The following discussion provides information about the results of operations, financial condition, liquidity, 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, 2008, and the condensed consolidated financial statements and accompanying notes presented elsewhere in this report.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and general practices within the banking industry. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In addition, certain accounting policies require significant judgment in applying complex accounting principles to individual transactions to determine the most appropriate treatment. We have established procedures and processes to facilitate making the judgments necessary to prepare financial statements.

The following is a summary of the areas which require more judgmental and complex accounting estimates and principles. 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.

†          fair valuation of financial instruments;

†          investment securities;

†          allowance for loan losses;

†          other real estate owned;

†          loan sales;

†          goodwill impairment; and

†          share-based compensation

Our significant accounting policies are described in greater detail in our 2008 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 Financial Condition and Results of Operations.

Overview

During the first quarter of 2009, we continued to face credit challenges brought about by the downturn in the real estate market and the recessionary economy in California as evidenced by elevated levels of net chargeoffs, nonperforming loans, and delinquent loans. Although we continued to face challenges on the credit front as anticipated, our core profitability, as well as our liquidity, capital and loan loss allowance positions remain strong. During the first quarter of 2009, we continued to build on

measures and initiatives that we undertook throughout 2008 to strengthen our balance sheet and to provide a solid foundation for strong earnings and growth when the market turns.

During the first quarter of 2009, we experienced strong deposit growth with total deposits increasing to a record $8.45 billion as of March 31, 2009, representing a 4% or $312.1 million, increase over year-end 2008. This increase in total deposits was predominantly due to a 14% or $467.8 million increase in our core deposit base as of March 31, 2009 relative to December 31, 2008. Since mid-2008, we have experienced strong deposit momentum through both our retail branch network and our commercial deposit platforms despite volatile and challenging market conditions. As a result of this increase in core deposits, we were able to pay down higher cost FHLB advances which decreased $120.0 million or 9% to $1.23 billion as of March 31, 2009. We intend to pay down higher cost FHLB advances totaling $510.0 million throughout the remainder of 2009. Both our cost of deposits and cost of funds decreased 33 basis points during the first quarter of 2009, relative to year-end 2008. Our cost of deposits decreased to 1.81% for the first quarter of 2009, compared to 2.14% for the fourth quarter of 2008, while our cost of funds decreased to 2.44% for the first quarter of 2009, from 2.77% for the fourth quarter of 2008. Our ongoing efforts to deleverage our balance sheet have resulted in a lower loan to deposit ratio of 95% at March 31, 2009, compared to 101% at December 31, 2008 and 110% at September 30, 2008.

Our total borrowing capacity and holdings of cash and cash equivalents increased to $3.55 billion as of March 31, 2009, compared to $3.34 billion as of December 31, 2008. As of March 31, 2009, we had $541.1 million in cash and cash equivalents and approximately $3.01 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. We believe that our liquidity position is more than sufficient to meet our operating expenses, borrowing needs and other obligations.

Our capital position also remains strong. We raised a total $506.5 million in capital during 2008 through the issuance of $200.0 million of convertible preferred stock in April 2008 and the issuance of $306.5 million of preferred equity in December 2008 as a participant in the TARP CPP. These issuances of preferred stock have bolstered our capital ratios well above regulatory minimums and "well-capitalized" thresholds for banks. As of March 31, 2009, our total risk-based capital ratio was 15.65% or $583.3 million more than the 10.00% regulatory requirement for well-capitalized banks. Our Tier 1 risk-based capital ratio of 13.67% and our Tier 1 leverage ratio of 11.47% as of March 31, 2009 also significantly exceeded regulatory guidelines for well-capitalized banks.

