East West Bancorp
Annual Report 2016

Plain-text annual report

EAST WEST BANCORP ANNUAL REPORT 1 | East West Bancorp 2016 Annual Report East West Bank at a glance Largest independent bank based in Southern California Top 25 largest banks in the U.S. by market cap 43 years of operating history East West Bancorp 2016 Annual Report | 2 116 branches across the U.S. California ................................. 89 Georgia ....................................... 3 Massachusetts ......................... 2 Nevada ......................................... 1 New York ................................... 6 Texas ........................................... 11 Washington .............................. 4 Offices across Greater China Full-service branches Hong Kong Shanghai Shanghai FTZ Shantou Shenzhen Representative offices Beijing Chongqing Guangzhou Taipei Xiamen Top 25 largest banks in the U.S. by market cap 43 years of operating history $35 billion asset size 2,900 associates to serve our customers Top 15 America’s best banks by Forbes since 2010 12% 10 year loan CAGR* 1 of only 3 U.S. banks with a license in China 15% 10 year deposit CAGR* *Compound Annual Growth Rate 15% 5% 3% EWBC S&P 500 KBW Bank Index 15% annualized TSR* since going public in 1999 *Compound Annual Growth Rate *Total Shareholder Return. Source: Bloomberg. w 3 | East West Bancorp 2016 Annual Report A Message from our Chairman and CEO Dominic Ng Dear Shareholders, In 2016, East West delivered another year of strong financial performance, based on solid growth and industry- leading profitability. Against a backdrop of persistently low interest rates, our results stood out favorably. This year, the general outlook for the banking industry turned a corner as interest rates began to move higher in late 2016. East West’s asset sensitive position makes us optimistic about the new environment, and we look forward to producing strong financial performance in 2017 and beyond, continuing our track record of creating long-term shareholder value. For the coming years, we continue to see attractive opportunities for growth in pursuing our cross-border business banking strategy, which was a key driver of loan growth in 2016, and in which we have made substantial investments. In my view, with the geopolitical noise between the United States and China, East West’s expertise in both markets makes us more valuable to our customers. In my “Perspectives on China” section of this report, I discuss in more detail China’s economic outlook and reform plans, as well as the evolving relations between the U.S. and China. w East West Bancorp 2016 Annual Report | 4 Our 2016 returns on assets and equity were in the top 10% of publicly traded banks in the U.S. As of December 31, 2016, our total assets reached a record $34.8 billion. We are the largest independent bank headquartered in Southern California and one of the top 25 largest banks in the U.S. by market capitalization. As the largest state economy and one of the largest economies in the world, California is a dynamic market that fuels our domestic business, supporting broad-based growth in loans and deposits. Our branch footprint is in some of the most vibrant metropolitan markets in the country, including Los Angeles, San Francisco, New York, Seattle, Dallas, and Houston. In addition to cross-border banking, we see tremendous value in growing our retail and small business banking franchise, which are both the basis for our strong deposit position as well as a profitable and highly diversified source of commercial loans and commercial real estate loans. At East West, we believe that small businesses are a critical component of the American economy and we are committed to supporting their growth. Looking into the future, I am confident that the East West value proposition for our customers will continue to be unparalleled. 5 | East West Bancorp 2016 Annual Report Strong Financial Performance in 2016 Our full year 2016 record net income of $432 million grew by 12% year-over-year, and our record earnings per share of $2.97 also grew by 12% from 2015. Consistently achieving industry-leading profitability metrics is a hallmark of East West’s financial performance and 2016 did not disappoint. Our full year 2016 return on assets of 1.3%, return on equity of 13.1%, and return on tangible equity of 15.7% were all in the top 10% of publicly traded banks in the United States. East West’s tangible equity per share expanded by 12% year-over-year to $20.27, a growth rate in the top 15% of publicly traded banks in the U.S. I am pleased with East West’s financial performance in a year of increased investment in technology and infrastructure to enhance our risk management, product offerings, and client experience. As of December 31, 2016, our total loans reached a record $25.5 billion, up 8% from a year ago. Total deposits reached a record $29.9 billion, up 9% from the prior year. Our loan growth in 2016 was broad-based across all of our major portfolio segments. Over the past decade, we diversified our loan mix to be well balanced between commercial loans, commercial real estate loans, and consumer lending. In my view, this is a prudent approach to achieve stability through varying macroeconomic scenarios and credit cycles. I would like to highlight that over 75% of our loan portfolio RETURN ON ASSETS 1.25% 1.27% 1.30% 2014 2015 2016 RETURN ON EQUITY 12.7% 12.7% 13.1% 2014 2015 2016 RETURN ON TANGIBLE EQUITY* 16.0% 15.6% 15.7% Peer median Peer median Peer median 1.4% 1.2% 1.0% 0.8% 0.6% 14% 12% 10% 8% 6% 18% 14% 10% 6% 2014 2015 2016 * For reconciliation of GAAP to non-GAAP financial measures, please see the Company's financial press releases. Note: Peer group comprised of publicly traded banks in the U.S. as of December 31, 2016. SOURCE: S&P Global Market Intelligence. East West Bancorp 2016 Annual Report | 6 is variable rate, tied largely to short-term interest rate indices, which is an advantageous position for revenue growth in a rising interest rate environment. Strong deposit growth was an important highlight of East West’s results in 2016, driven by robust core deposit growth. Core deposits grew by 16% year-over-year, comprising 81% of total deposits as of December 31, 2016 compared to 48% ten years ago. Noninterest-bearing deposits reached a record $10.2 billion or 34% of total deposits at year-end, reflecting a substantial mix shift over the past ten years. From a funding perspective, we feel that we are well positioned to navigate a rising interest rate environment. As of December 31, 2016, our loan-to- deposit ratio was 85%, giving us ample room for positive balance sheet leverage and growth in 2017. 