The Company uses derivatives to manage exposure to market risk, primarily interest rate risk and foreign currency risk, and to assist customers with their risk management objectives. The Company’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates are not significant to earnings or capital. The Company also uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities, as well as the Company’s investment in its China subsidiary, East West Bank (China) Limited. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value. While the Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, other derivatives consist of economic hedges. For additional information on 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 this Form 10-K.

The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments on an aggregate basis as of December 31, 2019 and 2018. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of December 31, 2019 and 2018. 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.




($ in thousands)	December 31, 2019									December 31, 2018
	Notional Amount			Fair Value						Notional Amount			Fair Value
	Notional Amount			Derivative Assets			Derivative Liabilities			Notional Amount			Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate contracts	$	31,026		$	—		$	3,198		$	35,811		$	—		$	5,866
Net investment hedges:
Foreign exchange contracts	86,167			—			1,586			90,245			—			611
Total derivatives designated as hedging instruments	$	117,193		$	—		$	4,784		$	126,056		$	—		$	6,477
Derivatives not designated as hedging instruments:
Interest rate contracts	$	15,489,692		$	192,883		$	124,119		$	11,695,499		$	69,818		$	69,267
Foreign exchange contracts	4,839,661			54,637			47,024			3,407,522			21,624			19,329
Credit contracts	210,678			2			84			119,320			1			164
Equity contracts	—		⁽¹⁾	1,414			—			—		⁽¹⁾	1,951			—
Commodity contracts	—		⁽²⁾	81,380			80,517			—		⁽²⁾	14,422			23,068
Total derivatives not designated as hedging instruments	$	20,540,031		$	330,316		$	251,744		$	15,222,341		$	107,816		$	111,828
Gross derivative assets/liabilities				$	330,316		$	256,528					$	107,816		$	118,305
Less: Master netting agreements				(121,561		)	(121,561		)				(31,569		)	(31,569		)
Less: Cash collateral received/paid				(3,758		)	(38,238		)				(13,577		)	(6,833		)
Net derivative assets/liabilities				$	204,997		$	96,729					$	62,670		$	79,903

Fair Value Hedges — The Company is exposed to changes in the fair value of certain certificates of deposit due to changes in the benchmark interest rates. The Company entered into interest rate swaps, which were designated as fair value hedges. The interest rate swaps involve the exchange of variable rate payments over the life of the agreements without the exchange of the underlying notional amounts.

Net Investment Hedges — ASC 830-20, Foreign Currency Matters — Foreign Currency Transactions and ASC 815, Derivatives and Hedging, allow hedging of the foreign currency risk of a net investment in a foreign operation. The Company enters into foreign currency contracts to hedge a portion of its investment in East West Bank (China) Limited, a non-USD functional currency subsidiary in China. The hedging instruments designated as net investment hedges, involve hedging the risk of changes in the USD equivalent value of a designated monetary amount of the Company’s net investment in East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate of the RMB. The Company may de-designate the net investment hedges when the Company expects the hedge will cease to be highly effective. The notional and fair value amounts of the net investment hedges, made up of foreign exchange forwards, were $86.2 million and $1.6 million liability as of December 31, 2019. In comparison, the notional and fair value amounts of the net investment hedges, made up of foreign exchange swaps, were $90.2 million and a $611 thousand liability, respectively, as of December 31, 2018.

Interest Rate Contracts — The Company enters into interest rate contracts, which include interest rate swaps and options with its customers to allow customers to hedge against the risk of rising interest rates on their variable rate loans. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored offsetting interest rate contracts with third-party financial institutions, including central clearing organizations. Beginning in January 2018, the London Clearing House (“LCH”) amended its rulebook to legally characterize variation margin payments made to and received from LCH as settlements of derivatives, and not as collateral against derivatives. Included in the total notional amount of $7.75 billion of interest rates contracts entered into with financial counterparties as of December 31, 2019, was a notional amount of $2.53 billion of interest rates swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $2.9 million and liability fair values of $75.1 million, as of December 31, 2019. In comparison, included in the total notional amount of $5.85 billion of interest rates contracts entered into with financial counterparties as of December 31, 2018, was a notional amount of $1.66 billion of interest rate swaps that cleared through LCH. Applying variation margin payments as settlement to LCH cleared derivative transactions resulted in a reduction in derivative asset fair values of $16.4 million and liability fair values of $16.0 million, as of December 31, 2018.




