EAST WEST BANCORP INC - Annual Report: 2019 (Form 10-K)

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•	the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the United States (“U.S.”) and the People’s Republic of China;

•	the Company’s ability to compete effectively against other financial institutions in its banking markets;

•	success and timing of the Company’s business strategies;

•	the Company’s ability to retain key officers and employees;

•	impact on the Company’s funding costs, net interest income and net interest margin due to changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix;

•	changes in the Company’s costs of operation, compliance and expansion;

•	the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner;

•	impact of benchmark interest rate reform in the U.S. that resulted in the Secured Overnight Financing Rate (“SOFR”) selected as the preferred alternative reference rate to the London Interbank Offered Rate (“LIBOR”);

•	impact of failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused;

•	adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting;

•	future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels;

•	impact of adverse changes to the Company’s credit ratings from major credit rating agencies;

•	impact of adverse judgments or settlements in litigation;

•	changes in the commercial and consumer real estate markets;

•	changes in consumer spending and savings habits;

•	changes in the U.S. economy, including inflation, deflation, employment levels, rate of growth and general business conditions;

•	government intervention in the financial system, including changes in government interest rate policies;

•	impact on the Company’s international operations due to political developments, disease pandemics, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions;

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changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission (“SEC”), the Consumer Financial Protection Bureau (“CFPB”) and the California Department of Business Oversight (“DBO”) - Division of Financial Institutions;

•	impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on the Company’s business, business practices, cost of operations and executive compensation;

•	heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers;

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•	impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions and from the Company’s interactions with business partners, counterparties, service providers and other third parties;

•	impact of regulatory enforcement actions;

•	changes in accounting standards as may be required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies and their impact on critical accounting policies and assumptions;

•	changes in income tax laws and regulations;

•	impact of other potential federal tax changes and spending cuts;

•	the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms;

•	impact on the Company’s liquidity due to changes in the Company’s ability to receive dividends from its subsidiaries;

•	any future strategic acquisitions or divestitures;

•	continuing consolidation in the financial services industry;

•	changes in the equity and debt securities markets;

•	fluctuations in the Company’s stock price;

•	fluctuations in foreign currency exchange rates;

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a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, a reduction in investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment (“OTTI”) on securities held in the Company’s available-for-sale (“AFS”) investment securities portfolio; and

•	impact of natural or man-made disasters or calamities, such as wildfires, or conflicts or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

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•	require periodic reports and such additional information as the Federal Reserve may require in its discretion;

•	require the Company to maintain certain levels of capital and, under the Dodd-Frank Act, limit the ability of bank holding companies to pay dividends or bonuses unless their capital levels exceed the capital conservation buffer (see Item 1. Business — Supervision and Regulation — Capital Requirements);

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require bank holding companies to serve as a source of financial and managerial strength to subsidiary banks and commit resources, as necessary, to support each subsidiary bank, including at times when bank holding companies may not be inclined to do so, the failure to do so generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of Federal Reserve regulations or both;

•	restrict dividends and other distributions from subsidiary banks to their parent bank holding companies;

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terminate an activity or terminate control of or liquidate or divest certain nonbank subsidiaries, affiliates or investments if the Federal Reserve believes that the activity or the control of the nonbank subsidiary or affiliate constitutes a serious risk to the financial safety, soundness or stability of the bank holding company; and if the activity, ownership, or control is inconsistent with the purposes of the BHC Act;

•	regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem the Company’s securities in certain situations;

•	approve in advance senior executive officer or director changes and prohibit (under certain circumstances) golden parachute payments to officers and employees, including change in control agreements and new employment agreements, that are contingent upon termination; and

•	approve in advance acquisitions of and mergers with bank holding companies, banks and other financial companies, and consider certain competitive, management, financial, financial stability and other factors in granting these approvals. DBO approvals may also be required for certain acquisitions and mergers.

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1.

