East West Bancorp : 4Q24 Basel III Regulatory Capital Disclosures Report

Published: 2025-03-03 19:21:03 ET EWBC

EAST WEST BANCORP, INC.

Basel III Regulatory Capital Disclosures

December 31, 2024

TABLE OF CONTENTS

Page

Disclosure Map

Scope of Application

Capital Structure

Capital Adequacy

Capital Conservation Buffer

Risk Management

Credit Risk: General Disclosures

General Disclosure for Counterparty Credit Risk-Related Exposures

Credit Risk Mitigation

Securitization

Equities Not Subject to the Market Risk Rule

Interest Rate Risk for Non-trading Activities

Appendix 1 - Forward-looking statements

DISCLOSURE MAP

The table below identifies where the disclosures related to topics referenced in this Pillar 3 disclosure report can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC (the "Company's 2024 Form 10-K").

Pillar 3

2024

Pillar 3 Requirement

Description

Form 10-K

Report Page

Reference

Scope of Application

Background and overview; Regulatory capital

4, 7-9

149-150

5, no difference in

Basis of presentation

the basis for

consolidating

entities

Capital Structure

Capital instruments - Summary information of all

149-150

regulatory capital instruments.

Regulatory capital

150

Capital Adequacy

Capital management - Discussion of the Bank's capital

adequacy assessment.

Risk-weighted assets

60, 150

Capital Conservation

Required ratios and eligible retained income

60, 149-150

Buffer

Capital conservation buffer

60, 149-150

Credit Risk: General

11 - 12

Risk management overview

90, 128

Disclosures

133-135

General credit risk disclosures

90, 128

133-135

10 - 11

Exposure types/Impaired loans/Allowance for credit losses

51, 62,

128 - 129,

135 - 136

11 - 13

Industry and geographic distribution; maturity information

52-53

55, 144

General Disclosure for

14 - 15

Counterparty credit risk management overview

71-73,

Counterparty Credit Risk-

109, 122

related Exposures

Counterparty credit risk exposure

109, 122

Credit derivatives purchased and sold

117, 119,

120

Credit Risk Mitigation

Accounting Policies

71-73,

122, 144

Guarantees and credit derivatives

N/A

Securitization

Objectives, roles and securitization risk-weighted assets

N/A

Accounting policies for securitization activities

N/A

Securitization exposure

N/A

Summary of current year's securitization activity

N/A

Equities Not Subject to the

Summary of significant accounting policies

N/A

Market Risk Rule

Nonmarketable equity securities, realized and unrealized

102, 117,

gains (losses)

140

Interest Rate Risk for Non-

17 - 18

Overview

68-71

trading Activities

Earnings Sensitivity

68-71

SCOPE OF APPLICATION

Organization

East West Bancorp, Inc. (referred to herein on an unconsolidated basis as "East West" and on a consolidated basis as the "Company") is a registered bank holding company that offers a full range of banking services to individuals and businesses through its subsidiary bank, East West Bank and its subsidiaries ("East West Bank" or the "Bank"). The Bank is the Company's principal asset and provides a full range of consumer and commercial products and services through the Consumer and Business Banking, and Commercial Banking segments, with the remaining functions included in the Treasury and Other segment. As of December 31, 2024, the Company operated in the United States ("U.S.") and Asia. In the U.S., the Bank's corporate headquarters and main administrative offices are located in California, and its branches and offices are located in California, Texas, New York, Washington, Georgia, Massachusetts, Illinois, and Nevada. In Asia, the Company's presence includes full- service branches in Hong Kong, Shanghai, Shantou and Shenzhen, representative offices in Beijing, Chongqing, Guangzhou, Xiamen, and Singapore, and administrative support offices in Beijing and Shanghai. The Bank has a banking subsidiary based in China - East West Bank (China) Limited. As of December 31, 2024, the Company and the Bank were classified as "well capitalized" and not subject to any capital distribution restrictions. For additional information on dividend restrictions and transfers of funds, refer to Item 1. Business - Supervision and Regulation

- Dividends and Other Transfers of Funds in the the Company's 2024 Form 10-K.

Regulation

As a bank holding company, East West is subject to primary regulation, supervision, and examination by the Board of Governors of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of 1956, as amended. The Company is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the U.S. Securities and Exchange Commission ("SEC") thereunder.

