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 do not significantly affect 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 Bank’s investment in 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 of the Company’s 2019 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 June 30, 2020 and December 31, 2019. 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 June 30, 2020 and December 31, 2019. 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)	June 30, 2020														December 31, 2019
			Notional Amount			Fair Value								Notional Amount			Fair Value
							Derivative Assets		Derivative Liabilities								Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate contracts	$	15,194		$	—		$	174	$	31,026		$	—		$	3,198
Cash flow hedges:
Interest rate contracts	275,000			—			1,483		—			—			—
Net investment hedges:
Foreign exchange contracts	77,689			245			—		86,167			—			1,586
Total derivatives designated as hedging instruments	$	367,883		$	245		$	1,657	$	117,193		$	—		$	4,784
Derivatives not designated as hedging instruments:
Interest rate contracts	$	17,170,884		$	613,480		$	400,146	$	15,489,692		$	192,883		$	124,119
Foreign exchange contracts	2,738,018			24,044			19,741		4,839,661			54,637			47,024
Credit contracts	204,498			41			327		210,678			2			84
Equity contracts	—		(1)	9,173			—		—		(1)	1,414			—
Commodity contracts	—		(2)	117,447			138,298		—		(2)	81,380			80,517
Total derivatives not designated as hedging instruments	$	20,113,400		$	764,185		$	558,512	$	20,540,031		$	330,316		$	251,744
Gross derivative assets/liabilities				$	764,430		$	560,169				$	330,316		$	256,528
Less: Master netting agreements				(110,569)			(110,569)					(121,561)			(121,561)
Less: Cash collateral received/paid				(11,649)			(94,435)					(3,758)			(38,238)
Net derivative assets/liabilities				$	642,212		$	355,165				$	204,997		$	96,729

(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 6,155 thousand barrels of crude oil and 84,957 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of June 30, 2020. In comparison, 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 MMBTUs of natural gas as of December 31, 2019. The Company simultaneously entered into the offsetting commodity contracts with mirrored terms with third-party financial institutions.

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 has 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.

Cash Flow Hedges — The Company entered into interest rate swaps that were designated and qualified as cash flow hedges in the second quarter of 2020 to hedge the variability in interest payments on certain floating rate borrowings. For cash flow hedges, the entire change in the fair value of the hedging instruments is recognized in AOCI and reclassified to earnings in the same period when the hedged cash flows impacts earnings. Reclassified gains and losses on interest rate swaps are recorded in the same line item as the interest payments of the hedged long-term borrowings within Interest expense in the Consolidated Statements of Income. As of June 30, 2020, the notional amount of the interest rate swaps that were designated as cash flow hedges was $275.0 million. Considering the interest rates, yield curve and notional amounts as of June 30, 2020, the Company expects to reclassify an estimated $183 thousand of after-tax net gains on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

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 forward contracts to hedge a portion of the Bank’s 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 Bank’s net investment in East West Bank (China) Limited, against the risk of adverse changes in the foreign currency exchange rate of the Chinese Renminbi (“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 foreign exchange forward contracts were $77.7 million and $245 thousand asset, respectively, as of June 30, 2020. In comparison, the notional and fair value amounts of the foreign exchange forward contracts, were $86.2 million and $1.6 million liability, respectively, as of December 31, 2019.

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 $8.60 billion of interest rates contracts entered into with financial counterparties as of June 30, 2020, was a notional amount of $2.82 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 liability fair values of $229.8 million, as of June 30, 2020. In comparison, 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 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 $2.9 million and liability fair values of $75.1 million as of December 31, 2019.



($ in thousands)	June 30, 2020
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Written options	$	858,996		$	—		$	241	Purchased options	$	858,996	$	241		$	—
Sold collars and corridors	531,098			10,658			1		Collars and corridors	531,098		1			10,696
Swaps	7,179,331			601,250			—		Swaps	7,211,365		1,330			389,208
Total	$	8,569,425		$	611,908		$	242	Total	$	8,601,459	$	1,572		$	399,904



($ in thousands)	December 31, 2019
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									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

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 the foreign exchange contracts entered into with its customers, the Company managed its foreign exchange exposure by entering into offsetting foreign exchange contracts with third-party financial institutions and/or entering into bilateral collateral and master netting agreements with customer counterparties to manage its credit 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 June 30, 2020 and December 31, 2019.



($ in thousands)	June 30, 2020
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									Assets	Liabilities
Forwards and spot	$	1,768,864		$	17,940		$	14,246	Forwards and spot	$	62,424	$	62		$	98
Swaps	7,160			—			42		Swaps	734,640		4,502			3,808

Collars	1,685			2			—		Collars	162,245		1,538			1,547
Total	$	1,777,709		$	17,942		$	14,288	Total	$	959,309	$	6,102		$	5,453



($ in thousands)	December 31, 2019
			Customer Counterparty											($ in thousands)			Financial Counterparty
			Notional Amount			Fair Value									Notional Amount			Fair Value
							Assets		Liabilities									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

Credit Contracts — The Company may periodically enter into RPA contracts to manage the credit exposure on interest rate contracts associated with syndicated loans and may enter into protection sold or protection purchased RPAs with institutional counterparties. Under the RPAs, the Company will receive or make a payment if a borrower defaults on the related interest rate contract. Credit risk on RPAs is managed by monitoring the credit worthiness 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 June 30, 2020 and December 31, 2019. 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 June 30, 2020 and December 31, 2019:

Assuming all underlying borrowers referenced in the interest rate contracts defaulted as of June 30, 2020 and December 31, 2019, the exposure from the RPAs with protections sold would be $778 thousand and $125 thousand, respectively. As of June 30, 2020 and December 31, 2019, the weighted-average remaining maturities of the outstanding RPAs were 1.7 years and 2.2 years, respectively.