Regulatory relief for bank holding companies and state member banks with assets between $10 billion and $50 billion. We are among the bank holding companies and banks in this range. Dodd-Frank required that bank holding companies in this size range establish a risk committee that satisfied certain requirements and conduct an annual stress-test. The stress-test requirement was extended to state member banks (and other insured depository institutions) as well. EGRRCPA lifted the size threshold for a formal risk committee from $10 billion to $50 billion, but the Federal Reserve will still examine the risk management practices of companies with assets in the $10 billion to $50 billion range for consistency with safety and soundness and prudent practices. With respect to stress-testing by the Bank, EGRRCPA raised the asset size threshold for required testing from $10 billion to $250 billion. Regarding the Company, the Federal Reserve in rulemaking (based on broad EGRRCPA authority) lifted the asset size threshold from $10 billion to $100 billion for required stress-testing bank holding companies. Accordingly, neither the Company nor the Bank is now required to conduct stress-tests.

2.

Regulatory relief for community banking organizations. Banks and bank holding companies with less than $10 billion in assets — that is, institutions smaller than the Company and the Bank — receive additional relief under EGRRCPA that may give them competitive advantages. Among other things, these banks and bank holding companies are generally exempt from the Volcker Rule, and they may maintain a new Community Bank Leverage Ratio of 9% in lieu of meeting existing risk-based capital ratio and leverage ratio requirements.

3.

Regulatory relief for larger bank holding companies. Our larger competitors also receive a degree of regulatory relief from previous requirements. Bank holding companies designated as global systemically important banking organizations and those with more than $250 billion in assets are still automatically subject to enhanced regulation. However, bank holding companies with between $100 billion and $250 billion in assets are automatically subject only to supervisory stress tests, while the Federal Reserve has discretion to apply other individual enhanced prudential provisions to these companies. Bank holding companies with assets between $50 billion and $100 billion will no longer be subject to enhanced regulation, except for the risk committee requirement. In addition, EGRRCPA relaxes leverage requirements for large custody banks and allows certain municipal bonds to be counted toward large bank holding companies’ liquidity requirements.

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•	risks to consumers and compliance with federal consumer financial laws when it evaluates the policies and practices of a financial institution;

•	unfair, deceptive, or abusive acts or practices, which the Dodd-Frank Act empowers the CFPB to prevent through rulemaking, enforcement and examination;

•	rulemaking to implement various federal consumer statutes such as the Home Mortgage Disclosure Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Electronic Fund Transfer Act, Equal Credit Opportunity Act and Fair Credit Billing Act; and

•	the markets in which firms operate and risks to consumers posed by activities in those markets.

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the process the Company uses to estimate losses inherent in the Company’s credit exposure requires difficult, subjective and complex judgments, including consideration of how these economic conditions might impair the ability of the borrowers to repay their loans. The level of uncertainty concerning economic conditions may adversely affect the accuracy of the Company’s estimates of losses inherent in the Company’s credit exposure which may, in turn, adversely impact the Company’s operating results and financial condition;

•	the Company’s commercial and residential borrowers may not be able to make timely repayments of their loans, or a decrease in the value of real estate collateral securing the payment of such loans could result in credit losses, delinquencies, foreclosures and customer bankruptcies, any of which could have a material adverse effect on the Company’s operating results;

•	a decrease in the demand for loans and other products and services;

•	a decrease in deposit balances;

•	future disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations, may result in an inability to borrow on favorable terms or at all from other financial institutions;

•	the value of the AFS investment securities portfolio that the Company holds may be adversely affected by defaults by debtors; and

•	a loss of confidence in the financial services industry, our market sector and the equity markets by investors, placing pressure on the Company’s stock price.

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•	actual or anticipated quarterly fluctuations in the Company’s results of operations and financial condition;

•	changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

•	failure to meet analysts’ revenue or earnings estimates;

•	speculation in the press or investment community;

•	strategic actions by the Company or its competitors, such as acquisitions or restructurings;

•	actions by institutional stockholders;

•	addition or departure of key personnel;

•	fluctuations in the stock price and operating results of the Company’s competitors;

•	general market conditions and, in particular, developments related to market conditions in the financial services industry;

•	proposed or adopted regulatory changes or developments;

•	cyclical fluctuations;

•	trading volume of the Company’s common stock; and

•	anticipated or pending investigations, proceedings or litigation that involve or affect the Company.

