UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
|
| |
ý | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
or
|
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission file number 000-24939
|
| |
A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
East West Bank Employees 401(k) Savings Plan
|
| |
B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
East West Bancorp, Inc.
135 North Los Robles Avenue, 7th Floor
Pasadena, California 91101
EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN
TABLE OF CONTENTS
|
| |
| Page |
| |
| |
| |
FINANCIAL STATEMENTS: | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
NOTE: | All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Administrator and Participants
East West Bank Employees 401(k) Savings Plan
Pasadena, California
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the East West Bank Employees 401(k) Savings Plan (the “Plan”) as of December 31, 2019 and 2018, the related statement of changes in net assets available for benefits for the year ended December 31, 2019, and the related notes (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2019 and 2018, and the changes in net assets available for benefits for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by the Plan’s management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental information in the accompanying Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2019, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but included supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
We have served as the Plan’s auditor since 2016.
Los Angeles, California
June 26, 2020
EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
|
| | | | | | | | |
| | | | |
| | December 31, |
| | 2019 | | 2018 |
ASSETS | | |
| | |
|
Investments: | | |
| | |
|
Investments at fair value (Notes 2 and 3) | | $ | 274,695,380 |
| | $ | 207,470,955 |
|
Investment in a fully benefit-responsive investment contract, at contract value (Note 4) | | 57,990,075 |
| | 49,241,809 |
|
Total investments | | 332,685,455 |
| | 256,712,764 |
|
Receivables: | | |
| | |
|
Notes receivable from participants | | 3,696,625 |
| | 3,334,768 |
|
Participant contributions | | — |
| | 106 |
|
Employer contributions | | 499,252 |
| | 79 |
|
Total receivables | | 4,195,877 |
| | 3,334,953 |
|
Cash (noninterest-bearing) | | 562 |
| | 30 |
|
Total assets | | 336,881,894 |
| | 260,047,747 |
|
LIABILITIES | | — |
| | — |
|
NET ASSETS AVAILABLE FOR BENEFITS | | $ | 336,881,894 |
| | $ | 260,047,747 |
|
| | | | |
See accompanying Notes to Financial Statements.
EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
|
| | | | |
| | |
| | Year Ended December 31, 2019 |
CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS: | | |
|
Investment income: | | |
|
Net appreciation in fair value of investments | | $ | 48,862,924 |
|
Dividends | | 4,271,649 |
|
Interest | | 1,273,075 |
|
Net investment income | | 54,407,648 |
|
Other income: | | |
|
Interest income on notes receivable from participants | | 185,899 |
|
Contributions: | | |
|
Participant | | 23,154,672 |
|
Participant rollover | | 3,074,910 |
|
Employer, net of forfeitures | | 12,191,469 |
|
Total contributions, net of forfeitures | | 38,421,051 |
|
Deductions: | | |
|
Benefits paid to participants | | (15,782,935 | ) |
Administrative expenses | | (397,516 | ) |
Total deductions | | (16,180,451 | ) |
NET INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS | | 76,834,147 |
|
NET ASSETS AVAILABLE FOR BENEFITS: | | |
|
Beginning of year | | 260,047,747 |
|
End of year | | $ | 336,881,894 |
|
| | |
See accompanying Notes to Financial Statements.
EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 1 — DESCRIPTION OF THE PLAN
The following description of the East West Bank Employees 401(k) Savings Plan (the “Plan”) is provided for general information. Plan participants should refer to the Plan documents, as amended, for a more complete description of the Plan’s provisions. The Plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).
General — The Plan is a defined contribution plan designed to provide retirement benefits financed by participant contributions, as well as contributions from East West Bank, the Plan’s sponsor (the “Bank” or the “Plan Sponsor”). East West Bank is a wholly-owned subsidiary of East West Bancorp, Inc. (“East West”). The Plan is administered by the 401(k) Plan Committee appointed by the Board of Directors of East West. Prudential Trust Company (the “Trustee”) serves as the trustee for the Plan. The Plan became effective on January 1, 1986 and was amended and restated on April 1, 2019.