Nonperforming assets totaled $303.8 million representing 2.42% of total assets at March 31, 2009. This compares to $263.9 million or 2.12% of total assets at December 31, 2008. Nonperforming assets as of March 31, 2009 are comprised of nonaccrual loans totaling $248.0 million, other real estate owned ("OREO") totaling $38.6 million, and loans modified or restructured amounting to $17.2 million. Included in nonaccrual loans as of March 31, 2009 are loans totaling $69.3 million which were not 90 days past due as of March 31, 2009, but have been classified as nonaccrual due to concerns surrounding collateral values and future collectibility. Nonaccrual loans experienced the largest increase from commercial real estate loans, which increased to $55.2 million as of March 31, 2009 from $24.7 million as of December 31, 2008, primarily due to one lending relationship comprised of several loans where the borrower filed for bankruptcy towards the end of the first quarter of 2009. The net book value of total loans for this lending relationship amounted to $49.2 million as of March 31, 2009, which was collateralized by 23 different properties comprised of land, residential and income producing commercial real estate located in the downtown Los Angeles region. Although interest payments of all of these loans were current or under 90 days delinquent, these loans were classified nonaccrual loans as of March 31, 2009.

We continue to proactively identify, quantify, and reduce our exposure to problem loans. We believe that the early identification of problem loans and potential future problem loans has enabled us to resolve credit issues with substantially less risk and ultimate losses. At March 31, 2009, the allowance for loan losses amounted to $195.5 million or 2.42% of total gross loans, compared to $178.0 million or 2.16% as of December 31, 2008. We recorded $78.0 million in loan loss provisions during the first quarter of 2009, compared to $43.0 million and $55.0 million recorded during the fourth and first quarters of 2008, respectively. Total net chargeoffs amounted to $59.6 million during the first quarter of 2009, compared to $41.5 million during the fourth quarter of 2008 and $25.6 million during the first quarter of 2008. These elevated chargeoff levels that we experienced during 2008 and the first quarter of 2009 reflect the proactive actions that we have taken to identify and manage our problem loans and reduce our ultimate loss exposures as we wrote down loans that we believed to be impaired in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan, as amended.

Despite a sizeable loss provision recorded during the first quarter of 2009, our core operating earnings remained profitable during the period. The $22.5 million, or $(0.50) per share, net loss we recorded during the first quarter of 2009 includes $78.0 million in loan loss provisions. Excluding loan loss provisions, our core pretax operating income was $42.3 million for the first quarter of 2009. This compares to $41.4 million and $62.6 million in core pretax operating earnings during the fourth quarter of 2008 and first quarter of 2008, respectively.

Net interest income decreased to $79.7 million during the quarter ended March 31, 2009, compared with $99.6 million during the first quarter in 2008. During the first quarter of 2009, our net interest margin increased 2 basis points, compared with 2.72% during the fourth quarter of 2008 and decreased 89 basis points, compared with the first quarter of 2008. Relative to the first quarter of 2008, our net interest margin during the quarter ended March 31, 2009 decreased as a result of the sharp decline in interest rates prompted by several consecutive Federal Reserve rate cuts, the reversal of interest from nonaccrual loans, and the reinvestment of loan payoffs into lower yielding Treasury securities and other short-term investments. We anticipate our net interest margin to increase during the remainder of 2009, relative to first quarter of 2009, as we continue to increase our core deposit base and pay down higher cost FHLB advances.

Total noninterest income decreased 13% to $13.8 million during the first quarter of 2009, compared with $15.9 million for the corresponding quarter in 2008. The decrease in noninterest income is primarily due to lower letters of credit fees and commissions and lower net gains on sales of loans and available-for-sale investment securities. These decreases were partially offset by higher branch-related revenues and ancillary loan fees during the first quarter of 2009. Core noninterest income increased to $10.4 million during the first quarter of 2009, compared to $9.6 million during the same period in 2008, which excludes the impact of non-cash OTTI charges of $200 thousand during the first quarter of 2009 and none during the first quarter of 2008, as well as net gains on sales of investment securities of $3.5 million and $4.3 million during the first quarter of 2009 and first quarter of 2008, respectively, and loans and other assets of $33 thousand and $1.9 million during the first quarter of 2009 and first quarter of 2008, respectively. We believe that core noninterest income is a strong indicator of our stable core earnings.