2016 was a year of significant investments at East West. We examined our systems, controls and processes, actively upgrading them to ensure scalable future growth and improve operational excellence. We invested in technology and human capital to strengthen our risk management infrastructure. To better serve our diverse client base, we expanded our product capabilities, enhancing our offerings in foreign exchange and cash management services. Making ongoing investments is vital for East West to maintain our leading position among regional banks. These investments strengthen our unique cross-border approach and support our core retail and small business banking franchise, reinforcing sound and profitable growth for the future. Transformation of East West’s Balance Sheet LOAN MIX DEPOSIT MIX Today, our loan portfolio is more diversified across key categories. Commercial loans grew to 38% at the end of 2016 from 15% a decade ago, and commercial real estate loans decreased to 34% from 60%. Core deposits, made up of noninterest-bearing demand deposits, money market accounts, checking and savings, comprised 81% of total deposits at the end of 2016, compared to 48% ten years ago. 15% 25% 2006 60% 38% 34% 28% 2016 19% 34% 29% 52% 19% 47% 2006 2016 Commercial loans Commercial real estate loans Noninterest-bearing demand deposits Other core deposits Consumer loans, including single-family & multifamily mortgages Time deposits 7 | East West Bancorp 2016 Annual Report Acknowledgements In conclusion, as we progress on our U.S. and Greater China strategy, East West will continue to develop innovative banking solutions, building infrastructure and expertise in order to provide superior service to our clients. We are optimistic about the future and our ability to grow profitably and prudently. On behalf of East West, I would like to thank our clients for their support and business, our shareholders for their trust and confidence in our company, and our 2,900 associates for their exceptional efforts. Sincerely, Dominic Ng Chairman and Chief Executive Officer After more than a decade of serving on our board of directors, Mr. John M. Lee, Vice Chairman of East West Bancorp and East West Bank, is retiring at the end of May 2017. John’s long relationship with East West began at the bank’s inception – he was East West’s first general manager when we opened for business in 1973. In 1980, John co-founded Standard Bank, a federal savings bank, growing the thrift to over $900 million in assets. Under his leadership, Standard Bank was consistently distinguished as a top 10 best performing thrift in the U.S. for much of its operating history. In 2006, East West acquired Standard Bank, at which point we welcomed John back to East West as Vice Chairman of our board. We sincerely thank John for his many contributions and years of service to East West. We will miss his depth of knowledge about banking, his wisdom and thoughtful guidance. In October 2016, we welcomed Greg Guyett as President and Chief Operating Officer of East West Bancorp and East West Bank. Greg brings to East West over 30 years of international, operational and risk management experience in banking. I am confident in his ability to lead and execute on our strategic priorities and expand our business. East West Bancorp 2016 Annual Report | 8 Financial Highlights NET INCOME ($ in millions) DILUTED EARNINGS PER SHARE TANGIBLE COMMON EQUITY PER SHARE $500 $400 2 % C A G R * 1 385 346 432 $300 278 293 $200 $100 $- 2012 2013 2014 2015 2016 Record Net Income $432 million $4.00 $3.00 * 3 % C A G R 1 2.66 2.41 $25.00 2.97 $20.00 $2.00 1.87 2.09 $15.00 13.58 14.39 * 1 % C A G R 1 20.27 18.15 16.30 $1.00 $- 2012 2013 2014 2015 2016 $10.00 $- 2012 2013 2014 2015 2016 Record Diluted Earnings per Share $2.97 Tangible Common Equity per Share** $20.27 TOTAL ASSETS ($ in billions) TOTAL LOANS ($ in billions) TOTAL DEPOSITS ($ in billions) $40 $30 $20 $10 $- 1 0 % C A G R * 28.7 34.8 32.4 24.7 22.5 2012 2013 2014 2015 2016 Record Assets $34.8 billion $40 $30 $20 $10 $- 2 % C A G R * 1 25.5 23.7 21.8 18.1 15.1 2012 2013 2014 2015 2016 Record Loans $25.5 billion $40 $30 1 % C A G R * 1 24.0 29.9 27.5 $20 18.3 20.4 $10 $- 2012 2013 2014 2015 2016 Record Deposits $29.9 billion * CAGR = 5 year Compound Annual Growth Rate from December 31, 2011 through December 31, 2016. ** For reconciliation of GAAP to non-GAAP financial measures, please see the Company's financial press releases. 9 | East West Bancorp 2016 Annual Report Perspectives on China By Dominic Ng March 2017 At the National People’s Congress in March, China outlined its economic plans for 2017, emphasizing performance stability and setting the gross domestic product (GDP) growth target to 6.5%, which compares to growth of 6.7% in 2016. China has stated that it is comfortable with these growth levels to support target employment and prosperity development, while enabling implementation of necessary fiscal and structural reforms. intellectual property rights protection, strengthening which has been a significant hurdle for investment by international businesses; setting up tech innovation hubs, and increasing the tax deductibility of research and development expenses from 50% to 75%. Continued efforts to reduce excess capacity in old industrial sectors such as steel or coal would also support an incremental shift to cleaner energy. China’s 2017 plans call for a focus on supply-side structural reform, expansion of domestic demand, and strengthening of the role of innovation in driving development, all in the context of stable economic growth. Cognizant of defusing potential economic and financial risks, government