East West Bank is a California state-chartered bank and a member of the Federal Reserve System, and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank's operations in the U.S. are primarily regulated and supervised by the Federal Reserve and the California Department of Financial Protection and Innovation, and its activities outside the U.S. are regulated and supervised by its U.S. regulators and the applicable regulatory authority in the host country in which each overseas office is located.

The Bank's foreign subsidiary, East West Bank (China) Limited, is subject to applicable foreign laws and regulations, such as those implemented by the People's Bank of China and the National Financial Regulatory Administration. East West Bank's Hong Kong branch is subject to applicable foreign laws and regulations, such as those implemented by the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission. The Bank's Singapore representative office is subject to applicable foreign laws and regulations, such as those implemented by the Monetary Authority of Singapore.

In addition to its banking operations, East West has a wholly-owned nonbank subsidiary, East West Markets, LLC ("East West Markets"), which is an SEC-registered broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). East West Markets is subject to regulatory requirements from several regulatory bodies, including the SEC, FINRA, and state securities regulators.

Regulatory Capital Standards and Disclosures

The federal banking agencies have imposed capital adequacy requirements, known as the Basel III Capital Rules, intended to ensure that banking organizations maintain capital that is commensurate with the degree of risk associated with their operations. The Basel III Capital Rules define the components of regulatory capital, including Common Equity Tier 1 ("CET1"), Tier 1 and Tier 2 capital, and set forth minimum capital adequacy ratios of capital to risk-weighted assets and total assets. The Basel III Capital Rules also prescribe a standardized approach for risk- weighting assets and include a number of risk-weighting categories that affect the denominator in banking institutions' regulatory capital ratios.

The Company applies the Basel III Capital Rules as a standardized approach banking organization and is not currently subject to the market risk rules, which apply only to banking organizations with significant trading activities. To be considered adequately capitalized, standardized approach banking organizations are required to maintain minimum capital ratios of at least 4.5% CET1 capital to risk-weighted assets, 6.0% Tier 1 capital to risk- weighted assets, 8.0% total risk-based capital (i.e., Tier 1 plus Tier 2 capital) to risk-weighted assets and a 4.0% Tier 1 leverage ratio of Tier 1 capital to average total consolidated assets.

The Company produces the Pillar 3 Regulatory Disclosures quarterly to update market participants regarding the Company's risk management practices and regulatory capital ratios as required under the U.S. Basel

The Company's 2024 Form 10-K contain management's discussion and analysis of the overall risk profile of the Company and related management strategies. The information presented herein should be read in conjunction with the Company's 2024 Form 10-K, as well as the Consolidated Financial Statements for Holding Companies - FR Y-9C ("FR Y-9C") and Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices - FFIEC 031 ("Call Report") dated December 31, 2024. The disclosure map included in this report provides a cross-reference to the Company's 2024 Form 10-K related to the disclosures required by the Basel III Capital Rules. These Basel III regulatory capital disclosures have not been audited by our external auditors. This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement, as discussed further in Appendix 1 of this report.

Consolidation

The principles of consolidation used for the Company's 2024 Form 10-K and for regulatory reporting conform with U.S. Generally Accepted Accounting Principles ("GAAP") and include the accounts of East West and its subsidiaries. The Basel III Regulatory Capital Disclosures and East West's regulatory capital ratio calculations are prepared on a fully consolidated basis. All intercompany balances and transactions have been eliminated in consolidation.

CAPITAL STRUCTURE

The Company's qualifying regulatory capital instruments primarily consist of common shareholders' equity. For additional information on the Company's shareholders' equity, see the Company's "Consolidated Balance Sheets" in the Company's 2024 Form 10-K.

Regulators include other non-common forms of capital (e.g., subordinated debt and preferred stock) in their calculations of capital adequacy. The Company includes qualifying junior subordinated debt as alternative forms of capital in its metrics for the Tier 1 risk-based capital and total risk-based capital ratios.The junior subordinated debt issued in connection with East West's trust preferred securities qualifies as Tier 2 capital under the Basel III Capital Rules. For additional information regarding the terms of East West's outstanding junior subordinated debt, see Note 10 - Short-TermBorrowings and Long-TermDebt and Item 7. Management's Discussion and Analysis ("MD&A")

- Balance Sheet Analysis - Deposits and Other Sources of Funding in the Company's 2024 Form 10-K.

