The following discussion provides information about the results of operations, financial condition, liquidity, cash flows and capital resources of East West Bancorp, Inc. and its subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007, and the accompanying interim unaudited consolidated financial statements and notes hereto.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our consolidated financial statements and accompanying notes. We believe that the judgments, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances as of September 30, 2008.

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified five accounting policies that, due to judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to the following areas:

†          classification, valuation and OTTI review of investment securities;

†          allowance for loan losses;

†          valuation of retained interests and mortgage servicing assets related
to securitizations and sales of loans;

†          goodwill impairment; and

†          share-based compensation

In each area, we have identified the variables most important in the estimation process. We have used the best information available to make the estimations necessary to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables could change future valuations and impact net income.

Our significant accounting policies are described in greater detail in our 2007 Annual Report on Form 10-K in the "Critical Accounting Policies" section of Management's Discussion and Analysis and in Note 1 to the Consolidated Financial Statements-"Significant Accounting Policies" which are essential to understanding Management's Discussion and Analysis of Results of Operations and Financial Condition.

Recent Developments

There have been significant disruptions in the U.S. and international financial system during the period covered by this report. As a result, available credit has been reduced or ceased to exist. The reduction in availability of credit, loss of confidence in the financial sector, and volatility in financial markets adversely affects the Company, the Bank and the performance of the Company's stock. The U.S. government, the governments of other countries, and multinational institutions has provided vast

amounts of liquidity and capital into the banking system. In addition, as discussed below, the Company's results of operations have been impacted by the federal government's conservatorship of Fannie Mae and Freddie Mac, which led to the recording of significant charges on investment securities during the quarter ended September 30, 2008.

In response to the financial crises affecting the overall banking system and financial markets in the United States, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 ("EESA") was enacted. Under the EESA, the United States Treasury Department ("Treasury") has authority, among other things, to purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 3, 2008, the Troubled Asset Relief Program ("TARP") was signed into law. TARP gave the Treasury authority to deploy up to $750 billion into the financial system with an objective of improving liquidity in capital markets. On October 24, 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks. The general terms of this preferred stock program include:

† dividends on the Treasury's preferred stock at a rate of 5% for the first five years and 9% dividends thereafter;

† common stock dividends cannot be increased for three years while Treasury is an investor unless preferred stock is redeemed or consent from Treasury is received;

† the Treasury preferred stock cannot be redeemed for three years unless the participating bank raises qualifying private capital;

† Treasury's must consent to any buy back of other stock (common or other preferred);

† Treasury receives warrants equal to 15% of Treasury's total investment in the participating institution; and participating institution's executives must agree to certain compensation restrictions, and

† restrictions on the amount of executive compensation which is tax deductible.

The term of this Treasury preferred stock program could reduce investment returns to participating banks' shareholders by restricting dividends to common shareholders, diluting existing shareholders' interests, and restricting capital management practices. Although both the Company and its banking subsidiary meet all applicable regulatory capital requirements and remain well capitalized, the Company currently has applied for the maximum in additional capital as part of the TARP capital purchase program.

Federal and state governments could pass additional legislation responsive to current credit conditions. As an example, the Company could experience higher credit losses because of federal or state legislation or regulatory action that reduces the principal amount or interest rate under existing loan contracts. Also, the Company could experience higher credit losses because of federal or state legislation or regulatory action that limits the Bank's ability to foreclose on property or other collateral or makes foreclosure less economically feasible.