Eligibility — Employees are eligible to participate in the Plan as of the first day of the first calendar month after the date they have completed three months of service with the Bank and have attained the age of 18. Eligible employees are automatically enrolled in the Plan at a 3% contribution rate unless the participants elect another rate, including 0%. For Plan participants who are automatically enrolled and do not direct the investment of their accounts, their contributions will be invested by default into the age-appropriate conservative portfolio available under GoalMaker®, a computer asset allocation program available to the Plan participants.
Contributions — Eligible employees may elect to defer 1% to 80% of their compensation before taxes (limited to $19,000 and $18,500 for 2019 and 2018, respectively). Plan participants are also able to designate part or all of their contributions as Roth 401(k) contributions, which are made on an after-tax basis. For the period of January 1, 2019 to March 31, 2019, the Bank matched $0.75 for each $1.00 contributed by Plan participants, up to the first 6% of the Plan participant’s eligible compensation. Effective April 1, 2019, the Plan was amended as follows: 1) to match 100% of the contributions into the Plan, up to the first 6% of the Plan participant’s eligible compensation; and 2) the Bank has the discretion to true-up matching contributions for the Plan year in situations where deferral percentages exceed the 6% limit in certain periods but are less than the 6% limit in other periods, as long as the total employer matching amounts do not exceed the designated matching amounts for the full Plan year. Plan participants who were age 50 or older and who had reached the contribution limits by December 31, 2019 or 2018, as applicable, were eligible to contribute an additional $6,000 in catch-up contributions to the Plan for such year(s). Plan participants may rollover into the Plan eligible distributions from other tax-qualified retirement plans or individual retirement accounts (“IRAs”). Contributions to the Plan are held in a trust fund (the “Trust”). The Trustee is responsible for the safekeeping of the Trust, holding and investing the Plan’s assets.
Investments — During the 2019 and 2018 Plan years, Plan participants directed and allocated the investments of their contributions among 17 investment options offered by the Plan, which included the common stock of East West, a guaranteed income fund managed by Prudential Retirement Insurance and Annuity Company (“PRIAC”) and 15 mutual funds. Participants are allowed to change their investment options at any time.
Vesting, Benefits and Benefits Payable — Plan participants are fully vested in their salary deferral contributions and the amounts rolled over from former employers’ tax-qualified retirement plans or IRAs. Plan participants become vested in the matching contributions received from the employer at the rate of 20% per year for each full year of service and are fully vested after five years of service.
Benefits are recorded when paid. Upon separation from service, if a participant’s account is less than $1,000 and if a distribution election has not been made, a distribution is made as a lump-sum payment in cash. If the Plan participant’s vested account is greater than $1,000 and not exceeding $5,000, and if a distribution election has not been made, the Plan will automatically roll over the Plan participant’s distribution into an IRA designated under the Plan. If the value of the Plan participant’s vested account does not exceed $5,000 and a distribution election has been made, a distribution can be made in the form of a lump-sum payment either in cash or in property. However, if the value of the Plan participant’s vested account is in excess of $5,000, the Plan participant may elect to (1) receive a lump-sum distribution either in cash or in property; or (2) receive installments over a period of not more than the participant’s assumed life expectancy (or the assumed life expectancies of the participant and the participant’s beneficiary). As of December 31, 2019 and 2018, there were no amounts owed to terminated participants who had elected to withdraw their benefits.
Forfeiture Accounts — If a participant terminates employment before being fully vested in the matching contributions from the employer as discussed in the paragraph titled “Vesting, Benefits and Benefits Payable” above, the non-vested portion of the terminated participant’s account balance remains in the Plan’s forfeiture account. Forfeiture accounts are used to pay certain plan expenses and reduce future employer contributions. Forfeitures of $749,621 and $631,331 were used to reduce employer contributions during the years ended December 31, 2019 and 2018, respectively. No plan expenses were paid with funds from the forfeiture accounts during each of the years ended December 31, 2019 and 2018. The unallocated forfeiture accounts outstanding were $10,002 and $19,644 as of December 31, 2019 and 2018, respectively.