Total noninterest expense decreased 3% to $51.4 million during the first quarter of 2009, compared with $52.9 million for the same period in 2008. The decrease in total noninterest expense during the first quarter of 2009, relative to the same quarter in 2008, can be attributed predominantly to lower staffing levels and a reduction in related benefits and incentive program expenses. These decreases were partially offset by rising OREO expenses and credit cycle related expenses as well as higher deposit insurance premiums and regulatory assessments. Our efficiency ratio, which represents noninterest expense (excluding amortization and impairment losses 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 51.80% during the first quarter of 2009 compared

with 41.93% during the same quarter of 2008. We will continue to focus on cost management throughout the remainder of 2009.

Total consolidated assets at March 31, 2009 increased to $12.56 billion, compared with $12.42 billion at December 31, 2008. The net increase in total assets is comprised predominantly of increases of held-to-maturity investment securities of $612.5 million and short-term investments of $100.8 million. These increases were partially offset by decreases in cash and cash equivalents of $337.8 million, net loans receivable of $203.5 million, and available-for-sale investment securities of $45.8 million. Total liabilities increased 1% to $11.03 billion as of March 31, 2009, compared to $10.87 billion as of December 31, 2008. The net increase in liabilities is primarily due to an increase in total deposits of $312.1 million, partially offset by decreases in FHLB advances of $120.0 million and federal funds purchased of $28.0 million.

Total average assets increased 6% to $12.50 billion during the first quarter of 2009, compared to $11.79 billion for the first quarter of 2008, due primarily to growth in average short-term investments, and average held-to-maturity and available-for-sale investment securities. Total short-term investments rose 856% to $731.6 million during the first quarter of 2009, compared to $76.5 million during the first quarter of 2008. Similarly, total average investment securities increased 47% to $2.70 billion during the quarter ended March 31, 2009 from $1.84 billion during the first quarter of 2008. The increases in both average short-term investments and average investment securities can be attributed to proceeds received in conjunction with our issuance of Series B preferred stock during December 2008, the notable increase in our deposit base during the first quarter of 2009, as well as the reinvestment of a portion of our loan payoffs into short-term securities and investment securities. Total average deposits rose 13% during the first quarter of 2009 to $8.31 billion, compared to $7.33 billion for the same quarter in 2008, with the largest increases coming from money market accounts and time deposits.

As of March 31, 2009, 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 determined that there was no goodwill impairment at March 31, 2009.

On April 27, 2009, the Board of Directors authorized a further reduction in our common stock dividend to $0.01 per share commencing in the second quarter of 2009, as compared with $0.02 per share paid during the first quarter of 2009 and the $0.10 per share paid in quarters previous to 2009. Despite our strong capital position, we believe the reduction in our common stock dividend payout to be both a responsible and prudent decision to preserve capital during this period of prolonged economic uncertainty.

Results of Operations

Net loss for the first quarter of 2009 totaled $22.5 million, compared with net income of $5.0 million for the first quarter of 2008. On a per diluted share basis, net (loss) income was ($0.50) and $0.08 for the first quarter of 2009 and first quarter of 2008, respectively. During the first quarter of 2009, our operating results were significantly impacted by $78.0 million in loan loss provisions, partially offset by a higher benefit for income taxes. Our annualized return on average total assets decreased to (0.72%) for the quarter ended March 31, 2009, from 0.17% for the same period in 2008. The annualized return on average stockholders' equity decreased to (11.69%) for the first quarter of 2009, compared with 1.74% for the first quarter of 2008.