The Federal Deposit Insurance Corporation ("FDIC") insures deposits at FDIC insured financial institutions up to certain limits. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund. Current economic conditions have increased expectations for bank failures, in which case the FDIC would take control of failed banks and ensure payment of deposits up to insured limits using the resources of the Deposit Insurance Fund. In such case, the FDIC may increase premium assessments to maintain adequate funding of the Deposit Insurance Fund, including requiring riskier institutions to pay a larger share of the premiums. An increase in premium assessments would increase

the Company's expenses. The EESA included a provision for an increase in the amount of deposits insured by FDIC to $250,000 until December 2009. On October 14, 2008, the FDIC announced a new program - the Temporary Liquidity Guarantee Program that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. All eligible institutions will be covered under the program for the first 30 days without incurring any costs. After the initial period, participating institutions will be assessed an annualized 10 basis point surcharge on the additional insured deposits. The behavior of depositors in regard to the level of FDIC insurance could cause the Bank's existing customers to reduce the amount of deposits held at the Bank, and or could cause new customers to open deposit accounts at the Bank. The level and composition of the Bank's deposit portfolio directly impacts the Bank's funding cost and net interest margin. As a result of these measures, it is likely that the premiums the Bank pays for FDIC insurance will increase, which would adversely affect net income. The impact of such measures cannot be assessed at this time.

The actions described above, together with additional actions announced by the Treasury and other regulatory agencies continue to develop. It is not clear at this time what impact EESA, TARP, other liquidity and funding initiatives of the Treasury and other bank regulatory agencies that have been previously announced, and any additional programs that may be initiated in the future will have on the financial markets and the financial services industry. The extreme levels of volatility and limited credit availability currently being experienced could continue to effect the U.S. banking industry and the broader U.S. and global economies, which will have an affect on all financial institutions, including the Company.

Overview

During the third quarter of 2008, the turbulence and uncertainty in the U.S. financial markets have adversely impacted credit markets on a global scale. Liquidity concerns and credit issues have resulted in the U.S. government's conservatorship of Fannie Mae and Freddie Mac as well as the failure and insolvency of several large financial companies. Although we continued to face unprecedented economic challenges, we maintained our focus on strengthening our balance sheet by stabilizing our problem loans, reducing our credit risk exposures, and improving both our capital and liquidity positions.

Our capital position remains strong. As of September 30, 2008, our total risk-based capital ratio was 13.12% or $318.5 million more than the 10.00% regulatory requirement for well-capitalized banks. Our Tier 1 risk-based capital ratio of 11.12% and our Tier 1 leverage ratio of 9.84% as of September 30, 2008 also significantly exceeded regulatory guidelines for well-capitalized banks.

Our liquidity position remains strong. During the third quarter of 2008, we further strengthened our liquidity position by obtaining additional borrowing capacity from the Federal Reserve discount window of almost $900.0 million. As of September 30, 2008, we had $527.5 million in cash and cash equivalents and approximately $2.29 billion in available borrowing capacity from various sources including the Federal Home Loan Bank ("FHLB"), the Federal Reserve Bank ("FRB") and federal funds facilities with several financial institutions. Despite volatile and challenging market conditions, we experienced a 4% or $257.4 million deposit growth during the first nine months ended September 30, 2008, with total deposits increasing to $7.54 billion as of September 30, 2008, compared with $7.28 billion as of December 31, 2007. Our ongoing efforts to deleverage our balance sheet have resulted in a lower loan to deposit ratio of 110% at September 30, 2008, compared to 115% at June 30, 2008 and 122% at December 31, 2007. We believe that our liquidity position is more than sufficient to meet our operating expenses, borrowing needs and other obligations.

Our nonperforming asset and delinquency trends have stabilized. Nonperforming assets totaled $200.6 million representing 1.71% of total assets at September 30, 2008. This compares to $193.1 million or 1.64% of total assets at June 30, 2008 and $67.5 million or 0.57% of total assets at December 31, 2007. Nonperforming assets as of September 30, 2008 are comprised of nonaccrual loans totaling $177.3 million, other real estate owned ("OREO") totaling $17.6 million, and loans modified or restructured amounting to $5.7 million. Included in nonaccrual loans as of September 30, 2008 are seventeen loans totaling $27.3 million which were not 90 days past due as of September 30, 2008, but have been classified as nonaccrual due to concerns surrounding collateral values and future collectibility. Nonaccrual loans continued to be impacted by the deterioration in the residential construction and land portfolios, which comprised $119.1 million or 67% of total nonaccrual loans. Our delinquency trends have improved relative to the previous quarter, with notable improvements coming from the 30-59 days and 60-89 days delinquent categories. Total delinquent loans decreased to $315.7 million as of September 30, 2008 compared to $368.7 million as of June 30, 2008.