Participant Accounts — Each Plan participant’s account is credited with the participant’s contributions, employer matching contributions, the Plan’s earnings or losses, and rollovers from former employers’ tax-qualified retirement plans or IRAs, if applicable. Allocations of earnings or losses are based on the Plan participant’s account balances as defined in the Plan document.
Notes Receivable from Participants — Active participants in the Plan are eligible for loans under the Plan. A participant may request a direct rollover of a loan to another tax-qualified plan that agrees to accept such direct rollover. A participant may not engage in a direct rollover of a loan to the extent the participant has already received a deemed distribution with respect to such loan. The Plan also accepts direct rollover of loans from tax-qualified retirement plans of the participant’s former employers. Plan participants may borrow from their 401(k) account a minimum of $1,000 and can have only one loan outstanding from the Plan. The maximum loan that may be obtained is the lesser of (1) 50% of the Plan participant’s vested account balance or (2) $50,000 reduced by the excess (if any) of (A) the highest outstanding loan balance made to the Plan participant during the 12-month period preceding the date on which the new loan is made, over (B) the outstanding balance of loans from the Plan to the Participant on the date on which the new loan is made. Loan transactions are treated as transfers to (from) the investment fund from (to) the participant loan fund. The maximum allowed term of a general purpose loan and a loan used to finance a primary residence is 5 and 20 years, respectively. The loans are secured by a portion of the vested balances in the Plan participants’ accounts. When the loan is issued, the interest rate is set at 1% above the prime rate reported by the United States Federal Reserve as of the last business day of the previous calendar quarter and remains fixed for the entire term of the loan. Principal and interest are repaid through payroll deductions from the participant’s salaries.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting — The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with United States Generally Accepted Accounting Principles (“GAAP”).
Valuation of Investments — The Plan’s investments are stated at fair value, except for investments in the guaranteed income fund. Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year end. Common stock is valued at the quoted market price. The fully benefit-responsive investment contract held by a defined contribution plan is stated at contract value, which is the more relevant measurement, because the contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. Hence, the Plan’s investments in the guaranteed income fund are valued based on the terms of the Plan’s investment contract with PRIAC, which is reported at contract value.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein and disclosures of contingent assets and liabilities on the date the financial statements are prepared. Actual results could materially differ from those estimates and assumptions.
Administrative Expenses — Investment transaction expenses are offset against the related investment income. Other administrative and non-investment expenses of the Plan are either paid by the Plan Sponsor, which is a party-in-interest, or through the Plan expense account. Expenses paid by the Plan Sponsor, which are not reflected in the accompanying financial statements, constitute exempt party-in-interest transactions under ERISA. Expenses paid through the Plan expense account are included in Administrative expenses on the Statement of Changes in Net Assets Available for Benefits.
Investment Income — The Plan presents on the Statement of Changes in Net Assets Available for Benefits the net appreciation or depreciation in fair value of investments, which consists of realized gains or losses and unrealized appreciation or depreciation on those investments. The Plan calculates realized gains or losses as the difference between the proceeds and the cost of investments. Unrealized appreciation or depreciation represents the difference between the fair value of investments at the end of the Plan year and the fair value of investments at the beginning of the Plan year (or the cost of investments on the purchase date if acquired during the Plan year). Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Notes Receivable from Participants — Notes receivable from participants are reported at their unpaid principal and accrued interest balances, with no allowance for credit losses recorded. Interest income is recorded on an accrual basis. Repayments of principal and interest are received through payroll deductions and the notes receivable are collateralized by the participants’ account balances. If a participant fails to make loan repayments more than 90 days after the scheduled due date, the note receivable is deemed to be in default. The Plan Sponsor will offset the outstanding loan amount against the vested account balances where this amount will be treated as a distribution.