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(1)

Includes $31.5 million of pretax gain recognized from the sale of the DCB branches for 2018. Includes $71.7 million and $3.8 million of pretax gains recognized from the sales of a commercial property in California and EWIS’s insurance brokerage business, respectively, for 2017. Includes changes in FDIC indemnification asset and receivable/payable charges of $38.0 million for 2015. The Company terminated the United Commercial Bank and Washington First International Bank shared-loss agreements during 2015.

(2)	Includes $30.1 million of additional tax expense to reverse certain previously claimed tax credits related to DC Solar and affiliates (“DC Solar”) tax credit investments during 2019. Includes an additional $41.7 million in income tax expense recognized during 2017 due to the enactment of the Tax Act.

(3)	Tangible common equity, tangible common equity per share and adjusted efficiency ratio are non-GAAP financial measures. For a discussion of these measures, refer to Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.

(4)	Total assets and loans held-for-investment include PCI loans of $222.9 million, $308.0 million, $482.3 million, $642.4 million and $970.8 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(5)	The efficiency ratio is noninterest expense divided by total revenue (net interest income before provision for credit losses and noninterest income).

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•	Earnings: 2019 net income was $674.0 million and diluted EPS was $4.61, compared with 2018 net income of $703.7 million and diluted EPS of $4.81. This $29.7 million or 4% decrease in net income was primarily due to increases in income tax expense, provision for credit losses and noninterest expense, partially offset by net interest income growth.

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Adjusted Earnings: Adjusting for non-recurring items, 2019 non-GAAP net income and non-GAAP diluted EPS were $707.9 million and $4.84, respectively, compared with $681.5 million and $4.66 for 2018, respectively, a year-over-year increase of 4%. During 2019, the Company recorded a $5.4 million net pre-tax impairment charge (equivalent to $3.8 after-tax) and $30.1 million in additional income tax expense to reverse certain previously claimed tax credits related to DC Solar. (Refer to Item 7. MD&A — Results of Operations — Income Taxes in this Form 10-K for a more detailed discussion related to the Company’s investment in DC Solar.) During 2018, the Company recognized a $31.5 million pre-tax gain from the sale of its DCB branches, equivalent to $22.2 million after-tax. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

•	Revenue: Revenue, or the sum of net interest income before provision for credit losses and noninterest income, was $1.68 billion in 2019, compared with $1.60 billion in 2018, an increase of $79.8 million or 5%. This increase was primarily due to an increase in net interest income.

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Net Interest Income and Net Interest Margin: 2019 net interest income was $1.47 billion, compared with 2018 net interest income of $1.39 billion, an increase of $81.3 million or 6%. 2019 net interest margin of 3.64% contracted by 14 basis points, compared with 2018 net interest margin of 3.78%. Net interest income growth was primarily driven by loan growth, partially offset by a higher cost of deposits.

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Operating Efficiency: Efficiency ratio, calculated as noninterest expense divided by revenue, was 43.80% in 2019, an improvement of 93 basis points compared with 44.73% in 2018. Adjusting for non-recurring items, amortization of tax credit and other investments, and the amortization of core deposit intangibles in both 2019 and 2018, non-GAAP efficiency ratio was 38.43% in 2019, a 112 basis point improvement from 39.55% in 2018. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

•	Tax: The 2019 annual effective income tax rate was 20.1%, compared with 14.0% in 2018. The higher effective tax rate in 2019 was primarily due to the $30.1 million reversal of certain previously claimed tax credits related to DC Solar in the second quarter of 2019.

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Profitability: ROA for 2019 and 2018 were 1.59% and 1.83%, respectively. ROE for 2019 and 2018 were 14.16% and 17.04%, respectively. Adjusting for non-recurring items, non-GAAP ROA was 1.67% for 2019, compared with 1.77% for 2018. For 2019, non-GAAP ROE was 14.87%, compared with 16.50% for 2018. (See reconciliations of non-GAAP measures presented under Item 7. MD&A — Supplemental Information — Explanation of GAAP and Non-GAAP Financial Measures in this Form 10-K.)