plans include taking measures to: moderate inflated property values in top tier cities and reduce excess real estate inventory in other markets; advance reforms in the financial sector; further liberalize the renminbi exchange rate, and actively reduce leverage in Chinese businesses by expanding equity financing options. Reforms to ease the operating environment for businesses include reducing and streamlining corporate tax rates, further expanding private sector market access, and addressing problems of overcapacity by encouraging mergers, restructurings, or bankruptcy liquidations of inefficient companies. Industries specifically called out for improved access to private capital include energy, railways, aviation, and telecommunications. At East West, over the last two years, we have made investments to build energy sector expertise, in anticipation of future cross-border opportunities following industry liberalization in China. Economic growth in China continues to shift towards domestic demand, consumer spending and innovation- driven emerging industries. Expectations for 2017 include reforms and policies by the government that would promote and accelerate this change. Retail sales of consumer goods are targeted to increase by 10% in 2017. In 2016, the value of the service sector rose to 52% of Chinese GDP. In 2017, government plans include establishing a fund to encourage innovation and international development in service industries. Service industries highlighted for growth in 2017 include education, senior care, healthcare, tourism, digital media, and the arts and entertainment. At East West, we have focused on diligently monitoring these trends, and in terms of our cross-border commercial banking growth, we see emerging opportunities in life sciences and digital media. China has placed importance on supporting technology and innovation in big and small ways: improving and International direct investment remains very important to the Chinese government and the Chinese economy: foreign direct investment in China was $126 billion and outbound overseas investment by Chinese companies was $170 billion in 2016, of which $45.6 billion was into the U.S., a record level and three times the amount in 2015. In my view, the continued expansion of foreign investment in China is a positive development that can stimulate growth internationally. In 2017, the Chinese government plans to revise its catalog of industries open to foreign investment, making service industries, manufacturing and mining more accessible; allowing foreign firms to participate in national science and technology projects, and leveling the playing field for foreign firms in regards to license applications or government procurement. Domestic challenges to achieving China’s GDP growth targets continue to be persistent industrial overcapacity, levels, and capital outflows. Globally, rising debt geopolitical uncertainty, sluggish economic growth, East West Bancorp 2016 Annual Report | 10 and declining trade prospects are also areas of concern. China views the promotion of regional trade agreements, policies to ease foreign trade, and domestic infrastructure investment as potential offsets to these headwinds. It is important to note that the reforms discussed at the 2017 National People’s Congress are not entirely new. The implementation of reforms over the past five years has not been successful in part due to a global economic slowdown, volatility in the Chinese stock market, and the struggles of adapting to currency liberalization. As President Xi Jinping enters his second term, there will be more opportunities for the Chinese government to implement reforms to liberalize and strengthen China’s economy. In my view, the reforms and policies that the Chinese leadership is proposing are positive for both China and the rest of the global economy, and are vital to support high quality growth in China. They are monumental in scope and will require time to take effect. Yet, it is my belief that China will have better odds to accomplish this successfully: a one-party government system implementing systemic in reform, allowing for a collective view and willingness to engage in long-term policymaking. The likelihood of achievable progress is further enhanced by the Confucian value system of the people in China, who prioritize societal good and harmony over individual rights. is advantageous Domestic developments in the U.S. add an element of unknown volatility to the Chinese economic outlook and reform plans. It is too early to tell what path the new U.S. administration will pursue, in light of concerning rhetoric from the campaign trail. The Chinese appear open to bilateral trade discussions and are interested in investment in the U.S. through infrastructure development, greenfield manufacturing projects, and collaboration with U.S. companies. In particular, tech, clean tech, biotech and entertainment industries will benefit from Chinese strategic interest. A deterioration of trade relations between the two countries would substantially damage GDP growth in both markets, for U.S. companies and with material downside workers. On the other hand, nimble bargaining between governments and the further opening up of Chinese markets would create for U.S. businesses and bring advantages to both sides. favorable opportunities The inevitability of economic opportunity and growth of cross-border capital flows between the U.S. and China has been a core tenet of East West’s vision for many years. The continued progress in the Chinese economy strengthens our vision. Nevertheless, we are realistic about headwinds facing the Chinese markets as reforms are necessary, economic growth has moderated, and there are real financial risks that the government will need to navigate against a backdrop of increased global uncertainty and a resurgence of trade protectionism. However, it is important to remember that both the U.S. and China are already deeply interconnected, and that the long-term drivers and rewards for greater economic integration between both countries have not substantially changed. It is difficult to make accurate predictions amidst the