As disclosed in our 2024 Annual Report on Form 10-K, the U.S. federal banking regulatory agencies permitted bank holding companies ("BHCs") and banks to phase-in, for regulatory capital purposes, the day-one impact of the new Current Expected Credit Losses ("CECL") accounting rule on retained earnings over a period of three years. In 2020, the U.S. federal banking regulatory agencies issued a final rule that provides the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The final rule allowed BHCs and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL, excluding any allowance established at the acquisition of purchased credit deteriorated loans. The cumulative impact of the two- year delay will be phased-in over the three-year transition period. The Company has elected to adopt the final rule, which is reflected in the regulatory capital data included in these disclosures, and the three-year transition period for the phase-in of the cumulative impact began in the first quarter of 2022. As of December 31, 2024, we have phased in 75% of the cumulative CECL deferral with the remaining impact to be recognized in the first quarter of 2025.

The following table presents the Company's capital composition as of December 31, 2024:

($ in thousands)

December 31, 2024

CET1 capital

Common stock and related surplus

996,772

Effect of current expected credit losses ("CECL") transition on retained earnings

28,494

Retained earnings

7,311,542

Accumulated other comprehensive loss

(585,260)

CET1 capital before adjustments and deductions

7,751,548

Adjustments and deductions from CET1 capital

Less: Goodwill, net of related deferred taxes

465,697

Net unrealized losses on available-for-sale and held-to-maturity securities, net of deferred taxes

(542,153)

Accumulated losses on cash flow hedges, net of deferred taxes

(20,787)

Other CET1 capital adjustments and deductions

8,975

Total CET1 capital

7,839,816

Tier 1 capital

Total Tier 1 capital

7,839,816

Tier 2 capital

Tier 2 capital instruments and related surplus

35,000

Adjusted allowance for credit losses

686,981

Total Tier 2 capital

721,981

Total risk-based capital

8,561,797

CAPITAL ADEQUACY

The Company's Board of Directors provides the ultimate oversight responsibility and accountability over capital planning. The Board and a Board-level committee, the Risk Oversight Committee ("ROC"), meet at least quarterly to review the Company's material risks and exposures and to ensure the adequacy of capital under both normal and stressed operating environments.

The Company's senior management and the Board are committed to achieving its capital targets in order to reach its capital goals, which include meeting or exceeding regulatory requirements. To achieve these capital goals, the Company has established policies and procedures to continuously monitor its capital levels and to maintain contingency plans. Monitoring activities include the evaluation of the Company's on-going capital needs, stress testing, and the assessment of the impact of stressed conditions under multiple scenarios; these activities also include the maintenance of capital buffers in consideration of other factors, such as the current credit and interest rate environment. The combination of these policies and procedures, and monitoring activities enables the Company to maintain adequate capital composition and levels to absorb losses, promote public confidence, provide protection to depositors, and meet regulatory requirements. The Company continued to exceed the "Well Capitalized" thresholds under Prompt Corrective Action regulations.

The following table presents the Company's standardized approach risk-weighted assets as of December 31, 2024. For more information on the Company's risk-weighted assets, see Schedule HC-R, Regulatory Capital, in the Company's FR Y-9C dated December 31, 2024:

($ in thousands)

December 31, 2024

Risk-Weighted Assets

On-balance sheet

Exposures to depository institutions, foreign banks, and credit unions

574,478

Exposures to sovereign entities

824,132

Exposures to public-sector entities

79,388

Corporate exposures

34,498,583

Residential mortgage exposures

9,613,125

Statutory multifamily mortgages

494,901

Cleared transactions

168

High volatility commercial real estate

12,560

Past due loans

138,047

Other assets

1,366,478

Securitization exposures

271,276

Equity exposures

1,066,698

Total on-balance sheet exposures

48,939,834

Off-balance sheet

Unused commitments with an original maturity of one year or less

62,451

Unused commitments with an original maturity of more than one year

4,294,987

Derivatives

277,535

Letters of credit

1,353,846

All other off-balance sheet liabilities

29,852

Total off-balance sheet

6,018,671

Excess allowance for credit losses

(16,691)