•	Loans: Total loans were $34.78 billion as of December 31, 2019, an increase of $2.39 billion or 7% from $32.39 billion as of December 31, 2018. The largest increase in loans was in single-family residential loans, followed by CRE loans.

•	Deposits: Total deposits were $37.32 billion as of December 31, 2019, an increase of $1.88 billion or 5% from $35.44 billion as of December 31, 2018. This increase was primarily due to the $1.15 billion or 13% increase in time deposits.

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Asset Quality Metrics: The allowance for loan losses was $358.3 million or 1.03% of loans held-for-investment as of December 31, 2019, compared with $311.3 million or 0.96% of loans held-for-investment as of December 31, 2018. Non-PCI nonperforming assets were $121.5 million or 0.27% of total assets as of December 31, 2019, an increase from $93.0 million or 0.23% of total assets as of December 31, 2018. For 2019, net charge-offs were $52.8 million or 0.16% of average loans held-for-investment, compared with $40.1 million or 0.13% of average loans held-for-investment for 2018.

•	Capital Levels: Our capital levels are strong. As of December 31, 2019, all of the Company’s and the Bank’s regulatory capital ratios were well above the required well-capitalized levels. See Item 7. MD&A — Balance Sheet Analysis — Regulatory Capital and Ratios in this Form 10-K for more information regarding capital.

•	Cash Dividend: Our annual cash dividend on common stock was $1.055 per share in 2019, compared with $0.86 per share in 2018, an increase of $0.195 or 23%. The Company returned $155.1 million and $126.0 million in cash dividends to stockholders during 2019 and 2018, respectively.

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(1)

Average balances of resale and repurchase agreements are reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.65%, 2.63% and 2.19% for 2019, 2018 and 2017, respectively. The weighted-average interest rates of gross repurchase agreements were 4.74%, 4.46% and 3.48% for 2019, 2018 and 2017, respectively.

(2)	Yields on tax-exempt securities are not presented on a tax-equivalent basis.

(3)	Includes the amortization of premiums on investment securities of $10.9 million, $16.1 million and $21.2 million for 2019, 2018 and 2017, respectively.

(4)	Average balances include nonperforming loans and loans held-for-sale.

(5)	Includes the accretion of net deferred loan fees, unearned fees, ASC 310-30 discounts and amortization of premiums, which totaled $36.8 million, $39.2 million and $30.8 million for 2019, 2018 and 2017, respectively.

(6)	Average balance of deposits for 2018 and 2017 includes average deposits held-for-sale related to the sale of the DCB branches.

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•	interest income for earnings and yield enhancement;

•	availability for funding 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.

(1)	There were no securities of a single non-governmental agency issuer that exceeded 10% of stockholder’s equity as of December 31, 2019. As of December 31, 2018, securities issued by the International Bank for Reconstruction and Development with an amortized cost of $474.9 million and a fair value of $448.6 million, exceeded 10% of stockholders’ equity.

(2)

Other securities are comprised of mutual funds, which are equity securities with readily determinable fair value. Prior to the adoption of ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, these securities were reported as AFS investment securities with changes in fair value recorded in other comprehensive income (loss). Upon adoption of ASU 2016-01, which became effective January 1, 2018, these securities were reclassified from AFS investment securities, at fair value to Investments in tax credit and other investments, net, on the Consolidated Balance Sheet with changes in fair value recorded in net income.

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(1)	Weighted-average yields are computed based on amortized cost balances.

(2)	Yields on tax-exempt securities are not presented on a tax-equivalent basis.

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(1)	Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(43.2) million, $(48.9) million, $(34.0) million, $1.2 million and $(16.0) million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2)	Includes ASC 310-30 discount of $14.3 million, $22.2 million, $35.3 million, $49.4 million and $80.1 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(3)	Includes $78.1 million of loans held-for-sale in Branch assets held-for-sale as of December 31, 2017.

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(1)	Loans net of ASC 310-30 discount.