noise and uncertainty, but we see favorable prospects for East West’s cross-border client base. A substantial share of East West’s cross-border clients are U.S. companies pursuing a Chinese strategy, and well-executed trade negotiations between both countries could open up growth opportunities for American companies. Furthermore, a growing share of East West’s clients are Chinese middle market companies expanding their businesses in the U.S. Although the level of Chinese overseas investment in 2017 is expected to be lower than in 2016, the motivations for cross-border expansion into the U.S. exist independent of trade policy and may increase in times of volatility. In my view, East West’s unique value proposition as the financial bridge between the East and the West allows us to offer our clients expertise to navigate challenges in both markets, identify risks arising from volatility and capitalize on emerging opportunities, coming out ahead. 11 | East West Bancorp 2016 Annual Report The Bridge to Success From small entities to large enterprises, from local needs to global transactions and everything in-between, our business products and professionals connect our customers to success. We craft integrated solutions that address multi-faceted client needs, providing financing options, commercial depository and cash management services, foreign exchange and interest rate risk management. With a branch footprint in the U.S. and Greater China, our network of experts bridge the gap between the East and the West to help our customers reach further. East West Bancorp 2016 Annual Report | 12 Entertainment & Digital Media Entertainment Digital Media Collaborations in the entertainment industry between U.S. and Chinese companies have gained momentum at incredible speeds in recent years, and Chinese companies’ investment into U.S. entertainment content continues to be strong. East West Bank stands out as a premier lender in the entertainment industry, one of the few banks with an active presence in both the U.S. and Greater China, and the only U.S.-based bank financing film and television production in China. Our Entertainment Financing Team has been a pivotal intermediary between Chinese and American entertainment company partnerships, bolstered by our expertise in production financing, as well as the knowledge of legal complexities and cultural nuances in both markets. This distinctive combination of sector and market expertise differentiates East West from the competition, and uniquely supports our entertainment clients’ cross-border growth and strategic needs. An intersection between content generation and innovative technology to support content distribution, digital media is a new and growing industry. By blending our entertainment financing experience with venture capital style lending, East West is strategically positioned as a leading bank in the emerging digital media space. We excel at providing tailored, comprehensive commercial banking solutions and in-depth industry knowledge through the collaborative, cross-discipline approach of our dedicated bankers. East West’s presence and experience in the U.S. and Greater China markets are an attractive value- add for our digital media clients that are planning their cross-border strategies and expansion. East West in Action Founded in 2004, and now trading on the Shenzhen Stock Exchange, Perfect World Co., Ltd. (Perfect World) is a leading diversified entertainment company headquartered in Beijing, with multiple locations around the world including California. Its businesses encompass digital gaming, film and television production and distribution, as well as theatrical exhibition. Last year, Perfect World entered into a five year, 50 picture co-financing venture with Universal Studios, expanding its film entertainment business internationally. East West Bank provided Perfect World with cross-border credit facilities to support the expansion of their entertainment business in both China and the U.S., as well as cash management services to facilitate their co-investment with Universal Studios. 13 | East West Bancorp 2016 Annual Report Technology & Private Equity Technology Private Equity East West Bank’s Technology Team is uniquely positioned to provide sector-specific technology banking expertise with value enhancing cross-border perspectives to help clients achieve their global growth vision. Our team of experts can simplify the complicated process of raising capital, structuring acquisition financing or syndicating loans to support company expansion, and help manage cash flow with tailored cash management and foreign exchange products that adapt to the changing needs of technology clients as their businesses develop. Importantly, we have infrastructure and expertise on both sides of the Pacific, which is a pivotal value-add in helping businesses formulate their cross-border strategies in the U.S. and Greater China markets. By bridging the international gap for customers, we transform possibilities into realities. At East West, our Private Equity Team has the deep expertise to support our clients’ complex and specialized banking needs. Our team is able to strike the optimal balance between capacity and responsiveness, successfully serving clients in a wide range of asset classes, sizes and company life cycle stages. Our branch network in Greater China gives us the singular ability to provide comprehensive solutions, including funding in local currency, to private equity firms with interests in Asia. For clients on both sides of the Pacific, we create robust, integrated solutions that deploy a complete range of commercial banking products, foreign exchange and interest rate hedging, electronic banking and letters of credit to solve multi-faceted banking needs of our private equity fund clients. East West in Action Ultra Clean Holdings, Inc. (UCT) is a leading developer and supplier of critical systems and subsystems for the semiconductor and flat panel capital equipment markets along with other high precision manufactured products. UCT maintains operations in both the U.S. and China and is listed on the Nasdaq stock exchange. Although UCT had