NOTE 3 — FAIR VALUE MEASUREMENTS
Accounting Standard Codification Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value of financial instruments, the Plan uses various methods including market and income approaches. Based on these approaches, the Plan utilizes certain assumptions that market participants would use in pricing an asset or a liability. These inputs can be readily observable, market corroborated or generally unobservable. The Plan utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy noted below is based on the quality and reliability of the information used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The fair value of the Plan’s assets and liabilities is classified and disclosed in one of the following three categories:
| |
• | Level 1 — Valuation is based on quoted prices for identical instruments traded in active markets. |
| |
• | Level 2 — Valuation is based on quoted prices for similar instruments traded in active markets; quoted prices for identical or similar instruments traded in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data. |
| |
• | Level 3 — Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities. |
The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Plan’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements.
The following tables categorize the Plan’s investments that are measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Investments Measured at Fair Value on a Recurring Basis
as of December 31, 2019 |
| | Fair Value Measurements | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Common stock | | $ | 40,853,952 |
| | $ | 40,853,952 |
| | $ | — |
| | $ | — |
|
Mutual funds | | 233,841,428 |
| | 233,841,428 |
| | — |
| | — |
|
Total investments measured at fair value | | $ | 274,695,380 |
| | $ | 274,695,380 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Investments Measured at Fair Value on a Recurring Basis
as of December 31, 2018 |
| | Fair Value Measurements | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Common stock | | $ | 33,785,053 |
| | $ | 33,785,053 |
| | $ | — |
| | $ | — |
|
Mutual funds | | 173,685,902 |
| | 173,685,902 |
| | — |
| | — |
|
Total investments measured at fair value | | $ | 207,470,955 |
| | $ | 207,470,955 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
Common Stock — East West’s common stock held in the participants’ accounts is stated at fair value as quoted on the Nasdaq stock exchange and is valued based on the closing price as of the last business day of the Plan year. This is classified in Level 1 of the fair value hierarchy.
Mutual Funds — Mutual funds are stated at fair value as quoted on a recognized securities exchange, valued at the last reported closing price on the last business day of the Plan year, and are classified in Level 1 of the fair value hierarchy.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. Furthermore, while the Plan’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement on the reporting date.
NOTE 4 — INVESTMENT IN A FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACT, AT CONTRACT
VALUE
The Plan is a party to a traditional fully benefit-responsive guaranteed investment contract with the issuer, PRIAC, offering a guaranteed income fund (“GIF”) totaling $57,990,075 and $49,241,809 as of December 31, 2019 and 2018, respectively. The GIF is a stable value fund, where the portfolio is primarily invested in public bonds, commercial mortgages and private placement bonds. PRIAC maintains the contributions in a general account. Under the GIF, participants may direct permitted withdrawals or transfers of all or a portion of their account balance at contract value within reasonable time frames. Contract value represents contributions made to the contract, plus earnings at guaranteed crediting rates, less withdrawals and fees. The contract is effected directly between the Plan Sponsor and PRIAC. The repayment of principal and interest credited to Plan participants is a financial obligation of PRIAC. Accordingly, the GIF is considered to be a fully benefit-responsive investment contract.
The Plan’s ability to receive amounts due is dependent on PRIAC’s ability to meet its financial obligations, which may be affected by future economic and regulatory developments.
Generally, no events can limit the ability of the Plan to transact at contract value with PRIAC or limit the ability of the Plan to transact at contract value with the participants. In addition, there are no events that allow PRIAC to terminate the contract with the Plan and settle at an amount different than contract value.
NOTE 5 — PARTY-IN-INTEREST TRANSACTIONS
A party-in-interest is defined under the Department of Labor regulations as any fiduciary (including, but not limited to, any administrator, officer, trustee or custodian), counsel or employee of the Plan, any party rendering services to the Plan, the employer and certain others. The Plan holds a guaranteed investment contract managed by PRIAC, which is a custodian of the Plan. Accordingly, the Plan’s payment of custodian fees to PRIAC qualify as party-in-interest transactions. Notes receivable from participants also reflect party-in-interest transactions. The Bank did not incur any administrative expenses for the Plan during each of the year ended December 31, 2019 and 2018. Certain administrative functions are performed by officers or employees of the Plan Sponsor. No such officers or employees received compensation from the Plan during the years ended December 31, 2019 and 2018.