($ in thousands)	December 31, 2019
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
	Notional Amount		Assets		Liabilities			Notional Amount		Assets		Liabilities
Written options	$	1,003,558	$	—	$	66	Purchased options	$	1,003,558	$	67	$	—
Sold collars and corridors	490,852		1,971		16		Collars and corridors	490,852		17		1,996
Swaps	6,247,667		187,294		6,237		Swaps	6,253,205		3,534		115,804
Total	$	7,742,077	$	189,265	$	6,319	Total	$	7,747,615	$	3,618	$	117,800




($ in thousands)	December 31, 2018
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
	Notional Amount		Assets		Liabilities			Notional Amount		Assets		Liabilities
Written options	$	931,601	$	—	$	492	Purchased options	$	931,601	$	503	$	—
Sold collars and corridors	429,879		1,121		305		Collars and corridors	429,879		308		1,140
Swaps	4,482,881		41,457		41,545		Swaps	4,489,658		26,429		25,785
Total	$	5,844,361	$	42,578	$	42,342	Total	$	5,851,138	$	27,240	$	26,925

Foreign Exchange Contracts — The Company enters into foreign exchange contracts with its customers, consisting of forwards, spot, swap and option contracts to accommodate the business needs of its customers. For a portion of the foreign exchange contracts entered into with its customers, the Company either entered into offsetting foreign exchange contracts with third-party financial institutions or acquires collateral on a portfolio basis primarily in the form of cash to manage its exposure. The Company also utilizes foreign exchange contracts, which are not designated as hedging instruments to mitigate the economic effect of currency fluctuations on certain foreign currency-denominated on-balance sheet assets and liabilities, primarily for foreign currency-denominated deposits offered to its customers. A majority of the foreign exchange contracts had original maturities of one year or less as of both December 31, 2019 and 2018.




($ in thousands)	December 31, 2019
	Customer Counterparty						Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
	Notional Amount		Assets		Liabilities		($ in thousands)	Notional Amount		Assets		Liabilities
Forwards and spot	$	3,581,036	$	45,911	$	40,591	Forwards and spot	$	207,492	$	1,400	$	507
Swaps	6,889		16		84		Swaps	702,391		6,156		4,712
Written options	87,036		127		—		Purchased options	87,036		—		127
Collars	2,244		—		14		Collars	165,537		1,027		989
Total	$	3,677,205	$	46,054	$	40,689	Total	$	1,162,456	$	8,583	$	6,335




($ in thousands)	December 31, 2018
	Customer Counterparty						Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
	Notional Amount		Assets		Liabilities		($ in thousands)	Notional Amount		Assets		Liabilities
Forwards and spot	$	2,023,425	$	11,719	$	13,079	Forwards and spot	$	506,342	$	3,407	$	2,285
Swaps	21,108		348		243		Swaps	687,845		5,764		3,336
Written options	537		16		—		Purchased options	537		—		16
Collars	83,864		—		370		Collars	83,864		370		—
Total	$	2,128,934	$	12,083	$	13,692	Total	$	1,278,588	$	9,541	$	5,637

Credit Contracts — The Company may periodically enter into RPA contracts to manage the credit exposure on interest rate contracts associated with syndicated loans. The Company may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPA, the Company will receive or make a payment if a borrower defaults on the related interest rate contract. The Company manages its credit risk on RPAs by monitoring the creditworthiness of the borrowers and institutional counterparties, which is based on the normal credit review process. The referenced entities of the RPAs were investment grade as of both December 31, 2019 and 2018. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument. The following table presents the notional amounts and the gross fair values of RPAs sold and purchased outstanding as of December 31, 2019 and 2018:




($ in thousands)	December 31, 2019						December 31, 2018
	Notional Amount		Fair Value				Notional Amount		Fair Value
	Notional Amount		Assets		Liabilities		Notional Amount		Assets		Liabilities
RPAs - protection sold	$	199,964	$	—	$	84	$	108,606	$	—	$	164
RPAs - protection purchased	10,714		2		—		10,714		1		—
Total RPAs	$	210,678	$	2	$	84	$	119,320	$	1	$	164

Assuming all underlying borrowers referenced in the interest rate contracts defaulted as of December 31, 2019 and 2018, the exposure from the RPAs with protections sold would be $125 thousand for both 2019 and 2018. As of December 31, 2019 and 2018, the weighted-average remaining maturities of the outstanding RPAs were 2.2 and 6.6 years, respectively.