At September 30, 2008, the allowance for loan losses amounted to $177.2 million or 2.14% of total gross loans, compared to $168.4 million or 1.95% as of June 30, 2008. We recorded $43.0 million in loan loss provisions during the third quarter of 2008, compared to $85.0 million in the second quarter of 2008 and $55.0 million in the first quarter of 2008. Total net chargeoffs amounted to $39.7 million during the third quarter of 2008, compared to $34.8 million during the second quarter of 2008. Approximately 82%, or $32.7 million, of the total net chargeoffs recorded during the third quarter of 2008 were related to land and residential construction loans of which 70% were located in the Inland Empire.

Our core operating earnings remain profitable. In addition to $43.0 million in loan loss provisions, the $31.2 million, or $(0.56) per share, net loss that we recorded during the third quarter of 2008 includes $53.6 million in other than temporary impairment ("OTTI") charges on investment securities. A large portion of the non-cash OTTI charges, approximately $47.0 million, was related to preferred stock issued by Fannie Mae and Freddie Mac. The fair values of these preferred stock securities were adversely impacted by the federal government's conservatorship of these entities in September 2008. The tax benefit recognized from the impairment of these preferred stock securities was limited during the third quarter of 2008 due to the accounting treatment of these losses as a capital loss. The passage of the Emergency Economic Stabilization Act ("EESA") in October 2008 provided banks with tax relief by treating OTTI losses on Fannie Mae and Freddie Mac preferred securities as ordinary losses. As a result of this law change, we will be able to recognize an additional $5.7 million or $0.09 per share tax benefit in the fourth quarter of 2008. The remaining $6.6 million in OTTI charges recorded during the third quarter of 2008 were related to certain pooled trust preferred debt and equity securities. Excluding loan loss provisions and non-cash OTTI charges on investment securities, our core pretax operating income amounted to $48.0 million, $0.77 per share, during the third quarter of 2008.

Net interest income decreased to $86.5 million during the quarter ended September 30, 2008, compared with $103.9 million during the same quarter in 2007. Our net interest margin decreased 85 basis points to 3.10% during the third quarter of 2008. This compares with 3.95% during the same period in 2007 and 3.33% during the second quarter 2008. Relative to the third quarter of 2007 and the second quarter of 2008, our net interest margin during the quarter ended September 30, 2008 was adversely impacted by the sharp decline in interest rates prompted by several recent consecutive Federal Reserve rate cuts, by the reversal of interest from nonaccrual loans, and by the reinvestment of loan payoffs into lower yielding Treasury securities and other short-term investments. We anticipate net interest margin pressures to continue throughout the remainder of 2008.

Excluding the non-cash OTTI charges on investment securities amounting to $53.6 million, total noninterest income decreased 28% to $10.0 million during the third quarter of 2008, compared with $14.0 million for the corresponding quarter in 2007. This decrease is attributable primarily to higher net gain on sales of investment securities and higher net gain on disposal of fixed assets in the third quarter of 2007. These decreases were partially offset by higher branch-related revenues and loan fees earned during the third quarter of 2008. Core noninterest income, which excludes the impact of non-cash OTTI charges, as well as net gains on sales of investment securities, loans and other assets, remained stable at $9.8 million during the third quarter of 2008, compared to $9.7 million during the same period last year.