significant cash balances in their China operations, historically the funds were not available to quickly respond to acquisition opportunities or other business needs in the U.S. Leveraging our extensive knowledge and our branches in China, East West Bank was able to assist UCT in utilizing its capital in China to support liquidity requirements and acquisition activities globally. Concurrently, our team organized a lending syndicate that meets UCT’s banking needs on a comprehensive basis. UCT experienced first-hand the cross-border value that a collaboration with East West can provide in supporting multi-market growth. East West Bancorp 2016 Annual Report | 14 Foreign Exchange & Global Transaction Services Foreign Exchange Global Transaction Services Opportunities available for businesses operating globally can be vast, but can also present additional risks that need to be managed. Geopolitical fluctuations and concerns about the global economic landscape can increase market volatility and unpredictability. East West Bank's Foreign Exchange (FX) Team offers solutions and guidance for our clients to help them minimize currency exchange risk, manage market volatility, and effectively navigate uncertainties. With our cross-border expertise in the U.S. and Greater China and a comprehensive suite of products, we bring simple, cost-effective solutions to help our clients grow their businesses internationally with confidence. In collaboration with our clients, our FX Team develops customized “best practice” frameworks that meet clients’ currency management objectives related to cross-border acquisitions, risk management programs, or remittance procedures, ultimately helping to mitigate cash flow volatility and improve revenue stability. East West in Action The Global Transaction Services (GTS) Team at East West offers a suite of cash management solutions with a diverse breadth of capabilities to help our clients effectively and efficiently manage their working capital. In 2016, our GTS Team launched businessBridge®Premier, a powerful digital platform that brings the bank to the client’s office, elevating the high quality service that we provide to our commercial depository clients. Featuring a customizable user interface and advanced fraud protection, the platform streamlines clients’ operational needs in managing cash flow, and utilizing various payment and approval options. For clients with cross- border requirements, the platform features convenient access to domestic and overseas accounts, and offers security verification options adapted to international travel demands. A growing number of our clients based in Greater China are adopting businessBridge®Premier for their global cash management needs. Flurida Group Inc. (Flurida) is a U.S.-based company that provides essential parts and finished products to global home appliance companies such as Electrolux, Whirlpool, Haier and General Electric. Flurida’s manufacturing facilities are located in China, and the company distributes and sells its products in the U.S. and throughout Europe. With essential expertise in Asian currency transactions and a presence in the U.S. and Hong Kong, East West Bank's FX Team provided currency exchange and hedging services to Flurida. As part of our advisory services, we provided regular market updates, insight and outlook, enabling the company to make informed day-to-day currency management decisions. Offering 24-hour, bilingual client access and frequent communications, East West has become a valued contributor to Flurida in supporting their global, multi-currency operations. 15 | East West Bancorp 2016 Annual Report Commercial Real Estate & Interest Rate Contracts Commercial Real Estate Interest Rate Contracts For decades, East West Bank’s experienced team of Commercial Real Estate (CRE) professionals have consistently provided our clients the funds necessary to acquire, renovate, and develop real estate properties. From financing ground up construction to bridge loans and term CRE mortgages, we support property development at all stages. Our broad client base includes established CRE developers, small businesses that own their real estate facilities, and individual real estate investors. With East West’s knowledge of both the U.S. and Greater China markets, we are uniquely well positioned to assist U.S.- based real estate developers in sourcing international equity financing for their projects, or to support China- based real estate companies’ investment in the U.S. property markets. Navigating changing economic and interest rate environments adds risks and uncertainties that can distract many borrowers from efficiently growing their businesses day-to-day. After nearly a decade of low interest rates, the newly rising interest rate environment has increased pressure on businesses to proactively manage interest rate risk. To help mitigate some of the volatility, East West offers a broad range of hedging products to minimize interest rate risk for our commercial and commercial real estate borrowers, adding stability in an uncertain world. Working in collaboration with our clients, our Interest Rate Contracts Team tailors customized solutions to meet clients’ unique situations and objectives, enabling them to effectively respond to interest rate fluctuations. East West in Action Landsea Green Properties Co., Ltd. (Landsea) is an international homebuilding and real estate development company that is listed on the Hong Kong stock exchange and ranked among the top 100 Chinese real estate companies. With operations in the U.S., China and Europe, Landsea brings environmentally responsible designs and technologically advanced innovation to the global residential marketplace, building communities based on energy conservation, comfort and healthy living. Landsea’s U.S. subsidiary is developing a 209 unit residential community in Simi Valley, California. East West Bank provided financing for Landsea’s Simi Valley development, and the breadth of our commercial depository products and foreign exchange services made it convenient for Landsea to execute banking transactions between its operating entities in the U.S. and