Equity Contracts — As part of the Company’s loan origination process, from time to time, the Company obtains warrants to purchase preferred and/or common stock of technology and life sciences companies to which it provides loans. 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 17 private companies as of June 30, 2020, and held warrants in three public companies and 18 private companies as of December 31, 2019. The total fair value of the warrants held in both public and private companies was $9.2 million and $1.4 million in assets as of June 30, 2020 and December 31, 2019, respectively.

Commodity Contracts — The Company enters 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 enters 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. As of June 30, 2020, the notional quantities that cleared through CME totaled 1,532 thousand barrels of crude oil and 24,895 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in reductions in gross derivative asset fair value of $25.0 million and liability fair value of $631 thousand, respectively, as of June 30, 2020, for a net asset fair value of $2.3 million. In comparison, 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 the variation margin payments as settlement to CME-cleared derivative transactions resulted in a reduction in gross derivative asset fair value of $2.9 million and liability fair value of $1.5 million, respectively, as of December 31, 2019, for a net asset fair value of $986 thousand.



($ and units in thousands)	June 30, 2020
		Customer Counterparty												($ and units in thousands)			Financial Counterparty
		Notional Unit						Fair Value							Notional Unit			Fair Value
									Assets	Liabilities								Assets	Liabilities
Crude oil:									Crude oil:
Written options	—		Barrels	$	—	$	70		Purchased options	—	Barrels	$	70		$	—
Collars	1,966		Barrels	63		20,463			Collars	2,218	Barrels	21,847			1,607
Swaps	4,189		Barrels	1,273		51,320			Swaps	4,261	Barrels	32,875			1,779
Total	6,155			$	1,336	$	71,853		Total	6,479		$	54,792		$	3,386

Natural gas:									Natural gas:
Written options	1,033		MMBTUs	$	—	$	172		Purchased Options	1,023	MMBTUs	$	157		$	—
Collars	13,066		MMBTUs	881		955			Collars	13,186	MMBTUs	883			881
Swaps	70,858		MMBTUs	29,550		31,988			Swaps	78,528	MMBTUs	29,848			29,063
Total	84,957			$	30,431	$	33,115		Total	92,737		$	30,888		$	29,944

Total				$	31,767	$	104,968		Total			$	85,680		$	33,330



($ and units in thousands)	December 31, 2019
		Customer Counterparty												($ and units in thousands)			Financial Counterparty
		Notional Unit						Fair Value							Notional Unit			Fair Value
									Assets	Liabilities								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



($ in thousands)	Classification on Consolidated Statement of Income	Three Months Ended June 30,						Six Months Ended June 30,
				2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Interest rate contracts	Interest rate contracts and other derivative income	$	(5,361)	$	(1,359)	$	(12,372)	$	(3,138)
Foreign exchange contracts	Foreign exchange income	6,201		3,495		9,062		9,821
Credit contracts	Interest rate contracts and other derivative income	(75)		(36)		(98)		47
Equity contracts	Lending fees	8,070		917		8,379		1,167
Commodity contracts	Interest rate contracts and other derivative income	(71)		(22)		(47)		(18)
Net gains		$	8,764	$	2,995	$	4,924	$	7,879

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 June 30, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that are in a net liability position totaled $136.6 million, in which $136.5 million in cash and securities collateral were posted to cover these positions. As of December 31, 2019, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that are in a net liability position totaled $56.4 million, which includes $14.4 million in derivative assets and $70.8 million in derivative liabilities. The Company posted $56.4 million in cash and securities collateral to cover these positions as of December 31, 2019. 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 June 30, 2020, and December 31, 2019.

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 noncash 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 the 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 June 30, 2020

	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
					Master Netting Arrangements		Cash Collateral Received ⁽³⁾						Security Collateral Received ⁽⁵⁾
Derivative assets	$	764,430	$	(110,569)	$	(11,649)	$	642,212	$	(13,447)	$	628,765

	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
					Master Netting Arrangements		Cash Collateral Pledged ⁽⁴⁾						Security Collateral Pledged ⁽⁵⁾
Derivative liabilities	$	560,169	$	(110,569)	$	(94,435)	$	355,165	$	(279,528)	$	75,637



($ 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
					Master Netting Arrangements		Cash Collateral Received ⁽³⁾						Security Collateral Received ⁽⁵⁾
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
					Master Netting Arrangements		Cash Collateral Pledged ⁽⁴⁾						Security Collateral Pledged ⁽⁵⁾
Derivative liabilities	$	256,528	$	(121,561)	$	(38,238)	$	96,729	$	(79,619)	$	17,110

(1)Gross amounts recognized for derivative assets include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $754.7 million and $328.7 million, respectively, as of June 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $9.7 million and $1.6 million, respectively, as of June 30, 2020 and December 31, 2019.

(2)Gross amounts recognized for derivative liabilities include amounts with counterparties subject to enforceable master netting arrangements or similar agreements of $560.0 million and $256.5 million, respectively, as of June 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $211 thousand and $20 thousand, respectively, as of June 30, 2020 and December 31, 2019.

(3)Gross cash collateral received under master netting arrangements or similar agreements were $18.1 million and $3.8 million, respectively, as of June 30, 2020 and December 31, 2019. Of the gross cash collateral received, $11.6 million and $3.8 million were used to offset against derivative assets, respectively, as of June 30, 2020 and December 31, 2019.

(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $98.9 million and $43.0 million, respectively, as of June 30, 2020 and December 31, 2019. Of the gross cash collateral pledged, $94.4 million and $38.2 million were used to offset against derivative liabilities, respectively, as of June 30, 2020 and December 31, 2019.

(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 noncash collateral on the consolidated balance sheet but requires disclosure of such amounts.

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-Q for fair value measurement disclosures on derivatives.