Total noninterest expense increased 4% to $48.5 million during the third quarter of 2008, compared with $46.7 million for the same period in 2007, and decreased 13% relative to second quarter of 2008 total noninterest expenses of $55.7 million. The increase in total noninterest expense during the third quarter of 2008, relative to the same quarter in 2007, can be attributed predominantly to higher deposit insurance premiums and regulatory assessments, higher other real estate owned ("OREO") expenses and higher other credit cycle related expenses. These increases were partially offset by lower compensation expenses due to lower staffing levels and a reduction in related benefits and incentive program expenses which were fully realized in the third quarter of 2008. Relative to the second quarter of 2008, total noninterest expense decreased 13% during the third quarter of 2008 primarily due to lower compensation and related employee benefits. Our efficiency ratio, which represents noninterest expense (excluding amortization and impairment writedowns on intangible assets and amortization of investments in affordable housing partnerships) divided by the aggregate of net interest income before provision for loan losses and noninterest income, was 46.40% during the third quarter of 2008 compared with 48.6% during the second quarter of 2008 and 37.64% for the third quarter in 2007. We anticipate noninterest expense for the remainder of 2008 to trend favorably as our expense management efforts continue.

Total consolidated assets at September 30, 2008 slightly decreased to $11.72 billion, compared with $11.85 billion at December 31, 2007. The net decrease in total assets is comprised predominantly of decreases in net loans receivable of $639.7 million and securities purchased under resale agreements amounting to $100.0 million. These decreases were partially offset by increases in cash and cash equivalents of $367.1 million, available-for-sale investment securities totaling $160.1 million, deferred tax assets totaling $109.2 million, and OREO, net amounting to $16.1 million. Total liabilities decreased 2% to $10.46 billion as of September 30, 2008, compared to $10.68 billion as of December 31, 2007. The net decrease in liabilities is primarily due to decreases in FHLB advances of $270.1 million and federal funds purchased of $191.8 million, partially offset by an increase in total deposits of $257.4 million.

Total average assets increased 5% to $11.71 billion during the third quarter of 2008, compared to $11.20 billion for the same quarter in 2007, due primarily to growth in average available-for-sale securities. Total average investment securities increased 23% to $2.13 billion during the quarter ended September 30, 2008 primarily due to $112.9 million in multifamily loan securitizations since the third quarter of 2007. Total average deposits rose 2% during the third quarter of 2008 to $7.47 billion, compared to $7.35 billion for the same quarter in 2007, with increases coming from time deposits, noninterest bearing demand deposits, and savings accounts.

As of September 30, 2008, we updated our goodwill impairment analysis to determine whether and to what extent our goodwill asset was impaired. As a result of this updated analysis, we recorded a $272 thousand goodwill impairment charge, which represents the remaining goodwill balance related to East West Insurance Services, Inc. This impairment writedown had no effect on our cash balances, liquidity or regulatory capital ratios.

Results of Operations

We reported a net loss for the third quarter of 2008 of ($31.2) million, or ($0.56) per basic and diluted share, compared with net income of $41.3 million, representing $0.68 per basic and $0.67 per diluted share, reported during the third quarter of 2007. During the third quarter of 2008, our operating results were significantly impacted by $53.6 million in non-cash OTTI charges related predominantly to Fannie Mae and Freddie Mac preferred stock and $43.0 million in provision for loan losses recorded during the period. In comparison, we recorded only $405 thousand in OTTI charges and $3.0 million in loan loss provisions during the same period in 2007. Our annualized return on average total assets decreased to (1.07%) for the quarter ended September 30, 2008, compared to 1.48% for the same period in 2007. The annualized return on average stockholders' equity decreased to (10.06%) for the third quarter of 2008, compared with 15.19% for the third quarter of 2007.

We incurred a net loss for the nine months ended September 30, 2008 of ($52.0) million, or $(0.90) per basic and diluted share, compared with net income of $123.9 million, or $2.04 per basic and $2.01 per diluted share, reported during the corresponding period in 2007. The net loss reported during the first nine months of 2008 was primarily due to the $63.5 million in total OTTI charges and $183.0 million in loan loss provisions recorded during the first nine months of 2008. In comparison, we recorded $405 thousand in OTTI charges and $3.0 million in loan loss provisions during the first nine months in 2007. Our annualized return on average total assets decreased to (0.59%) for the nine months ended September 30, 2008, compared to 1.52% for the same period in 2007. The annualized return on average stockholders' equity decreased to (5.75%) for the first nine months of 2008, compared with 15.71% for the same period in 2007.