Greater China. East West’s deep experience in the U.S. property markets and understanding of the intricacies related to Chinese investment in U.S. commercial real estate have been an attractive value-add in our collaboration with Landsea. East West Bancorp 2016 Annual Report | 16 Built on a Foundation of Relationship Banking Over forty years ago, East West opened its doors as one of the first thrifts in California to serve the Chinese-American community. Over time, East West developed into a full-service bank offering a wide range of loan, deposit, cash management and wealth management services for our consumer and business customers. Built on a foundation of relationship banking, East West has grown to be the largest independent bank based in Southern California. Evolving and Growing with Our Customers Over Time Carrying Relationships Across Generations Providing a Smooth Transition for New Customers Strong, enduring relationships are at the heart of our service. We take the time to know our customers well, developing a thorough understanding of their banking needs to provide personalized solutions for their unique situations. As our customers’ banking needs evolve through various business and life stages, we are there to help them succeed every step of the way. Our customers can always count on East West Bank to stand beside them, offering financial support and advice when they need it most. Passing a small business banking relationship from one generation to the next is a delicate banking art that requires instilling the confidence cultivated with the first generation in the successors. At East West, we recognize the importance of inter- generational transitions and have the understanding to smooth the process culturally and financially. Our customer-centric approach not only appeals to our long-term customers but it is also winning over their children. Our relationship-centric approach helps alleviate the stress of moving to a new region or country. We guide our customers beyond banking in both their personal and commercial endeavors – from setting up their home to setting up their business. With the depth of our resources and our dedicated bankers, we make the transition of moving a seamless one for our diverse, multi-ethnic customer base. 17 | East West Bancorp 2016 Annual Report At East West, We Care About Our Communities Spirit of Los Angeles & Model Campaign of the Year United Way Tocqueville Society AWARD AWARD Community Leadership AWARD United Way of Greater Los Angeles United Way Worldwide California Journal for Filipino Americans 1 out of 3 East West Bank branches are located in low-to-moderate income areas $660 million Small business lending in 2016 $485 million Financing for affordable housing and homes in low-to-moderate income areas in 2016 CONTRIBUTIONS DONATIONS VOLUNTEERED HOURS $22.7 million Corporate giving since 2010 $5.4 million By East West and its associates for our annual United Way campaign since 2010 20,800+ Dedicated to CRA community development services since 2010 East West Bancorp 2016 Annual Report | 18 At East West, we believe that growing and revitalizing our communities is good business. We promote and support our communities by providing loans and other financial products that help make dreams possible, and through volunteering and financial support. Affordable Housing Impact, responsiveness and flexibility are the drivers for our affordable housing programs. We understand that it can be challenging for some individuals and families that live in low-to-moderate income communities to qualify for a home loan. Our products are designed to help meet and overcome such challenges. HomeReady: In 2015, East West Bank introduced the HomeReady Loan Program, an affordable mortgage product that helps qualified low-to-moderate income borrowers buy a home with a down payment of as little as 3%. Subsequently, in 2016 we introduced a forgivable grant that home buyers can utilize to make the dream of home ownership even more accessible. WISH Program: We provide down payment assistance for individuals in our communities by helping homebuyers access federal grant funds. East West Bank participates in the WISH Program (Workforce Initiative Subsidy for Homeownership), which provides qualified homebuyers with up to $15,000 of additional down payment funds. Affordable Housing Financing: For over 20 years, East West Bank has been active in providing financing for affordable housing projects. One notable project we financed in 2016 was the construction of the Copper Square Apartments in Lancaster, California, a nine-building complex with 204 units. Rental rates for the units will be approximately 22% to 35% lower than the market rate in the area, and the units will be available to tenants earning a maximum 60% of the area median income. Small Businesses We believe that the jobs, wealth, and social capital that small businesses create are essential to thriving communities and sustained economic development. East West Bank responds to the needs of small businesses in several ways. Micro Loans: In January 2016, we initiated a Micro Loan Program that gives borrowers greater access to affordable capital to start or expand their businesses. The micro loans range in size from $5,000 to $25,000 and carry flexible terms to maximize borrower access. These loans are marketed internally and through a partnership with the City of Los Angeles and the Small Business Administration (SBA). Small Business Administration Loans: As an SBA National Preferred Lender, we offer SBA 7(a) commercial loans to finance working capital needs and SBA 504 term loans to finance the purchase of real estate or equipment. The general benefits of these programs to borrowers include low down payments, longer terms, smaller monthly payments and full amortization. 19 | East West Bancorp 2016 Annual Report Across our footprint, our involvement in the community is diverse and engaged. Here are some ways in which our dedicated associates make a difference in our communities. East West Bancorp 2016 Annual Report | 20 United Way Center for Asian Americans United for Self Empowerment 20 Years of Partnering with United Way East West Bank is proud of its partnership with the United Way. In 2016, we participated in our 20th annual United Way workplace campaign. This milestone was marked by our highest amount donated to the campaign from associates and corporate giving. 