Components of Net (Loss) Income



                                               Three Months Ended
                                                   March 31,
                                                2009         2008
                                                 (In millions)
Net interest income                          $      79.7    $  99.6
Provision for loan losses                          (78.0 )    (55.0 )
Noninterest income                                  13.8       15.9
Noninterest expense                                (51.4 )    (52.9 )
Benefit (provision) for income taxes                13.4       (2.6 )
Net (loss) income                            $     (22.5 )  $   5.0

Annualized return on average total assets          -0.72 %     0.17 %
Annualized return on average total equity          -5.83 %     1.74 %
Annualized return on average common equity        -11.69 %     1.74 %

Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest earned on loans, investment securities and other earning assets less the interest expense on deposits, borrowings and other interest-bearing liabilities. Net interest income for the first quarter of 2009 totaled $79.7 million, a 20% decrease over net interest income of $99.6 million same period in 2008.

Net interest margin, defined as net interest income divided by average earning assets, decreased 89 basis points to 2.74% during the quarter ended March 31, 2009, from 3.63% during the first quarter of 2008. The decline in the net interest margin reflects the steep decrease in the federal funds target rate during 2008, the significant increase in our overall level of nonaccrual loans, and the reinvestment of net loan payoffs into lower yielding investment securities and other 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 March 31, 2009 and 2008:

                                               Three Months Ended March 31,
                                        2009                                  2008
                                                    Average                               Average
                          Average                    Yield/      Average                   Yield/
                           Volume       Interest    Rate (1)      Volume      Interest    Rate (1)
                                                  (Dollars in thousands)
ASSETS
Interest-earning
assets:
Short-term
investments             $    731,573   $    2,976       1.65 % $     76,540   $     538       2.82 %
Securities purchased
under resale
agreements                    50,000        1,250      10.00 %       64,286       2,553      15.93 %
Investment securities
(2)
Held-to-maturity
Taxable                      405,851        6,695       6.60 %            -           -          -
Tax-exempt (4)(5)             16,642          277       6.66 %            -           -          -
Available-for-sale
(3)(4)(5)                  2,280,766       22,493       4.00 %    1,839,080      27,445       5.99 %
Loans receivable
(2)(6)                     8,197,173      110,816       5.48 %    8,955,257     155,434       6.96 %
FHLB and FRB stock           120,040          506       1.69 %      115,646       1,609       5.58 %
Total
interest-earning
assets                    11,802,045      145,013       4.98 %   11,050,809     187,579       6.81 %

Noninterest-earning
assets:
Cash and due from
banks                        122,899                                150,469
Allowance for loan
losses                      (186,058 )                              (90,086 )
Other assets                 759,363                                677,699
Total assets            $ 12,498,249                           $ 11,788,891

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Checking accounts       $    361,569   $      393       0.44 % $    437,804   $   1,367       1.25 %
Money market accounts      1,487,178        5,694       1.55 %    1,094,698       8,464       3.10 %
Savings deposits             410,232          702       0.69 %      471,437       1,454       1.24 %
Time deposits less
than $100,000              1,332,944        9,618       2.93 %      938,282       8,841       3.78 %
Time deposits
$100,000 or greater        3,482,074       20,666       2.41 %    3,027,580      32,127       4.26 %
Federal funds
purchased                      2,445            3       0.49 %      165,686       1,378       3.34 %
FHLB advances              1,285,070       13,877       4.38 %    1,747,313      19,682       4.52 %
Securities sold under
repurchase agreements        998,583       11,872       4.76 %    1,001,186      10,529       4.22 %
Long-term debt               235,570        2,417       4.10 %      235,570       3,723       6.34 %
Total
interest-bearing
liabilities                9,595,665       65,242       2.76 %    9,119,556      87,565       3.85 %

Noninterest-bearing
liabilities:
Demand deposits            1,238,551                              1,359,837
Other liabilities            123,085                                152,338
Stockholders' equity       1,540,948                              1,157,160
Total liabilities and
stockholders' equity    $ 12,498,249                           $ 11,788,891
Interest rate spread                                    2.22 %                                2.96 %
Net interest income
and net interest
margin                                 $   79,771       2.74 %                $ 100,014       3.63 %

(2) Includes amortization of premium and accretion of discounts on investment securities and loans receivable totaling $(832)

thousand and $(347) thousand for the three months ended March 31, 2009 and 2008, respectively. Also includes the amortization

of deferred loan fees totaling $(1.2 million) and $975 thousand for the three months ended March 31, 2009 and 2008, respectively.