Equity Contracts — As part of the Company’s loan origination process, from time to time, the Company obtains equity warrants to purchase preferred and/or common stock of technology and life sciences companies it provides loans to. Equity warrants grant the Company the right to buy a certain class of the underlying company’s equity at a certain price before expiration. The Company held warrants in three public companies and 18 private companies as of December 31, 2019, and held warrants in four public companies and 18 private companies as of December 31, 2018. The total fair value of the warrants held in both public and private companies was $1.4 million and $2.0 million in assets as of December 31, 2019 and 2018, respectively.

Commodity Contracts — Beginning in 2018, the Company entered into energy commodity contracts in the form of swaps and options with its commercial loan customers to allow them to hedge against the risk of fluctuation in energy commodity prices. To economically hedge against the risk of fluctuation in commodity prices in the products offered to its customers, the Company entered into offsetting commodity contracts with third-party financial institutions to manage the exposure with its customers. Beginning in January 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook to legally characterize variation margin payments made to and received from CME as settlements of derivatives and not as collateral against derivatives. The notional quantities that cleared through CME totaled 1,752 thousand barrels of crude oil and 6,075 thousand MMBTUs of natural gas as of December 31, 2019. Applying variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair values of $2.9 million and liability fair values of $1.5 million, respectively, as of December 31, 2019, for a net asset fair value of $986 thousand. In comparison, the notional quantities that cleared through CME totaled 778 thousand barrels of crude oil and 6,290 thousand MMBTUs of natural gas as of December 31, 2018. Applying variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair values of $10.4 million and liability fair values of $582 thousand as of December 31, 2018, for a net asset fair value of $622 thousand.




($ and units in thousands)	December 31, 2019
	Customer Counterparty						($ and units in thousands)	Financial Counterparty
	Notional Unit		Fair Value					Notional Unit		Fair Value
	Notional Unit		Assets		Liabilities			Notional Unit		Assets		Liabilities
Crude oil:							Crude oil:
Written options	36	Barrels	$	—	$	30	Purchased options	36	Barrels	$	29	$	—
Collars	3,174	Barrels	2,673		538		Collars	3,630	Barrels	677		2,815
Swaps	4,601	Barrels	6,949		5,531		Swaps	4,721	Barrels	4,516		5,215
Total	7,811		$	9,622	$	6,099	Total	8,387		$	5,222	$	8,030

Natural gas:							Natural gas:
Written options	540	MMBTUs	$	—	$	22	Purchased options	530	MMBTUs	$	21	$	—
Collars	14,277	MMBTUs	186		522		Collars	14,517	MMBTUs	471		150
Swaps	48,956	MMBTUs	30,257		35,497		Swaps	48,779	MMBTUs	35,601		30,197
Total	63,773		$	30,443	$	36,041	Total	63,826		$	36,093	$	30,347
Total			$	40,065	$	42,140	Total			$	41,315	$	38,377




($ and units in thousands)	December 31, 2018
	Customer Counterparty						($ and units in thousands)	Financial Counterparty
	Notional Unit		Fair Value					Notional Unit		Fair Value
	Notional Unit		Assets		Liabilities			Notional Unit		Assets		Liabilities
Crude oil:							Crude oil:
Written options	524	Barrels	$	—	$	2,628	Purchased options	524	Barrels	$	2,251	$	—
Collars	872	Barrels	—		3,772		Collars	872	Barrels	3,225		—
Swaps	1,111	Barrels	—		14,278		Swaps	1,111	Barrels	5,799		—
Total	2,507		$	—	$	20,678	Total	2,507		$	11,275	$	—

Natural gas:							Natural gas:
Collars	3,063	MMBTUs	$	78	$	152	Collars	3,063	MMBTUs	$	151	$	64
Swaps	11,659	MMBTUs	1,049		1,857		Swaps	11,659	MMBTUs	1,869		317
Total	14,722		$	1,127	$	2,009	Total	14,722		$	2,020	$	381
Total			$	1,127	$	22,687	Total			$	13,295	$	381




($ in thousands)	Classification in Consolidated Statement of Income	Year Ended December 31,
($ in thousands)	Classification in Consolidated Statement of Income	2019			2018			2017
Derivatives not designated as hedging instruments:
Interest rate contracts	Interest rate contracts and other derivative income	$	(2,126	)	$	280		$	(1,772	)
Foreign exchange contracts	Foreign exchange income	22,264			16,784			22,076
Credit contracts	Interest rate contracts and other derivative income	59			(156		)	(7		)
Equity contracts	Lending fees	678			512			1,672
Commodity contracts	Interest rate contracts and other derivative income	(67		)	(11		)	—
Net gains		$	20,808		$	17,409		$	21,969