10th United Way HomeWalk 5K Family Run/Walk United Way of Greater Los Angeles’ 10th annual HomeWalk in 2016 was the most successful since its inception and also the 10th year East West has participated in this event. East West Bank’s team of 320 associates and their family members marched for the cause to end homelessness in Los Angeles County, ranking as one of the top three teams based on the dollar amount raised as well as the number of participants. Financial Literacy Programs “Literacy can lead to success” is a value in which we firmly believe, and the driving force behind our community efforts in financial literacy programs. The bank has long-standing collaborations with nonprofit partners such as Operation Hope, Junior Achievement, Boys & Girls Club and the FDIC Money Smart Program to provide financial education for over 2,000 youths across the country. Our Las Vegas branch associates partnered with Spread the Word Nevada, a children’s literacy nonprofit organization whose goal is to inspire reading and introduce money management to underprivileged students. Through the “Books & Buddies” program, our associates worked one-on-one with children to improve their reading proficiency, comprehension, and oral reading skills. The “Books & Buddies” program seeks to enhance classroom literacy efforts by giving children personalized attention. Villa Esperanza East West has for many years supported Villa Esperanza, a Pasadena-based nonprofit organization focused on services for those in our community who are developmentally disabled. These services include education for students and independent living facilities for adults. Along with English, assistance is provided in both Spanish and Chinese. Center for Asian Americans United for Self Empowerment (CAUSE) is a nonprofit, nonpartisan, community-based organization with a mission to advance the political and civic empowerment of the Asian Pacific American community through nonpartisan voter outreach, education, and training as well as leadership development. We have supported and been closely involved with CAUSE for over 20 years. Promoting Cultural Exchange In Our Communities Beyond being a financial bridge for our customers, East West is also a cultural bridge. We promote cultural diversity and exchange by fostering a greater understanding of Chinese language, art and culture in the United States. In 2016, we were the lead corporate sponsor of the “Cave Temples of Dunhuang: Buddhist Art on China’s Silk Road” exhibition at the Getty Center in Los Angeles. The exhibition featured full-scale, hand-painted replica caves transported from China, an immersive 3D tour experience and exhibit halls showcasing prized artifacts. Replica cave from the "Cave Temples of Dunhuang" exhibition, Getty Center, Los Angeles. Photo courtesy of the Getty Center. 21 | East West Bancorp 2016 Annual Report Board of Directors Molly Campbell Director of the Port Department Port Authority of New York and New Jersey Iris S. Chan Chief Executive Officer Ameriway, Inc. Rudolph I. Estrada Chief Executive Officer Estradagy Business Advisors Paul H. Irving Chairman Milken Institute Center for the Future of Aging John M. Lee Vice Chairman East West Bancorp, Inc. and East West Bank Herman Y. Li Chairman C&L Restaurant Group, Inc. Jack C. Liu, Esq. Senior Attorney Alliance International Law Offices Dominic Ng Chairman and Chief Executive Officer East West Bancorp, Inc. and East West Bank Keith W. Renken Managing Partner Renken Enterprises Lester M. Sussman Senior Practice Director Resources Global Professionals East West Bancorp 2016 Annual Report | 22 Summary of Selected Financial Information ($ in millions, except per share data) 2012 2013 2014 2015 2016 SUMMARY OF OPERATIONS Net interest income Net income Diluted earnings per common share Dividends declared per common share AT PERIOD END Total assets Total loans Total deposits Stockholders' equity FINANCIAL RATIOS Net interest margin Return on assets Return on equity TOTAL RETURN PERFORMANCE EWBC KRX S&P 500 300 250 200 150 100 $ $ $ $ $ $ $ $ 919 278 1.87 0.40 22,540 15,074 18,309 2,386 4.63% 1.27% 11.94% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 956 293 2.09 0.60 24,732 18,079 20,413 2,366 4.38% 1.24% 12.50% $ $ $ $ $ $ $ $ 1,041 346 2.41 0.72 28,744 21,773 24,009 2,856 4.03% 1.25% 12.72% $ $ $ $ $ $ $ $ 950 385 2.66 0.80 32,351 23,692 27,476 3,123 3.35% 1.27% 12.74% 1,033 432 2.97 0.80 34,789 25,525 29,891 3,428 3.30% 1.30% 13.06% December 31, 2011 2012 2013 2014 2015 2016 EWBC KRX $100 $111 $184 $208 $227 $284 $100 $113 $166 $170 $180 $251 S&P 500 $100 $116 $154 $175 $177 $198 This table and graph assume that on December 31, 2011, $100 was invested in EWBC common stock, the KBW Nasdaq Regional Banking Index (KRX) and the S&P 500, and that all dividends were reinvested. SOURCE: S&P Global Market Intelligence and Keefe, Bruyette & Woods, Inc. 2011 2012 2013 2014 2015 2016 EWBC 5-YEAR STOCK PERFORMANCE TOTAL SHAREHOLDER RETURN (as of December 31, 2016) High Year-end Low EWBC S&P 500 $51.73 $50.83 $27.25 $46.50 $41.56 $35.68 $35.43 $34.97 $22.11 $39.71 $38.71 $30.50 $24.39 $21.49 $19.58 2012 2013 2014 2015 2016 $60 $40 $20 $0 200% 150% 100% 50% 0% 184% 98% 54% 29% 25% 12% 1-yr 3-yr 5-yr SOURCE: S&P Global Market Intelligence. 