Components of Net (Loss) Income

                                              Three Months Ended         Nine Months Ended
                                                September 30,              September 30,
                                              2008          2007         2008         2007
                                                (In millions)              (In millions)
Net interest income                        $     86.5    $    103.9   $    278.3    $   301.4
Provision for loan losses                       (43.0 )        (3.0 )     (183.0 )       (3.0 )
Noninterest (loss) income                       (43.6 )        13.6        (24.2 )       35.5
Noninterest expense                             (48.5 )       (46.7 )     (157.1 )     (131.0 )
Benefit (provision) for income taxes             17.4         (26.5 )       34.0        (79.0 )
Net (loss) income                          $    (31.2 )  $     41.3   $    (52.0 )  $   123.9

Annualized return on average total
assets                                          -1.07 %        1.48 %      -0.59 %       1.52 %
Annualized return on average
stockholders' equity                           -10.06 %       15.19 %      -5.75 %      15.71 %

Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income for the third quarter of 2008 totaled $86.5 million, a 17% decrease over net interest income of $103.9 million recorded for the same period in 2007. For the first nine months of 2008, net interest income decreased 8% to $278.3 million, compared to $301.4 million for the same period in 2007.

Net interest margin, defined as taxable equivalent net interest income divided by average earning assets, decreased 85 basis points to 3.10% during the third quarter of 2008, compared with 3.95% during the third quarter of 2007. Similarly, the net interest margin for the first nine months of 2008 decreased 61 basis points to 3.35%, compared with 3.96% during the same period in 2007. The decline in the net interest margin for both periods reflects the steep decrease in the federal funds target rate, a notable increase in the overall level of nonaccrual loans, and the reinvestment of net loan payoffs into lower yielding investment securities and short-term investments.

The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and the average yields and rates by asset and liability component for the three months ended September 30, 2008 and 2007:

                                                Three Months Ended September 30,
                                           2008                                  2007
                                                       Average                               Average
                              Average                   Yield/      Average                   Yield/
                               Volume      Interest    Rate (1)      Volume      Interest    Rate (1)
                                                     (Dollars in thousands)
ASSETS
Interest-earning assets:
Short-term investments
(2)                         $    340,723   $   1,957       2.28 % $     27,154   $     347       5.07 %
Securities purchased
under resale agreements
(term)                            50,000       1,277      10.13 %      188,043       4,013       8.47 %
Investment securities
available-for-sale
(3) (4)
Taxable                        2,077,097      22,685       4.33 %    1,698,017      25,759       6.02 %
Tax-exempt (5)                    49,797         630       5.06 %       33,419         657       7.86 %
Loans receivable (3) (6)       8,451,517     131,682       6.18 %    8,433,268     167,066       7.86 %
FHLB and FRB stock               114,281       1,803       6.26 %       81,671       1,107       5.38 %
Total interest-earning
assets                        11,083,415     160,034       5.73 %   10,461,572     198,949       7.54 %

Noninterest-earning
assets:
Cash and due from banks          136,018                               155,699
Allowance for loan losses       (171,025 )                             (80,321 )
Other assets                     660,736                               660,279
Total assets                $ 11,709,144                          $ 11,197,229

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Checking accounts           $    399,866   $     659       0.65 % $    404,418   $   1,615       1.58 %
Money market accounts          1,046,721       5,664       2.15 %    1,287,573      13,322       4.10 %
Savings deposits                 449,687         929       0.82 %      424,039       1,198       1.12 %
Time deposits less than
$100,000                       1,151,876       7,932       2.73 %      931,961       9,688       4.12 %
Time deposits $100,000 or
greater                        3,045,325      25,573       3.33 %    2,961,353      36,235       4.85 %
. . .