The Plan held 838,890 and 776,133 shares of common stock of East West, the parent company of the Plan Sponsor, with a fair value of $40,853,952 and $33,785,053 as of December 31, 2019 and 2018, respectively. The Plan also received dividend income of $846,601 and $661,685 from this common stock during the years ended December 31, 2019 and 2018, respectively. These transactions qualify as party-in-interest transactions.
NOTE 6 — PLAN TERMINATION
Although the Bank has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of the Plan’s termination, all participants will be notified, and all participant accounts will become 100% vested. Participants may direct the distribution of their participant accounts in a manner permitted by the Plan as soon as practicable.
NOTE 7 — FEDERAL INCOME TAX STATUS
The Internal Revenue Service (“IRS”) issued an opinion letter dated April 29, 2014, indicating that the prototype adopted by the Plan, as then designed, was in compliance with applicable sections of the Internal Revenue Code (“IRC”). The Plan has been amended subsequent to this opinion letter. However, the Plan Sponsor believes that the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC, and therefore, believes that the Plan is qualified, and the related Trust is tax-exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
GAAP requires Plan management to evaluate tax positions taken by the plan and recognize a tax liability (or tax asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator analyzed the tax positions taken by the Plan and concluded that, as of December 31, 2019 and 2018, there were no uncertain positions taken or expected to be taken that would require recognition of a tax liability (or tax asset) or disclosure in the financial statements. The Plan is subject to routine audits by tax jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for the 2015 Plan year or before.
NOTE 8 — RISKS AND UNCERTAINTIES
The Plan utilizes various investment instruments, including mutual funds that invest in the securities of companies located in foreign countries. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. In addition, securities of foreign companies are subject to risks and considerations not typically associated with securities of United States (“U.S.”) companies. These risks include foreign exchange risks, less reliable information about issuers, different securities transaction clearance and settlement practices, and possible adverse political and economic developments. In addition, securities of foreign companies and their markets may be less liquid and subject to more volatility than securities of U.S. companies. Due to the level of risk associated with certain investment securities, it is reasonable to expect that changes in the values of investment securities will occur in the near term, and that such changes could materially affect the participants’ account balances and the net assets available for benefits.
Included in investments were shares of Prudential Guaranteed Income Fund, totaling $57,990,075 and $49,241,809, 17% and 19% of the Plan’s total investments as of December 31, 2019 and 2018, respectively. Refer to Note 4 — Investment in a Fully Benefit-Responsive Investment Contract, at Contract Value of this annual report on Form 11-K for further investment information. Risks arise when entering into any investment contract due to the potential inability of the issuer to meet the terms of the contract. In addition, security-backed contracts have the risk of default or the lack of liquidity of the underlying portfolio assets. As of each of December 31, 2019 and 2018, PRIAC was assigned a claims-paying rating of “AA-” by Standard and Poor’s. According to Standard and Poor’s publications, an insurer rated “AA-” has very strong financial security characteristics. Investments also included shares of East West’s common stock amounting to $40,853,952 and $33,785,053, 12% and 13% of the Plan’s total investments as of December 31, 2019 and 2018, respectively. A significant decline in the market value of East West’s common stock could significantly affect the net assets available for benefits.
NOTE 9 — SUBSEQUENT EVENTS
In December 2019, COVID-19 was reported in China and rapidly spread to other countries, including the U.S. On January 31, 2020, the U.S. declared a national public health emergency. In March 2020, the World Health Organization characterized COVID-19 as a global pandemic and recommended containment and mitigation measures, and the President of the U.S. announced a National Emergency. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was enacted. The CARES Act contains several provisions that temporarily impact 401(k) plans, such as the waiver of required minimum distributions, a new hardship withdrawal option, increased loan limits, and a loan payment pause option. The Company has incorporated these provisions into the Plan.