(3) Average balances exclude unrealized gains or losses on available for sales securities.

(4) Total interest income and average yield rate on an unadjusted basis for tax-exempt investment securities held-to-maturity is $187 thousand and 4.49% for three months ended March 31, 2009, respectively, and none for the three months ended March 31, 2008. There is no total interest income and average yield rate on an unadjusted basis for tax-exempt investment securities available-for-sale for the three months ended March 31, 2009. Total interest income and average yield rate on an unadjusted basis for tax-exempt investment securities available-for-sale is $1.0 million and 6.20% for the three months ended March 31, 2008, respectively.

(5) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

(6) Average balances include nonperforming loans.

Analysis of Changes in Net Interest Income

Changes in net interest income are a function of changes in rates and volumes of both interest-earning assets and interest-bearing liabilities. The following table sets forth information regarding changes in interest income and interest expense for the periods indicated. The total change for each category of interest-earning asset and interest-bearing liability is segmented into the change attributable to variations in volume (changes in volume multiplied by old rate) and the change attributable to variations in interest rates (changes in rates multiplied by old volume). Nonaccrual loans are included in average loans used to compute this table.

                                                     Three Months Ended March 31,
                                                            2009 vs. 2008
                                                  Total            Changes Due to
                                                 Change        Volume (1)    Rates (1)
                                                            (In thousands)
INTEREST-EARNING ASSETS:
Short-term investments                         $     2,438    $      2,756   $     (318 )
Securities purchased under resale agreements        (1,303 )          (489 )       (814 )
Investment securities held-to-maturity
Taxable                                              6,695               -            -
Tax-exempt (2)                                         277               -            -
Investment securities available-for-sale (2)        (4,952 )         5,591      (10,543 )
Loans receivable                                   (44,618 )       (12,352 )    (32,266 )
FHLB and FRB stock                                  (1,103 )            59       (1,162 )
Total interest and dividend income             $   (42,566 )  $     (4,435 ) $  (45,103 )

INTEREST-BEARING LIABILITIES
Checking accounts                              $      (974 )  $       (205 ) $     (769 )
Money market accounts                               (2,770 )         2,398       (5,168 )
Savings deposits                                      (752 )          (170 )       (582 )
Time deposits less than $100,000                       777           3,159       (2,382 )
Time deposits $100,000 or greater                  (11,461 )         4,283      (15,744 )
Federal funds purchased                             (1,375 )          (737 )       (638 )
FHLB advances                                       (5,805 )        (5,021 )       (784 )
Securities sold under resale agreements              1,343             (27 )      1,370
Long-term debt                                      (1,306 )             -       (1,306 )
Total interest expense                             (22,323 )         3,680      (26,003 )
CHANGE IN NET INTEREST INCOME                  $   (20,243 )  $     (8,115 ) $  (19,100 )

(2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. Total change on an unadjusted basis for tax-exempt investment securities held-to-maturity is $187 thousand, and there is no total change due to volume and rates on an unadjusted basis for tax-exempt investment securities held-to-maturity for the three months ended March 31, 2009 vs. 2008. Total change on an unadjusted basis for tax-exempt investment securities available-for-sale is $(1.0) million, and total changes due to volume and rates on an unadjusted basis for tax-exempt investment securities available-for-sale is $(510) thousand and $(536) thousand for the three months ended March 31, 2009 vs. 2008, respectively.

Provision for Loan Losses

We recorded $78.0 million in provisions for loan losses during the first quarter . . .