Total risk-weighted assets

54,941,814

CAPITAL CONSERVATION BUFFER

The Basel III Capital Rules require the Company to maintain a minimum 2.5% "capital conservation buffer" on top of each of the minimum risk-based capital ratios for the purpose of absorbing losses during periods of economic stress. This effectively results in minimum ratios of (1) CET1 to risk-weighted assets of at least 7.0%, (2) Tier 1 capital to risk-weighted assets of at least 8.5%, and (3) Total capital to risk-weighted assets of at least 10.5%. Banking organizations with risk-based capital ratios that meet or exceed the minimum requirements but do not exceed the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. The severity of the constraint depends on the amount of the shortfall and the institution's "eligible retained income," which is defined as the greater of (1) the reporting institution's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income or (2) the average of the reporting institution's net income over the four preceding calendar quarters. As of December 31, 2024, the Company's eligible retained income was $860 million. The Company and Bank have capital ratios exceeding the 2.5% minimum capital conservation buffer and are not subject to any such limitations as of December 31, 2024. For additional discussion and disclosure, see the Company's December 31, 2024 FR Y-9C Schedule HC-R, the Bank's December 31, 2024 Call Report Schedule RC-R, Item 7. MD&A - Balance Sheet Analysis - Regulatory Capital and Ratios in the Company's and Note 16 - Regulatory Requirements and Matters in the Company's 2024 Form 10-K.

The following table summarizes capital conservation buffer-related information for both the Company and the Bank as of December 31, 2024:

Capital

Capital in Excess of

Minimum Capital

Conservation

Requirement Plus

Capital Ratio

Buffer

Capital Conservation

Requirement

Buffer Requirement

East West Bancorp

CET1 capital ratio

14.3 %

4.5 %

2.5 %

7.3 %

Tier 1 risk-based capital ratio

14.3 %

6.0 %

2.5 %

5.8 %

Total risk-based capital ratio

15.6 %

8.0 %

2.5 %

5.1 %

East West Bank

CET1 capital ratio

13.4 %

4.5 %

2.5 %

6.4 %

Tier 1 risk-based capital ratio

13.4 %

6.0 %

2.5 %

4.9 %

Total risk-based capital ratio

14.7 %

8.0 %

2.5 %

4.2 %

RISK MANAGEMENT

In the normal course of business, the Company is exposed to a variety of risks, some of which are inherent to the financial services industry and others which are more specific to the Company's business. The Company operates under a Board-approved enterprise risk management ("ERM") program. The Company's ERM program outlines the company-wide approach to risk management and oversight, and describes the structures and practices employed to manage current and emerging risks inherent to the Company. The Company's ERM program incorporates risk management throughout the organization in identifying, managing, monitoring, and reporting risks. It identifies the Company's major risk categories as: credit, liquidity, market, operational, reputational, legal, compliance, BSA/AML & OFAC, strategic, and technology risk.

The ROC of the Board of Directors monitors the ERM program through such identified enterprise risk categories and provides oversight of the Company's risk appetite and control environment. The ROC provides focused oversight of the Company's identified enterprise risk categories on behalf of the full Board of Directors. Under the authority of the ROC, management committees apply targeted strategies to manage the risks to which the Company's operations are exposed.

The Company's ERM program is executed along the three lines of defense model, which provides for a consistent and standardized risk management control environment across the enterprise. The first line of defense is comprised of revenue generating, operational and support units. The second line of defense is comprised of risk management and control functions that provide independent risk oversight of first line activities and report to the Chief Risk Officer. The Chief Risk Officer reports to both the ROC and the Chief Executive Officer. The third line of defense is comprised of the Internal Audit and Independent Asset Review ("IAR") functions. Internal Audit reports to the Chief Audit Executive ("CAE") who reports to the Board's Audit Committee. Internal Audit provides assurance and evaluates the effectiveness of risk management, control and governance processes as established by the Company. IAR serves as an internal loan review and independent credit risk monitoring function within the Bank that works under the direction of the CAE and reports to the Audit Committee. IAR provides management and the Audit Committee with an objective and independent assessment of the Bank's credit profile and credit risk management processes.

CREDIT RISK: GENERAL DISCLOSURES

Credit risk is the risk that a borrower or a counterparty will fail to perform according to the terms and conditions of a loan, investment or derivative and expose the Company to loss. Credit risk exists with many of the Company's assets and exposures such as loans, debt securities and certain derivatives. The majority of the Company's credit risk is associated with lending activities.

