The Company uses derivatives to manage exposure to market risk, primarily interest rate or foreign currency risk, as well as 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 September 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 September 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)	September 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		$	64	$	—	$	31,026		$	—	$	3,198
Cash flow hedges:
Interest rate contracts	275,000			—		1,861		—			—		—
Net investment hedges:
Foreign exchange contracts	80,992			—		252		86,167			—		1,586
Total derivatives designated as hedging instruments	$	371,186		$	64	$	2,113	$	117,193		$	—	$	4,784
Derivatives not designated as hedging instruments:
Interest rate contracts	$	17,613,982		$	566,571	$	370,196	$	15,489,692		$	192,883	$	124,119
Foreign exchange contracts	1,832,383			19,134		14,530		4,839,661			54,637		47,024
Credit contracts	77,397			47		307		210,678			2		84
Equity contracts	—		(1)	12,765		—		—		(1)	1,414		—
Commodity contracts	—		(2)	110,029		118,873		—		(2)	81,380		80,517
Total derivatives not designated as hedging instruments	$	19,523,762		$	708,546	$	503,906	$	20,540,031		$	330,316	$	251,744
Gross derivative assets/liabilities				$	708,610	$	506,019				$	330,316	$	256,528
Less: Master netting agreements				(104,456)		(104,456)					(121,561)		(121,561)
Less: Cash collateral received/paid				(5,240)		(97,675)					(3,758)		(38,238)
Net derivative assets/liabilities				$	598,914	$	303,888				$	204,997	$	96,729

(2)The notional amount of the Company’s commodity contracts entered with its customers totaled 6,100 thousand barrels of crude oil and 110,340 thousand units of natural gas, measured in million British thermal units (“MMBTUs”) as of September 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.



($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Gains (losses) recorded in interest expense:
Recognized on interest rate swaps	$	154	$	202	$	3,150	$	3,056
Recognized on certificates of deposit	$	112	$	(37)	$	(1,607)	$	(2,732)

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of the hedged certificates of deposit as of September 30, 2020 and December 31, 2019:

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 impact 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 September 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 September 30, 2020, the Company expects to reclassify an estimated $536 thousand of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI into earnings during the next 12 months.

The following table presents the pre-tax changes in AOCI from cash flow hedges for the three and nine months ended September 30, 2020 and 2019. The after-tax impact of cash flow hedges on AOCI is shown in Note 14 — Accumulated Other Comprehensive Income (Loss) to the Consolidated Financial Statements in the Form-10-Q.

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 $81.0 million and $252 thousand liability, respectively, as of September 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.



($ in thousands)	September 30, 2020
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Assets		Liabilities					Assets		Liabilities
Written options	$	816,659	$	—	$	64	Purchased options	$	816,659	$	65	$	—
Sold collars and corridors	510,489		9,051		—		Collars and corridors	510,489		—		9,107
Swaps	7,464,057		556,237		—		Swaps	7,495,629		1,218		361,025
Total	$	8,791,205	$	565,288	$	64	Total	$	8,822,777	$	1,283	$	370,132



($ 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

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 $8.82 billion of interest rate contracts entered into with financial counterparties as of September 30, 2020, was a notional amount of $2.99 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 $215.9 million as of September 30, 2020. In comparison, included in the total notional amount of $7.75 billion of interest rate 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.

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. The Company also enters into bilateral collateral and master netting agreements with certain 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 both September 30, 2020 and December 31, 2019.



($ in thousands)	September 30, 2020
	Customer Counterparty						($ in thousands)	Financial Counterparty
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Assets		Liabilities					Assets		Liabilities
Forwards and spot	$	959,820	$	8,480	$	11,884	Forwards and spot	$	205,113	$	1,367	$	124
Swaps	11,373		358		45		Swaps	486,211		8,383		1,951

Collars	1,172		—		26		Collars	168,694		546		500
Total	$	972,365	$	8,838	$	11,955	Total	$	860,018	$	10,296	$	2,575



($ 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 September 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 September 30, 2020 and December 31, 2019:



($ in thousands)	September 30, 2020						December 31, 2019
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Assets		Liabilities				Assets		Liabilities
RPAs - protection sold	$	66,683	$	—	$	307	$	199,964	$	—	$	84
RPAs - protection purchased	10,714		47		—		10,714		2		—
Total RPAs	$	77,397	$	47	$	307	$	210,678	$	2	$	84

Assuming all underlying borrowers referenced in the interest rate contracts defaulted as of September 30, 2020 and December 31, 2019, the exposure from the RPAs with protections sold would be $748 thousand and $125 thousand, respectively. As of September 30, 2020 and December 31, 2019, the weighted-average remaining maturities of the outstanding RPAs were 4.0 years and 2.2 years, respectively.