Effective April 1, 2020, the Plan was amended to decrease the matching contribution percentage by the Bank from 100% to 75%, up to the first 6% of the Plan participant’s eligible compensation in response to the economic conditions caused by the COVID-19 pandemic. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. The pandemic has adversely affected global economic activity and greatly contributed to the significant deterioration and instability in financial markets. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the fair values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits. Because the values of the Plan's individual investments have and will fluctuate in response to changing market conditions, the amount of losses that will be recognized in subsequent periods, if any, and related impact on the Plan's liquidity cannot be determined at the time of this report.
SUPPLEMENTAL SCHEDULE
EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN
EIN 95-2795851 Plan Number: 001 Form Number: 5500
SCHEDULE H, LINE 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR) AS OF DECEMBER 31, 2019
|
| | | | | | | | | | |
| | | | | | | | |
(a) | | (b) Identity of Issuer, Borrower, Lessor, or Similar Party | | (c) Description of Investment, Including Maturity Date, Rate of Interest, Collateral, Par, or Maturity Value | | (d) Cost | | (e) Current Value |
* | | Prudential Guaranteed Income Fund | | Fully benefit-responsive investment contract - 1,910,610 shares | | ** | | $ | 57,990,075 |
|
| | American Funds EuroPacific Growth Fund R-6 | | Mutual fund - 547,065 shares | | ** | | 30,389,486 |
|
| | American Funds Fundamental Investors R-6 | | Mutual fund - 201,502 shares | | ** | | 12,501,205 |
|
| | American Funds The Growth Fund of America R-6 | | Mutual fund - 836,764 shares | | ** | | 42,783,722 |
|
| | American Funds Washington Mutual Investors Fund R-6 | | Mutual fund - 277,669 shares | | ** | | 13,375,313 |
|
| | DFA U.S. Targeted Value Portfolio | | Mutual fund - 122,821 shares | | ** | | 2,846,997 |
|
| | Dodge & Cox Funds Income Fund | | Mutual fund - 491,466 shares | | ** | | 6,895,271 |
|
| | Franklin Small Cap Growth Fund R6 | | Mutual fund - 347,847 shares | | ** | | 8,323,982 |
|
| | Metropolitan West Total Return Bond Fund I | | Mutual fund - 1,421,060 shares | | ** | | 15,532,187 |
|
| | MFS Mid Cap Value Fund R6 | | Mutual fund - 381,432 shares | | ** | | 9,699,823 |
|
| | MFS Total Return Fund R4 | | Mutual fund - 576,104 shares | | ** | | 11,527,844 |
|
| | MFS Value Fund R4 | | Mutual fund - 134,403 shares | | ** | | 5,970,169 |
|
| | T. Rowe Price Mid-Cap Growth Fund I | | Mutual fund - 135,412 shares | | ** | | 12,906,104 |
|
| | Vanguard Institutional Index Fund Institutional Shares | | Mutual fund - 125,201 shares | | ** | | 36,337,059 |
|
| | Vanguard Mid-Cap Index Fund Institutional Shares | | Mutual fund - 288,346 shares | | ** | | 14,053,991 |
|
| | Vanguard Small-Cap Index Fund Institutional Shares | | Mutual fund - 134,790 shares | | ** | | 10,698,275 |
|
* | | East West Bancorp, Inc. | | Common stock - 838,890 shares | | ** | | 40,853,952 |
|
| | Total investments | | | | | | 332,685,455 |
|
* | | Loans to participants | | Participant loans (maturing between 2020 and 2039 with interest rates of 4.25% to 9.25% collateralized by participants’ account balances) | | ** | | 3,696,625 |
|
| | Total assets | | | | | | $ | 336,382,080 |
|
| | | | | | | | |
|
* | Party-in-interest, as defined by ERISA |
** | The cost of participant-directed investments is not required to be disclosed. |
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: June 26, 2020
|
| | |
| EAST WEST BANK EMPLOYEES 401(k) SAVINGS PLAN |
| | |
| By | /s/ SHARON CHEUNG |
| | Sharon Cheung |
| | Senior Vice President and Controller |
| | |
| | |
| | |
EXHIBIT INDEX
|
| | |
Exhibit No. | | Exhibit Description |
| | |
| | Consent of Independent Registered Public Accounting Firm. |