23 | East West Bancorp 2016 Annual Report Consolidated Balance Sheets ($ in millions) ASSETS Cash and cash equivalents Interest-bearing deposits with banks Securities purchased under resale agreements (resale agreements) Investment securities Loans held-for-sale Loans held-for-investment (net of allowance for loan losses of $261 in 2016 and $265 in 2015) Investment in Federal Home Loan Bank (FHLB) stock, at cost Investment in Federal Reserve Bank stock, at cost Investments in qualified affordable housing partnerships, net Investments in tax credit and other investments, net Premises and equipment (net of accumulated depreciation of $115 in 2016 and $100 in 2015) Goodwill Other assets Total assets LIABILITIES Customer deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings FHLB advances $ $ $ Securities sold under repurchase agreements (repurchase agreements) Long-term debt Accrued expenses and other liabilities Total liabilities STOCKHOLDERS' EQUITY Common stock, $0.001 par value, 200,000,000 shares authorized; 164,604,072 and 164,246,517 shares issued in 2016 and 2015, respectively Additional paid-in capital Retained earnings Treasury stock at cost - 20,436,621 shares in 2016 and 20,337,284 shares in 2015 Accumulated other comprehensive loss, net of tax Total stockholders' equity DECEMBER 31, 2016 2015 1,879 323 2,000 3,480 23 25,243 17 56 184 173 160 469 782 34,789 10,184 19,707 29,891 60 322 350 186 552 31,361 0.2 1,727 2,188 (439) (48) 3,428 $ $ $ 1,361 300 1,600 3,773 32 23,379 29 55 194 187 167 469 805 32,351 8,657 18,819 27,476 — 1,019 — 206 526 29,228 0.2 1,701 1,873 (436) (15) 3,123 Total liabilities and stockholders' equity $ 34,789 $ 32,351 East West Bancorp 2016 Annual Report | 24 Consolidated Statements of Income YEAR ENDED DECEMBER 31, 2016 2015 ($ in millions, except per share data) INTEREST AND DIVIDEND INCOME Loans receivable, including fees Investment securities Resale agreements Investments in FHLB and Federal Reserve Bank stock Interest-bearing cash and deposits with banks Total interest and dividend income INTEREST EXPENSE Customer deposits Federal funds purchased and other short-term borrowings FHLB advances Repurchase agreements Long-term debt Total interest expense NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES Provision for credit losses NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES NONINTEREST INCOME (LOSS) Branch fees Letters of credit fees and foreign exchange income Ancillary loan fees Wealth management fees Derivative fees and other income Net gains on sales of loans Net gains on sales of available-for-sale investment securities Changes in Federal Deposit Insurance Corporation indemnification asset and receivable/payable Other fees and other operating income Total noninterest income (loss) NONINTEREST EXPENSE Compensation and employee benefits Occupancy and equipment expense Deposit insurance premiums and regulatory assessments Other real estate owned expense (income) Legal expense Data processing Consulting expense Deposit related expenses Computer software expense Other operating expense Amortization of tax credit and other investments Amortization of premiums on deposits acquired Repurchase agreements' extinguishment costs Total noninterest expense INCOME BEFORE INCOME TAXES Income tax expense NET INCOME EARNINGS PER SHARE Basic Diluted $ $ $ $ 1,035 53 31 3 15 1,137 84 0.7 6 9 5 105 1,033 27 1,005 41 46 19 13 17 6 10 — 30 183 300 61 23 1 3 12 23 10 13 77 83 8 — 616 572 141 432 3.00 2.97 $ $ $ $ 969 41 20 6 18 1,054 74 0.1 4 21 5 103 950 14 936 39 39 15 18 16 25 40 (38) 28 183 262 61 19 (9) 16 10 17 10 9 78 36 9 22 541 579 194 385 2.67 2.66 25 | East West Bancorp 2016 Annual Report Investor Information Transfer Agent and Registrar Stockholders with inquiries about accounts, lost stock certificates or changes of address may contact the Computershare customer service department: Computershare 250 Royall Street Canton, MA 02021 (877) 254-8651 (available 24-hrs a day) Independent Registered Public Accounting Firm KPMG LLP Exchange NASDAQ: EWBC Number of Shares Outstanding at December 31, 2016 144,167,451 Financial Information and Mailings Annual Meeting You may obtain the Company’s annual reports on Form 10-K, quarterly financial results and other financial information by writing or calling: The 2017 Annual Meeting of Stockholders will be held at 2:00 p.m. Pacific Time on Tuesday, May 23, 2017 at: East West Bancorp, Inc. Investor Relations 135 N. Los Robles Avenue, 7th Floor Pasadena, CA 91101 (626) 768-6000 To receive Company news releases via e-mail, please contact Investor Relations at the telephone number or address above or sign up at www.eastwestbank.com/investors East West Bancorp, Inc. Corporate Headquarters 135 N. Los Robles Avenue, 6th Floor Pasadena, CA 91101 Formal notice of the meeting with a proxy card and proxy statement is being mailed to all stockholders of record as of March 29, 2017. The proxy statement, annual report on Form 10-K and proxy card are available at: www.eastwestbank.com/annual East West Bancorp 2016 Annual Report | 26 East and West Tyrus Wong, 1984 Oil on Canvas Displayed at: Corporate Headquarters, Pasadena, CA Cover Art: Tyrus Wong (1910-2016) was a Chinese-American artist whose tale of perseverance and remarkable achievements lives on to inspire future artists. Born in Guangdong, China, Wong immigrated to the U.S. in 1920. By junior high school, Wong’s artistic talents were already apparent, earning him a scholarship at the Otis Art Institute in Los Angeles. At a time when it was unheard of for a Chinese immigrant to pursue a career as an artist, Wong would go on to become a painter, designer, muralist, lithographer, ceramicist and kite maker. In 1938, Wong became the first Chinese- American to work as an illustrator at the Walt Disney Company (Disney). Wong eventually became the lead artist for Disney’s 1942 animated film classic Bambi, although at the time he was only credited as a background artist. Trained in classical Chinese calligraphy, Wong brought a poetic quality to the animated film. It was not until 2001 that Wong was bestowed the honor “Disney Legend” by Disney, in formal recognition for his contributions to the critically acclaimed film. The back and front covers of this annual report feature a diptych by Tyrus Wong that reads “East” and “West” together. Commissioned by East West, Wong used bold, sweeping calligraphic strokes to convey the letters that form the two words. The artwork bridges eastern calligraphy with western movement, creating a balanced harmony that captures Wong’s heritage and artistic style, and is an apt reflection of the spirit of East West. CORPORATE HEADQUARTERS 135 N. Los Robles Avenue Pasadena, CA 91101 (626) 768-6000 www.eastwestbank.com 

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