(1)	Loans net of ASC 310-30 discount.

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(1)	Loans net of ASC 310-30 discount.

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(1)	Loans net of ASC 310-30 discount.

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(1)	Net gains on sales of purchased loans in 2019 were insignificant.

(2)	The Company records valuation adjustments in Net gains on sales of loans on the Consolidated Statement of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value.

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(1)	Comprises of foreign bonds and U.S. Treasury securities as of both December 31, 2019 and 2018. Comprised of U.S. Treasury securities, U.S. government agency and U.S. government sponsored enterprise debt securities, and foreign bonds as of December 31, 2017.

(2)	Includes ASC 310-30 discount of $42 thousand, $103 thousand and $353 thousand as of December 31, 2019, 2018 and 2017, respectively.

(3)	Primarily comprises of C&I loans.

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(1)	The Tier 1 leverage well-capitalized requirement applies to the Bank only since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

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(1)	Includes deposits with no defined maturity, such as noninterest-bearing demand, interest-bearing checking, money-market and savings accounts.

(2)	Represents junior subordinated debt, which is subject to call options where early redemption requires appropriate notice.

(3)

Represents the future interest obligations related to interest-bearing time deposits, FHLB, gross repurchase agreements, short-term borrowings, long-term debt and financing lease liabilities in the normal course of business. These interest obligations assume no early debt redemption. The Company estimated variable interest rate payments using December 31, 2019 rates, which the company held constant until maturity.

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(1)	Total assets and loans held-for-investment include PCI loans of $222.9 million, $308.0 million, $482.3 million, $642.4 million and $970.8 million as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

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(1)	The percentage change represents net interest income over 12 months in a stable interest rate environment versus net interest income in the various rate scenarios.

(1)	The percentage change represents net interest income under a gradual non-parallel shift in even quarterly increments over 12 months.

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(1)	The percentage change represents net portfolio value of the Company in a stable interest rate environment versus net portfolio value in the various rate scenarios.

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(1)	Included in Amortization of tax credit and other investments on the Consolidated Statement of Income.

(2)	Applied statutory rate of 29.56%.

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(1)	Includes core deposit intangibles and mortgage servicing assets.

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(1)

Represents the impact of the adoption of Accounting Standards Update (“ASU”) 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in the first quarter of 2018. Refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements in this Annual Report on Form 10-K (“this Form 10-K”) for additional information.

(2)

Represents amounts reclassified from AOCI to retained earnings due to the early adoption of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2018. Refer to Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements for additional information.

(3)	Represents the impact of the adoption of ASU 2016-02, Leases (Topic 842) and subsequent related ASUs in the first quarter of 2019. Refer to Note 1 — Summary of Significant Accounting Policies and Note 10 — Leases to the Consolidated Financial Statements in this Form 10-K for additional information.

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(1)	December 31, 2017 amount includes loans transferred from held-for-investment to branch assets held-for-sale.

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•	Equity Method — When we have the ability to exert significant influence over the investee.

•	Cost Method — The cost method is applied to investments such as FRB and FHLB stock. These investments are held at their cost minus impairment. If impaired, the carrying value is written down to the fair value of the security.

•	Measurement Alternative — This method is applied to all remaining nonmarketable equity securities. These securities are carried at cost less impairment, and adjusted for changes in fair value upon the occurrence of orderly observable transactions of the same or similar security of the same issuer.

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•	Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets.

•	Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

•	Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

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(1)	Equity securities are comprised of mutual funds with readily determinable fair values.

(2)	Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information.

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(1)	Equity securities were comprised of mutual funds with readily determinable fair values.

(2)	Represents balance sheet netting of derivative assets and liabilities and related cash collateral under master netting agreements or similar agreements. See Note 6 — Derivatives to the Consolidated Financial Statements in this Form 10-K for additional information.

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(1)	Includes unrealized (losses) gains of $(292) thousand and $225 thousand for the years ended December 31, 2019 and 2018, respectively. There were no unrealized gains (losses) for the year ended December 31, 2017. The realized/unrealized gains (losses) of equity warrants are included in Lending fees on the Consolidated Statement of Income.

