counterparty credit risk is a multi-dimensional form of risk, affected by both the exposure and credit quality of the counterparty, both of which are sensitive to market-induced changes. The Company’s Credit Risk Management Committee provides oversight of credit risk, and the Company manages this risk through established credit approval processes, counterparty exposure limits, collateral arrangements, legally enforceable master netting agreements, and diversification across counterparties. Certain derivative contracts are cleared through central clearing organizations, where variation margin is exchanged daily to reduce credit exposure. The Company also utilizes credit risk participation agreements to transfer a portion of the counterparty credit risk associated with certain interest rate swap transactions to third-party financial institutions. In addition, derivative valuations incorporate credit valuation adjustments and other market-standard techniques to reflect both counterparty and the Company's own nonperformance risk. As of September 30, 2026, the Company was not aware of any counterparty defaults and did not incur any material credit losses related to derivative activities.

The following tables summarize derivative instruments designated as accounting hedges as of September 30, 2026 and December 31, 2025.

(1)Floating rates are indexed to SOFR or Prime.

Additional information regarding the Company’s derivatives is provided in Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Derivativesto the Consolidated Financial Statements in the Company’s 2025 Form 10-K, and Note 2 — Fair Value Measurement and Fair Value of Financial Instruments, and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-Q.