Credit-Risk-Related Contingent Features — Certain over-the-counter derivative contracts of the Company contain early termination provisions that may require the Company to settle any outstanding balances upon the occurrence of a specified credit-risk-related event. These events, which are defined by the existing derivative contracts, primarily relate to a downgrade in the credit rating of East West Bank to below investment grade. As of December 31, 2019, the net fair value of all derivative instruments with such credit-risk-related contingent features was a $56.4 million net liability position, comprising $14.4 million in derivative assets and $70.8 million in derivative liabilities, with associated posted collateral of $56.4 million. As of December 31, 2018, the net fair value of all derivative instruments with such credit-risk-related contingent features was an $11.4 million net liability position, comprising $2.8 million derivative assets and $14.2 million in derivative liabilities, with associated posted collateral of $9.4 million. In the event that the credit rating of East West Bank had been downgraded to below investment grade, additional minimal collateral would have been required to be posted as of December 31, 2019 and 2018.

The following tables present the gross derivative fair values, the balance sheet netting adjustments and the resulting net fair values recorded on the consolidated balance sheet, as well as the cash and non-cash collateral associated with master netting arrangements. The gross amounts of derivative assets and liabilities are presented after the application of variation margin payments as settlements with centrally cleared organizations, where applicable. The collateral amounts in following tables are limited to the outstanding balances of the related asset or liability, after the application of netting; therefore instances of overcollateralization are not shown:




($ in thousands)	As of December 31, 2019
	Gross Amounts Recognized⁽¹⁾		Gross Amounts Offset on the Consolidated Balance Sheet						Net Amounts Presented on the Consolidated Balance Sheet		Gross Amounts Not Offset on the Consolidated Balance Sheet			Net Amount
	Gross Amounts Recognized⁽¹⁾		Master Netting Arrangements			Cash Collateral Received⁽³⁾			Net Amounts Presented on the Consolidated Balance Sheet		Security Collateral Received ⁽⁵⁾			Net Amount
Derivative assets	$	330,316	$	(121,561	)	$	(3,758	)	$	204,997	$	—		$	204,997

	Gross Amounts Recognized⁽²⁾		Gross Amounts Offset on the Consolidated Balance Sheet						Net Amounts Presented on the Consolidated Balance Sheet		Gross Amounts Not Offset on the Consolidated Balance Sheet			Net Amount
	Gross Amounts Recognized⁽²⁾		Master Netting Arrangements			Cash Collateral Pledged⁽⁴⁾			Net Amounts Presented on the Consolidated Balance Sheet		Security Collateral Pledged ⁽⁵⁾			Net Amount
Derivative liabilities	$	256,528	$	(121,561	)	$	(38,238	)	$	96,729	$	(79,619	)	$	17,110




($ in thousands)	As of December 31, 2018
	Gross Amounts Recognized⁽¹⁾		Gross Amounts Offset on the Consolidated Balance Sheet						Net Amounts Presented on the Consolidated Balance Sheet		Gross Amounts Not Offset on the Consolidated Balance Sheet			Net Amount
	Gross Amounts Recognized⁽¹⁾		Master Netting Arrangements			Cash Collateral Received⁽³⁾			Net Amounts Presented on the Consolidated Balance Sheet		Security Collateral Received ⁽⁵⁾			Net Amount
Derivative assets	$	107,816	$	(31,569	)	$	(13,577	)	$	62,670	$	(13,975	)	$	48,695

	Gross Amounts Recognized⁽²⁾		Gross Amounts Offset on the Consolidated Balance Sheet						Net Amounts Presented on the Consolidated Balance Sheet		Gross Amounts Not Offset on the Consolidated Balance Sheet			Net Amount
	Gross Amounts Recognized⁽²⁾		Master Netting Arrangements			Cash Collateral Pledged⁽⁴⁾			Net Amounts Presented on the Consolidated Balance Sheet		Security Collateral Pledged ⁽⁵⁾			Net Amount
Derivative liabilities	$	118,305	$	(31,569	)	$	(6,833	)	$	79,903	$	(11,231	)	$	68,672

In addition to the amounts included in the tables above, the Company also has balance sheet netting related to the resale and repurchase agreements. Refer to Note 4 — Securities Purchased under Resale Agreements and Sold under Repurchase Agreements to the Consolidated Financial Statements for additional information. Refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments to the Consolidated Financial Statements in this Form 10-K for fair value measurement disclosures on derivatives.