The ROC has primary oversight responsibility for the identified enterprise risk categories including credit risk. The ROC monitors management's assessment of asset quality, credit risk trends, credit quality administration, underwriting standards, and portfolio credit risk management strategies and processes, such as diversification and liquidity, all of which enable management to control credit risk. At the management level, the Credit Risk Management Committee ("CRMC") has primary oversight responsibility for credit risk. The Senior Credit Supervision function manages credit policy for the line of business transactional credit risk, assuring that all exposure is risk-rated according to the requirements of the credit risk rating policy. The Senior Credit Supervision function also evaluates and reports the overall credit risk exposure to senior management and the ROC. Reporting directly to the Board's Audit Committee, the IAR function provides additional validation of support to the Company's robust credit risk management culture by performing an independent and objective assessment of underwriting and documentation quality. A key focus of our credit risk management is adherence to a well-controlled underwriting and loan monitoring process.

For information on the Company's credit risk policies for nonaccrual loans and the allowance for loan losses, refer to "Loans Held-for-Investment" and "Allowance for Loan Losses" in Note 1 - Summary of Significant Accounting Policies and Note 6 - Loans Receivable and Allowance for Credit Losses in the Company's 2024 Form 10-K.

The Company's debt securities portfolio includes U.S. Treasury, U.S. government agency, U.S. government- sponsored agency, and U.S. government-sponsored enterprise debt and mortgage-backed securities that are issued, guaranteed, or otherwise supported by the U.S. government, for which a zero credit loss assumption is applied when determining any allowance for credit losses. For additional information on the Company's allowance for credit losses on debt securities, refer to "Allowance for Credit Losses on Available-for-SaleDebt Securities" and "Allowance for Credit Losses on Held-to-MaturityDebt Securities" in Note 1 - Summary of Significant Accounting Policies in the Company's 2024 Form 10-K. For additional information on debt securities, refer to Note 4 - Securities and Item 7. MD&A - Balance Sheet Analysis - Debt Securities in the Company's 2024 Form 10-K.

For the Company's credit risk policies on derivatives, refer to the "General Disclosure for Counterparty Credit Risk-RelatedExposures" section of this report. For additional information on the derivatives portfolio, refer to Note 5 - Derivatives and Item 7. MD&A - Market Risk Management - Derivatives in the Company's 2024 Form 10-K.

The following table presents the Company's total exposure on loans held-for-investment by loan type, and an aging analysis of accruing and nonperforming loans as of December 31, 2024:

Accruing

Nonperforming

Loans

Total

Loans

90 Days and

($ in thousands)

30-89 Days

Greater

Nonperforming

Loans

Past Due

Loans

Commercial:

Commercial and industrial ("C&I")

17,397,158

22,855

46,494

39,671

86,165

Commercial real estate ("CRE"):

CRE

14,655,340

5,640

2,430

Multifamily residential

4,953,442

931

362

4,210

4,572

Construction and land

666,162

927

11,316

Total CRE

20,274,944

7,498

2,792

15,526

18,318

Total commercial

37,672,102

30,353

49,286

55,197

104,483

Consumer:

Residential mortgage:

Single-family residential

14,175,446

54,937

199

32,224

32,423

HELOCs

1,811,628

19,364

22,046

Total residential mortgage

15,987,074

74,301

199

54,270

54,469

Other consumer

67,461

107

Total consumer

16,054,535

74,408

199

54,336

54,535

Total loans (1)

53,726,637

104,761

49,485

109,533

159,018

The following table presents the Company's nonperforming loans with no related allowance and nonperforming loans with a related allowance as of December 31, 2024. Nonaccrual loans may not have an allowance for credit losses if the loan balances are well secured by the collateral value and there is no loss expectation.

Nonperforming

Total

Loans with No

Loans with

($ in thousands)

Nonperforming

Allowance

Loans

Commercial:

C&I

79,591

6,574

86,165

CRE:

CRE

2,430

Multifamily residential

4,210

362

4,572

Construction and land

11,316

Total CRE

15,526

2,792

18,318

Total commercial

95,117

9,366

104,483

Consumer:

Residential mortgage:

Single-family residential

6,279

26,144

32,423

HELOCs

15,380

6,666

22,046

Total residential mortgage

21,659

32,810

54,469

Other consumer

Total consumer

21,659

32,876

54,535

Total loans

116,776

42,242

159,018

Disclaimer

East West Bancorp Inc. published this content on March 04, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 04, 2025 at 00:20:09.268.