(1)	Weighted-average is calculated based on fair value of equity warrants as of December 31, 2019 and 2018, respectively.

•	Discounted cash flows valuation techniques that consist of developing an expected stream of cash flows over the life of the loans and then valuing the loans at the present value by discounting the expected cash flows at a designated discount rate.

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A specific reserve is established for an impaired loan based on the fair value of the underlying collateral, which may take the form of real estate, inventory, equipment, contracts or guarantees. The fair value of the underlying collateral is generally based on third-party appraisals, or an internal valuation if a third-party appraisal is not required by regulations, which utilize one or more valuation techniques such as income, market and/or cost approaches.

•	The current fair value of the tax credit investment based upon the expected future cash flows is less than the carrying amount;

•	Change in the economic, market or technological environment that could adversely affect the investee’s operations; and

•	Other factors that raise doubt about the investee’s ability to continue as a going concern, such as negative cash flows from operations and the continuing prospects of the underlying operations of the investment.

(1)	Amounts are included in Other assets on the Consolidated Balance Sheet and represent the carrying value of OREO properties that were written down subsequent to their initial classification as OREO.

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(1)	Weighted-average is based on the relative fair value of the respective assets as of December 31, 2019 and 2018.

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(1)	Resale and repurchase agreements are reported net pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. Out of gross repurchase agreements of $450.0 million, $250.0 million and $400.0 million as of December 31, 2019 and 2018, respectively, were eligible for netting against gross resale agreements.

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(1)	Represents the fair value of securities the Company has received under resale agreements, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

(2)	Represents the fair value of securities the Company has pledged under repurchase agreements, limited for table presentation purposes to the amount of the recognized liability due to each counterparty. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

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(1)	The Company held equity contracts in three public companies and 18 private companies as of December 31, 2019. In comparison, the Company held equity contracts in four public companies and 18 private companies as of December 31, 2018.

(2)

The notional amount of the Company’s commodity contracts entered with its customers totaled 7,811 thousand barrels of crude oil and 63,773 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of December 31, 2019. In comparison, the notional amount of the Company’s commodity contracts entered with its customers totaled 2,507 thousand of crude oil and 14,722 thousand MMBTUs of natural gas as of December 31, 2018. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

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(1)	Represents the full carrying amount of the hedged certificates of deposit.

(2)	For liabilities, (increase) decrease to carrying value.

(1)	Represents the losses recorded in the Consolidated Statement of Income related to the ineffective portion of the net investment hedges prior to the adoption of ASU 2017-12, effective January 1, 2018. After the adoption, the fair value gains (losses) are recorded in Foreign Currency Translation Adjustments within AOCI.

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(1)

Gross amounts recognized for derivative assets include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $328.7 million and $105.9 million, respectively, as of December 31, 2019 and 2018, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $1.6 million and $2.0 million, respectively, as of December 31, 2019 and 2018.

(2)

Gross amounts recognized for derivative liabilities include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $256.5 million and $118.2 million, respectively, as of December 31, 2019 and 2018, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $20 thousand and $102 thousand, respectively, as of December 31, 2019 and 2018.

(3)	Gross cash collateral received under master netting arrangements or similar agreements were $3.8 million and $15.8 million, respectively, as of December 31, 2019 and 2018. Of the gross cash collateral received,$3.8 million and $13.6 million were used to offset against derivative assets, respectively, as of December 31, 2019 and 2018.

(4)	Gross cash collateral pledged under master netting arrangements or similar agreements were $43.0 million and $8.4 million, respectively, as of December 31, 2019 and 2018. Of the gross cash collateral pledged, $38.2 million and $6.8 million were used to offset against derivative liabilities, respectively, as of December 31, 2019 and 2018.

(5)	Represents the fair value of security collateral received and pledged limited to derivative assets and liabilities that are subject to enforceable master netting arrangements or similar agreements. GAAP does not permit the netting of non-cash collateral on the consolidated balance sheet but requires disclosure of such amounts.

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(1)	Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(43.2) million and $(48.9) million as of December 31, 2019 and 2018, respectively.