Equity Contracts — From time to time, as part of the Company’s loan origination process, 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 September 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 $12.8 million and $1.4 million as of September 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 energy commodity price fluctuation. To economically hedge against the risk of commodity price fluctuation in the products offered to its customers, the Company enters into offsetting commodity contracts with third-party financial institutions to manage the exposure.



($ and units in thousands)	September 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	$	—	$	—	Purchased options	—	Barrels	$	—	$	—
Collars	1,390	Barrels	18		12,245		Collars	1,544	Barrels	12,946		943
Swaps	4,710	Barrels	3,635		36,622		Swaps	4,759	Barrels	21,336		2,991
Total	6,100		$	3,653	$	48,867	Total	6,303		$	34,282	$	3,934

Natural gas:							Natural gas:
Written options	973	MMBTUs	$	—	$	116	Purchased options	963	MMBTUs	$	115	$	—
Collars	14,761	MMBTUs	3,705		—		Collars	18,111	MMBTUs	—		3,046
Swaps	94,606	MMBTUs	42,231		26,055		Swaps	102,263	MMBTUs	26,043		36,855
Total	110,340		$	45,936	$	26,171	Total	121,337		$	26,158	$	39,901

Total			$	49,589	$	75,038	Total			$	60,440	$	43,835



($ 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

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 September 30, 2020, the notional quantities that cleared through CME totaled 1,506 thousand barrels of crude oil and 31,395 thousand MMBTUs of natural gas. Applying the variation margin payments as settlement to CME-cleared derivative transactions resulted in reductions to the gross derivative asset fair value of $17.8 million and to the liability fair value of $6.6 million as of September 30, 2020, to a net fair value of zero. 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 reductions to the gross derivative asset fair value of $2.9 million and to the liability fair value of $1.5 million, respectively, as of December 31, 2019, to a net asset fair value of $986 thousand.



($ in thousands)	Classification on Consolidated Statement of Income	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Interest rate contracts	Interest rate contracts and other derivative income	$	(3,013)	$	(2,738)	$	(15,385)	$	(5,876)
Foreign exchange contracts	Foreign exchange income	5,255		5,306		14,317		15,127
Credit contracts	Interest rate contracts and other derivative income	26		(3)		(72)		44
Equity contracts	Lending fees	3,592		(442)		11,971		725
Commodity contracts	Interest rate contracts and other derivative income	34		14		(13)		(4)
Net gains		$	5,894	$	2,137	$	10,818	$	10,016

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 September 30, 2020, the aggregate fair value amounts of all derivative instruments with credit risk-related contingent features that were in a net liability position totaled $126.4 million, in which $126.3 million in cash and securities collateral was 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 were in a net liability position totaled $56.4 million, which included $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 September 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 central counterparties, 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 September 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	$	708,610	$	(104,456)	$	(5,240)	$	598,914	$	(8,647)	$	590,267

	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	$	506,019	$	(104,456)	$	(97,675)	$	303,888	$	(262,165)	$	41,723



($ 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 $695.6 million and $328.7 million, respectively, as of September 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $13.0 million and $1.6 million, respectively, as of September 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 $505.8 million and $256.5 million, respectively, as of September 30, 2020 and December 31, 2019, and amounts with counterparties not subject to enforceable master netting arrangements or similar agreements of $208 thousand and $20 thousand, respectively, as of September 30, 2020 and December 31, 2019.

(3)Gross cash collateral received under master netting arrangements or similar agreements were $9.1 million and $3.8 million, respectively, as of September 30, 2020 and December 31, 2019. Of the gross cash collateral received, $5.2 million and $3.8 million were used to offset against derivative assets, respectively, as of September 30, 2020 and December 31, 2019.

(4)Gross cash collateral pledged under master netting arrangements or similar agreements were $100.1 million and $43.0 million, respectively, as of September 30, 2020 and December 31, 2019. Of the gross cash collateral pledged, $97.7 million and $38.2 million were used to offset against derivative liabilities, respectively, as of September 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.