(2)	Includes ASC 310-30 discount of $14.3 million and $22.2 million as of December 31, 2019 and 2018, respectively.

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(1)	Loans net of ASC 310-30 discount.

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(1)	Includes subsequent payments after modification and reflects the balance as of December 31, 2019, 2018 and 2017.

(2)	The financial impact includes charge-offs and specific reserves recorded since the modification date.

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(1)	Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.

(2)	Includes principal and interest deferments or reductions.

(3)	Includes primarily funding to secure additional collateral and provides liquidity to collateral-dependent C&I loans.

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(1)	Includes interest income recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal, not as interest income.

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(1)	Loans net of ASC 310-30 discount.

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(1)	The Company recorded $789 thousand, $14.6 million and $473 thousand in write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the years ended December 31, 2019, 2018 and 2017, respectively.

(2)	Includes originated loans sold of $230.3 million, $309.7 million and $178.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. Originated loans sold were primarily comprised of C&I loans for the years ended December 31, 2019 and 2018; and C&I, CRE and single-family residential loans for the year ended December 31, 2017.

(3)	Includes purchased loans sold in the secondary market of $66.5 million, $201.4 million and $399.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(4)	Net gains on sales of loans were $4.0 million, $6.6 million and $8.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(5)	C&I loan purchases for each of the yeas ended December 31, 2019, 2018 and 2017 were comprised of broadly syndicated C&I term loans.

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(1)	Excludes fully amortized core deposit intangible assets.

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(1)	All the above debt instruments mature more than five years after December 31, 2019 and are subject to call options where early redemption requires appropriate notice.

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(1)	Primarily represents revenue from contracts with customers that are out of the scope of ASC 606, Revenue from Contracts with Customers.

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(1)	Includes dilutive shares from RSUs for the year ended December 31, 2019, and from RSUs and warrants for the years ended December 31, 2018 and 2017.

(2)

The Company acquired MetroCorp Bancshares, Inc. (“MetroCorp”) on January 17, 2014. Prior to the acquisition, MetroCorp had outstanding warrants to purchase 771,429 shares of its common stock. Upon the acquisition, the rights of the warrant holders were converted into the rights to acquire 230,282 shares of East West’s common stock until January 16, 2019. All warrants were exercised on January 7, 2019.

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(1)	Represents foreign currency translation adjustments related to the Company’s net investment in non-U.S. operations, including related hedges. The functional currency and reporting currency of the Company’s foreign subsidiary was RMB and USD, respectively.

(2)	Represents the impact of the adoption of ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in the first quarter of 2018.

(3)	Represents amounts reclassified from AOCI to retained earnings due to the early adoption of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2018.

(1)	For the years ended December 31, 2019, 2018 and 2017, pre-tax amounts were reported in Net gains on sales of AFS investment securities on the Consolidated Statement of Income.

(2)	The tax effects on foreign currency translation adjustments represent the cumulative net deferred tax liabilities since inception on net investment hedges that were recorded during the year ended December 31, 2019.

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(1)	The Tier 1 leverage capital well-capitalized requirement applies to the Bank only since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

(2)	Reflects adjusted average total assets for the years ended December 31, 2019 and 2018.

(3)	The CET1, Tier 1, and total capital minimum ratios include a fully phased-in capital conservation buffer of 2.5% and a transition capital conservation buffer of 1.875% for the years ended December 31, 2019 and 2018, respectively.

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(1)	As of February 27, 2020.

•	Summary Information About Director Nominees

•	Board of Directors and Nominees

•	Director Nominee Qualifications and Experience

•	Director Independence, Financial Experts and Risk Management Experience

•	Board Leadership Structure

•	Board Meetings and Committees

•	Director Compensation

•	Compensation Discussion and Analysis

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(1)	Represents future shares available under the shareholder-approved 2016 Stock Incentive Plan effective May 24, 2016.

•	Director Independence, Financial Experts and Risk Management Experience

•	Certain Relationships and Related Transactions

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(1)	Financial Statements

(2)	Financial Statement Schedules

(3)	Exhibits

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